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reoccur in 1989. Fiduciary has not participated in the buy-outs to a very great extent.

Mr. Beck presented Fiduciary's fixed income strategies. Pressure remains domestically for higher interest rates, but will probably ease due to the slowing of the economy. Bonds will still provide positive yields given the present inverted yield curve. On a global basis, unemployment rates are down and capacity utilization is up, as are short-term rates. Fiduciary interprets these trends by maintaining a conservative posture with respect to maturity, gradually extending as rates rise. They continue to invest in high quality bonds to avoid "event risk" without sacrificing much yield.

Mrs. Gould asked Mr. Beck how high he predicted bond rates would go and what would be the effect on the length of maturities. Mr. Beck stated that he expected rates to rise fifty to one hundred basis points over the next year. Fiduciary is presently maintaining about a six-year average maturity. The Institution's fixed income portfolio at Fiduciary is slightly more than 50% in governments, 30% in corporates, with the balance in cash, mortgage backed issues, foreign governments and cash.

Mrs. Tatlock then explained Fiduciary's recent strategy in equity holding. Communications issues have done well; Fiduciary has also increased its holdings in energy stocks. Consumer issues are down in general but many individual issues are doing well. Fiduciary reduced its holdings in capital goods issues in order to take accumulated profits. Mr. Mineta asked what particular stocks Mrs. Tatlock had confidence in, other than communication issues. Mrs. Tatlock mentioned Walt Disney, Limited, McGraw Hill, May Stores, and Waste Management Company as good prospects, the latter due to recent concerns over environmental issues.

Mr. McHenry asked Mrs. Tatlock to describe Fiduciary's experience relative to South Africa-free performance. (Fiduciary manages the United Nations portfolio.) She explained that over time there has been no real impact on yield, and in fact South Africa-free portfolios have outperformed the S & P 500. The Smithsonian's portfolio under Fiduciary management has outperformed the S & P 500 by almost 3% through March 31.

The Chairman thanked Mrs. Tatlock and Mr. Beck for their cogent presentations. Mr. McHenry then introduced Mr. James R. Ullman of Batterymarch Financial Management.

Mr. Ullman explained that Batterymarch remains solely an equity manager, fully invested at all times. The firm presently has $9.3 billion under management for 70 clients, of which $2.2 billion is in global or non-U.S. investments. He detailed Batterymarch's operating philosophy and processes, stressing automation and low transaction costs. The firm's basic contrary, value-oriented philosophy remains unchanged.

Mr. Ullman stated that today's market is driven by corporate activity, with leveraged buy-outs being a very important factor. There are an increasing number of corporations buying back their own stock as both a good investment and a tool to take the premium out of takeover attempts. This scenario leads to typical Batterymarch targets -- smaller, solid, and underpriced opportunities. Mr. Ullman pointed out that Batterymarch