Welcome to the December issue of Condor Monthly! We hope you had a happy holiday season and wish you a healthy new year.

In this issue, our portfolio managers comment on how volatility of the equity markets has been unusually low, while our financial planning team compares investment advisors and stockbrokers. We also announce our new policy regarding processing class action litigation claims and comment on litigation materials some clients have received regarding the Enron class action suit.

What's New at Condor Capital

Some clients are currently receiving materials regarding the Enron class action litigation. Please be advised that these materials are just a notice about the status of the litigation and do not require any action. Therefore, you do not need to forward these materials to us and can actually discard them.

Also, Condor has traditionally attempted to file appropriate claim forms on behalf of our clients for any stock or bond involved in a class action lawsuit. However, due to the volume of class action lawsuits being initiated against publicly traded companies, the high administrative cost of filing claims, and the limited recovery, we announced last year that we would likely be revising our policy concerning class action lawsuits. In fact, we have decided that we will not file unless we believe the expected recovery will be more than $50 per action. Of course, we will certainly provide appropriate materials upon request to any clients that want to file for lesser claims themselves. We will communicate this policy change to all clients shortly via regular mail.


From the Portfolio Manager

Chicago Board Options Exchange's Volatility Index (VIX)

Now that the books have been closed on 2006, you may be asking yourself, "What's in store for the market in 2007?" With the S&P 500 Index having just racked up its fourth straight year of positive performance, we find ourselves asking the same question. While it is nearly impossible to predict what the major averages will look like a year from now, one thing we are expecting is an increase in market volatility. The major averages have moved steadily, if not uncharacteristically, upwards over the past few years, and the Dow Jones Industrial Average has now gone 912 trading days without a 2% daily decline, the longest such stretch in the history of the Dow according to a study by Birinyi Associates Inc. On average, the S&P 500 Index has moved by more than 1% only twice per month this year, compared with an average of four times per month dating back to 1950. As volatility has remained near historical lows, and money continues to be cheap, investors have been pouring cash into the riskiest assets, such as high-yield bonds and emerging markets stocks, in the search for higher returns.

One closely watched volatility indicator is the Chicago Board Options Exchange's volatility index, or the VIX. The exchange calculates the implied volatility of eight at-the-money or near-the-money strikes (both puts and calls) with a weighted average time to maturity of 30 days. The index fell to 9.39 on December 15th, near its record low of 9.31 set in December of 1993. The VIX has only closed below 10 eight times in its history, with three of those occurring in the last two months of this year. Some of the factors contributing to this low volatility have been the Fed's decision to halt its campaign of interest rate increases, lower oil prices, and strong corporate profits. However, investor anxiety, and hence volatility, are likely to return as the growth in corporate earnings is expected to slow down in 2007 from 15% to 9% according to Standard & Poor's Equity Research Services. Slower-than-expected economic growth, a rise in interest rates, a weakening dollar, or any number of surprises could also cause global liquidity to dry up and send risk back to normal levels.

You may now be asking yourself how all of this might affect your portfolio. In general, we still think the outlook for equities, both domestic and international, is attractive as fundamentals remain strong and valuations remain cheap in some countries relative to others. We are also looking to take advantage of a decline in the value of the dollar by owning some foreign, unhedged assets on both the equity and fixed income sides of the portfolios. However, we feel that it would be prudent to expect the market to experience more volatility on a day-to-day basis instead of the seemingly endless number of new highs we have seen over the past couple of months. As always, we recommend that long-term investors maintain their target allocations instead of trying to time the market as studies have shown the "buy and hold" strategy to handily outperform.


Financial Planning Corner

Investment Advisors vs. Brokers

There are two types of financial advice available to investors today - that provided by Registered Investment Advisors (like Condor Capital) and that provided by stockbrokers. Although these two types of advice differ greatly, many investors are not aware of the difference between them or that any difference even exists. A recent survey ¹ found that 74% of investors did not understand the different obligations required of investment advisors and stockbrokers. Specifically, investment advisors are held to a higher standard than stockbrokers regarding putting their clients' interests first. Some key differences between the responsibilities of investment advisors and stockbrokers to their clients are summarized below:

• Investment advisors have a fiduciary duty to act in their clients' best interests at all times, while brokers are generally not fiduciaries to their clients and are not obligated to make decisions based only on clients' best interests.
• Investment advisors must provide a Form ADV, disclosing exactly how the advisor does business and disclosing any possible conflicts of interest that may exist, while brokers are not required to provide any comparable type of disclosure.
• Investment advisors generally cannot trade with their clients as principal, while brokerage firms typically earn significant profits from trading as principal with their clients.
• Investment advisors charge a fee that is negotiated in advance and cannot earn additional profits from investors without obtaining prior consent. Most advisors, like Condor Capital, charge an asset-based fee, so their interests are always aligned with those of clients in terms of asset protection and growth. Stockbrokers are typically compensated by commissions on product transactions, which can potentially lead to a conflict of interest.

Investment advisors are in the business of providing financial advice, while brokerage firms participate in other business activities that may draw attention away from responsibility to clients. In fact, the Securities and Exchange Commission (SEC) requires all brokerage firms to disclose the limited extent of their obligations to clients and the fact that they may be compensated through commissions on products sold, as well as fees paid by investors. The same survey noted that, after learning the differences between the responsibilities of investment advisors and brokers, 79% of those surveyed noted that they would be less likely to contact a brokerage firm for financial advice.

Working with Condor Capital, you have the protection of knowing that it is our duty to always act in your best interests in all aspects of the financial relationship, from investment management strategies to providing financial planning advice.

¹ 2006 US Investor Perception Study, commissioned by TD Ameritrade.