2nd Quarter

July 10, 2004

True or False: The 1990s bull market was the century’s longest.

The answer to this question is “true.” E.S. Browning writes in a June 21st issue of the Wall Street Journal, “The typical bull market is much shorter and a lot less sweet, and that is the kind that many analysts think is under way now.” As you know, annual equity return expectations have come down to lower levels. Some believe we will not see double-digit stock returns in the foreseeable future.

At this point you might think that the bond market might be a better option. After all, your risk is a bit lower and some bond funds have returned more than 8% on average over the past three years. However, will this “bond bull market” continue? Once again, many analysts believe it will not. In fact, average annual return expectations for bonds have come down to the low single digits.

The Federal Reserve plans on incrementally increasing interest rates (we have already seen a quarter point increase on June 30th) in order to “tighten” the money supply. In other words, money will become more expensive to borrow. This is actually good news for those of you who own money market and short-term bond positions. As the Federal Reserve raises rates, your yields will be impacted the quickest. Rest assured, most of your bond positions under our management are in extremely short-term, high quality investments.

How will the stock market perform over the next six months? The short answer: It depends. Since the stock and bond markets do not like uncertainty, you can bet that there will be some volatility in the months ahead. We are only four months away from the presidential elections. What plans does the newly elected president have for the United States economy? Will the Iraq situation continue to cause friction? Will corporate earnings beat analyst expectations? How quickly will the Federal Reserve raise interest rates? These questions cannot be answered today. Only time will tell.

Enclosed, you will find your Portfolio Holdings Statement as of June 30th, Portfolio Performance Summary and a quarterly Account Management Fee Statement. Please call us should you desire the most recent copy of our Form ADV, Part II. In addition, do not forget to notify us should your investment objectives or personal financial situation change.

Sincerely,