December 15, 2006

The Year Draws to a CloseWith Robust Portfolio Gains

The sharp rise since Thanksgiving in foreign currencies has given another boost to our portfolios. The rise in foreign currencies indirectly benefits other Core investments.

As the holidays approach, our investment returns are providing an early present to us all. Let us hope that the fine action now augurs well for 2007.

In the middle of October, the dollar started to fall in relation to foreign currencies. During the week of Thanksgiving, while trading in the US was subdued, the dollar suddenly tumbled in value and the European currencies began to advance very sharply. The euro now stands just a few pennies below its all-time high; the pound sterling has reached its highest levels against the dollar since the early 1990s.

Our portfolios had already been gaining strongly during the autumn; the fall in the dollarís value pushed them higher. Several of our investments benefit, directly or indirectly, as foreign currencies appreciate, including the oil-related and commodity investments. Commodities are generally priced in dollars and as the dollar falls, commodity prices rise. Our large holdings in foreign currency money market funds rise in step with foreign currencies. Non-US stock investments enjoy the benefit of foreign currency appreciation when their values are translated into US dollars.

Although the price of crude oil remains about twenty percent below the highs from the summer, stocks of companies in oil-related businesses are trading well above their summertime levels. We have had substantial investments for three years in oil stocks. During this year, we have added investments in alternative energy companies and water-related businesses, the prospects for which seem quite attractive. International equity markets, those of the developing countries as well as of Japan and Europe, were quite strong again this year.

John N. Mayberry

As a consequence of gains in these assets and the continuing rally in US stocks, Coreís portfolios have earned very strong returns this autumn. We near the end of another year of good returns, achieved, we believe, with relatively low risk. For example, as the year ends, Coreís portfolios in the aggregate hold about 29 percent of your assets in US and foreign currency money market funds. In times like now, when almost all stock markets are strong, it may seem entirely unnecessary to invest in anything but the risky assets. Why hold money market funds that yield 5 percent per year when stock markets are rising at the rate of 5 percent per quarter? The answer is simple: Stock markets go down as well as up. Since it is impossible to know when the inevitable bear markets will begin, it is sound practice to make investments in assets--like money market funds--that continue to earn money when stocks fall. And money market investments provide a source of investment funds to take advantage of opportunities that arise when stock markets fall. The good outcome is to earn returns in line with the stock markets when they are strong--as we have this year--while keeping a meaningful portion of our capital safe from the investment risks that stocks present.

A personal note of thanks

The opportunity to manage your investments is a great gift from you to me. The investment process is endlessly absorbing and stimulating. It holds enormous interest for me. When one invests well there is a real sense of accomplishment. It is a privilege to be able to work with you and I am very grateful to you for it.

May we all enjoy this season of holidays and may 2007 present a more peaceful aspect to the world than has 2006.