The Rule Breaker Portfolio, Annual Fool-4 Switch, February 19, 1998

18-Month Fool-4 Switch
February 19, 1998

It's that time again!

Every eighteen months the Fool Portfolio makes its historic Foolish Four switch, swapping out of the old Fool Four stocks and ringing in the new. This is the fourth such trade in the young portfolio's life, which began in 1994. (Initially the switch was completed every 12 months, but thanks to our friends at the IRS, who changed the capital gains tax laws, it is now beneficial for Fools to hold stocks for at least 18 months. The IRS is promoting long-term Foolish investing by taxing longer-term holdings at a lower rate.)

The portfolio's most recent Fool Four stocks were AT&T, 3M, Chevron and General Motors. In the past 18 months, from spin-offs, the portfolio was given Lucent and NCR from AT&T, and Raytheon from General Motors. NCR was sold and Raytheon will be sold now. We like Lucent! The stock has doubled for the portfolio in just over one year. Hey, we're going to keep it. It also makes sense to hold onto Lucent because we're keeping AT&T again, too. Ma Bell makes the Fool Four switch again this time around (there is usually one hold-over stock each time period).

Our new Fool Four stocks will be International Paper (NYSE: IP), DuPont (NYSE: DD), Exxon (NYSE: XON), and, again, AT&T (NYSE: T). We'll just hold our AT&T and then buy the other stocks in equal amounts. The switch will be completed on Friday, February 20, 1998.

In 1997 the Fool Four returned 28.6%, just below the S&P's 31% gain before dividends. In the past twenty-five years, the Fool Four has returned over 22% annually, crushing the market averages. Here's hoping for another fine 18 months with our new guys, our new Fool Four stocks. Though this is a methodical investing method, there is more information on the approach and on the buys and sells below and in links.

Fool on!

**This trade is being made under the regular portfolio policy, namely, once The Fool announces an intention to trade, that trade will be made within the next WEEK, as opposed to the next day. For more detail, please read the "New Trades" section of the Fool Portfolio.**

18-Month Fool-4 Buys

Buying: DD, XON, IP
Amount: Approximately $13,000 worth of each.

As of the market close on February 19, 1998, the Fool Four stocks are AT&T, DuPont, Exxon, and International Paper. Already owning AT&T, the Fool Portfolio will mechanically purchase, in equal amounts, the other three companies. These are our new guys, our fellas. We'll be sharing close quarters with these giants for the next 18 months.

For some reason, we feel that we should congratulate the new Fool Four stocks. So, Congratulations!

DuPont (NYSE: DD), Exxon (NYSE: XON), and International Paper (NYSE: IP) are currently among numbers 2, 3, and 4 on the list of highest-yielding, lowest-priced Dow stocks. None of these companies have suffered any great hardship of late (unlike Eastman Kodak (NYSE: EK), which was recently a Fool Four stock, too). Whether it be earnings slightly below expectations, or slower than anticipated sales growth, or oil concerns in the Middle East, each company has made the Fool Four list while having a core business that is well intact.

The Portfolio is selling nearly $39,000 worth of stock in GM, Chevron, and 3M. The Portfolio owns $12,400 worth of AT&T and Lucent. So, we'll buy about $13,000 worth of each of the three new stocks, bringing each of our Fool Four holdings to about $13,000. Our Fool Four stocks will constitute about 30% of the total Fool Portfolio, as is our intention.

Summary

The Fool Portfolio will be buying equal dollar amounts of :

DuPont (NYSE: DD) (See Snapshot)
Exxon (NYSE: XON) (See Snapshot)
International Paper (NYSE: IP) (See Snapshot)

18-Month Fool-4 Sells

Selling: CHV, GM, MMM, RTN.A

As summarized in the introduction to this collection, in order to make our Fool Four switch we're selling three of our old holdings that are not currently part of the approach. These stocks are Chevron (NYSE: GM), General Motors (NYSE: GM) and Minnesota Mining and Manufacturing (NYSE: MMM).

These fair soldiers were bought mechanically -- and so without any use of brain power whatsoever -- and treated us well. Over the past 18 months, GM and 3M each rose around 34%, while Chevron, which has been held since August of 1995, rose 56%.

The Fool Portfolio will be selling in the amounts that follow:

125 shares of Chevron
280 shares of General Motors
17 shares of Raytheon (which was spun-off from GM)
100 shares of 3M

These sells will be made in the next five business days, but most likely on Friday, the 20th. The replacement buys of International Paper, DuPont, and Exxon will be made on the same day.

Fool on!