State of the Trust

{Q} Are you moving up in terms of quality in your fixed-income portfolios, given the shakiness of some of the sub-prime debt out there, particularly in the home mortgage market?

{A} Yes, we are. With risk premiums as low as they are across the fixed-income markets, we agree that investors aren’t necessarily getting paid to take the extra risk to buy lower-quality bonds. So, yes, we are cautious there. We haven’t necessarily invested in the sub-prime mortgage market per se.

{Q} What stocks are you buying?

{A} We’re a bit defensive near term and have been moving toward the large-cap dividend payers. We think that the recent economic data has looked good, in large part, because of the recent bout of warm weather. Not exclusively, but largely.

{Q} What types of defensive stocks are you buying?

{A} Consumer staples, where we think some companies have the opportunity to benefit from lower raw materials prices, lower oil prices, and where we think that emerging-market populations will increasingly demand their products. A recent example is Clorox (NYSE: CLX). They’ve been hurt by increased raw materials costs as oil prices rose, but we think they should benefit as these costs stabilize.

{Q} What else are you buying?

{A} Stocks that I think look attractive right now from a longer-term perspective. For instance, I like Starbucks (NYSE: SBUX) at current prices. There are worries about margin pressure as they introduce food into the lineup, but revenue growth is still around 20 percent. Even though margins are fluctuating as the company invests in the business, we think the long-term growth story remains intact. We see a similar growth path at McDonald’s (NYSE: MCD), including global potential. We also like Siemens (NYSE: SI) as a global infrastructure company that is fairly attractively valued and coming out of its own restructuring.

{Q} Which local companies might benefit from your view?

{A} I own Ecolab (NYSE: ECL). It’s expensive, but I think it is a very good combination of a company that is somewhat defensive and one with growing international opportunities. One has to think that developing economies are certainly going to devote increasing resources to cleaning and sanitation as they grow.

I have positions in Target (NYSE: TGT) and Wells Fargo (NYSE: WFC), although I’ve been cautious on Wells Fargo with more muted growth in mortgage activity. I also own Best Buy (NYSE: BBY), which may be impacted by slower housing activity, but benefits from so many other consumer electronic and technology trends.

{Q} Given the fact that many emerging countries are putting up cellular towers instead of telephone poles, are you interested in the cellular sector?

{A} We own Nokia (NYSE: NOK), which gives us exposure to both infrastructure and handsets. They just created a joint venture with Siemens out of their telecom infrastructure businesses. As far as towers, we also own Crown Castle International (NYSE: CCI), which is a tower company here in the United States that should show strong cash-flow growth over the next few years.

{Q} Are you anticipating a recovery in the housing market?

{A} Not anytime soon. I don’t know that it will get much worse, but I don’t think it’s going to recover right away. Approximately 40 percent of the housing inventory on the market is vacant. While we’ve seen inventory come back down a bit, we don’t know that some sellers haven’t taken properties off the market temporarily instead of permanently as they wait for better prices.