STOCK UPDATES
(November, 1999)

NetOptix (symbol: OPTX)
[This stock was formerly Galileo Corp. (symbol: GAEO)]

CM Analyst: James Brilliant, CFA

On August 31, 1999, Galileo Corporation changed its name to NetOptix to focus attention on the fact that their primary business efforts were now directed toward the production of thin-film WDM optical filters. NetOptix gives new meaning to the term volatility. Under the old name of Galileo, we had originally accumulated a position in this stock with an average price of $7. When the company developed a problem within one division, the stock price dropped to $3 per share in July of 1998. We continued to average into our position because, despite their problems, they still had a value of $6.5 to $7 per share and one of their divisions, OFC (Optical Fiber Corporation) had enormous opportunity.

In December of 1998, NetOptix recruited a new CEO, Gerhard Andlinger, who invested a significant amount of his own money into the company. We were very impressed with Mr. Andlinger's credentials and his track record. Within a very short period of time, Mr. Andlinger assembled a first-class management and production team and he has made significant strides in expanding the future of this company around the capabilities of its OFC division.

Because of the company's progress and our high level of confidence in its management, we have continued to add to our existing position in NetOptix. We now own 6% of the company, on behalf of our clients, with an average cost of $5.97 per share.

With continued, rapid expansion of the Information age and the popularity of the Internet, new technologies have created an insatiable demand for more and more bandwidth. Bandwidth is at the heart and soul of the telecommunications infrastructure. Significant investments (into the billions of dollars) are being made today in order to provide for an adequate infrastructure capable of handling the enormous increase of data, voice and video flowing over the communications lines throughout the world. This demand for bandwidth has created a new technology referred to as WDM.

The product behind NetOptix centers on the coating expertise of their OFC (Optical Filter Corporation) division. This division has been in the thin-film coating business for over 20 years under the direction of their talented founder, Jack Blais. OFC now designs, manufactures and markets WDM (Wave Division Multiplexing) thin-film filters. Currently, they are ramping up multiple production lines in the U.S. and building a facility in Germany. It is our expectation that within 12 to 18 months, NetOptix will have put in place industry-leading production capacity dedicated exclusively to WDM thin-film filters.

The technology behind WDM is the ability to increase the number of signals transmitted simultaneously on a single fiber, thereby increasing the capacity of each fiber optic line. Think of WDM as adding more lanes to a freeway without widening the road. As more lanes are added to the freeway, the lanes get very narrow and much closer together, thereby increasing the bandwidth.

In order to accomplish and maintain the precise channel spacing and separation for added bandwidth, WDM systems require an optical filter for each channel. NetOptix manufactures these optical filters. Currently, systems are configured in 8, 16 and 32 channels. As the number of channels per system increases and spacing gets tighter, the demand for optical filters increases, as does the difficulty in the design and production of these filters.

There are less than a dozen companies who have the capability of making 200Ghz thin-film WDM filters. As the industry moves to 100Ghz thin-film filters, the field of companies is further reduced by 50%. Industry analysts estimate demand for optical thin-film filters to be $300 million. In addition, there is a shortfall of at least $200 million worth of these filters. Estimates for filter demand are expected to increase 100% to $600 million next year. Further compounding the filter shortage is a 6-month waiting list for the equipment that is needed to manufacture these filters.

We are very excited about the direction of NetOptix and the optical filter industry. NetOptix has already sold its total production through January 2000. With the current demand for optical filters, NetOptix and its competitors are selling these filters as fast as they can produce them, so there is very little near-term risk. However, with this demand comes the requirements to increase the production ramp-up capabilities and to continue to increase the development of next-generation technology.

Any shortfall in the number of chambers or slippage in the production timetable for the next-generation filters could have an impact on the revenue and profit estimates we have calculated for NetOptix. Having said that, NetOptix has over 20 years of thin-film coating experience and has recently assembled an industry-leading management team with the vision to become the industry's leading filter manufacturer.

NetOptix has appreciated from $5 per share in January 1999 to its current price of $21.88 (10/22/99). It is currently selling at 4-times sales, which is not cheap. Obviously, what we have just discussed is not a military secret and much of this news is already reflected in its stock price. Nevertheless, the other two main manufacturers, ETEK Dynamics (symbol: ETEK) and JDS Uniphase (symbol: JDS) are selling at 21 times sales and 25 times sales, respectively.

While we don't recommend purchases of NetOptix at this price, we will continue to hold our investment because of its leadership position and the enormous potential of the industry.

CPI Corp (symbol: CPY)

CM Analyst: James Brilliant, CFA

_CPI owns and operates over 1,037 Sears Portrait Studios located in the U.S. and Canada. On June 16, 1999, CPI announced an agreement to be acquired by American Securities Capital Partners (ASCP) along with the members of the CPI management for $37 per share in cash. While the offer was a nice premium to the level the stock was trading at prior to the announcement, it fell far shy of the company's true intrinsic value.

On June 21, 1999, we expressed our written disappointment for the low merger price to the company's CEO Alyn Essman and the Board of Directors. On October 8, 1999, we enclosed a copy of this letter to all Century Management clients and advised them to vote no on the proposed merger. On October 12, 1999, CPI and ASCP announced the termination of their merger agreement.

While we don't like to see our stocks decline in price, it is our opinion that our patience will be rewarded with a significantly higher stock price than the $37 price that CPI's management was willing to pay for the company just a few weeks ago. It is very obvious to us that the management, too, believes in this company or they would not have offered $37 per share to merge the company. We have yet to see a management buy out their own company at retail prices.

On the news that the stock merger was terminated, CPI suspended trading due to an influx of sell orders. This influx drove the stock price down to $20 per share. We immediately placed additional buy orders before the stock reopened for trading and thus we were able to purchase a significant number of shares at an average price of $20.5. We were thrilled to be able to buy this company at such a great price. To demonstrate just how good this price is, consider that CPI has almost $100 million in cash or the equivalent of $10 per share. If you deduct this cash from the price of $20.5, we paid $10.5 per share for a company who is an industry leader, has $2 per share in earnings after making the adjustment for deducting the cash, and has a P/E multiple of 5. Now that's value! Remember, the median P/E in the Value Line index (a universe of 5,200 companies) is 16 and the S&P 500 is currently trading at a P/E of 23. We consider any price below $22 per share for CPI, not an investment but a gift! Christmas came early for our new CPI shareholders.

Just two days after the buyout plans were terminated CPI's management authorized the repurchase of 900,000 shares. Once all of these shares have been repurchased, we believe the management will get authorization to further expand the share repurchase program.

In summary, CPI is in an extremely good financial position. They will have at least $100 million in cash by the end of 1999, which is equivalent to $10 per share. If they were to use this cash to repurchase company shares up to a price of $30 per share, they would reduce their outstanding shares to 6.75 million. This would increase their earnings to $2.70 per share. If you apply a conservative P/E multiple of 16 to these earnings, CPI would be trading at $43.20 ($2.70 times 16 = $43.20). If you apply a more reasonable P/E multiple of 19, which can be justified based on the quality of this company, this stock would be trading at $51.30 per share. If you use a multiple that another company would have to pay to acquire all of CPI (a private market multiple), the P/E multiple would be about 22. Using this multiple would imply a price of $59 per share. If you consider that the company is just beginning a cycle of higher earnings growth, you can see this stock has considerable upside potential.

American Barrick (symbol: ABX)
Newmont Mining (symbol: NEM)

_In 1980, gold was so popular that investors once
lined up three blocks to purchase gold coins from a
popular coin store in Los Angeles. The coin store is no longer in existence and neither are a lot of gold mining companies, not to mention all of those enthusiastic investors who bid the price of gold up to $800 per ounce in 1980. This price was so lofty that gold prices have not reached this level in 19 years!

When looking at today's hot stocks and IPOs, we are beginning to wonder if perhaps these enthusiastic gold investors from the early 1980's have been reincarnated into today's Internet investors and day traders. If indeed they are not one in the same, they certainly have similar investment philosophies, which are; no concern for the price they pay for an investment and an uncanny ability to foresee into the future about 20 years and pay that future price today! If nothing else, this enthusiastic group of investors shows tremendous confidence.

Today, amid extreme pessimism and gloom for the future, gold hit a bottom of $253 per ounce in September 1999. There are several factors that have contributed to this low. First, most investors left the gold market years ago. Second, most mining companies hedged their future production, which means they sold their future production, because they did not believe gold prices would go higher. Third, many gold mining companies went out of business. Fourth, hedge funds (aggressive investment partnerships using techniques such as borrowed capital and derivatives) were making good profits shorting gold. In this process, they sold borrowed gold and bought it back at a lower price, and thus made a profit on the difference. This short selling added additional pressure on the gold market. Finally, central banks, the most faithful investors in gold over the last hundred years, were selling gold in the open market. It is this kind of maximum pessimism that eventually creates bull markets and great investment opportunities.

For the past two years we have felt, based on supply and demand, that the bear market in gold was ending. When gold dropped below $300 per ounce last year, we believed that gold was finally beginning to find a bottom because most gold mines have a break-even production cost between $300 to $350 per ounce and, therefore, could not afford to stay in business.

Since many gold mines are leaving the business, the future looks very bright for those companies who are the low cost producers. The two companies which are world leaders in gold mining are American barrick (symbol: ABX) and Newmont Mining (symbol: NEM). Both companies are the low cost producers. American Barrick's cost to produce one ounce of gold is $137 per ounce (cash cost) and Newmont Mining can produce one ounce of gold at $180 per ounce (cash cost). American Barrick hedges their production so it has less risk, while Newmont Mining does not hedge their production and therefore has greater risk if the price of gold declines. However, it has greater opportunity for higher profits if the price of gold increases.

GOLD PRICES
	$250	$275	$300	$350	$400	$450	$500
American Barrick	18.67	21.50	24.33	29.99	35.65	41.31	46.97
Newmont Mining	12.39	20.26	28.14	43.90	59.66	75.41	91.17
This chart shows the value of what American Barrick and Newmont ining would be worth per share at various gold prices. Note that for the last 5 years, gold has had an average price of $343 per ounce.

From a fundamental investment position, the prospect for gold could not be better. For every 10 ounces of gold coming into the market, there is 16 ounces of demand. Many mines have stopped their production and it is very difficult to reactivate them. Hedge funds won't find it profitable to continue to short gold and many will start buying it. Mining companies have already sold most of their production, some as many as 5 years into the future,so there won't be as much supply. Central banks will limit their future selling to 400 tons a year, compared with current total demand for gold of 3,500 to 4,000 tons per year. Finally, there has been virtually no investment demand for gold in the past 10 years. However, this is changing!

We are not going to make any predictions as to how high gold prices can go. However, we would like to give you a few numbers that suggest prices could go higher than most people would ever believe. The total gold in all central banks throughout the world and in the United States is 32,800 tons, with a market value (using $300 per ounce) of $316 billion. There is very little chance that all of this gold will become available on the market, especially since the central banks have recently pledged to limit their sales of gold to 400 tons per year for the next 5 years. The United States stock market has a market value of $13 trillion. If we combined the U.S. stock market with the world's stock markets, the total market value would be $40 trillion. This does not include the cash, savings, bond markets and real estate markets throughout the world. Let's assume that only 1% of the $40 trillion in the stock markets today switched to adding gold to their portfolios. This would equal $400 billion additional investment demand. This amount would buy all the gold from the world's central banks. Since only part of the gold supply will be available, the only way for investors to purchase gold would be to bid the price higher since it cannot come out of current production because there is a 1,500 ton or $13 billion deficit in the supply. If only a small percentage of the investors decide that they want to include gold in their portfolios, it would create a pressure on the gold market that we have not seen for years. While it will take time for these changes to have a dramatic effect on the gold market, perhaps several years, they are starting to take place. For example, gold has already moved from $253 per ounce to $316 per ounce. This is a 25% change within the past two months. It is for this reason that, over the last year, we have been purchasing American Barrick and Newmont Mining in your portfolios. Remember, there is no fever like gold fever!

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