16 Martin Street | P.O. Box 566 | Essex, MA 01929 | 978-801-0860

To:

East Coast Asset Management Clients and Interested Parties

From:

Christopher Begg, CFA and Benjamin Favazza, CFP

Date

: January 27, 2010

Re:

Fourth Quarter 2009 UpdateHappy New Year! We begin the new decade focused and energized toward our dual objective of delivering superior wealth and investment management services to our clients.Market Summary

East CoastEquityComposite

S&P 500 MSCI ACWorld IndexMSCIEmergingMarketsBarclaysAggregateBond IndexGold – $/TroyOz.Crude Oil

Price12-31-09

n/a 1,115.18 299.44 363.48 1540.34 $1,096.95 $79.36

4th Quarter

5.77% 6.04% 4.74% 7.54% 0.22% 8.86% 12.39%

2009

30.54% 26.47% 35.17% 68.93% 6.37% 24.36% 77.94%

From March6

Lows

51.60% 66.14% 75.24% 99.92% 6.91% 16.78% 74.34%All equity and commodity asset classes registered strong total returns for 2009 and robust returnsfor the 4

quarter. Bonds did modestly well as spreads narrowed throughout the year and leveledoff near the beginning of the fourth quarter. A tactical decision to increase equity exposurethroughout the year coupled with satisfactory excess returns attributed to security selection have produced favorable total returns for our managed portfolios.We launched in the midst of a perfect storm – a US housing bubble of historic proportion whichin its macro form was in fact a global credit bubble. A loyal client/referral base, coupled with a proven philosophy and battle tested process allowed our firm to exit this crisis stronger than whenwe entered. With regard to portfolio positioning, in 2008 we were rightfully fearful when otherswere greedy (complacent) and in early 2009 we acted appropriately on our research insights thusallowing us to opportunistically pick through the rubble. Both endeavors added meaningfully toour total return: the former helped mitigate downside and the latter positioned us for appreciationwhen equity markets improved in March. We thank you again for your trust and support inallowing us to make those key decisions that were often contrary to the emotion of the moment.

The S&P 500 Index, the MSCI All Country World Daily Total Return Index, the MSCI Emerging Markets Index and the BarclaysAggregate Bond Index are representative broad-based indices and include the reinvestment of dividends. These indices have beenselected for informational purposes only. No East Coast strategy will seek to replicate the performance of these or any other indices.

The East Coast Equity Composite comprises the equity component of all accounts under management and is computed gross of management fees and net of all trading fees and expenses.

Page 2

A Decade to Be Forgotten? – Beware of Recency-Bias:The first decade of the new millennium will not be fondly remembered by the buy and holdinvestor, particularly for the investor who bought on day 1 and sold on day 3,652. An investor who bought on 12/31/99 and sold on 12/31/09 would have earned a cumulative return of -10% inthe S&P 500 (including reinvested dividends) and would have incurred a 41% loss if they hadinvested in the NASDAQ. Equities have historically paved a path littered with periods of greedand fear as capital markets move upward and onward. The decade began with the greed andeuphoria of the technology bubble and concluded with the paralyzing fear paramount after the popping of the credit bubble. From the chart below, you can see just how wild a ride the last tenyears have been.This view is a misleading illustration of how an astute investor might have fared. Mr. Marketgave the keen-eyed observer plenty of clues on when, where, and how one should or should notallocate capital. An investor not equipped to identify bubbles, peak or trough valuations, or toestimate expected returns based on price, is probably past the point of frustration and waving awhite flag.The human psyche suffers from the “recency-effect” which is a cognitive bias that results from adisproportionate salience of recent observations. An observer of the last decade/last year woulddeduce that equities are too volatile, represent great risk, return nothing to shareholders andshould be avoided at all cost. If we looked at the PIMCO Total Return Bond Fund (PTTRX), thelargest US taxable bond fund at $201bl of assets, and Fidelity Cash Reserves (FDRXX) as proxies for bonds and cash, the annualized returns were 7.65% for bonds and 2.94% for cash over the last decade. Thus, fully loaded with recency-bias, an investor would interpret equities (S&P500 -0.95% annualized) to be an inferior asset class to bonds and cash.

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If we take the perspective that the last 10 years were the trees and we step back to truly see theforest, a different story unfolds. We have used a logarithmic chart to show the true visual proportion of these moves over a prolonged period of time. The compound annual return from12/31/39 to 12/31/09 was 10.63% for the S&P 500. If we exclude the decade leading up to thetechnology bubble and this last decade, one can see returns are even more robust at 11.63%.Perspective and fact are everything in the business of investing. Compare those returns to bondsat 6.23% annualized and cash returning 3.1% annualized over the full 70 year period.The Deflation-Reflation Continuum – Update:The two critical risks to accumulated wealth are principal risk and purchasing power risk. Risk of losing the purchasing power of your assets has not been a factor since the cyclical inflation of the70’s. During that time, inflation spiked and ten year Treasury yields subsequently peaked at 14%in the early 80’s. Through the 4

quarter of 2008 we lived through 26 years of falling Treasuryyields. Again, fully loaded with our recency-biases, we are emotionally inclined to not worryabout inflation risk and rightfully have been more focused on principal risk after having livedthrough the “double-bubble” roller coaster of the last decade.