The Alpha Rotation Program combines three different methodologies (“models”) for investing in the market via no-load mutual funds.  Two of the models are normally 100% invested, at times in mutual funds that move inversely to the direction of the market.  This provides the client an opportunity to not only hedge against a declining market, but to make money during a declining market.  All three models have the flexibility to go to cash (money market) at the appropriate time.

The program’s investment philosophy does not try to forecast individual company developments and earnings.  Rather, its proprietary models acknowledge the wisdom of the marketplace by attempting to identify outperforming market and industry sectors.

The Alpha Rotation Program does best when the market is trending, regardless of direction.  It tends to underperform in a “choppy” market, where there is no clear direction.

The three models are Asset Allocation, Bull-Bear and Sector Rotation.  Depending upon the client’s needs, any one model or a combination of the models may be selected by the client.

Asset Allocation

The Asset Allocation model selects from nine no-load mutual funds offered by Rydex Funds.  It buys the fund with the highest Alpha and holds it for a predetermined number of days, after which time it is replaced with the fund that at that time has the highest Alpha.  This model was discontinued on December 31, 2007 and reinstated on July 1, 2008.  The funds are:

1. Inverse Nasdaq-100 Strategy (inversely correlates to the performance of the Nasdaq 100 Index);
2. Health Care;
3. Inverse Government Long Bond Strategy (inversely correlates to the daily price movements of the current Long Treasury Bond);
4. Mid-Cap 1.5x Strategy (correlates 150% to the performance of the S&P MidCap 400 Index);
5. Russell 2000 1.5x Strategy (correlates 150% to the performance of the Russell 2000 Index);
6. Nova (correlates to 150% of the performance of the S&P 500 Index);
7. Nasdaq-100 (correlates to the performance of the Nasdaq 100 Index);
8. Inverse S&P 500 Strategy (inversely correlates to the performance of the S&P 500 Index); and
9. Government Long Bond 1.2x Strategy (correlates 120% to the performance of the current Long Treasury Bond).

In the discretion of the portfolio managers, the double-leveraged funds Rydex Inverse Nasdaq-100 2x Strategy (200% of the inverse daily performance of the Nasdaq 100 Index), Rydex Nasdaq-100 2X Strategy (200% of the daily performance of the Nasdaq 100 Index), and Profunds Ultra SmallCap (200% of the daily performance of the Russell 2000 Index), are substituted in place of Rydex Nasdaq-100, Inverse Nasdaq-100 Strategy and Russell 2000 1.5x Strategy.

Bull-Bear

The Bull-Bear model selects from four no-load funds offered by Rydex Funds, investing with or against the S&P 500 Index or the Nasdaq 100 Index.  It buys the fund with the highest Alpha and holds it for a predetermined number of days, after which time it’s replaced with the fund that at that time has the highest Alpha.  The funds are:

1. Nova;

2. Inverse S&P 500 Strategy;

3. Nasdaq-100; and

4. Inverse Nasdaq-100 Strategy

Sector Rotation

The Sector Rotation model selects from thirteen no-load sector funds offered by Rydex Funds.  It also can move into a money market fund when market conditions do not favor any sector.  It buys the sector fund with the highest Alpha divided by the expected risk, Standard Deviation.  The model holds the fund for a predetermined number of days, after which time it’s replaced with the fund that at that time has the highest Alpha divided by the Standard Deviation.  These funds are:

1. Banking;
2. Basic Materials;
3. Biotechnology;
4. Electronics;
5. Energy;
6. Energy Services;
7. Financial Services;
8. Health Care;
9. Precious Metals;
10. Retailing;
11. Technology;
12. Telecommunications; and
13. Transportation.

PROGRAM PERFORMANCE

Following is the performance history for the Alpha Rotation Program.  It assumes an equal dollar amount is invested in each of the three models.  Typically, a client invests in the program as a whole and does not invest in one model to the exclusion of other models.  For the client who wishes to not use a particular model, that option is available.

Please note that the Bull-Bear model began in February 2003.  The Asset Allocation model began in February 2003; was discontinued on December 31, 2007; and was reinstated on July 1, 2008.  Past performance is no guarantee of future results.

Following the Program performance history is a model by model performance history.  Actual returns by clients may vary slightly.  All performance figures shown are net of a 2% annual advisory fee.

ALPHA ROTATION PROGRAM CUMULATIVE STATISTICS (through 1/31/11)

The compounded annual average return for the Alpha Rotation Program since inception through January 31, 2011 is 17.86% vs. 7.12% for the Standard & Poor’s 500 Index.

Asset Allocation model

The Asset Allocation model began in February 2003; was discontinued on December 31, 2007; and was reinstated on July 1, 2008.  The performance history is shown below.  A trade by trade report is available upon request.  Past performance is no guarantee of future results.

ASSET ALLOCATION PERFORMANCE HISTORY (hypothetical 7/8/03 – 1/31/11)

(1)  Represents the largest negative monthly return during the time period covered.

ASSET ALLOCATION CUMULATIVE STATISTICS (7/8/03 – 1/31/11)

The compounded annual average return for the Asset Allocation model since inception through January 31, 2011 is 21.34% vs. 3.23% for the Standard & Poor’s 500 Index.

Bull-Bear model

The performance history of the Bull-Bear model is shown below.  A trade by trade report is available upon request.  Past performance is no guarantee of future results.

BULL-BEAR PERFORMANCE HISTORY (2/5/03 – 1/31/11)

(1)   Represents the largest negative monthly return during the time period covered.

(2)   In cash during March 2004 due to clients withdrawing and depositing funds.

BULL-BEAR CUMULATIVE STATISTICS (2/5/03 – 1/31/11)

The compounded annual average return for the Bull-Bear model since inception through January 31, 2011 is 19.16% vs. 5.08% for the Standard & Poor’s 500 Index.

Sector Rotation model

The performance history of the Sector Rotation model is shown below.  A trade by trade report is available upon request.  Past performance is no guarantee of future results:

SECTOR ROTATION PERFORMANCE HISTORY (1/30/03 – 1/31/11)

(1)  Represents the largest negative monthly return during the time period covered.

(2)  Clients withdrew money in the fourth quarter of 2003 to invest in exchange traded funds.  The money was re-deposited in January 8, 2004.

SECTOR ROTATION CUMULATIVE STATISTICS (1/30/03 – 1/31/11)

The compounded annual average return for the Sector Rotation model since inception through January 31, 2010 is 13.36% versus 5.33% for the Standard & Poor’s 500 Index.

The Alpha Rotation investment program is designed for clients with a minimum investment of $100,000.  Unless the client chooses otherwise the account is equally divided among the three models.  Rebalancing is performed on a semi-annual basis unless otherwise directed by the client.  This program is suitable for both taxable and tax-qualified accounts.   Taxable accounts will realize short-term capital gains or losses.

For additional information about the Alpha Rotation Program, please contact David Steckler, Global Investment Solutions, LLC, at 817-332-1767 (office), 877-332-1767 (toll-free); 1017 Picasso Drive., Ft. Worth, TX 76107 ; or dave@globalinvestsolutions.com.