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October, 2001


After the outrages of 9/11/01 and the ongoing terror-related incidents since, with threats of further surprises in reprisal for the military efforts in Afghanistan, our nation seeks more safety. In investing, as in the world overall, however, greater security usually comes with a price. In both instances, we must assess whether or not the price is too high for the benefits of increased stability.

One could, for example, put all his or her investment dollars into federally insured money market funds or bank certificates of deposit. But, with an after-tax real yield (also after inflation) likely to be a negative number, the price here might be greater than one should reasonably pay, except for very short-term financial goals.

One might purchase top quality large companies' shares, to participate in the growth of their huge business franchises, unlikely to go under in even the greatest storm. But, even at today's prices, most such well established corporations are selling for significantly higher than their long-term valuations, based on such fundamental ratios as price-to-earnings or price-to-book. The performance of such shares, bought at these levels, has often been disappointing.

Or one could carefully research the major businesses, looking for a combination of bargain pricing and security. Nothing wrong with this strategy. It has much to recommend it. However, not everyone has the time, interest, skill, resources, or inclination for the task.

For most of us, then, it might be good fortune to come upon a single asset that combines the triple benefits of: 1. relative safety; 2. major companies; and 3. reasonable price. Such a find is Tri-Continental Corp., symbol TY, which is the country's largest domestic closed-end fund (sells a limited number of shares in the market, like a stock), purchases the shares of big companies selling at a discount to the prevailing market fundamentals, seeks growth (or long-term price appreciation) plus an increasing income stream, and has a nearly 10.5% discount to its net asset value (based on a price of $19.36, as of 10/19/01).

Major holdings (as of 6/30/01) are such business behemoths as:

-General Electric
-St. Jude Medical
-United Technologies
-Pitney Bowes
-Baxter International
-American International Group

While there are no guarantees and, in the short-term, this asset is unlikely to best the major market averages, it has excellent prospects and could, according to some rating services, more than double the total return of the Standard and Poor's 500 over the next several years.

(One cautionary caveat: because the fund had purchased shares of some of its largest holdings when their prices were much lower, it may have significant, unrealized capital gains. When its shares are sold or its capital gain distributions are not taken as stock but as cash, there could be steeper than usual tax bites. Thus, the asset is a better vehicle for the very long-term holder who can take all such distributions as stock dividends [an option with this fund] and/or for whom the distributions will be protected from taxes in the near-term via tax-deferred status.)


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

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