The common stock portion of portfolios invested in both stocks and bonds performed similarly to the S&P 500 Index during the 15 month period starting January, 2003, and ending March 31 of this year. The composite return was 22.68 percent, compared to 21.86 percent for The S&P. When fixed income securities are added to the mix, our composite rate of return for the same period was 18.15 percent. Fixed income securities are not "performance" instruments, but, instead, are designed to provide a steady income. By mixing fixed income securities with common stocks, clients reduce risk and increase income while reducing total return only moderately if the mixture is appropriately balanced.

Portfolios invested only in bonds, primarily tax-exempt securities, also are performing well. We do not publicly report composite returns on these portfolios because the statistics must be presented in context. Otherwise, the data is misleading. We invite clients and prospects to ask us for this information.

During the quarter, Nancy Haddock added a client, and John Guy lost a client. Few firms publicly discuss client departures. However, we believe that circumstances surrounding a departure are more significant than the circumstances of a new relationship. The reason is that departures demonstrate the intensely human element of the investment process. By examining the human side, students of investing, as well as clients and prospects, can understand pitfalls while clarifying personal feelings that affect growth in net worth.

In 2001, the departing client renewed his relationship with John by asking detailed questions about investing and personal financial planning. By early 2004, the client had accepted all of our advice to reduce the expense of his total investment program. The savings are over 1 per cent per year, or almost 30 percent of his previous level of fees. Meanwhile, he opened three accounts with us: two IRAs, and a personal account. The personal account was primarily for convenience because only a small portion was invested in stocks. The rest was used to fund personal daily expenses. (We did not charge a fee on that portion.) However, we were able to manage and to provide good results for the two IRAs, one having gone from $227,000 to over $299,000 since September of 01, the other going from $35,466 to $51,196 in the same period. In light of these positive results, the best we can determine is that the client is "more comfortable" with a large firm having an instant, 24-hour per day response capability (though not always with the same representative). His need arrived at a critical point in March when he was unable to reach us on an administrative matter that does not affect his personal security or net worth. The reason he was not able to reach us is that we did not have his vacation home phone number, his permanent home phone number voice mail did not operate properly and/or he did not listen to that service, and he either did not retrieve or did not receive an e-mail from us.

During the quarter, using the record of a deposition, a newspaper identified John as an expert witness in a federal trial. While the story was complimentary, we believe that this aspect of our professional activities should remain somewhat confidential until conclusion of the legal proceedings. At that time, we will report in more detail.