2nd Quarter 1999

American Capital Management, Inc.

2nd Quarter 1999 Mutual Fund Report

Transcript

Good morning. Today is Tuesday, July 6th and this is Tim Peoples reporting to you on the results of the 2nd quarter of 1999.

Well it’s hard to believe that this year is ½ over and the new millennium is less than 6 months away. One of our big concerns is with the y2k issue, the problem with computers that is in the news. I have taken this situation very seriously since we are so dependent on our computers in this business and I want to have everything working come January. We have completed the tests on our computer and software systems and everything appears to work as usual when told it is the year 2000. It did require the replacement of 2 computers and the move to new account management software, which we started at the first of the year. Schwab and Waterhouse have reported to us that they have completed the tests of their systems and will be compliant.

Now if the markets would just be as agreeable. The 2^nd quarter continued to be volatile as it has for the past year. Interest rates again seemed to be at the forefront of every market move. April started out with the DOW again moving back above the 10,000 level, the long bond below 5.5% and the feeling that inflation was dead. By the middle of the month, smaller stocks started to fall, especially the internet stocks, but the big blue chip stocks that make up the DOW continued to rise, with the DOW tacking on about 8oo points.

May started out by continuing the great run of the large stocks and the DOW went over the 11,000 mark. It’s interesting to note that 80% of this gain came from just 7 stocks out of the 30 that make up the average. In fact, IBM accounted for almost 20% of the Dow’s gain by itself. Most other stocks, especially smaller ones were doing nothing. By the middle of the month it seamed that the economy was doing too good and the fear of inflation started again. The long bond rate started to move up toward 6% and volatility increased. By the end of the month the DOW gave back about ½ of it’s gains from April.

By June the long bond was above 6% and all eyes were on Federal Reserve Chairman Alan Greenspan. Every so-called expert was forecasting a rate increase at the June meeting at the end of the month. When any news came out that looked like the economy was doing too well, stock prices would drop since it could mean a increase in interest rates. When economic news would come out that showed the economy was slowing slightly, the market would rally. This trend continued all month with the markets really going nowhere until the Fed meeting on the 29^th of the month. At that meeting, rates were raised by ¼ % but the Fed did the best possible thing by saying that it thought that one increase might be enough. The last few days of the month and so far in July, stocks have rallied.

Overall for the quarter, our accounts performed well. We are still heavy in the money markets, but did make some buys at the end of the quarter that have performed very well so far. The funds we picked up or added to were the Financial fund and Baron Asset fund. For the quarter our Conservative accounts were up 2 to 3% giving a 8 to 12% annual return. Our Moderate accounts did a little better moving up 3 to 4% which would be 12 to 14% annual return. We had very good returns from the Merger Fund, Select American Shares, Janus, and the Invesco Technology funds.

Our Aggressive accounts returned somewhat less, coming in around 1 to 2% for the quarter. The cause of this was really two fold. During March, we purchased the Benham Target Bond funds in anticipation of rates staying stable or declining over the course of the year. Since that did not happen, these funds have not performed very well and our more aggressive funds have the longer duration bonds which move the most in response to interest rate changes. Our aggressive accounts also have investments in health care funds that underperformed during the quarter.

Going forward, we may continue to make additional purchases in the Financial and smaller stock funds since we may have a summer rally. I am also looking at the Benham funds to try to determine if we should continue to hold or just move out of bonds for the time. I do think they will do well going into next year and may now be fine if indeed rates stay stable. Going further toward the end of the year I think we just have to have a wait and see type of approach. I plan to continue to be cautious, especially with the end of year, year 2000 situation. We don’t want to get too far out on a limb since this event is still rather uncertain.

If you have any questions about your account or the subjects I have just covered, please give me a call. If it has been a while since we have had a face to face meeting, let’s get together. Situations change, and the investment style we are currently using may need to be changed to better fit your goals and objectives. I would also welcome any comments or ideas that you may have that could make our service better.

At this time I would like to review your printed account statement which was enclosed with this tape. The statements are new and a little different starting this year. The basic information is still there, just in a slightly different format.

On the first page is the general summary of your account listed under the heading "Portfolio Performance". The number of columns will depending on how long you have been with us. The far right column is for the past quarter only. The next column lists data for the past year or, since you started with us if less than a year. The third and fourth column to the left will appear if you have been with us over 1 year and shows figures since you started with us. Each column shows the beginning value, any additions or withdrawals, interest, dividends and so on. The ending value, profit for the period and total profit % is at the end of the column.

The 2^nd page has a pie chart showing how your portfolio is allocated to different asset classes, such as growth funds, sector funds, bond funds and money market. In the center of the page is a list of each investment we currently hold and it’s total return for how ever long we have held it.

The 3^rd page lists return data for the past quarter for each investment in your portfolio. Any investment that was in the portfolio for any time in the quarter will appear in this section. If the starting value is zero, then that investment was added during the quarter. If the ending value is zero, this means that particular investment was sold during the quarter.

If you like the new statement, let me know. If you don’t like it, or have any suggestions on other information that you would like to see on it, please let me know. The new Captools software we are using is extremely flexible and all reports can be changed and customized.

This will conclude my report for the 2nd quarter of 1999. Again, please call me if you have any questions about your account.

Thank you very much for your time and I’ll talk to you again in 90 days.

American Capital Management, Inc.

2nd Quarter 1999 Stock Trading Report

Transcript

Good morning. Today is Tuesday, July 6th and this is Tim Peoples reporting to you on the results of the 2nd quarter of 1999.

Now if the markets would just be as agreeable. The 2^nd quarter continued to be volatile as it has for the past year. Interest rates again seemed to be at the forefront of every market move. April started out with the DOW again moving back above the 10,000 level, the long bond below 5.5% and the feeling that inflation was dead. By the middle of the month, smaller stocks started to fall, and the internet stocks got killed. In one day the Internet Index dropped over 18%. During this time I stayed on the sidelines waiting for the dust to settle.

Overall for the quarter, our accounts performed well. Depending on the size of the account, we were able to take advantage of some of the big market swings, especially in June. We are still having some problems with Waterhouse executing our trades, but the situation has improved greatly. Most of our stock trading accounts were up 4 to 8% for the quarter which is a annual return of 16 to 32%. I am pleased to report that we only had 2 trades that were down for the quarter and both improved considerably on Friday July 1^st. One of these stocks was Onsale which we have traded several time before. It jumped about $4 and we sold it. Today it is back down $2 all ready so it may be a good buy again soon. For the quarter we had successful trades in Bell South, 3COM, Dell Computer and Office Depot. We also finally were able to sell some positions we have been holding for a while in CBT Group, Tel-Save, Neomagic and Cresent Real-estate.

Going forward, I think the market will continue to be volatile and I will try to take advantage of it. We are starting to hold some quality positions a little longer, trying to get more than just a dollar or two. With internet stocks, we will continue to get in and out quickly.

One last note, during the first 2 weeks of August, I will be out of the office. My wife Julie, daughter Erica and myself are participating in a mission trip to Romaina. We leave on July 31 and get back home on August 14. I plan to have most positions closed before I leave so we don’t have any surprises while I am gone. If you have any questions during this time just call Mark here at my office. He can not make any trades in your account but I will be in touch with him during this trip.

This will conclude my report for the 2nd quarter of 1999. Again, please call me if you have any questions about your account.

Thank you very much for your time and I’ll talk to you again in 90 days.

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