This is another of those occasional updates that I issue as a supplement to the individual performance reports, investment policy statements and financial planning reports.
Performance Report thus far in 2003
 
        The rates of return reflect the overall rate of return on all the funds that I have managed since 1981.

a. Statistics

1. Estimated Taxes

         In the next week many of you will be receiving estimated tax payment instructions. The Federal tax payments must be made by January 15, 2004 and the State payments (if any) should be paid on the date specified in our letters. We MAY tell you to pay the State payments prior to year end to reduce your 2003 Federal tax bill and those checks must be dated prior to December 31st to qualify for the tax break. In that mailing we may also give you other tax instructions that need to be acted on prior to the end of the year. Do not be concerned if you don’t receive a tax letter as it just means that no action is required prior to your regular filing in April 2004.

         In general the estimated tax payments will be larger, often much larger, than usual and this is a function of two things – that earlier estimated payments were often smaller than usual (but still met the legally required minimums) and, more significantly, because we have made a lot of money over the last seven months.

2. ING Orange Account

        As you know we have a very large cash position in the portfolio. This occurs, as previously explained, not because we make a conscious decision to hold cash but, rather, as a direct function of a dearth of attractive investment opportunities. We are always looking at ways to improve the management of the cash to eke out additional returns, but have found over the years that very few alternatives were either risk free or worth the effort for the incremental return.

        We have been recently looking at this area actively as money market rates have dropped below 1% p.a. We have looked at and discarded many options, but one remains that is worth pursuing.

        You may well have seen advertisements for the ING orange account (featuring an orange bouncing ball). ING is a very large ($43 billion market capitalization) and very safe European bank and financial services company. The deposits are FDIC insured in the usual fashion and I have no concerns if deposits with ING exceed the FDIC limits (although I will, of course, monitor ING very carefully as long as we have funds with the group).

          What I wanted, and what ING has, is a direct equivalent to a money market fund (i.e. zero price fluctuations and easy access instantly with no penalties). The comparisons are very favorable:

        We cannot use the ING account for retirement funds, but we can use it for any taxable accounts that have cash accumulations and that also meet a size threshold that makes the maneuver worthwhile. We currently have about $5.5 million in qualified accounts and utilizing the ING account over a year would give us (assuming rates remain unchanged) an extra $68,000 in income. The only downside is that ING funds will not be part of the consolidated Fidelity statement but they will, of course, be reported regularly on our consolidated statements that we provide quarterly with your bills and also with the annual and semi annual report and with your investment policy statement. The funds remain in your name and the arrangement means that they can only be transferred between your ING account and your Fidelity account.

          Nancy will be sending a letter under separate cover to clients explaining the process and requesting your email or written confirmation (we can affect all of the changes at this end). I might add that Nancy has been the guinea pig for the ING account by volunteering to send her funds back and forth between her new ING account and Fidelity to check out the nuts and bolts of the process and to make sure there weren’t any hidden problems.
 

3.   Portfolio Management

          There has been no significant change since the last report apart from the fact that, as it has done steadily since March of this year, the portfolio continued to increase in value. I will reiterate that attractive investment opportunities are in short supply and that most assets appear to be fully valued or, in some cases, overvalued. I believe that there is a very real chance that 2004, particularly the latter part, will be a very difficult year for most market participants. There is also the possibility that the economy might be able to grow its way out of the problems imposed by our large budgetary and trade deficits. There is no way of knowing which scenario will unfold and I (like Warren Buffett) spend zero time on trying to predict the unpredictable. My goal next year, which also applies to any year, is to steer a conservative path that will preserve our money in the bad times and achieve our goals in the longer term.

            I will, once again, repeat my regular goal statement.

            My goals with your money are really rather simple:
 

1. To invest wisely using a consistent approach that emphasizes balance and a longer term view.
2. To invest with a clear idea of your individual timetables of goals and needs and your individual feelings about risk.
3. To clearly and concisely and consistently tell you what to expect, what we are doing and why we are doing it.  A key to a successful management relationship is clear communication with no surprises.
4.  To be patient and to be calm during periods of turbulence.
5. To maintain a widely diversified portfolio.
6. To buy securities of all types at prices that represent a significant discount from their fair market values.

            You can expect the following:
 

• The portfolio returns will be unpredictable over shorter periods of time.
• It is extremely unlikely that we will have significant losses and, even if we do, those losses will NOT be permanent.
• We will have losing years. That is part of the process.
• It is highly likely that we will attain our longer term goals for the portfolio.
• We will not significantly increase, or reduce, the level of risk in the portfolio without prior consultation.

           It seems fairly likely that 2003 will be a satisfactory year for the portfolio. In the years ahead you can expect two things. The first is that in the medium and longer terms that we will achieve our stated goals and the second is that the annual portfolio returns will vary significantly from year to year.

          The pattern of the last 23 years illustrates this point and I have included the data on the next page for reference. I have also included the current portfolio allocation.

        We appreciate your continuing support and we always appreciate feedback.  You can reach me at Crewel@ aol.com. This will be our last report before our year end summary so we would like to wish you all a peaceful and happy holiday.

        We have earned 10.8% p.a. measured over the entire 23 year period.

        The actual returns have been:
 

         If we take a range of +/- 2.5% points (i.e. 8.3% to 13.3%) we find that the portfolio returns have only come within that relatively wide range in five of the 23 years. The last time it came within that range was nine years ago.
 

        The overall portfolio is invested as follows: