Viewing page 31 of 131

This transcription has been completed. Contact us with corrections.

- 18 -

market of the changes in Eastern Europe, the strong U.S. dollar, and the uncertainty as to the likelihood of a recession. Fiduciary feels that the economy will continue to be sluggish, and that it is a time to be cautious. The firm has no compelling view as to stocks versus bonds and has a more balanced approach now than previously. Asset allocations will remain about the same for now.

In response to a question, Mr. Beck explained that Fiduciary's holdings in hedged non-dollar fixed income instruments were Canadian government bonds. Canadian interest rates have not gone down as anticipated. In most other countries, interest rates appear to be rising. The Committee expressed admiration for the past performance and the cogent presentation by Fiduciary.

Mr. McHenry thanked the representative of Fiduciary and introduced Mr. Daniel Forrestal and Mr. James Kichline of Miller, Anderson and Sherrerd of Philadelphia. Mr. Forrestal, speaking on equity performance, stated that the firm had made several bad market sector decisions; namely, they had underutilized utility and energy stocks, as well as drug companies. The Select Value Fund, with its low PE holdings, had been over-weighted in financial issues. Low PE stocks had had a particularly bad time. Miller, Anderson  still believes primarily in large cap growth stocks, which were up 40 percent for the year, but their performance in the Smithsonian portfolio was partially offset by the placements discussed above. Mr. Forrestal stated that the firm intends to stay in growth stocks because of their present valuation and strong earnings in relation to a moderately growing economy. Holdings in the financial sector and the Select Value Fund have been reduced.

Mr. Kichline explained that the average duration of the Institution's fixed income holdings continues to increase. Any holdings below an "A" rating have been sold, per the Committee's instructions. He stated that mortgage holdings continue to be overweighed due to very favorable performance. All holdings are now rated at "A" or above.

Mr. McHenry thanked Mr. Forrestal and Mr. Kichline for their presentation.

The Chairman thanked the Committee members, and Regent Clark in particular, for their participation. He stated that the next regular meeting would convene in the Fall in New York. Whereupon the meeting was adjourned at 1 p.m.

[[underlined]] THE SECRETARY'S REPORT [[/underlined]]

The Secretary brought the Regents up to date on planning for a management study of the Institution. He noted that two management professionals, Mr. Terry Williams of McKinsey & Company and Mr. Stephen Lorch, an independent consultant, have been talking and planning with selected Smithsonian officials and members of the Board of Regents. The central issues