Research

Solomon’s 9 Total-Return Portfolio

The Solomon’s 9 research report includes nine stocks, most of which are dividend-paying, that have been chosen for relative price stability, and potential appreciation and yield. In selecting these stocks, we utilize proprietary software combined with both fundamental and long-term technical analysis while purposely avoiding high profile sectors.

We use a sales-per-share ratio in determining our target price for our selected stocks. In addition, we also match our selected equity dividend yields against the 5 and 10-year Treasury bond yields for purposes of comparison.

The items listed below are used for comparison purposes when analyzing sales-per-share data:

We use a linear regression and/or a standard deviation formula when projecting implied earnings growth.

*Current market conditions have required us to be more defensive in our stock purchases. The “Solomon’s Nine” therefore will not be in use until further notice. Please refer to “Current Market Strategies”.

Stock Ratings

Buy – The company has strong fundamentals and/or positive near-term catalysts. The stock’s total return is expected to exceed the peer group’s return in the industry and/or appreciate 15% or more over the next 6 months (93% of rated stocks as of 10/01/03, of which 0% have received Investment Banking Services from SA during the last 12 months); Hold – The stock is expected to perform generally in line with the peer group due to full valuation and/or lack of near-term catalysts. We believe the upside in the share price is limited and/or the stock could appreciate or depreciate 15% or less over the next 6 months. The risk-reward ratio may not be attractive to all investors (7% of rated stocks as of 10/01/03, of which 0% have received Investment Banking Services from SA during the last 12 months); Sell – The stock’s value is expected to depreciate more than 15% over the next 6 months due to deteriorating company or industry fundamentals and/or lack of financial visibility. We would actively sell the stock (0% of rated stocks as of 10/01/03, of which 0% have received Investment Banking Services from SA during the last 12 months).

Disclaimers & Discloures

The information contained in the above reports has been obtained from sources that Solomon Advisors (SA) believes to be reliable, but SA does not guarantee its accuracy or completeness. The opinions expressed herein reflect the judgment of the author at the date and time listed on each individual report or update and are subject to change without notice. SA and its officers, directors, employees and affiliates and members of their families may make investments in a company or securities mentioned in any of the above reports and/or updates before, after, or concurrently with the publication of such reports.

Standard Deviation Equation

The above equation states that the Standard Deviation equals the square root of the sum of squared differences of the scores from their mean, divided by the number of scores.

Linear Regression Model

In Modern Portfolio Theory (MPT), a simple but effective tool for analyzing investment performance is the linear regression model where the actual performance of a fund is compared against an appropriate benchmark or index. The model produces a set of seven basic statistical measures of investment return and risk; these are based on a number of sequential observations:

• Mean (rate of return)
• Standard Deviation (of rate of return)
• Alpha Coefficient
• Beta Coefficient
• R² Coefficient of Determination
• Coefficient of Variation (standard deviation ÷ mean)
• Reward-Risk Ratio (alpha ÷ standard deviation)

The corresponding inputs of mean and standard deviation of rates of return are required for the benchmark for the linear regression model.

Portfolio rate of return equals alpha plus product of beta and benchmark return.

Regression Coefficient Formula: b = [XY – (X) (Y) / N] / [X² – (X)²/ N]