Executive Summary Report
June 30, 2000


Second Quarter 2000
Market Environment

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Domestic Equity Markets

Investors in the U.S. equity markets went on the defensive in the second quarter on the anticipation of an economic slowdown. After driving the U.S. stock market over the last three quarters, the technology sector fell out favor as concerns regarding the valuations of Internet-related firms, the Microsoft anti-trust suit, conflicting financial data, and a boost in interest rates shook the markets. The technology-laden NASDAQ Index (- 12.9%) finished off one of its most turbulent quarters on record. First, on April 12th, the technology markets plunged (-9.7%) after the release of the higher-than-expected CPI numbers. The NASDAQ subsequently posted its first-and third-largest one day percentage advances ever of 7.9% and 6.6% on May 31st and on April 17th, respectively. The S&P 500 finished the quarter down 2.7%, bringing the trailing twelve month return to 7.4%, its lowest level since fourth quarter 1994. The consumer non-durables sector (+7.1%) led during the quarter. The value-biased financial sector (-3.0%) rallied after the Fed's rate hike in May as investors felt the aggressive stance by the Fed coupled with better than expected PPI data might mean an end to rate increases. The energy sector ( + 1.6% ) benefited from rising commodity markets.

Domestic Equity Markets Qtr. Y-T-D 1 Yr. 3 Yr. 5 Yr.
Wilshire 5000 Index -4.5% -0.8% 9.5% 19.1% 22.5%
S&P 500 Index -2.7% -0.4% 7.4% 19.7% 23.8%
Russell 1000 Value Index -4.7% -4.2% -8.9% 10.9% 17.8%
Russell 1000 Growth Index -2.7% 4.2% 25.7% 28.1% 28.7%
S&P 400 Index -3.3% 0.0% 17.0% 20.3% 21.2%
Russell Mid-Cap Value Index -1.7% -0.7% -7.9% 6.7% 13.7%
Russell Mid-Cap Growth Index -7.4% 12.1% 48.6% 30.4% 26.4%
Russell 2000 Index -3.8% 3.0% 14.3% 10.6% 14.3%
Russell 2000 Value Index 2.0% 5.8% -0.9% 3.8% 11.7%
Russell 2000 Growth Index -7.4% 1.2% 28.4% 16.3% 15.8%


S&P 500 Sector 1st Qtr. Return 2nd Qtr. Return
Consumer Non-Durables -6.3% 7.1%
Consumer Durables 2.9% -17.0%
Materials & Services -3.9% -8.8%
Capital Goods -0.1% 0.8%
Technology 13.1% -9.0%
Energy 6.1% 1.6%
Transportation -3.7% -3.6%
Utilities -3.2% -9.0%
Finance 2.5% -3.0%


Domestic Fixed Income Markets


The Treasury Department continued its buyback program started in February, reclaiming $13 billion in issues maturing between February 2015 and August 2023. In an attempt to slow the economy, the Federal Reserve raised the fed funds rate by 0.5% on May 16th, bringing fed funds rate to a nine year high of 6.5%. The move was the first half-point rate hike in five years. However, the Fed's action was countered with investor uncertainty within the domestic equity markets, resulting in a flight-to-quality on the short end of the yield curve, causing spreads to widen and Treasuries (+ 1.6%) to outperform corporates (+ 1.2% ). The yield curve remained inverted and veritably unchanged from last quarter. The rising interest rate environment decreased investors fears of prepayment. As a result, mortgage-backed issues (+2.3%) outperformed all sectors of the market. Within the mortgage-backed market, the debate over whether the U.S. Government should revoke its implicit guarantee associated with Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System was re-opened when Alan Greenspan expressed support for reform regarding those institutions. However, GNMA issues, which have an explicit guarantee, lagged the government sponsored mortgage-backed market when rhetoric regarding these agencies abated. Higher default rate risk caused high-yield bonds (LB High-Yield + 1.2%) to lag.

Domestic Fixed Income Markets Qtr. Y-T-D 1 Yr. 3 Yr. 5 Yr.
L.B. Aggregate 1.7% 4.0% 4.6% 6.0% 6.3%
L.B. Govt./Corp. 1.5% 4.2% 4.3% 6.0% 6.1%
L.B. Corp. Index 1.2% 2.7% 3.0% 5.3% 6.0%
L.B. Govt. Index 1.6% 5.0% 5.0% 6.4% 6.2%
L.B. Asset Backed Index 1.8% 3.3% 4.8% 5.8% 6.1%
L.B. Mortgage Backed Index 2.3% 3.7% 5.0% 6.0% 6.6%
L.B. High Yield Index 1.2% -1.2% -1.0% 3.2% 6.5%
L.B. Int. Govt./Corp. 1.7% 3.2% 4.2% 5.6% 5.8%
L.B. Int. Govt. Index 1.8% 3.5% 4.5% 5.8% 5.8%
L.B. Int. Corp. Index 1.5% 2.7% 3.7% 5.4% 5.9%




International Markets


The MSCI EAFE Index finished the quarter down (-3.9%) amid profit taking in the telecommunications (- 19.5%) and information technology (-9.3%) industries and a strengthening U.S. dollar. Europe finished down -3.1%, with the continued weakness of the Euro versus the dollar. The region was also hurt by poor performance in Ireland (-16.3%) and the Nordic region (-6.4%). Ireland lagged the rest of Europe as inflation within the country rose to 5.2% and poor labor relations pushed stock prices downward. Japan (-6.2%) was hurt by a weakening Yen and lackluster performance of the country's technology sector. The Pacific Rim markets. (-2.8%) were helped by strong performance in Australia (+7.7%), which benefited from a surge in the country's financial holdings. Hong Kong (-13.5%) was the greatest hindrance to the region's performance as fear of rising interest rates thwarted investors. The emerging market countries (- 10.2%) experienced a broad decline as investors sought the safety of the developed markets and blue-chip industries. Latin American markets (-7.4%) slid in tandem with the NASDAQ Index. The greatest detractor to the region's performance was Columbia (-31.0%), which suffered amid political unrest caused by rebels in the south and economic hardships due to falling coffee and coal prices.

International Markets Qtr. Y-T-D 1 Yr. 3 Yr. 5 Yr.
M S C I EAFE Index -3.9% -3.9% 17.4% 10.5% 11.6%
M S C I Europe Index -3.1% -3.0% 15.4% 16.4% 18.8%
M S C I Japan Index -6.2% -5.3% 26.8% 4.1% 2.8%
M S C I Pacific ex. Japan Index -2.8% -9.1% 3.1% -6.0% 1.0%
M S C I Emerging Markets Index -10.2% -8.0% 9.5% -5.0% 1.0%



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