The most prescient comment from our prior quarter transmittal reads
"Although our general outlook remains constructive, numerous uncertainties
over the balance of the year suggest careful attention to volatility should be
rewarded."  Global stock returns between May 10 and late June evidenced a
significant market correction, which we believe to have been largely
technical in nature and short term in duration.  This said, we clearly see a
global pullback from risk as emerging market securities and smaller
capitalization stocks (S&P 600 and Russell 2000) have declined much more
sharply than the S & P 500 and the DJIA.  Higher global interest rates and
more hawkish postures by foreign central banks and our own Federal
Reserve have driven global fixed income returns to more competitive levels.
In our view, clearer evidence of moderation in the inflation indices must
evolve for the financial markets to emerge from this period of heightened
volatility.    

Central to our investment outlook is the recognition that China must create
more than 20 million new jobs this year and every year for years to come.  A
central component of Chinese economic growth is strength in U.S. imports
which generate a large trade surplus for China. As a result, China must buy
U.S. Treasury Debt and maintain their currency in close, though gradually
weakening, linkage to the U.S. dollar.  Eventually, China will develop a
domestic consumer class that will diminish its need for foreign exports, and
the relationship of buying our debt while maintaining a strong export link to
the U.S. will weaken, to the detriment of our financial markets.

Newly confirmed Secretary of the Treasury Henry "Hank" Paulson compiled
years of experience and a sophisticated understanding of leverage and the
global financial markets while at Goldman Sachs.  While at Goldman, he
made over 80 business trips to China.  He also brings a "pro growth"
philosophy and should be invaluable in guiding U.S./China trade relations
through the complexities described above.

For the balance of this mid-term election year, we clearly see that low
interest rates and the strength in housing have been removed from the U.S.
economy. Consequently, for the remainder of 2006, employment gains,
already impacted by global outsourcing, should average less than 200,000
per month. This will help to contain wage inflation and should allow the
Federal Reserve to maintain a balanced monetary policy, rather than a more
restrictive one.  Finally, corporate profits should maintain positive
momentum, although gains will moderate in the third and fourth quarters.

Realistically, volatility will likely remain higher so long as there are
commodity price inflation pressures and synchronized rate tightening by
global central banks. The intoxicant of easy money is fading, so investors
are forced to reassess the risk characteristics of investments.  Clarifications
around U.S. monetary policy and mid-term elections should help mitigate
some of the volatility.  Quality fixed income securities offer the best yields
seen in several years.  The recent weakness in the equity markets creates
an opportunity to use both high quality stocks and special situations to meet
your return objectives.