Thank you for your interest in MCGEHEE CAPITAL MANAGEMENT, INC!

The focus of our stock selections are based on technical chart readings, fundamental valuations, cyclical tendencies, and most importantly our proprietary timing tool, "The McGehee Trend-Turn Indicator."

Stewart B. McGehee, president and portfolio manager, is frequently quoted in Barron's magazine, Advisors Digest, The Bull and Bear Report, The Dick Davis Digest and several on-line investment sites.

Please ckeck out our superior performance record, investment philosophy and management agreement information.

Feel free to contact us with any questions or visit the FAQs section by scrolling above. "EQUITY INVESTMENT PHILOSOPHY "

There are five steps in the highly disciplined stock selection process at McGehee Capital Management. The first step is the very unusual, yet highly disciplined "top- down" stock selection process. While the "top-down" approach goes against the grain of most stock market gurus, McGehee's extensive research proves that certain stock groups outperform others during both bull and bear market cycles. Concentrating in these stocks should help McGehee outperform the market over the long-term.

The second step is to use the"McGehee Trend-Turn Indicator." This is our proprietary market-timing tool developed over the last 25 years. While most will tell you it is impossible to time the market, our indicator has a 90% correlation in calling market turns of 7% or more.

The third step of due due diligence involves the analysis of individual stock charts to identify those technically poised to outperform the market. This technical analysis can help identify either stocks with a high degree of relative strength or those that are oversold, both basing for an advance.

The forth step involves fundamantal analysis of companies chosen in steps one and three. Among the criteria used are: increasing revenues and earnings per share, improvement in profit margins, reasonable price to earnings ratio based on expected earnings, and market niche.

The fifth step involves a stock allocation model allowing McGehee to attempt to produce balance portfolios with respect to risk. The Agressive Growth Portfolio contains approximately 20% of its stocks invested in well established large-capitalization stocks, 50% in moderately established mid-cap stocks with moderate risk, and 30% in lesser known small-capitalization stocks with a high risk/reward ratio. In the Growth Portfolio approximately 70% of the stocks will be invested in established large capitalization less risky stocks and 30% in moderately established mid-cap stocks with moderate risks. The Conservative Growth Portfolio will be 100% invested in large-capitalization stocks, as will the Growth and Income Portfolio along with fixed income instruments. Most of the portfolio will contain growth stocks, while the rest will be invested in "value" stocks.

The value of this rigorous five step due diligence has been extraordinary. Each portfolio contains between 15 and 30 stocks(more for institutional clients) meeting our criteria. The Growth Portfolio, the Conservative Portfolio and the Growth and Income Portfolio have low turnover rates, thus allowing for long-term capital gains. The Aggressive Growth Portfolio turnover is higher, with some long-term capital gains. Over the intermediate and long-term our portfolios tend to outperform their benchmarks.


"FIXED INCOME PHILOSOPHY"

McGehee's fixed income investment objective is to generate competitive total returns, with an emphasis on protection of capital. To reach these objectives we include the following factors in our decision making process: interest rate trends, maturity structure, and quality. We are more interested in holding issues to maturity, thus receiving interest payments, than we are in trading issues for capital appreciation.

The first and most imprtant step in our process is to forecast the trend in interest rate movements. The trend forecast starts with an in-depth technical analysis using a broad varity of interest rate charts. McGehee follows that with fundamental macro-economic analysis, developing a model for the economic outlook and inflation.

Secondly, a maturity structure is selected to take advantage of positive interst rate trends or to protect against negative interest rate trends. There are times when we concentrate on the highest quality government bonds or short-term instruments and times when we concentrate on high quality corporate bonds. This depends on credit spreads and our analysis of macro-economic conditions.

The last step in our due diligence of selecting individual fixed-income instruments is the quality rating of the issues. Credit quality ratings are issued and used from national services such as Standard and Poor's and Moody's. Other research sources include national broker/dealer on Wall Street, regional brokerage firms from around the country and numerous trade publications like Barron's.


"BALANCED PORTFOLIO PHILOSOPHY"

The Balanced Portfolio mixes both stocks and fixed income instruments. This gives one the safety and current income of fixed instruments and the long-term appreciation of stocks necessary to historically beat inflation. By having exposure to two different asset classes, which often move in oppisite directions, one usually reduces the volitility associated with just one asset class.

McGehee's approach to the proper mix between stocks and fixed income for an individual investor is obtained by using the following formula: 100 minus investor's age equals assets in stocks. The remainder will be allocated to fixed income. This enables one to automatically become more conservative with age. For institutions the ratio will be determined by economic conditions. Of course McGehee is here to serve the needs of our clients, therefore, we can work with you to customize your asset mix depending on individual risk tolerance, time horizon, and income needs, etc.

Finally, we do not necessarly seek capital gains by trading fixed income instruments. We will however time the market to take advantage of inefficiences between short-term interest rate trends and long-term rate trends. Thus tending to invest near the optimum price entry point.





"PORTFOLIO OBJECTIVES, PERFORMANCE HISTORY and FEE SCHEDULE"

McGehee Capital Management offers five different portfolios:


1) AGGRESSIVE GROWTH: This portfolio will be invested in large, medium and small capitalization stocks, which we view as having above average potential for price appreciation. Few of the companies pay dividends. The benchmark will be the Nasdaq Index. The portfolio will be mostly invested in medium capitalization stocks, with some small and large capitalization stocks mixed in. Some positions will be held for long-term capital gains. The portfolio will inherently be subject to a high risk/reward ratio. The portfolio is usually 100% invested in stocks. From time to time a percentage of the portfolio can be in cash or short the market to protect against pullbacks. Turnover is high.

Performance record: +48.8% average annual return over 9 years.

1994...+40%
1995...+192%
1196...+60%
1997...+53%
1998...+76%
1999...+117%
2000...-47%
2001...-35%
2002...-38%
2003...+70%

2) GROWTH: This portfolio will be invested in large to medium capitalization stocks, which we view as having above average potential for price appreciation. Some companies will pay a dividend. The benchmark is the S & P 500 Index. Most stocks will be held for long-term capital gainsto teke advantage of the lower tax bracket. The portfolio is usually 100% invested in stocks. From time to time a small percentage of the portfolio can be in cash or short the market to protect against pullbacks. Turnover will be low.

Performance record: +21.2% average annual reurn over the last 9 years.

1994...+10%
1995...+52%
1996...+24%
1997...+53
1998...+49%
1999...+42%
2000...-19%
2001...-23%
2002...-28%
2003...+51%

3) CONSERVATIVE GROWTH: This portfolio will be similar to the Growth Portfolio with the following exceptions. More stocks from the "value" universe of stocks will make up the portfolio. There will be a higher dividend rate on the overall portfolio.

Performance record: 17.8% average annual return over the last 9 years.

1994...+10%
1995...+53%
1996...+24%
1997...+48%
1998...+39%
1999...+36%
2000...-20%
2001...-11%
2002...-29%
2003...+28%

4) GROWTH AND DIVIDEND: This portfolio will be invested in large capitalization stocks with a concentration in those that might provide growth, but also pay relatively large dividends. This portfolio was started in 2002 in response to the low yield on fixed income instruments.

2002...-8%
2003(thru 11/15/03)...+27.5%

5) GROWTH AND INCOME: This portfolio will be invested in large capitalization stocks and fixed income securities. The current return(i.e. dividends and coupons) will be higher than the above portfolios. The ratio of stocks to fixed income will vary. For institutions the ratio will be determined by economic conditions. For individuals the following formula will be used. 110 minus investor's age equals pertcentage of portfolio in stocks. If you prefer a set percentage in fix income that can be specified.

Performance record will depend on what percentage of your portfolio is in stocks. The stock holdings are similar to those held in the Conservative Growth Portfolio.


6) FIXED INCOME: This portfolio will be invested in Money Market Funds, US Treasuries, and US Corporate Bonds. The average maturity of the portfolio holdings will be from short-term to 30 years.

Performance record: There is no performance record as securities are simiply held to maturity in order to receive current income.


Past performance does not guarantee future results! Performance figures do not include management fees, but do include transaction costs. Returns indicated for McGehee Capital Management were managed exactly the same as The McGehee Report, until 1997 when they started to be managed separately. Returns for The McGehee Report are based on the Intramonth Subscription notices. As with most investments you may lose part or all of you money. Performance figures do not take into account tax consequences.

FEE SCHEDULE


Equity
Account
Total: First $200,000;..Next $300,000;..Next $4.5 million;..Above $5 million.

Fee :..............2%...................1.5% ...................1%.........................0.75%


Fixed
Income
Account
Total: First $5 million;... Over $5 million

Fee:...............0.35% ................0.25%

Minimum Account Size: $100,000.
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Equity and Fixed Income Billing:

A quarterly fee is calculated at the rate of ¼ of the above percentages on the total value of a client’s funds as of the last business day of the month following the date Agreement is entered into. This fee is deducted from the Client’s account and paid to McGehee Capital Management, Inc., unless otherwise agreed to in writing. Client will receive a Fee Statement shortly after the deduction of the fee.

For the period between the date an Investment Advisory Agreement is entered into and the first quarterly fee calculation date, an initial fee shall be computed on a pro-rated basis for the said time period.

In the event that additional funds are placed or withdrawn under management, the fee for these funds will be computed on a prorated basis for the time period said funds were under management by the Investment Advisor.

Past performance does not guarantee future results!
2004

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"ORDER INFORMATION"


If you are interested in our managed accounts, please contact us for our Brochure(this is required by the SEC).

The Brochure contains even more information including ADV Form Part II, and Agreement Form.

The sign-up is simple and we will lead you through the process. E-mail, call or write Stewart B. McGehee:


E-mail: stewart@mcgeheereport.com
Phone: (501)661-1702
Address: 1806 N. Monroe;Little Rock, AR. 72207