In evaluating investment strategies and asset allocation, we think it is key at this time to consider what are the most important factors that will influence markets over the coming year. We are in a fragile recovery that can be characterized by a low level of growth, the continuation of deleveraging, and a very high level of unemployment. The question being asked is what is the risk of a “double dip” in the immediate future? We believe it is low, but we are cognizant of the need for constant monitoring and having portfolios structured so there is the ability to change direction if the unexpected occurs. We want to assure our investors that diversification and liquidity in all portfolios is of prime importance.

During the coming months we will be looking very closely at the transition from government stimulus to private demand and how quickly this will occur. Debt levels remain high, as we all know, but the larger component of this debt is transfer payments, including unemployment insurance and other forms of aid. This situation of course brings up the issue, longer term, of inflation. Eventually there will be a rise in inflation, but currently in many areas there is deflation, and we do not expect a significant rise over the immediate future. This reflects the fragility of the current economy and the fact that it will take some time before consumer demand grows and there is any definitive trend in the reduction of unemployment numbers.

Against this background, we continue to believe there are attractive opportunities from an income standpoint in many of the credit markets, but again diversification and liquidity are key. Many companies have improved balance sheets over the past few years and have taken the opportunity to reduce costs by reorganizing work forces and focusing on economies of scale.

We are pleased to note that first quarter results have been on target. In the coming months we will continue to maintain the philosophy that has brought us successfully through the last couple of years by focusing on risk management and constraining “unrealistic” expectations.

All of us at Payden & Rygel extend to you and your family our best wishes for the spring season.

Warmest regards,