QUALITY FOR THE LONG HAUL

SUMMARY:

• As the Financial Markets continue to gyrate, we have started to slowly add to our Stock investments in both our Income & Growth and our Growth Portfolios.
• The conservative Income & Growth Portfolio now has about 73% in short-term U.S. Notes & Cash, and about 27% in Stock Investments.
• The more aggressive Growth Portfolio now has about 60% in Stock investments and 40% in short-term U.S. Treasury Notes & Cash.
• We anticipate slowly adding to and changing up our Stock Investment allocation in the months ahead. We will focus on buying shares of quality businesses at reasonable valuations with the expectation that it may take three to five years to see impressive gains.
• We do not think the difficult economic times are behind us. Despite the recent months rally in many financial markets we believe that the world economies are only now pulling out of the nose dive. Global economies are stabilizing, but have a long way to go before they will show any significant or sustainable growth.
• The trough of the recession is likely to come soon enough, but the recovery may be disappointing and the expansion erratic. The financial, housing, and consumer sectors have to de-lever further. De-leveraging is not just about reducing debt; it is also about the price of the assets on which the debt rests.
• We are aware that over the next three to five months the Investments we purchase now may be volatile and may even fall in value, but it is our belief that over the next three to five years these investments are likely to produce impressive returns.

Investment Strategy

• Be Patient! Volatility in the short-term may be the price we have to pay for outstanding performance over the long-term.
• Invest globally in assets that may benefit from a weaker US Dollar and high inflation.
• Invest in companies outside the reach of the US Government and who are outside industries targeted for substantial government "aid" or regulatory change.
• Buy shares of businesses whose products/services are necessary and who lead their respective industries.

Recent Investments

As you know from my e-mail notification, this past month we have invested in the First Eagle Global fund (SGENX). First Eagle Global joins the Blackrock Global Allocation fund (MDLOX) to make up the "Stock" portion of our Managed Portfolios.

First Eagle Global is a highly diversified, original and eclectic portfolio with a flexible approach and very impressive long-term performance. They are a true global fund whose investments include undervalued common stocks, bonds, preferred and convertible securities and at times, real estate and gold investments.

Their Top Five holdings as of June 30, 2009 are:

Gold Bullion. (US)

Berkshire Hathaway, (US) a holding company owning subsidiaries in a variety of business sectors. The Company's principal operations are insurance business conducted nationwide on a primary basis and worldwide on a reinsurance basis.

SMC Corp. (JPN) SMC CORPORATION manufactures directional control devices such as power, hand, and air valves.

Fanuc Ltd. (JPN) FANUC LTD. manufactures factory automation systems and equipment, and robots.

Secom Co., (JPN) SECOM CO., LTD. provides comprehensive security services.



The Road Ahead....

Our goal is to preserve and grow capital over the long-term, and to consistently generate positive returns regardless of broad market conditions. To achieve this goal we invest in assets we think will increase in value during good times and/or will retain their value well during bad times.

The process we follow in managing money has us take both a "Macro" and a "Micro" view of the world: Through our Macro view we identify general economic trends and relative asset valuations. The percentage of money that we commit to any specific type of investment (stocks, bonds, cash) is determined by the trends and valuations we observe.

Through our Micro view we determine what specific investments we will make. Our micro view digs into the details of each investment looking for high quality assets selling for inexpensive prices.

Today our Macro view for the US and Global economic trend remains negative, although slightly less negative that the past two quarters. We expect the general economic contraction to continue for some time and that the recovery will feel less of a quick bounce "V" shape and more like a long trek through a knee-high swamp.

From a general asset valuation standpoint we view stocks as more attractive than bonds or cash. Our view has shifted in favor of stocks both because stock valuations have improved as prices have dropped, but also because our outlook for bonds, cash and other US Dollar denominated assets has diminished given the Government's questionable approaches to solving the crisis.

Our Micro view is that yesterday's safe havens (US Treasury's and Cash) might be becoming tomorrow's trouble spots. Looking forward we think the best places to be investing now are:


We have begun this process of slowly re-positioning our Income & Growth and Growth Portfolios to take advantage of the opportunities we see in front of us, and while we anticipate a bit more turbulence in the months ahead we are confident that the course we are taking will produce favorable results in the years ahead.

If you have any questions about your specific Portfolio(s), please call us at (858)350-1010.

Sincerely,

Craig Kelley                    Sean O'Hara