QUARTERLY CLIENT LETTERS by Dale Woodward, CCIM, CFP, Partner
			Please choose which letter you wish to read, or just scroll down to view them all. 4th QUARTER, 2004 3rd QUARTER, 2004 2nd QUARTER, 2004 1st QUARTER, 2004 4th QUARTER, 2003 3rd QUARTER, 2003 2nd QUARTER, 2003 1st QUARTER, 2003 4th QUARTER, 2002 3rd QUARTER, 2002
	4th QUARTER, 2004
	January, 2004 Dear Client, The stock market treated its well in 2004 with the benchmark Vanguard Total Stock Market Index gaining 12.5% for the year and 10.3% during the fourth quarter. For the same periods your portfolio was up ____% and ____% respectively. These results were obtained with your portfolio having a year-end Morningstar Risk Rating of ____ vs. ____ for the benchmark index. While the broadest measures of market performance were good, somewhat better than historical averages, there were definitely things that did, and did not work in 2004. In the former category, continuing the pattern of recent years, mid and small cap value funds did very well. So did real estate oriented funds. Investing internationally was also profitable, and had the added benefit of increasing portfolio diversification. What didn’t work nearly as well were funds with big positions in large, Dow Jones type companies, and growth-oriented funds. Bond funds poked along, generally posting modest gains, and funds specializing in mergers were flat. As usual, lots of cross currents. No stock market trend remains in place forever. A time will come when the market will favor large over small, and growth over value. I don’t know when that change will occur but I will remain vigilant. I am always troubled when I read, as I did in mid December in both the LA Times and Wall Street Journal, about unethical behavior by investment advisers. This time it was about kickbacks from fund companies to financial advisors. Earlier in the year it was about advisors running off with client money. Those of you who’ve been with us a while have heard this before, but we run an honest shop. The only money we make managing your money is paid by you and is disclosed in every quarterly statement. We select funds only on the basis of your best interest. No one at DWF receives any financial incentive of any nature from Fidelity or any mutual fund company. We don’t have access to your money other than to deduct our approved fees and you receive independent confirmation of account status every month. You also receive notification from Fidelity for every transaction we make. We are not perfect, but we try hard and we run an honest, client centered practice. Enclosed is an analysis of the portfolio you have trusted us to manage on your behalf. While the analysis is generally self-explanatory, and is supplemental to the account statements you receive from Fidelity, there are several areas we would like to draw to your attention. On page 1, the numbers in the individual squares, within the larger box under the heading “current investment style”, represent the larger of the individual stock holdings by the funds you own. The greater the distribution of numbers among individual squares. the greater the diversity of your portfolio, generally good thing in reducing risk. Under the heading “regional exposure”, the greater the exposure to markets other than the US, the greater your diversification, again usually a good thing from a risk management perspective. Under “sector weightings”, a greater exposure than the benchmark to the Services Economy, and / or Manufacturing Economy, is generally an indicator of a value-oriented portfolio. A greater exposure to the Information Economy than the benchmark is usually an indicator of a more growth-oriented portfolio. On page 2, under the heading “valuation multiples”, a Price / Earnings ratio less than that of the benchmark is often an indication of a value oriented portfolio. Also enclosed is a copy of the statement we are sending Fidelity for the deduction of our fees for the preceding calendar quarter. This charge is in accordance with our Investment Advisers Services Agreement with you. If you have any questions regarding the enclosures, or if there’s anything else you would like to discuss with us, please give us a call. We would also be very pleased if there arc other assets you would like us to manage for you, or if there are potential clients you would like to refer to us. Kevin and I would like to continue growing our business and are confident we can do so without lessening the individual attention we provide every client.
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	3rd QUARTER, 2004
	October, 2004 Dear Client, The modest decline in the benchmark Vanguard Total Stock Market Index during the third quarter masked significant volatility and crosscurrents. July was rather unpleasant with the index dropping nearly 4% on concerns about rising interest rates and oil prices, as well as declining corporate profits and consumer confidence. The market stabilized in August and advanced about 2% in September. Mutual funds with significant positions in petroleum related industries were rewarded while positions in technology, consumer goods and to a lesser extent, financial services were punished. Several funds with historic records of modest volatility were pounded more than I would have expected. Other funds with long-term records of study, modest growth seemed asleep. I made modest changes in some portfolios trying, as always. to maximize the individual risk / reward trade off for each client. No two portfolios look exactly the same but I do own every fund I buy for client accounts. Continuing the trend of recent years, value did better than growth and smaller company stocks did better than larger company stocks. Bonds were up, as were most foreign markets. For the quarter the benchmark index declined 1.8%. For the first three quarters of 2004 the index is up 2.0%. By comparison your portfolio declined ____ % during the quarter and is up ____% YTD. These results were obtained with your portfolio having a quarter ending Morningstar Risk Rating of ____ vs. ____ for the index. Performance calculations for your portfolio do not factor in the impact of our fees. There have been recent news reports about unlicensed financial advisors disappearing with client funds held by the advisor. A third party, Fidelity Investments, one of the largest financial institutions in the country, holds your funds. No one at DWF has access to your funds. Our authority is limited to making discretionary trades and deducting our approved fees. Enclosed is an analysis of the portfolio you have trusted us to manage on your behalf While the analysis is generally self-explanatory, and is supplemental to the account statements you receive from Fidelity, there are several areas we would like to draw to your attention. On page 1, the numbers in the individual squares, within the larger box under the heading “current investment style”, represent the larger of the individual stock holdings by the funds you own. The greater the distribution of numbers among individual squares, the greater the diversity of your portfolio, generally good thing in reducing risk. Under the heading “regional exposure”, the greater the exposure to markets other than the US, the greater your diversification, again usually a good thing from a risk management perspective. Under “sector weightings”, a greater exposure than the benchmark to the Services Economy, and / or Manufacturing Economy, is generally an indicator of a value-oriented portfolio. A greater exposure to the Information Economy than the benchmark is usually an indicator of a more growth-oriented portfolio. On page 2, under the heading “valuation multiples”, a Price / Earnings ratio less than that of the benchmark is often an indication of a value oriented portfolio. Also enclosed is a copy of the statement we are sending Fidelity for the deduction of our fees for the preceding calendar quarter. This charge is in accordance with our investment Advisers Services Agreement with you. If you have any questions regarding the enclosures or if there’s anything else you would like to discuss with us, please give us a call. We would also be very pleased if there are other assets you would like us to manage for you or if there are potential clients you would like to refer to us. Kevin and I would like to continue growing our business and are confident we can do so without lessening the individual attention we provide every client.
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	2nd QUARTER, 2004
	July, 2004 Dear Client, During the second quarter 2004 the benchmark Vanguard Total Stock Market Index advanced 1.3%. For the year through June 30, the index is up 3.9%. For the same reporting periods your portfolio is up ____% and ____% respectively. These results were obtained with your portfolio having a quarter ending Morningstar Risk Rating of ____ vs. ____ for the index. The market advanced broadly in January, and February, declined in March and April, and advanced again May and June. All of the moves were relatively modest. It has been, and continues to be, a battle between great earnings and simulative fiscal and economic policy on the one hand, vs. the fear of increasing interest rates, geo political worries and concern that all the good news has been priced into the market on the other hand. On a YTD basis most foreign markets have performed about like the U.S., except. Japan, which has done much better with an 11% YTD gain. Mid and small cap funds continue to outperform large caps, value did slightly better than growth and bonds declined slightly. Looking forward, I am much more in the camp that good earnings and economic growth will trump rising interest rates and geo political problems. There will be bumps along the way and as always, it’s appropriate to be very careful about managing risk and to remain broadly diversified. Enclosed is an analysis of the portfolio you have trusted us to manage on your behalf. While the analysis is generally self-explanatory and is supplemental to the account statements you receive from Fidelity, there are several areas we would like to draw to your attention. On page 1, the numbers in the individual squares, within the larger box under the heading “current investment style”, represent the larger of the individual stock holdings by the funds you own. The greater the distribution of numbers among individual squares, the greater the diversity of your portfolio, generally good thing in reducing risk. Under the heading “regional exposure”, the greater the exposure to markets other than North America, the greater your diversification, again usually a good thing from a risk management perspective. Under “sector weightings”, a greater exposure than the benchmark to the Services Economy, and / or Manufacturing Economy, is generally an indicator of a value-oriented portfolio. A greater exposure to the Information Economy than the benchmark is usually an indicator of a more growth-oriented portfolio. On page 9 under the heading “valuation multiples”, a Price / Earnings ratio less than that of the benchmark is often an indication of a value oriented portfolio. Also enclosed is a copy of the statement we are sending Fidelity for the deduction of our fees for the preceding calendar quarter. This charge is in accordance with our Investment Advisers Services Agreement with you. If you have any questions regarding the enclosures or if there’s anything else you would like to discuss with us, please give us a call. We would also he very pleased if there are other assets you would like us to manage for you or if there are potential clients you would like to refer to us. Kevin and I would like to grow our business and are confident we can do so without lessening the individual attention we provide every client.
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	1st QUARTER, 2004
	May, 2004 Dear Client, For the first quarter of 2004 the benchmark Vanguard Total Stock Market Index was up 2.6%. For the same period your portfolio was up ____%. These results were obtained with your portfolio having a quarter ending Morningstar Risk Rating of ____ vs. ____ for the index. All of the gains were made in January and February, with the market declining modestly in March. In many ways the first quarter of 2004 looked similar the fourth quarter of 2003 in that small and mid cap funds and funds with substantial positions in Japan and Latin America. did better than funds holding large cap value stocks. Accordingly, I made modest changes in some of your accounts reducing positions in the Ameristock and Clipper Funds. Both are excellent funds, managed by competent people who have established exceptional long-term records of good returns and moderate risk. When the investment style used by these funds returns to favor I expect to own larger positions. Enclosed is an analysis of the portfolio you have trusted us to manage on your behalf. While the analysis is generally self-explanatory and is supplemental to the account statements you receive from Fidelity, there are several areas we would like to draw to your attention. On page 1, the numbers in the individual squares, within the larger box under the heading “current investment style”, represent the larger of the individual stock holdings by the blinds you own. The greater the distribution of numbers among individual squares, the greater the diversity of your portfolio, generally good thing in reducing risk. Under the heading “regiona1 exposure”, the greater the exposure to markets other than North America, the greater your diversification, again usually a good thing from a risk management perspective. Under “sector weightings”, a greater exposure than the benchmark to the Services Economy, and / or Manufacturing Economy, is generally an indicator of a value-oriented portfolio. A greater exposure to the Information Economy than the benchmark is usually an indicator of a more growth-oriented portfolio. On page 2 under the heading “valuation multiples”, a Price / Earnings ratio less than that of the benchmark is often an indication of a value oriented portfolio. Also enclosed is a copy of the statement we are sending Fidelity for the deduction of our lees for the preceding calendar quarter. This charge is in accordance with our investment Advisers Services Agreement with you. If you have any questions regarding the enclosures or if there’s anything else you would like to discuss with us, please give us a call. We would also be very pleased if there are other assets you would like us to manage for you or if there are potential clients you would like to refer to us. Kevin and I would like to grow our business and are confident we can do so without lessening the individual attention we provide every client.
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	4th QUARTER, 2003
	January 18, 2004 Dear Client, 2003 was a very good year. After a modest decline during the first quarter, the market advanced rapidly and broadly, closing the year with the Vanguard Total Stock Market Index gaining 12.4 % in the fourth quarter and 31.4 % for the year. While substantially all segments of the equity market particated in 2003’s advance, small and mid cap stocks did much better than large cap stocks. Bonds were up about 3% and foreign markets did well. in come cases better than the U.S. market. For the past three years mid and small cap stocks have substantially outperformed large cap stocks. 2004 could see a change in leadership, with large cap stocks and funds out performing their smaller brethren. For the fourth quarter, and year 2003, your portfolio gained ____% and ____% respectively. These results were obtained with your portfolio having a quarter ending Morningstar Risk Rating of ____ vs. ____ for the benchmark index. Enclosed is an analysis of the portfolio you have trusted us to manage on your behalf. While the analysis is generally self-explanatory, and is supplemental to the account statements you receive from Fidelity, there are several areas we would like to draw to your attention. On page 1, the numbers in the individual squares, within the larger box under the heading “current investment style”, represent the larger of the individual stock holdings by the funds you own. The greater the distribution of numbers among individual squares, the greater the diversity of your portfolio, generally good thing in reducing risk. Under the heading “regional exposure”, the greater the exposure to markets other than North America, the greater your diversification, again usually a good thing from a risk management perspective. Under “sector weightings”, a greater exposure than the benchmark to the Services Economy, and / or Manufacturing Economy, is generally an indicator of a value-oriented portfolio. A greater exposure to the Information Economy than the benchmark is usually an indicator of a more growth-oriented portfolio. On page 2, under the heading “valuation multiples”, a Price/Earnings ratio less than that of the benchmark is often an indication of a value oriented portfolio. Also enclosed is a copy of the statement we are sending Fidelity for the deduction of our fees for the preceding calendar quarter. This charge is in accordance with our Investment Advisers Services Agreement with you. If you have any questions regarding the enclosures, or if there’s anything else you would like to discuss with us. please give us a call. We would also be pleased if there are other assets you would like us to manage for you, or if there are potential clients you would like to refer to us. Additionally, we would appreciate any comments you may have regarding our quarterly reports to you.
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	3rd QUARTER, 2003
	October 17, 2003 Dear Client, Two winning quarters in a row. That's very nice, and with all the monetary and economic stimulus in the system, I expect the market to continue upward, but not at the same pace as the last two quarters. We've come a long way in a short time, and could see a retracement of some of the gains, especially in funds which own small and mid capitalization stocks, the biggest winners of the past two quarters. I would like to see the market advance broaden to include greater participation by large cap value funds, which have been left in the dust by mid and small cap funds. While this is not unusual coming out of a recession, with large value funds being more defensive and in general less risky, I'll still feel better if I see less disparity between groups. Hopefully this will occur as a result of mid and small caps resting, while large caps close some of the gap. For the quarter, and year to date, smaller stocks have done much better than larger stocks and growth has done better than value. Bonds have done poorly, and foreign stocks have done well, in some cases better than U.S. stocks. For the quarter, and year to date, the benchmark Vanguard Total Stock Market Index is up 3.6% and 16.9% respectively. For the same periods, your portfolio is up ____% and ____%. These results were obtained with your portfolio having a quarter ending Morningstar Risk Rating of ____ vs. ____ for the Benchmark index. There has been a lot in the news recently about allegations of unethical and possibly illegal actions by several mutual fund companies, including Janus. For many of you, I have invested a portion of your money in the Janus Mid Value Fund. In some cases I purchased shares even after learning of the allegations. I would like to share my thinking, and a little history. As you know, I own every fund I invest your money in. If I don't like a fund well enough to put my money in it, I am not going to put your money in it. No exceptions. Because I don't necessarily sell every position a new client brings to DW Financial, and because I personally own funds which are now closed, or now have a sales charge, and because each client's account is handled individually, no two portfolios are exactly the same. But, if I purchase a fund for your account, I own it. If I eliminate my position, I do the same for you. No exceptions. I began acquiring the Janus Mid Cap Value Fund when it was the Berger Mid Cap Value Fund. Janus and Berger were owned by the same parent company. Earlier this year, in a cost cutting move, the two fund companies were combined and Janus survived. The managers of the Mid Cap Value Fund remained with the fund. They have done an excellent job, delivering exceptional returns at moderate risk. The fund is up 21.1% YTD, as of the end of the third quarter, and is up 13.0% on an annualized basis for the last 3 years. In 2002 the fund was down 13.1%. By comparison, during the above periods, the Vanguard Total Stock Market Index is up 16.9%, down 8.1% and down 21.0%. Given the lack of an apparent link between the managers of the Mid Cap Value Fund and the allegations against the senior management at Janus, I decided to maintain existing positions and, in some cases, to add to those positions, including my own IRA. I am not ready to paint everybody with the same brush, but I will watch developments closely. Hopefully if there are dirty players at Janus or elsewhere, they will go to jail. Enclosed is an analysis of the portfolios you have trusted us to manage on your behalf. As in past reports, there are several areas of your portfolio analysis I would like to draw to your attention. On page 1, the numbers in the individual squares, within the larger box under the heading "current investment style," represent the larger of the individual stock holdings by the funds you own. The greater the distribution of numbers among individual squares, the greater the diversity of your portfolio, generally a good thing in reducing risk. Under the heading "regional exposure," the greater the exposure to markets other than North America, the greater your diversification. Again usually a good thing from a risk management perspective. Under "sector weighting," a greater exposure than the benchmark to the "Services Economy," and/or "Manufacturing Economy," is generally an indicator of a value oriented portfolio. A greater exposure to the "Information Economy," than the benchmark is usually an indicator of a more growth oriented portfolio. On page 2, under the heading "Valuation Multiples," a Price/Earnings Ratio of less than that of the benchmark is often an indication of a value oriented portfolio. Also enclosed is a copy of the statement we are sending Fidelity Investments for the deduction of our fees for the preceding quarter. This charge is in accordance with our Investment Advisory Services Agreement with you. If you have any questions regarding enclosures, or if there's anything else you'd like to discuss with us, please give us a call. We would also be very pleased if there are additional funds you would like us to manage for you, or if there are potential clients that you would like to refer to us. Kevin and I would like to grow our business and are confident we can do so without lessening the individual attention we provide to every client.
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	2nd QUARTER, 2003
	August 5, 2003 Dear Client, What a wonderful quarter the second quarter was! It seems forever since I've been able to start a quarterly report with such a positive statement. Almost everything went up. Foreign and domestic. Value and growth. Large and small caps, mid caps, and even bonds. It was wonderful. I loved it. I've been smiling a lot. After such a strong advance it's normal to give back a portion of those gains, or to have stocks remain in a narrow range while corporate earnings catch up with the price of stocks, which seems to me to have gotten somewhat ahead of themselves. For the quarter, the Benchmark Vanguard Total Stock Market Index was up 16.5%. For the same period, your portfolio was up ____%. For the year to date, as of July 1, the benchmark index is up 12.8% and your portfolio is up ____%. These results were obtained with your portfolio having a quarter ending Morningstar Risk Rating of ____ vs. ____ for the benchmark index. In other words, you received ____% of the index's return while taking only ____% of the index's risk. Several of you have commented on the amount of paperwork generated by the way I gradually invest your money in multiple funds. I am guilty and, I agree, it's a pain. It creates a lot of paper, and a lot of work for all of us, and I know all you look forward to reading mutual fund prospectus written by securities lawyers. And computer systems being the way they are, I'm sure many of you receive more than one prospectus for each fund. But there is a good reason why I do what I do; it reduces your risk. It's worth the pain. I prefer to put your money to work gradually. In the first quarter of this year we had several short rallies which quickly gave back all of their gains, and more. The rally, which began in mid March, has been wonderful, but by late June it was fading. Had I known we were going to have such a strong rally, I would have invested all of your money on March 12. But I didn't, and since no one can predict short-term market movements with constant accuracy, I prefer to avoid the risk of buying big positions only to see them decline shortly after purchase. It's bad enough when I take a small position and it declines, but when that happens, I can add to the position at a lower price and reduce your average cost per share. Yes, I do give up some gain if the market goes straight up, but that's not been a big problem for the past three years. I work the same way when repositioning portfolios which are new to DW Financial. I prefer not to sell the position I am moving out of at one time, but instead try to make small sales and purchases taking advantage of strength in the position being sold and weakness in the position being acquired. The other thing we do which reduces risk, and creates paperwork, is invest your funds in a very diversified portfolio. Unless I am counter balancing the holdings in your employer sponsored retirement plan, which plans usually have limited choices, I want you to own funds in several different categories, i.e., value and growth, large, mid and small cap, foreign and domestic, etc. I select funds which have truly excellent long-term risk/reward profiles and which collectively give you a broadly based and well-diversified portfolio. Owning multiple funds is not helpful from a diversification perspective if they all have similar holding, styles and objectives. The attached Morningstar portfolio analysis will give you a picture of the diversity of your portfolio, and its risk/reward profile. I select funds that have consistently delivered great returns for each unit of risk taken. When one of those funds is having a bad year, as the Clipper Fund is now, I like to add to that position. It doesn't always pay off in the short term, but it usually does in the long run. For those of you who have multiple accounts with us, we have done something different this quarter and combined the analysis of those accounts into one document. If you have bot Roth and regular IRA's, you will receive one analysis covering both IRA accounts. If your spouse also has IRA accounts, you will additionally receive a combined analysis showing the total IRA assets collectively owned by the two of you. If you also have non-IRA assets managed by us, you will receive an analysis of those assets and an analysis of your total mutual fund assets, both IRA and non-IRA. Our feeling is that we're managing your assets in total and that the collective picture is more valuable than the individual components. For any of you who would like to receive your analysis structured in a different way, just let us know. We can report on your holdings in just about any way that's helpful to you. We also encourage you to have us annually review the holdings in your employer sponsored retirement plan. We can provide our thoughts on the best choices from the options available, and can prepare a combined analysis of all of your mutual fund assets. There is no charge for this. Just let us know. As in past reports there are several areas of your portfolio analysis I would like to draw to your attention. On page 1, the numbers in the individual squares, within the larger gox under the heading "current investment style," represent the larger of the individual stock holdings by the funds you own. The greater the distribution of numbers among individual squares, the greater the diversity of your portfolio, generally a good thing in reducing risk. Under the heading "regional exposure," the greater the exposure to markets other than North America, the greater your diversification. Again usually a good thing from a risk management perspective. Under "sector weighting," a greater exposure than the benchmark to the "Services Economy" and/or "Manufacturing Economy," is generally an indicator of a value oriented portfolio. A greater exposure to the "Information Economy" than the benchmark is usually an indicator of a more growth oriented portfolio. On page 2, under the heading "Valuation Multiples," a Price/Earnings Ratio of less than that of the benchmark is often an indication of a value oriented portfolio. Also enclosed is a copy of the statement we are sending Fidelity Investments for the deduction of our fees for the preceding quarter. This charge is in accordance with our Investment Advisory Services Agreement with you. If you have any questions regarding enclosures, or if there's anything else you'd like to discuss with us, please give us a call. We would also be very pleased if there are additional funds you would like us to manage for you, or if there are potential clients that you would like to refer to us. Kevin and I would like to grow our business, and are confident we can do so without lessening the individual attention we provide to every client.
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	1st QUARTER, 2003
	April 21, 2003 Dear Client, For the first quarter, 2003, the benchmark Vanguard Total Stock Market Index was down 3.1%. In a reversal the performance of the last three years, mid and small cap stocks under performed large cap stocks, and value stocks substantially under performed growth stocks. Bonds were up nominally and European stocks were down more than 9%. January began with a nice but very short-lived rally, stocks then declined to four month lows in early March, followed by a strong rally and then another decline which gave back much of the gains from the mid March rally. During the first quarter, your portfolio, exclusive of fees, and calculated in the basis of your beginning balance, was up ____%. These results were obtained with your portfolio having a quarter ending Morningstar Risk Rating of ____ vs. a risk rating of ____ for the benchmark Vanguard Total Stock Market Index. Enclosed is an analysis of the portfolio you have trusted us to manage on your behalf. While the analysis is generally self-explanatory, there are several areas we would like to draw to your attention. On page 1, the numbers in the individual squares, within the larger box under the heading "current investment style," represent the larger of the individual stock holdings by the funds you own. The greater the distribution of numbers among individual squares, the greater the diversity of your portfolio, generally a good thing in reducing risk. Under the heading "regional exposure," the greater the exposure to markets other than North America, the greater the diversification, again usually a good thing from a risk management perspective. Under "sector weightings," a greater exposure than the benchmark to the Services Economy, and/or Manufacturing Economy, is generally an indicator of a value-oriented portfolio. A greater exposure to the Information Economy than the benchmark is usually an indicator of a more growth-oriented portfolio. On page 2, under the heading "valuation multiples," a Price/Earnings ratio less than that of the benchmark is often an indication of a value oriented portfolio. Also enclosed is a copy of the statement we are sending to Fidelity for the deduction of our fees for the preceding calendar quarter. This charge is in accordance with our Investment Advisors Services Agreement with you. If you have any questions regarding the enclosures, or if there's anything else you would like to discuss with us, please give us a call. We would also be pleased if there are other assets you would like us to manage for you, or if there are potential clients you would like to refer to us. Additionally, we would appreciate any comments you may have regarding our quarterly reports to you.
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	4th QUARTER, 2002
	January 21, 2003 Dear Client, Happy 2003. I'm hoping this year's predicted El Niño weather pattern also applies to the stock market. After three "dry" years it would be wonderful to have a "wet" year. Or better yet, several "wet" years with decent gains. The last time the stock market was down four years in a row was 1929 through 1932. While there is certainly reason for optimism, there is also cause for caution. We have therefore cautiously invested your money in excellent funds, all of which have a long-term record of success, participating in good markets and not giving it all back in bad markets. Excellent risk/reward profiles. Not giving it all back in bad years is in large part the key to investment success. The rule of thumb is that you need to regain twice your loss in order to break even. As an example, if your investment declines by 50%, you will need a 100% return on the remaining balance just to break even. The percentages vary a little, but the concept is on the mark. This is one reason we pay as much attention to risk management as we do. Consistent with this risk/reward concept is our selection of multiple funds for all but the smallest of client accounts. Even great funds with wonderful long-term records can have periods of underperformance. A manager's style may not work in a particular market, or there could be a major problem with one of the fund holdings, or some other problem may develop. Multiple holdings reduce risk and promote consistency in the performance of your total portfolio. As you know, we not only spread your investments over a number of different funds, but also a number of funds types in order to make sure you have exposure to various investment styles and market segments. For the fourth quarter 2002, the benchmark Vanguard Total Stock Market Index was up 7.8%. For the year that index was down 21%. By comparison, your portfolio, exclusive of fees, and calculated on the basis of your closing balance, was up ____% for the quarter and down ____% for the year. These results were obtained with your portfolio having an estimated period ending Morningstar Risk Rating of ____ vs. an estimated risk rating of 107 for the benchmark index. The reason the above risk ratings are estimated is because Morningstar has temporarily stopped providing such numbers until they complete a revision of their methodology, which revision was expected to have been completed by December 31, 2002. Since Morningstar has not met their target date, we have estimated risk scores by increasing the most recently available scores by 10% This increase reflects our estimate of the impact of market activities during the second, third and fourth quarters of 2002. Enclosed is an analysis of the portfolio you have trusted us to manage on your behalf. While the analysis is generally self-explanatory, and is supplemental to the account statements you receive from Fidelity, there are several areas we would like to draw to your attention. One page 1, the numbers in the individual squares, within the larger box under the heading "current investment style," represent the larger of the individual stock holdings by the funds you own. The greater the distribution of numbers among individual squares, the greater the diversity of your portfolio, generally a good thing in reducing risk. Under the heading "regional exposure," the greater the exposure to markets other than North America, the greater your diversification, again usually a good thing from a risk management perspective. Under "sector weightings," a greater exposure than the benchmark to the Services Economy and/or Manufacturing Economy, is generally an indicator of a value-oriented portfolio. A greater exposure to the Information Economy than the benchmark is usually an indicator of a more growth-oriented portfolio. On page 2, under the heading "valuation multiples," a Price/Earnings ratio less than that of the benchmark is often an indication of a value-oriented portfolio. Also enclosed is a copy of the statement we are sending Fidelity for the deduction of our fees for the preceding calendar quarter. This charge is in accordance with our Investment Advisors Services Agreement with you. If you have any questions regarding the enclosures, or is there's anything else you would like to discuss with us, please give us a call. We would also be pleased if there are other assets you would like us to manage for you, or if there are potential clients you would like to refer to us. Additionally, we would appreciate any comments you may have regarding our quarterly reports to you.
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	3rd QUARTER, 2002
	October 16, 2002 Dear Client, The best words I can find to describe the just ended third quarter are "very ugly." It was the worst quarterly market performance for most indexes since 1987. September marked the worst monthly decline in the Dow since 1937. During the quarter the Dow was down 17.9%, the S&P 500 down 17.6%, the Nasdaq 100 was down 20.8% and the benchmark Vanguard Total Stock Market Index was down 16.8%. By comparison, your portfolio was down ____%. For the year to date as of September 30, the benchmark Vanguard Total Stock Market Index is down 26.7%. Your portfolio is down ____%. These results were obtained with your portfolio having an estimated Morningstar Risk Rating of ____ vs. an estimated Risk Rating of 107 for the benchmark index. The reasons the above risk ratings are estimated is because Morningstar has temporarily stopped providing such numbers until they complete a revision of their methodology, which revision is expected to be completed by year-end. We have estimated risk scores by increasing the scores for the second quarter 2002 by 10%. This increase reflects our estimate of the impact of the market decline in the second and third quarters of this year. The third quarter was marked by extreme volatility, and no place to hide, other than Treasury instruments, which in my judgement are not an attractive option. Five-year Treasury Notes are currently yielding around 2.7%. However, the principal value of those and similar notes will decline when interest rates increase and/or investors move from bonds into stocks. A place to hide, but not an attractive or risk free place. While the concept of market timing, switching from mutual funds to money market accounts, and then back again, sounds attractive, there are no documented cases where this has ever consistently been done profitably. There are strategies, the supporters of which say would have worked over prior periods, but I have never seen a documented study where any such strategy has been put into place and successfully used going forward, and I have ready widely on the subject. If it were possible to successfully implement market timing, money managers would have long ago done so. Additionally, the market tends to move in unpredicable spurts, and if an investor is out of the market on the best few days of any year, the investors' long term results are much less than those predicted by a long term buy and hold strategy. This is true even through the pain of periods like the third quarter of this year. Much better to have a broadly diversified portfolio of superior funds which have exhibited long term success in minimizing risk and maximizing returns for every increment of risk taken. That's the appreciation we have taken with your money. For those of you who have trusted us with new money, I have gradually invested some of those dollars trying to take advantage of market volatility, buying when the market bounced off of what looked like a bottom. In the past, extreme market volatility, fear and negative sentiment, such as we had in late July and again in September, have frequently marked market bottoms. Sometimes these bottoms are retested later and hold; sometimes they are retested and don't hold; and sometimes they are not retested. Enclosed is an analysis of the portfolio you have trusted us to manage on your behalf. While the analysis is generally self-explanatory, and is supplemental to the account report you have received from Fidelity, there are several areas we would like to draw to your attention. On page 1, the numbers in the individual squares, within the larger box under the heading "current investment style," represent the larger of individual stock holdings by funds you own. The greater the distribution of numbers among individual squares, the greater the diversity of your portfolio, generally a good thing in reducing risk. Under the heading "regional exposure," the greater the exposure to markets other than the U.S. and Canada, the greater your diversification, again usually a good thing from a risk management perspective. Under "sector weightings," a greater exposure than the benchmark to financials and services is generally an indicator of a value oriented portfolio. A greater exposure to technology than the benchmark is usually an indicator of a more growth oriented portfolio.
	Under the Morningstar statistics heading, the Morningstar risk rating for your portfolio's trailing three year period will generally be less than today's risk rating. This is because the substantial decline in the stock market during the past 30 months has generated higher risk scores for most funds. While not shown in the enclosed report, the three-year risk rating for the benchmark Vanguard Total Stock Market Index Fund is 97. Also enclosed is a copy of the statement we are sending Fidelity for the deduction of our fees for the preceding two calendar quarters. This charge is in accordance with our Investment Advisors Services Agreement with you. If you have any questions regarding the enclosure, or if there is anything else that you would like to discuss with us, please give us a call. We would also be pleased if there are other assets you would like us to manage for you.
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