Locke Financial Quarterly

October 2008

Alan Locke, BS, MBA, CGA, CFPPresident

Locke Financial Services, Inc.662 N. First Bank Drive • Palatine, IL 60067 • Phone (847)991-2705 • Fax ( 847)991-3496 • Email: alocke@lockefinancial.com

www.lockefinancial.com

Status of the Economy and Stock MarketsStatus of the Economy and Stock Markets

These are difficult times for equity investors. We are very pleased that so many of you have expressed your confidence in our investment management. For those of you who went through the last bear market (2000 to 2002) with us, you have already witnessed such panics. For those of you, that are experiencing this for the first time, be assured that we are working hard for your best interest and are trying to keep a cool, logical head, while so many around us may be losing theirs.

We believe that we are now seeing stock prices that in no way reflect the growth potential and stability of the United State’s stronger companies. The sell off of stocks creates losses for investors but does not affect the companies' themselves. The only affect to the companies, from this sell off, is the loss of confidence by investors and consumers. This lack of confidence will probably cause people to buy less goods and services and may create a recession. The real problem for the companies is that the capital market (or the section of the economy that provides loans and capital to companies and individuals) has very little available money. The money was lost when the housing bubble burst and now the credit crisis has spread to the general economy. Without financing, many companies are being brought to a standstill (e.g. auto companies can not sell cars if their customers can not get a car loan).

In response to that, we have positioned our clients’ equity investments in companies that have large capitalized balance sheets, which we believe will be the most capable of withstanding the credit crisis. (We have had no housing stocks and very little exposure to the financial community in our portfolios for a couple of years). When the government’s actions finally reverse this credit standstill, we believe that the stock market will respond favorably. We know that eventually consumers will regain confidence and the economy will get back on track. We are not sure of the timing of this turnaround, but we firmly believe that it will eventually happen, just as it has in the past.

This may seem obvious, but we believe that the basic truths of wealth generation remain the same as always. Be prudent or live within your means. Plan for growth and success and implement those plans gradually. Review your objectives and risk tolerance. Investors should only have the amount invested in equities that they can allow to ride through the volatility of the stock market cycles with the remainder of the portfolio invested in fixed income instruments. As you know, we recently decided to sell 25% of our client’s equity allocation to purchase bonds. Although our clients completed a questionnaire indicating their risk tolerance, we thought that an additional 25% reduction in equities would put everyone in a better position to handle the market gyrations.

We are extremely pleased that we sold most of our foreign stocks in the spring, as these markets

On Lighter NoteOn Lighter Note I thought I saw an eye doctor on an Alaskan island, but it turned out to be an optical Aleutian.

She was only a whisky maker, but he loved her still.

The butcher backed into the meat grinder and got a little behind in his work.

No matter how much you push the envelope, it'll still be stationery.

A dog gave birth to puppies near the road and was cited for littering.

Two silk worms had a race. They ended up in a tie.

A hole has been found in the nudist camp wall. The police are looking into it.

Two hats were hanging on a hat rack in the hallway. One hat said to the other, 'You stay here, I'll go on a head.'

I wondered why the baseball kept getting bigger. Then it hit me.

A small boy swallowed some coins and was taken to a hospital. When his grandmother telephoned to ask how he was, a nurse said, 'No change     yet.'

Locke Financial Services, Inc. is a Registered Investment Adviser. This publication is only intended for interested investors residing in states in which the Adviser is qualified to provide investment advisory services. Please contact Locke Financial Services, Inc. to find out if the investment adviser is qualified to provide investment advisory services in the state where you reside. The Adviser does not attempt to furnish personalized investment advice or services through this publication.

Have fared even worse than the U. S. stock markets. The recent trade, where we sold the mutual funds that own stocks of small, mid and alternate energy companies will leave us with mutual funds invested in high quality large companies and in mutual funds invested in high quality bonds. We believe that this is an appropriate allocation for these times and we are confident, that in time, the economy will once again prosper, as will our portfolios.

Office NewsOffice News

In August, we had two client appreciation outings to baseball games. One outing was at Cedar Rapids Iowa, where the local team lost to the Clinton Lumber Kings. We really had a great day and we appreciate the good attendance. We also had a similar event in Schaumburg Illinois, where the local team defeated the Winnipeg Goldeyes. We had great weather and a terrific time.

At Schaumburg, there was a side event where Alan Locke was selected to have a chipping contest on the baseball field, after the 6th inning. After a nervous first shot, Alan’s second try landed in the middle of the target and he defeated the Schaumburg Flyers manager. As you can see below, he won an autographed baseball signed by the manager and his assistant manager. The ball now sits prominently in his office. You can be sure that you will get the complete details of his victory when you come to visit.