Fiduciary Asset Management, LLC

Economic Themes – December 31, 2007

Federal Reserve
	The chances of a U.S. economic recession have risen to approximately 50%
	* Priced into both the equity and fixed income markets
	* S&P 500 Index declined approximately 10% from October highs
	* The yield on two-year Treasury Notes declined to 2.75% vs. a Fed-targeted federal funds rate of 4.25%
	Signs of weakness:
	* 5% unemployment rate
	* Weak retail sales
	* Foreclosures on residential home mortgages
	* Rising mortgage delinquency rates
	Approximately $0.5 trillion of adjustable rate mortgages will reset to higher rates
	* Exacerbates the slowing economy
	* Put added pressure on the downward direction of home prices
Equity Markets
	The slowdown, or even recession, does not condemn equity investors to investment losses in 2008
	Potential positives for the equity markets
	* The Federal Reserve is likely to shift its monetary policy to accommodation from restrictive
	* Dollar exchange rates are favorable for exporters
	* Inflation rates are relatively low and may recede further in a slowing economy
	* Equities are valued favorably relative to fixed income and historical price/earnings ratios
Strategy
	Our emphasis will shift toward stocks with strong earnings stability which have high quality of earnings
	We will reduce our exposure to growth stocks and industrials with cyclical earnings
	We will continue to favor large cap stocks over small cap stocks
	We will continue to overweight equities in our balanced accounts