Good Morning. Today is Wednesday April 5^th and this is Tim Peoples reporting to you on the results of the 1st quarter of 2000.

Well, without a doubt, this has been the most exciting quarter I can remember. That is if you find roller coasters exciting. At any rate it has been a challenge.

January started out with the markets continuing to do well but things started to change after the first week. We started to see a shift away from the high flying Internet and technology stocks and back into the household name blue chip stocks. The media started calling it the Old Economy –vs- the New Economy. Remember that last year many of the quote "Old Economy" stocks like Dupont, 3-M, J P Morgan, Kodak and Coke did terrible and at the end of the year were trading at real attractive levels. This see saw back and forth between Old and New Economy stocks continued through out the quarter with the old economy, blue chip stocks being the best performers.

This shift from new to old economy was also evident in the mutual funds we hold.

As I mentioned last quarter, we have been looking at and buying some funds that invest in these beaten down value areas. Lets start by defining the difference between Growth oriented funds and value oriented funds;

A growth fund will tend to buy stocks of companies whose earnings they think will rise faster than average. Some fund managers carry this to the extreme in that these rising earnings are their only concern, regardless of how over priced the stock may be. A value fund on the other hand will tend to buy stocks of companies that are viewed as cheep relative to their earnings or some other measure. These companies generally look cheep because for some reason the market has beaten down their price, but the value manager will look at this as a temporary situation. Most mutual funds will fall into one camp or the other, either value or growth, and they will also fall into them in different degrees.

Some funds try to have a mix of both, growth without the extremes and a value approach too. A good example is the Select American Fund, which is in several of our accounts. It has had very consistent returns with less than average volatility and had a return of over 9% for the quarter.

A great example of a true value fund is the Oakmark fund. I have struggled with selling this fund for the last 9 months. The fund manager’s name was Bob Sanborn and he is a true value manager, almost to a fault. His results have been excellent in the past but his stern value approach just has not worked for the past few years. This year the value funds started to pick up but the Oakmark did not. I was considering moving to the Oakmark Select when it was announced that Mr. Sanborn was stepping down from the fund and the manager of the Select fund was replacing him. The Select fund also has a value approach but with a somewhat different mix of stocks that have performed much better. This made me want to wait and see how the fund would respond and so far the results look promising. For the quarter the fund was down about 6% but it was up over 12% just in March. This one I will keep watch over for now.

Our returns for the quarter were fairly consistent with our objective. Our Conservative accounts were up 3 to 4% for the quarter; our Moderate accounts returned 4 to 5% and our more Aggressive accounts had gains of 6 to 8%. On an annualized basis this would give us gains for the year of 12% on the conservative end to over 25% on the more aggressive side. In comparison the DOW Jones average was down 5% for the quarter. The S&P 500 was up 2% and the Russell 2000 was up 6%. Overall, considering our less aggressive stance, our fund picks are performing very well in a very volatile market.

Another interesting note, in our moderate and more aggressive accounts we are still holding the INVESCO technology fund. For the quarter, technology funds on average fell 6%. The INVESCO Tech was up over 25%. It also held up real well in the big market drop yesterday.

Another change we made last quarter was the sale of the American Century Benham 2020 bond fund. I purchased several of these Benham bond funds in most accounts last year as a hedge going into the Y2K situation at the end of century. As you know there really was no Y2K situation and these funds did not really shield us from anything. With the continuing increases in interest rates by Greenspan and company, it appeared that these may not help us this year either, especially the longer bonds that are in the 2020 fund. There was a period last quarter where the long bonds went back up in value and I sold this fund at about break even. I will keep an eye on the other bond funds with the possibility of selling them in the near future.

As far as our other holdings, the Merger fund has continued to run like a steady engine, giving us a 5% gain for the quarter and we started moving back into the overseas funds with the Artisan International. For the time we have had it in some accounts it is up around 17%. Another area we have held some of and are starting to buy more of is in the medical area with the INVESCO Health Care fund. This particular sector has laged behind for a while but looks like it may start to catch up.

As far as the next quarter goes, I am still expecting more of the same. In fact yesterday was really volatile the DOW and the NASDAQ having some of the biggest swings ever, although it did give us an opportunity to make some additional purchases. The volatility will probably continue until Greenspan is finished with rate hikes. Also, lets not forget that this is an election year, which may calm things down in the last half of the year. I would at least expect the Federal Reserve to be out of the news since the politicians would not want interest rate changes going on during the election.

At any rate, I will continue to watch our holdings and add to them as it seems prudent.

If you have any questions about your account or the subjects I have just covered, please give me a call. If you would like to review your account in detail, let’s get together. I also welcome any comments or ideas that you may have that could make our service better.

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