June 2007

Interview with Russell Sims, CFA, CFP^®

In this edition of the RiverPoint Report, we are interviewing Russell Sims, Managing Director and one of the founders of RiverPoint Capital Management. Russell serves as Chief Investment Officer and Director of Research and oversees the firm’s growth-oriented investments. Russell has over 20 years experience in the investment management industry and has earned both the Chartered Financial Analyst and Certified Financial Planner designations. Russell is the lead portfolio manager of RiverPoint’s large-cap growth strategy used by many of our institutional clients. The investment results since inception have been impressive and rank us among the top 10% of our peer group nationally. We sat down with Russell to discuss RiverPoint’s equity strategy, as well as the growth of RiverPoint Capital Management.

RiverPoint Report: RiverPoint’s growth stock investments have been terrific performers over time. What have been the major drivers behind your successful track record?

Large Cap Growth – PSN Database Ranking

Top 10% Nationally

	*YTD*	*3 YEARS*	*5 YEARS*	*7 YEARS*	*INCEPTION*
	*12/06-03/07*	*03/04-03/07*	*03/02-03/07*	*03/00-03/07*	*06/99-03/07*
	RANK	RANK	RANK	RANK	RANK
RiverPoint	Top 24%	Top 16%	Top 5%	Top 18%	Top 10%
# of Managers in Universe	311	293	272	242	221

Russell Sims: A major reason for our success has been our disciplined focus on growth, valuations and controlling risk through diversification. We find companies that have strong growth prospects whose stocks are trading at reasonable valuations relative to that growth. Our focus on valuation also provides a better risk / reward profile in terms of expected returns. Our focus on valuation is instrumental in avoiding catastrophic blow-ups. The idea is that purchasing cheaper stocks reduces downside risk significantly.

Diversification has also been important to our performance. I want to clarify that when I refer to “diversification”, I mean diversification among many types of businesses. For example, although RiverPoint’s growth stock investments may have a high weighting in the broad sector of Technology, the companies we own are spread across many sub-sectors, like semiconductors, software, business outsourcing and enterprise software. The same could be said for our investments in the Health Care sector.

RPR: Many investors think that “growthy” sectors – like Tech and Health Care – are more risky than other sectors. Is that true?

RS: People see Technology as a perilous place to be. Historically, it wasn’t that volatile prior to the 1990’s run-up and the following market decline. I don’t think that Tech stocks are risky as long as they are bought at reasonable valuations. I think expensive stocks are risky.

Many investors believe that Tech companies aren’t sound businesses, that they are virtually “fly- by-night” concerns. The truth is that many Tech companies have pristine balance sheets and generate huge amounts of cash flow, while enjoying healthy profit margins. For example, companies like Nvidia and Cognizant Technology Solutions have stellar balance sheets and enormous cash flow generating capabilities. The prospects for the industry as a whole are strong. Companies will continue to cut costs wherever they can, and Internet technology firms allow them to accomplish this in a variety of ways. Also, the potential for the Internet is just in the beginning stages. There is great promise for video and data applications on the Internet that have only begun to gain traction.

RPR: How much emphasis do you put on Wall Street research?

RS: Not much at all. In fact, our independent stature is a big plus. A lot of times, we try to find sectors that are overlooked and ignored by Wall Street – that usually means that those stocks will be out of favor. And if they’re currently out of favor that means that they are cheap. Then we’ll “dig” around for a while until we get a better understanding of why the stock is cheap. If we are confident in the company’s operations and prospects, we’ll get excited about the stock. This is one of the ways we come across undiscovered gems.

RPR: How else do you find purchase candidates?

RS: We use stock screens extensively in an attempt to whittle down the number of possibilities to a reasonable number – say, a couple hundred. Then we employ a proprietary stock valuation model to those remaining companies in order to narrow our choices down further. After that round of cuts, we are left with a group of stocks that we look at strictly from a fundamental point-of-view. We develop a better understanding of each company’s business, growth prospects, and major risks. Next we analyze valuation and performance metrics. In this process, we eliminate a lot of companies based on valuation at this stage, but often keep an eye on them for the future if they become more reasonably priced. Once we find a company that we are excited about, we’ll go ahead and establish an ownership position if we like that stock better than a stock we currently hold.

RPR: As a founder of the firm, how do you feel about RiverPoint’s growth over the years?

RS: Over the last twelve years, the company has grown and changed dramatically in terms of client assets under management. However, from one perspective, the firm hasn’t changed much since we began – our top priority is still providing the best investment management possible for our clients. We are grateful to our clients for their loyalty and their confidence in us.

Market Summary	5/31/07	YTD Price Change
Dow Jones Industrial Average	13,627	9.3%
Nasdaq Composite	2,604	7.8%
Standard & Poor’s 500 Index	1,530	7.9%

For information about RiverPoint Capital Management or to view our report archive visit us at www.riverpointcm.com.