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Six 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/info550.htm

TWST: Richard, can we go back and discuss a few financial services stocks?

Mr. Earnest: We have been pretty steady buyers of Fannie Mae (NYSE:FNM). Obviously, it has hit the political screens these days, because of size and importance to the economy. There has been a committee actively at work scrutinizing this for some time. Even Mr. Greenspan has weighed in negatively on Fannie Mae because he is getting concerned about its size. Obviously, to do its job Fannie Mae has to be highly leveraged. The result is while earnings have continued to grow at a very good pace, the p/e has fallen considerably. It is now at a low valuation in relation to the kind of earnings growth it can achieve — even if it does limit the expansion of its assets. We are going to continue with Fannie Mae, acknowledging that there is headline risk as Congress takes a further look, which we think it will.

TWST: Investors have been alerted by many companies about earnings shortfalls. How does that impact your investment strategy?

Mr. Earnest: Usually, by the time the alert takes place, it’s too late to sell. We were in a period, though, where the first announcement is the first of many. Of course, that was a period where earnings were going from high growth through the late 1990s into negative comparisons as you hit 2001 and entered this year. Now we are beginning a period where it looks like companies will beat their estimates for a while. So a shortfall may not be so punishing that you need to react to it at a significantly down price. So we are looking at it like a traditional value shop. If we can find an explainable reason, earnings shortfalls represent an opportunity to find an inexpensive purchase. We think it’s less risky today than it was maybe two to three years ago.

TWST: What are the concerns of the investors in your Fund, and how are you managing their expectations at this time?

Mr. Earnest: I think so many investors had very high expectations built in because of the extraordinary returns earned through the 1980s into the 1990s. We were in a dramatically good period for a long time, and people’s expectations got very high. We just did not think 15% or 18% kinds of returns were sustainable. After two very poor years — and it looks like 2002 will not be dramatically better — I think investors have come to reduce their expectations to more rational levels and to look for more solid, reliable returns. Our process, with its unique valuation philosophy, along with the use of momentum tools and diversification rules, matches well with these new investor expectations. Still, we think this is a reasonably good time to be invested in equities. The alternatives, of course, are returning so much less: 2% in money market funds and maybe 5%-6% in bonds should not be that hard to beat with a good cross section of companies purchased at decent prices. So that’s our message to our holders; that’s what we are offering them and have been doing consistently over the 11-year life of the Fund.

This special Investing Strategies Report includes:

1) Peter F. Ganucheau IV, Principal, Portfolio Manager/Analyst with GSB Investment Management, Inc., examines portfolio management strategies in this timely and deeply informative 11,400-word interview from The Wall Street Transcript.

2) William J. DeRosa Jr., Portfolio Manager with Badgley, Phelps and Bell, Inc., examines portfolio management strategies in this timely and deeply informative 4,500-word interview from The Wall Street Transcript.

3)Jonathan W. White, Senior Vice President and Chief Investment Strategist for Banknorth Investment Management Group, examines portfolio management strategies in this timely and deeply informative 3,100-word interview from The Wall Street Transcript.

4) Geoffrey R.B. Carey and Jane W. Korhonen, both Partner and Senior Portfolio Managers at Brown Investment Advisory & Trust Company, examine portfolio management strategies in this timely and deeply informative 3,500-word interview from The Wall Street Transcript.

5) Richard H. Earnest, Director for HighMark Capital Management, examines portfolio management strategies in this timely and deeply informative 4,900-word interview from The Wall Street Transcript.