Dear Investor:
All stock market corrections are discouraging for investors and investment managers. During any correction, the uncertainty as to the length and magnitude of the correction are at times as bad as the actual declines. In general, we struggle through these periods by comforting ourselves with the profits that we have made in the past and the expectation of profits that we will make in the future. Unfortunately, the severe downturn in stock prices from March of 2000 to October of 2002 has made us all more sensitive to declines in the market. This has created an investment climate that is more about fear than it is about opportunity. Investors perceive that the market is riskier. Price to earnings ratios for individual stocks and for the market as a whole continue to decline. In technology, this is occurring even as the technology industry benefits from the world wide increase in capital spending. Thus, the market is getting cheaper and the potential of future rewards for investing in the market are increasing. The attractive valuations that now exist are confirmed by the large number of companies that are being taken private at a premium. In these transactions most of the cash to buy out existing shareholders is being borrowed, since the cash flows of these companies are sufficiently strong to service the debt. For example, this month an investor group agreed to pay $29 per share for the outstanding stock of the pet retailer PETCO. Prior to this announcement the stock was trading at $19.45 per share.

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