BARROW, HANLEY, MEWHINNEY & STRAUSS

DALLAS, TX

EQUITY PORTFOLIOMANAGEMENT

JANE GILDAY

SOUTHERN METHODIST UNIVERSITY

BHMS

1968Roaring Guns & Butter Economy

Rip Roaring Stock MarketRaging Vietnam War

BostonBank of Boston

AT&T

New York CityExxon

First National City Bank (Citigroup)J.P. Morgan & Co.

U.S. TrustArgus Research - Who??

1969N.Y.U. Business School

Bear Market

BHMS

1998

How does a Red Sox gal end up in Ranger territory?

30 years of experience in all kinds of markets, with a good stock picking record

Sell side became a beauty contest judged by investment bankers. Client portfolios didn’t matter anymore.

Barrow, Hanley growing rapidly. Needed in-house research.

Fabulous career and intellectual opportunity

BHMS

2004

Portfolio Manager in 1999. SMU is a client.

Partner in 2001.

Always a securities analyst.

BHMS

BHMS OVERVIEW

Twenty-Four Year Old Firm, Founded 1979 in Dallas, Texas Portfolio Managers - 5 Large Cap, 2 Small Cap, 1 Me

Analysts - 7 and MeFixed Income - 8 Traders - 3

Sole Focus is Value Management for Institutional Investors plus me

Large Manager of Institutional Assets - $37 Billion

Large Cap Value Equity (1979) $ 9.7 Billion 116 Clients

Mid Cap Value Equity (1999) $ 2.0 Billion 8 Clients

Small Cap Value Equity (1995) $ 900 Million 13 Clients

Fixed Income (1983) $ 3.5 Billion 64 Clients

Mutual Funds (1985) $ 19.8 Billion 9 Clients

Vanguard Windsor II (large cap)Vandguard Select Value (mid cap)

Sector Portfolios (1998) $ 507 Million 2 Clients

BHMS

Beat the Index

Analyze the index. 77 S&P stocks.

PG, KO, MO, VIA’B, PEP, AOL, CMCSA, BUD, DIS, G, CL, KMB

Buy Low/Sell High

Minimize Downside Risk

Pick Good Stocks

Bunge (BG/NYSE - $49.58)

Fortune Brands (FO/NYSE - $75.86)

JOB DESCRIPTION

3 = 24%

8 = 48%

12 = 60%

WHAT DO I DO ALL DAY LONG?

BHMS

WHAT DO I DO ALL DAY LONG?

S&P 500 up 1% since 2/23/2003

Stay Out of Trouble

Tribune Company (TRB/NYSE - $44.06)Down 12%

Univision (UVN/NYSE - $28.96) Down 19%

Interpublic Group (IPG/NYSE - $12.36)Down 27%

OOPS

Starbucks (SBUX/OTC - $54.44) Up 117%

Hershey Foods (HSY/NYSE - $52.45) Up 26%

Gillette (G/NYSE - $43.45) Up 13%

BHMS

RESOURCES - How do I do it?

NEWS: Wall Street Journal, Barrons, First Call, Prudent Bear.com, Drudge, CBS Marketwatch.com (for SEC filings), Business Week

EXPENSIVE STUFF: Holt (CSFB), StockVal, Bank Credit Analyst

SPREADSHEETS: P&L through Cash Flow to Balance Sheet

COMPANY VISITS: DEO, WEN, ATN, PX, SRCP

BHMS

RESOURCES - How do I do it?

CONFERENCES:

SSB/Palm Springs: Barry Diller, Sumner Redstone, Michael Eisner, Brian Roberts, Ed Whitacre

CAGNY/Scottsdale: Dr. Atkins, PG/KMB, innovation

LISTEN TO MY SON: Navarre/Halo II KO/H20 Abercrombie/Lacoste

Use every contact you’ve got/LEGALLY

BHMS

SPECIFIC EXAMPLES - DIAGEO

Initial Purchase

SubsequentAdditions

What did I see? General Mills registration statement (DEO to sell GIS shares) declared effective Diageo about to complete transformation to focused, world-leading spirits company Diageo commitment to return capital to shareholders Modest 14x P/E, 4.1% dividend yield, excellent balance sheet, strong cash flow

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

48

50

52

54

56

58

947

286

Volume in Thousands (max/avg)

Diageo PLC (DEO)1-Jan-2004 to 5-Nov-2004 (Daily) High: 57.600U.S. Dollar Low: 48.210

Last: 55.670

BHMS

NEWS CORP.

What did I see? Began trading on NYSE 11/2 International index fund selling about over US portfolio managers can buy Soon, or very soon, in S&P 500 Index

Outlook Great media assets broadly diversified

Fox Cable, Fox TV, 20th Century Fox movies, DirectTV, NY Post, TV Guide, SKY Satellite TV, TheAustralian, The Sun

Cheaper than Viacom, TimeWarner, Comcast, and Disney

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

15.5

16.0

16.5

17.0

17.5

18.0

18.5

19.0

19.5

20.0

18

3

Volume in Millions (max/avg)

News Corp. (NWS)1-Jan-2004 to 5-Nov-2004 (Daily) High: 19.870U.S. Dollar Low: 15.305

Last: 18.200

Initial Purchase

BHMS

A BAD HAIR DAY!!!

BHMS

JAKKS CORP.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

14

16

18

20

22

24

26

15629

429

Volume in Thousands (max/avg)

JAKKS Pacific Inc. (JAKK)1-Jan-2004 to 5-Nov-2004 (Daily) High: 25.550U.S. Dollar Low: 12.720

Last: 17.690

The Set-Up

SubsequentAdditions

My best performing stock in 2004. Accounted for 5% to 8% in my portfolios. On 10/19, reports strong sales and earnings, raises forecasts, stock rises to $25.55 (52 wk high) On 10/19, stock closes at $18.81, down 22% on the day On 10/20, stock closes at $12.96, down an ADDITIONAL 31%

Vince deals a knock out punchStay-tuned for Stone Cold Jack FriedmanJAKK selling at 9.2x earnings, with $5.81 per share in cash

BHMS

LOOKING BACK: 1982 VS. TODAY’S MARKET

Valuation (S&P 500) 1982

10/31/04 P/E 8.3x

17.2x

P/B 1.1x

2.8x

Yield 5.6%

1.9%

Market Capitalization/GDP 40.2%

89.2%

Interest Rates 1982

10/31/04 Fed Funds Rate 13.1%

1.75%

90 Day T-Bill 11.1%

1.9%

10-Year Treasury Bond 14.0%

4.1%

Unemployment Rate 8.5%

5.4%Market valuations are higher today. Interest rates are at historic lows.

Source: BHMS and Ned Davis Research

BHMS

S&P 500 RETURNS BY THE DECADE (%/YEAR)

Earnings GrowthDividendsInvestment Return = + or - + or - Valuation

1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s AVG.Next

Decade (“Reasonable

Expectations”)

At the outset of the decade, reasonable expectations for earnings growth and P/E levels suggested an average total return of approximately 5%.

9.1 3.9 15.1 -0.8 8.9 20.1 8.1 6.1 17.3 17.8 10.1 5.1Investment

Return

Source: Bogle Financial Markets

Research Center

BHMS

Buy Companies For Less Than They Are Worth

Know Your Downside

Have Patience

Don’t Forget to Watch the Ducks

APPLYING THE INVESTMENT DISCIPLINE

Look Where Nobody Else Is Looking

BHMS

BUSTED DEALS - CMCSK

NEGLECTED - FUN

COMPLICATED - CD

OBSCURE - BG

SCARY - JAKK

MISUNDERSTOOD - NWS

LOOK FOR IRRATIONAL SELLERS

SPIN-OFFS - FO

BHMS

WHAT DO THESE HAVE IN COMMON?

Union CarbideUnion Carbide

SearsSearsChase ManhattanChase Manhattan

TexacoTexaco

Northeast UtilitiesNortheast UtilitiesHalliburtonHalliburton

American ExpressAmerican Express

ExxonExxon

PfizerPfizer

Coca ColaCoca Cola

PepsiPepsi

Waste Management

Waste Management USTUST

BhopalBhopal

Management Management Credit CrisisCredit Crisis

BankruptcyBankruptcy

NRC IssuesNRC IssuesCollapse of Oil Collapse of Oil

PricesPrices

Management Management Boston Tea PartyBoston Tea Party

ValdezValdez

New CokeNew Coke

RestaurantsRestaurants

Accounting Accounting IrregularitiesIrregularities

Tobacco Tobacco LitigationLitigation

Shiley Heart Shiley Heart ValveValve

All were temporarily out of favor!

BHMS

Never Trust A Brokers’ Advice You are just below them on the food chain

Be Careful When Buying Stocks Whose CEO’S Are Building Homes, Buying Ranches, Naming Stadiums and Building New Headquarters ENRN TYC WCOM AOL

Spin-offs Almost Always Work KFT / FO

Watch the Covers Time Magazine - Jeff Bezos / Business Week - The Death of Equities

EQUITY INVESTMENT PRINCIPLES

HOW TO GET RICH IN THE NEXT 25 YEARS

BHMS

Look For Insider Buying / Selling Very scary-can’t find any buyers these days.

Proven Winners in Management Are Good Bets – Norm Wesley, Rubin Mark, everyone at WalMart & Sysco

Trust Your Instincts - Don’t Look For Confirmation From Your Friends

My First Manhattan Guru - If you buy 100 shares in a company, would you buy the whole company?

EQUITY INVESTMENT PRINCIPLES

HOW TO GET RICH IN THE NEXT 25 YEARS

BHMS

Sold July 2000

$820 Million

Sold 1990

$840 Million

Pebble Beach Golf Course

VALUATION DOES MATTER!

BHMS

THANK

YOU