On December 31, 2002, Wealth Planning & Management was managing $28,203,013.75 in 77 accounts of 42 families. This compares to 14 accounts at the end of the year, five years ago, December, 1998.

Our composite rate of return statistics provide a long-term perspective on the professional practice of investing in securities. The statistics show that when you look determines what you see.

For the year just ended, our composite rate of return for portfolios invested in stocks and bonds was - 13.09 %, compared to - 23.37 % for the S&P Index of 500 stocks. The composite return for stocks alone, excluding fixed income securities, was - 18.52 %. The composites do not include accounts invested exclusively in tax-exempt municipal bonds, an asset class not readily comparable to the S&P or to balanced accounts in general.

We feel no pleasure reporting a negative year, but we did preserve client assets relative to averages, thereby giving our clients a higher base from which to participate in the next up market.

For the five year period starting January 1, 1998, our result for whole portfolios is + 2.53 % per year, compared to the S&P result of - 1.94 % per year. For stocks alone, our composite rate of return is + 0.40 % per year for five years.

The phenomenon "what you see depends on when you look" is shown by looking at past statistics. The composite for all portfolios reported at the end of 1998 was + 10.62 %, the first period reported by our then-new firm. The best result was as of June 30, 1999, + 13.25 % per year from inception. In these examples, the comparison to the S&P 500 was not as favorable as it was this year, illustrating that conservative investing falls short of averages in good times, and exceeds averages in tough times.

The investment policy statement that we send to most clients states "that if you and I do business twenty years, we will experience at least three periods of negative returns, and at least one period will test our emotions and our patience." The year 2002 tested our emotions to the maximum. A few clients did not survive the test. As reported earlier, two clients ordered sale of all assets in July, near the low average values for the year, but these clients left cash on deposit for possible potential return to the stock market. (In these situations, we suspend the management fee.) Another client moved all assets to a commission-based provider. As in the situation described below, this client did not analyze comparative results of WP&M and the new provider. Our statistics showed that we preserved this client's assets compared to the loss in the averages. Unfortunately, commission-based providers usually are unable to provide historic composite results because commission-based providers usually do not have discretion to make investment choices, and because their money management computer programs do not maintain a composite statistic. Following departure of this client, our newsletter, Thoughtful Wealth Planning & Management, stated that "changing investment advisors is like changing socks on a long hike. The new socks feel great, for a while."

A client lost in the fourth quarter is an example of chaos caused by misunderstandings and changing personal relationships. A golfing friend of the client moved from one full-service firm to the same full-service firm we utilize as custodian. The client ordered a change in the representative of the custodian, from our representative to the golfing friend, without notifying us in a timely way. Attempting to satisfy everyone, the client originally intended to leave three of the four accounts with us. Unfortunately, his action blocked us from properly accounting for our quarterly fee. As weeks went on, the client became frustrated with the administrative/bureaucratic chaos that he caused, and he decided to move all accounts to his golfing friend. To avoid further chaos and discomfort, we waived our uncollected fee for the fourth quarter. When clients terminate, we check our rate of return statistics. In this case, for the period we managed the accounts, July 31, 1998, to November 29, 2002, we earned + 0.14 % per year, compared to - 4.06 % per year for the S&P 500. The total loss in the S&P was more than 16 %. The client had no loss. The client did not seek this information from us, and he probably did not seek comparable information from his new commission-based advisor. We suspect an added factor was that WP&M realized tax advantaged losses instead of taxable gains. This philosophy/procedure resulted in negative figures on this client's capital gains tax form, Schedule D. Many investors do not appreciate that losses can be realized, and often should be realized, in up markets, and that realized losses are not an indication of a negative total return. Losses occur in some stocks while most portfolio securities are rising. On occasion, we have realized losses in accounts up more than 20 %.

We are blessed that client accounts increased from 14 in 1998 to 77 at the end of 2002. Many clients have added funds to their managed accounts, in good markets and bad. The increase in the number of client relationships is because we add value. First, we have preserved relative asset value in the longest down market since 1935. Second, our advice on personal finance, including estate planning, income tax planning, college and retirement saving, even personal budgeting, has served well.

We trust that stock market returns soon will return to historic norms.

jwg--1/02/2003