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    Guest Interview:

   Ashfield Capital Partners, LLC

    750 Battery Street, Suite 600
    San Francisco,CA 94111

    Telephone: (415) 391-4747
    Fax: (415) 391-1234


    Interview Quarter: 2Q2009

 J. Stephen Lauck, CFA

 President & CEO

  Let’s begin by asking what the investment philosophy is at Ashfield Capital Partners, LLC.  
  At Ashfield, we believe that over time the price of a stock will be directly related to the earnings growth of the business. We believe that successful long-term investing is best achieved by focusing on those companies that exhibit strong growth characteristics, while benefiting from clearly identifiable investment themes. Our investment approach is a blend of top-down analysis and bottom-up fundamental research designed to identify what we believe are the best companies in the most attractive sectors. Risk management is an essential component of the firm’s consensus-driven team approach to investment assessment and portfolio construction.  
  On your website, you talk about the firm’s core values. What are they and why are they important?  
  In the wake of the financial turmoil, we felt it was important to accentuate to our clients and employees Ashfield’s guiding values and principles. Our Core Values speak to three distinct aspects of our business: 1) our People, 2) our Clients, and 3) our Firm.

“Personal responsibility” is the overarching theme when it comes to Ashfield’s employees – our People. We believe that employees’ behaviors and actions need to be rooted in strong ethical foundations. As a firm, we attempt to foster this mentality by creating a supportive and respectful workplace environment that encourages individual growth. As we state on our website, our employees are the cornerstone of our success.

The second part of Ashfield’s Core Values pertains to our Clients, the lifeblood of our success. At Ashfield, we are fully committed to maintaining long-term client relationships that are based on trust, integrity, and respect. As an investment manager, our aim is to both protect and grow our clients’ assets. To this end, we are vigilant in our efforts to continually grow as a firm and to utilize the tools and resources necessary to enhance portfolio returns. Additionally, our client service model promotes dedication, commitment, and responsiveness.

The final part of the equation is our Firm. Ashfield’s success didn’t happen by accident. Rather, our proven track record is a byproduct of a firm culture that respects diversity, and emphasizes hard-work and collegiality.
  Why did Ashfield undergo reorganization in 2007?  
  Ashfield & Co., Inc. (our predecessor firm) was founded in 1973 and reorganized in February 2007 as Ashfield Capital Partners, LLC when Old Mutual (US) Holdings, Inc. purchased a majority interest in the firm. All of the investment professionals transitioned from similar roles held at the previous firm.

Ashfield’s alliance with Old Mutual grew out of a desire to expand our business in both the institutional and retail markets. As a firm, we were already resource-rich with the systems and tools needed to effectively service our clients. However, Ashfield’s relationship with Old Mutual affords us access to a host of operational and technological support across product development, marketing, compliance, risk management, and human resources. While Old Mutual currently maintains a 55% ownership stake in the firm, Ashfield operates autonomously. This important aspect of our operational structure enables us to maintain our uniqueness, that competitive edge which separates us from other managers. Also, our singular focus on investment management (our only line of business) and our commitment to superior relationship management enable us to respond nimbly to our clients’ needs and priorities.
  What was the history of the firm prior to the reorganization?  
  Ashfield & Co., Inc. began in 1973. In 1984, Steve Thornborrow and I joined from BA Investment Management Co. (Bank of America’s investment arm), where we held senior portfolio and research positions. As we grew the firm, we added additional investment and support people to our team. This investment team has been remarkably stable over the years, averaging 31 years of experience per person with an average tenure with the firm of 16 years. This is one of the key reasons why we have been successful in providing consistent returns versus our benchmark for our clients for many years.  
  How many investment professionals do you have and how much money do you have under management?  
  Ashfield employs six portfolio managers and one associate portfolio manager. Our portfolio managers also serve as analysts and are dedicated to the firm’s overall investment research effort. While each portfolio manager/analyst is assigned one to two sectors, they typically act as generalists and present ideas outside of their own sector responsibilities. As of June 30, 2009, Ashfield’s firmwide assets under management totaled $3.1 billion.  
  Your portfolios are managed collegially. What is the process used by your investment team to make investment decisions?  
  Our portfolios are managed by teams rather than individuals, which we believe results in greater objective decision-making. A collective decision-making process ensures that ideas are fully debated and that we draw on the expertise of the individuals. There are no reporting lines, as all portfolio decisions are made by team consensus. The investment process provides a continuity that supersedes the contribution of any one individual. The portfolio manager/analysts that comprise an investment team meet regularly. Investment team meetings are structured to encourage the free flow of ideas and information among the managers. This collaborative structure allows us to utilize the strengths of each person to benefit each of the firm’s investment products.  
  What are the investment strategies you offer your institutional clientele?  
  Ashfield currently offers the following strategies: Large Cap Growth Equity, Small Cap Growth Equity, Dividend Growth Large Cap Equity, and Balanced Large Cap Growth Equity.  
  How do you allocate portfolio funds between the strategies you offer?  
  Ashfield’s strategies are separate and independent of each other.  
  Are you actively managing the allocations and, if so, what kind of analysis do you use to make those decisions?  
  Ashfield specializes in actively managed, growth-oriented investment strategies. The firm’s strengths are available to institutional and individual investors in a range of U.S. equity and balanced portfolios. Our portfolios aim to be fully invested at all times, thereby eliminating market-timing risk. Through a blend of quantitative screen/rank process and rigorous fundamental research, our seasoned team of portfolio manager/analysts seek to identify leading companies with above-average, sustainable revenue and earnings growth. Investment decisions are based on an analysis of the fundamental merits and value of each company that we own.  
  Due to the stock market’s downturn, investors have become more sensitive to risk management and capital preservation. How do you address these concerns?  
  We employ a disciplined, time-tested methodology to maximize client wealth, while mitigating risk in a meaningful way. Risk control is a key factor in our investment process. Risk at the security level is minimized by owning high-quality growth companies that we believe possess excellent growth prospects, reasonable P/E multiples (i.e. PEG ratios), strong balance sheets, and adequate market liquidity. At the sector level, risk is carefully controlled by index-based guidelines that set minimum and maximum weightings versus a strategy’s respective benchmark. These weightings are determined by team consensus and are consistent with the investment themes identified by our top-down, quantitative analysis. Overall portfolio risk is managed by not only diversifying among companies and industries but also diversifying the portfolio by growth rates and P/E multiples. The portfolios are actively monitored to avoid concentration at either end of the growth spectrum.  
  Are you always invested in the markets or do you sometimes hold cash positions?  
  We aim to be fully invested in the markets at all times. While a portfolio is typically fully invested and does not utilize cash as a position in the portfolio, there will be times when there is a small percentage of cash.  
  Please describe the process used for your large cap growth equity selections.  
  The Large Cap Growth Equity investment philosophy was developed through the collaborative effort of the investment team members. Our approach is a systematic and repeatable four-step investment process, which emphasizes: 1) top-down thematic analysis, 2) a quantitative screen and rank process, 3) qualitative fundamental assessment, and 4) portfolio construction characterized by active risk management. Each step is designed to add incremental return to the portfolio.

The initial investment universe for the Large Cap Growth Equity strategy begins with 5,000 companies, which are screened for the desired financial characteristics, such as size and liquidity, growth characteristics, and valuation. This screening process efficiently narrows the universe to approximately 500 companies. A quantitative screening process of ranking securities based on earnings improvement/deterioration further reduces this list to approximately 25 high-quality growth companies across sectors that have been previously identified in the top-down thematic analysis. Then, a bottom-up fundamental assessment further refines this list of 25 companies to 1-2 stocks that our team selects for inclusion in the portfolio. The portfolio adheres to a construction process that emphasizes diversification by industries, companies, P/E and growth rates, and employs sector guidelines. The end result is a diversified portfolio consisting of approximately 45-60 high-quality growth companies. The initial strategy was incepted on January 1, 1995.
  What processes do you use for making selections in your small cap growth equity product?  
  Ashfield’s Large Cap Growth Equity investment process gave birth to our Small Cap Growth Equity strategy, which was incepted on November 1, 2003. We recognize that smaller companies are sensitive to changes in expectations. Accordingly, we believe that by early identification of both positive and negative changes in expectations, we can best achieve our objective of producing superior excess returns. While the majority of the investment process is the same for both the large and small cap strategies, there are some differences. For instance, the initial universe of 5,000+ companies is screened and the top 25 ranked stocks are selected. Additionally, quantitative research plays a more prominent role in the small cap strategy, portfolio holdings number 70-90, and positions are typically equal-weighted at the time of purchase.  
  What about the process for your dividend growth large cap equity product?  
  Similar to our Large Cap Growth Equity strategy, Ashfield’s Dividend Growth Large Cap Equity strategy utilizes a combination of quantitative screening and ranking techniques combined with fundamental research and risk management in order to generate above-average returns without excessive risk. However, the process employs additional screens that isolate companies that we believe possess strong potential to increase their dividends at least as rapidly as earnings. We examine critical factors including free cash flow and, importantly, a company’s willingness to increase its dividend. Companies must pay dividends to be considered, and if a portfolio holding reduces it dividend, it is sold. A company’s pay-out ratio (the percentage of earnings paid out in cash dividends) should be low enough to allow increases in this ratio over time. Typically, companies that pay out a large portion of their earnings in cash dividends, while perhaps offering enticing current returns, are sub-par growers and do not have the ability to increase their dividends over the long-term. On the other hand, our Dividend Growth Large Cap Equity strategy seeks to offer investors not only long-term growth in their principal, but the attraction of a rising stream of dividend income. The strategy is benchmarked to the S&P 500, and is appropriate to a wide range of investors.  
  For your balance accounts, what is the typical ratio in your portfolios between stocks and fixed income?  
  Client mandates drive the asset allocation within our balanced portfolios, and typically contain 50-70% in equities and the increment in fixed income.  
  What fundamental changes need to occur before you will consider selling a stock?  
  We have learned the importance of a strong sell discipline. As part of our sell discipline, we reduce a stock holding that exceeds a pre-specified weighting in the portfolio. We believe this accomplishes two objectives. First, it minimizes the price impact of an overweight stock falling sharply. Secondly, it can redeploy capital into areas with a more attractive risk/reward opportunity. Additionally, a stock may be reviewed for potential sale if the following events occur: 1) The stock falls to the bottom of the equity ranking model, 2) A fundamental change in business model or management occurs, 3) There is a change in Ashfield’s thematic emphasis, and 4) A low forensic accounting score is received. All sell decisions are made by team consensus, and no automatic sell disciplines are employed.  
  Are there any macroeconomic trends that you follow? If so, what are they and how do they influence the way you invest?  
  We fully understand that markets are adaptive, and that investment strategies must encompass macroeconomic trends in order to be successful. We track a number of economic factors to determine where we are in the business cycle, and how these cyclical forces will impact certain industries and companies. For instance, if we are in the early stages of recovering from a business downturn, certain businesses, such as retail, will lead. Later in the cycle, capital spending increases and capital goods and equipment firms begin to prosper. These inputs are additive to our investment process, which utilizes a top-down, thematic overlay that addresses longer-term trends that are not only driven by economic but also social, political, and demographic changes. Our investment team is continually monitoring these themes, and adjusting our portfolio weightings as necessary to take advantage of positive changes that are occurring on a global basis. Our experience tells us that by “getting the wind at our back” in our sector and industry, portfolio exposure improves the probabilities of success in stock selection.  
  The past year and a half has been difficult for most investors. What lessons have you learned that might help you in the future?  
  The recent economic and market downturn was not only historic in magnitude but was different than most past recessions. First of all, it was caused by the harsh unwinding of financial excesses and concomitant leverage rather than the “garden variety” business and inventory cycle correction. As such, the global ramifications were much more pronounced, and asset values rapidly deflated. Well-diversified portfolios that had been built to withstand more normal circumstances floundered. With the exception of super-low risk investments, such as U. S. Treasuries, most asset classes became tightly correlated and declined accordingly. These challenges in the capital markets have reiterated to Ashfield the importance of discipline, transparency, and consistency. We adhered to our time-tested investment process, and counseled our clients to not alter their long-term investment objectives in response to these painful short-term dislocations. It was also helpful to remind clients that we felt the companies in their portfolios were financially strong, and would weather this downturn. Client communications were extremely important during this period.  
  Who are the major principals of the firm and what are their backgrounds?  
  All investment professionals at Ashfield maintain an ownership stake in the firm. Other key non-investment employees hold equity in Ashfield, and they provide leadership in their respective departments, including marketing, client service, performance analysis, and administration. To learn more about our people and their backgrounds, please visit our website:  
  What is your relationship with Old Mutual Funds?  
  Ashfield sub-advises several mutual funds within the Old Mutual Funds Group.  
  What differentiates your firm from others offering private managed accounts?  
  A distinguishing characteristic of Ashfield’s investment process is our ability to extract significant value from both the quantitative and fundamental processes. We believe that our investment process is unique and that it differentiates Ashfield from our competitors. Another distinguishing characteristic is that our investment philosophy has remained consistent since a product’s inception. We believe that our disciplined investment approach is a testament of the team’s commitment to the process. Another differentiator is the history of stability and longevity within our team of investment professionals, which are responsible for managing portfolios and coordinating the research effort. This lack of personnel turnover within the portfolio management team ensures consistency within our investment process.  
  Please describe your average client and why they find you attractive as a manager?  
  Ashfield’s typical clients are institutions and individuals who seek an understandable, systematic, and repeatable investment process that seeks to produce excess returns versus a strategy’s stated benchmark, without being subjected to excess risk. Our clients tell us they like the experience of our team and the long-term consistency of our results.  
  Where would an investor go to get your quarterly investment comments?  
  Investors can read our quarterly market commentary and learn more about our firm through our website:  
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