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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). Another company that isn’t directly financial services but plays to it is Cendant (NYSE:CD). This is a company that has had some significant accounting problems primarily due to a troubled acquisition in the past. Because of their exposure to real estate and mortgage financing, low and stable interest rates are a favorable factor for them and certainly have helped them a great deal in their financial comeback. The company is doing very well internally, and has remained a pretty inexpensive stock as they move to put the bad acquisition behind them. We think it is a very good value in here.

TWST: Do you invest in turnaround situations? Is that something you would look for?

Mr. Earnest: We do occasionally. Obviously, most of them will have been showing very negative momentum, and you’re trying to make that judgment of whether or not the turnaround is real. It is difficult to determine how much of their turnaround was due to the economy as opposed to company improvement. Having been through the very difficult economic conditions of the last two years or so, I think companies that have been able to wade their way through that and improve their financial position in terms of rates of return and balance sheet structure would look more valid to us as true turnarounds. So we probably will be more willing to do that in this next cycle than we were toward the end of the last cycle.

TWST: Do you have a stock pick that is controversial or contrarian that might surprise people?

Mr. Earnest: I suppose that Cendant would be a candidate. We acknowledge that you’re facing the issue of a company that had dreadful accounting problems and has had to make massive payouts. Their debt had to be substantial reduced in the face of a difficult economy, which they essentially were able to pull off.

TWST: What is the time frame in general that you anticipate for your investments?

Mr. Earnest: We would like to believe that in the next six to 12 months, market recognition would come to a stock we have recently taken interest in. We don’t think you can look out two years or say it will happen sometime. You have to be more precise than that and search for a catalyst. That’s one of the things that you think about in attempting to avoid the value trap. The tendency here has been very low turnover. Once we do find something we think is for real, we tend to stick with it for a long time. Our turnover rates are very low. We average somewhere between 5% and 20% portfolio turnover per year.

TWST: So what does trigger an exit? Can you tell us about your sell discipline?

Mr. Earnest: Essentially, there are two things that happen. One would be that a stock has moved out of its value range, in terms of now not showing an adequate return to our central value. For instance, less than 8% would be a trigger if it were not showing strong relative price and earnings momentum. One of the reasons our turnover is low is, quite frankly, once a stock moves out, the reason that it moves out is because it’s improved. Then we look at the momentum factors to be able to ride with it longer. But if it passes through that 8% line so that its return does not look adequate, it gets a pretty good review and would be sold if the momentum were not strong. Of course, in these days we have to look very strongly at all companies for any breakdown with regard to accounting and legal risk — e.g., asbestos kind of risk. There are several things happening that could be highly negative to the company, where traditional value tools just won’t save you. Some of these lawsuits have an enormous impact. Obviously, we have that whole series of companies having to declare bankruptcy due to asbestos lawsuits. Some accounting lawsuits may be equally damaging, so we have to be very careful of that. We’ll tend to own about 90 companies in the Fund. During a month, we will receive a pretty good review with regard to the qualitative and quantitative characteristics of our holdings. This helps us determine whether our investment thesis still holds up and what new information, if any, may have altered the outlook.

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.