Sept. 12, 2003 — The StoneRidge Small-Cap Growth Equity Fund (SRSCX) usually focuses on U.S. companies, but its two largest holdings do business abroad. That’s part of their allure, says Joseph Stocke, who heads the team that oversees the portfolio.

Luxembourg-based SBS Broadcasting (SBTV) and UnitedGlobalCom Inc`A` (UCOMA), which is headquartered in Denver, serve markets that have not been fully cultivated, giving both the opportunity to grow rapidly, Stocke says.

“What they’re doing is just delivering, quarter after quarter, top-line growth,” Stocke says of SBS, which owns and operates television and radio stations in Scandinavia and elsewhere in Europe. At the same time, SBS is controlling costs to help fatten its bottom line, he notes.

UnitedGlobalCom, which provides cable television and telecommunications services and Internet access in Europe, South America and Asia, generates more cash than many similar companies, according to Stocke. The company’s stock was up more than 180% this year through August, making it one of the fund’s best performers, he says.

In addition to strong free cash flow, Stocke and the fund’s five other stock pickers want to find companies producing increasingly higher profits that exceed the stock pickers’ expectations, and whose executives own a good part of its shares.

As for stock valuations, “we like to have the lowest price-to-earnings ratio for any given growth rate,” Stocke says. The fund invests in companies with market caps of $100 million to $2 billion and holds about 100 stocks, on average, he says.

The four-year-old $31 million fund gained 42.7% this year through August, while the average small-cap growth fund returned 30.3%, and the Standard & Poor’s 500-stock index was up 15.9%. However, StoneRidge Small-Cap Growth Equity has lagged similar funds and the index over the three years ended last month, losing an average annualized 19.2%, compared to losses of 14.7% by its peers, and 11.4% by the S&P 500. The fund has also taken on more risk than its peers.

One of the latest additions to the portfolio is retailer Claire`s Stores (CLE). Stocke says the fund began buying shares in late July, when they fell to a level the managers found attractive because of concerns about the performance of the chain’s French stores. But Stocke said he and his team think the company will do well if the U.S. economy gains momentum, which could encourage consumers to start spending aggressively.

The same rationale led the team to invest about a month ago in GameStop Corp`A` (GME), which sells video games and other entertainment software and hardware.

When it comes to selling, the fund will trim a position or liquidate it if a company’s financial picture darkens, or its shares become pricey. The team will also unload a stock if they identify a potentially better investment.

For example, Stocke said the fund sold ArQule Inc (ARQL), a biotechnology company, today because it wants to make room for more information technology companies. Stocke expects these businesses to generate “the most significant increase in profits over the next few quarters” as corporations increase spending to upgrade computer systems they have neglected in recent years. The fund had the biggest chunk of its assets — 28.5% — invested in this sector at the the end of last month.

The fund’s tech investments, and its largest holdings, include Hyperion Solutions (HYSL), which makes software that helps companies analyze their operations. Although companies have reduced spending on computer systems in recent years, Hyperion’s products have remained in demand, Stocke says.

Elsewhere in the sector, the fund has a stake in CACI Intl (CAI), which provides computer and telecommunications services to Washington and the U.S. military. The stock also is one of the fund’s major holdings.

The federal government can spend more consistently throughout a given year, unlike corporations, whose outlays can ebb and flow, so “we felt this was an area that would do well before the economy really picks up steam,” Stocke says.