QUARTERLY LETTER

2nd Quarter 2010 — Investment Strategy Review

“If a business does well, the stock eventually follows”
                                          — Warren Buffet


The bears dominated the second quarter as the U.S. stock market experienced its first severe correction since bottoming in March 2009. Pullbacks are normal, but the gloomy backdrop has many fearing the worst. The S&P 500 fell 11.9% during the quarter leaving the index with a 7.6% loss year-to-date. Financial markets have been hit with a barrage of worries ranging from the sovereign debt mess in Europe to the tragic oil spill in the Gulf of Mexico, yet the overriding concern remains the health of an overleveraged global economy. Even China appears to be cooling off and stocks there have been clobbered. The Shanghai Composite index has fallen 27% this year. Any sense of confidence produced by the rally of 2009 has been eroded by this steady stream of bad news. A recent poll discovered that 62% of the respondents believe that the U.S. is on the wrong track. Veteran market observers have compared President Obama’s difficult second year in office to JFK’s in 1962. Back then, the President’s springtime feud with the steel industry caused a nasty sell-off that became known as the “Kennedy panic”. The stock market struggled throughout the summer of 1962, but would embark on a sizeable multi-year advance following the successful resolution of the Cuban missile crisis in October.

History shows that the ideal time to buy is when investors are fearful. We at Mercer Capital have an optimistic long-term investment outlook primarily because signs of excessive pessimism are everywhere. For example, a recent issue of Bloomberg Businessweek featured a bear on the cover under the following headline: “GRRRRR! What We Can Learn from the Endless Pessimism of Wall Street’s Biggest Bears”. The article cited the dire forecasts of pundits such as Nouriel Roubini, Bob Prechter, and Meredith Whitney. This is an extremely bullish contrary indicator. After all, the magazine possesses an uncanny record of poor timing. Remember the infamous “Death of Equities” cover in 1979?

The most encouraging aspect of the current investment environment remains the terrific value being presented by high quality companies. These shares can be purchased at bargains not seen since the early 1980s which also happened to be the launching pad for a massive bull cycle. Few today have the patience to capitalize on this opportunity. Long-term value investing seems so passé. Daily action is dominated by rapid-fire electronic trading and a popular show on CNBC is called “Fast Money”. We, however, still prefer to follow the old-fashioned advice cited above by Warren Buffett and invest in dominant businesses sure to grow well into the future. As these businesses prosper, so too will their stockholders. This is the only investment axiom that one can bank on.

Thank you for your confidence and support. Please call anytime.

6/30/10           Henry D. Mercer III

Index Return (Y-T-D)   12/31/09 3/31/10
S&P 500 - 76% Fed-funds0 - .25%0 - .25%
DJIA - 6.3% 10 yr. T-note 3.83% 2.96%
  Oil $79.36 $75.63
   Gold $1,095.20 $1,245.50

* Please contact Mercer Capital Advisers, Inc. if there are any changes in your financial situation or your investment objectives or if you wish to add to or modify any restriction to the management of your account. Our current disclosure statement as set forth on Part II of our form ADV is available for your review upon request.

* Mercer Capital’s management fee is billed quarterly, in advance, based upon the market value of the assets on the last day of the previous quarter.

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