2nd Quarter

July 11, 1998

The third quarter of 1998 will be remembered as the quarter when the equity markets worldwide corrected after several years of outstanding performance. It may also be remembered as the quarter when domestic long-term interest rates declined to lows not seen in decades and discussion switched from inflation to deflation.

There has been a pronounced change in investor sentiment from acceptance of risk to a flight for safety. This change is in spite of strong domestic and Western European business conditions, as well as relatively high consumer income and confident.

The any factors currently affecting investor perceptions include: Domestic political problems; excessive hedge-fund speculation; economic problems in Asia, Eastern Europe and Latin America; and political unrest in Eastern Europe. There is also a perception that there are no immediate resolutions.

For perspective, we refer you to our letter dated August 31st where we address volatility and market timing. It may tae weeks, or more likely quarters, for investor sentiment to again turn positive. It is very important to resist allowing high emotion to lead to investment moves that may be regretted in calmer times. Investments should always be considered from a long-term and not short-term perspective

One of the great investors of modern times, Warren Buffett, has described the financial equity market as manic/depressive. It’s now depressive. Buffett has also said long-term investors should be happy when equities go on sale. We agree, because as long as we are not forced to sell what’s on sale, but can but at lower process, our clients benefits.

Our investment philosophy has always been to maintain an asset allocation suitable for each client and to not attempt to “time the market” which has been proven to introduce additional risk. If your investment objective or personal financial situation has changed, it s important we know that information so your allocation can be reevaluated. Your questions are always welcome.

Enclosed please find you third quarter 1998, 12-month and 36-month Portfolio Performance Summaries (where applicable), Portfolio Holdings statement as of September 30th and quarterly Account Management Fee Statement.

Best regards,