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Bruce Berkowitz Letter to Shareholders

February 02, 2008

Since we started about eight years ago, the Fund has appreciated by 17.40% per annum compared to a gain of 1.71% per annum for the S&P 500 Index over the same time.

We have always been attracted to sectors showing large declining market values. Usually, stock prices of businesses within these industries drop faster than underlying values, tainted by the collapse of speculative securities. Such conditions create a Darwinian process of the strong getting stronger and the weak disappearing. The winners are usually run by battle-hardened owner/managers who know that the seeds of greatness are planted during the worst of times and reaped after the storms pass. To the victor belong the spoils…

Berkshire Hathaway remains the Fund’s largest business investment. The implosion of credit markets, overextension of financial guarantors, weakened competitors, and the struggles of housing-related industries have allowed Berkshire to start a municipal bond insurer, acquire a super-majority of the Pritzker’s building-related Marmon Group, and increase float. With a war chest of roughly $40 billion of cash and $100 billion of other liquid investments, Berkshire is a logical senior lender or last-resort acquirer for the financially wounded.

Energy continues to be a substantial component of the Fund with Canadian Natural Resources the second largest Fund investment. Notwithstanding the province of Alberta’s proposed royalty increases, the company has a unique ability to materially increase production without acquisition in today’s high price/high cost environment. Canadian Natural remains undervalued in a world where most reserves are subject to significant political risk and long term-demand threatens to outrun supply.

Read the complete letter


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