October 29, 1998

This letter will serve as a guide toward our current investment outlook (which has not changed for more than two years). The letter also will highlight various investment categories for the nine months ended September 30, 1998.

We have maintained our view of defensive positions and portfolio diversification. We continue to emphasize fixed income strategies. We do this in an attempt to protect us from a possible prolonged bear market. Each portfolio we maintain has different needs. We don’t have any portfolios that are identical to each other, yet most of our portfolios carry the same theme of defensive postures with a growing emphasis on fixed income. It is important to understand that our fixed income investments are generally geared toward higher quality investments. Our high quality fixed income portfolios have outperformed most high yield instruments (a.k.a. Junk Bonds) since the beginning of 1992.

We will now highlight several of our current themes, strategies, ideas and investment criteria:

1. Most of our portfolios are geared for periods of ten to fifteen years. We look for investments that we feel will generate above average returns over a long period of time.

2. When we buy equity investments (i.e. common stocks), we concentrate on companies not stocks. We often buy companies and industries that are being ignored by Wall Street. We like to concentrate in companies that have the following characteristics:

a. low price to sales ratios.

b. price earning ratios that are in correlation with a company’s growth rate.

c. consistent earnings trends.

d. leaders of their industry.

e. low price to cash flow multiples.

3. We like to buy companies in industries that we feel will be vital to economic existence and society trends going into the 21st century. Some examples of these industries are oil, copper, entertainment, food, technology, the internet and certain emerging markets.

4. We strive to hold onto our investments for extended periods of time. This low turnover concept has many advantages. Some of these advantages are low trading costs and avoidance of income taxes.

5. We cannot overemphasize the need to be a long term investor. It is important to avoid the noise of the markets. It is crucial that your investment philosophy does not constantly change. We believe that the strategies we employ will outperform, over the long run, the aggressive fast track investments that are popular today.

6. We constantly study the investment philosophies and techniques of Benjamin Graham, Warren Buffett, Peter Lynch, Jim Rogers, Bill Fleckenstein, David Dreman, Phillip Fisher, Martin Zweig and many others.
We often review our typical portfolio and ideas with other investment professionals (some of which you have probably seen on CNBC). This gives us the ability to find new ideas as well as get “sanity checks” on our current decisions and philosophies. As a matter of fact, I just received an e-mail (while writing this letter), from a nationally known investment manager. He reviewed our philosophies and model portfolio. His comments were as follows. . .”I like your portfolio a lot. I think we will have a recession next year so I’m not to keen on the base metals, but, you own cheap stuff so it should be fine. Your portfolio and investment philosophy looks very well thought out to me.”

We’ll end this letter with several closing remarks.

1. For those of you that are clients of our investment management division, we invite you to set up an appointment to discuss your portfolio or any other investment questions. We do not charge for these consultations as they are included as part of the service we provide for you.

2. We invite prospective clients to talk with us. We offer a free consultation and review of your current portfolios.

3. If you ever want to bounce an idea off on us, our door is always open. Please, do call.

4. Lastly, we greatly appreciate your reading this letter. We thank all of you for contributing to our continued growth in the financial services industry.