1st Quarter

April 5, 1999

The first quarter of 1999 was, in many ways, similar to the dozen or so past quarters – large-cap stocks kept zooming to new highs, small-caps continued their downward spiral, international equities barely kept afloat, and REITs continued their demise. Money continued to pour into the more liquid large-cap blue chip stocks. Computers, software, semiconductors, telecommunications, and “dot com’s” were among the big beneficiaries. The April 1st Wall Street Journal reported that 100% of the S&P 500 gain was attributed to just 21 companies. One- third of that came from just two companies – Microsoft and America OnLine.

So, what does this all mean? It means that unless the economies around the world start recovering from the troughs they are in, U.S companies (in particular the large, blue chip multinationals and conglomerates) are not going to be able to produce sufficient earnings growth to sustain the continuous upward momentum of the large-cap stock indexes.

At present, the overall U.S economic landscape seems to be bright. The increase in productivity has ensured that wage cost inflation stays under control. At the other end of the spectrum, stagnant and recessionary economies from Asia to Latin America coupled with prudent Fed monetary policy have ensured benign price inflation. The decision of the Federal Reserved Open Market Committee last month to keep interest rates unchanged gave the clearest indication that inflation should remain dormant in the near term. Unemployment is at its lowest levels in decades. Americans witnessed the economy growing at a 6.1% in the fourth quarter 1998. Consumer spending, which accounts for two-thirds of that growth, has not abated since. All of this has led to a continued increase in consumer confidence over the past several months which has been impetus of flows into the stock market.

We are cautiously optimistic about future equity returns. Beating a particular index or indexes is not our objective – instead, we strive to ensure that you reach your financial goal. We also try to provide you with the best possible return for the risk you have assumed. Therefore, 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 your Portfolio Performance Summaries, Portfolio Holdings Statement as of March 31, and a quarterly Account Management Fee Statement. If you desire Morningstar reports, or the most recent copy of out Form ADV, Part II, please call us.

Sincerely,

 

P.S. Recently, we have added the Institutional Select S&P 500 Fund to many portfolios. We hope to gradually move more money to this low expense, tax efficient fund while taking into consideration any transaction costs or tax consequences. During this transition, some of your portfolios will contain two S&P 500 funds.