Second Quarter 2004 Client Letter

July 15, 2004

Dear Client:

As the second quarter of 2004 passes into history, we are happy to send your performance report and a few comments on the big picture.

Coming up:
"In the next two or three weeks, companies in the Standard & Poor's 500 are expecting to report second quarter earnings growth of more that 20%. But don't look for the stock market to celebrate" says Jacqueline Doherty in last week's Barron's (July 12, 2004). "The S & P 500 is up less than one percent, year-to-date…"

Mixed signals:
"U.S. wholesale inventories jumped a much-faster-than-expected 1.2% in May, indicating economic growth. But Merrill Lynch cautioned the gains could be largely price-induced. Separately, some major retailers posted lower-than-expected increases in June sales at stores open at least a year" reports another Barron's news clip.

What to do?
So, what is an investor to do? In these uncertain economic times, we continue to recommend that investors maintain a well diversified portfolio of investments based on Modern Portfolio Theory. Based on years of solid data from the academic community, we believe that, over time, investors can expect to receive higher overall return from a well diversified portfolio that includes the riskier asset classes of small-cap and value. Renowned investment author Charles Ellis said it well when he observed, "Investors would do well to learn from deer hunters and fishermen who know the importance of being there and using patient persistence - so they are there when opportunity knocks."

Following is a representative sample, as of June 30, 2004, of DFA funds in the asset classes covered by DFA and currently recommended for use in our client portfolios. This is not a complete list of all DFA funds, and your portfolio may or may not contain all of these funds.

Notes: Returns for more than one year are annualized. "N/A" appears where returns data did not exist for the entire period. We hope you will find the above information of interest, and that you will use it in the spirit it is provided. While not meant to serve as a basis for your portfolio assessment, results from one year or less are useful as a tool to better understand how frequently such short-term market fluctuations occur, and yet how unpredictable they are. Likewise, three- and five-year returns demonstrate that different asset classes can be in or out of favor for longer periods, but again without a reliable basis for prediction. This in turn provides further evidence that clients should build entire portfolios and focus on their portfolio's total return rather than on individual asset classes.

Best wishes for a happy and healthy summer for you and yours,

Sincerely,

Coston and McIsaac Investment Advisers, LLC

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