As Houston recovers from Hurricane Ike and the financial storm on Wall Street intensifies, I would like to provide an update¬†regarding Kanaly’s market thoughts.

First, Kanaly’s investment professionals are fully engaged, with the ability to monitor markets and manage client portfolios. Second, client portfolios remain defensively positioned as we anticipated further dislocation among financial service organizations. We do not own shares in negative headline grabbing firms including Fannie Mae, Freddie Mac, Lehman, AIG, Washington Mutual, or Merrill Lynch. We do have some exposure to Buffet’s Berkshire Hathaway, a firm likely to benefit from this turmoil. Furthermore, we do not see significant direct impacts on the portfolios from the bankruptcy of Lehman.

Events over the weekend certainly seem to be without precedent, however, we see some positive developments. Oil prices have come down substantially, relieving pressure on the economy. Bank of America has agreed to buy Merrill Lynch, suggesting that there is value in Wall Street firms and averting another large scale failure. Lehman was allowed to fail, rather than kept on life support by the government. The long-term emerging market demand theme remains intact despite a severe correction, and equity markets are displaying some signs of a bottom, though it is too soon to make that call.

Our portfolios are invested in financially strong companies that we expect will be meaningfully higher one year from now. We believe the best course of action is avoid panic and preserve cash for the inevitable opportunties that are coming. We will continue to watch for three key indicators of an improved market environment: lower credit spreads, improvement in the housing market, and classic signs of bottoming action in the equity market.

Disclosures

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the Funds or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts.

There are risks involved with investing, including loss of principal. Current and future portfolio holdings are subject to risks as well. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.

Diversification may not protect against market risk. There is no assurance the objectives discussed will be met. Past performance does not guarantee future results Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index.