Michael Durante Western Reserve

1. First Quarter 2005 April 28, 2005
100 Crescent Court, Suite 400 • Dallas, Texas 75201• (214)871-6720 • (214)871-6713 Fax
FY04 Jan-05 Feb-05 Mar-05 1Q05 YTD05
WRHE Gross 27.1% 0.4% -1.9% -2.4% -3.8% -3.8%
WRHE Class A, Net1
20.5% 0.2% -1.6% -2.0% -3.1% -3.4%
WRHE Class B, Net1
21.2% 0.2% -1.7% -2.1% -3.2% -3.5%
S&P 500 9.0% -2.5% 1.9% -1.9% -2.5% -2.5%
NASDAQ Composite 8.7% -5.2% -0.5% -2.6% -8.1% -8.1%
1
Class A shares are subject to a one year lockup and a 20% performance fee; Class B shares are subject to a three year lockup and a 17% performance fee.
“Three yards and a cloud of dust”
Dear Partners:
Western Reserve Hedged Equity, LP (WRHE) declined 3% net in the opening quarter of 2005
versus the S&P’s 2.5% decline and the NASDAQ’s 8.1% decline. Since our January 2004
inception, WHRE has returned 16% net for Class A and 17% net for Class B shareholders versus
the S&P 500’s 6% gain and the growthier NASDAQ’s negative performance. The market has
been very choppy these past five quarters, and the averages were down sharply again this past
quarter amid the on-again macro debate over the dollar, oil and Fed-speak.
With credit tightening moving forward, there was plenty of unproductive “slop” to the market in
the opening quarter. Growth and services stocks were hit hardest and valuations have returned to
non-recessionary troughs for the third time in fifteen months. So, we find ourselves in a rather
familiar place and enthusiastic about the opportunities presented by our growth bias. Stock
valuations within the economy’s long-term growth drivers – financial services and information
technology - are rapidly approaching levels we find empirically compelling. And it’s quite
common for quality growth to reassert leadership as the Fed gets closer to wrapping things up.
There isn’t an indication in our fundamental research to imply that we aren’t phasing through the
normal discount associated with a classic mid-cycle retrenchment. Relative earnings yields
indicate stocks have become increasingly less risky and thus risk/reward is very attractive.
Growth stock headwinds may be subsiding as a result.
The “Old Man” (as he is referred to in my native Ohio) had it right! While opinions are as varied
as they are strong about the legendary Buckeye coach, I suspect no one would disagree on one
thing – Woody Hayes despised losing. His Big Ten record of 205-61-10 was formidable (as was
his right hook unfortunately), and while legendary investors the likes of Peter Lynch and Warren

2. April 28, 2005
Buffett define investing success as getting stocks right 6 out of 10 times, the Old Man won or
tied nearly 80% of the time he walked onto the field. His six national championships are
unrivaled.
As a portfolio manager, what I have always found appealing about Coach Hayes’ success is that
while everyone knew exactly what his game plan was, they could rarely stop the man. There is
relevance to his strategy when applied to investing. Hayes’ teams never needed to “style drift”
to consistently put up the numbers. Ohio State mounted a highly consistent, proven strategy that
was rather unlike most of Wall Street, whose habit is to constantly chase trends, fads and
momentum. The Old Man was never “opportunistic”. Instead, he was deliberate and tenacious.
He was a planner and devout believer in repetition. So are we…
Western Reserve’s investment strategy has many things in common with Coach Hayes’ strategy.
We are deliberate by design, we invest in a consistent manner regardless of the macro
environment, and we replicate common business model themes from our past successes (and we
eliminate practices that failed). While we are not oblivious to the world about us and we
recognize that our discounted growth strategy may not always have the wind at its back, we
don’t believe the basic tenets of good investing change from cycle to cycle.
“Real” and “sustainable” earnings (cash flow) drive stocks, and there are but two ways to lose a
lot of money – (1) get the earnings wrong or (2) overpay. Our fundamental stock selection
strategy (including our loss mitigation program) is focused on quantifying and mitigating the risk
inherent in stock selection stemming from (1) and (2) above.
On one rare losing day, a reporter pressed the Old Man as to why he didn’t pass the ball more
aggressively, to which the coach replied, “There are only three things that can happen when you
pass, and two of them ain’t good.” I feel exactly the same way about the market’s current
obsession with chasing commodity-based and cyclical stocks. The margins of these businesses
are as fragile as they are capricious, their ability to manage the future elusive and any notion of
predictability illusory. Absurdly, these deceptive drivers of cyclical businesses appear to have
put them squarely in the market’s recent trend highlight reel.
Western Reserve’s research team constantly searches for wide margin, high quality recurring
revenue-based businesses that can grow more consistently in the face of changing macros. Our
higher confidence in earnings and cash flows (and thus valuations) combined with our discipline
to not overpay creates a strategy that historically is difficult to hold back for too long. Sort of
like the old school Buckeyes. Our minimum 15%-20% growth requirements serve as our scoring
potential, while valuation discipline and fundamental shorting serve as our defense. The result is
a highly consistent attack.
It is our focus on the “constant horizon” that guides us through such periods of uncertainty and
macro anxiety as the present. And there have been plenty of those in my career – Asian Crisis,
Asian Contagion, two Gulf wars, two recessions, “dangling chad”, Orange County, 9-11, Internet
bubble, Long-term Capital and today’s Oil Crisis to highlight several.
100 Crescent Court, Suite 400 • Dallas, Texas 75201• (214)871-6720 • (214)871-6713 Fax

3. April 28, 2005
It may be difficult to think of it in this manner, but it is the inefficiencies inherent to fear-driven
markets that provide the pricing discounts so important to our scoring potential and risk
management process. The current period exhibits many of the same attributes (fears) as a 1994,
1999 or 2004 period (and even resembles 1981-1982 on some relative valuation measures).
These periods were characterized by heightened inflation anxiety, cyclical speculation and an
ever narrower leadership in the stock market just like today. They also included outlandish calls
favoring the “momentum” stock group, calls which later proved a mere signaling of a top and
less a new “secular” investing paradigm. And, of course, my alma mater, the Federal Reserve,
was busy resetting the table in each case as it is again today.
As the central bank approaches one year into a credit tightening period, investors are uncertain as
to when and how it will end, and the market is distracted from the horizon as a result. The
current ‘second sell-off’ is quite normal during credit tightening periods and has historically laid
the valuation groundwork for a great multi-year opportunity in quality growth investments.
Every one of our services industries are exhibiting the highly attractive valuation characteristics
seen against our fundamental models at most other non-recessionary troughs.
The partnership’s long-side forward P/E (or cash equivalent) averages just 11x-12x, with average
annual growth prospects in excess of 20%. Quality growth stocks at a discount to traditional
value investments? Yes, and while difficult to time the inevitable unwinding of such an
imbalance, we are nonetheless excited about an opportunity that has not existed since late 1994.
In the meantime, we continue to invest in the same manner and with the same disciplines with
which we approach all markets.
With services economy stocks heavily out of favor - I thought it would be helpful to provide a
few examples of just how incredibly inexpensive quality growth has become again.
As of March 31, 2005:
2006E
Price/Cash
Earnings
Cash
Earnings
Growth Rate PEG
Implied Cash
Earnings
Yield
Upside to
Target
ADS 11x 20% 0.6x 10% 50%
ACF 9x 20% 0.5x 11% 60%
COF 9x 18% 0.5x 11% 60%
CKFR 11x 20% 0.6x 10% 50%
PRS 9x 50% 0.2x 11% 100%
MATR 13x 30% 0.4x 8% 35%
PPBI 7x 35% 0.2x 14% 55%
MINI 10x 18% 0.6x 10% 50%
NSTC 13x 30% 0.4x 8% 35%
S&P 500 17x 8% 2.1x 6% NA
100 Crescent Court, Suite 400 • Dallas, Texas 75201• (214)871-6720 • (214)871-6713 Fax

4. April 28, 2005
Conversely, the partnership’s short positions carry a higher 19x average P/E with a much less
compelling cash earnings yield of 5%. Not surprisingly, those figures are relatively low by our
standards, and we are not broadly constructive about short opportunities right now. Growth
stocks are cheap.
With an earnings yield above 6%, even the broader market is empirically attractive relative to the
10-year note (it is my experience that the long bond is the best economist in the world). It’s
unusual for stocks to carry an earnings yield above the 10-year Treasury, and the current spread
of over 200 basis points is inordinately high by historical standards. The last such wide discount
for stocks was during the 1981-82 time period. So, there is a fair amount of potentially bad news
currently discounted in stocks.
We have found that one of the best places to consistently find significantly undervalued growth
is the financial services sector. With this group decidedly out of favor, I felt that a quick
discussion was so untimely by conventional wisdom as to make it very timely by our standards.
The consistently less than genial accord afforded financials by most investors was best
summarized by the godfather of all banking analysts, M.A. Shapiro, who once quipped,
“Financials trade somewhere between hatred and apathy.” A truer statement on Wall Street has
never been uttered. And if it ever changes, I fear I will be out of business.
It is the pendulum that swings narrowly between hatred and apathy that has made financials very
good investments over time (hard to overpay in that range). This combined with the fact that
financial businesses are very recurring by nature owing, in large part, to their symbiotic
importance to capitalism, that little notion of an economic structure we export to the rest of the
world (but don’t like to talk about). Finance is our most important industry, most exported
service and would you believe – it’s not counted in our trade numbers? With this in mind, it still
might surprise some that so many pundits disfavor financials so consistently.
While we prefer smaller, fast growing firms, I will use the S&P 500 to illustrate my point.
Financial stocks comprise roughly 25% of the market capitalization of the S&P, making them the
largest weight. They also contribute about 40% of the earnings of the S&P, making them the
overwhelming profits leader. Yet in comparison to their value (weight), financials are the only
stock group which trades at a discount to its fundamental economic contribution. Put simply, a
dollar earned by a financial firm is worth only 63 cents in the eyes of investors, while a dollar
earned in any other industry is worth more than $1.30 on average. Habitually overpriced large-
cap technology skews this of course, but does that make sense?
Pulling all this together, we consistently find attractive growth opportunities within the vast
financial services universe and are at lesser risk of overpaying for them. The financial industry’s
generous margins also provide a greater measure of defense against changing macro-economic
conditions. In truth, Fed angst is our friend. It helps keep the valuations attractive and provides
the well-prepared with an opportunity to generate alpha. Cheap is a good thing. Growth on the
cheap is “priceless” to quote a famous credit card brand. But let’s keep this to ourselves.
100 Crescent Court, Suite 400 • Dallas, Texas 75201• (214)871-6720 • (214)871-6713 Fax

5. April 28, 2005
A few weeks ago, I shared several exciting new developments with the partnership. As noted in
our update letter, we are pleased to announce that industry veteran, James Davis, has joined the
firm as Chief Operating Officer. The addition of James is a key appointment for our growing
organization and underscores our commitment to prudent, sustainable growth. Assets under
management now exceed $100 million and new interest remains high. James will assume the
role of managing many of the critical non-research aspects of our business, and, accordingly, will
play a key role in keeping the senior research team focused on the portfolio. We are fortunate to
have attracted him.
We also announced the April 1 launch and subsequent funding of our Bermuda-based offshore
fund, Western Reserve Hedged Equity Offshore, Ltd. Should you have an interest in
receiving subscription documents on this or any of our funds, please contact:
James Davis
(214) 871-6735
jd@western-reserve.net
As always, we pride ourselves on the consistency and fundamental logic of our investment
program which does not stray from a focus on quality, recurring growth themes. I appreciate
your continued confidence in Western Reserve, and remember how the Old Man did it - Three
yards and a cloud of dust!
Regards,
Michael P. Durante
Managing Partner
100 Crescent Court, Suite 400 • Dallas, Texas 75201• (214)871-6720 • (214)871-6713 Fax

6. April 28, 2005
Long
Short
Total (Gross)
Total Class A (Net)2
Total Class B (Net)2
Long
Short
Total (Gross)
Total Class A (Net)2
Total Class B (Net)2
Jan-05 Feb-05 Mar-05 YTD
WRHE Gross 0.4% -1.9% -2.4% -3.8%
WRHE Class A Net 0.2% -1.6% -2.0% -3.4%
WRHE Class B Net 0.2% -1.7% -2.1% -3.5%
S&P 500 -2.5% 1.9% -1.9% -2.5%
NASDAQ -5.2% -0.5% -2.6% -8.1%
Mar-05 Feb-05 Jan-05 Dec-04 Nov-04 Oct-04 Sep-04 Aug-04 Jul-04 Jun-04 May-04 Apr-04 TTM
Inception
To Date3
WRHE Gross -2.4% -1.9% 0.4% 7.8% 7.7% 2.7% 4.6% 0.6% -2.1% 1.3% 0.3% -3.1% 16.2% 22.2%
WRHE Class A Net -2.0% -1.6% 0.2% 6.1% 6.0% 2.0% 3.6% 0.4% -1.8% 0.9% 0.2% -2.6% 11.7% 16.4%
WRHE Class B Net -2.1% -1.7% 0.2% 6.3% 6.3% 2.1% 3.7% 0.4% -1.9% 0.9% 0.2% -2.7% 12.2% 17.0%
S&P 500 -1.9% 1.9% -2.5% 3.3% 3.9% 1.4% 0.9% 0.2% -3.4% 1.8% 1.2% -1.7% 4.9% 6.2%
NASDAQ -2.6% -0.5% -5.2% 3.8% 6.2% 4.1% 3.2% -2.6% -7.8% 3.1% 3.5% -3.7% 0.4% -0.2%
Sector Long Short Gross Net
Business Services 7% 0% 7% 7% Long
Consumer 2% 5% 7% -2% Capital One
Financial Institutions 16% 9% 25% 7% Alliance Data
Financial Services 24% 11% 35% 13% Checkfree
Healthcare 3% 0% 3% 3% Providian
Industrial 2% 6% 7% -4% Valley Bancorp
Preferred Stock 3% 0% 3% 3%
Technology 1% 7% 8% -7%
Technology Services 19% 5% 23% 14% Long Short
Real Estate 10% 6% 16% 5% 18.5% 9.4%
85% 48% 134% 37% 30.0% 17.9%
Summary for the Quarter Ended
March 31, 2005
Western Reserve Hedged Equity, LP
Quarter Ended
March 31, 2005
Positions1
Performance Ending Exposure1
44 -7.1% 85%
35 3.5% 48%
79 -3.8% 134%
-3.1% 37%
-3.2% 37%
Trailing Twelve Months (TTM)
Performance Average Exposure1
19.2% 90%
-3.3% 46%
16.2% 136%
11.7% 44%
12.2% 44%
Year to Date Comparative Returns
2
Trailing Twelve Months Comparative Returns
2
Composition by Sector (% of Capital) Key Positions
Top 5 Winners YTD
Largest Long Positions Short
Trammell Crow eSpeed
Checkfree AIG
Matria Healthcare Janus Capital Group
Euronet Worldwide Ocwen Financial
Central European National City
Percent of Capital
Top 5 Positions
Top 10 Positions
Western Reserve Hedged Equity, LP
Cumulative Performance Since Inception (Gross)
-9%
-5%
-1%
4%
8%
12%
16%
20%
24%
28%
Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Western Reserve
S&P 500
NASDAQ
1
Freely tradable securities. Immaterial position sizes omitted.
2
Class A shares are subject to a one year lock-up and a 20% performance fee; Class B shares are subject to a three year lock-up and a 17% performance fee.
3
Western Reserve Hedged Equity, LP's inception date is January 1, 2004.
Please be advised that the past performance of Western Reserve Hedged Equity, LP (the “Fund) is not necessarily indicative of future results. Depending on the timing of a
person’s investment in one of the Funds, actual investment returns in the Fund may vary from the returns stated herein. Performance results are estimated, based on both audited
and unaudited results, net of management and performance fees and operating expenses. Such performance results assume that a partner invested in the Fund at the inception of
the Fund and has not made additional contributions or withdrawals. There is no assurance that at any time the securities held by the Fund will be securities which comprise any of
the indices listed above, and the Fund may have substantial cash balances and investments in relatively illiquid securities at any time when compared to the securities comprising a
listed index. This report is provided for informational purposes only and is not authorized for use as an offer of sale or a solicitation of an offer to purchase investments in the Fund
or any affiliated entity. This report is qualified in its entirety by the more complete information contained in the Fund’s Confidential Private Placement Memorandum and related
subscription materials. This report is confidential and may not be reproduced for any purpose. Western Reserve Capital Management, LP serves as the Fund’s investment
manager. Its Form ADV Part II and Privacy Policy are available to investors upon request.
100 Crescent Court, Suite 400 • Dallas, Texas 75201• (214)871-6720 • (214)871-6713 Fax