2010 Mid-Year Commentary From The Trust Administration and Investment Committee

(The “TIC”) of Coral Gables Trust

As we moved past the 1st quarter of 2010 the US economy appeared to be on a steady course to recovery. Nearly 80% of the S&P 500 companies met or exceeded their first quarter earnings estimates, volatility declined noticeably, credit spreads held at normalized levels and the equity markets moved directionally higher. Although unemployment figures were stubbornly high, housing was showing positive signs including both price stability as well as demand.

The Trust Administration and Investment Committee (the ‘TIC”) of Coral Gables Trust had communicated previously its outlook for 2010 which is briefly summarized below:

• The US economy would continue to show signs of Recovery and Expansion.

• The S&P 500 would continue to trend higher ending the year at 1300.

• We would be overweighting equities, particularly US Large Cap High Dividend paying stocks for both cashflow and capital gain opportunities.

• As the economy recovered interest rates would move higher and in order to protect portfolios, a low duration, laddering maturity strategy would be appropriate

• Cash would have almost a zero yield

• The US dollar would not continue to trend lower.

• Real Estate would be volatile given high unemployment levels and the historical correlation between real estate prices and unemployment.

• Emerging markets represent compelling opportunities and attractive valuations.

• The general trend toward Recovery should create demand for commodities, particularly Oil.

• Gold would likely see less demand as a safe haven and hedge against inflation and would therefore likely not trend higher.

What followed shortly after the start of the 2ND quarter was difficult to foresee but reminds us of the value of diversification and disciplined investment management. During the second quarter we were introduced to the financial situation of Greece and the reality that certainly not all countries within the Eurozone are equal. At the same time growth in China began to moderate, bringing fear that China may no longer be the reliable engine of global growth. Meanwhile, within the US, Leading Economic Indicators late in the quarter began to show some weakening across the economy. Finally, the oil spill in the gulf, a catastrophe on many levels, added to the heightened state of concern. These events combined to pull down the SP500 by approximately 16% from its April high to its June low, wiping out the year’s gains and leaving the year to date return for the S&P 500 -7.6%. Investment capital poured into the US Dollar and particularly into US Treasuries where the 10 year yield dropped from 4% in April to below 3% in June. Gold, as the other flight to quality trade, hit all time highs during the quarter but has since retreated. The TIC believes that these reactions were overdone and the decline in equity markets positioned these markets at valuation levels approximately 25% below long term historical averages and well below averages during periods of time with low inflation, stimulative monetary policy and low interest rates.

Coming into 2010, the TIC had reduced International equity exposure in aggressive and moderate risk accounts, a decision that protected capital throughout 2010. In light of these more recent events in the 2nd quarter, the TIC took further steps to reduce by approximately 10%, the total equity allocation in moderate risk accounts bringing those to a normal weighting. The amount reduced from equities was shifted to low and intermediate duration investment grade fixed income. As we enter the 3rd quarter we will be adding a convertible fixed income institutional manager to the equity allocation of moderate risk portfolios; a strategy we are familiar with and one that we expect should perform well in the current environment. We are making the following adjustments to 2010 outlook and our year end expectations, as follows:

• The US economy will continue to expand with GDP full year growth of 3%

• The S&P 500 will continue to move directionally higher ending the year closer to levels between 1200-1300.

• Investors should continue to be overweight Large Cap high dividend paying stocks for both cashflow and capital gains opportunities.

• International and Emerging Market valuations, in light of recent pullbacks, look attractive and offer significant growth potential from current levels.

• The US Federal Reserve will likely remain on hold until perhaps mid 2011. We expect the 10 year US Treasury yield to remain below 4% for the remainder of 2010.

• Money Market yields will remain extraordinarily low

• Inflation will be subdued

• Intermediate duration investment grade corporate credit, Preferred Stocks and Master Limited Partnerships should help provide enhanced portfolio income.

• Signs of job creation should become more visible in the second half of 2010 with more meaningful developments coming in 2011 and thereafter.

We remain very constructive on the economic outlook for the US and the US capital markets and believe we may very well have seen the 2010 lows for the major equity indexes. Corporate profits in 2010 should continue to grow and the US economy, which is already on a path to Recovery and Expansion, should continue on that path. Unemployment numbers will improve but will do so slowly. We do not anticipate monetary tightening by the Federal Reserve in the near term nor do we see a double-dip recession scenario.

We look forward to speaking with all of our clients regarding our views and the performance of their respective investment portfolios.

On behalf of the Trust Administration and Investment Committee of Coral Gables Trust, we thank you for your confidence in our team and our firm.


Sincerely,

Joseph Nader
Chief Investment Officer