Welcome to the August issue of Condor Monthly! In "What's New at Condor Capital," we talk about the Somerset Patriots. In "From the Portfolio Manager" this month, we examine foreign funds. Finally in this month’s "Financial Planning Corner," we present charitable gift funds and Florida's new tax law.

What's New at Condor Capital

Condor Capital recently had a company outing at Commerce Bank Ballpark to watch the Somerset Patriots play the Lancaster Barnstormers. Everyone here at Condor enjoyed the night of baseball, food, and fireworks. I hope all of our friends who had the opportunity to watch the Patriots game also had as much fun as we did. There are a few remaining complimentary tickets to our luxury suite available for the 2006 season. Please contact Yafit Miot at (732) 356-7323 here at Condor Capital to assist you and your family if interested.


From the Portfolio Manager

As many of you may have noticed, we have been increasing our allocation to international mutual funds and country-specific Exchange Traded Funds (ETF's). International investing offers investors a larger field of opportunities as well as the benefits of diversification since about 50% of the world market-cap is located outside the United States. While recent economic data have shown that the U.S. economy continues to remain strong, foreign markets have collectively demonstrated stronger prospects for accelerating growth in the years ahead.

From a valuation standpoint, various metrics also highlight the benefits of an increased international weighting. For example, on a price/earnings basis, Japanese equities are roughly trading at a 50% discount to the S&P 500 Index when compared to a 20-year average valuation. This is occurring in tandem with generally stable-to-rising property values in Japan, which have been on a path to recovery since the real estate bubble burst there in the late 1980's. Additionally, the emerging market segment, led by Brazil, Russia, India, and China, looks especially primed to benefit from favorable economic policies and further popularity in the investment community.

Finally, the ingredients for a weaker dollar seem to be forming. The Federal Reserve's multi-year rate hike campaign looks like it is nearing an end and our country's current account deficit still remains high. A weaker dollar would be beneficial for foreign investments since investors would earn returns in other currencies and then have them converted to the discounted greenback. In essence, a weaker dollar acts as a tailwind for international investments.

History has also shown that over longer periods of time, foreign equity markets have collectively had a moderate correlation with our domestic equity markets. Since it is difficult to predict multi-year cycles consistently, maintaining exposure to foreign stocks ensures that investors will participate in market rallies outside of the United States.


Financial Planning Corner

Charitable Gift Funds

Both Charles Schwab and Fidelity currently offer Charitable Gift Funds to investors. Charitable Gift Funds are public charities that facilitate the integration of your charitable giving and financial planning strategies, combining the most favorable tax benefits available with the flexibility to support a variety of charities at will. A giving account may be opened at any time with a minimum investment of $10,000, though contributions are irrevocable. A variety of assets are eligible for donation, including cash, publicly-traded securities, and certain other assets. Since the Gift Funds are IRS-qualified public charities, donors are eligible for the highest tax deduction available in the year of contribution. This provision makes the Gift Funds valuable financial planning tools for individuals in high tax brackets. They are also highly effective with regard to highly-appreciated stock, since the position itself may be donated to the Fund, thereby eliminating capital gains issues and allowing for maximum tax savings. Once assets are transferred into the Fund, the position may be maintained or sold and reinvested into an available investment universe of nearly 2000 mutual funds, through several investment pools. Thus, the account has the opportunity to grow over time, and the account owner may contribute assets to any IRS-qualified public charity at any time through the Fund.

Recent changes to both the Schwab and Fidelity Charitable Gift Funds make the option of leaving some retirement assets to charity, rather than heirs, even more attractive. They have recently reduced their administration and management fees to only 0.6% from 1.0%, and accounts with balances above $500,000 are eligible for further reductions. Please contact us if you would like to open a Charitable Gift Account or if you would like to learn more about this valuable financial planning tool. Condor can review your financial situation and evaluate if this opportunity is appropriate for you.

Florida's Intangible Tax

To the delight of many Florida residents, on Thursday, July 27th, Governor Jeb Bush signed into law a bill that will repeal the intangible personal property tax effective January 1, 2007. The intangible tax was levied on intangible personal property, such as stocks and bonds, among other items, owned, managed, or controlled by Florida residents. Its repeal makes the intangible tax a non-issue in the investment management and financial planning of Florida residents. Since Florida is one of the few states that does not have a personal income tax, the elimination of the intangible personal property tax creates increased investment opportunities for residents of Florida.

Typically, when managing non-retirement accounts, Condor invests primarily in municipal bonds from the client's home state to maximize after-tax yields. The reason is that these investment vehicles are exempt from federal and state income taxes. After this bill becomes effective in 2007, there will be effectively no state tax levied on the investment portfolios of Florida residents and, thus, there will be no need to invest solely in Florida municipal bonds. Condor's portfolio managers will have the opportunity to venture outside the state of Florida to seek out higher-yielding municipal bonds from other states. Doing so will allow us to create a more-diversified fixed income portfolio since investment options will not be limited to only one state. Since all municipal bonds are exempt from federal taxes, optimal tax-efficiency will still be maintained across all taxable accounts. Please do not hesitate to contact us if you are interested in learning specifically how this change will affect Condor's management of your portfolio.