Executive Summary

The long-term work that Symons Capital Management emphasized in 2007 to protect against downside risk, in order to maximize the long-term growth rate of the assets we manage, began to pay off in the first quarter of 2008. For the quarter the S&P 500 Index was down 9.45%, while our Alpha Value investment strategy was down 3.36%, our Alpha Growth strategy was down 9.29%, and our Small Cap strategy was down 3.86%. The enclosed Composite Performances page provides detailed performance information.

The Credit and Stock Markets

The American credit markets and the stock market will survive the current credit and banking institutions problems. In fact, the problems and the resulting stock market volatility are creating some attractive long-term investment opportunities. Federal Reserve Board Chairman Ben Bernanke is doing a good job responding to problems he did not create. Resolution of the problems may take time, and we expect that many books will be written about current events, generally titled The Failed Great Debt Experiment.

Stock markets around the world have been affected in 2008, with China down 30%, India down 20%, Japan and Europe down 16%, and the US markets looking better than most at down 9% and appearing to have certain factors in their favor.

The factors include the aggressive actions of the Federal Reserve in seeking to counter economic weakness, an agreement between the US Treasury Department and foreign Sovereign Wealth Funds on the principles that will guide their growing investments in the US, and the incremental slowing of both the depreciation of the dollar and appreciation of commodities prices. While the US dollar has been depreciating since 2002, it appears likely to remain the major reserve currency in the world.

Portfolio and Strategy Management

The short-term volatility of "bull" and "bear" markets creates long-term investment opportunities. An important part of Symons Capital's overall investment portfolio and individual strategy management is forward looking research and analysis, which generates our long-term perspective. With a long-term perspective, buying fallen stocks when only a few investors believe things can get better can be highly profitable, while buying popular stocks when most investors believe the market will do better forever can result in the permanent loss of capital. It is critical that last year we recognized financial institutions were deteriorating, even though we did not recognize just how much they were deteriorating. The result is that we held as much as 20% in cash in August 2007 and were still close to 15% cash at the end of 2007. We have been able to use a good portion of that cash wisely, identifying some attractive investment opportunities while continuing to exercise caution.

Financial services stocks continue to have uncertainties. Government support can delay recognition of their asset illiquidity, excess leverage, and related problems, and so can soften the blow of free market asset revaluations and stock price adjustments, but it can't eliminate the problems entirely. Our current judgment is that, while financial and housing stocks may rally from time to time, for the most part these stocks still look like a tough place to sit and stay. But we are always looking for exceptions at the right price.

The stock market won't go down forever. In the current environment it is important to recognize that government action can moderate risks to the general economy. History tells us that since WWII every stimulus package from the government has worked. Given that record, we are not betting against the developing package, and expect that one of these days the market will again become optimistic. In the interim there may well be days when the media, with its short-term crisis or euphoria mentality, despairs that economic disaster is inevitable. If history is a guide, at that point it may be more likely that good investment opportunities are becoming generally available.

For right now, it continues to be tough to be in a business that is highly dependent on financing, and so we remain cautious with such stocks. Banks are working hard to reduce their balance sheets and don't really want more business customers. But there are other companies whose stock prices have fallen that aren't dependent on debt financing and so are actually doing better than their stock prices might suggest. Credit market problems don't affect everyone equally. In addition, though we admit that for all practical purposes we are in a recession, we still believe that we may avoid a serious recession. Another factor helpful in our finding attractively priced stocks for long-term investment is that, due to rapidly shifting market sentiments we are beginning to see a greater dispersion of individual stock prices than we've seen in the last few years. This suggests that the opportunity for Symons Capital to provide decent returns is still out there, and that while there is quite a bit of media focus on downside fears, there is an upside story as well.

Portfolio Holdings

In Value, we built a position in Canadian oil company Talisman Energy (TLM) after a price downturn based on news we view as positive concerning TLM being less aggressive on acquisitions and paying more attention to cash flow and return on assets. We also bought Norfolk Southern (NSC) a railroad whose stock price dropped 30% despite having a full book of business. We sold Barrick Gold (ABX) after two years for a 66% gain when fearful investors caused the stock to jump 30% in two weeks, at which point we saw too much downside risk; we sold Clear Channel (CCU) for a 6% loss because we became nervous about the chances of their LBO not happening; and we sold Fresh Del Monte Produce (FDP) after four years for a 47% gain because we judged that its commodities business was becoming a bit pricy for the long-term.

In Growth, we purchased EBay (EBAY) which, in addition to its auction website business, owns StubHub, PayPal, and has growth opportunities in the Asian markets, and IDEX (IEX), a manufacturer of fluid systems used to install and upgrade water systems worldwide, as well as manufacturing fire and safety systems, such as the Jaws of Life. As part of seeking greater capital appreciation in our Growth strategy in exchange for accepting some additional but measured risk, we purchased three financial stocks and sold one of them. We bought National City Bank (NCC) after its price had dropped 70% and they had reduced their dividend to preserve capital; Washington Mutual Savings (WM) after its price also had dropped 70%; and MF Global (MF), a worldwide commodities broker, after its price had dropped 30%. Unfortunately, NCC has an asset portfolio somewhat similar to Bear Stearns, whose collapse affected NCC's stock and caused us to sell for a 35% loss. We sold Pepsi (PEP) after six years for a 74% gain because the market has high expectations for the stock and we believe better opportunities are appearing elsewhere, and sold Archer Daniel Midland (ADM) after eight months for a 32% gain because its price reflected the fact that their business is booming and their profit margins are high.

In Small Cap, we purchased Oil States (OIS), an oil services company that we previously owned and that had dropped quite a bit from its peak price; First Marblehead (FMD) a bank that has dropped quite a bit but has both a decent core business of student loans and a cash infusion from Goldman Sachs (GS); LivePerson (LPSN), which provides customer support for websites for clients like Microsoft, Hewlett Packard and Verizon; Tetra Tech (TTI), an oil services company that got hit hard largely due to write-offs that we believe are not a long-term negative; Mueller Water (MWA) - another water infrastructure play; Crocs (CROX) a once highly popular stock that got crushed but still has an excellent business; Genco Shipping (GNK), whose price dipped when investors briefly worried about a global slowdown; and Imperial Sugar (IPSU), which is the only US sugar refiner. We sold Geoeye (GEOY) after five months for a 102% gain because the current price anticipates more than we expect; sold Meritage Homes (MTH) after four months for a 3% loss because more problems surfaced in the business than we anticipated; and sold Alpharma (ALO) after five months for a 13% gain because we judged their move to branded pharmaceuticals to be too risky.

Future Considerations

If you are a long-term investor, these are exciting times of opportunity. Our goal is long-term performance - to make money over five to ten year periods. We seek to accomplish this goal through policies we regularly discuss in our quarterly letters. We spend much time and effort trying to protect against downside risk. That is why we sold out of financial stocks in early 2007, and why we made the same decision in our Value strategy with both tech stocks starting in 1998 and housing stocks in 2004. We constantly say that we can't time a market bottom; but we can buy stocks at attractive prices. As a natural corollary to protecting against downside risk, in 2007 we stuck with our investment criteria and did not buy overvalued stocks. The resulting addition of cash to the portfolios we manage put us in a position to buy "stocks for the long-run" in 2008.

The basic point is that there is careful thought behind everything we do. We are comfortable with the current long-term investment merit of the stocks we hold in our Value, Growth and Small Cap investment disciplines. We ask you to always remember that we have our own personal and retirement assets invested side-by-side with our clients in every stock. Finally, remember that the United States clearly remains the most dynamic and creative economy in the world, to our cultural and economic advantage.

Yours sincerely,

Ed Symons                        Colin Symons

Chairman & Founder            Chief Investment Officer.

Disclaimer

The information provided in this communication should not be considered a recommendation to purchase or sell any particular security.  There is no assurance that any securities discussed herein will remain in an account's portfolio at the time you receive this report or that securities sold have not been repurchased.  The securities discussed do not represent an account's entire portfolio and in the aggregate may represent only a small percentage of an account's portfolio holdings.  It should not be assumed that any of the securities transactions or holdings discussed was or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. A list of all stocks selected during the past year can be found here on own web site.

(c) Symons Capital Management

www.symonscapital.com