January 15, 2001

During a difficult 2000, SEM clients had an excellent year versus the stock market averages and versus most other money managers. Listed below are Suncoast Equity Management's year 2000 and since inception performance results versus some comparable benchmarks:

Prior to the poor results that most investors have experienced this past year there were several back-to-back years of outstanding returns. The rising tide of the stock market lifted all boats prior to year 2000. Now that the tide has gone back out to sea, I believe that it is more important than ever that investors review their portfolios and advisors.

Whether you manage your own portfolio or engage an advisor, it is to your benefit to examine and conclude if you have only benefited from the rising tide or if you also truly possess a sound and intelligent approach to investing.

SEM clients clearly have the confidence that when the tide goes back out, we still have our bathing suits on. They also know that SEM approaches investing in a very intelligent and disciplined manner and our goal of outperforming the benchmarks and most other money managers over the long run is on track.

Intelligent investing is not rocket science but it is far from easy. Below is a sample of the thoughts I shared with clients to demonstrate our intelligent thinking for the year 2001 and beyond:

The recent declines in interest rates could eventually have a positive influence on business values and the stock market. Lower interest rates have two effects: they (1) allow corporations to increase their interest in new projects (investments) by reducing their cost of capital and (2) investing in common stocks becomes more attractive when the rates investors can earn on alternative, fixed investments such as government and corporate bonds, decline.

The investment road is often bumpy. One of the important reasons, which often times has nothing to do with the long term fundamentals of a business, is that individuals react very quickly in today's world of instant information. Hearing about a negative near term development and observing the pessimistic activity of others, individuals respond in force and the end result is severe market volatility. As confidence declines it can paralyze the rational thought process of the investor. Human nature being what it is, a generally upbeat confidence will only return for the individual when he/she observes that confidence is returning for others. As an investor it is important to understand the marketplace and when and if to take advantage of it.

One strong capitalistic force making its mark in business is the Internet. Early on, the Internet may have provided a new way for a business to get an early jump or advantage on its competitors. Now that it is widely available, everyone shares the advantages of this lower cost information and distribution system. The world gains and consumers clearly gain from the Internet's ability to create efficiencies. For investors, the Internet's influence is not so positive on certain equities since the Internet causes a reduction of returns on capital for many businesses in corporate America. It will be very important for investors and their advisors to separate which companies will suffer from those which can potentially benefit from incorporating the Internet in business practices.

The SEM-Disciplined Investment System (SEM-DIS) is a disciplined approach to seeking out long-term winners. Passing the three-year mark for SEM, we are proud of the returns that we have produced for our clients. I look forward to the next three and the next thirty years. SEM will not outperform the market each year, though in the aggregate, I am hopeful that the statistic below demonstrates to you the added value of SEM-DIS:

The value of investing $100,000 since inception (3 years) net of all fees:

Over much longer periods of time if we continue to do well, the relative gains versus the S&P 500 will become very large indeed. I invite you to give us a call and discuss how we can work together and achieve your goal of preserving and growing your capital by aiming for above average returns and at the same time taking less risk. Thank you for your interest and Happy New Year!

Sincerely,

Donald R. Jowdy
President