Fayez Sarofim & Co. Investment Counselor / Consultant

We believe that long-term stock price appreciation is based on long-term earnings growth. Sustainable earnings growth is predicated on dominance in an attractive industry. Dominant businesses usually reside in large companies and can produce superior earnings growth and market leadership over long periods of time.

Our philosophy has produced excellent historical investment results for our clients. Importantly, our firm has consistently delivered these results since 1958 in a wide range of economic and market environments. Today, we employ the same process and many of the same people which produced our historical results; we believe that our clients' portfolios will be equally successful in the future.

To shape our investment portfolios, Fayez Sarofim & Co. utilizes a combination of "top down" strategy formulated by our Investment Committee and "bottom up" purchase and sale recommendations presented to the Investment Committee by industry analysts. The Investment Committee, comprised of the most senior investment professionals at the firm, provides an economic and market outlook. Individual security analysts take this outlook into account while researching companies in their assigned sectors and prepare purchase and sale recommendations based on internally generated fundamental research and valuation analysis.

The interaction between both "top down" and "bottom up" analysis helps to identify long-term trends, guiding Investment Committee decisions on sector emphasis and stock selection. Our process attempts to identify attractive sectors to emphasize as well as less attractive sectors to avoid. Consequently, our portfolios may deviate substantially from published index weightings of industry groups and companies.

Our investment philosophy leads us to construct a portfolio comprised predominantly of large capitalization, US-based, multinational companies. These companies are global leaders in structurally attractive industries. They benefit from increasing global market share, ongoing product introduction or innovation, and productivity enhancements — three key drivers of long-term earnings growth. In addition, their financial strength allows them to make profitable investments at any point in the economic cycle. We believe these businesses are most capable of generating superior growth in earnings, dividends, and cash flow over time, leading to greater capital appreciation. Investing in high quality companies at reasonable prices also produces two additional advantages for our clients — low portfolio turnover and a higher likelihood of preservation of capital.

In the fixed income area, our objective is to provide a positive return annually, thereby preserving the capital base even during declining markets. Over an entire interest rate cycle, we expect to earn a rate of return in excess of inflation. To meet those objectives, we consider the analysis of future economic conditions as we expect them to affect bond prices and yields, the systematic translation of strategy into immediate portfolio action, and the accuracy and timeliness of credit analysis.

A basic tenet of our fixed income strategy has always been that longer-term trends in interest rates are largely determined by inflationary trends. Higher duration targets can be expected when interest rates exceed inflation and inflation trends are projected to be stable or to decline. Expectations of higher inflation typically produce a more conservative bond portfolio. Credit research is an ongoing process of our non-government bond holdings to insulate the portfolio from any credit downgrades and to provide security selection opportunities. Corporate bond issues have to be on our approved list prior to purchase.