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John T. Burch, MBA, LUTCF, Col. USAF (Ret.)
Investment Advisor Representative
Lincoln Financial Advisors
6771 Taylor Circle
Montgomery, AL 36117
(334) 279-7515

Please see our web site at: www.LFAMontgomery.com

Al McLellan and I wanted to share with you today a few moments from our daily office life.  Our primary mission is to assist clients in building and protecting wealth and it's a "fun" job that involves us in lots of problem solving, advising our clients on the best courses of action and often "protecting them from themselves". 

What I'm going to briefly give you today in my part of this presentation is how I handled a question from a client who is a Delta Airline pilot, based in Atlanta.  He asked, "How should I re-allocate my portfolio to take the best advantage of a (much hoped for) market recovery?  Specifically, what sectors of the economy led the recovery following the past few bear markets?"

Before answering those questions, I explained the following chart:

You may recognize this as the "Morningstar Investment Style Box."  The upper row denotes "Large Capitalization Companies" (big companies).  The lower row denotes "Small Capitalization Companies" and the middle row denotes "Mid-Capitalization Companies (medium-sized ones).  The "Value" and "Growth" designations may not be immediately obvious.  "Growth" companies are those which pay few dividends, but plow those profits back into R&D, new equipment and new factories.  You can see how that eventually tends to raise the price of company stocks.  "Value" companies can be compared to the way your wife shops at Bruno's Grocery... She shops for the best food she can buy at the lowest price.  There are lots of great companies that for whatever reason have stock prices depressed for the moment.  Value investing buys those companies, then sells when the price goes up for a profit.  The "Blend" column is a mix of those two investing styles.

Ideally, you would try to have your portfolio reflect investments in each of those style boxes.  What my client was asking (and you, too, perhaps), "Is there an advantage in weighting your portfolio in any one of those style boxes for a better than average "boost" to your personal recovery?"

Now, let's look at the charts and note how I answered that question.

Looking first at the "Dow Jones Industrials Average" for 1998 to 2002, you can quickly see what has been on every investors' mind recently.  The last three years have just been a nightmare!  Lots of volatility, but the trend has been straight down for three straight years.  But then, look at the next chart to put that into context.

This shows 60 years of Dow Jones Industrial Averages (the copy handed out went back to 1929) and there are a couple of things I would like to point out to start.

First, at the lower left of the chart (your copy, but off the chart here) is the "Crash" that began in 1929.  This is purposely exaggerated on the chart by the use of a logarithmic scale.  In 1933, the year of my birth, the DOW was actually 80.  Today, we have a DOW that is 100 times that great, even after three straight down years.

Next, look at the upper right part of the chart and note that this is the same three-year "down" period, but that on the logarithmic chart it looks almost flat in the great scheme of things.  If you would rather look at a non-logarithmic scale, see the next chart for comparison.  It DOES make the last three years fall a bit more dramatic.

Now, getting to my client's question... Note the vertical blue areas shaded on the chart.  They highlight the "recovery" periods following a significant "bear" period in the market since 1977.  Then, take a look at the next chart (which I had to scan twice to get both sides here.).

This shows Annual Returns for Key Indices (1983-2002).  The description at the bottom of the chart tells you what each index is.  As you look across the chart, the multi-colored boxes show how varied each year's performance is and which indices did best (at the top row) and which did least (bottom row).

What you quickly see as you trace any one index box from year to year, is that no one index consistently leads the way.  As you pick the years that correspond to the vertical blue "recovery" years, you again find that there is no solid trend that you would want to hang your hat on.  There may be a bit of an advantage in "Small Cap" companies over "Large Cap", but no significant trend.

For the 1998-99 recovery, S&P BARRA 500 (large cap growth) and Russell 2000 Growth (small cap growth) shared the spotlight.

The 1991-92 recovery showed Russell 2000 Growth and Russell 2000 Value sharing the comeback.

In the 1988-89 recovery, Russell 2000 Value and S&P BARRA 500 led the way.

In the 1982-83 recovery (partly off your chart), LB Agg (Lehman Brothers Aggregate Bond index) and Russell 2000 Value index were the stars.

Even farther off your charts, in 1979, the recovery was led by the Russell 2000 Growth index.  So you see, I hope, that there is no clear winner you should emphasize in your portfolio for ANY recovery period.

What I recommended to my client was that he should continue to be well-diversified, choosing investments from as many of the style boxes as possible, and just let market averages do their thing.  The DOW JONES INDEX, after all, has averaged about 12% return on investment over the last 50 years, even with all its ups and downs!

Just as in aviation, "there are no old, bold pilots!", in investing, "there are no super-successful, greedy investors!"  (Well, you can always find the few exceptions to either rule, but you are NOT likely to be one of them!)

And now... Here's Big Al for his half of the presentation.

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Allen C. McLellan, CFP, CLU, ChFC, CLTC, LUTCF, Lt. Col. USAF (Ret.)
Investment Advisor Representative
Lincoln Financial Advisors
6771 Taylor Circle
Montgomery, AL 36117
(334) 279-7515

Please see our web site at: www.LFAMontgomery.com

The features of all 529 savings plans

• Earnings free from federal taxes and, through 2010, withdrawals free from federal taxes if used for qualified higher education expenses.
• May be used for higher education, including college, graduate and post-graduate study and technical training.  Tuition, room and board and required books and supplies are all qualified higher education expenses.
• You can contribute up to $11,000 a year ($22,000 for married couples) without gift-tax consequences.  Or you may invest $55,000 ($110,000 for married couples) but may not make any more contributions for the next four years.
• No income limits.  Unlike a Coverdale Education Savings Account, people of all income levels can open a 529 savings account.
• You can save for anyone -- your child, your grandchild, a niece or nephew, a friend, or yourself.  You may also change the beneficiary to another member of the beneficiary's family.
• You control the assets.  You decide when to make withdrawals.  You can even change the investment mix once a year.

A few things to note about 529 savings plans:

• If you withdraw money for something other than qualified higher education expenses, you wil owe federal income tax and may face a 10% federal tax penalty on earnings.
• Under current tax law, the ability to withdraw money free from federal tax from a 529 college savings plan ends in 2010, but this may be extended.
• Your 529 Plan holdings could impact your beneficiary's ability to qualify for grants and student loans.  Ask your financial advisor for details.

Based on the college you have chosen, length of time before the student begins college, assumed rate of annual college cost increase, the assumed rate your money could earn and initial hypothetical investment if any:

• The estimated total cost for My Kid to attend University of Alabama starting in 2020 would be $110,335.
• A lump-sum investment of $29,820 today or an initial investment of $0 today followed by monthly investments of $264 would grow to $110,335.
• Today, a number of tax-advantaged investing options make it easier than ever to invest for college.  Talk to your financial advisor to create an investment plan that works for you.

Year	Invest	Total	Income	Accum	Tot.Val
2003	2899	2899	114	114	3013
2004	3163	6062	377	491	6553
2005	3063	9224	660	1150	10375
2006	3163	12387	965	2116	14503
2007	3163	15549	1296	3412	18961
2008	3163	18712	1652	5064	23776
2009	3163	21875	2038	7101	28976
2010	3163	25037	2454	9555	34592
2011	3163	28200	2903	12458	40658
2012	3163	31362	3388	15846	47208
2013	3163	34525	3912	19758	54283
2014	3163	37688	4478	24236	61924
2015	3163	40850	5089	29325	70175
2016	3163	44013	5749	35075	79088
2017	3163	47175	6462	41537	88713
2018	3163	50338	7232	48770	99108
2019	3163	53501	8064	56834	110334

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PANCAKE BREAKFAST IS MARCH 15

TODAY'S PROGRAM

(Your printed copy this morning showed "no scheduled speaker for today", however, your industrious Program Chairman, Vince Cox, prevailed upon John Burch and Al McLellan to fill in at the last minute.  Their presentations are shown above.)

LAST WEEK'S PROGRAM

Michael Fritz introduced Nelson Smith, Headmaster of Holy Cross Episcopal School, by saying he was his wife's boss.  Also, he said his son attends the school.  Headmaster Smith graduated from the University of San Francisco.  He's a retired Army Intelligence Officer; he also has a son in the Army serving in the Middle East.  He had a video presentation about the school.

Mr. Smith said he saw a lot of spirit in our Club and this is needed in the community, state and the nation.  We are facing some troubled times.

The talk focused on the mission of the school.  A history of the school was given and Holy Cross was shown to be a vision of the mid-90's among the Episcopalians of the city. It was one of those things that wouldn't go away and something had to be done about it.  A committee was set up in 1998 to establish Holy Cross School, starting with kindergarten, 4-year olds up through the seventh grade.  They are located on their permanent site on Bell Road and next they will top out at the eighth grade.  This is their vision.  Whether or not high school will be a part of the vision for the future remains a question.

Holy Cross recognizes the God-given gifts of all persons; seeks to develop these gifts by feeding a Christian community with the Episcopal tradition by nurturing students of all social, economic and ethnic backgrounds; both spiritually, intellectually and physically.

In addition to a safe environment for our children to go to school, Holy provides a nurturing setting wherein the example of the teaching of Christ marks the central purpose of their students' lives.  Holy Cross isn't merely an Episcopal school, but is more properly a Christian community where the children and everyone associated with the school can go and believe God works completely and unconditionally.  Everyone associated with the school knows that God loves them.  Children must know that they are loved.  They live by the Holy rule.  Chapel services are held every day and all children attending receive religious instructions.

At Holy Cross, they know that God has made each of us as a separate and unique creation.  They celebrate their uniqueness by developing the gifts and talents of each child.  The school is in constant contact with each parent, not only to point out their needs but to celebrate their achievements.  Parents and children have to see the balance of their victories and their needs.  Jesus was not for just certain people, but to all mankind.  Holy Cross, as such, is open to all children of all socioeconomic and ethnic backgrounds, with 10% of the students being minority races and with 20% receiving financial assistance.

Students are taught to respect each other and achieve academic excellence. They strive to achieve a full developmental and demanding academic program.  The curriculum includes strong presentation of basic skills, knowledge, enrichment and outreach opportunities.  Lower grades orient on developing a solid background of basic skills such as math, reading and language arts while building social skills in listening, following instructions, getting along with and respecting others.  This then is continued along this line in every grade.  Hands-on activities are widely used to make sure mastery skills are achieved and foster a love of learning  When students get physically involved, they learn more and things become alive for them.  That is important.

Upper grades continue to emphasize the fundamentals, especially in math and language arts, while developing more deeply in content areas of science and social studies.  Problem solving skills receive more attention as does critical thinking.  In civics and history classes, students become acquainted with issues and challenges that our society is constantly facing today.  Social skills are taught in and out of the classroom where the students learn the value of teamwork, the concept of servitude and the importance of a strong work ethic.  We want students to walk out of Holy Cross knowing that education is not just for their taking, but to enable them to go out and serve.  The children get that sense of servant-hood through the opportunities already mentioned.  It is important for children going through awkward stages of growth.

All children are taught to use computers in all grades and Spanish is taught in all grades.  The school moved into  a new building that houses class and school offices.  A chapel will be completed this month.  The school is located on Bell Road.

LAST WEEK'S GUESTS

John Burch had his friend, Patrick Sikes as his guest.  This time, John gave him an application for membership.

Linda Wilson, George Wilson's wife, joined him for breakfast.  It's always a pleasure to have her join us.

Al McLellan told a story of a man and his wife who stayed at a hotel.  The wife saw a spy movie and immediately thought the room was bugged.  She made her husband check the room.  Finally, he found a small brass plate in the floor.  To please his wife, he removed it.  When they checked out the next day, the clerk asked if there were any problems.  They said, "No.. Why?."  The clerk then told them that the people in the room below them had a chandelier fall on them.

Al said that he saw a billboard recently that said, "Learn to Read".  He said, "Now, who was that for?"

THOUGHT FOR THE DAY

Mike Winstead gave a "Pastoral Search Report".

"We do not have a happy report to give.  We have not been able to find a suitable candidate for this church, although we had one promising candidate.  We follow up on each one with interviews.  The following is our confidential report."

NOAH: Former pastorate of 120 years with no converts.  Prone to unrealistic projects.

DEBORAH: One word... a female.

PETER: Two blue collar.  He has a bad temper; cursed.

TIMOTHY: Too young.

JUDAS: References are solid.  Conservative.  Good connections.  Knows how to handle money.  Asked him to preach Sunday.

PANCAKE BREAKFAST

Ken Carrick said tickets will be ready today.  Bundles of 25 tickets will be given to members.  If you can't sell them, write a check for $100.00.

READERS AT DALRAIDA SCHOOL

Readers are needed for February 13th and March 13th.  On March 13th, the Principal will speak for us and bring the Dalraida Dixie Chicks to perform.  April 17th, the club will cook pancakes for A & B students at Dalraida.

READERS AT ST. JUDE

Dick Bennett would like volunteers to read on February 27th.  He also asked if anyone had Boston Butt money.  If so, please turn it in.  About 70 Boston Butts have been sold to date.

PEANUT SALES

El Kidd said that there were 3-20 lb bags left to sell.  Profits as of today: $2,747.20

The leading salespersons are as follows:

El Kidd . . . . . . . . .$2,000.50
Malcolm Bush. . . . .    550.00
Ken Carrick. . . . . . . . 485.20
Pete Summer. . . . . . . 315.00
George Worley. . . . . .238.00
George Wilson. . . . . .220.00
Jim Jones . . . . . . . . .210.00
Jerry Evelan . . . . . . .157.50
Barnie Paulson . . . . .157.00
George Oetting . . . . .150.00
Charlie Eckerly . . . . .135.00
David Morris . . . . . . 120.00
Jean Ash . . . . . . . . . 105.00

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