* 01/5/2004 FastBreak - Year 2003 Review ======================================================================== 2003 was a fantastic year for investors and we are again extremely pleased with the performance of FastBreak trading systems. The first version of FastBreak was released in early 1996. Potential users of any software product should always ask the question "What is actual performance?" Soon after the initial release we developed trading systems that we could monitor for "real time" performance purposes. We don't modify the trading system parameters during the performance reporting period and report on the systems on a yearly basis. If you would like to read all the reports since 1997 visit our web site (www.edge-ware.com) and go to the Strategies page. With the release of Standard FastBreak and FastBreak Pro versions 4.0 in late 2001 we now have the ability to run the same strategies in the Standard and Pro versions. All of the systems we report on here were developed with the Pro version but can be run in the Standard version. We place typical FastBreak Pro developed trading systems on the Strategy page of our web site. Users of both Standard and Pro versions can download these systems. The Standard FastBreak demo that is available for downloading from the web site can run these strategies. The strategies we report on are "out-of-sample" for the entire year and in some cases the strategies have been unchanged for multiple years. We need a yardstick with which to compare our performance. Here is how three common benchmark equity performed in 2003: Return, % MDD, % UPI S&P 500 26.4 -14.0 5.0 DJ-30 25.3 -14.9 4.5 OTC 50.0 -13.0 10.1 Stbi- (bond) 2.1 -13.1 -0.2 To show that 2003 wasn't kind to all investors we include two other measures of investment returns through November (December data was not yet available): Return, % Managed futures funds 4.1 (Reported in Futures magazine) Hedge funds 13.8 (Based on nearly 3000 hedge funds) Managed futures funds had a good year in 2002 and were heavily promoted in 2003. Hedge funds have had tremendous investor interest during the bear market as an alternative investment and there has been a tremendous flow of money into these funds. Managed futures and hedge funds typically charge 20-25% of gains for their investment services. How did the all the FastBreak strategies on our web site perform? System Return, % MDD, % UPI Bonds posted 2/18/02 18.0 -5.2 9.1 Growth w/RUTTR signal 18.2 -17.3 1.9 International 62.9 -6.4 36.3 Bonds LT Gov and HY 16.4 -4.8 14.8 Bonds Conservative zero 19.0 -1.8 22.1 Bonds Aggressive zero 2.7 -9.9 -0.1 Juno only (shorts bonds) -1.2 -8.8 -1.1 Arktos only (shorts OTC) 0.8 -1.5 -2.6 Ursa only (shorts S&P) 2.4 -4.2 -0.4 Low beta Growth(w/RUTVOL signal) 30.4 -8.9 6.1 High beta Growth(w/RUTVOL signal) 30.4 -12.6 5.0 We are very happy with all the bond systems. The treasury bond market was very choppy due to the war, fear of deflation, economic recovery etc. Treasuries had a significant sell off in mid-year. The Aggressive bond system that trades volatile zero coupons struggled but this system was built to take aggressive advantage of treasury bonds in a strong treasury market. Some zero coupon bond funds lost nearly 30% in less than two months. Both the Aggressive and Conservative zero bond systems were able to sidestep most of these declines. The Juno Only system had a small loss, but we would expect this system to do very well when interest rates start to have a sustained increase. This system stayed in money market most of the year. The international system continued to have stellar performance. This same system was up nearly 30% in 2002. The Arktos and Ursa only systems short the market. Both systems stayed in money market for the vast majority of the year. This was exactly the right place to be in a strong market. Having a flat return may not look like good performance but several investors who tried to short in 2003 had very significant losses. A trading system needs to be robust in all market conditions. The systems that use the RUTTR an RUTVOL timing signals did very well but could have done much better. These market timing signals have done well during the recent bear market and have been very popular with the FastTrack investor community. We admire the excellent work that went into building these signals, and we built some trading systems to utilized the signals. After a fantastic sell and buy around the March market decline, both RUTTR and RUTVOL were constantly whipsawed the remainder of the year. Market sell offs were treated as buying opportunities with the "buy the dips" of the late 1990s back in favor. Just how poorly did the signals perform? Compare the following: Buy and hold With RUTVOL With RUTTR Return, % Return, % Return, % S&P 500 26.4 13.9 7.9 DJ-30 25.3 11.3 6.8 OTC 50.0 22.7 13.6 RUI-I 45.4 22.1 8.7 In general, the signals got less than half the total gain. It was clear to us that the signals were failing, but in the spirit of openness, we present our failures (if a 30% return can be called a failure!) along with our successes. The FastTrack commentary 2183 of 8/27/2003 declared the bear was over and investors should stop market timing. So, if you would have taken FastTrack's advice and stayed in the market beginning on 8/28/2003 what would your performance have been? System Return, % MDD, % UPI Growth w/RUTTR signal 48.3 -9.3 9.6 Low beta Growth(w/RUTVOL signal) 56.0 -7.3 25.5 High beta Growth(w/RUTVOL signal) 50.7 -7.3 22.0 Now the performance goes from very good to outstanding. Potential FastBreak users often ask about other systems such as Rydex and Fidelity Sectors. Here are some other systems we traded or monitored during the full year to provide additional information. These systems are not posted on our web Site. System Return, % MDD, % UPI Annuity 4 funds no signal 59.6 -5.9 30.3 Rydex w/RUTVOL signal 17.6 -11.8 2.5 Rydex w/ mod RUTVOL signal 48.9 -7.8 16.9 Rydex no signal 18.8 -19.3 1.9 Select w/RUTVOL 16.0 -11.7 2.3 Select w/ mod RUTVOL 38.7 -9.0 14.8 Select no signal 22.4 -12.6 3.5 The annuity system holds four positions in a trading family of 45 funds. The trading family includes a very diverse group of funds including international and bond funds. We are finally starting to see good performance with Rydex funds. The lack of long term historical data has hurt our ability to build systems but as we have more historical data the systems are starting to perform. We didn't trade any systems with individual stocks in 2002 since our primary interest is with mutual funds. Some of our users had fantastic results trading stocks. As we add new strategies to our web site we will put commentary in the Discussion area of our web site. We have recently started trading a very low MDD, high UPI, low frequency trading system that we will put on the web site. Unlike other trading methods, the FastBreak "mechanical" trading strategies give specific buy and sell recommendations. Mechanical trading systems leave no room for historic "revision". These types of trading systems may not be for everyone, but we believe they should be considered if you recognize yourself in the following: * Do you have trouble "pulling the trigger" on trades, e.g., selling your losers, taking profits on your winners, waiting for a bounce to get out of a bad trade ...? * Do you have a limited amount of time to devote to your investments? If you are a full time investor, or enjoy sitting in front of CNBC and your computer all day, you may be able to do better with other investment methods. However, if you have limited time (or better things to do with your time!) 10 minutes an evening is all you need to download your FastTrack data and run your FastBreak strategies. We have stopped reporting on some of the older FastBreak systems for a variety of reasons: Many of the mutual funds used in these old trading system families have since been discontinued, the market timing signals (unrelated to FastBreak) used did not stand the test of time, and we can build much more effective strategies with the functionality added to FastBreak in recent years. We felt that those systems don't accurately reflect the performance that FastBreak can produce. Edge Ware, Inc. Standard Disclaimer ------------------------------------------------------------------------ As the saying goes, "Past performance is not a guarantee of future results."