3rd Quarter

October 14, 2000

We have come to the end of another quarter – albeit a very volatile one. Skyrocketing crude oil prices, an ever widening trade gap brought about by an insatiable appetite for imports, and profit warnings by several Wall Street heavyweights all contributed to wild stock market gyrations which made the third quarter feel like a “long hot summer.”

This time around the focus has shifted from Fed monetary policy to the unrealistic expectations of investors who have been merciless on companies that have failed to meet revenue growth and earnings forecasts. For the record, the Dow Jones Industrial average topped the major indices in the third quarter with a return of 1.94%. The S&P 500 large-cap stock index returned a negative 1.25% while the technology heavy NASDAQ index plummeted 7.39% – all ample testament to the kind of quarter it was. Markets around the world have not faired any better. Sans Canada, China and a handful of others, most stock exchanges around the world have been stuck in the red for the first nine months of the new millennium.

The much-touted economic “soft landing” was brought about by an astute Greenspan & Co. From its sizzling heights at the beginning of the year the economy has begun to cool off. Any ill effects of a tight labor market have been offset by phenomenal productivity gains. Consumer spending, though fairly robust, has tapered off and inflation is still mild and very much under control. Nevertheless, as most things in life, this soft landing has come to be viewed as a double edged sword by skeptical investors who wonder whether the cooling off is going to put a dent in future corporate earnings.

Nonetheless, there is much to cheer about. The ten-year U.S. economic expansion is still very much alive. U.S. economic growth seems to be moving away from consumer spending related “bad growth” to “good growth” fueled by corporate investment in new technology. Moreover, monetary policy is safely tucked away in the able hands of Alan Greenspan for the next several years – which augurs well going forward.

As we step into the fourth quarter and wade through the perilous month of October, we expect investor jitters to continue and the markets to remain volatile. Therefore, we caution you against unrealistic return expectations, but at the same time are confident that your portfolios are well positioned with an emphasis towards technology, telecommunications, and healthcare – the three sectors we feel have the greatest potential in the coming years.

Sincerely,