Fellow Shareholders,

Last year, I told my fellow shareholders we could improve on the numbers. I am proud to report that we exceeded our 12% annualized projection. We were able to reach a 21.7% return on our assets under management before expenses. This number outperformed the market as a whole and 98% of investment professionals. Not bad for the small fish in the pond. There is also sad news to report, however. The bank we hoped to acquire a controling interest in was bought out in September, 2016. We had begun to purchase Georgetown Bank Corp sometimes immediately after we incorporated in 2015. Although we were disappointed in seeing our top choice getting bought out, we were happy to receive a respectable return on our investment.

We have significantly shifted the portfolio to fit the new political situation with the companies that the president elect is likely to favor. This is something that we did when President Obama was in office. We are continuing to adapt to the current political and economic climate, but we remain committed to our long-term focus in holding a diversified portfolio of stocks and other assets. We believe that staying focused on long-term growth will be beneficial to the company. It is still believed that our long-term focus will be rewarded through continuing to receive a steady income from our current revenue sources.

I would like to update you about our new income stream option ability we began utilizing this past year. The strategy did exactly what I believed it would do. It allowed us to protect the portfolio from market turmoil. And we were even able to make some money in the process. It is important for investors to remember that options are a subtle part of our portfolio and strategy that allow us to protect investor capital in times of uncertainty. We have been able to use options effectively as a form of market insurance for our portfolio. As a result, we were often able to hedge our positions against volatility.

It is significant for us to make everyone aware of two issues that have required our attention that needed our attention. First, we have had some shareholders disagree that share purchases are not corporate income. However, under California state law, we are required to show it as income to the corporation. As a result, we have done so for 2016 and will continue to do so into the future in order to remain in compliance with the applicable laws. Secondly, in regards to our current shares outstanding and our earnings per share, the federal and state applicable laws require us to disclose all shares outstanding. 

The company founders own a combined six million shares, which are basically only worth the paper they are printed on. The founders were issued these shares for several reasons. First, in lieu of salary for services rendered. Secondly, the belief that they should continue to have vested interested in the company as they hold corporate positions. Thirdly, also to avoid the company from being steered in a way that is not aligned with the mission and vision of our company. Therefore, our earnings per share gets diluted down due to the quantity of shares outstanding in comparison to our assets under management.

It remains our goal to reach an annualized 10% – 12% return. Nevertheless, we are looking forward to shooting for the moon this year and seeing where we are able to reach this coming year.

Patrick Schattilly 
Chairman & CIO
P&R Capital Group