The year 2006 brings us the prospect of more balanced economic growth
with the Federal Reserve pursuing a neutral rather than accommodative
monetary policy, with housing no longer providing forward momentum and
with energy prices down nearly 20% from 2005 highs.  The global economy
will need help from Japan and Germany (the world's second and third largest
industrial economies) and from capital spending increases in the U.S. in
order to maintain a pace of moderate growth.  Important momentum, either
positive or negative, will come from geopolitics and the weather as the year
unfolds.  All in all, we view 2006 in a more positive light than we did 2005.  
Stock valuations seem realistic, given the earnings and inflation outlook, and
interest rates across the U.S. Treasury yield curve provide reasonable
income alternatives above 4.25% and a positive return versus inflation.

During 2005, the leadership of the market metamorphosed after oil prices
peaked in September, with energy, utilities, and healthcare retreating, while
financial services, basic materials, industrials and information technology
gained.  Early in 2006, winter weather conditions will rule the day in energy
prices, though we can clearly see that supply of oil is less the issue than is
mix of product with heavy crude oil in adequate supply.  We fully expect
positive news on the energy price front as 2006 progresses, and we believe
this can be a catalyst for more balanced economic growth in 2006.

In 2006, China and India will continue to transition from agrarian to
consumer-driven economies with attendant growth in demand for energy
and raw materials.  Their low wage base will export deflation, and their
appetite for global energy and commodities will be a source of inflation in
producer prices.  Although balance sheets for U.S. corporations are
exceptionally strong, the general inability of companies to pass through cost
increases suggests a lack of pricing power and  continued pressure on
margins.  We will be focusing on companies that appear to us to have pricing
power.  

Finally, the Chairmanship of the Federal Reserve Bank will transition from
Alan Greenspan to Ben Bernanke on January 31, 2006.  The academic
credentials of Dr. Bernanke are pristine, but his leadership is untested.  Just
as Alan Greenspan faced the market meltdown in October 1987, during his
first year at the helm of the Federal Reserve, we expect Dr. Bernanke will
likewise face such a test - maybe in Asia, maybe with General Motors, etc.  
Additionally, it will be hard to rebuild household savings, reduce the current
account deficit, and stabilize the housing sector without some pain.  
Anticipating this and consistent with our long-term approach to investing, we
will continue our emphasis on high investment quality in both equity and
fixed income markets.