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QUARTERLY COMMENTARY FIRST QUARTER 2006

CHAIRMAN THE ONLY CHANGE AT FOMC

The Federal Open Market Committee (FOMC), now

lead by Bernard Bernanke, has stayed the course

charted by his predecessor Alan Greenspan. Despitethe change at the FOMC Chairman position, not

much changed in regards to their view on the

prevailing economy. At the end of March, it raised

rates by % for the 15th (and counting) consecutive

meeting and the longer end of the yield curve largelyignored it for the 15th straight time (see chart). In the

1st

Quarter many closely watched metrics remained

the same. Oil and precious metals

maintained their lofty levels, small

company stocks and international

stocks outperformed their domestic

large company peers, corporate

profits posted double-digit

increases, employment improved

and economic growth continued.

The equity and fixed income

markets have begun to act as if this

environment will continue. The

S&P 500 in the 1st

quarter posted a

return of 4.21% which nearly

matches the return for all of 2005.The bond market has begun to test

the upper end of the yield range it

has maintained since the FOMC began raising rates

in the Spring of 2004. At Nelson Roberts Investment

Advisors, we have maintained our position of being

fully invested within our equity allocations while

keeping the fixed income maturities in our portfolios

short.

CONTENT AS KING

In January the old Viacom spun-off into New

Viacom (tkr: VIA/B) (retaining the cable networksand Paramount) and CBS (tkr: CBS) (CBS network,

TV and radio stations) illustrating the dramatic

changes within the media landscape. Armed with

technologies like the Internet, TiVo, and satellite

radio, people are increasingly consuming media, but

at different times and in new placeson the go and

at their desks, as well as watching TV at home. The

agreement last fall between Apple and Disney to sell

episodes ofDesperate Housewives and other shows

over iTunes to be viewed on the video iPod was a

milestone in the migration of traditional media to

digital distribution devices allowing consumers toview television, films and other content when and

where they choose. There are more than 9 million

Internet blogs, over 5,000 unique podcasts and

uncountable number of vblogs and video clips.

Mobile phones, handhelds (like Apples iPod), and

laptops, are all tools giving the consumer more

control over the content they watch.

While the consumer shift to digital media presents a

challenge to the traditional media business model, we

believe the transition also

represents an opportunity forCBS and Viacomleaders in

both the production and

distribution of TV and cable

programmingto push their

content across new distribution

platforms. With popularprograms and content, they can

now sell pieces of what they do

to numerous places and are in a

position to exploit and leverage

this content and existing media

brands with the Internet, mobiledevices, video games and

interactive TV. Viacom has

launched MTV OverDrive and Comedy Centrals

Motherload, websites that enable users to view and

download content previously available only through

TV programming. As we shift to a subscription-based

world, we expect content rather than distribution

channel will increasingly command the power.

JAPAN

Early in the first quarter, we increased our exposure

to Japan with the addition of an exchange-traded fund

(tkr: EWJ), giving us low cost and diversifiedexposure to leading Japanese companies. A string of

good economic news has helped to support gains in

Japan, whose economy has been shaking off the

remnants of a malaise that persisted through much ofthe 1990s.

In its most recent economic report, the Japanese

government raised its growth outlook and removed

the word gradual from its description of the

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recovery. Rising wages and improved employment

conditions encouraged consumer spending, fueling

economic expansion. Japan's economy expanded1.1% in the 1st quarter of 2005, followed by growth

of 2.7% in the 2nd

quarter, 2.8% in the 3rd

, and 4.5%

in the 4th. The Bank of Japan decided on March 9 to

end its accommodative monetary policy that hadlasted for five years. Still, interest rates will likely

remain close to zero for some time, to allow for

further growth and

slight inflation. After

the latest labor market

and inflation reports,

the Nikkei closed at

17,059, up more than

40% over the last year.

We believe there is

more to go. The

further broadening of activity across economic

sectors due to growing domestic demand (rather than

being concentrated in the export arena), should lead

to higher corporate profits and growth.

SCARCITY AND SUSTAINABILITY

The dramatic rise in the price of oil has once again

focused politicians, consumers and manufacturersalike on the topic of scarcity. President Bush in his

State of the Union address in January cited Americas

addiction to oil and introduced the Advanced

Energy Initiative, intent on developing alternative

ways of powering our homes and workplaces.

Consumers have long been at the vanguard in the

battle for sustainability. Toyota reported that U.S.

sales of the Toyota Prius rose to 151,000 in 2005.

The Prius has enjoyed phenomenal success despite a

price point that commands a 25%-35% premium over

its comparable non-hybrid counterpart. Whole Foods

Market has seen its revenues more than double in the

last four years by catering to a consumer, again

willing to pay a premium price, in search of a purer

product. Are these examples of consumers willing to

pay a premium price for a sustainable product

anecdotal evidence of a sea change for consumers?Though our research of this theme remains a work in

progress, we thought we would share some of the

ideas we are considering for inclusion in our equity

portfolios.

Hain Celestial (tkr: HAIN) and SunOpta Inc. (tkr:

STKL) are both plays on the growth of the natural

food industry. Despite the success, cited above, of the

retailer Whole Foods, we have been unable to justify

the extremely large premium (Price-to-Earnings of

63) being afforded that stock. Instead, we havemoved down the food chain (in this case quite

literally) and have focused on suppliers whose

products grace the shelves of natural food retailers.

Hain Celestial manufactures products under a numberof brand names, most recognizably, Earths Best and

Terra Chips. SunOpta is even further vertically

integrated and aids in

bringing non-

genetically modified

and organic crops to

market.

MEMC Electronic

Materials (tkr: WFR)

is a play on the

shortage of polysilicon. Used most notably in the

semiconductor industry, polysilicon is also a key

component in Solar Cells. Governments world wide,

including the U.S., are providing incentives for

expanding the use of solar energy.

Televent (tkr: TLVT) is a leading provider of real

time monitoring and control systems. Televent

solutions are critical for the movement and

transportation of energy resources and traffic. Their

exposure to water and wastewater management

applications is particularly intriguing.

Trex (tkr: TWP) and Headwaters (tkr: HW) are

companies with exposure to the construction

industry. Trex is best known for it wood-like decking

products and Headwaters is a manufacturer of

concrete products from a byproduct of coalcombustion.

We mentioned in our last quarter the success in our

investment in the payroll processing industry. A

combination of increasing short-term interest rates

and improved employment numbers provided a

positive landscape for Paychex (tkr: PAYX) and

Automatic Data Processing (tkr: ADP). Though both

solid companies, we are now looking for an exit point

for both names.

We are encouraged by the economic results posted

through the 1st Quarter of 2006. We believe returns in

the equity market, driven by solid corporate profits,

will outpace the returns from a fixed income market

that will reflect inflationary pressure on interest rates.

Index Performance Q1 06 YTD

Dow Jones Industrials 4.24 4.24

Standard & Poors 500 4.21 4.21

EAFE (international stocks) 9.49 9.49

Russell 2000 (small stocks) 13.94 13.94

Lehman Intermediate 0.26 0.26

Lehman Municipal 0.25 0.25

www.nelsonroberts.com