Mr. Thomas: Our firm is only seven years old. It grew out of a dividend-driven investment philosophy that I had developed for myself as a young retiree. With a long life expectancy, I needed a predictable and growing income stream; of course, I wanted safety and growth, as well. I found that I could enjoy the income, safety and growth I desired by emphasizing dividend-growing equities, particularly those with long histories of annual dividend growth. As time passed, I grew weary of my retirement lifestyle and as market volatility increased, friends asked me to do for them what I had been doing for myself. I bought a very small RIA and, with Bill McMahon, set out to offer a similar strategy to friends, family and other individuals who had similar investment needs. Initially, we hired some terrific research talent, bought a comprehensive data base, and investigated the historical merits of income-producing portfolio strategies, primarily those driven by dividends. Basically, we sliced, diced and parsed the universe of dividend-paying and dividend-growing stocks. We identified the value-driving variables and critiqued the many possible combinations of such variables. We found that dividend growth is important, that absolute yield is important, and that payout stability is important. From that knowledge we developed a portfolio strategy that has very specific qualitative disciplines and objectives. On the quantitative side, we establish certain structural characteristics as to overall portfolio yield objectives and dividend growth expectations. On the qualitative side, we use free cash flow yield algorithms and traditional analytical methods to make specific stock selections within that structural discipline. The fundamental goal is a portfolio that generates significant and growing income streams without sacrifice of appreciation potential. We have enjoyed a lot of success; we have grown from about 25 million in assets under management when we bought the firm to about 850 million today. All our clients are individuals or foundations. We have clients in 49 states — Alaska has yet to see the light. We have expanded the firm significantly in terms of our capabilities. We now have a fixed income capability, but our portfolios remain predominately allocated to dividend-paying and dividend-growing stocks. It will be very common for us to have portfolios that are 70% equity and 30% fixed income and also portfolios that are 100% equity with no fixed income; that would define the general range of equity/debt balance. Our performance has been outstanding. We have been able to deliver rising dividend and portfolio income streams for our clients. Although beating the major index benchmarks has never been our primary goal, the residual of our success in generating growing dividend income streams is that, on a total return basis, we have outperformed the S&P for the last year, three years, five years and since inception.
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