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Five money managers examine portfolio management strategies in the latest issue of The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info545.htm

TWST: What about some technology holdings?

Mr. Auriana: We’ve reduced our technology exposure, beginning in the first quarter of 2000, when it represented 51% of the portfolio. By the end of 2000, it was down to around 10% of the portfolio, where it has stayed. What happened was that in 1998 and 1999, our performance lagged because we didn’t invest in the speculative technology stocks like the Internet stocks, the startup telecommunication service and equipment companies. These are the companies that crashed and burned. But we did have 51% of our portfolio in technology companies that were profitable, the types of companies we like to invest in, but they were selling at astronomical valuations — 70 or 120 times earnings. We came to the conclusion that we couldn’t justify the valuations. We began to liquidate technology holdings in early 2000. Right now, we have only about 10% of the portfolio in technology and a lot of that is Affiliated Computer (NYSE:ACS), which is really a service company. I think that’s our largest technology holding at the present time, which is not a real, hang-it-out-there technology. We’ve been looking to add to our technology positions but it’s hard. The valuations of technology stocks, even though many of these stocks were down 85%-90%, never really get to bear market levels. For instance, semiconductor manufacturers were selling at 4 to 5 times revenues, at the bottom of the market in September of last year, when historically the bottom of the bear market is only 2 times revenues. We’ve never gotten the opportunity to re-establish ourselves in a big way in technology.

TWST: You’ve mentioned being relatively risk averse. How do you control investment risk?

Mr. Auriana: We are highly diversified. That’s very important today because individual stocks are incredibly volatile. Secondly, we think we control our risk by investing in real companies that are run by real people, who we have confidence in. Sometimes the story is good but we don’t like the management. So I think that’s how we control our risk — by being diversified and investing in companies that we analyze carefully. My partner and one of our analysts visited Enron about a year ago, and they left feeling that they couldn’t understand the business. And we like to invest in businesses we can understand and analyze.

TWST: So how would you differentiate yourself and your firm from other money management companies that have a similar growth investment style? What are your competitive differences?

Mr. Auriana: There are different investment philosophies and styles. We have our own investment criteria, which I’ve been discussing with you — investing in companies that are leaders in their industry and that are profitable. We are not concerned with earnings momentum or price momentum. It’s really easy to invest, if all you’re looking at is earnings momentum. Price momentum is even easier. So you can be very lazy in this business. I can assure you here we are not lazy. We work very hard doing fundamental analysis and research on individual companies. I don’t know how many growth funds invest on a true, fundamental, bottom-up basis. But we have a wealth of experience here as well. We’ve been at this a long time and we have a team that we’ve built up here to support us. Many of the members of that team have been here for a number of years, and we have a common approach to investing in this business. It’s relatively straightforward. The biggest danger in this business is managing your own emotions.

TWST: What are the major challenges that you’re facing this year?

Mr. Auriana: I think the biggest danger in this business is sticking with your investment philosophy and approach to the market because the market does go through different fads. During those fads, your investment approach may be completely out of style, and your performance may be lagging. But I think you have to stay with what you feel comfortable with. Sometimes your performance is lagging for the wrong reasons.

This special Investing Strategies Report includes:

1) Alexander L. Muromcew, International Equity Portfolio Manager and a Vice President at Loomis, Sayles & Company, L.P., examines portfolio management strategies in this timely and deeply informative 3,900-word interview from The Wall Street Transcript.

2) Robert L. Lee, Senior Vice President of Sentinel Advisors Company, examines portfolio management strategies in this timely and deeply informative 4,400-word interview from The Wall Street Transcript.

3) Martha Kimball Pomerantz, Investment Principal at Lowry Hill, examines portfolio management strategies in this timely and deeply informative 3,900-word interview from The Wall Street Transcript.

4) Lawrence Auriana, Portfolio co-Manager of Federated Kaufmann Fund, examines portfolio management strategies in this timely and deeply informative 3,700-word interview from The Wall Street Transcript.

5) Paul A. Magnuson, Principal, Senior Research Analyst and Portfolio Manager with NFJ Investment Group, examines portfolio management strategies in this timely and deeply informative 3,500-word interview from The Wall Street Transcript.