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May 15, 2007

Dear Clients and Friends,

First Quarter 2007 Financial Asset Performance

The Lehman Brothers Aggregate Bond Index was up 1.5%. The S&P 500 U.S. stock index was up 0.64%. Foreign equities, as represented by the MSCI EAFE Index, were up 4.08%.

We have included a Morningstar table of performance figures for many of the mutual funds in your portfolio, plus some comparative market indices noted by the prefix “Idx”.

Securities and Exchange Form ADV Part II Offer

This is our annual offer to you of Form ADV Part II. Investment advisors are required to file certain information with the Securities and Exchange Commission (SEC). This form was included in the packet of information provided at the beginning of our service to you. Please call Joan Miller if you would like to have a copy of this form sent to you.

Notes from the 2007 Financial Planning Association’s (FPA) Annual Retreat

Vincent attended the FPA Retreat in Galveston Island, Texas from May 4th to May 9th. Not all of the sessions were about changes in tax laws or the latest investment trends. Some of the sessions provided thought provoking insight that could be useful to the general population. Here are some quotes and discussion points from a few of the sessions.

Keynote Speaker: The Reverend Professor Peter Gomes, Harvard University Topic: Creating Good, Living Big

Vocation – “Where your great joy meets the world’s great need”. Attributed to Fred Beacon by Professor Gomes

“The world has more than enough leaders. We need better followers and leadership would be better.”

A teacher’s epitaph: “He taught as a learner and he led as a follower.”

The expectations of clients: Competency, Compassion, Trust

Speaker: Ross Levin, CFP – “You are rich in the things you can do without.”

Notes from the 2007 Financial Planning Association’s (FPA) Annual Retreat (Continued)

Speaker: Dr. Horace W. (Woody) Brock, PhD of Strategic Economic Decisions, Inc.

Topic: The Economics of Uncertainty

There are two kinds of inflation: Inflation on Wall Street (asset bubbles) and Inflation on Main Street (CPI – Consumer Price Index)

The Primary Drivers of Disinflation on Main Street in US During 1981 to 2005

The acceleration of productivity

The decline in the power of organized labor

The rise of Asian outsourcing and competition

Improved monetary policy

Collapse of oil prices – 1986

Intermediary Drivers of Disinflation

The deceleration of unit labor costs

Plummeting inflation expectations

The true drivers of Asset Inflation are:

Soaring Optimism

Plentiful credit

Speaker: Dr. Michael Starbird, PhD, University of Texas

Topic: Creativity By Intent

Dr. Starbird has done research on how to increase creative thinking to solve problems. Here are principles that he believes lead to greater creativity:

Fail your way to success – make mistakes. Mistakes allow for incremental success toward solving a problem.

Follow where ideas lead. Ideas are very rare. The time to work on a problem is after you have solved it. Always follow up - you may be able to solve more problems than just the initial one.

Eighty percent of your effort should be on “What’s the Question?”

See what’s there, rather than what you think is there. Let go of bias. It’s not what you don’t know that gets you in trouble, it’s what you think you know, that’s not so.

Look at things and frame them in a different way.

Understand simple things deeply. Take a difficult task or problem and break it down into simpler steps.

Clear the clutter, seek the essence.

He asks his class this question: What is it that we think is completely ok, but that in 100 years they will say: What were they thinking?

Notes from the 2007 Financial Planning Association’s (FPA) Annual Retreat (Continued)

Speaker: Seth Masters, Chief Investment Officer at Alliance Bernstein

Topic: Global Asset Allocation – Increasing Alpha (Returns in excess of what would be expected from the risk taken)

Mr. Masters talked about the home-country bias of local pension plans.

In the U.S. 85% of equities are invested in domestic common stocks, yet the U.S. represents 51% of the World Equity Index.

In the United Kingdom, pension funds invest 64% of their equity dollars locally, yet the UK represents just 11% of the World Equity Index.

Similar discrepancies can be found in Japan (60% local, vs. 12% World) and Canada (49% local vs. 3% World).

This over-allocation locally presents opportunities for international equity money managers to take advantage of pricing inefficiencies.

Enclosed is an article about the growing influence that China may have on our economic future. The article is not a reflection of our opinion, just a piece that makes you think.

Tax Planning

If you haven’t already done so, please send us a copy of your 2006 federal and state tax returns along with 2007 estimated tax payments. Please also include a copy of your 2006 Forms W-2 and Forms 1099R. These forms can be sent in electronic or paper format.

If you are taking Required Minimum Distributions (RMD) from your IRA in 2007, and you plan to make a significant (greater than $1,000) charitable contribution to any one charity, consider making the contribution in the form of a transfer from your IRA. These contributions lower your RMD, which results in lowering your taxable income. Donors must be at least 70 ½ on the day of the transfer. IRA withdrawals used for charity are not subject to income taxes, and therefore you will not be entitled to a tax deduction. This law is only in effect through December 31, 2007.

Summer Intern

Joining us this summer is Sarah O’Malley, Vincent’s niece. Sarah is attending St. Joseph’s University in Philadelphia on an academic scholarship. She is majoring in Accounting and is also a member of the Varsity Soccer team. Sarah will be assigned a number of different jobs throughout the summer months. We hope to provide her with valuable on-the-job experience that will help her make better decisions about her future. Please welcome Sarah the next time you stop in.

Joan’s 10 Year Anniversary

Joan Miller will be marking her 10 year anniversary with Schiavi + Company on June 3, 2007. Joan’s friendly and caring attitude toward clients and co-workers, combined with her dedication to the quality of her work, has made her an integral part of our success. Please join us in congratulating Joan on reaching this significant service anniversary.

We continue to work daily to earn your trust and confidence.

Best regards,

Vincent A. Schiavi, CFP®, CPA/ PFS                      Ravi P. Dattani, CFP®, CPA
President                                                                     Vice-President


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