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PORTFOLIO MANAGEMENT Using

EXCHANGE TRADED FUNDS (ETFs) On Behalf Of

JIM BICKLEY

1518 Walnut Street Suite 204 Philadelphia, PA 19102 215.735.2121 phone 215.735.2124 fax


KELLY CAPITAL MANAGEMENT, LLC窶認IRM OVERVIEW

Philadelphia based, independent, SEC registered investment advisor with clients in the USA and Canada Firm known nationally for pioneering efforts in portfolio management of ETF-only portfolios Clients are split 90% individuals and 10% institutional Wide variety of investment alternatives Firm approved for use by various brokerage firms

ETF Based Portfolio Management

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KELLY CAPITAL MANAGEMENT, LLC—OUR PEOPLE JAMES V. KELLY, CFA – PRESIDENT AND FOUNDER, PORTFOLIO MANAGEMENT & SECURITIES RESEARCH DAVID P. PRZYWARA – VICE PRESIDENT, PORTFOLIO MANAGEMENT & SECURITIES RESEARCH WILLIAM A. FRANCIS, CFA – VICE PRESIDENT, PORTFOLIO MANAGEMENT & SECURITIES RESEARCH MARK. M. STOKES – MEMBER ADVISORY BOARD, TRADING AND DERIVATIVES RESEARCH JOHN R. PHILLIPS, CFA, FRM – MEMBER ADVISORY BOARD, SECURITIES RESEARCH AND PORTFOLIO MODELLING FRANK W. KOKO, Ph.D. – MEMBER ADVISORY BOARD, SECURITIES RESEARCH, MODELLING AND OPTIMIZATION A COMPLETE BIOGRAPHY OF EACH MEMBER OF OUR TEAM IS AVAILABLE IN OUR CORPORATE INTRODUCTION BROCHURE. ETF Based Portfolio Management

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What Are Exchange Traded Fund (ETF) Shares ?

ETFs are stock-like securities which derive their value from a basket of other securities ETFs may be highly diversified and tax-efficient ETFs trade on various exchanges such as The American Stock Exchange and The NASDAQ Stock Market ETF shares are priced continuously as long as the markets are open ETF shares are sponsored by NASDAQ, State Street, Barclays, Vanguard, Bank of NY, Rydex and others The US index-linked ETF market now has over 250 funds with about $400 billion in assets.

ETF Based Portfolio Management

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General ETF-Based Strategies Complete asset allocation Sector emphasis/rotation and portfolio completion (filling missing sectors or styles) Style focus Tax swaps or creation of more tax efficient portfolios Risk management Cash equitization (putting cash flow into equities) Options strategies (71 ETFs have options) Source: Morgan Stanley Research.

ETF Based Portfolio Management

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Unique ETF-Based Strategies Described herein are two of our proprietary strategies for individually managed accounts employing only exchange traded fund (ETF) shares:

All Cap Multi-Style ETF Strategy Benchmark: S&P 500 Index Actively managed portfolio offering market cap, style and sector rotation in one portfolio. Emerging Markets International Equity ETF Strategy Benchmark: MSCI Emerging Markets Index Actively managed foreign equity portfolio.

ETF Based Portfolio Management

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ETF-Based Strategies

All Cap Multi-Style ETF Strategy

1518 Walnut Street Suite 204 Philadelphia, PA 19102 215.735.2121 phone 215.735.2124 fax ETF Based Portfolio Management

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All Cap Multi-Style ETF Strategy All Cap Multi-Style ETF Strategy is designed to provide: Constant, broad exposure to the largest group of stocks actively traded on U.S. markets Active style and market capitalization rotation Active sector rotation Superior total return to a passive or enhanced index strategy investing in a broad market index such as the S&P 500 index An efficient means to invest in a Multi-Disciplinary Account (MDA)

ETF Based Portfolio Management

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All Cap Multi-Style ETF Strategy: Portfolio Creation Overview

40% max

Sector ETFs (Step 1)

10% min

Style & Market Cap Related ETFs 45% max

45% max

(Step 2A & Step 2B)

“Broad Market” Core (Step 3)

* Actual minimum may be less due to cash target of 2% (frictional).

ETF Based Portfolio Management

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45% min

15% min*


All Cap Multi-Style ETF Strategy: Step One - Sector Exposure Process S&P 1500 Supercomposite (S&P 500+S&P 400+ S&P 600)

Value Characteristics

EVERY STOCK IS ANALYZED

Growth Characteristics

Sectorized Score

Sector Relative Rankings Maximum of 4 Sector ETFs Held

ETF Based Portfolio Management

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Active Management

All Cap Multi-Style ETF Strategy: Step Two - Market Cap & Style Exposure

Large Value

Large Core

Large Growth

Mid Value

Mid Core

Mid Growth

Small Value

Small Core

Small Growth

Active Management THERE MAY NOT BE MONEY IN A COLUMN

ETF Based Portfolio Management

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THERE WILL ALWAYS BE MONEY IN A ROW


All Cap Multi-Style ETF Strategy: Step Three -Core Market Exposure and Cash

Using the DJ Total Market “VTI” ETF, maintains a core holding which mirrors the broadest U.S. Market exposure

“Broad Market” Core

ETF Based Portfolio Management

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All Cap Multi-Style ETF Strategy: Current Portfolio Allocations Sector # 1: SECTORS 40%

Tech 10% IYW Large Value 25% IVE

STYLE AND CAP 45%

Mid Value 15% IJJ Small Value 5% IJS

TOTAL MARKET CORE 13%

Sector Sector Sector # 3: # 3: # 3: Health Energy Care 10% 10% IYE IYH

Sector # 2: Sector # 2: Indust 10% IYJ

Large Core

IVW

Mid Core

Mid Growth

MDY

IJK

Small Core

Small Growth

IJR

IJT

Total Market Core: 13% VTI/TMW

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40% Maximum 10% Minimum

Large Growth

IVV/RSP/ SPY

Cash: 2%

ETF Based Portfolio Management

Sector # 4: Sector # 4: Fin 10% IYF

45% At All Times

45% Maximum 15% Minimum


All Cap Multi-Style ETF Strategy: Performance Results

All Cap Multi-Style ETF Strategy (“ACMS”) has outperformed the S&P 500 Index’s total return from inception (05/31/02 to 12/31/05) ACMS ETF Strategy has outperformed the S&P 500 Index’s total return for the year-to-date, 1 year ended, 2 years ended, 3 years ended and 3.6 years ended 12/31/05 All Cap Multi-Style ETF Strategy (“ACMS”) has outperformed the S&P 500 Index’s rolling 1 year total return from inception (to 12/31/05) 50% of the time All Cap Multi-Style ETF Strategy (“ACMS”) has outperformed the S&P 500 Index’s rolling 3 year total return from inception (to 12/31/05) 88% of the time ACMS ETF Strategy has beaten the Callan Associates’ core manager composite median total return 57% of the time since inception (to 12/31/05) Year to date as of 3/31/06:

Year to date as of 5/31/06:

ACMS + 6.3%

ACMS + 3.9%

S&P 500 Index + 4.2%

S&P 500 Index +2.6%

ETF Based Portfolio Management

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EMERGING MARKETS ETF STRATEGY

1518 Walnut Street •Suite 204 •Philadelphia PA •19102 •Phone 215-735-2121 •Fax 215-735-2124 ETF Based Portfolio Management

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EMERGING MARKETS ETF STRATEGY The Emerging Markets ETF Strategy is designed to provide: A “pure play� in international equity investing Concentration on emerging markets rather than established foreign equity markets Active management High level of diversification Superior total return to a passive or enhanced index strategy investing in a broad market index such as the MSCI Emerging Market Index

ETF Based Portfolio Management

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EMERGING MARKETS ETF STRATEGY: Portfolio Creation Overview

COUNTRY SPECIFIC MARKET FACTORS

COUNTRY SPECIFIC ECONOMIC FACTORS

RELATIVE VALUATION RANKING PROCESS

FINAL PORTFOLIO

ETF Based Portfolio Management

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EMERGING MARKETS ETF STRATEGY: Portfolio Creation Factors KCM regularly obtains a large amount of economic and market data on Emerging Market countries. KCM evaluates economic data, such as retail sales growth, to calculate a rating for each countries’ economy. KCM also obtains market related data to allow KCM to evaluate the performance of each countries’ stock market. Using a proprietary process, KCM then merges all the data and scores to arrive at a ranking of the relative attractiveness of Emerging Market countries. KCM then constructs portfolios, using ETFs, to reflect KCM’s evaluations. Portfolios are generally rebalanced quarterly but intra-quarter rebalancing may occur when market conditions require. ETF Based Portfolio Management

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EMERGING MARKETS ETF STRATEGY EWZBRAZIL 15%

EEMEMERGING MKTS 23%

FXI-CHINA 10%

EZA-S. AFRICA 19% EWTTAIWAN 5%

EWWMEXICO 5%

ILF-LATIN 40 5%

EWY-S. KOREA 18%

KCM’S EMERGING MARKETS INTERNATIONAL ETF STRATEGY (“EMI”) INVESTS IN: 9 ASIA VIA CHINA, KOREA, TAIWAN, AND MALAYSIA 9 LATIN AMERICA VIA BRAZIL, MEXICO AND THE LATIN 40 9 SOUTH AFRICA 9 CORE HOLDING IN THE EMERGING MARKETS ETF iSHARE ETF Based Portfolio Management

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EMERGING MARKETS ETF STRATEGY-- RESULTS Product development back-test results from 10/31/04 to 7/31/05—

¾

KCM Emerging Markets ETF Strategy return of 34.9% exceeds its benchmark (iShares Emerging Markets ETF – symbol EEM) return of 31.9%

******************************************************************************************************************************************* Actual results as of 9/30/05—

¾

KCM Emerging Markets composite results 6.0% (from 9/2/05) versus benchmark return of 5.8%

Actual results as of 12/31/05—

¾

KCM Emerging Markets composite results 11.8% (from 9/2/05) versus benchmark return of 10.8%

Actual results year-to-date 2006 as of 3/31/06—

¾

KCM Emerging Markets composite results 13.2% versus benchmark return of 12.3%

Actual results from 9/2/05 to 3/31/06—

¾

KCM Emerging Markets composite results 26.5% versus benchmark return of 24.4%

Actual results from 9/2/05 to 5/31/06—

¾

KCM Emerging Markets composite results 19.7% versus benchmark return of 17.7%

ETF Based Portfolio Management

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WHAT WE PROPOSE Based upon discussions with your Financial Advisor, Jim Bickley, we propose to invest the majority of the assets you would invest with us into our All Cap Multi Style ETF Strategy. The remaining money would be invested in our Emerging Markets ETF Strategy. Such an approach would provide you: •A high degree of diversification •Opportunity to take maximum advantage of growth in both U.S. and foreign markets •Liquidity and flexibility (able to add bonds, take cash flow, or change asset mix at any time in the future) •Opportunity for excellent long-term results

ETF Based Portfolio Management

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HOW YOUR OVERALL INVESTMENT STRATEGY COULD LOOK 80% DOMESTIC STOCKS AND 20% FOREIGN STOCKS

Foreign Stocks 19%

Cash Equivalents 2%

U.S. Stocks 79%

FROM 12/31/05 TO 5/31/06, NET OF ALL FEES & TRADING COSTS, THIS ASSET MIX WOULD HAVE GENERATED A 4.1% NET TOTAL RETURN

ETF Based Portfolio Management

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GWM Generic