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Investment PhilosophiesNew York University

April 25, 2005

Charles Boorady

This presentation is based on my personal views as an analyst

Smith Barney is a division of Citigroup Global Markets. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

See last page for Analyst Certification and Important Disclosures

1

Sell Side Equity Research

u What it takes to be a Sell-Side analyst

u How my role as a sell-side analyst has changed over time

u My outlook for the future

• Great time to enter business

• High turnover presents opportunity

2

It takes Both Sides of Brainu Passion for Investing

u Resourceful & Efficient

u Analytical

u Effective Communicator

3

Passion for Investingu Career Advice: Follow your Passion

u Also a Passion for Industry Following– Healthcare 15% of GDP, Changing, Important– Health Benefit Providers at Vortex & Agents of Change

u Fundamental Discipline– Value of Firm = Discounted Free Cash Flow

u Be Aware of other Investing Styles, Time Horizons & Imbalances– Near-term Supply & Demand for Shares of Stock– Trader vs. Investor

4

US Healthcare 15% of GDP & Growing

Source: Health Care Financing Administration and Bureau & SB estimates.

0

500

1,000

1,500

2,000

2,500

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004E 2008E

$ in

Bill

ions

0%

5%

10%

15%

20%

% o

f GD

P

National Health Expenditures

% of GDP

5

Employer146

Individual17Medicare

44

Medicaid44

TRICARE8

Uninsured44

Intermediaries in $2.0 Trillion Industry

Buyers Suppliers

Premiums or fees paid by employers &government

85% of premiums passed through to providers

Managed Care

Hospitals

Pharmacies

Physicians

Labs

U.S. Population300 million

* Uninsured pay for care out-of-pocket and/or receive government and charity subsidized care.

Source: Company data, Smith Barney Research estimates.

uAetnauCIGNAuUnitedHealthuBlue Cross &

Blue Shield

u1000+ Others

6

Resourceful & Efficientu Start with "Weak" form of Efficient Market Hypothesis

– All past data fully reflected in securities prices

u What is New or Different This Time?

u Find New Information &/or Form New Mosaic – Before Somebody Else Does & Market Discounts

u Know your Business Cycle– Look at Appropriate Time Horizon– Often It Exceeds Many Investment Horizons

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-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

E

% U

nd

erw

riti

ng

Gai

n o

r L

oss

Example: 6-Year Cycles 1965 - 1993

Source: BCBS Association & SB Research

We expect BCBS margins to decline in 2004-05

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2000: Forward P/E 60% Discount vs. S&P Market Expects History to Repeat for Managed Care & Sees “New Economy”

Prices as of April 14, 2005.Source: FactSet, Smith Barney Research estimates.

Source: Smith Barney & FactSet

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

Mar-95 Sep-95 Mar-96 Sep-96 Mar-97 Sep-97 Mar-98 Sep-98 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05

Industry Managed Care Forward P/E's (Mkt Cap. Weighted) Relative to S&P 500 Forward P/E GAAPAverage 1995-Present GAAP

Industry Managed Care Forward P/E's (Mkt Cap. Weighted) Relative to S&P 500 Forward P/E Operating

(a) Managed Care Companies: AET, CI, CVH, HNT, HUM, PHS, SIE, UNH, WC, and WLP, including predecessors CBZ, FHCC, MME, OHP, TGH, and WLP (pre-ATH).

Relative valuations reflect peak marginsMarket paid trough P/E on

trough margins

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6 Yrs of Sideways, Record Market

Prices as of April 14, 2005.Source: FactSet, Smith Barney Research estimates.

(a) Managed Care Companies: AET, CI, CVH, HNT, HNT, PHS, SIE, UNH, WC, and WLP, including predecessors CBZ, MME, OHP, TGH, FHCC and WLP (pre-ATH).

Source: Smith Barney & FactSet

75100125150175200225250275300325350375400425450475500525550575600

Sep-94

Mar-95

Sep-95

Mar-96

Sep-96

Mar-97

Sep-97

Mar-98

Sep-98

Mar-99

Sep-99

Mar-00

Sep-00

Mar-01

Sep-01

Mar-02

Sep-02

Mar-03

Sep-03

Mar-04

Sep-04

Mar-05

SB MCO Index (Mkt Cap Wtd) SP 500

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What Industry Insiders Sawu Why the Cycle Existed?

– Non-profit and Mutually-owned Dominated

– Excess Capital Given Back in form of Premium Cuts

u What Changed?

– Non-profit and Mutually-owned Health Insurers Converting

u Upshot

– Business Cycle Elongated, Soft Landing

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-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

E

% U

nd

erw

riti

ng

Gai

n o

r L

oss

Elongated Cycle, Expect Soft Landing

Source: BCBS Association & SB Research

We expect BCBS margins to decline in 2004-05

12

2005: P/E Closer to Market Multiple

Prices as of April 14, 2005.Source: FactSet, Smith Barney Research estimates.

Source: Smith Barney & FactSet

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

Mar-95 Sep-95 Mar-96 Sep-96 Mar-97 Sep-97 Mar-98 Sep-98 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05

Industry Managed Care Forward P/E's (Mkt Cap. Weighted) Relative to S&P 500 Forward P/E GAAPAverage 1995-Present GAAP

Industry Managed Care Forward P/E's (Mkt Cap. Weighted) Relative to S&P 500 Forward P/E Operating

(a) Managed Care Companies: AET, CI, CVH, HNT, HUM, PHS, SIE, UNH, WC, and WLP, including predecessors CBZ, FHCC, MME, OHP, TGH, and WLP (pre-ATH).

Relative valuations reflect peak marginsMarket paid trough P/E on

trough margins

13

Index up 5x From Trough

Prices as of April 14, 2005.Source: FactSet, Smith Barney Research estimates.

(a) Managed Care Companies: AET, CI, CVH, HNT, HNT, PHS, SIE, UNH, WC, and WLP, including predecessors CBZ, MME, OHP, TGH, FHCC and WLP (pre-ATH).

Source: Smith Barney & FactSet

75100125150175200225250275300325350375400425450475500525550575600

Sep-94

Mar-95

Sep-95

Mar-96

Sep-96

Mar-97

Sep-97

Mar-98

Sep-98

Mar-99

Sep-99

Mar-00

Sep-00

Mar-01

Sep-01

Mar-02

Sep-02

Mar-03

Sep-03

Mar-04

Sep-04

Mar-05

SB MCO Index (Mkt Cap Wtd) SP 500

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Resourcefulu Street was Focused on Technology

u Ground Swell of Conversions & Demutualization

– Helps to be expert at industry

– Helps to have industry contacts

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Analyticalu Basic Problem Solving In Dynamic Environment

– Gather Facts Resourcefully & Efficiently– Analyze Facts to Form Conclusion or “Mosaic”– Repeat

u Use History as a Lesson NOT as a Guide

u Common Pitfalls– Assuming Street is Correct on Valuation

• Don’t lose Discipline Just Because Street Does (dot com)– Copying “homework”, be Original & Creative

• It is by definition too late if you use ideas of others– Always taking Contrarian's Stance

• Sometimes Consensus is Right!

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Analytical: Medicare Privatizationu Possibly the Largest privatization of our time

• $400-$500 Billion New Revenue Opportunity• 10x Revenue of Largest in Industry

u Clearly Can’t use History as Guide• Brand new market opportunity• Rely on ability to forecast new growth & profitability

u Opportunity for Primary Research • Helps to be Industry Expert with sources in D.C.

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HSA: Asset Accumulation Vehicle

80% 20%

$4,500 Deductible

HSA:Deposit

$4,500/yr

FSA: Deposit

$2,000/yr$2,000

Balance after 10 Years

$53,135HSA Product

Design

Source: Smith Barney Research.

…HSA is to healthcare what 401(k) is to Retirement

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Analytical: Hello H.S.A.u Health Savings Account

– Signed into law end of 2003– To Healthcare what 401(k) was to retirement

u Will Create Winners and Losers

u Again, Can’t Use History as Guide– Understanding of industry to predict winners & losers– Understanding of History as Lesson

– 20 yrs for HMOs & 401(k) to reach 80% Penetration– But History Not a Guide

– 70% of Employers somewhat or very likely by 2006

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Effective Communicatoru An Idea is Good If Investors Act on it

u Investors are Inundated with Information– But Never Have Enough Good Investing Ideas

u Written, Oral, Telephonic• Start with Conclusion – Opposite of How Problems are Solved

• Titles & Phrases That Concisely Tell The Story– “Elongated Cycle, Soft Landing”– “Hello H.S.A., Goodbye H.M.O.”– “Medicare Handoff Elongates Cycle”

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Effective Communicatoru Communication Should Be Two Ways

• Only way to know what is Discounted By Street

u Sometimes Ideas Don’t Work– Ideas that Work are of course Ideal

– Ideas that Doesn’t Work Aren’t Necessarily Bad– If 80% Chance Something Works, Don’t Let 20% Hold you

Back – But Be Clear on Risks– Be Right > Half The Time

– Communicate Failures Well– Understand What Went Wrong

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How My Role has Changedu Less Time on Capital Formation

u Greater Demand from Trading-Oriented Clients• Many New Clients, Increased Demand for My Time• Focus on Near-term vs. Long-term Performance• Client Turnover, High Hedge Fund Failure Rate

u Reg FD• Less Information Flow from Companies

– Less Leverage over Relationships with Managements• Opportunity to Leverage Long-time Industry Sources

– Net Positive for Good Analysts

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My Outlook for the Futureu Great time to Enter the Business & Get Established

– Challenging Post-Bubble Market– Position Well for Next Cycle Turn

u Treat Career Like Investment: Avoid Following the Herd

u Great Jumping Off Point– To Industry– To Buy-Side Mutual, Hedge, Private Equity, VC, etc.– To Investment Banking– To Retirement!

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Disclosures

Analyst CertificationI, Charles Boorady, hereby certify that the views expressed in t his research report accurately reflect my personal views about the subject company(ies) and its (their) securities. I also certify that I have not been, am not, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report.

Guide To Investment Ratings:Smith Barney’s stock recommendations include a risk rating and an investment rating.

Risk ratings, which take into account both price volatility and fundamental criteria, are: Low [L], Medium [M], High [H], and Speculative [S ].Investment ratings are a function of Smith Barney’s expectation of total return (forecast price appreciation and dividend yield within the next 12 months) and risk rating.

For securities in developed markets (US, UK, Europe, Japan, and Australia/New Zealand), investment ratings are: Buy [1] (expected total return of 10% or more for Low-Risk stocks, 15% or more for Medium-Risk stocks, 20% or more for High-Risk stocks, and 35% or more for Speculative stocks); Hold [2] ( 0%-10% for Low-Risk stocks, 0%-15% for Medium-Risk stocks, 0%-20% for High-Risk stocks, and 0%-35% for Speculative stocks); and Sell [3] (negative total return).

For securities in emerging markets (Asia Pacific, Emerging Europe/Middle East/Africa, and Latin America), investment ratings are: Buy [1] (expected total return of 15% or more for Low-Risk stocks, 20% or more for Medium-Risk stocks, 30% or more for High-Risk stocks, and 40% or more for Speculative stocks); Hold [2] (5%-15% for Low-Risk stocks, 10%-20% for Medium-Risk stocks, 15%-30% for High-Risk stocks, and 20%- 40% for Speculative stocks); and Sell (5% or less for Low-Risk stocks, 10% or less for Medium-Risk stocks, 15% or less for High-Risk stocks, and 20% or less for Speculative stocks).

Investment ratings are determined by the ranges described above at the time of initiation of coverage, a change in risk rating, or a change in target price. At other times, the expected total returns may fall outside of these ranges because of price movement and/or volatility. Such interim deviations from specified ranges will be permitted but will become subject to review by Research Management. Your decision to buy or sell a secur ity should be based upon your personal investment objectives and should be made only after evaluating the stock's expected performance and risk.

IMPORTANT DISCLOSURESSmith Barney is a division of Citigroup Global Markets Inc. (the “Firm”), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

This communication includes or is derived from Smith Barney research reports, notes, or analyses. (If not included, copies of research reports or notes can be found by accessing www.citigroupgeo.com or contacting the registered salesperson who covers your account. Private Client Division clients can access www. smithbarney.com/researchor contact their Financial Consultants.) For important disclosures regarding the companies that are the subject of this research report, please contact Smith Barney Equity Research, 388 Greenwich Street, 29th Floor, New York, NY, 10013, Attention: Production Administration. In addition, the same important disclosures, with the exception of the Valuation and Risk assessments, are contained on the Firm's disclosure website at www.citigroupgeo.com. Private Client Division clients should refer to www.smithbarney.com/research.

Analysts' compensation is determined based upon activities and services intended to benefit the investor clients of Citigroup Global Markets Inc. and its affiliates ( “the Firm”). Like all Firm employees, analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the Private Client Division, Institutional Equities, and Investment Banking.

34%44%48%% of companies in each rating category that are investment banking clients

19%45%36%Smith Barney Global Equity Research Coverage (2,326)

SellHoldBuyData current as of 31 March 2004

Smith Barney Equity Research Rating Distribution