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TWST: Remind the readers about Church Capital — who you are, what you do.

Mr. Hopper: We are value-oriented, but we are not driven by absolute value. Our investment philosophy is more of a relative valuation. A relative value orientation can include relative p/e’s, relative cash flows, relative return on equity, relative yields, etc. Relative value has worked very well for us over the last several years. The composite average of our clients’ portfolios has outperformed the S&P, and that includes 2000 as well.

TWST: What are you invested in to achieve that performance?

Mr. Hopper: To begin with, our investment process involves a top-down and then bottom-up kind of approach. For several years now we have maintained, from a top-down standpoint, that we are in a period of secularly low interest rates and low inflation. With that kind of long-term outlook, our investment process has emphasized areas such as health care and technology where unit growth exists. Also, given the long-term secular interest rate environment that we see, that drives us to financially-oriented companies.

TWST: Beginning with health care, what are your largest holdings?

Mr. Hopper: Health care is an area that has performed well this year. So we have not, with one exception, bought any healthcare companies recently. Our largest positions include Eli Lilly (NYSE:LLY), Johnson & Johnson (NYSE:JNJ), and Bristol-Myers Squibb (NYSE:BMY). There is one company that we do feel is still attractive because it has underperformed the other drug names, and that’s SmithKline Beecham.

TWST: Why has it underperformed? Why do you still have faith in it?

Mr. Hopper: The company is merging with Glaxo-Wellcome plc — GlaxoSmithKline (NYSE:GSK) — which, by the way, makes it the second largest drug company in the world. However, the process of merging with Glaxo has created an information gap of almost one year. Therefore, the market is wrestling with two big companies being put together without a lot of information being given to investors. In addition, there is the feeling that there is a lack of visibility in the pipeline for these two companies. Therefore, the stock has not performed in line with other drug companies. While the visibility in the pipeline may be lacking somewhat, there is also minimal off-patent exposure, which gives good prospects for intermediate-term growth. We think there are cost savings associated with this merger that will be far in excess of what these companies originally talked about when they decided to merge. There is also an emerging Phase I pipeline here, so this company does have some very positive aspects to it. If you add it all up, the price earnings ratio relative to the growth rate in earnings is much lower than its US pharmaceutical peer group or its European pharmaceutical peer group.