Investment Review
The S&P 500 finished the second quarter with a positive return of .19% which left the index with a gain of 6% for 2011. The Bond Market was up 2.1% for the Merrill Lynch Intermediate Corporate Index and is up 3.32% YTD. While the S&P 500 finished the quarter flat, it was a relatively bumpy ride as investors interpreted conflicting economic data. The strongest sectors for the quarter were Healthcare and Utilities with gains of 7.3% and 5% respectfully. The worst performing sectors were Financials and Energy with losses of -6.3% and -5.1%. Financials continued their weak performance as investors remain concerned about the housing market, job growth, and government regulation.

Outlook
We continue to have a positive outlook for the global economy and stock markets. There is no debating that the recent economic data has shown that the global economy is in a slowdown, but the numbers continue to remain at expansionary levels. Many of the industrial companies that we own have continued to stand by their sales and earnings guidance for the next quarter and remainder of calendar year 2011. Within the last month, both Emerson Electric (EMR) and Honeywell (HON) have reiterated their financial forecasts at investor conferences. Large, globally diversified industrial companies are excellent barometers for global economic growth. There will be a flood of quarterly earnings reports released over the next month. As we digest this quarter’s earnings numbers, they will give us a better idea of the underlying strength of the economy.

The Fed’s QE2 program ended on June 30th. However, we do expect them to remain accommodative for the remainder of 2011 and don’t see an interest rate increase until later in 2012. Historically, the Federal Reserve has never started an interest rate tightening cycle with unemployment above 7.5%. With unemployment at 9.2% as of June, this confirms our expectations that the Fed will not raise rates in the near future. This accommodative interest rate policy should encourage investors to continue increasing their exposure to equities.

What’s on your mind?
Here we sit in the summer of 2011, two years away from the depths of one of the worst bear markets in history. The market and economy have recovered, but both have paused to take a breath. We thought that this is an appropriate time to ask you a simple question: What’s on your mind? The question is more about your financial concerns rather than health concerns or politics. We all have a tendency to make our most significant decisions when we are at emotional extremes. Experience tells us investors feel the painful effects of a down market more acutely than they feel the joy of a rising market. How fresh in your mind is the pain of the 2008 market decline? Decisions made under emotional stress can prove costly.

Market cycles tend to last three to five years. The markets are now two years into this cycle. This is the calm between storms. Now is the time to consider significant financial decisions. There is time to carefully consider alternatives and make well thought out decisions.

• Can you tolerate another bear market and the associated downward volatility in your portfolio?
• Have your objectives changed?
• Does your asset allocation reflect these changes?
• What are your income needs?
• What do you want your legacy to be?
• What are your charitable gifting plans?

As your advisor, these are the things that we will focus on with you in the coming months. We believe that course corrections should be considered now. As we move forward, we ask that you consider the past and consult with us to determine if your asset allocation will meet your objectives in a manner that allows you to sleep peacefully. Now is the time.

Energy Infrastructure MLP Sector
The Energy Infrastructure composite was down slightly this quarter slightly behind the S&P 500 index. The sector followed the market down during the quarter but recovered nicely in June. We added one partnership to our universe in the quarter, El Paso Pipeline Partners, L.P. (EPB). EPB was formed in 2007 by El Paso Corp. to own and operate natural gas transportation pipelines and storage assets in Wyoming, Colorado and the Southeast. They have a great track record of distribution growth, and we believe they will continue to acquire assets from the parent company, El Paso Corp. A recent $745mm purchase confirms that opinion.

New Companies on the Select List
AutoZone (AZO) is the leading retailer and distributor of automotive replacement parts and accessories. The company operates 4425 stores in the U.S. and 249 stores in Mexico selling to 85% retail and 15% commercial customers. We believe that this type of retailer is more recession resistant that other types of retailers. AZO has expanding profit margins and generates significant free cash flow. The company has aggressively bought back stock systematically over the years. The share buyback coupled with steady organic earnings growth should make this a solid investment for your capital.

EMC Corporation (EMC) is a leading supplier of enterprise storage hardware and software throughout the world. In 2010, 46% of its revenue came from outside the United States. It owns 80% of VMware which is the world’s largest provider of server virtualization software. We think investing in EMC is an excellent way to gain exposure to the secular trend of increased demand for data storage. In particular, companies are focused on virtualization and cloud computing which are two areas in which EMC has a significant lead over its competition. For example, both Amazon and Apple recently announced “cloud services” that will allow users to store data on their systems for a monthly fee. We expect to see this trend continue and for EMC to be a direct beneficiary.

PPG Industries (PPG) was formerly known as Pittsburgh Plate and Glass Company. This 128 year old company has moved from a glass company to a specialty chemical and coating manufacturer. The company operates in the following sectors: performance coatings, industrial coatings, architectural coatings, optical and specialty materials, commodity chemicals, glass. PPG ranks 1st, 2nd or 3rd in every coatings market which makes it an attractive one source solution for large manufacturers like Boeing. The company maintains a high return on capital and cash flow. We think that this will be an excellent replacement for Lubrizol (with which we had great success) in the materials sector.

Other News
We are pleased to announce that Gresham Worrell has joined the firm as a Financial Analyst assisting the portfolio management team. His responsibilities include security analysis and portfolio attribution. Gresham received a BS degree in Business Administration from Geneva College in May 2011. Please join us in welcoming Gresham to the firm.

We appreciate your confidence in Novare Capital.