Welcome to the March 2010 issue of Condor Monthly!

Please continue below to view the "From the Portfolio Manager" and "Financial Planning Corner" segments in this month's issue.

From the Portfolio Manager

CEOs Raising Forecasts at Record Pace Fail to Persuade Analysts

U.S. executives are boosting earnings estimates at the fastest rate in at least 8 years, just as optimism fades among analysts - a signal that preceded gains for the Standard & Poor's 500 Index in the past. So far in the first quarter of 2010, 10% of U.S. companies raised forecasts, while 4% lowered them. The gap is the widest on record. Meanwhile, analysts have cut first-quarter profit projections by .2% on average. Bullish investment strategists such as JPMorgan's Kelly says analysts may be underestimating revenue growth and are reluctant to turn bullish following the biggest financial crisis since the Great Depression.

The divergence may force Wall Street firms to increase estimates later this year, a bullish signal. The last time companies were raising forecasts at a comparable rate while analysts reined them in was the start of 2004, when the S&P 500 gained 9%.

For the fourth quarter of 2009, S&P 500 firms reported a 60% average jump in profits, ending a record 9-quarter streak of declines. Companies are becoming increasingly optimistic after more than 72% of those in the S&P 500 beat analysts' profit estimates, the 2nd highest on record. Confidence among CEOs in the U.S. is at the highest level in at least 4 years, according to a survey from the Washington-based Business Council.

Here at Condor, we believe that 2010 could wind up being another decent year for the market. We expect interest rates to remain at low levels with inflation under control. Corporate earnings are forecast to rise 25% versus 2009, which means stocks look reasonably valued. Generally, stock prices follow earnings. Of course there are still uncertainties ahead due to continued tight credit (especially for small businesses & consumers) and the fragile housing market recovery. We remain very focused on these trends.

From the Financial Planning Corner

Changes to the NJ BEST 529

The State of New Jersey's Section 529 College Savings Plan, known as NJBEST, recently changed the name of their age-based investment options - do not be alarmed. Negotiations between the New Jersey Higher Education Student Assistance Authority (HESSA) and the plan manager, Franklin Templeton Funds, resulted in the expansion of the single age-based investment option into three age-based investment options earlier this year. The original age-based option has been renamed the "Growth Asset Allocation" option while the "Moderate Asset Allocation" and "Conservative Asset Allocation" options have been added. Despite labeling the original age-based option with a growth moniker, the asset allocations used in the various age brackets for the account beneficiary remain unchanged. The new "Moderate" and "Conservative" options feature lower risk as they start with a lower equity allocation and shift out of equities faster than the original "Growth" option. For example, the "Growth" option begins with 100% invested in equities for a newborn beneficiary and gradually decreases to about 25% in equities by age 17. Correspondingly, the allocation into lower risk fixed income and money market funds is increased as the beneficiary approaches college age. The "Moderate" and "Conservative" options begin with 75% and 50%, respectively, in equities for a newborn, and gradually decrease to 0% at age 17 for the "Moderate" option and at age 13 for the "Conservative" option.

The increased flexibility of having three age-based options for the NJ BEST 529 is a good thing, as it allows individual investors to choose what is best for their situation. However, the original age-based option, now called the "Growth" option, is probably still the best choice for nearly all account holders. While the "Moderate" and "Conservative" options have less risk, they also offer the least growth potential. Since the main advantage of using a 529 plan is to capture the tax advantage, which is that account earnings will be tax-free as long as the proceeds are used for qualified higher education expenses, the "Growth" option provides the most growth opportunity and therefore the greatest potential tax benefit.

You may have also heard some negative reports lately regarding the NJ BEST platform. It has been criticized for high fees, overly aggressive investment options, and the lack of state income tax deductions for contributions into the plan. The truth is that many of these criticisms are unfair. Regarding the lack of state income tax deductions, the fault lies with the tax code of the State of New Jersey rather than the plan itself. Ten other states also offer no income tax deductions for contributions into their state's 529 plans, so NJ residents are not alone in their misery. As a NJ resident, there is no tax advantage to using an out-of-state plan either. In fact, using an out-of-state plan may be a risky maneuver because there is a possibility that NJ could change their tax policy and tax earnings on out-of-state plans. The NJ plan does offer beneficiaries up to a $1,500 scholarship if they attend an in-state college or university.

In terms of the higher fees associated with NJBEST, the critics offer a slightly inaccurate comparison. The majority of investment options in the NJBEST plan are actively managed mutual funds. Some other states' 529 plans use mostly index funds. Actively managed funds generally have higher expenses than index funds whether they are purchased in a 529 plan or elsewhere. Theoretically, actively managed funds should outperform the indexes and overcome the additional fees, but those results are not guaranteed. Additionally, last summer's negotiations further addressed these concerns and resulted in a reduction in the program manager's fee. The range of fees for the various investment options in the NJBEST plan are currently 0.6% - 1.07% with an average fee around 0.9%. These fees are reasonable and compare favorably to the fee for the average mutual fund, which is 1.3% according to Morningstar, a leading investment research firm.

It is important to note that NJBEST accounts opened prior to 2005 may still be in the NJ Treasury-managed age-based options. These accounts were not affected by the recent changes. These accounts continue to enjoy some of the lowest 529 fees in the country - just 0.4%! The age-based asset allocations used by the NJ Treasury tend to be in-between the Franklin Templeton-managed "growth" and "moderate" options. Anyone using the NJ Treasury investment options could switch to the Franklin Templeton options, but the NJ Treasury option is unavailable thereafter. Accounts opened after 2005 were required to use the Franklin Templeton investment options. Due to the combination of low fees and a reasonable investment approach, there is little reason for the NJBEST accounts using the NJ Treasury option to switch to the Franklin Templeton funds.