Our journey in the financial markets has been tumultuous over the past decade. Just when the choppy waters begin to show signs of stabilizing and moving us closer to solid ground, a rogue wave pushes us further out into uncertain waters. In May the Dow Jones Industrial Average (DJIA) was trading above the 11,000 level and appeared to have the potential to struggle back toward 12,000 levels by the end of the year. Then suddenly without much warning, dark storm clouds appeared on the horizon when the Gulf of Mexico oil disaster and the European debt crisis reared their ugly heads and caused the the DJIA decline to 10,000. It is understandable that investors feel despondent about these recent developments in the financial markets. We believe that these storm clouds are going to dissipate over the next six months. And if the fragile U.S. economy and corporate earnings continue to slowly improve over the next six to twelve months, we believe that the stock market is going to be headed back toward previously higher levels.

There are many different investment products and services that investors can choose from in the financial market place. Through our affiliation with Pershing (a subsidiary of Bank of NY/Mellon Corporation) investors have access to separately managed accounts (SMA’s), managed ETF (exchange traded fund) programs, insurance annuities, individual stocks & bonds and managed funds. We feel that the asset managers that we employ for our clients give them attractive choices when taking into consideration the three legs of investment efficiency; risk, return and fees. During the past several years the changes in the global economy and world’s markets have been remarkable for their speed and intensity. Volatility has taken a toll on investor confidence, with some questioning the value of equity investing and diversification. We reassure you that

Krosnowski & Scott, LLC Finanacial Fitness Summer 2010 Investment Update “The Mariners Tale”

the diversified, flexible, actively managed global balanced portfolio may have potential for reward over time. Our client’s fund managers have decades of experience investing abroad and a global research network to find dividend oriented investment opportunities around the world.

Global Trends- Some thoughts our asset managers are considering when managing assets for our clients: 1. In 2009, for the first time, China surpassed the U.S. as the world’s largest car market. First-time buyers were responsible for at lest 70% of car purchases in China. 2. Only 10 years ago, one out of 100 people in Russia had a cell phone account. Although not everyone has a cell phone account, there are now more cell phone accounts than people in Russia. 3. From 2003 to 2008, toothpaste usage in India increased roughly 40% per person. With more than 1 billion people in India, the total amount of toothpaste used in a year would fill 43 Olympic sized swimming pools. 4. Over the next decade, nearly 450 million newcomers are expected to join the middle class in China and India alone, according to the McKinsey Global Institute. These developing trends could potentially lead to global growth.

What about the U.S.?- The story of long-term economic growth is not limited to countries outside the United States. In fact, despite recent economic challenges, there are many reasons to believe that America’s future remains bright. America is industrious- Fifteen of the 20 largest public companies in the world were based in the U.S. as of October 31, 2009. According to the Boston Consulting Group, the U.S. remains the world’s largest single-country economy, with a gross domestic product (GDP) in 2008 of about $14 trillion a year, or roughly 23% of the world’s

Andrew Krosnowski Melissa Scott

123 Rowell Ct, Falls Church, VA 22046 I 1-888-901-8310 I 703-506-6886

Securities offered through First Allied Securities, Inc. Member FINRA / SIPC

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total output of $61 trillion. Companies based outside the U.S. now employ more than 5 million workers in the U.S. and pay them more than $400 billion in compensation. America is innovative- the U.S. was ranked second among large countries and eighth among all countries in the International Innovation Index. The index measures factors like patents, technology transfer, research and government policy. Americans have won four times as Nobel Prizes in the sciences and economics as researchers from any other country. Foreign sales help drive U.S. companies. According to Factset, international revenues a play a significant role on the bottom line for a number of the largest companies in the Standard & Poor’s 500 Composite Index. Some of the largest household name companies in America derive over fifty percent of their sales from outside the U.S. The Return of Dividends- Dividend paying stocks lagged in 2009’s rally, but over a decade provided greater income and capital appreciation. According to Standard & Poor’s, in 2009, the lowest dividend payers in the S & P 500 stock index returned over 50%, while the highest dividend paying stocks returned around 12%. During the decade period ending 12/31/09, the highest dividend paying stocks averaged around 3% return annually while the lowest dividend payers averaged less than negative 6% annual return.

Diversification still matters- Stocks, bonds, real estate, commodities and other asset classes have all had periods during which they delivered robust gains. Those cycles can exert a powerful pull on investors, tempting them to deviate from their long-term investment plans in hopes of catching the hottest sectors, stock or fund. Gold, for example, provided investors with an average annual return of 31.74% for the 10 years ended 12/31/80, but declined an annualized 5.03% during the 10 years ended 12/31/97. Gold may loom large in history, but over 30 rolling 10-calendar year periods, the precious metal has returned a cash-like average annual total return of 5.27%.

Follow the leader- Stocks have also had their ups and downs. Recently, the S&P 500 recorded its worst 10-calendar year period in modern history, declining an annualized 1.38% for the 10-year period ended December 31, 2008. As fund flows show, some disappointed

investors have moved away from equities. In many ways, the decision could be considered a textbook case of what behavioral finance would call “recency bias,”or the tendency for humans to be influenced mostly by what they just lived through. Investors may be avoiding stocks investments currently due to fear of short-term losses at the expense of the potential long term growth of their assets.

Tempted by tactics and timing- Whether it’s an attempt to chase short-term returns in gold, real estate, tech stocks or tulips, the temptation among investors to deviate from long-term goals and invest too heavily in areas that are recording significant, but perhaps fleeting, gains is real. The phenomenon is usually associated with exuberance, but as the 2009 flows into bond investments show, it can also be a symptom of risk aversion. As financial advisers, it is our responsibility to try to encourage our clients, especially those who are retired, to diversify their assets globally, balance their assets between stocks and bonds, emphasize dividend & income generation and focus on the long term.

Perspectives on regaining balance- Here are a few recent comments from money managers who may be managing assets for you now or in the future:

Jim Rothenberg, 39 years of investment experience- “During the recent decline, there were very few places for investors to hide. That doesn’t mean that diversification was a bad idea. Some in the investment business are now saying that the answer is tactical asset allocation and market timing. I would caution investors that it’s never been proven that anybody can do those things consistently. I would say, beware of market timing and trading. Keep focused on the long term and stay with diversification.”

Tim Armour, 27 years of investment experience- “It’s human nature for investors to fight the battle they’ve just been through. In this context it’s not surprising that currently people want to lower their exposure to equities as a result of the painful declines. Diversification and a balanced portfolio are important, but it may be the wrong time to alter one’s exposure to equities. I believe this is one of those periods in time where one will do better as an investor if you don’t follow the crowd.”

123 Rowell Ct, Falls Church, VA 22046 I 1-888-901-8310 I 703-506-6886

Securities offered through First Allied Securities, Inc. Member FINRA / SIPC

Investment Opportunities- We may be experiencing a flat, choppy stock market over the next quarter or two that hopefully will move higher over the next six to twelve months. Historically, one of the best ways to build wealth during sluggish market activity is to invest in income oriented securities. Currently, there are individual intermediate term corporate bonds with maturities of four to seven years that have medium safety ratings (BB to BBB) that are yielding in the five to six percent range. There are also income oriented stocks in the relatively stable energy pipeline, electric utility, tobacco, food and drug sectors that are paying four to seven percent dividends and have the potential for dividend growth and share price appreciation.

Health & Nutrition- “Healthy thinking-learn to be an optimist.” To a large extent, optimism and pessimism are just learned habits. Changing the way that you think and talk to yourself can improve your physical and emotional well-being. You feel what you think. Your body speaks its mind. We are usually not aware of the continuous, automatic chatter in our heads and we don’t notice how these thoughts shape our mood. Learn to recognize these patterns. Negative self-talk greatly limits us. Try to identify and tune-out negative thoughts when they occur and replace them with positive thoughts. Try rose-colored glasses. Healthy thinkers see the world through rose-colored lenses. They distort their reality in a positive direction and most of the time their rosy illusions benefit them. Optimists learn to: A. Be selective, remembering mainly the positive events in the past. B. Focus on the present. C. See the future in terms of what can be done instead of what can’t happen. D. See threats as challenges- problems to be solved. E. Believe the world is coherent, and their actions make a significant difference. Healthy thinking is not necessarily more realistic; it is just healthier.

The latest on us- It is July and Melissa and her family are enjoying their annual vacation in Corolla in the outer banks of North Carolina. Her sons now ages two and four are having fun playing in the pool most days this summer.

Andy’s most recent adventure was a brief trip to Paris over Memorial Day weekend to watch two days of the

French Open tennis tournament. The tennis was fabulous and the weather was drizzly and chilly.

123 Rowell Ct, Falls Church, VA 22046 I 1-888-901-8310 I 703-506-6886

Securities offered through First Allied Securities, Inc. Member FINRA / SIPC

Sue and her daughters

For those of you who have never met our operations manager Sue Dastanlee, we thought that we would put a face behind the voice for you.

We all hope that you and your family are having a nice summer and we look forward to talking to you soon.

Sincerely,

Andrew Krosnowski & Melissa Scott Paine