August 16, 1999 Model Portfolio Update You may have noticed that your assets performed well in the past several months. This is because the model portfolio constructed by Howard Lisch of Lisch Investment Services outperformed the S&P 500 Index by 1.73 percentage points over the three months ended June 30, 1999. What you are seeing is a classic change in the leadership of the stock market. For the past several years, the winners were the S&P 500 Index companies and large capitalization technology firms. Now, the trend is toward the small and mid capitalization companies. In fact, the valuations of the small cap companies is the lowest in 40 years. Therefore, with this change in the market, the model portfolio should resume its competitive advantage over the S&P 500 Index. Employers Advised to Continue to Withhold for Non-NYers The New York City nonresident tax was no longer effective as of July 1, 1999 to the 450,000 New York State residents. What is in issue is the fact that Connecticut and New Jersey obtained a lower court ruling that it was unconstitutional for the 300,000 out of state commuters from the 49 other states, the District of Columbia, Puerto Rico and more than a dozen foreign countries to pay the nonresident New York City tax. The New York State Attorney General appealed the ruling and the new State Taxation and Finance Commissioner, Arthur Roth advised New York companies to continue to withhold the tax while the decision is being appealed. If you have any questions as to what to do, you can call 1-800-CALLTAX or contact New York on the Internet at www.tax.state.ny.us. Are Americans Up to the Task of Managing Their Retirement? America is becoming a nation of shareholders-of necessity and by choice. Today, nearly half of American households own stocks, either directly or through mutual funds or retirement accounts. Twenty-five (25%) percent of all U.S. household assets, almost $11,000,000,000,000, is invested in the stock market, up from just 10 1/2% in 1988. Half is invested in mutual funds, almost double the amount on deposit in U.S. banks. This is not a rich person’s area, among mutual fund holders, 70% have a household income of less than $75,000. But are they up to the task of managing their own money? People who are not participating in old fashioned pension plans need to save at least $1,000,000 to supplement Social Security. Only 24% of workers surveyed by the Employee Benefits Research Institute are “very confident” they are doing a good job of preparing financially for retirement. While some are enjoying a heady success born of the bull market of a lifetime, others have found it’s not so easy to trade their way to riches or even security, having lost money to fraud, technology glitches or their own poor decisions. Three out of four people have not earmarked retirement funds for long term health costs. Worse, half think they won’t have a need for it. If you feel you need to save more and need some professional advice we suggest you call Howard Lisch who is a licensed Registered Representative, for an appointment. He can create a financial plan as well as invest you money for you. New Reporting Rules on Payments to Attorneys The IRS has provided additional guidance for firms on reporting payments to lawyers. Businesses must report payments to lawyers for services on Form-1099-Misc. The new rule applies even if the payment is made to a professional corporation (P.C.) or to a limited liability corporation (LLC) for legal services. Settlements paid in lawsuits have to be reported if the payer knows that the lawyer is receiving the check in connection with legal services. It does not matter that the check is payable to the lawyer’s client. The new rule means that the payers may have to report the same payment twice: first to the lawyer, and then to the client if the settlement is taxable, such as a payment in a case involving back wages or job discrimination. Payers must withhold 31%, if the lawyer does not supply a tax identification number. Kosovo Tax Issues Both the IRS and New York State have provided detailed guidelines on the tax relief resulting from President Clinton’s executive order designating areas in and around Yugoslavia as a combat zone retroactive to March 24, 1999. For more information from New York you can obtain Publication 361, New York State Income Tax Information for Military Personnel and Victims, or go to the Tax Department’s website at www.tax.state.ny.us. If you have questions about these or any other tax or financial matters, please call me.