October, 2007
The equity markets experienced considerable volatility in the third quarter and significant issues still exist in the housing market and credit markets. These problems are serious, and in our opinion, investors are wise to ask if we've seen the worst of this storm. One thing we know for certain about the market is that it will always have periods of volatility.

Global growth continues to be strong, and with approximately 45% of the profits of the companies in the S&P 500 coming from overseas we expect international strength to help bolster sales and earnings growth among The good news is that this environment fits well with our overall investment approach. As value-oriented investors with a contrarian bent, we look to buy stocks 80-cents-on-the-dollar and are constantly searching for advantageous entry points. The recent volatility in the markets created opportunities to add to our existing holdings. We believe there are several attractive investment opportunities relating to the build-out of broadband internet infrastructure.

Over the last seven years, the volume of internet traffic has been increasing at annual rates of 70% to 100% in the U.S. and Europe and even higher in South Korea, Japan, and China. Despite the boom in internet traffic, however, infrastructure build-out failed to keep up with the increasing demand as firms were reluctant to make capital investments in the wake of the dot-com bust. Internet backbone capacity has actually declined since the start of the decade as a result of consolidation throughout the sector. We believe that significant new infrastructure spending will be required to meet the simultaneous challenges of making up for past underinvestment while meeting strong new demand. Video over the internet, voice over internet protocol (VOIP), corporate and municipal Wi-Fi networks, and new mobile internet applications will drive this new demand.

Video over the Internet
The largest driver of increasing bandwidth on the internet is the increase in the amount of video content transmitted over the web. Today, 36% of the total packet volume transferred over the web is directly linked to video and we expect this number to increase over time. One hour of video requires the same data capacity as a year's worth of e-mails. The bandwidth required to distribute high-definition quality video is 2,700 times what is needed to view a static website. Demand for this bandwidth-intensive video is increasing at such a rate that spare backbone capacity may be exhausted sooner than expected. We believe without major new investment, backbone bottlenecks will lead to declining access speeds and an overall slowdown in service for Internet users, leading to significant consumer dissatisfaction.