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

OID: And Gendis [GDS.A/Can]?
   Cundill: It's a net-net -- and it's still a bargain. And there are three bets to it: First, Gendis has cash. Second, they have an oil and gas company -- Chauvco Resources -- with reserves in Canada and Argentina. And, third, its stock price has come down.

   McElvaine: And the value of the Chauvco stake alone more than covers the current stock price.

   Cundill: That's right. However, the open question is the value of their retail operations and whether they'll be able to turn it around or stop the bleeding.

OID: And the answer?
   Cundill: Well, we've actually been buying a lot of these small retailers in Canada -- and in the U.S. as well. And the Canadian retail scene is probably generally more difficult -- or should I say more desperate -- than it's been in the U.S. And the U.S. hasn't been easy either.
   But the challenge is to identify the survivors. And Gendis is a net-net right now -- a classic one, in fact. But it's deteriorating. So there are some question marks.

   [Editor's note: FYI, Cundill informed us that their average cost for Gendis had been north of C$12. When we spoke, (and as we go to press,) it was around C$8.]

OID: What percentage of the time in your experience have net-nets tended to deteriorate -- typically?
   Cundill: Well, if you're lucky, when you buy them, they'd be beginning to improve. But that doesn't happen all the time.
   It depends on the economic environment largely. In 1975, companies were coming out of a bad 1974. So things were getting better. So you were not only buying net-nets, but you were getting good franchises to boot. And, meanwhile, the environment was getting better.

OID: Bill Ruane and Bob Schwerin say the experience positively spoiled them.
   Cundill: There was a change in 1990. Economic conditions in all of these really cheap things deteriorated so fast that in many instances where we thought we had a margin of safety, it got eaten up big-time and quickly.

OID: And today?
   Cundill: Funnily enough, I think we're in a more benign mode today -- which probably bodes well. An awful lot of good things have happened in America.

OID: It sounds like you think this might be a particularly good environment for net-nets.
   Cundill: That's right. Unfortunately, there aren't many of them around. However, the retail area has been one of the few exceptions. And I'm not exactly sure why. Maybe there are just too many stores.
   Let me have Tim tell you about a couple of ideas in that area.

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