July 10, 2000

The SEM Disciplined Investment System (SEM-DIS) produced excellent results in the first half of year 2000. Listed below are the results year-to-date and since inception versus some comparable benchmarks:

Volatility continues to be severe and also a very confusing subject for investors. This year has truly been one of the most volatile that I have ever experienced. Through June 30th, the general market as represented by the S&P 500, has fluctuated between break-even, or slight positive, to losses of greater than -6% more than ten times.

My wife Christine and I spent a few days at Walt Disney World this spring, visiting with close friends and their family. There is no better place that comes to mind than a theme park when you try to relate experiences investors incur in the stock market.

At Disney there are several roller coasters that provide significant ups and downs and thrills throughout the entire journey. But what sets them apart is that one of them, Space Mountain, is in complete darkness while the others are in daylight. Darkness is significantly more unsettling and, I believe, closely resembles the everyday feelings of most of today's stock market participants. Investors must feel as though they experienced a dark and steep drop-off on the Space Mountain roller coaster when the technology industry bellwether index, the NASDAQ, drops 5% or more in a single day.

Why does this feeling occur? Why does it seem like they are in the dark? If you asked several investors today if they have any sense for the value of the XYZ company that they are invested in, most would reply, "Last night the stock closed at X$ per share." If you then follow-up, "I'm asking if you know what the company is worth", most still wouldn't understand your question.

True investors are those who believe that when you become a part owner of the company, and that a company's stock market valuation in the long run has everything to do with the cash profit the business earns in the future. For these investors, the roller coasters are less unsettling, and a regular part of the journey. At SEM we spend our time appraising a company's intrinsic value. Those investors that do not take the time to value each of the companies in their portfolio are flying blind.

Yet another enlightening experience came from Disney's Tomorrowland Park in the Magic Kingdom. Christine and I encountered the alien leaders of X-S Technologies (as in Excess) whose mission was to help the "less fortunate people on earth." X-S is in the business of planet restructuring, interplanetary transport and genetic engineering (sound familiar?). As we ended our journey and exited the space craft, our alien hosts reminded us that "it takes time to see the future." As evidenced by the bidding-up and consequently rich stock valuations for technology stocks, stock market participants believe that the future for these fast changing businesses are easy to predict and contain little or no risk. We believe that the wisdom from our alien hosts should be taken seriously.

Michael Dell of Dell Computer interestingly wrote in this year's annual report: "The [Internet's] implications for business are massive. Soon there will be no real difference between Internet-based companies-"E" companies-and traditional businesses. The distinction will be between the winners and losers."

We could not have said it better than Michael Dell and we believe that we have a nice collection of long-term winners, including some traditional and technology businesses. Our mission simply stated is: "Build and Preserve our clients' assets through the investment in common stocks." Our goal is to have your portfolio out perform the major indexes as we have done for our clients since inception. We believe that we could be of great service to you or someone you may know. Please call to learn more about our disciplined approach. Thank you for your continued interest.

Sincerely,

Donald R. Jowdy
President