1. Presentation to Columbia Business School Harlan H. Simon Clinton Group Inc. November 8,2002 Harlan H. Simon Clinton Group Inc. November 8,2002

2. CLINTON GROUP (1) Why Invest in Arbitrage Strategies? Ability to present positive return profile regardless of general market conditions Uncorrelated to other asset classes, particularly equity Certain sectors may present structural inefficiencies to exploit Research, not transaction driven Buyer’s Market

3. CLINTON GROUP (2) Comparing Efficient and Inefficient Markets Efficient Markets  High leverage  No systematic edge  Beta return Inefficient Markets  Low leverage  Systematic edge  Alpha return

4. CLINTON GROUP (3) Arbitrage Opportunities in the Fixed Income Market Market segmentation  Participants may not have equal access to all markets Differing investor preferences Unanticipated market events Structural considerations (i.e. tax related issues)

5. CLINTON GROUP (4) Current Arbitrage Environment Highly leveraged strategies are limited Probably less money invested in arbitrage strategies vis a vis 1998 Dealer activity reduced - equity investors do not pay for trading profits Consequently, the environment is very positive for proper arbitrage strategies

6. CLINTON GROUP (5) Arbitrage Opportunities in the U.S. Mortgage Market Various prepayment assumptions dictate dramatic differences in price Different interest rate modeling techniques dictate differences in price Securities change characteristics under differing market conditions

7. CLINTON GROUP (6) Assumed 30 Year Conventional Prepayment Curve

8. CLINTON GROUP (7) Mortgage Trade Example - Yield Table

9. CLINTON GROUP (8) Mortgage Trade Example - OAS Analysis (Part I)

10. CLINTON GROUP (9) Mortgage Trade Example - OAS Analysis (Part II)