2nd Quarter

July 10, 2003

In the realm of investing, it would be an understatement to say that the second quarter of 2003 has been a breath of fresh air. We have endured some bitter times – three years to be exact – during which we have witnessed approximately seven trillion dollars of wealth vaporize into oblivion. Nevertheless, all major indexes are in positive territory year-to-date, with the S&P 500, NASDAQ and Russell 2000 small-cap index all notching double-digit gains. Be that as it may, we are not yet ready to start singing “happy days are here again.”

On June 25th, “Greenspan & Co.” reduced the federal funds rate by another 25 basis points to its lowest level since 1958 – in a sign that all is not well with the economy. In fact, the rate cut came on the heels of a revision in first quarter GDP to an anemic 1.4%. With durable goods orders falling to its lowest level in a year and businesses still hesitant to invest or hire workers, it came as no surprise when the Federal Reserve cut interest rates for the 13th time since January 2001.

Nevertheless, not all is bleak with the economy. Productivity – the invisible force that has kept the economy afloat throughout the bear market, is still very strong. Consumers are more optimistic about the near-term future of businesses. Moreover, consumer spending, which accounts for two-thirds of GDP, shows no signs of abating anytime soon. The housing market, fueled by low mortgage rates, has continued its phenomenal run.

As far as your portfolios are concerned, most of our equity funds notched double-digit gains. On the domestic front, large, mid and small-cap funds have all performed exceptionally well, while international equity funds have been found wanting. At the other end of the spectrum, bond funds – the beneficiaries of historically low interest rates – have generated decent gains and helped mitigate volatility in your portfolios.

As we step into the third quarter, we are confident that your portfolios are well positioned to capitalize on any continued up-trend in the market. As such, we hope that what we have experienced in the past three months is not just an aberration, but is a harbinger of good things yet to come. In fact, the consensus among analysts and economists alike is that the second half of 2003 holds much more promise for the economy, and in turn for corporate profits and the stock market. After suffering the slings and arrows of outrageous fortune for the past three years, it is hard to ignore such optimism, even if it is merely conjecture.

Enclosed, you will find your Portfolio Performance Summaries, Portfolio Holdings Statement as of June 30, a quarterly Account Management Fee Statement, and American Investment Advisors, Inc.’s Summary of Proxy Voting Policy and Procedures. If you desire Morningstar reports or the most recent copy of our Form ADV, Part II, please call us. Also, if your investment objectives or personal financial situation has changed, please notify us so we can re-evaluate your portfolio(s).