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April 8, 1998

April 8, 1998

The first quarter was a good one for the U.S. and European markets and a volatile one for the Asian markets. The U.S. provided decent returns and we continue to see opportunity in this country in coming months.

In the U.S., we hold core positions in high quality growth companies like Fannie Mae in finance; Cendant, Microsoft, and Intel in technology; Pfizer and Schering Plough in pharmaceuticals; New York Times, Ames Department Stores, Pepsico and Tiffany & Co. in consumer and retail.

European markets have been the world’s strongest so far in 1998. We will continue to see economic progress and market changes in Europe as the continent commences the European Monetary Union (EMU) in the next few months. The EMU is the economic convergence of eleven (11) European nations and brings with it the advent of the “Euro”, a common currency. This convergence is happening with more success and enthusiasm than most had expected. With this enthusiasm comes opportunity in European stocks, especially those of countries which have made a commitment to stable central bank policies in order to qualify for the EMU.

The cult of Socialism that gripped Europe from the 50’s until the early 90’s is being replaced by freer markets and the growth of an equity culture which values business expansion, capital formation and job creation. Even European tax authorities are gradually recognizing the need to incentivize capital formation. Debt, which had been the favorite European investment in the slow growth socialistic post World War II decades, has been giving way to equity investments.

We see continuing opportunity in Europe and accordingly, are holding several European companies in the portfolio, including: Elan PLC and Axogen, two pharmaceutical companies, as well as, World Equity Benchmark Shares (WEBS) in Italy, a broad index duplicating the Italian market.

In addition, we continue to be somewhat conservative, holding three (3) high yield companies that should provide over 10% dividend income in the next 12 months, as well as some capital appreciation. These are: WBK Strypes, preferred shares of Australia’s largest bank – Westpac Bank; Capital Automotive and Price Enterprises, two Real Estate Investment Trusts (REITS). As mentioned, they should provide excellent income, some potential for capital appreciation and security if, as often happens, we get market corrections in the historically volatile April and May or October and November time frames. Should these corrections occur, we will use them as an opportunity to trade our income stocks for growth company stocks at bargain prices.

We are bullish about the prospects for the European and U.S. markets over the next few months. In the U.S., the main risk is high market valuation and that underlying wage pressures could lead to tightening by the Federal Reserve. This could lead to a substantial market correction. Absent that, we expect continued, albeit slower, market appreciation throughout 1998. Even though the Asia slow down might cause corporate profits to be modest early in 1998.

In the U.S., our focus continues to be on industries which can continue to deliver earnings even with a slowdown in Asia: real estate, retailing, financial services, pharmaceuticals and some technology companies. In Europe, we expect to benefit from low inflation, the accelerating economies, the rapid growth in corporate profits and the relatively low p e ratios found among certain European companies. Asia itself has begun to solve its problems and over coming months, stabilization may occur. As it does, we will be carefully watching for opportunities.

To summarize, we see most opportunity in quality U.S. and European growth companies. We will move more into them if a seasonal correction occurs in the April to May time frame. Any correction at this stage with inflation low and interest rates stable should be temporary.

Please accept our warmest wishes for a healthy, happy and prosperous Spring season.