Industry Momentum Model Service

C olumbine C apital S e r v I c e s, I n c. Industry Momentum Model Service Annotated Presentation 2007

Copyright 2007 by Columbine Capital Services, Inc. All rights reserved. Columbine Capital Services, Inc. Two North Cascade Avenue Suite 450 Colorado Springs, CO 80903 Telephone: 719.635.5174 Fax: 719.634.5867 URL: www.columbinecap.com E-Mail: info@columbinecap.com

Notes on Model Results Columbine s models are intended to aid investment professionals familiar with industry practices and statistical tools at the CFA level in screening for stocks demonstrating historically successful measures of value and momentum. The results presented in this document are intended to illustrate the statistical characteristics of those models. These results were achieved by the retroactive application of models that were designed with the benefit of hindsight. When evaluating the performance of such models it is important to consider the following: The results reported here are hypothetical. Unless otherwise noted, they were compiled after the end of the period specified and do not represent decisions made by Columbine Capital Services during that time. As such, these results do not reflect the impact that any material market or economic factors might have had on Columbine's application of these models if they actually had been used to manage client assets during the periods presented here. These results do not represent actual trading using client assets. They should not be considered indicative of the investment skill of Columbine Capital Services, Inc. Columbine has never managed client funds according to the strategies depicted in this document, nor does it offer investment management services based on these strategies to investors. Clients for Columbine's research services actually had investment results that were materially different from the results portrayed here. The performance of past rankings does not assure the profitability or utility of future rankings. Used in isolation, these models could generate frequent relative and absolute losses; annual portfolio turnover could exceed 300%. Concentrations in the stocks of particular economic sectors or industry groups would be common. Unless otherwise noted, all returns are calculated on a time-weighted basis, using monthly valuation, based on equal-weighted deciles and universes. Returns include reinvested dividends (total return) and are presented gross of brokerage commissions, market impact, or other expenses of trading. Subscription fees for Columbine s services are not included in the performance calculations; a client s actual return would be reduced by the incorporation of those fees. The effect of fees and expenses on performance will vary with the relative size of the fee and account performance. For example, assume assets under management of $500 million, and an annual rate of return of 10.0%. The compound effect of an annual subscription fee of $25,000 per year over a ten-year period would reduce that annual rate of return by 0.34 basis points to 9.997%. We base our computations on data from commercial sources that we believe to be reliable, but we cannot guarantee the accuracy of that data. Decile-by-decile results for all Columbine models during the periods reported on here (or for any period) are available on request. A complete history of every ranking made by Columbine Capital Services, Inc. is available for inspection in our offices. Notes on Results ver.03-1.doc 02/13/03

Agenda Introducing Columbine Capital Services Who we are What we do Service overview Model characteristics Coverage & delivery Performance How we can add value in your process Applications for investment decision-support This presentation is broken up into three main sections: Introducing Columbine Who we are and what we do. Why some of the industry s top institutional investors have chosen to work with Columbine. A overview of the service How are the Columbine rankings computed, what can you expect from the stocks ranked buy and sell, and how successful have the Columbine forecasts been? How we can add value in your process Practical applications for the Columbine rankings in support of your investment decision process. Industry Momentum Service 1

Who Is Columbine? Independent Research Provider Offices in Colorado Springs, CO Founded in 1976 by John Brush Institutional clientele from US, UK, Canada Employee-owned corporation 3 principals, all 20+ years in industry Support staff of five Objective research Not broker-dealers, do not run money Columbine Capital Services, Inc. is an independent research provider with offices in Colorado Springs, Colorado. Founded in 1976 by the firm's president, John S. Brush, Ph.D., Columbine has been serving the needs of institutional investors since the early days of quantitative investing. Columbine Capital s clients include money managers, investment companies, banks and hedge funds in the United States, Canada, and the United Kingdom. The firm s three principals are: John S. Brush, PhD President Michael Anselmi, PhD Director of Research and Systems David Ament, JD Director of Marketing and Client Service Each of Columbine s principals has more than twenty years of experience in institutional quantitative research. We understand your business and we appreciate your problems. As an entirely employee-owned company we offer you objective analysis, free of extraneous influences. Columbine is not a broker-dealer and it does not engage in any investment banking activities. The firm does not manage money. Industry Momentum Service 2

Top-Ranked Research Columbine Capital s rank by Investars.com as of 1-Jan-2007 Period Long Long-Short 4 years 1 st 1 st 3 years 1 st 2 nd 2 years 1 st 2 nd 1 year 1 st 5 th Firms ranking >500 stocks; performance of all stocks covered; S&P 500 benchmark Columbine Capital Services has been recognized by investment professionals as a leader in quantitative equity research for many years. Now, with the rise of independent third-party research tracking firms like Investars, that leadership can be quantified and made concrete. Columbine s equity research truly is top ranked. Every week since January of 2003 Columbine Capital has sent Investars Buy, Sell, or Hold recommendations for all the stocks in our US research coverage universe. These recommendations are driven by our institutional Sector Model, using a simple strategy algorithm to convert our 1 to 10 rankings into specific investment recommendations. Investars time-stamps our ratings and keeps track of the results, measuring the average daily gain/loss on a hypothetical $10,000 investment. The performance of the Columbine portfolios is matched up against that of the other firms submitting their research to Investars, a group that includes both small independent research firms and the major sell-side analyst research. As of the beginning of 2007, Columbine Capital s positive ratings (Buy recommendations) ranked #1 over the prior 4, 3, 2, and 1 years. The long-short portfolio (positive + negative ratings) is #1 at 4 years and has never dropped out of the top 5. These ranks are based on comparisons of Columbine s performance to that of all other firms covering more than 500 stocks. The performance is measured for all stocks covered by each firm, with the positive returns benchmarked against the S&P 500 Index. For more details, visit www.investars.com. Industry Momentum Service 3

What Columbine Does Search for new sources of alpha Original quantitative research Build alpha-forecasting models Unique, innovative methodology Apply models to rank stocks worldwide Weekly rankings for 28,000+ companies Deliver rankings to subscribers Internet & hard copy reports Work with clients Integrate our rankings into your process All of Columbine s services spring from our extensive R&D. We have been conducting original research into the sources of alpha (active return) for more than two decades. What we learn about alpha sources finds expression in mathematical models, each designed to forecast active return based on different return characteristics, investment styles, and country markets. Every week we gather the latest financial and market data for more than twenty thousand companies worldwide and feed that information into our models. The models output clear, unambiguous rankings (usually 1-10) that summarize each model s forecast of each company s future active return. We deliver the updated rankings from our models to our client firms in the US, the UK, and Canada. Subscribers receive updated rankings electronically and in hard copy reports. Columbine s work doesn t end with data delivery. We work closely with clients to help them integrate our rankings into their own processes. Some of the world s most successful professional money managers support their decision-making process with quantitative equity rankings from Columbine. Our clients include money managers, banks, mutual funds, insurance companies, hedge funds, and plan sponsors. Industry Momentum Service 4

Industry Momentum Service Forecasts top-down active return Price momentum model designed specifically for Industry groups Economic sectors 12-month forecast horizon The Columbine Industry Momentum Service provides an objective measure of momentum for entire industry groups and economic sectors that forecasts their expected active return (alpha) over the next twelve months. A group or sector s Industry Momentum ranking is based entirely on its observed price momentum. No macroeconomic forecasts are used in computing the Industry Momentum rankings. The model analyzes the weekly returns from every industry group and economic sector over the past year. Applying a proprietary algorithm to these return series, the Industry Momentum Model measures the price momentum exhibited by each group and sector and assigns rankings from 1 (best) to 10 (worst). Industry Momentum Service 5

Powerful Top-Down Forecasts Industry Momentum Average active return (annualized) Industry Groups -10.2% ranked 10 ranked 1 10.8% Economic Sectors -10.4% ranked 10 ranked 1 11.8% Test universe: Columbine 1500 Universe; test period: 1971-2000 1-month holding periods, January excluded, no costs Here are the backtest generated by the Industry Momentum Model s monthly rankings of both economic sectors and industry groups over the thirty years in the model s development study: 1971-2000. These backtest results are based on ten economic sectors and forty industry groups drawn from the Columbine 1500 Universe stocks. Groups (or sectors) in the model s top-ranked 10% (ranked 1) have the strongest positive momentum and are most likely to outperform the market. Those in the bottom-ranked 10% (ranked 10) are exhibiting the strongest negative momentum and are most likely to underperform. The green bar represents the annualized average active return (excess over the equal-weighted universe) associated with the groups or sectors ranked 1, and the red bar represents the annualized average active return of those ranked 10. These are equal-weighted results, gross of transactions costs. Like all forms of price momentum, the Industry Momentum Model is subject to distortions at year-end. We have excluded the January returns (based on end-of- December rankings) from the results reported above and the pages that follow. Please see the Notes on Model Results. Industry Momentum Service 6

The Coverage You Need Company classification based on GICS Global Industry Classification Standard Developed by Standard & Poors/MSCI Columbine Industry Momentum rankings computed for: 10 sectors = GICS economic sectors ±115 industry groups = GICS sub-industries Rankings benchmarked to the groups in the Columbine 1500 Universe The groups and sectors we rank with the Industry Momentum Service are based on the Global Industry Classification Standard (GICS) introduced by Standard & Poors and MSCI in 1999. We make use of only the extreme levels of the GICS classification system: the Economic Sectors (top level), and the Sub-Industries (bottom level). In our nomenclature these are Sectors and Industry Groups respectively. We utilize the same ten sectors as the GICS, but our data supplier has consolidated a few of the smallest GICS sub-industries, so Columbine s industry group classification structure has around ten fewer names than the GICS list. To insure that the Industry Momentum Service rankings are applicable for institutional investors, we compute the sector and industry group rankings based on only the Columbine 1500 Universe stocks. Stocks outside that universe are not included in the calculation of each group s price action. Industry Momentum Service 7

Industry Momentum Methodology Stock price persistence (relative strength) Intermediate-term: 12 months 1997 Group and sector rankings based on Columbine Alpha Factor Averaged Columbine Alpha rankings of component stocks in each group 2001 Industry Momentum Model Based on 30-year study: 1971-2000 Price momentum model specifically designed for ranking groups/sectors independently The Industry Momentum Service s rankings are based solely on an intermediate form (twelve-month period) of equity price momentum. In 1997 we published a research report for our clients that compared several factors and Columbine models as predictors of group and sector performance. Our expectation was that one or more of our more complex multifactor models (Combo, for example) would prove to be the most effective group predictor. We were wrong. By far the strongest top-down predictor was our proprietary price momentum measure, the Columbine Alpha Factor. Ranking groups or sectors based on the average Columbine Alpha rankings of their component stocks proved to be superior to anything else by almost an order of magnitude. We immediately incorporated that methodology into our services, publishing an Industry Momentum ranking for each group and sector based on the Columbine Alpha Factor. Early in 2001, as part of a comprehensive study of price momentum we tested whether there was an optimal price momentum measure for application to clusters of stocks with similar characteristics. It turned out that a related, but different, form of price momentum was superior to Columbine Alpha at forecasting group and sector performance. In the research study we observed that this new model was effective in about 90% of the thirty years tested. That model, treating groups and sectors as individual stocks, became the basis for the current Industry Momentum Service. Industry Momentum Service 8

Updates & Delivery Model rankings updated weekly Data as of Friday close Updated rankings available Saturday AM Reports delivered electronically Automatic delivery via E-mail Download from Columbine Web site www.columbinecap.com Included in Columbine Stock Selection Model research services Industry Momentum rankings are updated every weekend based on Friday closing prices. Current rankings data usually is available on Saturday morning. Our weekly reports of Industry Momentum rankings are delivered electronically by E-mail, or or you or your colleagues can download reports directly from Columbine's web site, www.columbinecap.com. In addition, the Industry Momentum rankings are included in the data files and hard copy reports for our multifactor stock selection models as part of the service. Industry Momentum Service 9

Easy to Interpret: Groups Industry Momentum Average active return by group rank 1 Buys 10.8% 2 3 4 5 6 7 8 9 10-10.2% Sells -15% -10% -5% 0% 5% 10% 15% Test universe: Columbine 1500 Universe test period: 1971-2000 1-month holding period, January excluded, no costs It s easy to interpret and use the Industry Momentum group rankings. Generally, we consider groups in the model s top 10% (ranked 1) to be buys, and those in the bottom 10% (ranked 10) to be sells. Because of the non-linearity of price momentum, most of the model s predictive power is in those extreme rankings. The middle (2 through 9) rankings predictions are not statistically significant consider those rankings as a neutral forecast of market action. The chart above sets out the average active return (annualized) associated with each rank of the current Industry Momentum model in the groups of the Columbine 1500 Universe over a thirty year test period. The chart s results are based on onemonth holding periods and are reported gross of transactions costs. Industry Momentum Service 10

Easy to Interpret: Sectors Industry Momentum Average active return by sector rank 1 Buys 11.8% 2 3 4 5 6 7 8 9 10-10.4% Sells -15% -10% -5% 0% 5% 10% 15% Test universe: Columbine 1500 Universe test period: 1971-2000 1-month holding period, January excluded, no costs Here s the same study applied to economic sectors rather than industry groups. Generally, the same rules apply for sectors as for groups: The sectors ranked 1 are buys, and those ranked 10 are sells. Again, because of the non-linearity of price momentum, the predictions for the middle-ranked sectors (2 through 9) are not statistically significant consider those rankings as a neutral forecast of market action. The chart above sets out the average active return (annualized) associated with each rank of the current Industry Momentum model in the ten sectors of the Columbine 1500 Universe over a thirty year test period. The chart s results are based on one-month holding periods and are reported gross of transactions costs. Industry Momentum Service 11

Stable Rankings Industry Groups Ranked 1 by Industry Momentum Model 100% Still ranked 1 Dropped to 10 74% 56% 40% 0% 0% 1% 2% 19% 12% 0 3 6 9 12 Months following initial ranking Test Universe: Columbine 1500 Universe, test period: 1971-2000 How much do the Industry Momentum rankings change over time? We can compute ranking autocorrelations and decile turnovers, but those measures don t provide most users with the practical insight they need into what to expect from the model s rankings on a day-to-day basis. The graph above is an attempt to provide that insight. For Industry Momentum we consider industries ranked 1 as buys and those ranked 10 as sells. The critical questions for using the model s rankings revolve around changes to those two signals. The graph illustrates what happens to the rankings of typical buy- or sellranked groups over time. This data is based on monthly rankings from the Industry Momentum model in the Columbine 1500 Universe over a thirty-year test period. The top (green) line sets out what percentage of groups still exhibited the same signal (buy or sell) 1, 3, 6, and 12 months later. The bottom (red) line shows the percentage of groups that reversed their signal (buy becoming a sell, or vice versa) over the same time periods. Industry Momentum rankings are quite stable three months after the initial ranking you can expect more than 50% of the industries to display the same signal and only 1% to have reversed their signal. Industry Momentum Service 12

Long-term Utility Industry Momentum Average active return (Buy-and-Hold) 8% 6% 4% 2% 0% -2% -4% -6% -8% Groups 1 Groups 10 Sector 1 Sector 10 0 3 6 9 12 Holding period (months) Test universe: Columbine 1500 Universe; test period: 1971-2000 January excluded, un-annualized, no transactions costs Long-term predictive ability is vital if rankings are to be useful in institutional investment strategies. Groups and sectors identified as buys (ranked 1) and sells (ranked 10) by the Industry Momentum Model tend to generate significant active returns for as long as twelve months. The graph above illustrates the average active returns (un-annualized) associated with the Industry Momentum Model s 1 and 10 ranks both in industry groups and economic sectors at holding periods of 1, 3, 6, and 12 months. These are unrebalanced, buy-and-hold results, gross of transactions costs. Returns are equalweighted, in excess of the Columbine 1500 Universe. The Industry Momentum Model s rankings produce top minus bottom spreads that are competitive with the best individual stock selection factors over the same time periods. Industry Momentum Service 13

Annual Active Return Industry Momentum Through December 31, 2006 Groups ranked 1 Groups ranked 10 Backtest 37.8% 34.3% Out of Sample 23.1% 12.9% 13.8% 15.3% 1.4% 3.2% 0.2% 5.8% -2.9% -2.3% -0.5% -5.0% -4.7% -9.1% -10.9% -12.5%-13.7% -0.7% -9.3% -4.2% '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 Test universe: Columbine 1500 Universe Monthly rebalancing, market return in January, no costs Here is the Industry Momentum Model s year-to-year record. The green bars represent the average annual active return of industries the model ranked 1 (buys); the red bars are the same measure for groups ranked 10 (sells). These are equalweighted results in excess over the equal-weighted Columbine 1500 Universe, based on monthly rebalancing, and are gross of transactions costs. January results are excluded. We introduced the Columbine Industry Momentum Model in September of 2001, so the results shown prior to 2002 are based on backtests of the model in our research universe, not published rankings. The 2001 results are out-of-sample since that data was not part of the development of the model, but they are not based on published rankings. The Industry Momentum Model varies in its effectiveness from year-to-year, just as any other quantitative tool, but the model correctly produced positive spreads (return of top-ranked groups minus return of bottom-ranked) in 30 of the 35 years. Please see the Notes on Model Results. Industry Momentum Service 14

Applications Top-down Overweight groups or sectors ranked 1 Underweight groups or sectors ranked 10 Bottom-up Improve stock selection by adding industry momentum information to fundamentaldriven processes Double-Buy strategy Veto strategy Portfolio application of the Industry Momentum rankings is straightforward. In general, overweight your portfolio s exposure to industry groups or economic sectors ranked 1 on the Industry Momentum Model. These groups/sectors are likely to outperform the market over the next year. Likewise, underweight those ranked 10; they tend to under-perform. Intermediate rankings (2-9) have little utility, the extreme rankings are the most predictive. Our testing shows that Industry Momentum is useful in bottom-up processes when combined with typical fundamental approaches. There are two strategies: Double- Buy Signal and the Veto Signal. We ll examine both in the pages that follow. Industry Momentum Service 15

Double-Buy Signal Concept: Stocks with good fundamentals in strong industries are likely to outperform Criteria: Fundamental buy (top quintile of multifactor model as proxy) Member of industry group ranked 1 on Industry Momentum Indicated action: Immediate buy a few very good names The concept of the Double-Buy signal is simple attractive stocks (those with good fundamental characteristics) that are in industries with strong positive price momentum are likely to outperform their peers with neutral to negative momentum. The criteria for applying this concept are equally simple. First use some fundamental process to identify attractive stocks. Then screen that group of potential buy stocks by the Industry Momentum Model to find issues in industries ranked 1 the high positive momentum groups. Only a small number of stocks will meet this two-way test, but those issues tend to have extraordinary potential and should be considered immediate buy candidates. Industry Momentum Service 16

Double-Buy Results Average active return (annualized) 13.4% Fundamental buys 11.6% Double-Buy stocks (±9% of buys) 10.7% 6.8% 5.2% 3.9% 3.0% 7.8% 1 3 6 12 Holding period (months) Test universe: Columbine 1500 Universe; test period: 1971-2000 January excluded, no transactions costs Using the Industry Momentum Model as an additional screen on stock fundamentals can produce significant levels of added return. Here are the results we observed from a study of the Double-Buy signal. Our study was based on thirty years of history for the stocks of the Columbine 1500 Universe. We used a simple multifactor ranking model* as a proxy for traditional fundamental analysis. The graph reports the annualized average active return generated at holding periods of 1, 3, 6, and 12 months. Results are equal-weighted and are reported gross of transactions costs. For each holding period the left-hand bar illustrates the active return of the stocks ranked as buys by the fundamental model (top quintile). The right-hand bar in each pairing represents the average active return generated by the stocks among those buys that were in groups the Industry Momentum Model identified as having the highest positive price momentum each month (ranked 1). Clearly, the Double-Buy signal stocks generated significantly more active return compared to stocks judged attractive on fundamentals alone. Stocks that met the signal criteria (about 8.5% of the fundamental buys) effectively doubled the return of their peers at every holding period. *An equal-weighted combination of trailing 12-month EPS to price, long- and short-term growth in reported EPS, book value to price, and cash flow to price. Industry Momentum Service 17

Veto Signal Concept: Stocks with good fundamentals, but in weak industries are likely to underperform Criteria: Fundamental buy (top quintile of multifactor model as proxy) Member of industry group ranked 10 on Industry Momentum Indicated action: Don t buy until industry improves to neutral The Veto signal uses industry momentum information to assist in the timing of purchases of otherwise attractive stocks. The basic idea is that even good stocks can be dragged down at least in the short run by the effect of membership in strong negative momentum groups. Avoiding those stocks until their industry has climbed out of the pit pays dividends. The criteria for applying this concept are just as simple as the Double-Buy. First use some fundamental process to identify potential buys. Then screen that group of attractive stocks by the Industry Momentum Model to find groups ranked 10 the strong negative momentum issues. Again, only a small number of stocks will meet this two-way test, but those issues will tend to underperform for as long as a year. We suggest that clients hold off on buying stocks with the Veto signal until the particular group s momentum moves up to the neutral area (Industry Momentum ranks 2 through 9). This signal is one of the most effective applications for the Industry Momentum rankings. It has the benefit that clients can continue selecting stocks to buy through their existing process the Veto signal simply indicates a few industries to put on the shelf for attention later. Industry Momentum Service 18

Veto Results Average active return (annualized) 6.8% 5.2% Fundamental buys 3.9% Vetoed stocks (±11% of buys) 3.0% -1.3% -2.2% -2.7% -0.8% 1 3 6 12 Holding period (months) Test universe: Columbine 1500 Universe; test period: 1971-2000 January excluded, no transactions costs We tested the application of the Veto signal as well in the same thirty-year study discussed on the previous pages. The graph reports the annualized average active return generated at holding periods of 1, 3, 6, and 12 months. Results are equal-weighted and are reported gross of transactions costs. For each holding period the left-hand bar illustrates the active return of the stocks ranked as buys by the multifactor fundamental ranking model* (top quintile). The right-hand bar in each pairing represents the average active return generated by the stocks within those buys that are in industries identified as having the strongest negative price momentum each month by the Industry Momentum Model (ranked 10). The Veto signal stocks (about 11% of the buys) underperformed their peers by as much as 800 bps per year. Clearly, removing these potential torpedoes from consideration would improve the overall portfolio s return. *An equal-weighted combination of trailing 12-month EPS to price, long- and short-term growth in reported EPS, book value to price, and cash flow to price. Industry Momentum Service 19

A Manager s s Resource Save time Spend your own analysis more profitably Save resources Creating your own systems = $$$$ Improve return Proven forecasting ability Here are some of the ways Columbine s Industry Momentum Service can help you: Save time Use the service to identify groups and sectors with significant return potential whether positive or negative. This lets you spend your time and analytical talents on choosing among those issues in those groups or sectors. Save resources Many of our clients could create an industry-forecasting model of their own; some already had one when they hired us. But building a model that can approach the long-term predictive power and stability of the Columbine Industry Momentum Service requires an expenditure of resources greatly in excess of the model s annual subscription cost. The make vs. buy decision is clear. Improve return In the highly competitive business of investment management small differences in return can have big payoffs. With the Industry Momentum Service you have a state-of-the art, active return forecasting tool that is continuously updated and improved to keep it adding maximum value in your portfolios. Industry Momentum Service 20

Industry Momentum Model Service Results through: December, 2006 Columbine 1500 Universe Model description: Component model that forecasts industry group and sector alphas based on a price momentum measure applied to the past twelve months of each group or sector's returns. Total return (dividends re-invested), monthly rebalanced, gross of transactions costs Absolute returns Annualized historical statistical characteristics: 1971-date Month of December, 2006 Decile alpha beta sigma Sharpe R 2 Track Error Top decile 0.7% Top 9.07 0.95 20.74 0.70 0.67 11.87 Bottom decile 0.2% Bottom -7.55 1.10 23.64-0.47 0.70 13.12 Columbine 1500 0.3% Cumulative Monthly Group Active Return vs. Columbine 1500 Universe Return (ln) 1.0 0.8 0.6 0.4 0.2 0.0-0.2-0.4-0.6-0.8 Top decile groups: +7.37% annually Bottom decile groups: -3.24% annually '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 Annual Active Return (Groups) vs Columbine 1500 Universe (eql-wtd) Decile '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 Top 14.1% -0.9% 36.3% 21.4% -14.5% 3.2% -4.7% -0.7% 23.1% 5.8% Bottom -9.9% -13.5% -6.7% -0.7% -1.3% -13.7% 34.3% 0.2% -9.3% -4.2% Annual Top-Bottom Decile Spread Return (eql-wtd) Spread 25.8% 8.9% 37.3% 13.6% -27.4% 2.0% -31.1% -2.3% 33.4% 9.6% N.B., Spread figures are computed by linking monthly top-bottom spread returns Compounded Active Return (Groups) vs Columbine 1500 Universe through December, 2006 Decile Month 3-mon YTD 1 yr 3 yrs* 5 yrs* 10 yrs* Incep* Top 0.4% 3.8% 5.8% 5.8% 8.9% 4.9% 7.4% 2.0% Bottom 0.0% 3.7% -4.2% -4.2% -4.5% 0.2% -3.2% 3.6% Compounded Top-Bottom Decile Spread Return through December, 2006 Spread 0.4% 0.1% 9.6% 9.6% 12.6% 0.1% 4.5% -7.4% * Annualized RoR; Incep date: 08/31/01 The results reported here are hypothetical. These results do not represent actual trading using client assets. The performance of past rankings does not assure the profitability of future rankings. Copyright, 2007 Columbine Capital Services, Inc. See the Notes on Model Results. Not for general distribution.

Industry Momentum Model Service Columbine 1500 Universe Results through: December, 2006 Top- and Bottom-Decile Groups Active Return and Spread Return Results in the Columbine 1500 universe, monthly rebalanced, gross of transactions costs Shading: 95th to 5th percentile range; Error bars = 1 standard deviation Current Mean Latest Month Year-to-Date Trailing-12 Months 15% 60% 60% 10% 50% 40% 50% 40% 5% 30% 20% 30% 20% 0% 10% 0% 10% 0% -5% -10% -20% -10% -20% -10% Top Bottom Spread -30% Top Bottom Spread -30% Top Bottom Spread Top Bottom Spread Top Bottom Spread Top Bottom Spread Current 0.39% -0.04% 0.43% Current 5.84% -4.20% 9.59% Current 5.84% -4.20% 9.59% Pctile 44 39 40 Pctile 46 34 29 Pctile 44 32 34 Sigmas -0.1 +0.1-0.1 Sigmas -0.2 +0.2-0.2 Sigmas -0.2 +0.2-0.3 Current: Current period return value Pctile: Percentile rank of current value in historical series (100 = best) Sigmas: Difference of current value from historical mean in standard deviations Historical Return Series: January, 1971 through December, 2006 Monthly series Calendar year series Trailing-12 month series Top Bottom Spread Top Bottom Spread Top Bottom Spread Best 17.8% -12.5% 25.3% Best 36.3% -36.5% 70.5% Best 60.0% -38.8% 83.4% 95th 6.2% -6.1% 10.6% 95th 26.1% -18.1% 51.2% 95th 29.2% -22.4% 49.6% Mean 0.7% -0.5% 1.2% Mean 8.5% -6.2% 14.7% Mean 8.5% -6.4% 15.3% 5th -4.4% 5.6% -9.0% 5th -8.8% 8.6% -22.7% 5th -8.7% 15.1% -21.9% Worst -13.8% 20.4% -33.7% Worst -14.5% 34.3% -31.1% Worst -17.4% 60.0% -55.5% Std Dev 3.4% 3.8% 6.3% Std Dev 11.6% 11.1% 21.6% Std Dev 11.6% 12.1% 22.1% Hit Rate 61.3% 61.1% 64.4% Hit Rate 77.8% 83.3% 80.6% Hit Rate 79.8% 78.6% 77.7% t -stat 4.20-2.84 3.98 t -stat 4.38-3.36 4.09 t -stat 4.38-3.13 4.11 Best: Best value observed in historical series 95th: 95th percentile value in historical series Mean: Mean value of historical series 5th: 5th percentile value in historical series Worst: Worst value observed in historical series Std Dev: Standard deviation of historical series Hit Rate: Percentage of periods with correct results t-stat: t-statistic of historical mean Copyright, 2007 Columbine Capital Services, Inc. See the Notes on Model Results. Not for general distribution.

Industry Momentum Model Service Results Multi-Month Periods Ending December 29, 2006 The Industry Momentum Model is a component model that forecasts industry group alphas based on a price momentum measure applied to the past twelve months of each industry group's returns. Absolute total return in % points, based on monthly rebalancing, gross of transaction costs Equal-weighted results unless otherwise noted 4th Annualized compound return Since Oct Nov Dec Quarter 2006 1 year 3 years* 5 years* 10 years* 8/31/01 S & P 500 Stocks Top decile Universe Bottom decile 5.85 3.63 5.05 3.57 0.19 9.84 14.96 14.96 21.10 NA NA NA 2.50 0.78 7.05 16.13 16.13 13.86 11.52 12.12 NA 5.01 1.66 12.14 21.66 21.66 11.27 NA NA NA Columbine 1500 Universe Stocks Top decile Universe Bottom decile 6.85 4.75 6.15 4.42 0.66 12.31 21.84 21.84 24.21 17.85 20.46 15.72 3.12 5.45 0.27 0.23 8.31 12.19 16.10 11.45 16.10 11.45 14.51 9.05 11.58 9.99 11.47 6.38 12.34 13.66 Columbine Total US Universe Top decile Universe Bottom decile 6.12 4.80 5.25 4.00 1.80 12.35 27.27 27.27 30.56 NA NA NA 2.98 1.62 9.68 18.52 18.52 15.05 18.09 13.82 NA 4.95 1.27 11.86 15.40 15.40 9.03 NA NA NA S & P 500 Index (cap-wtd) 3.26 1.90 1.40 6.70 15.80 15.80 9.80 5.82 8.23 5.79 * Includes backtest results (1971-2001). We began publishing the Indistry Momentum Model in August of 2001. The results reported here are hypothetical. These results do not represent actual trading using client assets. The performance of past rankings does not assure the profitablility of future rankings. Industry Momentum Model Service Results Update Friday, January 05, 2007

Two North Cascade Avenue Suite 450 Colorado Springs, CO 80903 Phone: 719.635.5174 Fax: 719.634.5867 E-mail: info@columbinecap.com Web: www.columbinecap.com