EQUITY PORTFOLIO MANAGEMENT

Style

The objective of the equity selection process is to create a portfolio of individual equity issues having the common theme among them of Growth At a Reasonable Price, with the focus on the long term.

Growth is measured as superior, sustainable growth in future earnings, cash flow and dividends in relation to the stock market, in general, as well as the sector within which the company competes.

A Reasonable Price is one that provides the investor with a reasonable basis for expecting the elements of growth to flow through to an effective future total return on investment.  Traditional valuation tools including absolute and relative price earnings and cash flow ratios, dividend yields and dividend growth, are first measured for each stock relative to their respective historic ranges.  These valuation levels are then also analyzed in terms of prospective changes in the rates of growth and profitability relative to the industry peer group and the market in general.

Process

While “Top-Down” policy and strategy remain the principal considerations in deciding asset mix and sector emphasis, those portfolio policies are, in turn, influenced by feedback from individual company work (the “Bottom-Up” approach).  This is made possible by the integration of research and portfolio management.  Each investment professional has policy and individual security research accountability along with his or her portfolio management responsibilities.

Information and action meetings are held regularly in which all of the firm’s professional staff participate.  These working sessions range from daily information exchange and problem solving to weekly research and policy coverage.  The process helps organize and focus team resources effectively while, at the same time, promoting creativity.

By integrating research and equity portfolio management, the firm:

• Shortens the response time for implementing decision in portfolios
• Improves the degree of understanding at the individual portfolio level so that firm policy and security selection can be tailored specifically to client requirements

This approach tends to produce well-diversified portfolios that are neither highly concentrated nor market indexed.  The market’s normal rotation among types of securities and industry sectors makes the diversified approach, with continuous emphasis on growth, an effective way to meet our clients’ objectives and to control risk.  At any given point in time, portfolio holdings by type and sector reflect a combination of client guidelines, attractive fundamental outlook and favorable price/value relationships.

Invest in High Quality Companies

Since stocks represent ownership of individual businesses that vary dramatically in quality, a significant amount of emphasis is placed on identifying the best businesses to own.  Fundamentally strong, shareholder-oriented companies with superior, sustainable sales and earnings growth are sought.  Additionally, companies are preferred that control their destinies through excellent management and have solid margins and excess cash generation.

Valuation Disciplines

Historic relative multiple analysis, discounted present value techniques, and sound judgment are utilized in reaching decisions on the appropriateness of an individual stock price once the investment team is satisfied that fundamental characteristics are in place.

Issue Size

The universe within which issues are selected covers a wide range of market capitalization.  Given the objective of identifying issues providing growth at a reasonable price, it is important to survey this full range of opportunities in selecting stocks.  Nevertheless, minimum liquidity requirements are also overlaid on the decision to ensure that buying and selling can be conducted effectively.  Accordingly, marketable securities of large and mid-capitalization companies, i.e., generally above $1 billion, are utilized.

Universe of Stocks Baseline Database:                       2,100 stocks > $1 billion cap Computer Screen Quantitative Factors Relative Earnings Momentum Relative Earnings & Cash Flow Valuation Price Momentum Financial Strength Qualified List Qualitative Methods Company Analysis Industry Analysis Investment Team Discussion Benchmark Portfolio   High Quality Companies Greater than market growth rates Favorable Valuation 30-40 Equity Names

Risk Control

• Ongoing monitoring & measuring quality
• When risk/reward analysis warrants, a minimum of 15% cash equivalents is employed
• Portfolio diversified in relation to industrial sectors and individual position sizes

• Sector weight               0-150% of S&P 500

• Industry weight             <10%

• Stock weight                 <5%

Sell Criteria

The equity process identifies shares at an appropriate valuation for purchase and will hold them for as long as the competitive advantages of the companies persist. However, no investment management process is complete without a clearly defined sell discipline.  An issue will be sold if:

• The stock has reached the price objective without a change in fundamentals
• A strategic change in asset mix requires a reduction in common stock exposure
• A better opportunity can be identified
• Deteriorating fundamentals

Portfolio Management Review and Quality Control

In addition to the on-going process of monitoring portfolios by the

assigned portfolio manager and the close scrutiny of the analyst

responsible for the issues held, portfolios are reviewed formally by

the management of Jamison, Eaton & Wood systematically to ensure

consistent application of the firm’s investment policies in the context

of the client’s objectives.