Commentary and Articles

4th Quarter 2004 Quarterly Synopsis

WHM Capital Advisors Outperforms Both Stock and Bond Markets; Beats S&P 500 by 4.15% for 4th Quarter and 5.28% for 2004

December 31, 1969

WHM Capital Advisors today announced the results of their portfolio management efforts for the 4th Quarter and the past year.

For the annual period ended December 31, 2004, WHM Capital Advisors’ stock portfolio performance was 14.27% compared with the Standard & Poors 500 Index return of 8.99% for the same period. WHM composite equity portfolio has outperformed the Standard & Poors 500 Index for 6 out of the last 7 quarters. WHM composite bond portfolio returned 3.95% for the 12 month period ended December 31, 2004, while the Salomon Brothers 1-10 Year Government/Corporate Bond Index returned 3.13% for the same 12 months. 4th Quarter equity performance was 10.38% versus 6.23% for the Standard & Poors 500 Index.

WHM Capital Advisors Chief Investment Officer, Bill McAfee, commented, “The 4th Quarter was very rewarding for our clients and showed the advantages of our disciplined process. We are very pleased to continue the trend of generating superior returns for our clients while maintaining lower risk.”

Client Management Director, David Sligh said, “Even as we continue to be extremely pleased with the results of our investment efforts, our clients often tell us that our holistic approach in advising them is truly unique and offers long-term value in conjunction with our asset management systems.”

“All’s Well That End’s Well”

Despite the lackluster performance of the 3rd Quarter, the last quarter of the year proved to be an exciting finish to 2004 for investors in financial markets.

Despite the concerns over volatile oil prices, increasing violence in Iraq, and Federal Reserve Governors stating a continued bias toward raising rates, stocks outperformed most expectations for 2004. At the end of the third quarter we discussed our idea that the market was approximately 20% undervalued and that the 4th Quarter would reward our disciplined approach. We are pleased that we were correct and that overall 2004 proved to be a very good year for our portfolios.

The U.S. Economy has continued to grow and has also shown signs of a change in components driving growth. Consumer spending has begun to slacken as a percentage of overall growth. At the same time, a weak U.S. Dollar has driven exports higher. The effects of these two should offset allowing the U.S. Economy to continue growing in 2005 at a rate of approximately 3.5%.

One potential risk in the economic engine is increased production costs. Already, there are signs that the growth of the Producer Price Index (or the amount companies pay for commodities and inputs in production of goods) is outpacing the Consumer Price Index (the amount consumers pay for those goods). This is heightened by increasing interest rates, which drive down the amount consumers are willing to spend, increasing commodity prices, and tightening in the labor markets. For shareholders in companies, this translates to potentially lower earnings. The inability to pass on increased costs to the consumer could slow growth and cut into future corporate spending at a time when government and consumer spending are also under pressure.

While the risk of slower growth in earnings certainly exists in 2005, most market watchers have already factored this into estimates. We do not see this as an overly pressing problem, but do consider it a very good reason to maintain our disciplined approach to asset management.

In the 4th Quarter of 2004, our holdings in the Healthcare sector continued to perform poorly, as pharmaceutical giant Pfizer (PFE, NYSE) was hit with concerns over its arthritis drug Celebrex. We still believe, however, that PFE is a healthy company and should recover. On a positive note; Technology sector holdings such as Garmin (GRMN, NASDAQ) and Checkpoint Software ADR (CHKP, NASDAQ) soared in value, as did Consumer Staples holding Kimberly-Clark (KMB, NYSE) which recovered from a poor showing in the 3rd Quarter. In 2005, we expect to see Industrials and Technology continue to perform well and will maintain a sector-neutral position in our portfolios to lower specific sector risks.

Bonds also performed fairly well for the quarter, and our lower durations protected against any downside risks from increases in rates. We will continue to maintain a similarly conservative posture in managing fixed income in 2005 by maintaining low to intermediate durations.