1. Fama & Freedom 3½ Factor Model Scott Gavlick Todd Hoskin Edward Kim

2. Page 1 Small-Value Portfolio Strategy Screening  US Securities  Common Stock  Excluding American Depository Receipts (ADR’s)  Questionable Returns  Small Capitalization  Less Coverage/Public Information  Less Market Efficiency  Higher Growth Potential

3. Page 2 Approach Equally-Weighted Investments Monthly Rebalancing Assumes NO Transaction Costs Benchmark is the S&P500

4. Page 3 Factors Value Factors  Operating Income / Enterprise Value  Operating Income / Net Assets Technical Factors  Momentum – 1-year return, lagged 1 month  Volume Moving Average – difference between the daily average over the last 5 days and the daily average over the past year, scaled by the latter

5. Page 4 Factor Assessment

6. Page 5 Factor Assessment

7. Page 6 Factor Assessment

8. Page 7 Scoring Based upon subjective review of Heat Map output.

9. Page 8 3 ½ Factor Portfolio Heat Map Results

10. Page 9 Investment Strategy – 1986 to 2005

11. Page 10 Investment Strategy – Shorter Timeframes

12. Page 11 One-Factor Tier 5 Portfolio Returns

13. Page 12 One-Factor Tier 5 Portfolio Returns VolumeMomentum Operating Income to Net AssetsOperating Income to Enterprise Value FAF 3½ Factor Model

14. Page 13 Conclusions Go Long  Long Strategy Produces the Best Results  Even When Not the Best Returning Tier, Still Returns Positive Results Model Weaknesses  Fails to Forecast Periods of Large Gains in the Short Tier (especially 1999 & 2003)  Given Monthly Rebalancing Transaction Costs will be Significant Further Study  Benchmark Against Small Stock Returns vs. S&P500