We are pleased to report on your portfolios’ returns for calendar year 2007, the eighth consecutive year of out performance by Singer Xenos in our clients’ managed accounts.  In a year that presented a variety of challenges – and opportunities – we are highly satisfied to report that your investments showed strong returns for the year.  In particular, we are proud to report equity returns that more than doubled those of the S&P 500.

Economic and Market Overview

A core story of 2007 was the confluence of strong and increasingly organic economic growth overseas, slowing growth domestically, and a relatively cheap dollar.  This led Singer Xenos to the conclusion early in the year that domestic companies with substantial foreign sales of goods and services would outperform their more domestic-focused counterparts.  Such companies outperformed the S&P 500 significantly.  Our foreign sales thesis was the lynchpin of our strategy for your portfolios this year.

A second theme of the year was the maturity of the current market cycle, characterized by mixed economic signals.  While investors had a bumpy ride in ’07, the US economy is not in a recession.  Gross domestic product (GDP) was significantly revised upward for the second quarter, and was stronger than expected in the third quarter.  The most recent forecast by the Fed predicts continued growth in 2008, albeit at a more moderate 2.1% with lower inflation. The economy has continued to add jobs in 2007 (although the rate at which jobs were added has moderated).  In summary, despite the gloom and doom talk that is currently in vogue, the current economic expansion continues to move forward.  As anticipated by Singer Xenos, this leg of the cycle favors larger, higher-quality, growth-oriented stocks, and the Russell 1000 Growth Index and Russell Midcap Growth Index (which track such stocks) outperformed the S&P 500 by 6.3% and 5.9%, respectively.  Your portfolios were specifically positioned to take advantage of this trend during 2007.

In a turn of events expected by Singer Xenos since 2006, the housing market declined this year, and sub-prime mortgage loan interest rate resets prompted increasing default rates.  Your exposure to homebuilders and sub-prime mortgage-backed securities in 2007 was minimal.  The value of all subprime debt in the U.S. is only 1.4% of all global equity, so the reaction to the “crisis” seems overdone to us.  Nevertheless, housing cycles are long and the effect of further mortgage rate resets and Federal interest rate decisions will be tracked carefully by Singer Xenos in 2008.

Increased market volatility at levels not seen for four years provided hurdles for some investors, and opportunities for others.  Singer Xenos anticipated this in our year-end letter for 2006 (Jan. 2007), and adjusted your portfolios accordingly, favoring higher-quality managers, and reducing exposure to credit risk.  In your equity portfolios, on average our best-of-breed managers beat their respective market sector indices by 7%.  While we would have preferred to have stronger relative performance against the Lehman Brothers Aggregate Bond Index, in fact only 10% of bond managers were able to match or beat the index in 2007 because of the flight to US Treasuries.  In light of this very challenging bond market we are pleased to have achieved strong absolute returns through careful avoidance of undue credit risk and the complex structured financial instruments that experienced crises in 2007.

We feel well positioned for now and still believe in the growth and foreign sales theses.  Our challenge is to determine the duration of these themes, and implement our next theme.  This is an ongoing process, and while we are optimistic for now we do believe there is a significant possibility that we reach a period of transition sometime in 2008.  Rest assured that your Singer Xenos team will continue to monitor market conditions and seek the best opportunities for your assets over the coming year.

Singer Xenos Wealth Management