a. Statistics

          Details of the overall portfolio are as follows:   
 

1. Portfolio

        A quick glance at the main indices (see the chart on the next page) will give an idea of how the year has unfolded. The two key market measures are the S&P 500 as a good proxy for the U.S. market and the NASDAQ as a useful proxy for the new economy and technology.  The portfolio and the markets in general, hit two low points in the year with declines that ended in late July and in the second week of October. Since the most recent low point the market has rallied and some enthusiasm has been created, but we have to put that in context. We are still in the midst of the third consecutive year of declines in all of the Worlds major markets and the declines, even after the recent recovery, are still very damaging and they appear to have significantly affected the psyche of the investing public.
 

a. It has been a year of extreme volatility.

b. The low point, thus far, for the year occurred on October 10th when our portfolio had declined by 8.3% and the declines for the S. and P. and the NASDAQ for 2002 were, respectively, 30% and 40%.

c. For nearly all participants, and particularly and sadly for the typical “widows and orphans” portfolio, it has been a disastrous year.

d. We have performed much better than we would have expected in this “perfect storm” of a market and our year to date loss is 0.8%.

e. This is the situation at the start of business on November 26th and I can’t emphasize enough how volatile the market has been over the last nine months. I view the volatility as a positive factor (the fear and panic creates mispricing), but I fully appreciate the fact that a turbulent market can cause stress to many of the participants. It is one of our jobs to help alleviate that stress by constant communication and information and it is why we actively encourage you to call us with any concerns.

f. This is the last time I will append this comparative chart. It has served its sole purpose this year in emphasizing the scope of the carnage and also emphasizing that we are (were), in large part, immune from the carnage. I believe, however, it also casts a lot of attention on what is only a part, albeit a very significant part, of our portfolio. We always run a balanced portfolio that is conservatively managed and the details of the management have been described in excruciating detail in our regular investment policy statements.

       You will shortly receive your Fidelity statement in the mail for November.  The statements, in many cases, may have incorrect balances. We tendered two significant stock positions in October for Green Mountain Power (GMP) and Emerging Markets Telecommunication fund (ETF). Both tenders have finished, very successfully for us, and we have already received the proceeds for ETF. We are still awaiting the proceeds of the GMP tender and it is possible that the money will not be received until early December AND it may not be priced on the November statement. The accepted tender price for all of our GMP was $19.75 and the cash proceeds should arrive in the next two weeks.

       On a number of occasions we have had people complain, with some considerable justification, about the sheer volume of mail originating from Fidelity and, in particular, the volume of trade confirmations. Please contact us if you want to reduce the volume of the mail and we will give you some detailed instructions to effect the change or, in some cases, we will be able to execute the change on your behalf.  We discussed this at some length in our last report and a number of clients have utilized this option. As stated if this is of interest please contact us.

3.  Tax Loss Selling

         This is something that we always do in the last 3-4 months of the year as we manage and attempt to minimize the amount of realized capital gains in your taxable accounts. We usually try, and the operative word here is try, to leave you with year end realized losses of $3,000. This is the maximum amount that can be deducted from your other taxable income in any given tax year. We have already made a significant number of tax motivated sales and we will probably have one final burst of tax loss selling near the end of the year in our ongoing quest to minimize your taxes.

         The reason I emphasize this is that, at this time of the year, some of our trades will be entirely tax motivated and will not represent a reduction in our holdings (we usually maintain our positions by executing “crossing” trades or by buying back for you either before or after the wash trade deadline – explanations available to anyone interested. Just write).

4. Summary

        We continue to operate a balanced conservative portfolio and we expect to attain our stated targets in the next 21 years using the same risk averse methodology that we have employed successfully since 1981.

        Our aim is to achieve superior risk adjusted returns without incurring excessive risk. I target the portfolio to earn, in the long run, a rate of return that exceeds the long-term rate of inflation by 5% p.a (the actual rate of return MINUS the rate of inflation  is called the real rate of return). Our actual experience over the life of the portfolio has been a rate of return of 10.8% p.a. and a real return (after inflation) of 7.4% p.a.   In simple terms, $100,000 invested in the portfolio on January 1, 1981 (without any further additions or withdrawals) would have grown to $846,000 at the date of this report.
 

         Best wishes for a peaceful and Happy Thanksgiving from Mike, Nancy, Nancy C. and, of course, Trevor the dog!