In our June 30, 2006 transmittal, we stated that we believed the market
decline from May 10 to late June "to have been largely technical and short-
term in duration."  We were right! The Federal Reserve has paused in raising
short-term interest rates, and oil prices have retreated.  Now, the overhang
of unsold housing and autos will importantly influence the economic outlook
and determine whether early 2007 delivers a "soft landing" or a recession.  
Recent U.S. equity performance votes for the former as shown by the DJIA.  
Historical highs are shown below:

DJIA S&P 500 NASDAQ
Composite

Previous High 11,723 (Jan. 2000) 1527 (Mar. 2000) 5049 (Mar. 2000)

Current (Oct. 4, 2006) 11,851 1350 2291

% Change +1.1% -11.6% -54.6%

It is conceivable that the next milestone for the U.S. equity markets will be
achievement of a new all time high for the S&P 500 Average.  Supporting
this is the absence of "euphoria" as the DJIA achieved a new high as well as
the strength of our banking system and corporate balance sheets.  Resisting
this is the absence of robust capital spending by corporations, which prefer
to buy their own stock or acquire competitors. Anemic employment growth,
concurrent tightening of worldwide monetary policy and the consequences of
a global economy are also problematic.

On the global front, the United States is undeniably the world's only military
superpower.  In the Middle East, Israel possesses overwhelming military
might.  The United States in Iraq, NATO in Afghanistan, and Israel in
Lebanon have been fought to standstills by insurgencies that utilize tactics
not easily defeated by overwhelming military might.  We believe the financial
markets are recognizing a "sea change" in the geopolitical environment.  
Different factions in these conflicts will be forced to talk, and peace will be
pursued via a different route.  Almost precisely coincident with the initiation
of the "Lebanon War", oil prices peaked at $77 per barrel.  Today oil prices
are near $60 per barrel.  Pronounced declines have also taken place in other
commodity prices as well.  We believe the geopolitical price premium has
been greatly reduced in these commodity markets, to the benefit of global
equity and fixed income markets.  This change of direction in commodity
prices has unquestionably been intensified as hedge funds reverse their
leveraged positions in commodity markets.  Most notable in this process has

been the punishing loss of capital (down 65% in one week's time) by
Amaranth Advisors' forced liquidation in the natural gas futures market.  
Amaranth Advisors is now disposing of its remaining assets.  

At present, we are experiencing very strong performance in both the U.S.
equity market and the U.S. fixed income market.  The equity market seems
to be anticipating continued economic expansion while the bond market is
anticipating a recession in 2007.  We believe the equity market's assessment
of the economic outlook is more accurate as we foresee moderate economic
and job growth for 2007 with very modest inflation - ergo, a successful "soft
landing".  At present, we believe that commodity prices are near the low end
of a trading range, creating an investment opportunity, especially for coal
and natural gas.  We anticipate further volatility in the final quarter of 2006,
and we hope to take advantage of market opportunities to invest in high
quality stocks and special situations to meet your return objectives.  Given
the sharp decline in interest rates, we will maintain a strong preference for
shorter maturities in fixed income investments.