1st Quarter

April 15, 2002

Spring is here and with it a new leaf has turned in the economy. Increased optimism is stemming from the resiliency of the U.S. economy. During the first quarter we saw a transition and then a renewal in the leading economic indicators, which took many analysts by surprise.

The Michigan Consumer Sentiment Index is at its highest level since December 2000. In addition, the Chicago Purchasing Managers’ Index has increased to its highest level since June 2000. Both of these indices indicate that two major factors in the economy – consumer sentiment and manufacturing – are improving.

Federal Reserve Board Chairman Alan Greenspan said in an early March report before Congress, “Despite the disruptions engendered by the terrorist attacks of September 11, the typical dynamics of the business cycle have re-emerged and are prompting a firming in economic activity. The recent evidence increasingly suggests that an economic expansion is already well under way.” Greenspan predicts that the personal income tax cuts and increases in government spending on homeland security and national defense will further spur the U.S. economy. In addition, the Economic Growth and Tax Relief Reconciliation Act of 2001 allows for increased savings, letting individuals contribute up to $3,000 to an IRA for the year 2002. There is a special catch-up provision that allows individuals who have attained age 50 by the end of the plan year to contribute $3,500 in 2002.

In other news, Enron and Arthur Andersen proved to be valuable reminders of one of the golden rules of investing – diversification. Concentrating too heavily in a single stock, sector, or mutual fund is very risky. In light of the Enron debacle, Congress is scheduled to hold several hearings on retirement plan reform, and many lawmakers are proposing limits on the amount of employer company stock allowed in 401(k) plans.

During the quarter we made several “tactical” changes to portfolios. It has long been the belief of analysts and portfolio managers that mid- and small-cap equities tend to perform better than their large-cap brethren during a market recovery, and, in particular, while coming out of the trough of an economic cycle. Keeping this in mind, we decided to overweight the mid- and small-cap allocations of the portfolios. In addition, the economic and political instability in countries around the world and weak economic fundamentals in some of the larger economies such as Japan and Argentina prompted us to cut back on the international equity exposure. At the other end of the spectrum, short-term interest rates are still hovering at 30-year lows. However, it is our view that short-term interest rates have nowhere else to go but up. Therefore, due to the inverse relationship between interest rates and bond prices, we have decided to continue with our strategy of investing in short-term fixed income securities.

Overall, it looks like all of the ingredients are in place for a healthy market recovery. Historically, analysts claim this may be the quickest recovery from a recession on record. Consumers, businesses, Congress and the Federal Reserve Board all played valuable rolls in stimulating the economy and we look forward optimistically to the second quarter.

Enclosed you will find your Portfolio Performance Summaries, Portfolio Holdings Statement, a quarterly Account Management Fee Statement, and a Notice Regarding Treatment of Confidential Information. If you desire Morningstar reports or the most recent copy of our Form ADV, Part II, please call us. Also, if your investment objective or personal financial situation has changed, please notify us so we can re-evaluate your portfolio.

Sincerely,