4th QTR 2006 - News & Events

Well, the winter season I spoke about in my last letter didn’t really seem to materialize until last week and certainly tax season is now here!  If you’re not already a tax client, you may have received a letter from us regarding AMDG Business Advisory Services tax services.  My goal isn’t to disrupt any existing relationships you may already have, but if you’re looking to establish one where we can take an integrated approach between your financial, investment and tax strategies, please give us a call if you have any questions or if you would like to make arrangements for us to do your taxes.

It is interesting to see how quickly our society gets involved in promoting the Holiday Season and then, *POOF*, we seem to be off to the next big event, the “After Christmas Sale”.  Our family tradition is to put up the Christmas tree and decorate the house the weekend after Thanksgiving.  We then stretch things out through the weekend after New Year’s.  I admit, this seems a bit long for some…

but we enjoy Sunday Advent meals together and spend lots of time with family and friends, and for us, the Christmas Season isn’t “officially” over until Epiphany, which is when the Eastern Orthodox Church celebrates Christmas (this was the “original” Christmas holiday until about 400 years ago when the Roman Church changed the date-and one of the reasons the “12 Days of Christmas” came about—you know the song…).  Over the past two years, Lisa and I have sung together in the Christmas Eve music group.  Lisa is a wonderful singer and musician and her love for music has certainly grown in our boys.  My musical talents are quite limited and my singing voice is probably not “top shelf” but my Mom, and now Lisa, always seem to enjoy singing with me (a voice only a mother or a spouse could love?) Anyway, it seems that with practice, I can belt it out with the rest of the group, as long as I really focus on the melody (or harmony) that I’m supposed to be singing and not get “distracted” by the other voices!  I’d love to hear about your family traditions!  Please remember to mention them during our next meeting or phone call!

Enclosed are your 4th quarter investment reports and annual privacy policy statement.  The “Statement of Assets, Summary” shows your total asset balance as of December 29, 2006, and the “Executive Summary” shows your performance as of December 29, 2006, for the current year-to-date, prior year and since inception (remember, the markets were closed the last two days of the year!).  Please let us know if you would like additional information that is not on these reports.

As you can tell, the significant chunk of your portfolio performance occurred during the final three months of the year.  October was the best month of the year, while performance of our strategic, diversified portfolios was less so each of the following two months (November and December), they still maintained significant returns.  It seems to me that the market continues to teach the lesson that as prudent investors, you should be invested at all times, that performance comes in very quick bursts, and, if you’re not invested and diversified, you’ll miss out.

Below is a representative sample, as of December 31, 2006, of DFA funds currently recommended for use in our client portfolios.  This is not a complete list of all DFA funds, and your portfolio may or may not contain all these funds.  Also below are returns of two indexes, providing you an idea of how the U.S. (S&P 500) and International (MSCI EAFE) markets have performed (also commonly called “benchmarks”).  Note that historical returns are not predictive of future results.

*****
Fund Name/Ticker 4th Quarter One-Year Three-Year
(annualized) Five-Year
(annualized)
DFA US Large Co. Institutional Index (DFUSX) 6.67 15.72 10.40 6.11
DFA Tax-Managed US Equity (DTMEX) 6.61 14.39 10.63 5.53
DFA US Large Cap Value III (DFUVX) 8.03 20.34 16.28 12.52
DFA Tax-Managed US Mktwide Value II (DFMVX) 8.47 19.38 16.94 9.83
DFA US Micro Cap (DFSCX) 9.55 16.16 13.27 15.16
DFA Tax-Managed US Small Cap (DFTSX) 9.19 15.49 13.50 11.44
DFA US Small Cap Value (DFSVX) 10.14 21.55 18.00 18.90
DFA Tax-Managed US Small Cap Value (DTMVX) 9.10 18.85 16.10 14.81
DFA International Value III (DFVIX) 12.15 34.47 26.03 22.49
DFA Tax-Managed International Value (DTMIX) 12.11 33.39 25.47 20.87
DFA International Small Company (DFISX) 12.62 24.88 25.86 26.40
DFA International Small Cap Value (DISVX) 13.53 28.39 28.72 30.30
DFA Emerging Markets (DFEMX) 17.23 29.17 29.65 25.88
DFA Emerging Markets Value (DFEVX) 18.78 37.93 36.04 34.25
DFA Two-Year Global Fixed (DFGFX) 1.12 4.46 2.36 2.85

S&P 500 Index 6.70 15.80 10.44 6.19
MSCI EAFE Index (net div.) 10.35 26.34 19.93 14.98

Posted by Wayne Titus
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