The best we can say about the third quarter is that it’s over. As of 9/30/08, the Russell 3000 Index is off 18.81% for the year, losing 8.73% this past quarter. Losses were broad-based and impacted all markets. From a market cap perspective, small cap stocks performed somewhat better. The small cap Russell 2000 Index gave up only 1.11% this quarter while the large cap Russell Top 200 Index shed 7.85% and the Russell Midcap Index lost 12.91%. Despite the bombardment of bad news from the financial sector, having already been punished in the first half of the year, Value significantly outperformed Growth. The Russell 3000 Value Index lost 5.26% over the past 3 months compared to the Russell 3000 Growth Index’s loss of 11.93%. Due a US dollar rally and their own economic headwinds, International stocks have provided little immunity. The broad based international MSCI EAFE Index is down nearly 30% for the year.

The third quarter was shaping up to be flat and then September came. The Russell 3000 Index was down 9.40% in September, all of the quarter’s losses and then some. The downward spiral of September was fast and furious. There was a rush of unprecedented bad news. The US government placed Fannie Mae and Freddie Mac in a conservatorship that will be run by the Federal Housing Finance Agency. Lehman Brothers filed for bankruptcy. Merrill Lynch sold itself to Bank of America. The government bailed out AIG with a loan of $85B. With help from the Federal Reserve, JP Morgan Chase took over Washington Mutual, the largest bank failure in history. Wachovia will become part of Citigroup or Wells Fargo. Goldman Sachs and Morgan Stanley will remake themselves into commercial banks from investment banks. The government debated, and ultimately approved, the $700B Troubled Asset Relief Program, TARP. Wall Street will never be the same. The truth is we have never seen anything like this. There are no historical precedents. What stemmed from a bubble in US housing has led to a freeze in international credit markets. Borrowers are unable to secure credit from unwilling lenders. This is now reflected across the entire spectrum of Main Street businesses, making it difficult for them to operate, create or even retain jobs. The global economy requires a functioning banking system - it is currently broken. We sincerely hope this is temporary.

For the year, most of our portfolios have suffered double-digit losses along with the market. Most have disappointingly underperformed our benchmark due to our international equity exposure, our natural resource exposure and quite honestly some poor fund selections. These are troubling times. The situation is serious. To reiterate our earlier message, reacting to fear and moving in and out of the market ultimately increases risk and decreases return. We feel our clients’ portfolios are properly allocated to reflect their long-term investment goals and tolerance for risk. We have been through downturns in the past and have come out of them to realize extraordinary investment opportunities. With time and patience, we expect the same to hold true today.

Kerry Luria, Portfolio Manager