Enclosed please find your reports for the fourth quarter of 2006.  For the seventh consecutive year, our managed portfolios outperformed their respective benchmarks.  Our fixed-income portfolios relative performance was particularly strong and our equity performance posted superior results despite a challenging year for most active equity managers.  We are pleased with our 2006 results and are focused on delivering exceptional investment solutions in 2007.

Economic and Market Overview

Our forecast of a strong fourth quarter was rewarded as equity markets rallied and posted robust returns for the year.  Almost all measurements of economic health were positive in 2006.  Corporate profits have posted 19 consecutive quarters of double-digit year-over-year earnings growth.  Consumer spending has risen for 61 consecutive quarters, job growth continues, and despite an earlier up tick, inflation has remained relatively benign.

The fourth quarter rally was different than the large rallies of the 1990s.  First, this rally was very broad-based and not concentrated on a few isolated industries.  Second, valuations are still moderate as earnings have been the major driver of stock price increases. The price-to-earnings ratio is currently below its 15-year average and is lower than it was before the current bull market that started in 2003.

In many respects, 2006 was a year of transitions. The Senate and the House went from Republican to Democratic leadership.  A rising interest rate environment went to a stable rate situation with forecasts focused on when the Fed will cut rates.  Fear of inflation was significant early in the year; now the concern is on slowing growth.  The housing boom is now a housing downturn.  We had talked about the large build-up of cash on balance sheets.  To follow, the later half of 2006 saw cash go to work as merger and acquisition activity rose dramatically. 

The Russell 2000 Small Cap Index saw a dramatic rise in trading volume that peaked in August of 2006. This peak is often considered an indicator that the small-cap cycle, which has dominated this decade, may be coming to an end.  Large-cap and higher quality stocks began to show some promise late in the year.  As a result, our strategy centered on moving more assets to larger capitalization stocks.   Although some of our managers did not keep up with their benchmark this sector, we are optimistic about 2007.

The outlook for 2007 is positive for equity markets.  A strong economy coupled with solid corporate profits bodes well. However, the housing slowdown could be a potential drag on growth. Housing cycles tend to be longer than most other market cycles. This past housing boom was more sustained than most in history.  Although residential housing makes up just 6% of GDP, the fact that prices rose so steeply and may decline in concert could negatively impact the rest of the economy, as evidenced in the Fed’s most recent minutes.  This story will unfold further throughout 2007.  Geo-political risk may weigh on the equities markets and lead to increased volatility. Terrorism, Iran, and North Korea all remain significant factors that require consideration.

The economic expansion is beginning to show signs of maturity.  Typically, late stage expansion means the rate of growth starts to moderate and year-over-year earnings comparisons become more difficult for some companies, but the overall expansion is still very healthy.  The biggest impact on markets is a rotation in market leadership from smaller speculative issues to larger higher quality stocks.  Capital markets and the economy continue to evolve but both appear to be strong going into 2007.

Portfolio Update

The Allianz NFJ Dividend Value Fund, Tocqueville Fund and Brandywine Blue Fund were the three largest new holdings in 2006.  Consistent with the large-cap theme, each is a large-cap fund of varying style (value, blend, growth).  In 2006, NFJ outperformed 98% of its peers, Tocqueville 90% of its peers, and Brandywine 82% of its peers.  The past seven years of underperformance by large-cap stocks has left this sector very reasonably valued.  We feel these attractive valuations and the maturing economic expansion has created a buying opportunity in large-cap stocks.

The current economic expansion has been global in nature. Our significant position in international funds has benefited you greatly over the past four years.  In 2006, the Artisan Small Cap International Fund and Dodge & Cox International Fund were up 33.2% and 28.0% respectively.  US investors have particularly benefited from overseas investments and enhanced returns for non-dollar denominated investments.  The large overweight to international investments was reduced to a more neutral position over the summer.  We are currently satisfied with our international weighting, but as always we are reviewing each position for tactical opportunities.

In October, we sold half of the ING Senior Income Fund and invested in a new fund, the Calvert Income Fund.  ING was a floating rate fund that served us well as interest rates increased.  Now that the Federal Reserve has created a more stable interest rate situation, we are moving into more intermediate term bonds that can excel in a flat or declining rate environment. 

In November, the Allianz CCM Mid Cap Fund was sold due to its disappointing performance.  The fund did not meet our expectations.  The proceeds were reinvested into the Growth Fund of America.

We will seek opportunities to add value through intensive due diligence in selecting superior managers.  We feel well positioned for 2007, and will continue to execute our process to formulate disciplined investment decisions for our clients.

News at Singer Xenos

The Singer Xenos family continues to grow.  We are extremely proud to announce the newest member, Jack Preston Xenos, born on November 3^rd to proud mother, Faith Read Xenos.

We have added Bethany Carlson to our staff as the newest member of our research team.  Bethany is a Chartered Financial Analyst (CFA) who joins us from Seattle.

We wish you a happy and prosperous new year.