3rd Quarter 2003 Newsletter
Investors extended their bullish ways into the 3rd quarter and drove all the major financial market indices higher, albeit to more modest
gains than in the second quarter of 2003. The S&P 500 climbed 2.65% while the NASDAQ Composite rose 10.11%.
International equity
markets rallied 8.13% as geopolitical tensions eased somewhat even though strife in the Middle East continued and OPEC decided to re-
exert their influence over oil production and oil prices. U.S. bond markets dropped slightly in the face of interest rate uncertainties with the
Lehman Aggregate Bond Index returning -0.15% for the quarter.
Q3 2003 Index Returns

                                                                                    Past performance is no guarantee of future results.        
                                                                                                                        Source: Wilshire Associates

On the domestic economic front,
real GDP gained a robust 3.3% in the 2nd quarter of 2003 and corporate profits rose a healthy $80.6
billion or 9.9% from the prior quarter
1. The housing market finally plateaued, as measured by new housing starts which dropped 3.8% from
July to August
2, while 30-year fixed mortgage rates rose to almost 6.0% by the end of September from 5.25% at the end of June3. The only
weak link suppressing this economic expansion has been the U.S. consumer. Racked by sporadic layoffs and further cost-cutting moves in
corporate America, consumer confidence in September slipped to 76.8 from 83.5 in June.
4 This indicator is closely monitored by retailers,
manufacturers and businesses throughout the supply chain to let them better gauge consumer demand and, thus, tell them when to invest
or cut back. As noted, American businesses have adopted a cautious wait-and-see approach before committing their capital.

Meanwhile, the Federal Reserve Board has also been diligently monitoring the progress of their “engineered” slow recovery. Short of
uncontrollably flooding the
money markets with 0% or “free money” a la the Bank of Japan, Greenspan & Co. have loosened the “monetary
spigot” more than any Fed Board in recent history. Yet even with a low 1% Fed Funds rate and a 2% discount rate, the central bankers are
finding few takers. This level of monetary accommodation does, however, spur savvy investors and most notably, the
hedge fund players
throughout the world to take notice and take advantage of quick currency arbitrage opportunities for a quick profit. Needless to say, the
SEC, Washington lawmakers and New York’s high-profile attorney general are setting their sights on this loosely regulated, sometimes
mysterious, and often misunderstood industry.

In summary, professionally diversified portfolios have performed well during the recent positive market environment.
5 At the same time,
individual market sectors are responding to the recovery with unpredictability, making it difficult, if not impossible, for investors to pick a
specific winning asset class, or effectively time the markets. This unpredictability of asset class returns in the short term further supports our
belief that properly diversified portfolios, managed by top institutions, give you, the investor, the best opportunity to reach your financial

1 U.S. Dept. of Commerce, Bureau of Economic Analysis, Latest Release: 9/26/2003.
2 U.S. Dept. of Housing and Urban Development, Released: 9/17/2003.
3 Freddie Mac website, Weekly Mortgage Market Survey.
4 The Conference Board, Latest Press Release: 9/30/2003.
5 Diversification can be thought of as spreading your investment dollars into various asset classes to add balance to your portfolio. Although
it doesn't guarantee a profit, it may be able to reduce the volatility of your portfolio.
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