If you find it difficult to investigate U.S. investments, it may seem daunting to even consider investigating investments in countries you know very little about. Yet, the skills required to analyze domestic investments will assist you in deciding whether a particular country or region is an appropriate place for you to invest.

Start out by reviewing the prospects in various parts of the world, then begin to monitor a few select areas that show the most promise. The markets are divided into two general categories - mature, developed economies and emerging, developing economies. The World Bank defines developed countries as those with per capita income over $8,955and emerging countries as those with per capita income under that amount. Emerging countries tend to contain more risks for investors as the countries struggle to develop infrastructure, trade policies, and stable governments. But these risks may also result in higher rates of return.

When evaluating an economy, you should review key economic statistics, such as inflation, lending rates, trade balance, growth of money supply, government deficits, foreign debt, and gross domestic product. Some factors to look for include:

A rapidly expanding population, which indicates possible larger future markets for products.

Rising incomes, which generally translate into more consumer spending and potential growth in local industries.

An upgrading in economic policies, such as participation in international pacts or adoption of banking or accounting standards, which may offer more protection to consumers and investors.

A positive trade balance, which indicates economic growth and demand for the local currency.

Significant savings rates, which provide sources of investment capital to help fuel domestic growth.

While information on the world’s stock markets was scant just a few years ago, many business publications, now devote a significant amount of coverage to these markets and their home countries. Before investing, be sure to monitor these markets for a few months to get a feel for the level of volatility involved. Also watch currency movements to make sure you are comfortable with how these movements will impact your total return. If you need help obtaining information for a particular part of the world or would like suggestions about which areas to start monitoring, just call. Keep in mind that foreign investing involves risks not associated with domestic investing, such as currency fluctuations, political and social changes, and greater share price volatility.

THE WORLD OF HIGH-YIELD BONDS

The high-yield market has matured in the last decade. In the late 1980s, Drexel Burnham Lambert and Michael Milken were in the midst of a huge scandal involving high-yield bonds. Many individual investors and institutions, including insurance companies and savings and loans, had purchased large amounts of high-yield bonds that suffered losses. As recently as 1990, high-yield bonds paid about 7% more than ten-year Treasuries, but that spread is currently down to 2.9% (Source: Forbes, June 16, 1997).

Many institutions now limit their exposure to high-yield bonds to no more than 5% of total assets. Companies that issue high-yield bonds tend to be less leveraged than in the past, meaning that the high-yield bonds outstanding tend to have better quality. Default rates are currently about 2%, compared to the historical long-term rate of 4% (Source: U.S. News & World Report, April 14, 1997).

With these changes has come increased demand for high-yield bonds. In 1996, 32% of total new bond issues were for high-yield bonds. For the first quarter of 1997, that percentage increased to 39%, the highest ever. (Source: Standard & Poor’s High Yield Bond & Bank Loan Ratings, 1997).

High-yield bonds tend to fluctuate less than Treasuries with regard to interest rate changes because they generally have shorter maturities, are often callable, and their coupon rates are higher. On the other hand, high-yield bonds are more susceptible to the impact of recessions, which can impact a company’s ability to repay the loan.

It is important to remember that high-yield bonds are subject to greater risk of loss of principal and interest, including default risk, than higher-rated bonds. Those wishing to invest in this market should consider holding a diversified portfolio of high-yield bonds and should carefully research their choices before purchases. If you’d like assistance evaluating this complex market, please call at (800) 878-4036.

CALCULATING BOND YIELDS

Bonds generally have three different yields - coupon yield, current yield, and yield to maturity. In reviewing these definitions, assume that you purchase for $900 a 6% bond with a face value of $1,000 maturing in five years. (This example is included for illustrative purposes only and is not intended to project the future performance of any specific investment vehicle.)

COUPON YIELD is the interest rate started on the bond, which is determined by the issuing company based on prevailing interest rates at the time the bonds are sold. In the example, the coupon yield is 6%.

CURRENT YIELD is the rate of return that the coupon interest pays on the net purchase price of the bond. This yield will be higher than the coupon yield for bonds purchased at a discount and lower for bonds purchased at a premium. The current yield is calculated as follows:

YIELD TO MATURITY calculates the total return provided by the bond if held to maturity, factoring in interest payments as well as premiums or discounts paid. Yield-to-maturity calculations can be time-consuming, but can be approximated as follows:

+ average discount

or - average premium

average of face value of bond x 100 + current price

THE UNIQUE ASPECTS OF GLOBAL INVESTING

POLITICAL AND ECONOMIC TRENDS - A wide variety of government decisions can impact a country’s investments, including nationalizing industries, changing investment regulations, or adopting more stringent trade policies. When investors lose confidence in a country, its security market can lose value rapidly as investors pull money out to minimize losses. While these risks may not be a significant concern with most major industrialized nations, the risks can be significant for emerging markets.

CURRENCY FLUCTUATIONS - Your total return on a foreign investment is determined by two factors: the actual return on the investment and the impact of currency fluctuations. If the U.S. dollar declines compared to the currency in the country where you are investing, your investment will increase in value since more dollars are now required to purchase the investment. An increase in the U.S. dollar compared to the other currency means that your investment will decrease in value. For example, suppose you purchase a British stock whose price increases by 10% in terms of British pounds after one year. If, during the same period, the British pound increases in value by 5% compared to U.S. dollars, your total rate of return will be 15%-10% from the investment and 5% from currency fluctuations. However, if the British pound decreases in value by 5%, you will only earn 5%.

MARKET VOLATILITY - While market volatility also occurs in U.S. markets, it tends to be more pronounced in foreign markets, especially in emerging markets. U.S. stock markets tend to respond to factors such as changes in interest rates, corporate profits, or the economic outlook. Foreign markets, however, can also be affected by such things as political or economic factors that would not be a concern in U.S. markets.

INFORMATION - It’s generally more difficult to find information about a foreign country, whether you want to find out about the government, the economy, or a specific investment. In addition, financial reporting practices in other countries are different than those in the U.S., making comparisons between foreign and U.S. companies difficult. Usually, disclosure requirements are not as extensive, so that information readily available for U.S. companies, such as financial results by business segment, may not be available at all for foreign companies.

TRANSACTION CONCERNS - Transaction costs can be significantly higher in foreign countries and delays in settling trades are not uncommon. Many foreign stock markets are thinly traded, making liquidity a concern.

These concerns aren’t meant to scare you away from international investing, but do indicate that there are some unique factors to consider before investing globally. Please call us at (800) 878-4036 if you’d like to discuss any of these factors in more detail.

CAN YOU ANSWER THESE QUESTIONS?

During the process of developing an investment strategy, you should answer several questions about your preferences:

WHAT PERIOD OF TIME ARE YOU INVESTING FOR? Generally, a short-term investor needs his/her money in one or two years. An intermediate term is two to five years, while a long term is at least five years.

WHAT ARE YOUR INVESTMENT OBJECTIVES? Generally, investors committed to growth are looking for appreciation of capital, with income a secondary concern. Total return investors want a balance of income and appreciation of capital. Income investors are typically most concerned about interest or dividend income, with capital appreciation secondary. Generally, individuals interested in preservation of capital are most concerned with protecting their principal.

HOW RISK TOLERANT ARE YOU? Generally, those uncomfortable with the thought of losing more than 5% of their principal in one year have a low tolerance for risk. Typically, a moderate tolerance could stand a loss of 5% to 15%, while a high tolerance could withstand a 16% to 25% loss.

ARE YOU INTERESTED IN TAX-ADVANTAGED INVESTMENTS? Your marginal tax bracket will have an impact on the types of investments you should consider choosing.

WHAT RATE OF RETURN DO YOU EXPECT ON YOUR INVESTMENTS? Reviewing historical rates of return for various types of investments will give you a rough idea of what you can expect. Keep in mind that past performance is no guarantee of future performance.

Your answers to these questions will have a significant impact on the types of investments that are appropriate for your circumstances. Your answers may also change over time, so it is important to review them periodically to ensure that your investment strategy is appropriate. Please call at (800) 878-4036 if you’d like help evaluating your answers.

DOUBLE-CHECK YOUR PENSION BENEFIT

Are you sure that your pension benefit, whether a monthly check or a lump-sum distribution, is for the correct amount? Miscalculations, while generally unintentional, do occur, so you should re-calculate your pension benefit.

First, ask your benefits office for the pension formula and then verify the information used to calculate the benefit. For a defined-benefit plan, that will probably include your average compensation, years of service, and birth date. Other errors may be more difficult to discover, such as inaccurate assumptions about future interest rates or not factoring in changes in pension laws.

Also check if your company integrates your pension with Social Security benefits, which means that your company will reduce your pension by some portion of your Social Security benefits. Approximately half of all private defined-benefit plans do (Source: The Wall Street Journal, March 12, 1997). If your employer does integrate, make sure that the actual amount of Social Security benefits is being used in the calculation. Many companies project what you will receive, which may be drastically different than the amount actually received.

If you’d like help double-checking your pension benefit amount, please call at (800) 878-4036.

NEWS AND ANNOUNCEMENTS

STAYING IN TOUCH

It is necessary to stay in touch with me in order to stay abreast of changes in the marketplace and to stay on top of changes in your life that may affect your financial decisions.

Years ago, the financial services industry offered fewer and less complicated products and services. Today, things are constantly changing. Individual needs are changing and becoming more specialized. Companies are responding by offering more products that target certain niche markets.

This is true whether you are talking about business or personal insurance, group or individual products for retirement, health, disability, or long-term care. For some, it is important to review estate planning concerns and options while others need to consider the best alternatives for financing college educations or retirements.

You should also review current insurance policies and investments to make sure that what you have is appropriate when considering your goals, objectives, priorities, tolerance for risk, and a host of other factors. When was the last time you reviewed your asset allocation strategy or the efficiency of your investments?

When your life circumstances change, it is time for a financial "checkup." Any new children or grandchildren? Do you have a new job, a promotion, a new business, or are you ready to retire? Have you received a lump-sum distribution or an inheritance? Have you recently bought a new house? Take the time to set up an appointment to discuss any of these items.

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