CBIS Conference Call: Review of Current Market Conditions

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CBIS Conference Call Review of Current Market
Conditions

• November 17, 2004

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Current Market Conditions

• Low returns likely from U.S. financial markets
• Federal Reserve tightening
• Current valuation for equities suggests moderate
  single digit returns
• Low absolute level of bond yields
• Overseas return contribution looks favorable
• EAFE returns added 1.6 annually vs. SP 500 over
  past five years
• U.S. dollar should continue to weaken
• Favorable infrastructure growth in developing
  markets

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Current Market Conditions
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Current Market Conditions

• Current Market Risks
• Unusually low volatility in financial markets
• Tight credit and mortgage spreads
• Compressed price/earnings ratios between various
  equity market sectors
• Limited opportunities to add value
• Higher bond portfolio yield comes with added risk
• Few under-valued opportunities among stocks

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Presenting Investors with a Choice

• CBIS approach
• Focus on high quality, liquid assets
• Sacrifice yield over short term
• Structure portfolios to absorb volatility or
  credit shocks
• Await better opportunities
• A longer-term investment view
• Not a passive choice
• Minimize investment friction
• Understand the value of alpha
• Minimize turnover and execution costs
• Use transition managers

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Presenting Investors with a Choice

• Seek higher returns in alternatives
• A more speculative although viewed as more
  thoughtful approach to financial market
  conditions
• But alternatives also come with risks
• Not immune from the factors affecting traditional
  markets
• More capital chasing alternative strategies
  dilutes return expectations
• Returns suffer in low volatility scenario
• Easy to get in, not as easy to get out

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Why Market Neutral Now?

• Relatively high stock valuations
• 20-year secular decline in interest rates
• Low yields from cash and high-quality
  fixed-income securities
• Primary investment risks
• Continued volatility in financial markets
• Stagnant or falling equity markets
• Rising long-term interest rates, falling bond
  prices
• Unlikely investment scenarios
• 1990s-style secular bull market in equities
• 1990s-style secular bull market in bonds

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A Conservative Investment Program

• Designed to provide predictable, steady targeted
  annual return
• T-Bill 3-4
• Lower volatility than equities or bonds
• Long portfolio fully hedged by short portfolio
• Minimal net long/short market exposure
• Portfolio value desensitized to direction of
  stock market
• No loss of portfolio value due to rising interest
  rates
• Rising short-term rates boost Market Neutral
  return
• No Leverage
• Total transparency, as with all other CBIS
  programs
• Not a cash substitute may produce multiple
  quarters or a year or more of negative returns.

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CBIS Market Neutral vs. Hedge Funds
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New Growth Fund Manager

• Sands Capital Management
• Effective September 30, 2004
• Sands utilizes a unique approach to growth
  investing
• Emphasizing a long-term time horizon
• Concentrated positions in a focused group of
  industry leaders demonstrating above-average,
  sustainable earnings growth
• Sands was founded in 1992 by Frank Sands
• Manage 8.5 billion in assets
• Focused, experienced investment team consisting
  of eight portfolio manager/analysts
• The firm is independently owned, and solely
  offers large cap growth portfolios
• Complements Columbus Circle
• The style and value-added by Sands are relatively
  uncorrelated with Columbus Circle's earnings
  surprise and momentum discipline.