May 31, 1996

Dear Client:

We would like to inform you of some views on investing and my interpretation of current investment conditions. I will also mention several investment philosophies. Please call is if your risk tolerance or investment goals are different from these.

The following selections are various philosophies of which I feel all investors should be aware:

“In most periods, the investor must recognize the existence of a speculative factor in common stock holdings. It is his or her task to keep this component within minor limits, and to be prepared financially and psychologically for the adverse results that may be of a short or long duration” (Benjamin Graham).

“One fairly dependable sign of the approaching end of a bull swing is the fact that new common stocks of small and nondescript companies are offered at prices somewhat higher than the current level for many medium sized companies with a long market history” (Benjamin Graham).

“You can lose money in a very short time, but it takes a long time to make money” (Peter Lynch).

“The key to making money in stocks is not to get scared out of them. This point cannot be overemphasized” (Peter Lynch).

“A decline in stock values is not a surprising event, it’s a recurring event – as normal as frigid air in Minnesota. If you live in a cold climate, you expect freezing temperatures, so when your outdoor thermometer drops below zero, you don’t think of this as the beginning of the next Ice Age. You put on your parka, throw salt on the walk and remind yourself that by summertime it will be warm outside.”

“A successful stock picker has the same relationship with a drop in the market as a Minnesotan has with freezing weather. You know it’s coming and you’re ready to ride it out. When your favorite stocks go down with the rest, you jump at the chance to buy more” (Peter Lynch).

Warren Buffett’s admonition that “people who can’t tolerate seeing their stocks lose 50 percent of their value shouldn’t own stocks also applies to stock funds” (Peter Lynch).

“People who can’t tolerate seeing their mutual funds lose 20-30 percent of their value in short order certainly shouldn’t be invested in growth funds or general equity funds” (Peter Lynch).

There are also several concerns on fixed income investments. When investing in fixed incomes, you must understand the following risks to principal:

Rising interest rates

Credit quality

Callable features

Maturity date

Inflation (which appears to be reemerging)

The Federal deficit

Foreign ownership of U.S. Treasuries and the United States potential reliance on continued investment by foreign nations.

We are in a very difficult time for investing. The U.S. stock market is at all time highs. Certain valuation models on the market are also at arguably high levels. Several of these potentially negative indicators are dividend yields, volume of initial public offerings and mass market optimism (from the factory worker, taxi driver, bank teller, construction worker, accountant, lawyer, etc.). We have also been in a bull market since 1981. Over the last fifteen years (including the “crash” of 1987) losing money has been difficult.

In summary, we do not think the sky is falling. Understanding the risks of both equities and fixed income investments is very important (remember mutual funds are included in these risks). Again, if you have any questions or comments please call me. To invest properly, a teamwork approach is necessary. It is important that all parties on your financial team (including you) are in touch with the risks and rewards of investing. It is also important that you have a clear understanding of your portfolio.

We thank you for taking the time to read this letter.