1. Long/Short Sector-based Trading Strategy Emergent Asset Management, LLC Konstantin Savov Scott Smith Pin-Yew Wong Vaswar Mitra Vinaya Jain February 27, 2006

2. 2 Agenda Establishing the Long/Short Trading Strategy Description of Factors Scoring Methodology Sectors Chosen for Analysis Sector Analysis Average Top and Bottom Quintile Returns for all Considered Factors Factors Chosen and Calculated Scores In Sample Analysis 1996-2003 Out of Sample Analysis 2004-2005 Imperfections in the Analysis

3. 3 Establishing Long/Short Trading Strategy Overview Limit universe of stocks to firms with market capitalization > $500M Stocks selected from the S&P 1500 Index (US large, mid and small cap stocks). Sectors were defined using S&P’s GICS classification system We feel these stocks will have sufficient liquidity and historical data Establish long / short sector based portfolios using quantitative stock selection. Equal weight strategy Rebalance portfolios monthly In Sample: 1996-2003, Out of Sample: 2004-2005 Quantitative stock screen Thirteen factors considered initially Find predictive powers on positive and negative returns Select factors with strong predictive power for sector returns Go long stocks in top quintile Go short stocks in bottom quintile

4. 4 Description of factors Fundamental 1. Book to Price: book value per share / price per share 2. Dividend Yield: dividends per share / price per share 3. CFO Yield: cash flow from operations / price per share 4. Earnings Yield: LTM earnings / price per share 5. Return on Assets: annual net earnings / total assets 6. % Change in ROA: % change in ROA over previous month 7. Return on Equity: annual net earnings / total shareholder equity 8. % Change in ROE: % change in ROE over previous monthExpectational 1. Revision Ratio: (Upward revisions – downward revisions) / total revisions 2. SUE Score: standard unexpected earnings (Earnings surprise / std deviation) 3. Mean FY1 to Actual % Change: (FY1 Estimate – Current Actual) Current Actual 4. LT Projected Growth – Historical Growth: Next 5 year annualized estimate – previous 5 year annualized actualMomentum 1. 12-Month Lagged Monthly Price Growth: Eg: (Jan’06 Price – Jan’05 Price) / Jan’05 P

5. 5 Scoring methodology Each month the quintiles are ranked based on returns Assign points from highest to lowest rank (+2,+1,0, -1, -2) Sum points for quintiles 1 and 5 Scale points across factors from +10 to -10 We tried using an objective scoring methodology

6. 6 Sector choice Considerations in choosing sectors: Sufficient number of companies in the defined universe Maturity of sector Final Choice Financials Industrials Healthcare

7. 7 Financials

8. 8 Average Annual Factor Returns for top and bottom quintiles Financials

9. 9 Factors chosen & calculated scores Financials

10. 10 In sample analysis 1996-2003 Financials

11. 11 Out of sample analysis 2004-2005 Financials

12. 12 Healthcare

13. 13 Average Annual Factor Returns for top and bottom quintiles Healthcare

14. 14 Factors chosen & calculated scores Healthcare

15. 15 In sample analysis 1996-2003 Healthcare

16. 16 Out of sample analysis 2004-2005 Healthcare

17. 17 Industrials

18. 18 Average Annual Factor Returns for top and bottom quintiles Industrials

19. 19 Factors chosen & calculated scores Industrials

20. 20 In sample analysis 1996-2003 Industrials

21. 21 Out of sample analysis 2004-2005 Industrials

22. 22 Imperfections in analysis Monthly rebalancing – trading costs not taken into consideration Migration tracking could potentially reduce turnover and trading costs Need a more exact estimation of the impact of turnover and short sale restrictions Use of static scores