• We wish all our clients prosperous and healthy New Year! Let your investments provide you with the benefits and the life style you desire! We thank you for your trust as well as for the many referrals you provided throughout the year.

• This year we celebrated our Fifth Year Anniversary!!!

• Our assets under management increased 43% during the year 2006!!!

• Our equity program has slightly underperformed S&P 500 this year (on the net basis)¹ - see the table below. For our commentary, please see Portfolio Analysis and Market Outlook Section.

• We have established an alliance with Schwab's Performance Technology Group and we are implementing new PortfolioCenter® Software. It would allow us:

• To have a scalable and flexible platform to efficiently work with multiple custodians;

• To implement a large variety of tools to analyze and manage clients portfolios, and make informed investment decisions;

• To provide our clients with variety of useful analytical information.

• We have also established an alliance with ByAllAccounts Company out of Massachusetts to provide Vega Capital Group with efficient data processing of all transactions. This new technology would allow us to monitor closely all transactions, and provide consolidated reporting for all your accounts.

MAJOR NEW DEVELOPMENTS FOR 2007

• We are introducing two new programs for qualified clients: Vega Equity International and Vega Alternative Investments.

• Vega Equity International seeks to produce superior returns with risk characteristic of broad international equity portfolio.

• Vega Alternative Investments seeks to achieve returns that are uncorrelated with the traditional returns from equity and fixed income holdings by investing into alternative investment instruments (such as currencies and commodities).

• We believe that Vega Equity International and Vega Alternative Investments programs provide our clients with an excellent opportunity to diversify their investment portfolio and thus improve return-to-risk ratios for their assets. We at Vega are strong believers in the power of diversification. Please feel free to contact us to discuss how these new programs can benefit your portfolios.

• We are lowering our fees for Vega Equity Star program. Effective January 1, 2007, a hurdle rate of 5% will be introduced on all Vega Equity Star accounts. Also, effective January 1, 2007 performance fee will be charged annually at the end of the calendar year.

• We can now offer Vega Equity Star program for all qualified clients' accounts, including retirement assets. Thus effective January 1, 2007 all Vega Equity Plus accounts for qualified investors are being reclassified as Vega Equity Star. In addition to utilizing wider range of investment instruments, Vega Equity Star carries lower management fees than Vega Equity Plus program.

PORTFOLIO ANALYSIS AND OVERALL MARKET OUTLOOK

2006 in Review

Tame inflation indicators, low long-term interest rates, mixed sentiment measures and attractive equity valuations have overcome the market's concerns about a housing-induced hard landing in the U.S. Economy. And yet again, market has surprised the pundits. Although the Federal Reserve has maintained its tough rhetoric on inflation in its latest policy statement (while keeping the rates unchanged), some soft economic data is simply reinforcing market expectations that the Fed might cut rates by mid-2007. This has resulted in money moving from the sidelines back into the market, pushing stocks to fresh cyclical highs. Robust merger-and-acquisition activity, combined with strong liquidity conditions, is resulting in a positive supply-and-demand landscape for equities.

A rising stock market encouraged investors to go into debt to trade stocks, leading to an increase in the level of so-called margin debt in 2006. As tracked by the New York Stock Exchange, margin debt rose to $270.52 billion in November 2006 from $221.66 billion at the end of 2005, the first time in more than six years that margin debt has topped $270 billion. Reminds us of something we have seen before (circa 1999), doesn't it?

During 2006 we have benefited from our investments in airlines, pharmaceutical companies, energy-related companies and gold. Our worst investments were in medical equipment and nanotechnology index.

At the end of 2006 we have lowered our exposure to equity markets by increasing our cash and cash-alternatives allocation, acquired several hedging positions, decreased our exposure to oil and oil-related stocks, decreased allocation to technology stocks, and increased allocation to biotech and pharmaceutical companies. We are extremely cautious about the current market, and waiting for the right moment to re-establish our positions in some of the old and new companies. We will remain on sidelines maintaining 25-30% of the total portfolio in defensive positions for the nearest future.

Looking Forward to 2007

We expect economic growth to be below long-term potential in 2007. Analysts' profit forecast could prove over-optimistic due to high energy prices and a weakening economy. Given the relatively unstable earnings momentum and economic growth, we are underweighting our exposure to the US Equity Markets and take measures to hedge our existing positions. As described above, we have introduced two new programs to reflect our opinion about the markets, and plan to invest some of the "equity designated capital" of our clients in Pacific and Emerging Markets, as well as in alternative investment instruments. We would like to take this opportunity to remind our clients about not-so-pleasant experience some of you had in 2000. While the US economy continues to produce "reasonable" growth, the major concerns of 2006 have not gone away - Iraq, balance deficit, inflation concerns, geopolitical concerns, high energy prices, housing slow-down - increasing the risk of recession, inverted yield curve (long-term government bonds now yield less than short-term ones). Lower long-term yields suggest investors expect rates to fall, and rates generally fall when the economy is weakening. Rising global rates are also threatening world economy - all these factors make us extremely cautious about the equity markets. On the positive side, the low-inflation environment improves the valuation picture, but the earnings outlook remains unclear. The picture is mixed at the best.

Here are some of the competing factors we are considering looking at the structure of out portfolio:

• Decent current-earnings growth expectations, but margin pressure from the lagged effect of high energy prices and interest rates, and rising labor costs.

• Solid corporate balance sheets, but capital spending trends deteriorating and multiple headwinds facing consumer spending.

• Some contrarian indicators showing growing bullishness are not yet at extreme levels, therefore the rally could continue.

• Uncertainty regarding the U.S. dollar causing some trepidation.

• It is well known that American consumers have kept the world economy spinning. Asians are frugal, Europeans are gloomy, and so if Americans do not keep spending as fast as they have been lately, the world economy is in trouble. Americans will have to adjust to the end of their housing bonanza. By virtually every measure America's housing market is in trouble. Home sales and residential construction are tumbling, the overhang of unsold homes has soared and, according to some statistics, house prices started to slide. The painful truth is that America's housing adjustment has a lot further to go.

FIXED INCOME PORTFOLIOS

According to the Taylor-Rule, the FED fund rate should be around 7%. If we replace the headline inflation rate (4.1%) by the core inflation rate (2.7%), the result would be a "fair" interest rate of 4.9%, pretty close to the current level. Therefore, for the next couple of months, we expect the Federal Reserve to keep interest rates at the current level of 5.25%. Within a twelve months time horizon (2007), we even expect a slight decrease of interest rates. Therefore, we recommend a modest underweight for high-yield corporate debt. Spreads remain significantly wider than the tightest levels of the year, reached in May. We will also continue to remain on the shorter side of the yield curve and recommend the effective duration of the Vega Safety Portfolios to stay within 2-3 years range. There are practically no benefits in increasing the duration of the portfolios.

As always, we would appreciate the referrals from our loyal and satisfied clients.

¹Vega Capital Group LLC ("Vega") is an independent adviser registered with the Securities & Exchange Commission. The performance shown reflects actual performance for representative accounts. One representative account is selected for each strategy. The selection of representative account is based on the following factors: cash flows into or out of account for the reporting period, size of account sufficient to be representative of the strategy, average trading expenses. Performance of other accounts managed under the same strategy may vary. The firm maintains a complete list of its' accounts performance, which is available upon request. Past performance is not indicative of future results. Accounts under Vega's management are not insured against loss of principal, and may loose value. The U.S. Dollar is the currency used to express performance. Returns are presented net of management fees and include the reinvestment of all income. In addition to an advisory fee, performance shown includes any additional custodial or service fees. For Vega Equity Star accounts the quarterly fees consists of management fee of 0.375% per quarter charged in advance, based on the closing balance on the last date of the previous quarter plus performance fee, charged in arrears equal to the 10% of investment gain for the quarter above all relevant watermarks and hurdle rates for the account. Vega's schedule of advisory fees vary based on product and type of client and is contained in Form ADV-II. Additional information regarding the policies for calculating and reporting returns is available upon request.