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     Student Managed Fund Portfolio


                   Mission Statement
   “The Objective of the fund is to provide University of
     Connecticut students of business, commerce, and
 economics with an opportunity to gain valuable hands-on
 experience in fiduciary management of investment assets.
  Additionally, it will provide to the School of Business a
long-term method of attracting high quality candidates, and
    will provide to the UConn Foundation management

   University of Connecticut Foundation
            February 20, 2003

Scott Bores      Ellen Huebner            Tom Perone
Eric Burns       Lisa Lin                Javed Singha
Kevin Conlon     Andreas Miliotis         Lucas Smith
Jonathan Striker                            Jared Thal
The University of Connecticut
  Student Managed Fund

        February 20, 2003
                            University of Connecticut
                             Student Managed Fund
                               Executive Summary

As a newly formed undergraduate fund manager group, we began our tenure with a total
portfolio value of $150,171.15. Our first decision was to allocate these assets
appropriately based on current market conditions and other associated risks, such as
interest rate, economic, market and credit risks. With weak equity markets poised to
rally, and an unattractive bond market, we chose to invest the majority of our assets in
equity, but maintained both bond and cash positions to maintain a margin of safety
against the observed market volatility during the summer. Our final asset allocation was
75% Equity, 15% Bonds and 10% Cash. In keeping with our strategy of risk
management, we then followed a top down approach by researching the various
industries present in the S&P 500. However, instead of diversifying risk across
industries, we found that specific sectors namely, consumer discretionary, consumer
staples, and health provided the greatest opportunity for us to protect our assets and
realize capital gains in this particular recessionary environment. Although losses were
recorded for the two month period ended January 31, we retained a positive return
  I. Allocations, Holdings, and Weights

  II. Portfolio Performance

 III. Stock Selection Criteria

 IV. Portfolio Risk

  V. Best and Worst Performers

 VI. Explanation of Idle Cash

VII. Sell Discipline

VIII. Where Do We Go From Here


        Outperform the S&P 500 Index
        Build a well-diversified portfolio
        Invest Consistently with Market Forecast
        Use valuation models to justify decisions
       Practice Informed Sell Strategies
     Part I. Allocation, Holdings and Weights

Values            October 1, 2002   December 31,2002      January 31,2003

Total Portfolio   $150,171.15        $162,927.94          $161,041.65
Money Market      $15.49             $80,163.62           $84,578.45
Fixed Income      $53,640.54         $36,937.32           $36,405.46
Equity            $96,515.12         $45,827.00           $40,057.74
S&P 500           847.91             879.82               855.70

                       Current Sector Allocation

         20.0%                                     Energy
         15.0%                                     Consumer Discretionary
                                                   Info. Technology
         5.0%                                      Health
                    SMF             S&P 500
Part II.      Portfolio Performance

Since our tenure as managers, we have been able to
outperform the S&P 500 for the period beginning October
1, 2002, and ending January 31, 2003

           Risk Adjusted Performance

                  Return on      Return on   Risk Free
                  Portfolio (Rp) S&P (Rsp)   (Rf)
Since Active          7.23%         0.92%
Excess Return        6.17%         (0.14)%
Risk (Weighted       1.00216         1.00        1.06%
Average Beta)
Treynor Index        6.15%         (0.14)%
 Part III.     Stock Selection Criteria
   I. Industry Selection
  II. Preliminary Research Using Value Line
        Sales Growth
        Earnings Growth
        Return on Equity & Investments
        Earnings Yield
        Free Cash Flow
 III. Detailed Research
        Management
        Competition
        Other Qualitative Factors
        Capital Structure
        Strategy
        Pipeline
IV. Valuation Models
        Discounted Cash Flow
        NAIC Stock Selection Guide
  V. Presentation to Student Managers
VI. Discussion
VII. Group Vote
        Stop-Loss Orders
        Numbers of Shares to Purchase
        Limit Orders
        Ten-Year Equity Bond Model

 Step 1: Shareholder Equity*(1+Annual
          Return)^10=Equity Value in 10 Years

 Step 2: Equity Value in 10 Years / # of Shares=
          Equity per Share

 Step 3: Equity per share*Return on
          Equity=Earnings per Share

 Step 4: Earnings per Share*Projected P/E
          Ratio= Price in Ten years

 Step 5: Using Future and Present Prices,
          Calculate Return
Part IV. Undergraduate Portfolio’s Risk

       One of our main objectives in the past two months of investing has been to protect

the capital that was presented to us in October. We have achieved this by selecting

relatively low risk stocks. In fact, there have been times when we decided not to invest in

a company, that pass our selection criteria, because of the high risks associated with

them. An example of this is NVIDIA Corp. We have calculated our portfolio’s weighted

average Beta, weighted average safety rating, and Treynor Ratio. Then, we compared

these figures to the S&P 500 index for the month of November 2002.

       We have made every effort to protect the capital that has been provided to us by

the foundation since we began investing in October 2002. This should become clear as

you take a look at our portfolio’s weighted average beta, our portfolios’ weighted average

safety rating, and after comparing our portfolio’s Treynor Ratio to that of the S&P index

for the month of January 2003. As you can see from the chart provided our portfolio has

a weighted beta of 1.00210, which is very close to that of the S&P 500 Index, which by

definition has a beta of 1.00. This shows that we have invested with the goal of obtaining

a well-diversified portfolio, with as little risk as possible. A portfolio with a weighted

safety of 3.00 is considered to be of average safety. Since our portfolio’s weighted safety

is 2.31 our portfolio is of above average safety.
Investment                 Beta      Safety     Portfolio   Wtd. Beta Wtd. Safety
Kroger Company                0.39            3      12.39% 0.048321         0.3717
Concord E F S .Inc            1.58            3      11.89% 0.187862         0.3567
Liberty Media                 1.82            3      13.10%    0.23842         0.393
Lowes Companies Inc.          1.17            3      10.32% 0.120744         0.3096
McDonalds Corp                0.82            1       9.95%    0.08159       0.0995
Pfizer Incorporated           0.61            1      12.51% 0.076311         0.1251
Sears Roebuck &Co             0.43            3      13.20%    0.05676         0.396
Berkshire Hathaway            0.90            2      16.66%    0.14994       0.3332
Total:                                               100.0%       0.96          2.38

  Part V.          Best and Worst Performers

         At the conclusion of January, our two best performing stocks were Liberty Media

  (NYSE: L) and Sears (NYSE: S). As of Jan 31st they have appreciated 5.67% and 4.95%

  respectively.   On the date of purchase, we felt shares of Liberty stock were under priced

  based on the value of assets that they held at that time. We are confident that our other

  stocks still have the potential for moderate gains during our tenure.

         Our worst performing actively held stocks at the end of January were McDonalds

  (NYSE: MCD) which dropped 19.82% and Lowe’s (NYSE: LOW) which lost 17.10%.

  We feel that McDonald’s is a very strong company and was reasonably priced at its 5

  year low. However, shortly after purchase, McDonalds issued a profit warning and

  posted its first ever quarterly loss. The sluggish economy has hurt retail sales in general.

  Despite the fact that Lowe’s announced they expected to meet earnings estimates, the

  stock’s price has dropped significantly. This may be in part due to the industry giant

  Home Depot, has driven the sector down. We are very concerned about these losses and
will continue to monitor price drops and use our stop loss orders when they need to be


        During our tenure we have utilized one stop loss order with Home Depot which

helped to reduce possible future losses. Home Depot lowered its earnings and sales

growth targets for 2003, citing an uncertain economy and plans on improving existing

stores rather than growing. After the stock price fell about 20% our predetermined stop

loss price was used. Based on our research, we believe that the stocks we have selected

are either at a fair or undervalued price. We will look at a stocks appreciation after it

increases in value about 15% in order to determine whether or not the stock has the

potential to achieve further gains. If we feel stock has reached its earning potential, we

will look to exchange it for another investment opportunity. We have learned from our

mistakes so far and will use what we have learned to improve our selection process.

Part VI. Money Market Funds
        The presence of cash in our investment portfolio is due to a number of reasons.

One of the main reasons is that we wish to maintain our conservative investment strategy.

The markets have been very volatile over the last couple of months and keeping cash in

our portfolio has helped us preserve the capital which was given to us. We believe that in

the current market conditions and with the high possibility of war with Iraq being flexible

is a crucial part of our strategy. Having cash gives us this flexibility. We have set price

targets on a number of stocks and if any of these stocks reach our targets we have the

cash to quickly buy them. We recently bought five more stocks that fallen into our buy
price. This strategy also means that we are not forced into selling a steady performer in

our portfolio or prematurely giving up on a stock that is not performing to our

expectations in order to free up cash. Our current idle cash is $54,500. We are currently

looking at some stocks which are moving toward our buy price and believe that over the

next couple of months we will have invested most of this money. However we do not

believe that it would be a good idea to simply invest this money in stocks that are

overpriced simply to reduce this balance. We feel that being patient and looking for

bargains in this volatile market will pay off.

Part VII. Sell Strategy & Review Prices
       There are three events that could occur to make us sell a stock. It could

appreciate, depreciate, or be replaced by another stock. To protect against depreciation of

capital all stock purchases have stop loss orders in place. These are set 15-25% below the

purchase price. We do not hold stop losses at the same percentage because each stock

has different volatility. An example of this difference is with Concord and Lowe’s. We

put a stop loss order for Concord at 25% due to its high volatility, and have a stop loss

order for Lowe’s at 15% because it is much less volatile. The main reason for the stop

loss is to protect capital or lock in a profit. Since the last report Home Depot has reached

its stop loss and has been sold. Now as a team we must determine if we should reacquire

it at a lower price holding our previous assumptions that the stock will appreciate or

decide to take the loss on it. Another stock that is nearing our stop loss is McDonalds. We
feel that neither company has lost any value but have decreased in stock price due to

investors fear.

         In addition to stop loss orders we have upside and downside review prices. The

downside review price is set 5% lower than the stop loss percent. If the stock reaches the

downside review price we have three options and must determine if any actions should be

taken. The first option is that we can sell the stock to minimize losses or to preserve any

previous gains. Our second option is to continue to hold the stock and take no action.

The third option is to purchase more of the stock. If we continue to feel that the stock is

very solid, and that there is a large price discrepancy between the market and what we

feel the stock is valued we can choose to purchase more.

         The upside review price is set similarly to the stop loss. It is set 15 - 25% above

the purchase price. If the stock reaches this point we choose to continue to hold the stock

or sell. When either upside or downside reviews are hit we also determine if the stop loss

should be changed. If we decide to hold the stock we will adjust the stop loss to lock in

profit, by setting the stop loss at or above our purchase price. Many factors must be

analyzed to sell a stock due to appreciation. Mainly it must be determined that the stock

no longer has an appreciation potential that we require, and that the money could not be

placed in an investment with similar risk and greater potential. The third reason to sell a

stock is that after we are fully invested we feel that there is a stock that we would like to

purchase that will out perform one that we own. If after our analysis we find a better

stock that will out perform ours and cover the transaction cost we will sell our initial

Part VIII. Where Do We Go From Here?
       The road ahead is complicated and uncertain as we enter our final semester as

Student Fund Managers. The expectation of a smooth investing future has been

extinguished by a return of uncertainty to the market. The current political and economic

climate has brought additional risk into our view, but it has also brought increased

opportunity. Our primary goals remain coincided with the maximization of our returns

and maintaining a reasonable level of safety, while continuing to learn real-world, real-

time lessons. Additionally, we would like to identify areas of significant opportunity and

realize our full asset allocation within our limited term as fund managers.

       With the threat of war constantly swaying the emotions of investors, the market

continues to fluctuate and uncertainty remains high. Unlike the past, where good news

would bring an upbeat market, all news appears to be covered by a dark shadow cast by

the threat of war. It is for this reason that we continue to remain cautiously optimistic

and conservative in our investment decisions.

       In early February, we acquired additional investments but are still to fully invest.

We feel that having money market reserves will facilitate a strategic selection of stocks

that will benefit from the uncertainty of war. Past history indicates that the market

frowns upon news of an upcoming war. We believe that a disparity will arise between

the market value and fair value of securities that will lead to opportune buying


       As of this point, we continue to track securities that will grow significantly,

should a war arise, but will also offer us security and diversification simultaneously.

Should these securities come into our price range, we will have the liquid assets
necessary to purchase them without having to sell off a critical piece of our portfolio. On

the same token, we are looking at securities have perspective growth given a no-war


       Regardless of the outcome of the dispute with Iraq, we have positioned ourselves

to exploit any opportunities that may arise. We have studied the benefits and

consequences of war from both sides of the equation, and identified what we feel is the

best strategy given a particular outcome. The days and weeks to come will be very

telling, and we will be sure to keep afloat on what is happening so that we may execute

our strategy in a timely manner.

       The political climate in the future may become more certain. This certainty is

close at hand, as America awaits a final decision on the Iraqi situation. We feel that if

war is the end result, there will be significant disparity between market value and fair

value for some securities. We will work to identify these situations as they arise and put

ourselves in a position to take full advantage of them. On the other hand, we will strive

to identify securities that will perform well if a war is avoided.

       The economic situation is primarily unchanged over the past months. Interest

rates remain low as the Fed keeps them unchanged. We still anticipate a definite rise in

the prevailing interest rates in the future. For this reason we shifted our fixed income

allocation from a Long-Term Bond Fund, to a Short-Term Bond Fund. The purpose of

this was to mitigate our duration risk.

       The political and economic environment will have the greatest influence on our

investing decisions throughout this semester. In our initial meetings we have discussed

these issues and made a strong push forward to become fully invested. The presence of
cash on the sidelines was something we felt was unnecessary as we move forward. In the

first week of February we made significant purchases to get closer to our goal. The

identification of several more quality opportunities and larger positions in existing

holdings will bring us to this goal very shortly.

       In conclusion, we will move forward into an uncertain environment with a unified

front. We will use each other, the instruction of our professors, and the confidence we

developed last semester to bring our portfolio to strong, positive ground. We hope to

accomplish much more in the next three months, and pave a road for the fund to move


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