Enclosed please find your reports for the third quarter of 2006.  There has been a lot of media hype this quarter over certain indices reaching record highs, but this is somewhat misleading since these levels were first reached over six years ago.  What we want to focus on in this report is discerning trends and risk levels and how we are addressing these in your portfolios.

The media often hypes investment/economic “trends” that turn out to be completely false.  Just this summer we were all but guaranteed $100 per barrel oil prices, by premiere energy research firms.  Also, they said gas prices over $3.00 per gallon were here to stay.  Wrong!  Currently crude oil contracts for November delivery are priced at $60.73.  Prices have touched as low as $57.00.

The “Dow” has been in the news a lot lately.  The “Dow” is actually the Dow Jones Industrial Average.  It is regularly featured in the Wall Street Journal whose parent company also happens to be the company that invented the Dow.  The Dow is comprised of only 30 stocks and is not a very good benchmark of the overall market.  The companies tend to have a fair amount of name recognition because they are typically very large industrial leaders.  The Dow tends to be a less than ideal indicator because it captures a small percentage of the overall market and economic activity and not broad-based trends.

The media is focused on the Dow reaching six-year highs, however, the rally is limited to a few sectors such as energy and finance.  A lot of this has been an over-weighting of the media to any positive news and investors with hot-money chasing returns.  This is not to say that we are ignoring opportunities in this sector.  Changes to our models have been made where we see opportunities, and major inflows into a sector cannot be ignored.  But our task is to see where the prospects for this sector lie going forward.  Here is a breakdown of the components in the Dow:

As you can see, the returns from this index have been dismal over the last six years and you would have done better in a money market fund.   In 2006, there have been higher returns in the EAFE (European stocks) than the Dow; and some would argue better prospects going forward. 

Our portfolios have consistently beaten the benchmark indices over the last five years.  By avoiding over-bought trends in equities we did not get caught in the market correction many advisors did. 

However, we are somewhat concerned about possible slowdowns in the economy, lower profit margins, OPEC cutting oil production, higher valuations, the housing bubble, and future unexpected actions by the Fed.  This is not the best scenario for over paying for stocks currently.  Therefore, our moves have been gradual.

Portfolio Update:

Where we do see opportunity is in Large Cap Value/Growth stocks whose valuations have been discounted for so long.  It is inevitable they will rebound, after seven years of underperformance.  Therefore, our main focus during the quarter was to increase our weighting in the larger capitalization segment of the equity market by reducing our International, Mid and Small cap exposure as well as reinvesting our defensive position in the Schwab Yield Plus account.

Our first move towards the larger capitalization stocks was the sale in early July of Buffalo, one of our Mid Growth managers and our purchase of Tocqueville, a well-respected Large-Cap Blend fund.  We subsequently added to Tocqueville later in September when we reinvested our defensive position from the Schwab Yield Plus fund.

In July we continued this Large Cap move when we added to Brandywine Blue, one of our Large Growth funds and Allianz NFJ Dividend Value Fund, one of our Large Value funds by reducing our International exposure with the sale of William Blair International and much of our position in Hotchkis and Wiley.  Substantial cash on hand makes the larger companies attractive acquisitions or gives them leeway to increase their dividends.

In August we also sold our position in the Hillman Focused Advantage Fund and added to our position in American Funds Growth Fund.   We also added to Brandywine Blue at the end of the quarter as we sold out of our Small Growth fund Managers AMG Essex Small/Microcap.

We invested in a new Large Growth position towards the end of the quarter as we reinvested the money from the Schwab Yield Plus account. The fund is Legg Mason Partners Aggressive Growth.

So as you can see, our holdings in larger cap stocks have been steadily increasing.  Our valuation models show markets still somewhat undervalued, however, our concern going forward is certain sectors become overbought, and bad news in any of the areas previously mentioned causes a significant downturn.  We are also in earnings season this week, which will be a good indicator of Q4 performance.

Conclusion:

We are confident in our money managers, which have passed our extensive due diligence process.   There may be a short-term underperformance, but over time; our edge has been proven.  We want to mitigate risk and provide superior returns by selecting the best money manager and using them in the proper asset allocation.

We will continue on this path, and ask your patience in not judging our results on a compressed time horizon, but on a longer/realistic investment cycle.  Our reputation is based on doing what we believe is right not necessarily popular.  We take our responsibilities very seriously and use a well-disciplined approach to portfolio management.

News At Singer Xenos:

Our Holiday Party will be on December 5^th at the Lauderdale Yacht Club.  Grey Valliere is a frequent guest on CNBC’s Market Wrap, CNN’s Business Day and Nightly Business Report and is a widely-quoted Washington analyst who focuses on how Congress and the White House shape fiscal policy.

Our staff is also growing and we have added Jeff Powell as our newest Associate Advisor.  He is working with Jay Schechter in the areas of business development and client administration. 

For our Broward clients, please note our new phone number (954) 739-7400 for your convenience.

We remain optimistic regarding Q4 2006 and hope to speak or meet with you personally to review any concerns you may have.