EARNINGS MOMENTUM

Objective

The goal of the Earnings Momentum strategy is for long-term growth. Dunn Warren strives to reach its goal by investing in those stocks that exhibit earnings growth above the industry average.

Investor Profile

The Earnings Momentum strategy is appropriate for those investors that have a long-term time horizon and are willing to accept a high degree of volatility. The strategy is always fully invested. By accepting a higher degree of volatility we expect to achieve returns greater than the market (S&P 500).

Fund Strategy

The portfolio is generally rebalanced once a year by choosing 25 stocks that meet four criteria. The criteria are expected to reflect current and future earnings growth that is not reflected in the current stock price. While Dunn Warren strives to hold all stocks for at least twelve months to minimize short-term tax consequences, this is not always in the best interest of our investors. Therefore, the investment decision is based on a monthly review of the portfolio unless global and/or portfolio specific events require more frequent review.

Dunn Warren will "hedge" or reduce market exposure when the reward presented by the market is unfavorable based on the risk seen in the valuation and the economic growth in the economy. Valuations based on price to earnings and/or present value of cash flow, are combined with our risk/reward matrix to drive decisions on reducing market risk. Specific strategies for hedging the market include purchasing exchange traded funds that increase (decrease) in value when the underlying index (S&P 500, NASDAQ 100 or Russell 2000) declines (increases) in value. Dunn Warren may also choose to use leveraged inverse funds. These funds' objective is to move in the opposite direction of the market by twice the amount of the market. We will limit the use of these funds to 50% of the account value at the time of investment.

Selection Process

Investments are selected if they meet the following four criteria:

• Historic Earnings Growth: Earnings growth over the previous three to five years that is above the industry average.
• Positive Earnings Surprise: Companies recent earnings results exceed analyst earnings expectations.
• Earnings Estimate Revisions: Analysts raise future earnings estimates above current consensus estimates.
• Relative Strength:Compares the investment's 6-month and 12-month returns relative to all the other investment options available to us. This indicates that others agree with our valuation analysis and is our way of avoiding value traps - investments that look compelling on valuation, but lack investment appeal and are more likely to decline in value.