1. 1 Consumer Staples Sector Mark Bauer and Joe Burch May 1, 2006

2. 2 Agenda Sector Overview Business and Economic Analysis Financial Analysis Valuation Analysis Recommendations

3. 3 Sector Overview 39 companies $1.26 trillion market cap 9.6% of S&P 500 Industries:  Agricultural Products  Brewers  Distillers and Vintners  Drug Retail  Food Distributors  Food Retail  Household Products  Hyper Markets  Packaged Foods  Personal Products  Soft Drinks  Tobacco

4. 4 S&P Composition vs. SIM Composition Consumer Staples Summary 9.6% of S&P 7.8% of SIM 1.8% underweight

5. 5 % Price Change by Industry Price Changes (%) Industries % of 500 or Sector13 wks.YTD20065-Yr.Beta Agricultural Products222.818.929.623.40.8 Brewers3.565.37.514.30.10.3 Distillers & Vintners0.77-6.4-14.13.36.60.3 Drug Retail8.054.15.887.80.6 Food Distributors1.68-4.6-7.918.42.20.7 Food Retail4.0912.411.715.7-2.70.9 Household Products22.18-1.7-0.412.35.80.3 HyperMarkets & Super Centers11.35-1.52.60.1NA Packaged Foods & Meats13.783.83.613.54.70.3 Personal Products1.8213.416.915.415.20.3 Soft Drinks17.3713.1120.80.5 Tobacco13.364.26.917110.9 Consumer Staples Total9.571.93.511.82.90.5

6. 6 SIM Holdings and Largest Companies SIM Holdings and YTD return  Anheuser-Busch – 0.6%  Altria Group – 6.8%  Kraft – (5.5%) Largest companies by market value  Wal-Mart – $200B  P&G – $198B  Altria Group - $145B  Coca-Cola - $121B  Pepsico - $108B  Kraft - $55B  Walgreen - $44B

7. 7 Consumer Staples Characteristics Household necessities that people use on a daily basis Defensive stocks (non-cyclical) Stable/Inelastic demand Small portion of consumer’s annual income

8. 8 Consumer Staples Characteristics (Cont.) Mature, slow growing companies Strong brand is important Dependent upon international growth

9. 9 Financial Characteristics Sales and earnings relatively consistent Generate large amounts of cash High dividend yield

10. 10 Consumer Staples in a Portfolio Good hedge against economic downturn Institutional investors can drive up prices Investors usually willing to pay a premium for stability Less desirable when economic growth is strong

11. 11 Porter’s 5 Forces High barriers to entry Moderate buyer power Low supplier power High rivalry Many substitutes

12. 12 Dividend Yield

13. 13 Federal Funds Rate and GDP

14. 14 Income Statement

15. 15 Income Statement Ratios

16. 16 P/E, P/EBITDA, P/S - Absolute

17. 17 P/CF, P/B Absolute

18. 18 Consumer Staples Absolute Current5 year mean10 year mean P/E18.218.320.3 P/EBITDA10.210.010.9 P/S1.191.211.41 P/CF14.214.315.4 P/B4.14.86.0

19. 19 P/E, P/EBITDA, P/S Relative to S&P500

20. 20 P/CF, PB Relative to S&P500

21. 21 Con. Staples Relative to S&P 500 Current5 year mean10 year mean P/E1.201.141.10 P/EBITDA1.341.311.35 P/S0.770.810.80 P/CF1.201.22 P/B1.371.611.67

22. 22 SP-30 Price Relative to S&P500

23. 23 SP-30 EPS Relative to S&P500

24. 24 Recommendations Maintain current underweighting of the sector compared to S&P 500.  Good economic conditions means market will outperform consumer staples.  Valuations do not suggest that consumer staples is cheap. Recommend to further underweight consumer staples in the portfolio by lowering the holding amount by 26 basis points, from 7.81% to 7.55%  Concern over lowering profit margins and price-to- book ratio.

25. 25 Questions?