4th Quarter

January 1999,

Fourth quarter investment performance can be described as mildly disappointing after 1997 began with three good quarters. Market volatility mentioned in prior quarterly letters became evident in domestic and international equity markets and has continued into 1998. The Dow Jones Industrial Average ended its most volatile year since 1987. However, when viewed from a full-year perspective, 1997 was a every good year for both stocks and bonds.

Large-cap stoked produced very good total returns in 1997, largely due to four factors: continued solid earnings growth; declining long-term interest rates; investor’s preference for liquidity; and the perceived safety of large-cap stocks. Unrest among Asian economies led to slumping returns for international stocks, especially late in 1997, continuing into 1998 and carrying over to Europe and our domestic equity market.

Current domestic inflation statistic benign. The lack of inflation remains a key long-term positive for the bond market. The yield on the 30-year U.S Treasury bond ended the year at 5.9% at its lowest level in more than four years.

Looking forward to 1998, we believe that prospect for small and mid-caps stocks are good for the following reasons: stronger earnings and attractive relations valuations as compared to the same for large-cap stocks; limited impact from global economic crises; the strength of the U.S dollar; the benefits of the recent capital gains tax cut. It is unlikely we will see continuing accelerating profits for large-caps companies as we saw in 1996 and 1997.

Our portfolio management will focus on maintaining and selecting the best bond and equity investments for your portfolio, with emphasis on mic and small-cap equities. If you desire information for 1997 income tax preparation, Morningstar reports, or the most recent copy of out Form ADV, Part II, Please call us. If your investment objective or personal financial situation has changed, it is important to notify us so we can reevaluate your portfolio.

Enclosed, you will find you fourth quarter, 12-month and 36-month Portfolio Performance Summaries, Portfolio Holdings statement as of December 31st and quarterly Account Management Fee Statement. For taxable accounts we have included a Realized Gains and Losses Report for 1997 which is subject to confirmation with your 1099-B form which you will receive y the first week in February.

We wish you a healthy and prosperous New Year!

 

P.S Our business grows form client referrals. If you know of someone who would benefit from professional portfolio management, we would appreciate your referral.