Morningstar's database of hedge funds, excluding funds-of-funds, returned an average of 1.98% during the fourth quarter of 2007, outperforming the MSCI World Index and the Standard & Poor’s 500 Index.

“Hedge funds overcame a tumultuous fourth quarter, and managed to gain 14.13% for the year,” said Nadia Van Dalen, a Morningstar hedge fund analyst. “The credit crunch intensified in August and November, preventing hedge funds from significantly building on their previous gains.”

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