CUNDILL VALUE & CUNDILL SECURITY FUND'S
PETER CUNDILL & TIM MCELVAINE
(continued from preceding page)

We're doing more selling than buying -- maybe a lot more.
   Cundill: In the first quarter, we've probably sold more things (and if you take The Telegraph -- which isn't sold yet, but is something that awaits disposition -- then we've sold a lot more) than we've bought. We've rolled over a number of our [short] positions in the S&P futures. And our cash positions are up by not a lot, but up by some.
   So we continue to screen. And there are some things to do, but not a huge amount.

On July 1st, 1997, Hong Kong becomes part of China.
   Cundill: I did a two-week trip to Japan. I'm going twice a year now because we have a lot of our assets there. And then I went to Seoul in South Korea, Singapore and Hong Kong -- which is old hunting grounds for me.
   So perhaps I should comment for a second on how I see Hong Kong and its relationship with the People's Republic of China (the PRC) -- because Hong Kong becomes part of China in [only about a] year....
   What will happen? I think reporting standards, corporate governance and how they do business in China will get better. But I suspect corporate governance, accounting and the way one does business in Hong Kong will get a little bit worse. But the reality is that on July 1, 1997, Hong Kong becomes a Chinese city. And, as a result, there's a great deal of underlying tension in Hong Kong regarding what will happen.

Two beneficiaries: Singapore and Canada....
   Cundill: There have been, and will continue to be, two beneficiaries: One is Singapore and the other is Canada. Although Vancouver is very clearly becoming an Asian city, I think in terms of absolute numbers, at least, the Chinese community in Toronto is even larger.
   Interestingly, we probably are having a stronger look at securities in the People's Republic of China than we are in Hong Kong. David Briggs, who was with Nikko Securities and who helped us in doing undervalued securities in Japan and who understands our methodology, has joined us. He has the Asian brief. And he's doing a very good job searching out opportunities for us [there]....

The 1987 market was speculative; this one is mindless....
   Cundill: Returning to a theme, we're outside the U.S. today. And I wrote a note for our internal use which I call "The Almost Definitive Memo on our Short Positions."
   I said, "U.S. valuations are moving towards extremes. Overoptimism in early 1987 was speculative greed. This market's dominated by" -- although it's an oxymoron -- "reckless responsibility." It's a kind of mindless belief that markets will continue upwards in an unbroken stream. However, if you were around in '73 and '74, then you still have a long memory of how that can change.

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