Quarterly Client Update - March 2003   "Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe to assure the survival and the success of liberty." John Fitzgerald Kennedy, 1961   In this issue, we would like to answer the question: Why take any risk in the equities market? We feel it is more important than ever to look beyond the hype to address the benefits of professional money management and explore our concepts and research about current market conditions. Recent studies have shown that asset allocation and diversification strategies have worked quite well in recent months. This investment game plan avoids emotional reactions to market and media chatter while dodging financial pitfalls. In his landmark book of 1949, The Intelligent Investor, Benjamin Graham summed up this philosophy as follows: "These copybook maxims (on asset allocation) have been easy to enunciate and always difficult to follow, because they go against that very human nature which produces the excesses of bull and bear markets. It is almost a contradiction in terms to suggest as a feasible policy for the average stockholder that he lighten his holdings when the market advances beyond a certain point and add to them after a corresponding decline. It is because the average man operates, and apparently must operate, in opposite fashion, that we have had the great advances and collapses of the past and this writer believes "we are likely to have them in the future." It Seems Negative Out There, But There Is Positive News Too: Investors certainly have a right to feel gloomy, but we are impressed with how well the economy has withstood all the recent problems. Whether the Iraq situation ends quickly or not, the bear market seems to be near its end. We expect a broad-based rally going forward. You are already seeing trading days with huge volumes, as investors on the sidelines in money market accounts begin coming out of their shelters. Back to our original question, "Why take the risk"?  Lets look at the reasons: §         Business confidence may be sluggish at the moment; however, inventories are extremely lean, so as conditions improve, business spending and employment numbers will increase. §         The risks are already reflected in the values of financial assets. Relative valuations remain compelling. Earnings yields are still very attractive compared to Treasury yields. Any earnings surprises will be greatly rewarded. §         Interest rates will remain lower than expected. The only reason the Fed would raise rates in these uncertain times, would be due to a fear of inflation recurring. This seems a very unlikely scenario. The markets will benefit from the continuing liquidity as they recover. Abroad, European central banks have followed suit and also eased rates recently. §         Pension plans are under-funded. Analysts at many private pension funds are concerned about shortfalls in the coming years. Low-yield fixed investments will not produce enough income to fund benefits. Don't underestimate the effects of the 2003 pension contributions estimated at $100 billion of inflows to the capital markets. §         The President's Third Year. There is research to suggest that any president's third year is good for stocks. Controversial policies are avoided in order not to alienate voters in a re-election year. The current administration is dedicated to enacting a redistribution of wealth through tax reform and property rights. Mr. Greenspan will be up for re-appointment in 2004. We believe he will do all he can to stimulate the economy, to end his career as a hero. Recent Changes in Your Portfolio: At Singer Xenos, we scrutinized the macro trends, and implemented a revised investment strategy.  In the past 4 months, we focused on shifting to Growth stocks. This transition continues to take place. The first quarter saw continued moves into the Small Cap Growth arena. Recently, we started to increase our allocation to Mid Cap Growth and soon, we will be buying Large Cap Growth, a sector we have avoided for the last three years. We took this opportunity to trim some of our international holdings to accommodate the new allocation. On the individual fund level, you'll notice several new names added. Waddell & Reed Small Cap Growth Fund has a market weight in technology. This buy was accomplished through a 5% sale of Small Cap Value. Thornburg International Value was reduced to shift into Westcore Mid Cap Growth Fund and Chesapeake Core Growth Fund. These changes will be seen in your accounts in the weeks to follow. Also, for smaller sized accounts, we've approved the usage of American Balanced Fund to provide the benefits of portfolio diversification in a cost-effective manner. We've seen strong recovery in the variable annuity arena. In mid-April, after extensive review and research, you’ll be receiving our recommended re-allocation for your variable annuity accounts. The changes reflect the same themes as in your regular accounts; increasing growth funds including mid/large growth, and trimming international positions. In summary, we are not suggesting a return to the 1990's ride, but a more stable growth pattern with consistently lower inflation. This is a real wealth-building environment without risk of a bubble. Keep in mind, the key to successful investing is to limit risk by investing with a margin of safety to outperform the broad indices. We will strive for balance and diversification; however, we will also pursue opportunities to earn higher returns, which uncertain times do provide. Our goal is to build capital in the next phase of the investment cycle.