Our investment process combines both top-down and bottom-up elements and begins with an evaluation of the current economic environment. At this stage, we analyze the global economy to identify the important driving trends. We examine the forces that are moving the economy. Our efforts are not aimed at predicting precise targets for numerous economic statistics. The goal is to develop a position with regard to the broad economic patterns which help us identify the industries that should be emphasized. Next, we examine the macro economic factors impacting various industries to determine the areas of focus.

This leads us to a review of the major stocks within the industries we have decided to emphasize. Individual equity decisions are based on a thorough analysis of the specific company's fundamentals. The early stages of our individual company analysis relies on consensus earnings estimates and current valuations. Since we use consensus estimates, it is important that a stock have a broad following and sponsorship in the brokerage community. As a result of this requirement, we tend to limit the analysis to large companies with widespread Wall Street coverage.

Within an industry, our first screen is a ranking of companies by their P/E to growth rate ratio. For the purposes of this analysis, we use anticipated consensus growth and calendarized price earnings ratio. This makes the ranking equitable and allows us to limit our research efforts to those companies with the best growth prospects relative to their current prices.

The analysis of an individual company begins with a model of the historic revenue and earnings. The model includes an examination of revenue growth, margin patterns, expense growth, capital spending, etc. We not only look at a static picture of a company's fundamentals but also at sequential analyses of the various factors. We evaluate the balance sheet to be certain it is consistent with industry Standards-we prefer companies with clean balance sheets and low debt levels. We also review the company's recent SEC filings. We look at reports from the various brokerage firms covering the stock and discuss the company's prospects with their analysts. Finally, we look at the stock's technical pattern. This process produces candidates with the following characteristics

- In industries with positive fundamentals
- Are actively followed with good Wall Street Sponsorship
- Industry leaders with above average growth prospects
- Reasonable valuations relative to their growth rate
- Strong balance sheets-low debt relative to industry standards

When a stock has met all our requirements it is added to the portfolio. Initial positions range from 2% to 5% and we typically hold about 20 stocks in a portfolio. While portfolios are diversified by company and industry, concentrations of 10% in one security and 30% in one industry are however possible. We believe that exceptional returns can only be achieved by structuring portfolios uniquely from the market indices.

Portfolio turnover is minimal, averaging about 25% annually. Stocks are sold for several reasons: cutting positions to reduce excessive concentrations, mergers or divestitures that change the nature of the company, large unexplained absolute and/or relative price declines, macro economic or legislative changes that diminish a company's outlook.