4th Quarter, 1999

In 1999, the stock market continued to reward Solectron for its central supply chain position in the high-tech industry and management’s relentless focus on execution. In Solection’s fiscal year, which ended in September, earnings per share rose nearly forty percent on a near sixty percent jump in revenues. The stock doubled.

Our other stocks which rose by a third or more include American International Group, DST Systems, Intel and Sykes Enterprises. AIG and DST successfully executed strategic acquisitions during the year. AIG expanded its insurance business further into financial services buying the rapidly growing SunAmerica, the leading marketer of retirement annuity products in the U.S. DST extended its mutual fund processing and statement printing and mailing business by acquiring USCS, a leading cable and satellite television customer billing statement processor.

Intel continues to dominate the market for microprocessors for personal computers and has set its sights on the server and workstation market, an opportunity that is as large as the PC market. Sykes Enterprises, the dominant provider of call center based technical support services for PC, software and Internet service providers, continued to execute its high growth plan by building new call centers while extending its support service to the Internet.

First Data management, after two difficult years following its acquisition of competitor First Financial Management, finally restored the company to its former predictable growth track. First Data now processes credit card transactions for nearly fifty percent of all VISA and MasterCard transactions on behalf of card issuers and at the point of sale. Western Union remains the dominant provider of money transfers outside of banking networks.

While 1999 had many positive developments, there were some disappointments. Transaction Systems failed to live up to its promise despite its commanding marketshare in an attractive business. If management fails to execute now, it could get bought. And, Harte-Hanks, after rising by more than fifty percent in 1998, became a stock market disappointment in 1999, declining by nearly one-quarter. The good news is that management continues to execute its profitable business plan without making high-risk bets on markets or technologies, which often fail. We think the stock is cheap now, and will perform better in year 2000 as management clearly defines for investors how it is a beneficiary, not a victim of the Internet.

Client portfolio holdings may change, and stocks of companies noted may or may not be held by one or more client portfolios from time to time. Investors should not consider references to individual securities as an endorsement or recommendation to purchase or sell such securities. Transactions in such securities may be made which seemingly contradict the references to them for a variety of reasons, including but not limited to, liquidity to meet redemptions or overall client portfolio rebalancing. Investing in the stock market involves gains and losses and may not be suitable for all investors. Investment return and principal value of an investment will fluctuate.