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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: Can you please give our readers a brief overview of HighMark Capital Management, as well as your responsibilities there?

Mr. Earnest: HighMark is an investment management subsidiary of Union Bank of California. It manages mutual funds, institutional accounts, as well as separately managed private accounts. My role is the team leader of the Value Momentum Strategy Team, which runs the Value Momentum Mutual Fund. I have been working in investment management for over 30 years with this organization. The Value Momentum style was created in 1984 and was later incorporated into a mutual fund in 1991. The Fund has been continuously managed in the same style since inception, approximately 11 years.

TWST: Everyone knows about growth momentum investing. What can you tell us about the benefits of value momentum investing?

Mr. Earnest: If you step back, value stocks are stocks that are usually less expensive in the market, and there is usually a reason for that. They may be in slow-growing businesses; they may be in cyclical businesses. The management may not be well regarded, and therefore the shares get priced at a discount. There are usually more of this type than there are legitimate growth stocks. This is particularly true in a mature economy such as in the US. So in choosing among value stocks, one needs to find something to aid in achieving above-average returns. Thus, utilizing momentum factors seems to work well within the value category.

TWST: Value has outpaced growth during the past two years. Do you expect that to continue — and if so, for how long?

Mr. Earnest: I have never found a good way of assessing which will do better. Usually what I find is, after one has beaten the other for a couple of years, it will reverse. But I can’t generally find any specific variables that will key that. Obviously, value substantially underperformed through the late 1990s into 2000. Value was due for some kind of a recovery. We didn’t dream that it would do so well, at least relatively, in an environment of severe market stress. Nor did we dream that growth stocks would take the kind of licking that they did in the last year. Both, in fact, happened. We don’t shift between value and growth; we simply try to buy stocks that are attractive and we react to the valuations on an individual stock basis.

TWST: What has the performance of your Fund been over the past year, and what is the outlook going forward?

Mr. Earnest: For the quarter, we were up 3.3%. Year over year, we were up 3.2%; for five years, we were up 9.2%; and 10 years, we were up 13.0%.

TWST: That’s quite a performance. How did you accomplish that?

Mr. Earnest: The comeback of value certainly helped. We trailed in the growth market of 1998 to 2000. We were generally underweighted in tech by a good amount in those three years. As tech exploded, we were left behind. So we’re not unaccustomed to trailing a good growth market. However, I think the activity in the tech stocks really created a unique set of circumstances in those three years. We’ve continued to be underweighted pretty substantially in tech. So as tech declined, we weren’t as badly hurt during the recovery. We had solid recovery in some of the cyclical and mid-cap names that we own that lagged in the 1998 to 2000 time period.

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). Another stock that we have just begun to purchase is Goldman Sachs (NYSE:GS). This is even more difficult from the political, legal, and regulatory standpoint. The Department of Justice just announced a much more careful investigation of conduct in brokerage house research departments, and in recommendations made by their analysts. We could face significant headline risk in the industry group, as well as the risk of lawsuits and changes in regulation going forward. This also could impact their business models in the long term. The stocks have been under pressure for a while. They could stay under pressure if this develops a life of its own here. But we have begun to nibble at Goldman Sachs.

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.