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1 Director’s Letter 2 SMIF Team Letter 3 OCSIMSF Letter 4 OCSIM & LASFA 5 Economic Analysis 6 Sector Analysis & Benchmark 7 Fixed Income 8 Coca-Cola Bottling/Time Warner Companies, Inc. 9 Equity 11 Commerce Bancorp (NYSE: CBH) 12 Corinthian Colleges (NYSE: COCO) 13 Omnicare Corp. (NYSE: OCR) 14 Hovnanian Enterprises (NYSE: HOV) 15 Humana Inc. (NYSE: HUM) 16 Laboratory Corp. of America (NYSE: LH) 17 Nokia Corp. (NYSE: NOK) 18 Overseas Shipholding Group (NYSE: OSG) 19 Texas Instruments Inc. (NYSE: TXN) 20 Winnebago Industries Inc. (NYSE: WGO) 21 Portfolio Performance 2003-2004 23 RISE Symposium 24 Meet the SMIF Team 25 Student Managers 29 Acknowledgements 31 References 32 Appendix A 34 Appendix B 35 Glossary 37 Mission Statement

TABLE OF CONTENTS

SMIF 2003-2004

Annual Report

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To the Readers of the SMIF Annual Report: May 2004 The 2003-2004 academic year marked the ninth year for the Student-Managed Investment Fund (SMIF) at the California State University, Long Beach. The year contained many challenges, but it was also a year for many important firsts for the SMIF program that should serve CSULB and its students well as we head into SMIF’s decennial year. The start of the academic year saw interest rates at historic lows, with little uncertainty that they would even-tually start to head back up. The major question with which the SMIF students were faced was when this would occur – specifically, would the low interest rates hold out through the end of the academic year, when the SMIF portfolio is liquidated, or would their ascent begin while the portfolio was still invested? This question led to spirited and well-researched debates during the fall semester regarding what the SMIF portfo-lio’s target asset allocation should be and what the average duration of its bond holdings should be. Moreover, the 2003 – 2004 academic year saw the introduction of a number of initiatives designed to improve the SMIF program and further augment the educational experiences gained by the SMIF students. A grant from CSULB’s Instructionally Related Activities (IRA) Committee enabled us to procure the Bloomberg Professional Service (i.e., a “Bloomberg machine”) for use by the SMIF students in conducting their analysis. This not only provided them with access to the same information and analytical tools used by real-world professionals but also gave them the opportunity to work toward the resume-enhancing Bloomberg Product Certification status. The same grant also enabled a number of the SMIF students to travel to the University of Dayton’s annual RISE symposium, allowing them to interact with student portfolio managers and investment professionals from around the continent. Another new initiative was provided by the Orange County Society of Investment Managers Scholarship Foundation (OCSIMSF), which developed two new programs that have enabled a much greater level of interaction between the SMIF students and professionals within the Orange County investment community. The SMIF students as a team were the inaugural winners of OCSIMSF’s first Annual RFP Competition, for which they have been managing a virtual portfolio under the supervision of members of the OCSIMSF’s Investment Policy Committee. Moreover, one of this year’s SMIF students, Vu Chu, was also the recipient of OCSIMSF’s first-ever educational scholarship. This year’s SMIF students have certainly fulfilled the expectations of the faculty members of the Department of Finance and Law in creating the SMIF program, to provide a unique opportunity for students to participate in the management of a “real dollar” portfolio while still in the relative safety of an academic environment, and we look forward to seeing what these students can accomplish as they venture forth into the real world! Best Wishes to the 2003-2004 SMIF Participants!

Dr. L.R. Runyon, Director Student Managed Investment Fund

Dr. Peter A. Ammermann, Co-Director Student Managed Investment Fund

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Dear Readers of the SMIF Annual Report:

In 2003 and 2004, the Student Managed Investment Fund (SMIF) at California State University Long Beach (CSULB) has proved that it can perform at an extraordinary level strategically, operationally, and financially. We made a number of critical decisions with respect to our investment process that guided our approach to the financial markets, facilitated efficient management of our resources, and demanded absolute excellence from everyone involved. The result has been transformational. The team has created a dynamic organization that is committed to disciplined growth and to creating wealth for CSULB in the years to come.

The members of SMIF have worked hard to shape the fund into one capable of performing at the highest level. We derived our investment philosophy strategically, with realistic monetary growth as an ultimate goal.

With strict adherence to a “Growth at a Reasonable Price” (G.A.R.P.) investment philosophy, the SMIF team invested the portfolio with great resolve and confidence.after spending much time researching and analyzing potential holdings to find the diamonds in the rough.

Essentially, the companies that are represented in both the equity the and fixed-income portions of our Fund have superior growth prospects compared to both their industry and the market as a whole, while maintaining a price that presents reasonable value over a 3 to 5 year investment horizon.

SMIF is committed to attracting, encouraging, and rewarding talent, providing our people with opportunities to grow and add ever-increasing value. With that in mind, we have positioned the Fund for success in the years ahead.

We are delighted to announce that SMIF is the first team ever to manage the Orange County Society of Investment Managers Scholarship Foundation (OCSIMSF) fund. Against fierce competition, our organization at CSULB demonstrated an advanced ability and skill set compared to other university participants. This involvement will certainly perpetuate SMIF’s recognizable presence well into the future.

We are pleased to present to you, in the following pages, the product of combining intelligence, knowledge, and determination into a clear investment focus.

Sincerely, The 2003-2004 SMIF Team

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OCSIMSF LETTER

ORANGE COUNTY SOCIETY OF INVESTMENT MANAGERS SCHOLARSHIP FOUNDATION

SCHOLARSHIP FOUNDATION May 2004 Orange County Society of Investment Managers Scholarship Foundation

PMB 359 211 S. State College Blvd. Anaheim, CA 92806

Phone: 949.400.2190

E-mail: info@ocsimsf.org

Chair Krista S. Zipfel, CFA Advisor Solutions Group (949) 400-2190 Vice Chair Russell Murdock, CFA Seabreeze-Capital Management, LLC (714) 531-0290 Treasurer Scott Monroe, CFA Fidelity Investments (949) 437-4219 Secretary Michael Rusinas Financial Management Association (562) 985-5776 Investment Policy Committee Chair Peter A. Ammermann, Ph.D. California State University, Long Beach (562) 985-7526 Fund Raising Chair Eric Kottke Sophia Orange Hedge Fund Advisory (949) 480-1858

BOARD OF TRUSTEES

To the Readers of the CSULB SMIF 2003-2004 Annual Report:

The OCSIM Scholarship Foundation (OCSIMSF) was founded in 2003 by the Orange County Society of Investment Managers to fulfill an important mission, namely to foster, promote and encourage the development of professionalism by the Orange County investment community; and to heighten public awareness of this professionalism by:

1. Providing educational scholarships for the study of financial investment practice at colleges and universities located in Orange County, California; and

2. Supervision of a select group of students of financial investments in the management of all or a portion of the investment portfolio of the corporation.

To fulfill this mission, we drafted a plan for a student-managed fund that is unique from other such projects around the country. Each year, a group of students from the local universities will have to draft a response to the foundation’s RFP and make a presentation to the foundation board on how they propose to manage the foundation’s funds and why they are the most qualified team to do so, an experience unique to our project.

During Fall 2003, the Foundation sent out Requests For Proposal to local universities to allow student teams from around Orange County to compete for the opportunity to manage the Foundation’s portfolio for one year, and we are pleased to announce that the inaugural winners of the annual portfolio management Request For Proposal competition are the SMIF students of CSULB, and we congratulate them on their successful proposal and presentation. Based on the results of this proposal, the team of students from CSULB has been managing a $100,000 virtual portfolio for the 2004 calendar year under the supervision and guidance of the OCSIMSF Investment Policy Committee, and the results and performance for this portfolio will be presented to the Boards of Trustees for both OCSIM and the OCSIM Scholarship Foundation.

The second part of our mission is the provision of educational scholarships to students who are studying investments at Orange County-area universities. The recipients of these scholarships are announced each January at our Annual Forecast Dinner. For 2004, the inaugural year for this scholarship, a $1,000 scholarship was awarded to Mr. Vu Quang Chu, who not only was the most outstanding applicant out of a field of highly qualified applicants, but is also one of the members of the RFP-competition-winning CSULB SMIF team.

We applaud Mr. Chu and all the other students of the 2003-2004 SMIF Team for all of their efforts. Not only have their achievements been meritorious, but we believe that the OCSIM Scholarship Foundation’s first year of operations has been much more successful than it might otherwise have been had we not had the participation of the CSULB SMIF students.

So, to the SMIF students, congratulations on your successes over the past year, thank you very much for your participation in the activities of the OCSIM Scholarship Foundation, and we wish you all the best of luck in the future!

Sincerely,

© 2003 Orange County Society of Investment Managers Scholarship Foundation, Inc. All Rights Reserved.

Krista S. Zipfel, CFA Chair, OCSIM Scholarship Foundation

Peter A. Ammermann, Ph.D. Chair, OCSIMSF Investment Policy Committee

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The CFA Institute® and the Chartered Financial Analyst® Program

The Chartered Financial Analyst (CFA®)program is a internationally acknowledged standard for recognizing professional competency and integrity of financial analysts. It is the preeminent designation for professionals in the investment-management industry. The program requires the successful completion of a sequence of three examinations spanning a multitude of topics, including ethics, statistics, accounting, and a vari-ety of asset valuation and portfolio management techniques.

The CFA designation is a valuable asset in the job market. CFA charter-holders command higher-than-average salaries and are afforded a wider variety of employment opportunities.

The CFA program is administered and overseen by the CFA Institute (formerly known as the Associa-tion for Investment Management and Research, or AIMR). The two local organizations that are affiliated with the CFA Institute are Los Angeles Society of Financial Analysts (LASFA) and the Orange County Society of Investment Managers (OCSIM).

Because of the prominence of the CFA program and the importance of professional networking for obtaining employment in the investment industry, the SMIF students are encouraged and required to participate in the activities of LASFA and OCSIM.

Los Angeles Society of Financial Analysts

The Los Angeles Society of Financial Analysts, Inc. (LASFA) is a non-profit organization that conducts various events in the form of seminars, presentations, career expositions, dinners, and luncheons. The topics at these events address various financial issues such as equity valuation, fixed-income analysis, tax law, economic analysis, interest rates, financial strategies, career paths, and many other aspects of the financial arena.

Orange County Society of Investment Managers

The Orange County Society of Investment Managers (OCSIM) was founded in 1983 by investment practitioners in the Orange County area and has been affiliated since 1997 with what is now the CFA Institute. In addition to offering programs similar to those provided by LASFA, a part of the mission of OCSIM is to foster closer ties within the local investment community, and CSULB and the SMIF program has been a major beneficiary of these efforts. A number of OCSIM executives have given presentations to CSULB classes and organizations and also provided internship opportu-nities to SMIF students. Moreover, a major new initiative by OCSIM has greatly enhanced the educational opportunities available to the SMIF students. This new initiative was the creation of the OCSIM Scholarship Foundation (OCSIMSF).

SMIF and the OCSIM Scholarship Foundation

In addition to providing scholarships to local investment students, the OCSIM Scholarship Foundation, which was established in 2003, sponsors an annual Request for Proposal (RFP) competition for student teams from local universities. The SMIF students have benefited from both of these activities. Namely, the SMIF students collectively were the inaugural winners of the annual RFP competition, and, as part of their reward, they will be managing a virtual portfolio under the supervision of the OCSIMSF Investment Policy Committee throughout the remainder of the year. Moreover, one of this year’s SMIF students, Vu Chu, was the inaugural recipient of OCSIMSF’s first educational scholarship.

OCSIM & LASFA

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ECONOMIC ANALYSIS

Economic Outlook The Congressional Budget Office (CBO) has re-cently conducted a two-year forward-looking fore-cast of economic indicators, such as real GDP. They expect that demand will pick up in the last quarter of 2003 into 2004, as evidenced by a second quarter increase in consumer sentiment as well as in overall demand. A target of 3.8 % growth is ex-pected in 2004, which is contingent on a rejuve-nated government spending package along with an increase in corporate spending. These two factors will be instrumental in determining whether GDP is on track for such a drastic increase, up from an esti-mated 2.2 % in 2003. Unemployment, the percentage of the workforce that is involuntarily out of work, is a good measure of economic health. A decreasing number of unem-ployed workers indicates that firms are increasing production. Unemployment Rate forecasts for Q4 2003 through Q3 2004 are 6.2%, 6.1%, 6.0%, and 6.0%, respectively. Government policy is a strong indicator for the fu-ture of the economy. The U.S. Government has been cutting taxes at all levels to stimulate the economy. The Jobs and Growth Tax Relief Recon-ciliation Act of 2003 (JGTRRA) has boosted disposable personal income, which may stimulate expected consumer spending. Further analysis of fiscal policy reveals that the federal deficit has in-creased by $180 billion in 2002 and is projected to increased by $360 billion and $520 billion in 2003 and 2004, respectively. The CBO expects that interest rates will be at levels consistent with those seen in 2002 (1.25%) for the duration of 2004. Marketvector.com expects this movement as early as February 2004. As a result, inflation will remain low. This, coupled with in-creased productivity, should help sustain the bull market through 2004.

Market Outlook During the third quarter of 2000, right after the top of the last bull market, S&P 500 operating earnings grew by 18.4%. First Call’s research chief Chuck Hill expects this year’s third quarter S&P 500 earn-ings to grow by 19% to 20%. This would also mean that S&P 500 earnings would grow at 15.9% compared to a year ago. There have been few earn-ings warnings in the weeks leading up to the earn-ings season, which makes it more likely that com-panies will in fact attain these targets. If the earn-ings season does go as planned, this would justify the moves of the major indexes this year and per-haps fuel another rally into next year. There are numerous possible reasons for earnings growth moving forward. The bear market and recession have forced companies to severely cut costs. With lower costs, any growth in sales would greatly boost profits. In addition, there is increasing overall demand in the market, especially in the tech sector. Companies that have been hurting over the past three years have been stretching out their replacement cycle for technology equipment. When these companies significantly start buying new replacements, huge earnings growth in the technology sector will follow. Not every sector will show the same earnings growth, however, in the third quarter. Some lag-ging sectors in the S&P 500 include utilities, tele-com, and basic materials, which are expected to see earnings decreases compared to a year ago of 4%, 5%, and 1%, respectively. Consumer cyclicals are going to add only 3% to earnings growth. The leading sectors driving the earnings growth will probably be tech, energy, and health care, which analysts feel will grow 20%, 42%, and 14%, re-spectively.

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Sector and Industry Analysis Based upon our forecasts of the economy and the stock market, the Student Managed Investment Fund (SMIF) decided to implement an industry al-location strategy that is derived from the research provided by The Value Line Investment Survey Timeliness Ranking System. Based upon least-squares regression analysis, time-liness is the rank of an industry’s probable relative market performance in the year ahead. It is com-puted based upon the long-term price and earnings history, recent price, and earnings momentum. Any earnings surprises, positive or negative, are also taken into account. Accordingly, 98 industries are ranked for their performance over the next 12 months, with “1” having the most favorable and “98” the least favorable performance. The rankings are established on a weekly basis using current forecasts. This lends reliability to The Value Line Timeliness Ranking System, as it prevents inves-tors from using outdated statistics. Specifically, we will be focusing on the top 20 in-dustries in the U.S. domestic market, as ranked by Value Line in terms of timeliness. In order to effec-tively utilize this method, the investment team will engage in a continual reevaluation of these rankings in an effort to place our investment strategy at the forefront of a rapidly changing market. We feel that this system will outperform a static, preliminary overview that does not allow for flexibility or dy-namic analyses. The selected industries will be di-vided into appropriate groupings. These will subse-quently be distributed among four groups in order to utilize the expertise that is gained by narrowing each group’s focus.

The Standard & Poor’s 500 Index Widely regarded as the best single gauge of the U.S. equities market, this world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. econ-omy. Although the S&P 500 focuses on the large-cap segment of the market, with over 80% coverage of U.S. equities, it is also an ideal proxy for the to-tal market. For this reason the portfolio managers of SMIF chose to use the Standard & Poor’s 500 Index as the benchmark for the equity portion of the portfolio. The Index measures a broad spectrum of the overall market, the intent of an overall benchmark for SMIF. Lehman US Aggregate Corporate Total Return Index For the fixed-income portion of the portfolio, the SMIF portfolio managers chose the Lehman US Aggregate Corporate Total Return (LACTR) Index as the benchmark. The Index is an unmanaged in-dex often utilized as a benchmark for fixed-income mutual funds with an average duration of 6 to7 years, comprising of only investment-grade corpo-rate debt. This Index was chosen principally for its average duration and credit quality characteristics. After the SMIF team completed the baseline eco-nomic and interest-rate-environment analysis we chose a baseline bond portfolio duration of about 4.5 years with maturities ranging from 5 to 6 years . The Lehman US Aggregate Corporate Total Return Index is generally considered to be representative of intermediate maturity corporate bond market activity. The Index met our criteria and was chosen as the best relevant gauge.

SECTOR ANALYSIS & BENCHMARK

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Fixed Income: Not Just for Retirees? With the federal funds rate at a 45-year low of 1%, and the bond market bracing for falling prices and higher yields, it did not seem like an opportune time to enter the fixed-income market. However, SMIF guidelines require 25% to 50% of the portfo-lio to be allocated to investment-grade corporate bonds, a hedge against geopolitical risk. Deter-mined to learn the skills required for fixed-income investing, the team endeavored to outperform the benchmark we set for ourselves, the Lehman US Aggregate Corporate Total Return (LACTR) Index. For guidance, the SMIF class invited Mr. Doug Lopez, Senior Vice President and Portfolio Man-ager for Bradford and Marzec Inc., to offer his pro-fessional opinion. Mr. Lopez illustrated some tech-niques used to find corporate bonds with above-average appreciation potential. The team later used this advice to choose specific bond issues from the inventory available to us at Salomon Smith Barney. Analyzing the yield curve, and taking into consid-eration our projected rate increase in summer, 2004, we made the decision to position ourselves from 5 to 6 years out on the yield curve. At this point on the curve, the marginal return for the addi-

tional risk began to level out. It was also decided that a relatively high-coupon issue would be more desirable, as we are only holding the bond for one coupon payment. Another strategy was to look for companies in sectors we thought would benefit from an improving economy, with a less-than-perfect debt rating from Standard & Poors, allow-ing us an opportunity for a ratings increase. The combination low-duration/credit quality approach was our strategy to outperform the selected bench-mark over our holding period. After meticulous analysis of the available fixed-income securities, SMIF decided to purchase debts of Time Warner Companies, Inc., and Coca-Cola Enterprises, Inc.

FIXED INCOME

U.S. Treasury Yield Curve

0%

1%

2%

3%

4%

5%

6%

0 5 10 15 20

U.S. Treasury Yield

TICKER SYMBOL PURCHASE DATE

NET PURCHASE

SELL DATE NET SALE RETURN GAIN/(LOSS)

Coca-Cola Bottling Dec-10 $ (5,918.12) Apr-21 $ 5,645.73 -4.60% $ (272.39)

Time-Warner Companies, Inc. Dec-15 $ (5,885.83) Apr-21 $ 5,449.93 -4.23% $ (248.90)

TOTAL -4.42% $ (521.29)

LACTR 1420 1440 1.41% 20

Fixed-Income Results:

U.S. Treasury Yield Curve

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Time Warner is a media and entertainment company whose businesses include interactive services, cable systems, filmed entertainment, television networks, music, and publishing. Time Warner's business interests are classified into six fundamental areas: America Online, which consists primarily of interactive services; cable, consisting principally of interests in cable systems; filmed en-tertainment, which consists of interests in filmed entertainment and television production; networks, which consists of cable television and broadcast network programming; music, consisting of recorded music and music publishing; and publish-ing, which consists of magazine publishing, book publishing, and direct marketing.

Time Warner had originally aimed to cut its net debt to $20 billion by the end of 2004. A year ago, the debt was as high as $30 billion. It successfully met its2003 target ahead of schedule and got ahead on next year’s goal. In response to strong FCF and non-core asset sales, Time Warner was removed from S&P’s CreditWatch in October 2003. With the expected interest rate rise of 25 bps by summer 2004, SMIF forecast the price to be 112.746, result-ing in a 1.43% yield during the four months holding period.

Rating Coupon YTM Maturity Price BAA1 6.75% 3.75% 01/15/2008 114.039

Time Warner Companies, Inc.

Coca-Cola Bottling

Rating Coupon YTM Maturity Price A2 7.13% 4.05% 09/30/2009 115.799

Coca-Cola Enterprises is the world's largest marketer, producer, and distributor of products of The Coca-Cola Company. The company operates 454 facilities throughout the United States, Canada, and Western Europe which generate revenues of approximately $17 billion. The company currently distributes approximately 4.4 billion cases on an annual basis. This represents approximately 21% of The Coca-Cola Com-pany's worldwide volume. Coca-Cola Enterprises initially offered its stock to the public on November 21, 1986, and is listed on the New York Stock Exchange under the symbol CCE.

New products, as well as the company’s diet line, should help support volumes. The introduction last year of Vanilla Coke and Sprite Remix helped to boost rather lackluster carbonated-soda volumes. Also, the growing trend of consumers looking for healthier choices and/or low-carb products has increased the popularity of Coke’s diet products.

With the expected interest rate rise of 25 bps by summer 2004, the SMIF team forecast a realized horizon yield of 2.10%.

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Fundamental Equity Tools The tools used to evaluate prospective equities var-ied slightly for each proposed company. For all equity valuations, however, a discounted cash flow technique was used to determine an intrinsic value for each common share outstanding. The three measures of cash flow used were the dividend dis-count model, operating free cash flow, and free cash flow to equity. Each firm’s cost of equity was calculated via the Capital Asset Pricing Model (CAPM) using Value Line’s beta, the yield on the 10-year note as the risk-free rate, and an equity risk premium of 6%. Growth rates were determined using a method relevant to the cash flows and com-pany under analysis. In addition to determining an intrinsic value for each company, relative valuation techniques were also employed. The two most significant ratios assessed were price-to-earnings and price-to-book. These valuation ratios were compared to similar companies in the same industry to determine how the market is valuing the stock within its industry. Price-to-cash-flow and price-to-sales ratios were also used, although less heavily. Internal liquidity and operating efficiency ratios were also used in comparison with similar compa-nies. The team attempted to look for the most effi-cient and profitable companies that seemed under-valued by investors. SMIF 2003-2004 Strategy The Student Managed Investment Fund (SMIF) seeks short-term capital appreciation through in-vestments in equity and debt securities. To pursue

this goal, the Fund will invest at least 60% of its assets in equity securities, primarily in the stocks of small to medium U.S. growth-oriented companies that the portfolio managers believe are also finan-cially stable. “Growth-oriented companies” are those whose earnings are growing at a faster rate than the market as a whole, or have the potential to do so. The remaining 40% of the portfolio will comprise investment-grade bonds and cash. In general, the portfolio managers may sell a secu-rity if they determine that the security no longer presents sufficient appreciation potential; this may be caused by, or be a result of, changes in the in-dustry of the issuer, loss by the company of its competitive position, and/or poor use of resources. The portfolio manager may also sell a security to take advantage of more attractive investment oppor-tunities or to raise cash. The Student Managed Investment Fund employs a team-based approach to construct a portfolio of 8 to 10 growth stocks. The Fund is constructed one se-curity at a time. The team, comprising graduate and undergraduate finance students at California State University, Long Beach, will use traditional sources (e.g., Wall Street analysts, company re-ports, and trade and technical journals) in order to form a basis for future forecasts of cash flow gen-eration. Additionally, the team members will ana-lyze the durability of a company’s strategic plan, the quality of its management, and the strength of its financial foundation, as well as its capital pro-ductivity. The investment team is responsible for managing risk, deciding which sectors to weight more heavily and determining when to sell a posi-tion.

EQUITY

"In the business world, everyone is paid in two coins: cash

and experience. Take the experience first; the cash will come later." – Harold S. Geneen (former chair ITT)

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EQUITY

Technical Analysis Technical analysis is a tool used by many investors to attempt to forecast future price movements by analyzing past price movements with the use of price charts and technical indicators. To further understand this form of analysis, the members of SMIF researched and back-tested many of the indicators commonly used. Our goal was to determine to what degree technical analysis should be relied upon to help us time our stock selections. First, we assigned each group certain types of indicators to research and present to the other SMIF members. From this we learned how various indicators are calculated and how they create buy or sell signals. Next, each group performed back-test research to see how well an indicator would have performed over the past three years. The results did show that many of the indicators, used on a strict basis, outperformed the S&P 500. We

concluded, however, that much of the performance was due to staying out of a security during the major drops in price that were common during the preceding bear market. Also, many indicators showed excessive whiplash, causing the investor to build up excessive trading costs. From our research we concluded that technical indicators should be given some consideration in the process of managing a portfolio. It provided information such as to what extent a stock is overbought or oversold. We also identified common support and resistance levels that all technical analysts in the market would note. One way we used this to our advantage was by setting our stop losses just below support levels toward the end of our holding period, thus reducing our downside risk while allowing room for the stock to appreciate during the final week of our holding period.

*See Technical Analysis Terms in the Glossary. Image courtesy of StockCharts.com.

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Customer first Commerce Bancorp (CBH) provides personal, commercial, and trust services through its banking subsidiaries, which include Commerce Bank, Commerce Bank/ Pennsylvania, Commerce Bank/North, and Commerce Bank/Shore. The 224 full- service retail branch offices are located in the states of New Jersey, Pennsylvania, Delaware, and New York. They provide a range of retail and commercial banking services for small and midsize companies. Commerce’s services include checking, savings, money markets, and CDs. The banks’ lending and investment activities are funded by retail deposits gathered through each bank’s retail branch office network. Lending services are focused on commercial real estate and commercial and consumer loans to local borrowers.

Banking on convenience Commerce Bancorp’s unique retail strategy has produced exceptional financial performance. Commerce banks market as growth retailers, not bankers. Commerce banks are open on Sundays, and they open earlier and close later than most bank competitors. Outstanding customer service is the core of their strong campaign to build brand awareness and make fans out of the clients through convenience. The bank is continuing with its aggressive expansion strategy in 2004.

Commerce plans to open 50 new branches and expand into Virginia and the District of Columbia. Commerce has been able to beat out some of the larger financial institutions because of their focus on making the relationship with their customers primary. Commerce’s successful retail banking model will continue to give the company an edge over competitors in the year ahead. A penny saved... After our analysis of Commerce Bank we felt that it would be a good fit with our investment strategy. We felt the stock offered attractive capital appreciation potential over the coming 3 to 5 years. Commerce, with a large percentage of noninterest-bearing deposits, will have less trouble maintaining margins when rates begin to rise. Using the Dividend Discount Model to value CBH, we found an expected price of $90.02 at the end of 2004, with a price of $66.02 at the end of our holding period. With our anticipation of interest rates rising in the second half of the year, we felt it would be a great opportunity to purchase this undervalued stock.

CBH Industry S&P 500 Beta (BB numbers) 0.96 0.79 1.00 P/E (BB numbers) 21.49 16.33 22.02 PEG Ratio (Calc. from VL 5-yr) 1.18 1.35 1.61 P/B (mrq) (BB Numbers) 3.17 2.49 3.06 ROE (BB Numbers) 17.70 15.33 14.98%

Key Statistics

Commerce Bancorp (NYSE: CBH) Sector: Finance Value Line Timeliness Ranking: 1 Industry: Bank Market Cap: $4.5 Billion Purchase Price: $59.67 Earnings per Share: $2.61

“Commerce

Bancorp’s

unique retail

strategy has

produced

exceptional

financial

performance.”

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A higher level of education Corinthian Colleges is among the largest post-secondary education providers, with operations in the U.S. and Canada. Corinthian’s 130 colleges offer Master’s, Bachelor’s, and Associate’s degrees to potential students interested in pursuing a career in allied health, business, technology and criminal justice. Classes are offered onsite and via the Internet. Growth fueled through learning The educational services industry’s prospects for growth was one of the leading forces that drew us to this industry. The Bureau of Labor Statistics said the demand for skilled labor in 2000 was 65% of the total workforce, up considerably from 45% in 1991. We feel this demand could rise even further. With the increasing trend of outsourcing to lower wage countries, middle-aged adults will be displaced from their jobs and will have to be retrained. Corinthian will benefit the most from this trend, due to the rate at which students could complete a degree program. According to the National Center for Educational Statistics, college attendance is expected to rise 15% to 20% from now until 2012. Corinthian has been aggressively opening new sites in order to poise itself in an excellent position to capitalize on this growth.

Candidate for mean reversion Corinthian’s P/E (41.45) and PEG (1.6) ratios are below the industry average of 47.39 and 2.17, which prompted us to take a more thorough look at the c o mp a n y’ s g r o w t h s t r a t e g y , fundamentals, and technical tools. Upon review of the company’s fundamentals, we saw sales growth of 52%, which was well above the industry average of 29%. This could be attributed to the company’s aggressive internal and external growth strategy. Internally the company is presenting new curriculum, expanding its course selection, marketing directly to high schools, and offering competitive pricing. Externally the company is acquiring new colleges. Technically, we ran a regression analysis which included two standard deviations from the mean. In this test we found that Corinthian’s stock price was at the support level for the preceding year. This was confirmed with a CCI rising from oversold territory and an upward trending accumulation/distribution, a volume strength indicator. For more information see Technical Analysis Terms on page 35 of the Glossary.

COCO Industry S&P 500 Beta (BB numbers) 1.04 0.96 1.00 P/E (BB numbers) 41.45 47.39 22.02 PEG Ratio (Calc. from VL 5-yr) 1.69 2.17 1.61 P/B (mrq) (BB numbers) 10.01 14.79 3.06 ROE (BB numbers) 34.22 40.34 14.98%

Key Statistics

Corinthian Colleges (NYSE: COCO) Sector: Consumer Discretionary Value Line Timeliness Ranking: 2 Industry: Education Market Cap: $2.7 Billion Purchase Price: $30.02 Earnings per Share: $1.52

“The Bureau of

Labor Statistics

said the demand

for skilled labor

in 2000 was

65% of the total

workforce.”

13

A multisegment marvel Omnicare, Inc. is a provider of pharmacy services to long-term care institutions such as skilled nursing facilities, assisted living facilities, and other institutional health care facilities. The company also provides comprehensive clinical research for the pharmaceutical and biotechnology industries. The company operates in two business segments. The largest segment, Pharmacy Services, provides distribution of pharmaceuticals, related pharmacy consulting, data management services, and medical supplies to long-term-care facilities. The company's other business segment is contract research organization services, which is an international provider of comprehensive product development and research services to client companies in the pharmaceutical, biotechnology, medical device, and diagnostics industries. An endless supply of demand for research The Pharmacy Services industry encompasses two major segments: pharmacy services companies, which includes pharmacy benefits managers and clinical services providers, and the large drug chains. Pharmacy Services ranks in the top five of all industries reviewed by Value Line. The industry should do well over the long term, because of the move toward specialty-disease management and rising sales of generic drugs.

Growing market share in a growing market Omnicare has been aggressively making acquisitions to increase its market share. In 2003 the number of patients it served grew over 33%. With cash flow per share up 82% to an estimated $3.12 in 2004, it is ready to capitalize on further acquisitions to fuel growth. We also liked its profit margin which is better than its competitors’. Some of its margin expansion can be attributed to the economies of scale that resulted from its expansion. Omnicare now serves 40% of the people at nursing homes and assisted-living facilities. Omnicare is four times larger than its nearest rival, NeighborCare, Inc., and is growing at a much faster rate. Long term, OCR appears to have sustainable growth characteristics and analyst’s estimate that the market that OCR serves could grow from $10.5 billion in 2002 to $56.8 billion by 2020. This, coupled with OCR’s growing slice of the market, will ensure that business remains robust for OCR.

OCR Industry S&P 500 Beta (BB numbers) 0.74 0.72 1.00 P/E (BB numbers) 17.46 21.30 22.02 PEG Ratio (Calc. from VL 5-yr) 0.99 1.11 1.61 P/B (mrq) (BB Numbers) 2.27 2.49 3.06 ROE (BB Numbers) 13.17 19.53 14.98%

Key Statistics

Omnicare Corp. (NYSE: OCR) Sector: Health Care Value Line Timeliness Ranking: 2 Industry: Pharmacy Services Market Cap: $4.39 Billion Purchase Price: $43.39 Earnings per Share: $1.93

“Omnicare has

been aggressively

making

acquisitions to

increase its

market share.”

14

Foundation built on diversification Hovnanian designs, constructs, and markets condominiums, apartments, townhouses, and single-family homes in planned residential communities. It also develops and manages income-producing properties. Founded in 1959, it has risen to become one of the nation’s premier homebuilders with operations in 13 states. Through a series of strategic acquisitions in 2002 and 2003, Hovnanian was able to expand its market reach. Hovnanian’s land has allowed for perfect positioning in key land locations serving diversified housing markets in Florida, Arizona, Ohio, Texas, and California. Homebuilding industry built on solid ground New-housing-starts data released in November 2003 broke through the virtually impenetrable 2M barrier climbing to 2.07M – a 17.6% increase year over year. A recovering economy and somewhat optimistic jobless figures should continue to drive the industry already in the midst of a red-hot booming housing market. The Federal Reserve met on several occasions without raising interest rates. However, this is not to say that Hovnanian and other homebuilders are not immune or impervious to the market’s anticipation of the Fed’s raising interest rates.

Potential for breakout The homebuilding industry was ranked at the coveted #1 position by Value Line. The Value Line Investment Survey states, “Recently released housing data indicate that the homebuilding industry remains on solid footing.” (Jan. 9, 2004) HOV has posted impressive new-order growth. Moreover, in January 2004 net contracts for new homes were up 57%, and a hefty backlog of contracts for new homes waiting to be built was up 66% over the previous year. Along with positive growth prospects HOV was traded at a relatively low P/E multiple, which led us to believe that this stock was congruent with our G.A.R.P. investment philosophy. Its lower-than-industry average P.E.G. ratio also reaffirmed that HOV fit our investment strategy. Building the interest environment into our models, valuations were still favorable for our holding period. Technical indicators showed HOV was poised for a price breakout, confirming our purchase timing.

HOV Industry S&P 500 Beta (BB numbers) 1.03 1.05 1.00 P/E (BB numbers) 9.30 9.61 22.02 PEG Ratio (Calc. from VL 5-yr) 0.36 0.62 1.58 P/B (mrq) (BB Numbers) 2.63 2.32 3.06 ROE (BB Numbers) 37.24 28.53 14.98%

Key Statistics

Hovnanian Enterprises (NYSE: HOV) Sector: Consumer Cyclical Value Line Timeliness Ranking: 1 Industry: Homebuilding Market Cap: $2.29 Billion Purchase Price: $38.78 Earnings per Share: $4.12

“Recently

released housing

data indicate

that the

homebuilding

industry remains

on solid footing.”

(The Value

Line Investment

Survey, Jan. 9,

2004)

15

Servicing commercial and governmental clients Humana, Inc., is one of the nation's largest publicly traded health benefits companies, with approximately 7 million medical members located primarily in 19 states and Puerto Rico. Humana offers coordinated health insurance coverage and related services through traditional and Internet-based plans. The company manages its business in two segments, commercial and government. The commercial segment consists of members enrolled in products marketed to employer groups and individuals. The government segment consists of members enrolled in government-sponsored programs. Operating in a healthy market The U.S. health care services market, the world's largest, is worth nearly $1.4 trillion, with 81 listed companies fighting for a piece of the pie. A problem (and an opportunity) is the rising demand for services. People are living longer and need more care. However, capitalizing on this opportunity is not for the unfit of heart. This market will only be growing as baby boomers reach an age where increased medical coverage is necessary to maintain their quality of life.

Increasing Medicare exposure The recent Medicare Act has created a good opportunity for Humana to grow and become more profitable. The bill was designed to draw more private plans into the government’s program. It has a large Medicare membership that will allow them to benefit more from the Act relative to its competitors. Humana also plans to add more members through acquisitions. Recently it acquired Ochsner Health Plan whose plans include 152,000 commercial medical members and 36,000 members in the Medicare+Choice program. Humana’s growth strategy seemed solid, and its valuation was favorable. On a relative valuation basis we valued the stock at $27.35, taking into account future earnings and various multipliers. Our discounted free cash flow model gave us a value of $39.78. In either case we felt that the stock was undervalued, and we were also purchasing the stock on a dip in price. Unfortunately, the short-term downtrend continued, and we were stopped out at our 10% stop loss. It seems that the p r o b l e m w i t h g o v e r n m e n t reimbursements played a negative role in the performance of Humana.

HUM Industry S&P 500 Beta (BB numbers) 0.96 0.75 1.00 P/E (BB numbers) 9.97 13.98 22.02 PEG Ratio (Calc. from VL 5-yr) 0.76 0.94 1.61 P/B (mrq) (BB Numbers) 1.33 2.98 3.06 ROE (BB Numbers) 13.30 24.28 14.98%

Key Statistics

Humana, Inc. (NYSE: HUM)

“The recent

Medicare Act

has created a

good opportunity

for Humana to

grow and become

more profitable.”

Sector: Health Care Value Line Timeliness Ranking: 1 Industry: Medical Services Market Cap: $2.93 Billion Purchase Price: $21.17 Earnings per Share: $1.41

16

Finding a niche in specialized testing LabCorp is one of the largest clinical laboratories offering a broad range of testing services to individual physicians, managed-care organizations, hospitals, clinics, and long-term-care facilities. The company has developed specialty and niche businesses based on certain types of specialized testing capabilities and client requirements, such as oncology testing, HIV genotyping and phenotyping, diagnostic genetics, and clinical research trials. They operate in all 50 states, the District of Columbia, Puerto Rico, and two provinces in Canada. A bright future for hospitals The medical services industry comprises 81 companies. LH’s main competitors are Esoterix Inc. (privately held), Quest Diagnostic, Inc. (DGX), and Specialty Laboratories, Inc. (SP). The highlight of the industry is the unfolding impact of the Medicare Act (with the co-pay clause), which was passed several months ago. The Act is expected to have a positive impact on the industry, but only time will tell. The long-term picture looks bright for the medical services industry – an aging population coupled with a strengthening economy is just the tonic needed for vigorous growth.

A poster company for G.A.R.P. The demographic trend of population aging was a major reason for our portfolio being overweighted in the health care sector. The medical services industry in particular would greatly benefit from this trend, and also the unfortunate occurrence of new diseases that are becoming more complicated to diagnose. One thing that attracted us to LabCorp was its specialty-testing capabilities that allowed it to have higher profit margins than its competition. LabCorp’s consistent double-digit-earnings growth along with a lower P/E ratio than other companies in its industry and lower than its rival competitor (Quest Diagnostics) fit well with our G.A.R.P. investment strategy. Future growth would most likely come from higher test volumes as the economy continues to expand and companies begin to hire more workers, creating more demand for routine and esoteric drug tests. In addition, LabCorp is planning to bring many new innovative tests to market to continue to fuel sales and earnings growth. These tests should provide LabCorp with the momentum needed to sustain long-term future growth.

LH Industry S&P 500 Beta (BB numbers) 0.83 0.87 1.00 P/E (BB numbers) 16.55 21.83 22.02 PEG Ratio (Calc. from VL 5-yr) 0.97 1.26 1.61 P/B (mrq) (BB Numbers) 2.84 3.49 3.06 ROE (BB Numbers) 18.30 18.04 14.98%

Key Statistics

Laboratory Corp. of America (NYSE: LH) Sector: Health Care Value Line Timeliness Ranking: 2 Industry: Medical Services Market Cap: $5.84 Billion Purchase Price: $38.21 Earnings per Share: $2.22

“LabCorap’s

consistent double

digit earnings

growth along

with a lower

P/E ratio...

fit well into our

G.A.R.P.

investment

strategy.”

17

Leading mobile technology Nokia Corporation is a mobile- communications company primarily offering voice-centric mobile telephones, entertainment/gaming devices, and media/imaging telephones. In January 2004, the company reorganized its structure and now includes four business groups: Mobile Phones, Multimedia, Networks, and Enterprise Solutions. The Mobile Phones group develops mobile telephones for all major standards and for customer segments in over 130 countries. Multimedia focuses on bringing mobile multimedia to consumers. Networks is a provider of network infrastructure, service delivery platforms, and related services to mobile operators and service providers. Enterprise Solutions offers businesses a range of devices and mobile connectivity solutions based on end-to-end mobility architecture. Adapting to a rapidly changing market Nokia remains the leading player in the increasingly competitive mobile-phone market. Demand for new features, such as in-phone cameras, in mature markets and for entry-level models in emerging ones is keeping volume on the rise. And helped by gains in various countries and technologies, including the GSM market in China, Nokia has been able to sustain its dominant market position. Nokia has also recognized that the mobile-

communications industry has undergone significant changes, the result of advances in technologies that enable a variety of products and services from different industries to become connected with each other. We believe the recent restructuring efforts will enable Nokia to take full advantage of this industry convergence. Outperforming and undervalued When compared to the company’s three largest competitors (Motorola, Ericsson, and Siemens), Nokia Corporation had the highest profit margin (17.01%) and the lowest PEG ratio (1.25, compared to Siemens’ 1.35). The company’s relative statistics, combined with our free-cash-flow-to-equity valuation, led the team to believe that Nokia was undervalued by the market. It was our belief that the growing demand for new mobile devices, combined with Nokia’s cost-cutting restructuring efforts and industry-leading position, would enable Nokia to outperform growth expectations. Unfortunately, Nokia experienced a decrease in market share and saw a dramatic decrease in share value during our holding period.

NOK Industry S&P 500 Beta (BB numbers) 1.53 1.16 1.00 P/E (BB numbers) 17.34 74.64 22.02 PEG Ratio (Calc. from VL 5-yr) 1.25 3.95 1.61 P/B (mrq) (BB Numbers) 4.27 3.72 3.06 ROE (BB Numbers) 23.95 -5.65 14.98%

Key Statistics

Nokia Corp. (NYSE: NOK)

“Nokia

remains the

leading player

in the

increasingly

competitive

mobile-phone

market.”

Sector: Technology Value Line Timeliness Ranking: 1 Industry: Communications Equipment Market Cap: $71.91 Billion Purchase Price: $21.30 Earnings per Share: $0.87

18

Vertically integrated success Overseas Shipholding Group, Inc., was incorporated in 1969 and is an independent bulk shipping company engaged primarily in the ocean transportation of crude oil and petroleum products, as well as dry bulk cargo. As of December 31, 2003, the company's modern fleet consisted of 52 oceangoing vessels, of which 43 vessels operated in the international market and 9 in the United States market. OSG charters its vessels either for specific voyages (voyage charters) at spot rates or for specific periods at fixed monthly amounts. OSG customers include commercial as well as government agencies. Coming up for air The Maritime industry floats in the top quartile of the Value Line Timeliness ranking system, having risen from close to the very bottom 24 months ago. A strengthening U.S. economy and the continuing boom in China should have positive effects on the company’s core business. The completion of a pending international free-trade agreement is expected to spur pent-up demand for oil abroad. Meanwhile, strict new vessel regulations will help keep tanker supply growth from becoming overwhelming.

Charting the course OSG enjoys an outstanding reputation for its safety, quality, and reliability. Moreover, a strong balance sheet, operating performance, cash flows, and liquidity over recent years have enabled to OSG to increase dividends. Historical trends indicates that every third year OSG achieves a new high in free-cash-flow (FCF) levels. FCF for 2004 should continue to grow at a faster pace than the company’s growth rate for each previous year. Accordingly, this was a prime consideration when performing our analysis of the company’s growth prospects and valuation. To compensate for this phenomenon, the SMIF team added a premium to the growth rate used for our free-cash-flow valuation. We believed that there was a high growth potential for the company because increasing demand for oil was putting pressure on supply. On a relative basis, the company was trading at a reasonable price and a low P/E multiple as compared to the industry. Considering this, we felt that OSG would be a valuable addition to our portfolio.

OSG Industry S&P 500 Beta (BB numbers) 0.86 0.81 1.00 P/E (BB numbers) 8.31 10.09 22.02 PEG Ratio (Calc. from VL 5-yr) 0.72 1.06 1.61 P/B (mrq) (BB Numbers) 1.26 1.49 3.06 ROE (BB Numbers) 14.26 11.32 14.98%

Key Statistics

Overseas Shipholding Group (NYSE: OSG) Sector: Transportation Value Line Timeliness Ranking: 2 Industry: Maritime Market Cap: $1.43 Billion Purchase Price: $34.35 Earnings per Share: $3.54

“OSG enjoys

an outstanding

reputation for

its safety,

quality, and

reliability."

19

Conducting global leadership Texas Instruments is a leading global manufacturer of semiconductors and e lec t ronics . 70% of Texas Instruments’ profits come from semiconductor productions, with 18% from Sensors and Controls and 12% from Education and Productivity Solutions. 23% of their revenue is concentrated in the United States, 17% in Japan, with 20% in Europe, 35% in the Asian Pacific, and 5% in other locals. Catching a rebound in chipmakers A sector/industry review indicated that overall semiconductor manufacturers are poised for growth. Standard & Poor’s predicted a rebound in the chip industry, suggesting that plant utilization rates will rise and the pricing environment will improve, due to shortages expected for certain types of chips. Value Line ranked the semiconductor industry at 12, out of 98. Texas Instruments has many advantages over its main competitors. Its focus on new equipment, a commitment to Research and Development in order to boost innovation and product development, along with the completion of a recent cost-reduction strategy should lead to increased earnings. Texas Instruments is in the position to take advantage of the upswing in the semiconductor

TXN Industry S&P 500 Beta (BB numbers) 1.32 1.59 1.00 P/E (BB numbers) 33.29 49.93 22.02 PEG Ratio (Calc. from VL 5-yr) 1.58 2.28 1.61 P/B (mrq) (BB Numbers) 3.67 4.20 3.06 ROE (BB Numbers) 10.60 -8.76 14.98%

Key Statistics

Texas Instruments Inc. (NYSE: TXN) Sector: Technology Value Line Timeliness Ranking: 2 Industry: Semiconductors Market Cap: $54 Billion Purchase Price: $31.35 Earnings per Share: $0.82

“Texas

Instruments is

in the position

to take

advantage of

the upswing in

the

semiconductor

business cycle."

business cycle. Potential growth in cash flows We used Yahoo Finance to narrow our search for a semiconductor company. TXN’s PEG Ratio was 1.58 and similar to INTC’s 1.61, but better than MOT’s 3.74. Its prior-year revenue growth was 2.2%, versus .80% for INTC and -11.10% for MOT. A free-cash-flow-to-equity (FCFE) analysis suggested a holding period target price of $33.00 based on recent predicted supernormal growth starting in 2004. On February 18, we purchased 120 shares at $31.35 for a total of $3,762.00. We were stopped out at $28.20 on March 25, for a loss of 10.05%. Upon reevaluation, we continue to believe that the underlying fundamentals remain strong, with an expected earnings growth of 20% over the next five years. A post-sale technical analysis indicated that our purchase could have been timed better, with clear purchase signals occurring towards the end of our SMIF holding period. However, considering a long-term hypothetical investment of three years, we believe that our estimated return (during that period) could have been realized. A common challenge surfacing in our investment decisions was to maintain a long-term investment approach while managing in a

20

Winnebago Industries, Inc. (NYSE: WGO)

WGO Industry S&P 500 Beta (BB numbers) 17.38 1.41 1.00 P/E (BB numbers) 17.38 20.46 22.02 PEG Ratio (Calc. from VL 5-yr) 0.94 1.25 1.61 P/B (mrq) (BB Numbers) 4.93 6.82 3.06 ROE (BB Numbers) 25.6 1.28 14.98%

Key Statistics

"Baby

boomers are

approaching

the age where

big-ticket

items such as

RVs become

economically

feasible."

RV industry heats up Demographic trends and a rebounding stock market serve as a favorable environment for the relatively small and segmented RV industry to flourish. Baby boomers are approaching the age where big-ticket items such as RVs become economically feasible. In addition, the older community is seeking a more-active lifestyle, stemming from improvements in medical practices. In terms of interest rates, demand can only be increased by a low financing rate available to consumers. Rebounding consumer confidence signals that we may be in the market cycle stage that will enhance Winnebago’s sales even further. A different approach to leadership 2003 marked an interesting year for Winnebago. As investors winced in reaction to the bite its competitors took out of WGO’s market share, Winnebago’s CEO Bruce Hertzke viewed his company’s performance in a different light. The market share stolen by competitors came with a price. These companies slashed prices in an effort to fuel sales. While this approach can work in the short run, Hertzke is confident that competitors’ squeezed margins will come back to haunt them in later quarters.

Valuing with Bloomberg Valuing a company accurately is an inexact science. However, valid conclusions about the direction of a stock can be attained when using a powerful tool, in this case the Bloomberg Research Machine. For our purposes, we used the Dividend Discount Model function to get an idea of what WGO’s intrinsic value might be. By projecting earnings estimates forward a year, we were able to calculate an intrinsic price of $46.35, which should be realized by the end of WGO’s fiscal year. Perhaps the most crucial assumption with the DDM is a steadily growing dividend payout ratio. There were some concerns that the company may not reach a payout ratio of 45% at its maturity. However, the company has taken steps to improve its dividend policy by upgrading its previously semi-annual payments to quarterly while implementing stock buybacks. When considering that a 45% payout policy would amount to about a 4% to 5% dividend yield, the assumptions associated with our DDM valuation seemed reasonable.

Sector: Consumer Cyclical Value Line Timeliness Ranking: 1 Industry: Manufactured Housing/RV Market Cap: $1.08 Billion Purchase Price: $34.37 Earnings per Share: $1.54

21

Portfolio Performance 2003-2004 The SMIF team maintained a bullish outlook in a market that saw a remarkable wartime recovery dating back to March 2003. Unfortunately, our holding period paralleled an unforeseen correction in the market, and our holdings suffered a substantial amount of volatility. As a result, the 2003-2004 SMIF portfolio underper-formed the S&P 500 over our investment period due to our increased equity exposure. The fixed-income port-folio suffered as well. Speculation that the Fed would raise interest rates in the very near future gave the illu-sion of rising rates, causing capital losses on bonds, in spite of the fact that the Federal Funds Rate remained unchanged, as we had anticipated.

• The Equity portion of the SMIF portfolio saw five holdings outperforming the index and five underper-forming. The overall performance of the portfolio returned -3.1%, which underperformed the S&P 500 by 0.5%. After including transaction costs, the equity portfolio lost a total of 6.2%.

• The Fixed-Income portion of the SMIF portfolio lost a total of $521.29, a return of -4.4%. Our benchmark showed slight growth, returning 1.4%.

• Overall, the SMIF portfolio experienced a loss of $2593 or -5.18%.

PORTFOLIO PERFORMANCE

WITHOUT TRANSACTIONS

NET TRANSACTIONS

TOTAL FUND -5.18% BENCHMARK -1.60% EQUITIES -3.10% -6.20% BENCHMARK -2.60% FIXED-INCOME -3.38% -4.42% BENCHMARK 1.41% SHORT TERM 0.70% 0.70%

- 10 %

- 5%

0 %

5%

10 %

18-Feb 28-Feb 9-Mar 19-Mar 29-Mar 8-Apr 18-Apr 28-Apr

S&P 500SMIF Equities

22

PORTFOLIO PERFORMANCE

Portfolio Performance 2003-2004

TICKER SYMBOL

PURCHASE DATE PRICE SELL

DATE PRICE RETURN NET OF

TRANSACTION COSTS

GAIN/(LOSS)

HOV Feb-18 $ 38.78 Mar-23 $ 42.08 8.50% 5.60% $ 218.78 OSG Feb-25 $ 34.35 Apr-28 $ 35.96 4.69% 1.60% $ 62.16 LH Mar-10 $ 38.21 Apr-28 $ 39.99 4.66% 1.60% $ 62.70 COCO Mar-17 $ 30.01 Apr-28 $ 30.06 0.01% -2.70% $ (108.15) CBH Feb-18 $ 59.67 Apr-28 $ 58.11 -2.60% -4.00% $ (152.40) OCR Mar-24 $ 42.68 Apr-28 $ 41.35 -3.12% -6.10% $ (227.41) WGO Mar-03 $ 33.91 Mar-16 $ 30.94 -8.76% -11.60% $ (430.90) TXN Feb-18 $ 31.35 Mar-25 $ 28.20 -10.05% -12.80% $ (489.87) HUM Feb-25 $ 21.17 Mar-30 $ 18.90 -10.70% -13.70% $ (587.66) NOK Mar-17 $ 21.30 Apr-06 $ 17.68 -17.00% -19.60% $ (764.06)

TOTAL -3.10% -6.20% $ (2,416.81)

S&P 500 Feb-18 1,151.82 Apr-28 1,122.25 -2.60% -2.60%

* S&P 500 return between 2/18/2004 and 4/28/2004. Equity returns calculated before transaction costs.

Equity Results:

HO

V

OS

G

LH

CO

CO

CBH

S&P

500*

OCR

WG

O

TXN

HUM

NOK

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

Return

Winners / Losers

“Not everything that counts can be counted, and not everything that can be counted, counts.” – Albert Einstein

23

This year, a number of the SMIF students represented California State University, Long Beach at the Fourth Annual Redefining Investment Strategy Education (RISE) Symposium at the University of Dayton’s School of Business Administration. RISE is the first symposium of its kind to bring leading students, faculty, and investment professionals together in an interactive learning environment to discuss a range of pertinent issues facing investment professionals.

RISE 2004 included keynote presentations by nationally renowned industry leaders; specialized breakout sessions focusing on a range of investment, career strategies and academic program development related issues; security analyst and portfolio manager workshops; and an optional portfolio competition. RISE 2004 drew more than 900 students and faculty from approximately 100 colleges and universities from the United States and Canada. RISE was co-sponsored by the biggest names in finance: the New York Stock Exchange, The Wall Street Journal, CNBC and Deutsche Asset Manage-ment, along with UD's School of Business Admini-stration. The event featured 12 keynote speakers, who spoke about the economy, public policy, cor-porate governance, and the market. Some of those speakers included: John Bogle, Founder of The Vanguard Group Inc., one of the world's two largest mutual fund organi-zations, and widely considered the "father of the mutual fund industry.” Samuel Zell, Chairman of the Board and Founder of Equity Group Investment, LLC. Mr. Zell re-cently completed a two-year term as Chairman of the National Association of Real Estate Investment Trusts (NAREIT).

Lyle Gramley, Senior Economic Advisor with the Schwab Washington Research Group and former member of the Board of Governors of the Federal Reserve System. Michael Moskow, President and CEO of the Fed-eral Reserve Bank of Chicago and a former U.S. deputy trade representative. The U.S. Senate has confirmed Mr. Moskow for five U.S. government positions. Richard Bernstein, chief U.S. strategist for Merrill Lynch’s global securities research and economics group, who was named by Fortune magazine as one of only 11 “all-star analysts” in 2001 and 2002. Don Phillips, Managing Director for Morningstar Inc., the mutual fund industry’s most recognizable and relied upon independent rating source. Robert Hormats, Vice Chairman of Goldman Sachs International and Managing Director of Goldman, Sachs & Co. Mr. Hormats has served as a Senior Staff Member for International Economic Affairs on the National Security Council and as Senior Deputy Assistant Secretary for Economic and Business Affairs at the Department of State.

RISE SYMPOSIUM

SMIF students participate at the RISE Symposium in Dayton, Ohio. From left: Khai Nguyen, Dr. Peter A. Ammermann, Ryan Smith, Mike Thomas, Jonas Neubauer, Kristian Baney, and Vu Chu.

“To be a money master, you must first be a self-master.” – J.P. Morgan

24

MEET THE SMIF TEAM

1 Vu Chu 2 Jana Wennstrom 3 Jonas Neubauer 4 Juan Rivas 5 Julia Dunisch 6 Jason Moore 7 Mark Woerz 8 Kristian Baney

9 Mike Thomas 10 Leroy Alveranga 11 Kristine Ikeda 12 Ryan Smith 13 Arisara Kiusasap 14 Khai Nguyen 15 Cynthia Rafael 16 Jeff Clausi

25

STUDENT MANAGERS

Leroy Alveranga is currently completing a Bachelor’s degree at CSULB, double majoring in International Business and Finance. He is a Level Two Certified Tutor in economics, finance, and math. He is a member of the California Army National Guard with six years of military experience. He hopes to pursue an MBA in International Business at the University of California, Berkeley. In addition, he plans to do research in behavioral finance and ultimately become the Chief Executive Officer of a global corporation.

Leroy Alveranga

Kristian Baney is graduating from CSULB with a degree in Finance and plans to obtain his MBA from a top business school. While attending college he has been working as the Accounting Manager of Phoenix Technology, a computer services business. He is currently a Chartered Financial Analyst (CFA®) Level I candidate and plans to pursue a career in portfolio management.

Kristian Baney

Vu Q. Chu is an undergraduate majoring in Economics and Finance. He is a member of Beta Gamma Sigma business honor society and is currently an Assistant Portfolio Manager at an investment management firm. His responsibilities include evaluating securities and asset allocation strategies to help meet clients’ objectives, executing trades, and generating financial models and analysis on prospective investments. He is also a Chartered Financial Analyst (CFA®) Level I candidate, and plans to work toward a Ph.D. in Economics or Finance.

Vu Chu

Jeff Clausi

Jeff Clausi is a Finance major with a concentration in Investments at California State University, Long Beach. He is currently employed at Boise Cascade as Transportation Supervisor. After graduation, Jeff plans to pursue a career in corporate finance or financial planning as well as obtain his MBA and CFP® certification.

26

STUDENT MANAGERS

Julia Dunisch

Julia Dunisch attends California State University, Long Beach, and is majoring in Business Finance, Real Estate and Law, with concentrations in both Investments and Financial Management. She plans to attend the University of California, Irvine, for her post-baccalaureate education. She will be pursuing a career that will utilize her experience in sales and education in finance.

Kristine Ikeda is a second-year MBA student specializing in Finance. Her scholastic interests include investments, valuation research, and portfolio management. She is a Chartered Financial Analyst (CFA®) Level I candidate and is pursuing a career in the Asian financial industry in corporate valuation and corporate finance strategy consulting. She is a member of the CSULB chapter for Beta Gamma Sigma, a national business honor fraternity, and has also been named one of the Dean’s Top Graduates, ranking in the top 1% of her graduating class.

Kristine Ikeda

Arisara Kiusasap is currently completing a Bachelor of Science in Finance with a minor in Business Economics at California State University, Long Beach. She is on the President’s Honor List. She intends to pursue a career in corporate finance. She plans to complete an MBA with a concentration in Finance at the University of Chicago.

Arisara Kiusasap

Jason Moore is an undergraduate Finance major with an emphasis in Investments. He is a member of the Kappa Sigma Fraternity, Long Beach State Chapter. Jason is also in the College of Business Administration’s Honors Program, where he is researching the effects of the 2003 Jobs and Growth Tax Relief Reconciliation Act. He is a Chartered Financial Analyst (CFA®) Level I candidate and plans to pursue a career in portfolio management.

Jason Moore

27

STUDENT MANAGERS

Jonas Neubauer is a published undergraduate at CSULB, where he is currently working toward a degree in Finance. He hopes to work in the Portfolio Management field, eventually managing his own hedge fund based on quantitative modeling of equity markets. His research interests include statistical aspects of technical analysis as well as applying the Fibonacci sequence to movements in the S&P 500.

Jonas Neubauer

Khai Nguyen

Khai Nguyen is an undergraduate at California State University, Long Beach, where he is currently working toward his bachelor’s degree in Finance, with an emphasis in Investments. His research has been published in several leading refereed journals, including the Journal of Academy of Business and Economics (JABE). Also an avid investor, he plans to pursue his career in portfolio management and securities law. As Chairman of the SMIF Annual Report Committee, he was in charge of organizing and designing the 2003-2004 SMIF Annual Report.

Cynthia Rafael is an undergraduate student in the Business Finance Program at CSULB. She currently is employed at Union Bank as a Team-Lead in the Commercial Real Estate Loan Administration Group. Upon graduation she intends to continue her career in the banking industry.

Cynthia Rafael

Juan Rivas

Juan M. Rivas will be completing a Bachelor of Science degree in Business Administration with an option in Finance. He plans to prepare himself for the Chartered Financial Analyst (CFA®) Level I exam and pursue a career in investment management.

28

STUDENT MANAGERS

Ryan Smith will be completing a Bachelor of Science degree in Finance this year at California State University, Long Beach, with an emphasis in Investments. He currently directs the national sales activity of Cycle Support West, Inc., and is a respected figure in the bicycle industry. He plans to apply his skills and intuition to the world of portfolio management in the near future.

Ryan Smith

Mike Thomas is a graduating senior studying Finance with a concentration in Investments. He has been recognized on the President’s Honor List and was awarded membership in the Golden Key International Honor Society and CSULB chapter for Beta Gamma Sigma, a national business honor fraternity. His interests include facets of technical and relative analysis, derivatives use, and risk management. Mr. Thomas hopes to one day culminate his efforts into a career as a sell-side investments broker.

Mike Thomas

Jana Wennstrom is currently an undergraduate student at CSULB, double majoring in Accounting and Finance. She is a member of Beta Alpha Psi, Alpha Gamma Sigma, and the Golden Key International Honor Society. Having completed an internship at a local CPA firm, she will spend the summer as an intern in the tax practice of PricewaterhouseCoopers’ Los Angeles office. Subsequent to graduation, she plans to become a CPA® and obtain a Master of Business Taxation degree while working in public accounting.

Jana Wennstrom

Mark Woerz is graduating from CSULB with a degree in Finance. He has been actively investing in securities for himself and family members for 15 years. Living in Long Beach with his wife and two children, Mark is pursuing a career in investments.

Mark Woerz

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The 2003-2004 SMIF managers would like to offer our whole hearted thanks and appreciation to the following individuals, whose support and guidance were instrumental to enhancing and broadening the SMIF experience: Fixed-Income Guest Speaker: Mr. Doug Lopez, CFA, Vice President and Portfolio Manager, Bradford and Marzec, Inc. For taking the time out of his busy schedule to be our fixed-income guest speaker. His words and advice were integral to our decisions and proved to be of tremendous value. Career Panel: Mr. Jim Burley, Chief Administrative Officer, Bradford and Marzec, Inc. Mr. Bob Boyd, Structured Product Specialist, PIMCO Mr. Doug Wolf, Portfolio Manager, Wells Fargo Bank For sharing their personal and career-related experi-ences as well as their inside take on the real world of investments, securities research, and portfolio management. Their realistic perspectives are in-valuable to those of us who wish to pursue a career in the investment industry.

Mr. Joseph Tinervia, The Writing Center For his professional proofreading of the SMIF 2003-2004 Annual Report. His support has al-lowed us to reach new levels of excellence. Mr. Khai Nguyen, SMIF Member Mr. James Tran, Graphics Artist For designing the cover and layout of the Annual Report.

Association for Investment Management Research (AIMR)/CFA Institute: Ms. Jackie Curran, Administrative Director, Or-ange County Society of Investment Managers (OCSIM) Much appreciation for her assistance and support throughout the year in helping to coordinate the attendance of the SMIF students at the monthly luncheons. Mr. Jay Tsai, CFA, Associate Vice President and Financial Advisor, Morgan Stanley For inviting SMIF students to participate at the OCSIM Annual Forecast Dinner. Ms. Linda Cahill, Administrator, Los Angeles So-ciety of Financial Analysts (LASFA) For helping the SMIF members register and attend monthly LASFA luncheons and the LASFA Career Expo.

OCSIM Scholarship Foundation (OCSIMSF): Ms. Krista Zipfel, CFA, Chair of the OCSIMSF, and Principal, Advisors Solutions Group Mr. Russell Murdock, CFA, Vice Chair of the OCSIMSF, and Principal, Sea-Breeze Capital Man-agement, LLC The Members of the OCSIMSF Investment Policy Committee For awarding the SMIF team the honor of being the inaugural OCSIMSF fund managers, and for taking time out of their busy schedules to meet on a quarterly basis to discuss the OCSIMSF investment portfolio. Their comments and feedback have truly helped us to grow toward becoming contributing members of the investment community.

ACKNOWLEDGMENTS

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Global Insight For providing their annual, quarterly, and monthly economic forecast reports. California State University, Long Beach (CSULB): Dr. Robert Maxson, President, CSULB CSULB IRA Board For providing the funding for the Bloomberg Pro-fessional Service, LCD projector, and student par-ticipation at the Redefining Investment Strategy Education (RISE) Symposium in Dayton, Ohio. CSULB Investment Committee For overseeing and supporting the SMIF Program. Mr. William F. Hendry, Director of Development, CBA For his efforts to expand the exposure of the SMIF Program and to develop additional contacts with the investment community. SMIF Advisory Board: Mr. Norm Coulson, retired, CEO, Glendale Fed-eral Mr. Wes Seegers, Senior Vice President, Salomon Smith Barney For being our portfolio advisor and securities bro-ker. Mr. Seegers executed all the financial transac-tions related to our portfolio. Special Thanks: Finally, the 2003-2004 SMIF Team would like to extend special thanks to the advisors of the fund, Dr. L.R. Runyon & Dr. Peter A. Ammermann. The selflessness with which they sacrificed their time for the sake of academia and student advance-ment is unparalleled on this or any other campus. Both are able to skillfully tread the fine line be-

tween director and facilitator, providing insight where applicable while preserving genuine student management. The learning experience that is de-rived is incomparable and irreplaceable. The goal of any investment fund is to add value to the overall portfolio. With an interminable passion to acquire, create, and distribute knowledge of fi-nancial strategy, these fine gentlemen are possibly the greatest value that could ever be added to the SMIF Program here at CSULB.

ACKNOWLEDGMENTS

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Professional Services: • Bloomberg Professional Service* • Global Insight • 90th Annual Report 2003 – Board of Governors

of the Federal Reserve System Books and Periodicals: • Economic Indicators. (2003, October 3).

[Online database]. Retrieved October 7, 2003, from http://www.stat-sa.gov.coast.library.csulb.edu/online.nsf.

• Greenwald, Bruce C. N., Kahn, Judd, Sonkin,

Paul D., and van Biema, Michael. (2001). Value Investing: From Graham to Buffett and Beyond. New York: John Wiley & Sons, Inc.

• Niederhoffer, Victor, and Kenner, Laurel.

(2003). Practical Speculation. New York: John Wiley & Sons, Inc.

• Reese, John, and Glassman, Todd. (2002). The

Market Gurus: Stock Investing Strategies You Can Use from Wall Street’s Best. New York: Dearborn Trade Publishing.

• Reilly, F. K., & Brown, K. C. (2003).

Investment Analysis and Portfolio Management. Mason, OH: South-Western.

• Wieseman, T. & Greelaw, D. (2003). Global

Economic Forum [Online]. Retrieved September 29, 2003, from http://www.morganstanley.com/GEFdata/digests/latest-digest.html. MorganStanley.

Internet Resources: • Big Charts • Hoover’s Online • Lehman Brothers • Lexis Nexis • Mergent Online • MSN Money CNBC • Standard & Poor’s • StockCharts.com • Value Line Investment Survey • Value Line Investment Survey Selection &

Opinions • Value Line Investment Survey: Summary &

Index • Value Line Investment Survey: Ratings &

Reports • Value Line Company Reports • William O’Neill Database – Daily Graphs.com • Yahoo! Finance – http://finance.yahoo.com

*Screen grab from Bloomberg Professional Service, illustrating mean reversion timing opportunity of COCO during uptrend.

REFERENCES

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Student Managed Investment Fund Guidelines Introduction The College of Business Administration at California State University, Long Beach (CSULB) has made the commitment to develop and offer a student-managed investment fund course for students majoring in Finance with an option in Investments. This course is different from other academic programs at CSULB because it uses a real-dollar portfolio rather than a virtual portfolio. The course gives the students real-world applications to academic programs, fostering interaction between the University and the security industry, increasing the prestige of the University and the College of Business Administration, attracting better and more qualified students and professors, and producing better prepared and more skilled graduating students. Providing a more meaningful and valuable learning experience for students with the College of Business Administration is the primary goal of SMIF. The SMIF portfolio is managed by a combination of senior-level undergraduate students concentrating in investments and second-year MBA students specializing in finance. Students enrolled in this “honors level” course have taken a number of required prerequisite courses and are subject to approval by the Finance Department Chairman and the course faculty advisors. Three levels of security checks and balances will monitor the integrity of the fund. All trades will be approved by a majority of students in class and are subject to veto by any of the three fund advisors. Quarterly financial statements audited by a major accounting firm and an Annual Report will be made available to major fund benefactors. This overview will outline the overall mechanics of the course itself, define the general objectives of the investment fund, explain the types of securities the fund will invest in and how trades will be transacted, specify the diversification strategy guidelines to be observed, describe the various safeguards and security measures that will be “built into” the program, and reveal some of the special

features of the program that will make it a unique and invaluable experience for all participants involved. Investment Fund Objectives Preservation of Capital In the beginning phase of the program, the primary objective is preservation of the initial fund endowment so that these assets can be utilized by future classes. Rate of Return The return should be equal to or better than the Standard & Poor’s 500 Index. Moderate and Steady Growth As the assets of the investment fund grow, earnings may be used to finance scholarships and special projects and, perhaps, course-related field trips. Suggested Investment Pool Students will be allowed to invest in the following types of securities: • Common Stocks of companies listed on the

three major exchanges: NASDAQ, NYSE, and AMEX.

• Value Line Financial Strength rate of “B” of above will be required (or equities of non-rated companies with meaningful analytical support).

• Companies with market capitalization of at least $100 million.

• Government Bonds: Investment-quality corporate bonds (Moody’s or S&P rating of ‘BBB’ or above).

Students will not be allowed to invest in the following types of securities and activities: • Mutual Funds • Short Sales • Futures or Derivatives • Foreign Equities or Debt Investments • Utilization of Leverage Suggested Portfolio Diversification Guidelines

APPENDIX A

33

• 50% - 75% to be invested in equities • 25% - 50% to be invested in debt securities • Portfolio Beta not to exceed 1.5 • Equal mix of income (dividends) and growth

(capital gains) stocks The following 5 / 10 / 15 rules shall apply: • Investment in any security shall constitute at

least 5% of the value of the portfolio. • No more than 10% of the portfolio can be

invested in any one company. • No more than 15% of the portfolio can be

invested in any one industry. Suggested Transactions Guidelines • Round-lot purchases, when possible within the

above guidelines • Purchase decisions supported by majority of

students • Subject to veto by any of the three fund

advisors • Irrevocable 10% stop-loss provision

communicated to the broker at the time of purchase

• Any bond falling below investment grade is to be sold

Frequency of Trading Trades are recommended and voted upon by students and approved by the fund advisors. Classes meet once a week, and trading decisions are made at that time. In emergency situations any of the fund advisors may make a sell decision without student input. Summer Break Fund Activity The investment fund is liquidated at the end of each spring semester, or directives may be put into place to assure orderly and timely liquidation. Fund assets are used to purchase short-term Treasury bills or money market instruments. This process allows each new class the opportunity to start from scratch without the need to justify any prior holdings.

Classroom Mechanics Graduate and undergraduate students will be organized into groups with three or four students. Occasional Guest Speakers/Lecturers:

· Portfolio Managers · Securities Analysts · Leaders – Economists · Corporate Vice Presidents of Finance

Three Investment Fund Advisors

· Instructor / Faculty Advisor · Corporate Advisor · Securities Industry Advisor

Field Trips

· CFA Meeting · Orange County Society of Investment

Managers Monthly Events · Los Angeles Society of Financial Analysts

Weekly Events

Three Levels of Security

· Trades subject to veto by any of the fund advisors

· Monthly statements and quarterly audit from the brokerage firm

· Annual Report and record of transactions sent to the major fund benefactors

Commissions One of the contributors to the fund representing a major brokerage house conducts the fund’s trades at or below cost.

APPENDIX A

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California State University, Long Beach (CSULB) CSULB is a large urban comprehensive university in the California State University (CSU) system. Los Angeles-Orange County State College opened its doors on September 28, 1949, to an entering group of 169 juniors and seniors. The new school offered 25 courses taught by 13 faculty members in support of five undergraduate majors. The campus consisted of two converted apartment buildings at 5381 and 5401 Anaheim Road in Long Beach. Two decades later the rapidly growing institution had earned designation as a university and was the second largest in the CSU system. Today more than 30,000 undergraduate and graduate students are pursuing degrees and credentials under the direction of 1600 faculty members, supported by 1150 full-time and part-time staff. Its mission is high-quality education leading toward a broad range of baccalaureate and graduate degrees spanning the liberal arts and sciences and many applied and professional fields, with emphasis on instruction at the upper-division and graduate levels. College of Business Administration The College of Business Administration (CBA) is one of the seven colleges of CSULB. The largest of the 23 campuses of the California State University system, CSULB is a comprehensive four-year institution that was established as the Los Angeles-Orange County State College in 1949 to serve the areas of Orange County and southeastern Los Angeles County. Business studies at CSULB began in 1949 with 24 business students and four faculty members, accounting for one-seventh of the campus population. Business administration was part of the Social Science Division from its inception until 1957, when the division was renamed Division of Business and Social Sciences. In 1958, the two academic areas split, and Business Administration became a division in its own right, with Dr. S. Austen Reep as founding dean. By the mid-1960s, the business school had close to 3,800 business students, 29 full-time faculty members, and 13 part-

time lecturers. Today, the College of Business Administration is home to over 5,000 business majors, including about 400 graduate students—the largest student population at CSU Long Beach—and 140 full-time-equivalent faculty and staff. CBA seeks to prepare its students for entry into successful careers in business. As each graduate pursues a successful career, it is anticipated that personal responsibility will be accepted for maintaining and enhancing the quality of the society in which business and the individual operate. CBA has five departments: Accountancy; Finance, Real Estate, and Law; Human Resource Management and Management; Information Systems; and Marketing. Department of Finance, Real Estate, and Law The objective of the finance curriculum is to prepare students for a successful career in business with an understanding of the financial decision-making process and its impact within the overall framework of the business enterprise. The finance curriculum offers education in the management techniques and regulations applicable to financial management and investments. The curriculum draws on fundamental knowledge of statistics, computer logic, and economics to develop advanced financial concepts. It explores the historical and current roles of various financial institutions and regulatory authorities; details the basic principles, and techniques for valuing financial instruments, on the basis of fundamental and/or historical price trends; explores the methods of managing risk; and examines financial principles that govern international trade.

APPENDIX B

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GLOSSARY Relative Valuation Terms: Beta – The measure of a fund's or a stock's risk in relation to the market or to an alternative benchmark. A beta of 1.5 means that a stock's excess return is expected to move 1.5 times the market excess returns. E.g., if market excess return is 10%, then we expect, on average, the stock return to be 15%. Beta is referred to as an index of the systematic risk due to general market conditions that cannot be diversified away. Forward price/earnings ratio – Estimate using the current share price divided by the expected earnings per share in the next year. Price/book (P/B) ratio – Ratio of the stock’s price to its book value per share. Price/earnings ratio (P/E) – Estimate using the current share price divided by the earnings per share in the most recent financial year.

Price/earnings/growth (PEG) ratio – The price-earnings ratio divided by annual earnings per share growth rate.

Return on Equity (ROE) – An indicator of profitability. Determined by dividing net income for the past 12 months by common stockholder equity (adjusted for stock splits). Result is shown as a percentage. Investors use ROE as a measure of how a company is using its money.

Fundamental Analysis Terms: Dividend Discount Model (DDM) – A formula to estimate the intrinsic value of a firm by figuring the present value of all expected future dividends. Certain parts of this analysis were conducted on the Bloomberg Machine, and feasibility analyses are conducted to determine how realistic the intrinsic values really are. Free Cash Flow to Equity (FCFE) – Future cash flows multiplied by discount factors to obtain present values.

Technical Analysis Terms: Chaikin Money Flow (CMF) – Developed by Marc Chaikin, the Chaikin Money Flow oscillator is calculated from the daily readings of the Accumulation/Distribution Line. The basic premise behind the Accumulation/Distribution Line is that the degree of buying or selling pressure can be determined by the location of the close relative to the high and low for the corresponding period (Closing Location Value). There is buying pressure when a stock closes in the upper half of a period's range and there is selling pressure when a stock closes in the lower half of the period's trading range. The Closing Location Value multiplied by volume forms the Accumulation/Distribution Value for each period. Commodities Channel Index (CCI) – Identifies cyclical turns in commodities. The assumption behind the indicator is that commodities (or stocks or bonds) move in cycles, with highs and lows coming at periodic intervals. CCI can be used to identify overbought and oversold levels. A security would be deemed oversold when the CCI dips below -100 and overbought when it exceeds +100. From oversold levels, a buy signal might be given when the CCI moves back above -100. From overbought levels, a sell signal might be given when the CCI moved back below +100. Exponential Moving Averages (EMA) – In order to reduce the lag in simple moving averages, technicians often use exponential moving averages (also called exponentially weighted moving averages). EMAs reduce the lag by applying more weight to recent prices relative to older prices. The weighting applied to the most recent price depends on the specified period of the moving average. The shorter the EMA's period, the more weight will be applied to the most recent price. Moving Average Convergence Divergence (MACD) – One of the simplest and most reliable indicators available, MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics. MACD generates bullish

GLOSSARY

36

signals from three main sources: (1) positive divergence, (2) bullish moving average crossover, and (3) bullish centerline crossover. MACD generates bearish signals from three main sources. These signals are mirror reflections of the bullish signals. The sources are: (1) negative divergence, (2) bearish moving average crossover, and (3) bearish centerline crossover. On-Balance Volume (OBV) – One of the earliest and most popular indicators to measure positive and negative volume flow, OBV is a relatively simple indicator that adds the corresponding period's volume when the close is up and subtracts it when the close is down. A cumulative total of the positive and negative volume flow (additions and subtractions) forms the OBV line. This line can then be compared with the price chart of the underlying security to look for divergences or confirmation. Relative Strength Index (RSI) – Compares the magnitude of a stock's recent gains to the magnitude of its recent losses and turns that information into a number that ranges from 0 to 100. Calculation of this index requires the choice of the number of time periods to include; 14 periods is the typical recommendation. Reversion to the mean – A force that compels a stock price to a line of best-fit. In our studies, two standard deviations were used to qualify a worthwhile buy signal. Simple Moving Averages (SMA) – A simple moving average is formed by computing the average (mean) price of a security over a specified number of periods. Stochastic Oscillators – A momentum indicator that shows the location of the current close relative to the high/low range over a set number of periods. Closing levels that are consistently near the top of the range indicate accumulation (buying pressure), and those near the bottom of the range indicate distribution (selling pressure). William’s %R – A momentum indicator that works much like the Stochastic Oscillator. It is especially popular for measuring overbought and

oversold levels. The scale ranges from 0 to -100, with readings from 0 to -20 considered overbought, and readings from -80 to -100 considered oversold.

* * * * * Bloomberg Professional Service About Bloomberg Bloomberg L.P., founded in 1981 by Michael R. Bloomberg, is the world’s leading financial information, news and media company, serving customers around the globe. Bloomberg leverages its data and news resources through related media products, including television and radio programming, Web sites, books and publications, to meet the financial information needs of professionals and consumers globally.** About the Product Certification Program Many financial institutions and corporations worldwide have adopted the Bloomberg Professional Service as an essential part of their business. The increasing complexity of the system as well as their reliance upon it has shown that a proficiency benchmark in the use of Bloomberg is highly desirable. To meet such a need, Bloomberg has developed the Product Certification Program that offers structured training in Fixed Income, Equity, and Foreign Exchange. Each track is offered at three levels, and each level leads to a Bloomberg Certificate.** Benefits One of the primary benefits is that participants will dramatically increase their knowledge of financial markets and of Bloomberg functionality. In addition, certified users will gain recognition for attaining a high level of competency in using the Bloomberg Professional Service. Such recognition will come from their colleagues, superiors, and outside organizations. In an increasingly complex and challenging financial world, this competency may prove to be a saving grace. Many of the 2003-2004 SMIF Team members have completed the Product Certification Program from levels 1 through 3. **Excerpts from the Bloomberg Professional Product Certification Program.

GLOSSARY

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To build an investment portfolio that will out perform our benchmark while providing a valuable learning environment that mirrors

the real world of portfolio management.

MISSION STATEMENT

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