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May 2008

Dear Client:

After closing out the worst quarter in 51/2 years, global equity markets surged ahead in April. For the month, the S&P 500 Index rose 4.9%. Foreign markets, as measured by the MSCI EAFE Index, also climbed 4.9% during the month. As a result, global markets have recovered significantly from the lows of March. Since March 17, the MSCI EAFE Index is up 10.3% as of April 30. Meanwhile, the S&P 500 Index has rebounded 8.8% since March 10.

As we have discussed in past letters, we are focusing our investments on growth-style funds (vs. value-style) and mid-size to large-size companies. However, within the United States in April there was very little difference in performance over the various market-caps (size) and investment styles, although mid-caps had a slight lead over large-caps and small-caps. Domestic equities were up in similar amounts virtually across the board. Internationally, there was little performance variation based on investment style, but large companies clearly outperformed mid-size and small companies.

Natural resource funds were one area that exhibited very strong performance in April. While the materials sector was up nicely (+7.4% according to the S&P Global 1200 Index), the biggest driver of gains came from the energy sector which led all sectors in the S&P Global 1200 with a 12.8% return last month. We are currently invested in three different natural resource funds across our clients’ accounts. iShares S&P North American Natural Resources is obviously one of them, but the other two may not be so apparent from their names. They are T. Rowe Price New Era and Quaker Strategic Growth.

The other major mover of note in April was Brazil. On April 30, Standard & Poor’s upgraded the country’s long-term sovereign debt to investment grade, making it one of only 14 countries with that distinction. In response, the MSCI Brazil Index jumped 6.1% on April 30 to close the month with a 14.8% gain. We have exposure to Brazil via the iShares S&P Latin America 40 Index, where it represents over half of the fund. It is also a significant portion (≥10%) in the following foreign funds: Driehaus Emerging Markets Growth, Janus Overseas, and Harbor International.

The Economy in the First Quarter
After much speculation and many attempts to gain insight from hundreds of other pieces of recent economic data, the Commerce Department released the much-anticipated first quarter gross domestic product (GDP) figure on April 30. According to the report, the economy grew by 0.6% in the first three months of the year. That is rather unimpressive growth, but it is growth nonetheless. While the figure will likely be revised multiple times, at this point, the economy has yet to contract as it grew 0.6% in the fourth quarter of 2007 as well.

It is important to remember when digesting GDP figures that these numbers are presented in real (after-inflation) terms rather than nominal (pre-inflation) terms. This is easy to forget as virtually all financial and economic data is quoted in nominal terms. So, even when we factor in the portion of growth that is due to inflation, the economy still grew in the first quarter.

April Activity
In April, we sold out of three funds. The reasons for each sale are detailed below:

T. Rowe Price New Asia (Class 1) – Although we continue to like emerging markets, we are beginning to see a divergence in performance between different parts of the globe. Up until recently, you could throw a dart at any emerging market region and do well. However, it is clear now that Latin America is the performance leader while much of emerging Asia—China, India, and South Korea especially—is lagging. Those three countries comprise over 75% of this fund.

iShares MSCI Pacific ex-Japan (Class 2) – Over 97% of this funds assets are invested in Australia, Hong Kong, and Singapore. Only Singapore continues to demonstrate performance leadership, but at only 12% of the fund it is not enough to offset the other two struggling countries.

American Funds Capital Income Builder (Class 4) –With a global large-value focus, this fund was lagging growth-oriented global funds within its class. As we noted above, we are focusing on growth funds rather than value funds.

Sincerely,

Matthew P. King

©2008 Bell Investment Advisors, Inc.