Dear Friends and Family,

Happy Holidays to everyone!

The holidays are a welcome reprieve from the perfect storm that struck the securities markets this year. This storm was caused, in part, by unintended consequences of regulatory changes meant to benefit the public. First, bankers eager to expand lending, combined with regulators aiming to increase homeownership opportunities for low-income families, led to lowered credit standards that ultimately contributed to the sub-prime lending mess. Then, in July, the SEC abolished the short-sell rule that was introduced during the Depression to prevent market collapses like those of 1929. This has resulted in increased market volatility. Meanwhile, accounting standards have shifted, requiring corporations to report financial results based on current market prices of financial assets and liabilities, adding further volatility to reported earnings. This earnings volatility will increase next year as new rules, which went into effect in November, begin impacting companies reporting year-end results.

Markets hate uncertainty, and these are, of course, uncertain times. Will the sub-prime loan problems cause banks to cut back lending across the board due to constrained capital and increased caution? The economy has remained resilient thus far, but how well will it weather decreased lending if that occurs? The Fed can and will ease monetary policy to keep the economy going if needed, but in the face of a falling dollar and rising oil prices, could that easing spark an inflation or stagflation problem like the ’70s? Although we are not convinced this will be a long-term market issue, our portfolio suggestions will include adding more high — yielding securities, which have helped us ride through these types of choppy markets in the past.

Please remember these end-of-year deadlines:

1. Required Minimum Distributions: 12/31/07
2. Gifting Deadlines: 12/15/07
3. Tax Loss Selling: 12/31/07

Upcoming seminars:

• Small Business Owners and Outsourcing HR, Issaquah Office, January 24th
• College Planning for our Virginia-based clients, January 24th

Please contact Vicki for details.

Sincerely,

Katz Family Financial