By Rodric E. Cummins, CFA , Senior Vice President and Chief Investment Officer

The year 2008 was historical by any measure. It can easily be characterized as one of the most tumultuous times in the history of the U. S. financial system. It was a year unlike any seen before by this generation of investors.

Investors experienced the frustration and concern of watching hard-earned investment balances erode under the pressures of a global financial crisis and a U.S. economic recession. The effects were felt universally throughout every asset class and investment strategy. The seemingly endless stream of poor economic data, business failures, and government rescues dominated the headlines in the latter half of the year resulting in one of the most dreadful investment climates in the past 70 years.

U.S. Treasury bonds were the lone bright spot during the year, benefitting from a sharp decline in interest rates and a flight-to-quality. Non-government, high-quality bond investments, normally a harbinger of safety in uncertain times, were in the very bulls-eye of the financial crisis, falling victim to an unprecedented level of risk aversion and a historical widening of credit spreads.

U.S. stocks, as measured by the S&P 500® Index, returned –37.00% during 2008, making it the worst year since 1937. Global stock markets posted similar returns for the year.

The year 2008 was a harsh reminder that economic progress is cyclical. The generous allocation of capital during prosperous times often leads to excesses that must be purged from the financial system to make way for future growth.

By all accounts, 2009 is expected to start with continued volatility and economic uncertainty. Having suffered the emotional strains of the past year, it is difficult for investors to turn the page to a new year with the hope for improvement in financial markets, yet there are many reasons to have confidence in these difficult days. Yes, challenges and threats still remain in the economic and financial landscape that may result in a prolonged period of volatility and economic contraction, but our country’s problems are not irreparable. Global central governments have united in a responsive effort through intervention to provide a coordinated solution to the global financial crisis designed to restore the creation and flow of capital that was so severely disrupted in 2008. The U.S. government is fully committed to providing regulatory, fiscal and monetary stimulus that will remove obstacles to progress and unlock the future growth of our economic system.

As we enter 2009, investors should hold fast to the most basic of all investment principles. Investment returns, while never stable or predictable, are undeniable linked over the long-term to the progress and success of capitalism and the growth of global economies. In the short-term, cyclical economic results and investor sentiment can create dislocations between long-term fundamentals and asset pricing. Those periods have historically created tremendous opportunities for investment gains in subsequent years. We maintain that a consistent investment discipline, diversification, and persistence will be the key to investors’ ability to weather this and future storms.

All indices are unmanaged and not available for direct investment. Index performance assumes no taxes, transaction costs, fees or expenses. This update is prepared for general information only and it is not to be reproduced.