December 5, 2008

Dear Investor,

We will address the economic and investment environment more fully in our year-end letter and at our seminar in January. Here are a few brief comments:

• The U.S. economy, already in recession, has entered a new phase of sharp decline. It’s still too early to estimate the ultimate depth and duration of the recession.
• It’s not unusual for stocks to decline in advance of a recession as earnings forecasts are reduced. We have already sold many of our stocks that are vulnerable to a weak economy.
• What is highly unusual, indeed unprecedented, is the freeze-up that has occurred in the credit markets Overleveraged financial organizations found themselves burdened with losses in illiquid, mortgage-backed securities and were forced to sell many of their other yield-oriented holdings in response to margin calls. The intensity of the selling caused prices to plummet (and yields to skyrocket) for REITs, MLPs and most non-government bonds. Substantial price declines in these normally conservative investments have had a pronounced negative impact on many of our portfolios.
• The steep decline in energy prices has been surprising and dramatic, wreaking havoc in energy related stocks.
• All of the above notwithstanding, there is a 50/50 probability in our minds that the bear market bottomed in November. The decline of nearly 50% may have fully anticipated the extent of the economic problems which are now surfacing. Additionally, government programs to inject massive amounts of new capital into the economy may soon have their intended effect. Time will tell.

In consequence of the above, we are presently making new investments in what appear to be very attractive long term opportunities for high dividend or interest income. We are also planning to nibble at certain stocks that seem unduly depressed, to further reduce holdings of energy-related stocks as oil price recovery seems more distant, and to do our best to monitor the economy and its effect on securities that we hold or are considering for purchase.

Please let us know if you would like us to sell securities before year-end to capture capital gains or losses for income tax purposes. In the meantime, enjoy the holiday season and know that we appreciate your continued confidence in us.

Regards,

Jeff Friedberg
Terry Ledbetter
Jonathan Reichek