Ascendere Associates LLC

Innovative Long/Short Equity Research

Model Portfolio Monthly Update: December 31, 2013

There are limitations inherent in our backtested theoretical model results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. Please see additional disclaimers and disclosures at the back of this report. We highlight stocks that demonstrate solid growth at a reasonable price (GARP). Stocks selected for our model portfolio strategies all rank highly for the following metrics, with an emphasis on proxies for cash flow growth and ROIC: Relative Value Operating Momentum Analyst Revision Momentum Fundamental Quality

Page 2 contains rebalancing actions for our long-only model portfolio. Page 3 contains rebalancing actions for our short-only model portfolio. Target and stop prices, as well as updated return data, to be provided in our daily reports that will follow.

Ascendere Associates LLC J. Stephen Castellano

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December 31, 2013 steve@ascenderellc.com

Commentary We are very optimistic about the return potential of stocks in 2014. Short ideas are increasingly difficult to find as thousands of of U.S.-centric public companies appear likely to report drastically improving returns on capital and cash flow growth in the new year. A continued economic resurgence could cause small cap and high-beta stocks to drastically outperform the more mature larger-cap stocks. Nearly every stock position we are closing in our long-model portfolio still look attractive; we are instead trading up to as-attractive higher-beta names. All else being equal, high-beta stocks should out-perform in a rising market and drastically underperform in a declining market. These model portfolio strategies rebalance each month. But many stocks tend to do well over extended periods as well. At the back of this report are 12-month returns for the 12/31/2012 long model. The best-performing stock was Herbalife Ltd. (HLF) with a 12-month return of 139%; the worst performing was Telecom Italia S.p.A. (TI) with 1.65% decline. This portfolio of 25 stocks rose on average 43.3% in 2013 versus the S&P 500 return of 29.6% (compounded, excluding dividends).

Ascendere Associates LLC J. Stephen Castellano

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December 31, 2013 steve@ascenderellc.com

Long Model Portfolio -- Rebalancing Actions

12/31/2013 Rebalancing Core and Opportunistic Long Portfolio: 26 stocks in the model portfolio = 3.85% weight per position

Close Position GameStop Corp. Williams-Sonoma Inc. The Home Depot, Inc. Lowe's Companies Inc. Oasis Petroleum Inc. XL Group plc HEALTHSOUTH Corp. Northrop Grumman Corporation MasterCard Incorporated Skyworks Solutions Inc.

GME WSM HD LOW OAS XL HLS NOC MA SWKS

Source: Ascendere Associates LLC

Hold/Rebalance Foot Locker, Inc. FL Hanesbrands Inc. HBI Bally Technologies, Inc. BYI Nu Skin Enterprises Inc. NUS Western Refining, Inc. WNR SEI Investments Co. SEIC EPR Properties EPR Old Republic International Corporation ORI United Therapeutics Corporation UTHR Flowserve Corp. FLS SanDisk Corp. SNDK NXP Semiconductors NV NXPI Packaging Corporation of America PKG

Open Position Dillard's Inc. Lumber Liquidators Holdings, Inc. Signet Jewelers Limited Oceaneering International, Inc. Omega Healthcare Investors Inc. PAREXEL International Corporation Grifols, S.A. VCA Antech Inc. American Airlines Group Inc. Lennox International, Inc. Huntington Ingalls Industries, Inc. Paychex, Inc. FleetCor Technologies, Inc.

DDS LL SIG OII OHI PRXL GRFS WOOF AAL LII HII PAYX FLT

Ascendere Associates LLC J. Stephen Castellano

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December 31, 2013 steve@ascenderellc.com

Short Model Portfolio -- Rebalancing Actions

When the market anticipates an improving economy from low price levels, low-quality stocks will at times out-perform high-quality stocks as the improvements are discounted from a more depressed base.

12/31/2013 Rebalancing Core and Opportunistic Short Portfolio: 21 stocks in the model portfolio = 4.76% weight per position

Close Position FMC Technologies, Inc. FTI CONSOL Energy Inc. CNX Waste Connections Inc. WCN China Eastern Airlines Corp. Ltd. CEA Telephone & Data Systems Inc. TDS

Hold/Rebalance Sinclair Broadcast Group Inc. SBGI General Motors Company GM Forum Energy Technologies, Inc. FET Cheniere Energy, Inc. LNG Allscripts Healthcare Solutions,MDRX Inc. BioMarin Pharmaceutical Inc. BMRN Clean Harbors, Inc. CLH Eaton Corporation plc ETN Pentair Ltd. PNR JDS Uniphase Corporation JDSU Concur Technologies, Inc. CNQR Chemtura Corporation CHMT Allegheny Technologies Inc. ATI

Open Short Sale Liberty Media Corporation Deutsche Bank AG Woodward, Inc. Genesee & Wyoming Inc. KBR, Inc. IHS Inc. TIBCO Software Inc. VeriFone Systems, Inc.

LMCA DB WWD GWR KBR IHS TIBX PAY

Source: Ascendere Associates LLC

Ascendere Associates LLC J. Stephen Castellano

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December 31, 2013 steve@ascenderellc.com

Return Data December 2013

Core & Opportunistic Long Model
11/30/2013 to 12/31/2013 Sector Health Care Industrials Information Technology Energy Consumer Staples Information Technology Information Technology Consumer Discretionary Consumer Discretionary Consumer Discretionary Information Technology Financials Materials Consumer Discretionary Consumer Discretionary Energy Industrials Financials Consumer Discretionary Financials Consumer Discretionary Financials Health Care Company United Therapeutics Corp. Flowserve Corp. Mastercard Incorporated Western Refining Inc. Nu Skin Enterprises Inc. NXP Semiconductors NV Skyworks Solutions Inc. Foot Locker Inc. Bally Technologies, Inc. Lowe's Companies Inc. SanDisk Corp. SEI Investments Co. Packaging Corp. of America GameStop Corp. The Home Depot, Inc Oasis Petroleum Inc. Northrop Grumman Corp. Old Republic International Corp. Hanesbrands Inc. XL Capital Ltd. Williams-Sonoma Inc. Entertainment Properties Trust HEALTHSOUTH Corp.
Ticker

Theoretical Longs MTD Stopped Out on 8/4/2011 close for a -12.33% loss Target/ Stop Date Date+1 Sell Price

UTHR FLS MA WNR NUS NXPI SWKS FL BYI LOW SNDK SEIC PKG GME HD OAS NOC ORI HBI XL WSM EPR HLS

11/30/2013 92.31 71.38 760.81 39.07 127.84 42.50 26.59 38.89 74.57 47.48 68.15 33.58 61.26 48.25 80.67 46.13 112.68 17.20 70.10 31.99 59.12 50.29 35.79

12/31/2013 113.08 78.83 835.46 42.41 138.22 45.93 28.56 41.44 78.45 49.55 70.54 34.73 63.28 49.26 82.34 46.97 114.61 17.27 70.27 31.84 58.28 49.16 33.32

Performance 22.50% 10.44% 9.81% 8.55% 8.12% 8.07% 7.41% 6.56% 5.20% 4.36% 3.51% 3.42% 3.30% 2.09% 2.07% 1.82% 1.71% 0.41% 0.24% -0.47% -1.42% -2.25% -6.90%

Return

12/26/2013 $

827.87

8.81%

Ascendere Associates LLC J. Stephen Castellano

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December 31, 2013 steve@ascenderellc.com

Core & Opportunistic Short Model

11/30/2013 to 12/31/2013 Sector Telecommunication Services Industrials Industrials Materials Health Care Healthcare Energy Industrials Consumer Discretionary Information Technology Energy Information Technology Materials Energy Consumer Discretionary Energy Industrials Industrials Company Telephone & Data Systems Inc. China Eastern Airlines Corp. Ltd. Waste Connections Inc. Chemtura Corporation BioMarin Pharmaceutical Inc. Allscripts Healthcare Solutions, Inc. Forum Energy Technologies, Inc. Eaton Corp. General Motors Company Concur Technologies, Inc. CONSOL Energy Inc. JDS Uniphase Corp. Allegheny Technologies Inc. FMC Technologies, Inc. Sinclair Broadcast Group Inc. Cheniere Energy Inc. Pentair, Inc. Clean Harbors Inc.
Ticker

Theoretical MTD shorts hit target 8/4/2011 for 14.84% gain Target/ Date+1 Stop Date Sell Price 12/9/2013 $ 25.07

TDS CEA WCN CEM BMRN MDRX FET ETN GM CNQR CNX JDSU ATI FTI SBGI LNG PNR CLH

11/30/2013 27.81 20.00 43.94 27.35 70.43 14.94 27.01 72.66 38.73 97.09 35.58 12.14 33.22 48.10 32.82 39.59 70.72 52.77

12/31/2013 25.78 19.24 43.63 27.22 70.35 15.46 28.26 76.12 40.87 103.18 38.04 12.99 35.63 52.21 35.73 43.12 77.67 59.96

Performance -7.30% -3.80% -0.71% -0.48% -0.11% 3.48% 4.63% 4.76% 5.53% 6.27% 6.91% 6.96% 7.25% 8.54% 8.87% 8.92% 9.83% 13.63%

Return -9.85%

12/9/2013 $

25.86

-5.45%

12/16/2013 $ 12/19/2013 $ 12/27/2013 $ 12/16/2013 $ 12/5/2013 $ 12/18/2013 $ 12/16/2013 $

41.53 37.84 35.47 53.16 44.90 74.89 56.20

7.23% 6.35% 6.77% 10.52% 13.41% 5.90% 6.50%

Ascendere Associates LLC J. Stephen Castellano

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December 31, 2013 steve@ascenderellc.com

Theoretical Model Portfolio* 12/31/13 Simple Returns (No Compounding) Stock Targets Core Model Long Short Core Long/Short Opportunistic Model Long Short Opportunistic Long/Short Opportunistic Model III Long Stocks Long Inverse ETF ^SH Opportunistic Long/Short III S&P 500 Index S&P 500 Total Return Index

MTD

YTD

Since 03/31/09

Sharpe

-0.44% 0.12% -0.56%

4.39% 3.96% 0.42%

37.61% 19.52% 18.09%

138.6% 86.0% 52.7%

1.09 0.78 0.57

Stock Targets and Portfolio Targets

-0.44% 0.00% -0.44%

4.39% 3.96% 0.42%

22.46% 19.73% 2.72%

129.8% 37.5% 92.4%

1.34 0.32 1.16

Stock Targets and Portfolio Targets

-0.44% 0.00% -0.44% -0.60% #REF!

4.39% 2.37% 2.02% 2.37% 2.54%

22.46% 29.77% -7.32% 26.55% 28.68%

129.8% 65.7% 64.1% 91.33% 101.54%

1.34 0.80 0.90 1.09 1.21

* Return figures are calculated using cumulative simple returns. This table represents returns of several theoretical portfolios that do not assume any costs. This table is not to be construed as advertising for any investment service. Real portfolios that attempt to exactly replicate these theoretical strategies will generate lower returns relative to these models due to slippage, transaction costs, tax expenses and other costs. Theoretical returns in this table are based in part on backtests which may be changed or updated at any time as refine our strategies. There are limitations inherent in our backtested theoretical model results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. We do our best to provide accurate information, but do not guarantee this. Please see additional disclosures and disclaimers.

Ascendere Associates LLC J. Stephen Castellano

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December 31, 2013 steve@ascenderellc.com

Core

Opportunistic

"Dollar Neutral" 1

"Dollar Neutral" 2

Inception March 31, 2009

Long , Stock Targets Theoretical 0.50% 4.39% 37.61% 138.64%

12/31/2013 Simple Returns Today MTD YTD Cumulative from 12/31/04 Absolute Risk Daily Average Daily Range Daily Standard Deviation Daily Return/Standard Deviation Average 90-Day T-bill Annualized Daily Returns Annualized Standard Deviation Sharpe Ratio Percentage Down Days Average Daily Downside Value Daily Downside Deviation Daily VAR of 1000 at 95% Conf Benchmark Relative Risk Correlation R-Squared Daily Tracking Error Regression Beta Daily Alpha Jensen's Daily Alpha Trading Days

Long, Stock and Portfolio Targets Theoretical 0.50% 4.39% 22.46% 129.82%

Long/Short, Stock Targets and Portfolio Targets Theoretical 0.07% 0.42% 2.72% 92.36%

Long, Stock and Portfolio Targets / Long ^SH ETF Theoretical 0.50% 5.93% -5.47% 64.40%

S&P 500 Total Return Index

0.40% 2.54% 28.68% 101.54%

0.12% 16.86% 1.62% 7.11% 1.56% 29.10% 25.8% 1.07 44.1% -1.18% -1.21% -25

0.11% 15.84% 1.22% 8.81% 1.56% 27.17% 19.4% 1.32 32.0% -1.03% -1.02% -19

0.08% 11.84% 0.98% 7.73% 1.56% 19.17% 15.6% 1.13 42.3% -0.65% -0.63% -15

0.05% 12.00% 0.88% 5.73% 1.56% 12.71% 14.0% 0.80 42.2% -0.59% -0.63% -14

0.08% 11.39% 1.12% 7.43% 1.56% 21.03% 17.8% 1.09 43.1% -0.82% -0.85% -17

0.91 0.84 0.74%

0.69 0.47 0.92%

(0.06) 0.00 1.52%

0.05 0.00 1.37%

1.32 0.031% 0.041% 1197

0.75 0.024% 0.018% 1197

-0.05 -0.008% 0.000% 1197

0.04 -0.031% -0.001% 1197

*Returns calculated by the simple return method (not compounded). * Portfolio models are theoretical and assume no costs. * Data collected in real time since 3/31/2009 Source: Ascendere Associates LLC

Ascendere Associates LLC J. Stephen Castellano

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December 31, 2013 steve@ascenderellc.com

Ascendere Associates LLC J. Stephen Castellano

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December 31, 2013 steve@ascenderellc.com

Ascendere Associates LLC J. Stephen Castellano

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December 31, 2013 steve@ascenderellc.com

12-Month Returns Best Stocks for 2013

Ticker2 FL LTD WSM SIG HSNI HLF GMCR MCO HBAN ACAS FITB USB EWBC CYN TROW WPI TGI CBI TRN VMI CTSH WXS CF SHW TI.A

12/31/2012 $ 32.12 $ 47.06 $ 43.77 $ 53.40 $ 55.08 $ 32.94 $ 41.34 $ 50.32 $ 6.39 $ 12.02 $ 15.20 $ 31.94 $ 21.49 $ 49.52 $ 65.12 $ 86.00 $ 65.30 $ 46.35 $ 35.82 $ 136.55 $ 73.88 $ 75.37 $ 203.16 $ 153.82 $ 7.90

1/31/2013 6.94% 2.04% 0.53% 17.19% 8.21% 10.26% 10.14% 8.94% 8.92% 11.14% 7.17% 3.63% 9.12% 6.95% 9.66% 0.45% 7.76% 9.62% 10.83% 6.72% 5.82% 4.30% 12.80% 5.41% 7.09%

2/28/2013 6.44% -3.27% 3.72% 14.64% -2.87% 22.31% 15.51% -4.49% 10.02% 16.38% 4.21% 6.39% 14.47% 14.72% 9.33% -0.98% 12.42% 15.62% 20.71% 15.38% 3.91% -0.48% -1.15% 5.05% -18.10%

3/31/2013 6.60% -5.10% 17.71% 25.47% -0.40% 13.69% 37.30% 5.96% 15.34% 21.42% 7.30% 6.23% 19.45% 18.96% 14.98% 7.10% 20.21% 33.98% 26.55% 15.17% 3.71% 4.15% -6.30% 9.80% -22.78%

4/30/2013 8.56% 7.12% 22.64% 28.71% -4.54% 20.55% 38.85% 20.93% 12.21% 25.87% 12.04% 4.20% 13.22% 15.57% 11.34% 22.94% 22.36% 16.05% 17.84% 6.72% -12.29% 0.54% -8.20% 19.04% -13.42%

5/31/2013 6.85% 6.27% 23.28% 28.30% 3.29% 41.68% 76.90% 32.03% 21.28% 10.89% 19.74% 9.77% 22.62% 26.74% 16.57% 43.36% 18.91% 36.57% 14.27% 11.56% -12.50% -1.99% -6.01% 22.57% -22.41%

6/30/2013 9.37% 4.65% 27.69% 26.27% -2.47% 37.04% 81.95% 21.09% 23.16% 5.40% 18.75% 13.18% 27.97% 27.97% 12.41% 46.77% 21.21% 28.72% 7.31% 4.79% -15.22% 1.76% -15.58% 14.81% -29.49%

7/31/2013 12.48% 18.51% 34.48% 36.91% 9.04% 98.85% 86.74% 34.68% 33.80% 14.14% 26.58% 16.84% 43.46% 40.41% 15.55% 56.13% 20.15% 28.54% 9.91% 2.26% -2.02% 15.35% -3.52% 13.23% -33.80%

8/31/2013 0.25% 21.89% 28.88% 24.34% -2.21% 85.22% 108.78% 26.31% 28.95% 3.82% 20.33% 13.12% 36.02% 32.21% 7.71% 57.19% 10.21% 29.08% 17.87% -1.16% -0.79% 6.18% -6.31% 12.08% -31.52%

9/30/2013 10/31/2013 11/30/2013 12/31/2013 5.67% 8.03% 21.08% 29.02% 29.83% 33.04% 38.10% 31.43% 28.40% 19.81% 35.07% 33.15% 34.18% 39.81% 43.90% 47.38% -2.65% -4.87% 4.21% 13.11% 111.81% 96.78% 111.54% 138.92% 82.22% 51.94% 62.99% 82.73% 39.77% 40.42% 48.31% 55.94% 29.26% 37.72% 43.51% 51.02% 14.39% 16.63% 27.28% 30.11% 18.75% 25.23% 33.68% 38.36% 14.53% 16.97% 22.79% 26.49% 48.67% 56.77% 59.52% 62.73% 34.61% 45.62% 54.20% 59.98% 10.46% 18.88% 23.56% 28.65% 67.44% 79.74% 89.62% 95.35% 7.53% 9.72% 13.23% 16.49% 46.21% 59.85% 65.44% 79.37% 26.61% 41.35% 44.92% 52.21% 1.73% 2.89% 5.98% 9.21% 11.15% 17.66% 27.08% 36.68% 16.43% 23.86% 31.70% 31.39% 3.78% 6.12% 7.00% 14.71% 18.44% 22.22% 18.99% 19.30% -16.96% -1.14% -3.16% -1.65%

Average Returns ^SPX $ 1,426.19

7.67% 5.04%

7.20% 6.20%

11.86% 10.03%

12.35% 12.02%

18.02% 14.34%

15.98% 12.63%

25.15% 18.20%

21.14% 14.50%

27.29% 17.90%

30.60% 23.16%

37.22% 26.62%

43.28% 29.60%

Ascendere Associates LLC J. Stephen Castellano

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December 31, 2013 steve@ascenderellc.com

DISCLOSURES Ascendere is in the business of providing equity research and related consulting services to investors and their advisors. The equity research it provides includes basic quantitative model portfolios and more detailed fundamental research with respect to individual stocks. In addition, the firm manages stock portfolios for itself and clients. Ascendere does not rate stocks on any scale, but does offer individual stock commentary and valuation opinions. With regard to Ascendere's portfolio strategies, "long" or "high-quality" baskets should generally be considered buys, unless otherwise noted. Stocks in our "short" or "low-quality" baskets should generally be considered sells, unless otherwise noted. While exceptions may occasionally occur, typically stocks in the high-quality basket are expected to outperform the S&P 500 over a month's time and stocks in the low-quality basket are expected to underperform. A more relevant benchmark would comprise of all stocks and ADRs that trade on major U.S. stock exchanges with a market cap above $2 billion. Ascendere adheres to professional standards and abides by codes of ethics that put the interests of clients ahead of its own. The following are specific disclosures made by Ascendere: 1) Ascendere may have a financial interest in the companies referred to in this report ("the Companies"). The research analyst covering the Companies and members of the analyst's immediate family have a financial interest in one or more of the Companies. 2) Ascendere generates revenue from research subscription revenue and portfolio management fees. At any given time it may be long or short any of the Companies. 3) Ascendere does not make a market in the securities of any of the Companies. 4) Ascendere has not received compensation from the Companies. 5) Ascendere has not managed or co-managed a public offering for any of the Companies. 6) Neither Ascendere nor any of its officers or any family member of the covering analyst serve as an officer, director or advisory board member of any of the Companies. 7) Neither Ascendere nor any of its officers or any family member of the covering analyst beneficially own 1% or more of any class of securities of any of the Companies.

DISCLAIMERS This report is intended for informational purposes only and does not constitute a recommendation, or an offer, to buy or sell any securities or related financial instruments. The report is not intended to be in furtherance of the specific investment objectives, financial situation, or particular needs of any individual recipient. Investment decisions should be based on an individual's own goals, time horizon and tolerance for risk. The information contained herein accurately reflects the opinion of Ascendere at the time the report was released. The opinions of Ascendere are subject to change at any time without notice and without obligation or notification. The officers, affiliates or family members of Ascendere Associates may hold positions in the securities of the Companies. No warranty is made as to the accuracy of the information contained herein. The views and opinions expressed in the market commentary reflect the opinions of the author and may be based upon information obtained from third-party sources believed to be reliable but not guaranteed. These opinions are subject to change at any time based upon market or other conditions. Ascendere disclaims any responsibility to update such views. This information is intended for the sole use of clients of Ascendere. Any other use, distribution or reproduction is strictly prohibited. Investing in stocks includes a high degree of risk, including the risk of total loss. This is for informational purposes only and is not intended to constitute a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. All information, opinions and estimates are current as of original distribution by author and are subject to change at any time without notice. Any companies, securities and/or markets referenced are solely for illustrative purposes. Past performance is not indicative of future performance, and no representation or warranty, express or implied, is made regarding future performance. For Investment Professional use only. NOT FOR FURTHER DISTRIBUTION. Any dissemination or copying of this commentary is strictly prohibited.

Ascendere Associates LLC J. Stephen Castellano

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December 31, 2013 steve@ascenderellc.com

J. Stephen Castellano founded Ascendere Associates LLC to provide innovative equity research and investment advisory services that blends fundamental and quantitative approaches. In general, our approach is quite simple -- we believe that return on invested capital and long-term earnings growth are key to stock valuation. More specifically, we use powerful and unique financial models that combine publicly available data, consensus estimates and our own inputs to generate consistent and actionable stock recommendations. Among the services that Ascendere provides are: 1) detailed custom equity research analysis; 2) valuation scenario analysis studies; 3) supply /demand studies; 4) long and short stock idea generation; 5) portfolio feedback; 6) detailed fundamental financial modeling services; and 7) additional analytical consulting services. Additional information is available at www.ascenderellc.com. Mr. Castellano has over 15 years of experience in equity research and related consulting work. At PaineWebber, Warburg Dillon Read and Credit Lyonnais Securities he developed fundamental equity valuation models and conducted in-depth research on the steel and telecom services industries. At Boston Private Value Investors, he developed quantitative models for stock idea generation and also provided general fundamental equity research coverage. Steve received a MBA from the F. W. Olin School of Business at Babson College (2005) and a BA from Oberlin College (1993). Mr. Castellano's career history is highlighted below: Startup Ecommerce Company (2013-Present) Ascendere Associates, LLC (2009-Present) Boston Private Value Investors , Equity Research, Equity Research Analyst (2005-2009) Pyramid Research, Contract Consultant, Telecom Services (2002-2003) Credit Lyonnais Securities (USA), Equity Research, Telecom Services, Vice President (2000-2001) Warburg Dillon Read, Equity Research, Telecom Services, Research Associate (1999-2000) PaineWebber, Equity Research, Steel and Nonferrous Metals, Research Associate, Editor (1995-1999)

Ascendere Associates LLC J. Stephen Castellano

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