Dear Sir/Madam:

During the second quarter of 2010, the bloom came off the rose from the first quarter run-up. The markets were pounded, especially in May (Russell 2000 Index down 7.68%) and June (Russell 2000 Index down 7.88%) as the hopes of a rapid economic recovery faded into concerns about slow growth, lengthy unemployment, and even a double-dip recession.

The Perfect Storm

The second quarter represented a perfect storm. The environmental crisis in the Gulf of Mexico (GOM) destroyed hundreds of billions of dollars of market capitalization while Europe threw the financials and bond market into chaos with unknown levels of looming sovereign debt on bank balance sheets. Things got so bad in Europe that the European Central Bank finally intervened. We are satisfied with the steps they have taken to prove to the word that the Euro will not fail, however, fears remain.

Our View of the World

We are more optimistic than most about the prospects of the U.S. economy and the state of Europe, however, fear is clearly out there. Fears of inflation have turned into fears of deflation, especially in the short-term based on the widespread perception that banks are not lending and corporations and consumers are not spending. Let us stress that we are optimistic for the long-run and that, while people are anxious to forget the severity of the 2008 crisis, it is not something that we can recover from with one or two years of good behavior.

We continue to see long-term value opportunities in such sectors as energy and financials. In energy, we look out on a three to five year time frame and we continue to favor service and asset driven companies based on a strong conviction that over the long-term, oil prices will increase, irrespective of short-term fluctuations. In financials there continue to be interesting opportunities coming from a variety of ultimately healthy institutions.

The Firm

Our suite of active strategies continues to grow. We remain committed to our philosophy and refuse to adopt a short-term mind-set, even in an environment where short-term thinking is extremely prevalent. The Wanger OmniWealth wealth management platform is growing well under the leadership of Don Scott and Suzanne Campion. This multi-manager, multi-family office style wealth management solution is proving extremely valuable to our larger clients, especially in times of such volatility.

I continue to work with analysts Lee Wolf, Joel Hainsfurther, and Raja Vannela everyday to identify attractive long-term investments for our investors. We remain committed to our investment strategy and refuse to deviate from our proven investment process. We feel that now, more than ever, it is essential to keep the faith and think like a long-term investor - I know that we are, and we are extremely excited about the future.

Email us at: info@wangerinvestments.com or visit us on the web at: www.wangerinvestments.com or www.wangeromniwealth.com.

Best,
Eric Wanger, JD, CFA