Buford, Dickson, Harper & Sparrow, Inc.

Step 1: Earnings Momentum Screen

• Positive earnings surprise
• Rising earnings estimates in the current and next fiscal years
• Return on Capital greater than zero.
• The 5yr estimated growth rate greater than ten percent.
• P/E to Growth ratio less than 1.8.

Entire universe of over 10,000 stocks are screened. Usually generates 200 names on average.

Step 2: Growth Stocks Are Identified

• The growth rates are analyzed for each potential.
• To proceed in the process each stock must have a growth rate of at least ten percent in the current quarter, next quarter, current year, and next fiscal year.
• This step typically reduces the number of potentials from 200 to 50 names on average.

Step 3: Social Responsibility Screen

We do not invest in companies that produce alcohol, tobacco or fire arms and companies involved in controversial medical issues. We also do not invest in companies that do business in Sudan, Iraq or Iran.

Step 4: Quantitative and Fundamental Research/Fundamental Ranking

The potentials are ranked according to various fundamental metrics to give an overall fundamental ranking. These metrics include the growth rates, return on capital, the consistency of positive earnings surprises, and the duration and volatility of the current growth rate.

Step 5: Valuation Ranking

Although stocks are not necessarily eliminated if they are overvalued, we determine to what extent the potentials are under or overvalued. Metrics include the P/E to Growth ratio, and two price target calculations. One method is a traditional academic method using the future value of earnings. The second method uses the growth rates and earnings estimates to calculate a fair market price. These metrics combine to give an overall valuation ranking.

Step 6: Technical Analysis/Technical Ranking

Potentials are given an overall technical ranking based on several metrics. These include analyzing trends within the five year, one year, and six month price charts. Technical tools include the moving averages, volume, and other technical metrics.

Step 7: Final Ranking

The fundamental ranking, valuation ranking, and technical ranking are combined into a final ranking for each potential. Additionally, each current holding are ranked using the exact same process. The top ten potentials then move on for further consideration.

Step 8: Sector Spreadsheets

The top ten potentials are then placed into sector spreadsheets along with our current holdings. Spreadsheets include data such as earnings surprises, earnings estimates, market cap, revenues, return on capital, growth rates, a valuation score, a technical score, and an earnings momentum score. This allows us to compare the apples to apples data between current holdings and new ideas.

Step 9: Qualitative Fundamental Research

The new ideas from the screening process are given to the fundamental analysts to be included in their ongoing research of our current holdings. Qualitative research includes analysis of the business models, management teams, competitive advantages, corporate culture, and industry trends.

Step 10: Sell Discipline

Stocks are sold using the same analysis as the buy process. Red flags are raised and a sell is considered if:

• A company experiences negative earnings momentum
• Decelerating earnings growth
• If the stock violates its technical uptrend.
• If a fundamental analyst flags a concern within their qualitative analysis.
• If a better idea is available to replace non-performing stocks. Particularly if a highly ranked potential can replace a low ranked holding.