TWST: Would you start by telling us about the PFW Water Fund, its connection to Crowell, Weedon, and its background?

Mr. Berlant: I have been focused on investing and doing transactions in the water industry since 1986. I believe that makes me one of the longest running participants in the water industry, from an investment point of view. The PFW Water Fund was formerly another mutual fund focused on traditional growth stocks. I became the Portfolio Manager on June 1 of this year and following that appointment, I liquidated everything that was in the Fund and have been redeploying the capital into a focused portfolio of exclusively water industry companies. The Fund is a highly focused, yet broadly diversified growth-oriented fund. We focus on the entire range of sectors that make up the definition of the water industry. That definition is all of the things that influence the quality or availability of water. From that definition, we will be concentrating on companies ranging from traditional water utilities, which distribute water, to infrastructure companies that manufacture pipes, pumps, filters, and membranes, to the companies that do purification and disinfection, and desalination companies, and a variety of other subsets of all of those categories. In addition to managing the PFW Water Fund, I am also a broker and money manager with the regional brokerage firm of Crowell, Weedon, headquartered in Los Angeles, California. The firm has been in business for 75 years and there I maintain my focus on the water industry. The mutual fund and my work at Crowell, Weedon are distinctly separate operations. The mutual fund is, I believe, unique in that it is, to my knowledge, the only pure play water portfolio that is not an index fund or a specialized account and focused exclusively on water.

TWST: Why invest purely in water?

Mr. Berlant: As I indicated previously, I have been focused on the water industry as an investment area since 1986. During that period of time, my portfolios have beaten the market consistently every year and there was only one down year overall. It is kind of amusing in that while everybody claims to be familiar with water, and indeed they are, water has been woefully under- represented in most institutional investment portfolios. The last couple of years have seen increased investment activity in the water sector, but nonetheless most portfolios have little to no participation. Water is at the heart of everything in our life, every product that is manufactured, every crop that is grown. So water, when viewed from that perspective, becomes a far more crucial entity from an economic point of view. Despite the fact that investments in many of these water industry companies have proven to be highly rewarding, water has been long ignored by the investment community. The growing recognition that water is important is now giving rise to this burst of growth and enthusiasm, but it comes on the heels of worldwide water shortages and growing droughts across the world. In addition, the infrastructure of this country, as well as other countries, is in great disrepair. There are estimates in the United States today by the EPA that we are looking at $1 trillion of deferred capital spending to upgrade our nation's water infrastructure - that is, the pipes and distribution systems throughout the United States - over the next 20 years. Secondarily, but even more persuasively, the driving force and change in awareness is coming about as a consequence of an increasing price of water, which I estimate will be up as much as two to three times on an average basis across the nation in the next three years. The increasing price of water is catapulting the awareness level of water problems and changing the way people think about water.

TWST: We're hearing stories in the paper every day about water, whether it is the steam pipe explosion in New York City or Governor Schwarzenegger talking about the terrible drought conditions and water shortage in California. Are these stories all creating further investor interest in the water?

Mr. Berlant: Most assuredly. Backing up for just a moment, the question of why today and why not last year or last month always comes up. The fact is that we have ignored water for a long time because water is relatively inexpensive. When you get something for free or nearly free, as we do with water, you don't pay much attention to it. Water, historically, has been relatively inexpensive. However, with the prospect of significant price increases looming, the somewhat cavalier attitude to ignore water is going to disappear. Again, the increasing cost of water is beginning to show up, and in the future, it won't be easy to ignore. The reason why the price is going to increase falls back to the roughly $1 trillion of deferred capital spending that the water utilities are facing. It is important to understand that not one single penny of what has to be spent will go to add revenues for any of the water utilities. Therefore, in order to finance those repairs, the water utilities are going to be looking to users to pay for those repairs in the form of increasing water prices. The way the water utility industry works is, there are various local public utility commissions that regulate water utilities. As the utilities face capital expenditures, they ask their public utility regulators for what is referred to as "rate relief," which is a euphemism for raising prices. To justify that, they say that they have to rebuild the distribution system or the pipes, etc. They almost always receive rate relief, which means they will raise the price of water. The problem is exacerbated by the fact that as water prices rise, consumers look for ways to cut back or become more efficient and use less water, which means that the revenues for the water utilities then drop yet again. It's a constant cycle that will begin to unfold, leading us to substantially higher water prices.

TWST: Tell us about your investment approach to these water companies and what you're looking for in terms of criteria for these holdings.

Mr. Berlant: The PFW Water Fund is a growth fund, focused on the water industry. We are looking to make money by investing in companies that are growing rapidly or demonstrating consistent growth focused on water. It is not just simply a theme-oriented fund where we will buy everything water-related. Rather we are focused on selecting the best companies that are growing the most rapidly and are in fact providing solutions to these wide-spread water-related problems. We are looking at companies that are growing faster than the economy in general or whose output facilitates the growth of other companies. We follow close to 150 publicly held companies that make up the water industry, as we define it, and the portfolio has on average somewhere between 25 and 40 companies in it at any given time. It is long-term oriented and has low levels of turnover. Our approach is guided by a desire to avoid short-term capital gains and high tax liability. Moreover, we are mindful that the water story, if you will, is a long-term story. We are probably only in the third inning of what could be amusingly characterized as a nine inning ball game. The real growth is still ahead of us. Taking small, short-term gains may sacrifice doubling or tripling our money. Again, it is going to be a long-term oriented portfolio that will capitalize on the dramatic changes in awareness and economics of the water industry.

TWST: Tell us about some of the companies that you have found to be good moneymakers and have leading positions in the niche markets you've mentioned.

Mr. Berlant: It's a broad mix of companies. I said I follow a considerable number of companies that are focused on the industry. There are a number of things that have been unfolding over the past several years. The industry is a very large industry and very dynamic. It is comprised of a number of very large companies, and a far more dramatic grouping of mid-sized and smaller companies, most of which are growing very rapidly. The industry is fragmented and, as a consequence, you're seeing a considerable amount of consolidation with a great deal of merger and acquisition activity. The industry is led, to a great degree, by some very large companies like GE (GE), ITT (ITT), Siemens (SI) and a few others, including Pentair (PNR), and Watts Water Technologies (WTS). All of them have been very acquisitive over a several year period of time. Then you have a very large number of mid-sized companies, also growing very rapidly, that tend to be niche-oriented. You also have a rather small number of investor-owned water utilities, some of which are much more progressive than others. The utilities tend to be more regionally oriented, with the exception of Aqua America (WTR), which is becoming more national in scope. There are also service companies that are doing water treatment and providing other services for the distribution of water. You have companies that are engaged in desalination, providing clean water to areas that are short on natural water supplies or don't have the availability of water. A company like Consolidated Water (CWCO) appears high on that list. CWCO serves areas of the Caribbean where there aren't any natural water supplies. In addition, you have water that is being produced for more specialized applications. For example, today we have an epidemic of diabetes in the nation. This is tragic, but it also represents a great water industry business opportunity. If you happen to fall victim to diabetes and/or kidney failure, you find that you have only a few alternatives. They all lead to having your blood filtered, utilizing the membranes and filtration systems that are present in the water industry. There are other uses that require extremely high purity water. The semiconductor industry requires ultra-purified water for the manufacturing. The same requirement applies to food processing and, in a more dramatic form, to the generation of power which also requires highly purified water. There are companies that are focused on these areas, some of the largest companies as well as many of the smaller companies. Not to be outdone, you have the infrastructure companies; that includes the pump companies, pipe companies and the filter companies. Last, but not least you have companies that are manufacturing systems that are installed in people's homes and the filters in refrigerators, icemakers, and other things. We pay very close attention to the broad spectrum of water treatment.

TWST: Would you give us some examples of companies that you've found interesting and the reasons they fit into your Fund?

Mr. Berlant: I referred to a couple of them already, but I'll just do them somewhat alphabetically. American States Water (AWR) is an investor-owned water utility headquartered in Southern California. It is a very progressive company that is growing by making acquisitions of regionally oriented water utilities in their areas. Aqua America is the largest investor-owned water utility in the nation. Badger Meter (BMI) is a company manufacturing water meters. It plays a profoundly important role in the transformation of the industry in direct recognition of the higher value being placed on water and therefore the need to price it accordingly and monitor its existence. Calgon Carbon (CCC), which has been a long-time favorite of mine, is the leading supplier of activated carbon used for water treatment. Activated carbon is either the only methodology used for water treatment or virtually 100% of the time is included as part of a treatment process. California Water Service (CWT) is also another investor-owned water utility. Cantel Medical (CMN) is making equipment for water treatment and medical applications. Consolidated Water is a desalination company focused on the Caribbean Islands. Gorman-Rupp (GRC) manufactures pumps for water applications including municipalities, wastewater treatment systems, and a variety of other things. A company by the name of Hawkins (HWKN) manufactures laboratory water purification systems and treatment equipment for some chemicals sold for high purity water applications. Lindsay Corporation (LNN) is one of the leading players in irrigation equipment where we are facing a struggle continuously, both on how to reduce the cost of water for agriculture, which is the largest user of water in the nation, at the same time as we struggle for how to produce enough food to feed both the nation and internationally. Met-Pro Corporation (MPR) is a manufacturer of water treatment equipment and pollution equipment. Mueller Water Products (MWA) is a manufacturer of water and wastewater equipment - fire hydrants, valves, water meters, pipe fittings, to name a few items. Nalco Holding (NLC) has been a very long-time player in water treatment and process equipment directed, to a large degree, at both industrial and institutional customers. Northwest Pipe (NWPX) is one of the leading pipe manufacturing companies and distribution companies that addresses the same broadly based construction, agricultural, industrial applications and market niches in front of this explosion of need for infrastructure repair throughout the nation. A smaller company, OI Corporation (OICO), makes analytical equipment used to monitor and measure contaminants in water supplies and water treatment systems. Pentair is a very large company that over the past several years has evolved into being a leading player in water treatment and the manufacturing of water treatment equipment. SJW (SJW), formerly referred to as San Jose Water, is a water utility that serves much of Silicon Valley and other places that require both high quantities of water and high purity of water. Southwest Water (SWWC) is a Southern California oriented water utility. SWWC has been very progressive, doing things in the areas of desalination and other water-related services. Last, but not least is Watts Water Technologies, which also manufactures a broad line of water processing equipment, regulators and controllers. As you can see from the fairly extensive list that I've just highlighted (and there are hundreds that I have left out of that list), it is a very broad, a very diversified, a very significant listing of companies and areas and niches that are, in fact, capitalizing on what has been a latent high-growth industry area that has curiously been overlooked by many investors, but that is changing.

TWST: You briefly touched on the regulatory outlook and relief given to the utilities, but what is the overall picture of regulation and legislation to make water more important and more profitable?

Mr. Berlant: Water is highly profitable already. Increasing treatment requirements are driven by both a recognition of prospective contaminants in water supplies as well as the increasing price of water. These items are bringing about a change in awareness, which is making the public ask for better water quality, which is in turn driving this cycle of forcing higher prices. The higher visibility is driving people to ask for better water quality, or at least question the quality they are now getting. It is because water is going to become much more expensive that the somewhat cavalier attitude about water will disappear. The phrases that we have used for a very long time such as "water under the bridge" or "water over the dam" to signify something is no big deal are going to disappear because water is going to become recognized as too precious for us to be quite so cavalier.

TWST: Do you see this dawning recognition in the investment community leading to water ETFs, the indexation and so on?

Mr. Berlant: They already exist, but most assuredly, there is going to be increasing attention and product development to focus on this boom in activity in water. As I said, one of the curious aspects of what has been going on is the fact that most of the investment world is tragically underinvested in what has been a spectacular growth area. That of course is beginning to change because people are growing increasingly aware of water both as an essential product and as an attractive investment area.

TWST: You touched on the M&A activity within this area too. Is that something that you look for or does it impact your investment process?

Mr. Berlant: M&A in the water industry is burgeoning. It has impacted our investment activities over the years; on average, I have lost two companies every year to the continuing consolidation. I think that the pace of this consolidation, that is merger and acquisition activity, is only going to increase. There are larger companies that I've referenced before that are entering the business. Notable ones would be GE and ITT, and several others are looking to continue to grow in the water industry. They will accomplish their goals by making acquisitions of other companies. The pace of M&A will intensify, with valuations continuing to increase, giving rise to an exceedingly rewarding investment area overall. TWST: Is there is anything that you would like to add?

Mr. Berlant: I think we pretty well have covered it without getting too detail- oriented. Overall, the drama that continues to unfold is brought about by the changing economics, the growing awareness of the seriousness of this important area, and the constant movement toward higher purity water. What we consider to be satisfactory quality today is not adequate for making semiconductors, steel and medical applications, and will be woefully inadequate for the next generation of processing. There is a constant move to make water purer for all of these applications, which simply translates into an explosive opportunity for business success and a similarly explosive opportunity for investment success.

TWST: Who are your typical clients in the PFW Water Fund? Are they mostly individuals or do you have institutional clients also?

Mr. Berlant: Our typical client is a shrewd investor. They recognize the value in water. They are individual investors, pension funds and professional investors. In addition, there are a good deal of corporate investors looking for prospective strategic diversification acquisitions.

TWST: Thank you. (PM)

Note: Opinions and recommendations are as of 7/30/07.

NEIL D. BERLANT PFW Water Fund PO Box 49954 Los Angeles, CA 90049 (213) 239-9719