Open your Contacts.  Select one contact and open it.  Add the category (or
categories) you want to the item and Save and Close.  Now display your
contacts in the By Category table view, select the other contacts that you
also want in the same category and drag them to the category you added.
They'll all get that category.  Continue until all your contacts have
categories assigned, then you should be able to use Tools>Mail Merge to send
to a selected category.

Just a suggestion here.  Perhaps there is a better way to organize your
contacts than assigning a category for business, friends, or family.  Why
not create separate contact folders for these very obvious groups?  For
example, we have created folders within the standard 'Category' folder for
Family, Friends, Business, Church, etc.  Be sure to go to the 'Properties'
option for each folder and mark the option to show the folder's contacts in
the address book on the 'Outlook Address Book' tab.  If you do not do this,
they will not show up in the contacts window.  Now you can navigate to any
of these folders and simply select all the contacts in that folder for a
given purpose or even include them all in a single distribution list for
emailing or merging as a group.

Good Luck with your project!

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