Student Managed Investment Fund

Annual Report
2004-2005

CALIFORNIA STATE UNIVERSITY, LONG BEACH

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 Table of Contents
Directors Letter to the Readers 4
OCSIM Letter 5
Executive Summary 6
Investment Philosophy 7
Economic & Capital Market Outlook 7
Sector Analysis 10
Fixed Income 14
Equity
Gildan Activewear, Inc. 15
Knight Transportation, Inc. 17
Abaxis, Inc. 19
Gibraltar Industries, Inc. 20
Verisign, Inc. 21
World Fuel Services Corp. 22
Performance 23
Learning Experience 27
OCSIM & LASFA 28
Meet the SMIF Team 30
Student Managers 31
Acknowledgements 35
Notes 36

3
Directors Letter to the Readers

4
OCSIM Letter

5
 Executive Summary
The Student Managed Investment Fund (SMIF) Program
is an honors-level course offered through California State
University, Long Beach’s (CSULB) College of Business
Administration. Since inception in 1995, SMIF’s mission
was to expose students to a real-life, real-dollar fund
management experience. For the 2004-2005 academic
year, the management team consisted of fourteen
undergraduate and two graduate business students.
The 2004-2005 academic year was productive for the
SMIF program. The students had an opportunity to apply
their knowledge and skills in a real-world investment
company setting using professional tools such as
Bloomberg and Value Line. The team competed for and
“The SMIF program provided the students with the opportunity
to apply their skills in reading economic indicators, forecasting,
and evaluating securities.”
won the privilege to manage the Orange County Society of
Investment Managers Scholarship Fund for the second
consecutive year. Several students received Bloomberg
Certifications and registered for the CFA Level I
examination. In addition, the students attended many
professional events, including the LASFA Annual Career
Expo and the OCSIM Annual Forecast Dinner. These
activities exposed the students to the competitive and
evolving world of finance and prepared them for future
success.
The SMIF program provided students with the
opportunity to apply their skills in reading economic
indicators, forecasting, and evaluating securities. During
the first semester, the students carried out the research
segment of the portfolio management process. The SMIF
team conducted economic, sector and industry analysis to
determine the positioning of investments. Each team was
assigned the responsibility to evaluate and follow three
sectors. The teams presented their finding and forecast to
Penny graph picture 407668
6
the class at the end of the first semester.
The students assumed the portfolio management role
during the second semester of the program by selecting
and evaluating the securities. Due to the nature of the
fund, the investments were limited to equities, bonds, and
money market instruments. Based on the forecasted
market outlook, the asset allocation of 70% equity and
30% fixed income was thought to provide the portfolio
with the greatest risk/return trade-off. The SMIF team
decided to invest in U.S. small-to-mid cap companies for
the equity portion of the portfolio, in order to take
advantage of potential growth and greater returns. Out of
many companies evaluated for the equity portion of the
portfolio, two were selected for investment. Gildan
Activewear Inc. (GIL), a manufacturer and supplier of
active wear, and Knight Transportation Inc. (KNX), a
trucking transportation provider, were considered to be
the leaders of their industries, as supported by their
healthy fundamentals and good growth prospects.
Initially, securities with one year remaining until maturity
and a credit rating of A or BBB were considered for the
fixed income portion of the portfolio. However, due to a
number of factors, including economic conditions and a
short holding period, the team re-evaluated the investment
prospects and decided to invest in money-market
instruments in order to minimize loss. Although no bond
investment was executed, the comprehensive research and
evaluation still provided the students with valuable
learning experience.
The overall portfolio returned a negative 1.32%. Third
quarter 2004 returns were 0.08%; fourth quarter returns
were 0.37%. First quarter 2005 returns were 0.56%;
 Investment Philosophy
The SMIF philosophy was based on value investing, with a
top-down approach to focus on sectors and industries
with favorable prospects. The team invested in small-to-
mid-cap securities traded on United States Stock
Exchanges with the primary goal of capital appreciation.
Adherence to a semi-efficient variation of the efficient
market hypothesis was emphasized. The Market is not
strongly efficient because (1) stock prices do not fully
reflect private information, (2) investors interpret available
information differently, (3) information is not equally
available and accessible to every investor, and (4)
information is not free. There are inefficiencies,
anomalies, and irrationalities in the market on which
participants aimed to capitalize.
The management team attempted to benefit from investor
over-reactions to current events. Valuation models based
on company fundamentals were utilized to calculate a
company’s intrinsic value and compare it to market prices.
Only equities that were significantly under-priced in
relation to their intrinsic values were considered for the
portfolio. In addition, SMIF tried to take advantage of the
neglected firm effect as mentioned in “A Revival of the
Small-Firm Effect” by Reinganum. The team looked for
equities not closely monitored by institutional investors
because such equities have a greater tendency to be
undervalued; hence, it focused on the small-to-mid-cap
universe. This philosophy can be successful because many
institutional investors are constrained to invest in equities
with larger market capitalizations.
Although a majority of investors are aware of the
aforementioned, not all apply it strictly and rationally.
When applying the strategy, emotions were excluded that
often taint the decision-making process. Instead, strict
adherence to the buy/sell disciplines was maintained.

Penny graph picture 407668

Economic & Capital Market Outlook

INTRODUCTION Fed) was forecasted to raise discount rates, and the long
term rates were to remain on the same level.
The Student Managed Investment Fund (SMIF) team has
been following economic and market developments since
the summer of 2004. In analyzing the mixed results of GDP
macroeconomic data over the past year, the management
The SMIF team forecasted that the economy would
team believed that the economy was in a limited expansion
expand by 4.4% in 2004, and slow to 3.6% in 2005. This
period. We projected continued growth at lower rates and
coincided with Value Line’s projection of 3.5%. For 2006,
a modestly favorable environment for equities and fixed
the management team expected GDP to grow by 2.9%,
income securities. Capital and consumer spending drove
which was in line with Bloomberg’s projections. The final
economic growth in 2003, and tax cuts were expected to
estimates showed that the fourth quarter of 2004 GDP
stimulate consumer demand in 2004. Homebuilders and
grew by an annual rate of 3.8%.1 The growth can be
technology sectors were expected to peak. Technology,
contributed to increases in personal consumption
energy and health care industries were expected to be the
expenditures (PCE), private domestic investment
leading performers for the year. The Federal Reserve (The

7
 Economic & Capital Market Outlook
(inventory), and equipment and software components. An
increase of imported goods was the largest contributor to
the slight GDP growth slowdown in 2004, especially in the
fourth quarter.
INTEREST RATES
The federal funds rate was forecasted to rise to 2.25% by
the end of 2004, to 3% by mid-year 2005, and to 3.50% by
the end of 2005. The Fed raised the federal funds rate
from 1.50% to 1.75% in September and another 25 basis
points up to 2% in November 2004. Fed officials believed
that the economy was becoming stronger compared to the
beginning of the year. There was some concern about the
increase in the rate prior to the Presidential Election;
In August, all four coincident index indicators increased,
bringing the index to 113.8. The SMIF team forecasted
the index to reach 121 by the end of 2005. It has been
steadily increasing through 2004-2005. At the end of the
holding period, the coincident index stood at 119.5
The lagging index was 98.2 in August. SMIF believed this
indicator would remain relatively flat due to little growth in
the overall market. The index was expected to reach 100
by mid-2005. Four out of seven components increased.
The positive contributors to the index were the average
prime rate charged by banks, change in labor cost per unit
of output, ratio of consumer installment credit to personal
income, and ratio of manufacturing and trade inventories
to sales. The negative contributors were commercial and
industrial loans outstanding, average duration of

“The Fed’s willingness to continue interest rate increases

indicates their belief in the underlying strength of the economy.”
however, in the end, it was regarded as a sign of the
unemployment (inverted), and change in the Consumer
improving health of the economy. By the time of this
Price Index (CPI) for services. The lagging index had been
writing in May 2005, the Fed had raised the federal funds
increasing in 2004 with a short slowdown in June through
rate for the eighth consecutive time, to a level of 3.0%, the
October. At the end of the holding period, the index stood
highest level since September 2001. The Fed’s willingness
at 99.4 and remained relatively flat which indicated that the
to continue interest rate increases indicates their belief in
economy was expanding at a lower rate than its average
the underlying strength of the economy.
long-term rate.
The yield for U.S. Treasuries with a 10-year maturity was
expected to rise from 4.01% on September 27, 2004 to
4.72% by the end of April 2005. The 10-year Treasury EMPLOYMENT
yield went up to 4.64% by the end of March 2005, but the
Initially, SMIF was concerned with the employment
yield rapidly declined in the first two weeks of April. On
situation in the U.S. The employment rate increased
April 29, 2005, the 10-year Treasury yield closed at 4.21%.2
slower than expected. Initial unemployment claims had
been flat since March 2004. The employment situation
ECONOMIC INDICATORS has been improving slightly with initial claims decreasing
by 12,000 to a total of 323,000 for the week ending
In the fall of 2004, recent data showed that three out of
November 20. This brought the four-week moving
ten leading economic indicators had increased. The
average down to 332,000, which was the lowest level since
positive contributors were manufacturers' new orders for
November 17, 2000, when it was at 321,800 (Bloomberg).
consumer goods and materials, real money supply, and
average weekly initial claims for unemployment insurance The management team projected modest improvements in
(inverted). The negative contributors were building the Labor market by mid 2005 compared to August 2004.
permits, the interest rate spread, the index of consumer There has been drop in unemployment index suggesting
expectations, manufacturers’ new orders for non-defense that employment growth in December has been stronger
capital goods, vendor performance, and stock prices. In than previously expected. The average hourly earnings
the fall of 2004, the leading index stood at 115.7. The growth was 2.3% in August 2004, up from 2% in the first
leading index remained flat from October 2004 to March half of the year. According to a November Wall Street
2005; when it decreased by 0.4%. At the end of the Journal survey of economists, unemployment was
holding period, the leading index stood at 115.1.

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 Economic & Capital Market Outlook
predicted to reach 5.2% in May 2005. The forecasted
unemployment rate for the fourth quarter of 2004 was
5.7%, and was expected to decrease to 5.4% in the third
quarter of 2005. At the end of the first quarter of 2005 the
unemployment rate was 5.3%.
CONSUMER CONFIDENCE
The SMIF management team expected consumer
confidence to slowly increase to 100 by the end of April
2005. Slower income growth and high energy prices were
expected to negatively impact consumer confidence. The
index decreased in October as oil prices started to rise.
The Consumer Confidence Index (CCI) remained at the
92-93 level until December 2004, when the index rose to
102.3 due to the holiday season expectations. However,
the CCI declined each month of the first quarter 2005, and
was down to 97.7 points in April.3 At the end of the
holding period, consumer confidence was at its lowest
level since November 2004.
MARKET OUTLOOK
The fall semester was spent researching and analyzing data
in order to develop an economic and market forecast. The
following market outlook focused on 2005 and onward.
S&P 500
The S&P 500 index closed at 1,211.92 in 2004, which was
a 7% increase from 2003. After analyzing the future
economic outlooks and considering experts’ forecast,
SMIF projected the index to grow by 3-4% in 2005. The
equity markets grew moderately in 2004, and slower
growth was expected in 2005.
BOND ISSUANCE
Bond issuances declined by 22.1% in the first three
quarters of 2004, compared to the same period of the
9
previous year. This was a result of the strengthening of the
U.S. economy and rising interest rates. Economic growth
was strong in 2004 and was expected to continue through
2005 (The Bond Market Association's year-end survey of
chief economists). The Fed was forecasted to increase the
Federal Funds rate by 25 basis points, bringing it to 3.50%
by the end of 2005. The yield of the 10-year Treasury note
is expected to rise steadily throughout 2005 with a median
forecast of 5.1% by December 2005.
INFLATION
The management team forecasted a 5% increase in
Consumer Price Index (CPI) by mid-2005 primarily due to
the increases in food and energy prices. The CPI rose
3.3% in 2004 and 4.3% for the first three months of 2005.
The core rate (excluding food and energy) increased by
2.2% during 2004, followed by a 3.3% increase in the first
three months of 2005.4
OIL PRICES
The major concern in the last quarter of 2004 was the
price of oil. The average price forecasted for 2005 was $40
per barrel. This was expected to negatively affect 2005
GDP growth by 0.1% to 0.2%.5 Actual oil prices reached
$55 per barrel in October 2004. The SMIF team believed
that oil price hikes were mainly the result of speculation
and uncertainty in the market. The increase of oil prices
can also be attributed to the increasing demand and
tightening supply of oil. The tight supply of oil resulted
from production disruptions, the continuing military and
terrorist actions in the Middle East, and higher than
expected demand from Asia.
 Sector Analysis
The SMIF managers used the sector and industry
classifications as shown in finance.yahoo.com. Based on
Yahoo Finance allocation there are twelve sectors, and 101
industries within them. Sectors were divided into four
parts and assigned to different managers for the analysis
and forecast.
BASIC MATERIALS SECTOR
The basic materials sector includes eleven industries:
chemical manufacturing, chemicals-plastics and rubber,
containers and packing, fabricated plastic and rubber,
forestry and wood products, gold and silver, iron and steel,
metal mining, miscellaneous fabricated products, non-
metallic mining, and paper and paper products. The
slowing growth of the economy was expected to negatively
impact the demand of fabricated products. In addition, the
anticipated increase in oil prices could drive up raw
material costs and lead to reduced orders from large
consumers like agricultural, construction, and automobile
manufacturing industries.
When the dollar weakens, gold and silver generally
appreciate; however, SMIF believed the mining industry’s
outlook was poor due to environmental issues.6
Worldwide competition affected the steel industry despite
increased demand and steel tariffs imposed by the United
States Government.7 Based on SMIF’s economic outlook,
the basic materials sector did not appear attractive for
investment.
CAPITAL GOODS SECTOR
The capital goods sector consists of the aerospace,
defense, construction, agricultural machinery, construction
supplies and fixtures, construction raw materials,
construction services, mobile homes and RVs and
miscellaneous capital goods industries. After analyzing the
sector, SMIF rated the sector as good.
The SMIF management team concentrated on the
construction and agricultural machinery industry. This
sector was expected to outperform the S&P 500 due to
expected increases in real estate construction and spending
on agricultural equipment. Although there are 28 public
companies within the construction and agricultural
machinery industry, SMIF managers were mainly
interested in Caterpillar (CAT). Based on team projections
CAT was expected to outperform Deere, S&P 500 and
Dow Jones, due to its diversification and product quality.
10
However, the SMIF investment philosophy was focused
on the small-cap segment which excluded a majority of the
capital goods sector enterprises.
CONGLOMERATES
Conglomerates operate within industries from many
different sectors, such as financial services, industrial
products, and technology, and benefit from the
diversification this provides. However, the diversity of this
sector increases its complexity, making analysis of this
sector more difficult. Conglomerates were ranked vis-à-vis
other sectors comprising the economy by focusing on
financial ratios such as Price-to-Earnings, Return-on-
Equity, Dividend Yield, Debt-to-Equity, Price-to-Book,
Year-over-Year Revenue, and Earnings-per-Share. Then,
qualitative analysis was conducted. Based on the results of
this analysis, the conglomerates sector was rated as fair.
Furthermore, Value Line rated this sector favorably.
Growth was expected to maintain its upward trend, and
many companies within the sector received favorable
timeliness ratings from Value Line.
Opportunities for this sector depend on the overall long-
term economic growth and the increased demand for
industrial and technological products. A number of
companies within this sector can also benefit from the
increased demand for financial products by baby boomers.
On the other hand, some of these companies may be
negatively impacted by currency and interest rate
fluctuations or alleged fraud, as was observed in the
insurance industry.
CONSUMER CYCLICAL
The consumer cyclical sector faced an uncertain outlook.
Despite projections that the economy would remain in a
limited expansion phase, which would be beneficial for
this sector, a concern existed that possible increasing oil
prices would stir inflationary expectations and hurt
demand for consumer durables. At the time of analysis,
ten out of the twelve industries within this sector were
ranked by Value Line among the bottom third of all
industries. With profit margins already weakened, the
prospect of further increases in raw material costs
suggests that many industries within this sector are
particularly vulnerable. For example, the auto and truck
manufacturing, auto and truck parts, and appliance and
tool industries were suffering due to increasing steel prices.
 Sector Analysis
Moreover, within auto manufacturing, there was growing
concern that customers were taking on more debt with
“up-side down” trades, trading in cars that were worth less
than the remaining principle, which would reduce future
sales. Overall, increasing oil and raw materials prices,
together with rising interest rates, were expected to render
2005 a challenging year for most industries within the
consumer cyclicals sector, although a few industries within
the sector, such as apparel, were viewed as being largely
immune from such negative influences.
CONSUMER NON-CYCLICAL
Industries within the consumer non-cyclical sector include
food processing, office supplies, household products,
“Overall, increasing oil and raw materials prices, together with
rising interest rates, were expected to render 2005 a challenging
year for most industries...”
tobacco, fish and livestock, alcoholic and non-alcoholic
beverages, and agricultural crops. Apart from the tobacco
industry, the outlook for this sector was fair. Poor
weather conditions, high commodity, and energy prices
will have a negative impact on the sector.
Within this sector, the alcoholic beverage industry
appeared to be the most favorable. The demand for wine
and spirits in general was expected to increase, with the
fine wine and spirit segment of the industry (according to
S&P Net Advantage) anticipated to benefit the most as a
consequence of expected increases in real disposable
income. Additionally, breweries faced stable and inelastic
demand that would allow them to expand their profits by
raising prices. Moreover, continued weakness of the US
dollar was expected to hinder importation while
encouraging exportation of alcoholic beverages. For the
coming year, though, the industry was expected to have
limited growth and was ranked 47 out of 98 industries by
Value Line.
ENERGY
The energy sector consists of integrated oil and gas
producers, oil and gas operations, oil well services, and
coal. The sector’s performance was exceptional during
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2004 to 2005 due to high crude oil prices. It is currently
the number one ranked sector and is expected to perform
well. The sector’s outlook, at time of analysis, was good,
which was later validated by 2004’s fourth quarter
performance. Investors focused predominantly on energy;
hence, companies with favorable prospects were analyzed,
but they were deemed overvalued. The industry SMIF
decided to analyze for possible investment within the
energy sector was coal. The coal industry showed a
favorable outlook in performance and was ranked the
fourth industry by Value Line. In addition, coal
represented the cheapest source of fuel for electricity
generation in view of the United States’ growing energy
needs.
Seeing that the market reacted quickly to the coal
industry’s positive outlook, higher returns were reflected in
the value. Thus, the industry was overvalued and the SMIF
team decided not to pursue any investment in coal.
FINANCIAL SERVICES
The financial services sector is comprised of insurance,
consumer financial services, investment services, and
banking. Financial services faced an increasing level of
uncertainty due to numerous legal issues, investigations,
and regulations. One example of this was the investigation
into Fannie Mae and Freddie Mac for the misapplication
of GAAP accounting principles.
Compounding this uncertainty is the fact that the financial
services sector is especially sensitive to changes in interest
rates. With the Federal Open Market Committee (FOMC)
projected to raise its federal-funds-rate target to 3% by
mid-2005, and with higher interest rate expected to lead to
higher default rates on variable-rate loans, the prospects
for the industry, especially the mortgage market segment,
appeared to be poor.
HEALTHCARE
The SMIF management team found the healthcare sector,
 Sector Analysis
which includes biotechnology, healthcare facilities, major prices were expected to negatively affect this sector.
drugs, and medical equipment and supplies, to have a (economist).
good outlook for 2005. Overall healthcare spending was
anticipated to continue rising. The Department of Labor
estimated that the 55 to 64 age group would increase by TECHNOLOGY SECTOR
43.6% between 2002 and 2012, and the World Health
The technology sector includes industries as computer
Organization projected an increasing incidence of chronic
software and services, computer peripherals, internet, e-
diseases. Both factors would drive increased demand for
commerce, wireless networking, semiconductors, and
healthcare. Medicare reform committed $400 billion over
entertainment technology. Value Line predicted a 10%
10 years for modernization and coverage to uninsured
increase in technology spending for 2005. The expected
individuals. The Bush Administration’s support of
investment in technology infrastructure by businesses to
malpractice reform, health savings accounts, and tax
improve competitive advantage and increase cost
credits would also benefit the sector. Moreover, 2004’s
efficiencies set the management team’s view that the
election season could also be seen as beneficial to the
sector was good for investment.
industry – according to Sam Stovall, the chief investment
strategist at Standard & Poor’s, healthcare issues perform The two most promising industries within the sector were
well in the year following an election, increasing 14.9% computer software and services and internet. E-commerce
versus the average S&P 500 increase of 3.6% since 1949. industry was particularly attractive for investment. E-
commerce offers comparable quality with lower prices to
Within the sector, the medical equipment and supplies
traditional retailing channels, and an added benefit to
industry appeared to offer the most potential to investors.
internet sales is the opportunity to target advertising. In
Numerous new product launches anticipated throughout
2003, internet sales topped the $100 billion mark, and,
the coming decade should provide for continued favorable
according to Value Line, sales were expected to double for
profit growth. Other promising segments within this
2004. The internet industry, as rated by Value Line,
industry include congestive heart failure treatments,
contained a timeliness ranking of 9 out of 98 in October
diabetes management, and minimally invasive and robotic
2004. In addition to Value Line’s positive outlook, the
surgery. Changing demographics should also drive
management team believed that expanding e-tailer and
increasing demand for cardiovascular products,
brick-and-mortar alliances and increasing online product
reconstructive orthopedic hip and knee implants, and
offerings could produce revenue growth opportunities for
diagnostic imaging products. As a reflection of these
the e-commerce industry.
factors, Value Line estimated that 2005 earnings growth
would be 11.5% and noted that their ranking of the
industry’s relative strength was on an upward trend.
TRANSPORTATION SECTOR
The transportation sector includes such industries as
SERVICES SECTOR airlines, railroads, trucking, water transportation and other
businesses related to transportation and shipping. The
Services Sector includes wide variety of industries ranging
sector is sensitive to oil prices and overall global economic
from advertising and retail to waste management and
conditions. However, the world can not do without some
schools. The service sector is comprised of 25 industries
industries in the transportation sector, for it is an essential
mostly directed towards consumer consumption and
part of the supply chain. The SMIF management team
spending. After analyzing the economic risk factors and
recognized that higher oil prices do not favor some
the current phase of the business cycle in September 2004,
industries, such as airlines, within the sector. However,
SMIF managers concluded that the majority of the
there will always be the demand for one type of
industries within the services sector would incur poor
transportation or another, because it is an important
performance over the next year.
requirement of conducting business. In addition, current
The sector has always been inherently sensitive to changes growth of many nations’ economies and globalization of
in consumer confidence and the demand for services. The the world positively impacts the demand for
SMIF team decided not to invest in the services sector, transportation. The SMIF team believed that given the
because the decline in consumer confidence due to weak increasing levels of trade and exchange of goods between
stock and job market outlook, and expected increasing oil countries, the demand for transportation, such as trucking,

12
 Sector Analysis
would be unaffected despite of rising oil prices.
The trucking industry is comprised of 45 companies
ranging in size and market capitalizations. At the time of
economic analysis, the industry has been outperforming
the market since 2003. The companies were left with a lot
of bargaining power because the demand for freight was
strong and supply tight. Despite the fact that the industry
faced many negative factors, such as increasing labor cost,
shortage of drivers, high oil prices and insurance expenses,
most trucking companies posted strong earning results by
the end of 2004, and the trend was expected to continue
into 2005. In addition high oil prices were being partially
offset by hedging, careful route planning, instituting fuel
surcharges and raising prices on services.

UTILITIES
The utilities sector is composed of electric, natural gas and
water utility industries. Electric companies generate and
distribute electricity; natural gas companies conduct
exploration and production and or distribute natural gas
for resale; and, water utility companies distribute water to
designated geographic areas. Since GDP, at the time of
analysis, release for the second quarter of 2004 was 120
basis points below the first quarter of 4.5% growth, the
utility sector outlook was considered good for its defensive
play aspect.8 From a technical stance, the sector also
appeared favorable, for the S&P Electric Utilities Index
had advanced 19.31% over the year ending in September
2004 in comparison to 8.21% for the S&P 500 over the
same period.
At time of analysis, the utility industry had improved their
balance sheets by taking advantage of lower interest rates.
In addition to interest rates, the industry had undergone
consolidation that lead an industry transition from
electricity to diversified energy enterprises which bettered
the cost structure and aided the upgrading of the
distribution infrastructure.9 Housing starts as a factor,
household consumption directly affects revenues; hence,
the ongoing positive trend of the Housing Starts Index
was also expected to benefit the Electric Utility industry.
Over the last two years, housing starts increased 3.6% and
6.54%, for period ending in September 2003 and 2004
respectively, year-over-year.10 The catalyst, the business
cycle phase at the time of analysis displayed signs of post-
recovery/maturing; hence, money inflow into non-cyclical
sectors , as electric utilities, was expected to increase.

13
 Fixed Income
All SMIF teams at CSULB, are required to invest 25% to
50% of the portfolio in fixed-income securities. This is
done for many reasons, but the most important ones are,
on a philosophical level, the educational experience that is
gained from the analysis of fixed-income securities, and,
on a more practical level, the protection of the portfolio
against geopolitical risks. Upon finishing the economic
analysis, the SMIF team decided to allocate 30% of the
portfolio to Fixed Income.
Mr. Doug Lopez, Senior Vice President and Portfolio
Manager for Bradford and Marzec, Inc., was invited to
bring his real life experience of fixed income management
to the SMIF class. Mr. Lopez’s presentation consisted of a
description of the technical tools for evaluating bonds, the
“Considering all the factors, including the inflow of capital from
China, SMIF Managers expected the yield curve to flatten and
shift upward.”
sources of relevant information, and the importance of
considering benchmark risk. Dr. Runyon and Dr.
Ammermann suggested further reading material to better
understand and analyze fixed income, such as “The
Handbook of Fixed Income Securities” and “Fixed
Income Mathematics” by Frank J. Fabozzi, CFA.
SMIF’s economic forecast expected the Federal Reserve to
increase the Federal Funds rate at each of their meetings
due to inflationary expectations and increasing oil prices.
SMIF Managers believed that real estate prices were
inflated due to low interest rates; therefore the yield curve
was expected to adjust accordingly. Considering all the
factors, including the inflow of capital from China, SMIF
Managers expected the yield curve to flatten and shift
upward. On January 11, 2005, the 10-year Treasuries were
yielding 4.24%. Taking into account all the economic
forecasts, SMIF projected this yield to rise to 4.72%.
After forecasting the yield curve of U.S. Government
Treasuries and the credit spread for all investment grade
securities, the team decided to allocate the fixed income
portion of its portfolio to securities with one year
remaining until maturity and a credit rating of A or BBB.
Due to the short holding period of four months, most of
the return from the fixed income holdings would come
from the accrued interest. Lower level securities provide
higher coupon payments due to the higher credit risk
associated with the company; therefore they will provide
14
higher return. SMIF’s findings were in line with the
expectations of a variety of analysts at Bradford &
Marzeck, Bear Sterns, Bloomberg, and other data
contributors.
The SMIF team was limited to the available inventory at
Solomon Smith Barney that met the specified criteria for
fixed income securities. Despite this limitation, more than
seventy fixed-income securities were available that satisfied
the requirements. Later, the SMIF team analyzed all
individual offerings to eliminate those securities that
appeared to face a relatively high probability of being
downgraded. For this reason, the bonds issued by General
Motors Corporation, which is suffering from deteriorating
fundamentals, were eliminated from the list.
The Management team’s original analysis forecasted a
flattening and upward shifting yield curve. As a result, a
sensitivity analysis was performed on all available securities
by considering a change of +/- 25 and 50 basis points.
Due to the short holding period, transaction costs, and an
anticipated interest rate increase of 25 basis points, the
team found that the return would be negative, ranging
from -0.11% to -3.37%. Therefore, the SMIF students
requested a waiver of the fixed income asset allocation
guideline, to position the fixed income portion of the
portfolio in Smith Barney’s money market fund. Members
remain confident that a positive return provided by Smith
Barney’s money market fund is in the best interest of the
SMIF portfolio. Even though participants did not invest
in fixed income securities, they believe the analysis was
thorough and satisfied the educational purpose.
The SMIF team continued monitoring news associated
with interest rates. The analysis and expectations of the
yield curve fluctuations were accurate through the first
week of April. On April 8, 2005, the long-end of the yield
curve started to decline, forcing the prices and the return
on the fixed income securities to increase. The yield for
the 10-year Treasury increased to 4.64% by the end of
March and decreased to 4.32% when the minutes of
Federal Reserve Open Market Committee became publicly
available.
 Gildan Activewear, Inc.
Gildan Activewear is a highly specialized manufacturer and GIL QUICK LOOK
supplier of “blank” active wear for the wholesale imprint
market. The product line includes T-shirts, collar-shirts, SECTOR: Consumer Goods
and fleece, made of 100% cotton or a blend of 50%
polyester and 50% cotton in various fabric weights.11 INDUSTRY: Textile - Apparel Clothing
Even though the company is incorporated in Canada,
MARKET CAP: 1.4B
Gildan’s stock is traded on both the Toronto Stock
Exchange (TSE) and the New York Stock Exchange
GIL IND S&P
(NYSE).12 Furthermore, the United States market
represents 85% of their sales. SMIF found that Gildan
stood out among its competitors and was worthy of P/E: 22.21 19.70 33.33
further analysis. P/B 4.07 4.52 4.73

ROE 20.68 11.10 13.88

COMPANY ANALYSIS
D/E 0.17 N/A 1.35
As evidenced by its strong market position, GIL
DIV. YIELD 0.00 0.65 1.62
successfully combines low prices with high quality
products. Low prices are achieved through low labor costs
by having its manufacturing facilities in South America Finance.Yahoo.com. 5/29/2005
and the Caribbean. Gildan was also able to control costs
through vertically integrated operations, which include: that Gildan has access to. These management choices help
yarn spinning, textile manufacturing, sewing, and combat the threat of competition from China and the recent
distribution. Product quality is demonstrated by focusing liberalization of trade through the economical Central American
on intricate details such as double stitched necklines, work force. SMIF found Gildan, the industry leader, to have
seamless collars, and superior knit surfaces that enhance high growth potential along with low risk resulting from the
printability. stability of the apparel industry.

Gildan is the market leader in T-shirt sales holding 30.2%

of the U.S. market for the first quarter of 2005, which is a
13.5% increase over the same period for 2004. It also
increased market share in sport-shirt and fleece markets,
where it currently controls 24.6% and 18.6%, respectively.
SMIF also anticipated growth in the international market,
which was initiated only five years ago and is currently
comprised of 36 distributors in 20 countries accounting
for 7% of company sales. The European market
constitutes a great opportunity for Gildan to grow
exponentially.
The recent closure and relocation of its Canadian
operations incurred a $7.8 million one-time loss. This
strategic decision was estimated to save $4 million annually
resulting from the Central American Free Trade
Agreement (CAFTA), labor, and transportation.
Furthermore, during the year of 2005, Gildan added two
new major distributors in the United States.13 This
valuable addition in its customers’ database will boost sales
and lower the company’s exposure. Lower risk will be
enhanced by steady and secure revenues in the United
States mainly generated by the great distribution channels
FUNDAMENTALS
At the time of analysis, Gildan had a 5-year compound annual
sales growth rate of 19%. For the last 5 years, units sold and
market share growth for this company was higher than the
industry and its major competitors. The net earnings 5-year
compound annual growth rate is 29.9%. In addition, the 5-year
compound annual growth rate of diluted earnings per share is
24.3%. When SMIF analyzed Gildan, it thought that the
company was in good financial health. The Return On Assets
of 14.18% and the Return On Equity of 21.58% were higher
than the industry. Gildan is a highly profitable company; the
Earnings Per Share at the end of the fiscal year 2004 was $2.02
compared to $1.79 in 2003 and $1.45 in 2002. Gildan’s Price to
Earnings Growth ratio of 0.59 was better than the industry’s
PEG of 0.95.
Furthermore, Gildan had very low debt; the Debt To Equity
ratio was 0.181. Gildan has been able to increase its revenues
and its bottom line with very low debt. In addition, future
growth could be enhanced with higher financial leverage. The
operating margins of this company were 6.95% higher than the
industry. Gildan’s expected return of 10.19% was higher than

15
 Gildan Activewear, Inc.
its required return of 8.26%. Furthermore, Gildan’s stock a buy signal.
had outperformed the S&P 500 since 2001. The stock
PERFORMANCE
price increased from $10 in 1999 to about $40 in 2005,
which denoted a 400% price increase. Finally, Gildan’s Gildan was purchased at $45.50 on April 6, 2005 and was
long-term growth was projected to be over 10% for the liquidated it on April 29 at $42.23. When the decision was
next 5 to 10 years. made to purchase the stock, Gildan closed at $42.72.
Unfortunately for SMIF, the company raised its earnings
guidance the following morning and the stock opened at
VALUATION AND SMIF DECISION $45.50, which was the purchase price. The overall
performance of Gildan was a negative $3.27 per stock or
SMIF participant selected Gildan for the portfolio based
negative 7.19%.
on qualitative and quantitative analysis. Its strong market
position, high quality product, and well-implemented low
price strategy were important drivers of the decision. The
discounted cash flow model was used to calculate the
intrinsic value, which resulted in a target price of $56.28 at
the end of 2005. This price appreciation would result in a
capital gain of 33%. Yahoo’s target price was $49 and
Zack’s target was $47.95. Bloomberg ranked the company
number one with 100% consensus.14 SMIF approved the
purchase of the stock with a vote of 15 to 1. The student
management team based its decision on the financial
strength of the company and the strategic initiatives
implemented in recent years. Finally, the technical analysis
provided by the Bollinger Band and the MACD indicated

Gildan Activewear, Inc. Performance Graph

16
 Knight Transportation, Inc.
Knight Transportation, Inc., is a dry van truckload carrier
KNX QUICK LOOK
with the market capitalization of $1.39B, and 2004 EPS of
$0.83. KNX operates primarily in high density, SECTOR: Services
predictable traffic lanes in selected geographic regions.
The company's services include multiple and one-time INDUSTRY: Trucking
pickups and deliveries within narrow time frames, MARKET CAP: 1.4B
specialized driver training, and other trucking services.15
KNX IND S&P

COMPANY ANALYSIS P/E: 27.79 28.90 33.33

The company transports general commodities for shippers
throughout the United States, focusing its operations on
short- to medium-haul length (750 mile radius). Due to
the greater demand for this segment of the market, these
regional operations generate relatively high freight
volumes and revenues per mile, while also enhancing
safety and driver recruitment and retention. In addition,
the company uses a satellite-based system to communicate
with its drivers and track the loads, which enables KNX to
respond promptly and accurately to customer requests and
to operate more efficiently.
KNX is able to fulfill a significant part of its customers’
transportation requirements. Under carriage service
agreements, KNX provides drivers, equipment and
maintenance, and transportation management services that
supplement customers’ in-house transportation
departments.
Overall, the company’s strategy is to take advantage of the
heavy traffic in regional markets, thus realizing operating
efficiencies associated with regional hauls, and to offer
flexible service to customers. Shorter hauls reduce the
amount of time drivers spent away from home,
consequently improving driver retention and reducing
recruitment and training costs, insurance claims, and other
costs.
FUNDAMENTALS
The combination of strong demand and tight truckload
capacity is expected to continue in 2005. Moreover, with
freight rate increases, sales from its new refrigerated truck
service, and the expected addition of 400 new tractors, the
company’s earnings are expected to grow by 26.8% in
2005. Over the next five years, the company’s EPS is
expected to grow at an average rate of 11% per year, and
free cash flow is projected to grow from just over $25
million in 2005 to more than $70 million in 2009.
P/B 4.61 4.24 4.73
ROE 18.53 10.90 13.88
D/E 0.00 N/A 1.35
DIV. YIELD 0.14 0.26 1.62
Finance.Yahoo.com. 5/29/2005
Lower than expected economic growth, and the cost pressures
from fuel and labor are the major threats for trucking
companies in the current economic environment. The
company may also face higher than anticipated costs from
regulations on hours of service and engine emissions.
Wages and depreciation charges are expected to rise
significantly as KNX expands its operations to include new
drivers and additional tractors. In addition, the company has
been adversely affected by the record high diesel prices of 2004,
although fuel expenses were anticipated to moderate in 2005
and the company’s high fuel costs are partially offset by hedging
agreements.
VALUATION AND SMIF DECISION
For the fiscal year ended December 31, 2004, KNX’s revenues
increased 30% to $442.3M, while net income increased 35% to
$47.9M. The revenue growth reflected the expansion of the
company's customer base, increased volume from existing
customers, and the addition of new tractors. In addition,
earnings also benefited from both improving operating margins
and a very limited use of debt financing.
The SMIF team began researching this stock at the end of
February 2005. E-Trade forecasted 2005 EPS of $1.03, up 24%
from 2004's $0.83, and expected 8% growth in 2006. Based on
such projections, E-trade’s discounted cash flow model gave an
intrinsic value of $16 for the stock (assuming a 10% cost of
capital and a 4% terminal growth rate), while their relative
valuation model provided a value of $35. Combining this

17
 Knight Transportation, Inc.
information together suggested a target price of $26,
which was equal to, S&P’s 12-month target price of $26.00
per share (as of January 20, 2005). Similarly, the average
recommendation on Marketwatch.com was a “buy,” with
an average target price of $27.80 per share, and
Bloomberg’s theoretical price was $27.50 per share.
Finally, using Damodaran’s high growth valuation model,
the SMIF team obtained a relative valuation of $28.25 and
DCF valuation of $12.07.16 The price of the stock at the
end of February, when participants valued the company,
was fluctuating within $24-$25 price range. By March 7,
2005, the day the stock was presented to the rest of the
SMIF team, the price of the stock had risen to $27.78.
Knight Transportation Performance Graph
The sales and EPS growth rates for the company were
much higher than those of the industry and the S&P500.
Furthermore, KNX has no long-term debt, although it has
$10 million revolving credit agreement as of 2003. KNX's
margins were higher than the industry and sector averages.
Moreover, its above-average operating profit margins were
expected to rise from 18% in 2004 to 19% in 2005 due to
increasing freight rates, high asset utilization, and strong
freight demand. As with the operating margins, the
company’s other profitability and growth ratios were also
favorable compared to industry and market averages.
Ultimately, the SMIF team decided to purchase KNX due
to the combination of the company’s growth prospects,
18
good future outlook, and its overall financial health. The
strength of this company is reflected in the fact that
Knight Transportation’s stock was recently accepted for
listing on the NYSE and began trading in December 2004
under the symbol "KNX”. Furthermore, the company
had experienced the positive earnings surprise in January
2005.
PERFORMANCE
The SMIF team purchased two hundred shares of KNX
on March 30, 2004, at a price of $ 24.25 per share. With
fees and commission of $73, the total amount of the
purchase order came to $4,851. Unfortunately, soon after
the stock was purchased, its price began to decline, and
due to a 10% stop-loss policy, the stock was ultimately
sold on April 12, 2005, at a price of $21.80, resulting in a
loss of 12.88%. As of the time of this writing, KNX is
continuing to trade in the $21-$22 range. Nevertheless,
the SMIF team believes that this setback is temporary.
The company’s prospects and growth potential still remain
strong. However, near-term unfavorable economic
conditions, with high energy prices and a depressed
market, have temporarily dampened the stock’s
performance. Unfortunately, the short investment
horizon prevents SMIF from taking advantage of the
strong growth that it still anticipates for this stock.
 Abaxis, Inc.
Abaxis Incorporated develops and markets portable point- ABAX QUICK LOOK
of-care blood. The equipment is capable of generating
results for 13 different blood tests.17 The system is SECTOR: Healthcare
marketed under the name of Piccolo® in the human
medical market and under VetScan® in the veterinary INDUSTRY: Diagnostic Substances
market. Abaxis operates in the medical equipment
MARKET CAP: 210.4M
industry within the healthcare sector. Both the sector and
industry were projected to have favorable outlook in
ABAX IND S&P
SMIF’s analysis.

P/E: 47.45 27.13 33.33

COMPANY ANALYSIS
SMIF found that ABAX had a competitive advantage
because it was the first in the market with a point-of-care
blood chemistry machine. In addition, ABAX protects its
technology through patents. Abaxis had 27 patents. The
team anticipated high growth potential in both the human
and veterinary markets because of all its patent-protected
products. Furthermore, the company has a number of
new products in the pipeline, which could spur growth
domestically and within international markets. Recent
changes in Medicare, that encourage initial screenings,
were seen as an excellent opportunity to increase sales in
the domestic market. Also, the growing population of
pets, as well as a new mammalian liver profile with bile
acids, boosted our favorable outlook for the veterinary
market. On the negative side, Abaxis encountered tough
competition from IDEXX Laboratories Inc. (IDXX), a
direct competitor that is much more established.
FUNDAMENTALS
Abaxis earnings per share of $1.18 in 2004 were better
than the previous two years earnings per share of $0.02.
However, $0.89 of it was a one-time tax benefit. The price
to earnings ratio of 10.21 was lower than the industry P/E
of 27.13. However, this might be biased due to the effect
of the tax benefit. When SMIF analyzed the profitability
of this company, we found out that Abaxis had operating
margins of 13.64% compared to 6.32% for the industry.
In addition, Abaxis had a high expected return of 30%
compared to a required return of 9.96%. SMIF noticed
that Abaxis’s capital structure consisted solely of equity,
which gave it the opportunity to gain leverage.
Furthermore, Abaxis had a low Price to Earnings growth
of 0.77 compared to 1.3 for the industry and 1.64 for
IDXX. From 2003 to 2004 revenue growth was 34.76%
compared to 3.75% from 2002 to 2003 and 3.83% from
2001 to 2002. The high revenue growth for last year did
P/B 3.41 4.48 4.73
ROE 8.35 13.33 13.88
D/E 0.00 N/A 1.35
DIV. YIELD 0.00 1.53 1.62
Finance.Yahoo.com. 5/29/2005
not provide SMIF with a clear signal for sustained growth.
VALUATION AND SMIF DECISION
At the time of analysis, Abaxis was trading at $12.91. The
SMIF team used the discounted cash flow model to calculate
the intrinsic value of $32.77. Even though Abaxis was
undervalued, had a good business model and several patents
protecting their products, SMIF decided not to invest in this
stock because it was too volatile with no sustainable growth
pattern. In addition, the one-time tax benefit in 2004 boosted
the positive outlook of certain financial ratios as well as the
intrinsic value, which were perceived by the team as possibly
misleading.
The declining share price was a primary concern because the
holding period was too short to realize the price reversal
necessary to achieve the target price. High correlation of sales
to military demand was also considered a negative aspect. In
hindsight, this decision was correct because the price continued
to decline until April 29, 2005, when it rebounded 19.35% with
the release of the fourth quarter financial results. The final
decision was not to purchase the stock. On the date of
portfolio liquidation, Abaxis was trading at $9.50, which would
reflect a capital loss of 26% had it been purchased, compared to
a negative return of the market of only 3.72% for the same
period.

19
 Gibraltar Industries, Inc.
Gibraltar Industries manufactures, processes, and ROCK QUICK LOOK
distributes steel products. Gibraltar’s segments revolve
around processed metal works, building products, and SECTOR: Basic Materials
thermal processing. Processed metals include cold-rolled
stripped steel, coated sheet steel, steel strapping and INDUSTRY: Steel & Iron
powdered metal products. The majority of processed
MARKET CAP: 582.5M
metal works are destined for the automotive, and hardware
industries. The building products line manufactures and
ROCK IND S&P
distributes building products. The thermal processing line
refines metal properties of customer owned products.18
P/E: 11.16 10.00 33.33

P/B 1.25 2.45 4.73

COMPANY ANALYSIS
ROE 11.95 39.40 13.88
Gibraltar was analyzed because it offers a wide product
mix, and it contains a strong customer base. Gibraltar’s D/E 0.69 D/E 1.35
product output goes to industries within the capital goods,
DIV. YIELD 0.67 0.34 1.62
consumer cyclical, and transportation sectors. In addition,
Gibraltar’s facilities are strategically positioned throughout
the United States and Canada, which has allowed it to Finance.Yahoo.com. 5/29/2005
build a diverse and strong customer base. For example,
the building product line supplies businesses such as Ace, reflected a healthy company. The management team proceeded
Home Depot, and Wal-Mart. The processed metal to value the company.
product line supplies businesses such as BMW, Ford, GM,
Honda, Mercedes-Benz, TRW, Toyota, and Warner. The
thermal processing line services businesses such as 3M, VALUATION AND SMIF DECISION
Caterpillar, GE, and Whirlpool. Hence, the management Gibraltar was valued by using industry multiples. Industry
team considered Gibraltar’s large-scale product Price-to-Earnings were multiplied to the company’s Earnings-
distributorship and international infrastructure an per-Share to arrive at a per share price for year-end 2004 and
economic moat . 2005. Year-end 2005 earnings were calculated by using Value
Line’s estimated figures. From the two year-end equity prices,
an annual growth rate was calculated; then, it was pro-rated for
FUNDAMENTALS each quarter. According to estimated earnings, the quarterly
expected growth rate for the equity was 3.25%. The position
Gibraltar, at the time of analysis, had increased its earnings
was analyzed towards the end of the first quarter; hence, the
by 88 percent from the previous 2003 fiscal year. And
equity price should have been near or above the $22 mark, but
over the 2000 to 2004 time period, earnings had grown
the equity price was $21.75. And it was steadily trending below
annually an average of 36%. Over the same time span, the
the nine and 18-day exponential moving averages with a wide
Debt-to-Equity ratio decreased by 33% ; the Times-
Bollinger Bands divergence, which signaled a set price action
Interest-Earned ratio increased by 105% ; Return-on-
trend. With the equity not meeting the quarterly price goal, the
Assets increased by 21% ; Days-Sales-Outstanding had
management team did not believe that the position would be
increased 24% and Return-on-Equity had decreased by
able to recover and meet expectations. No investment was
4%. The Current ratio was 36 percent which was a stable
made in Gibraltar Industries.
figure considering the data points for the last three years.
In addition, Value Line’s Financial Strength rating was also
taken into account, which was a B++ for Gibraltar.19 The
PERFORMANCE
Value Line rating ranges from A++ to C inclusive of nine
different levels. Although no true comparables exist for As of April 29, the last day of our holding period, Gibraltar
Gibraltar since competitors are of smaller capitalization Industries closed at $21.01. An investment in Gibraltar would
and are divided by product line, the ratios themselves have signified a 3.40% loss.

20
 Verisign, Inc.
Versign was incorporated in Delaware in 1995 and went VRSN QUICK LOOK
public in 1998. The company was initially started as an
Internet database directory. It is listed on NASDAQ, and SECTOR: Technology
there are approximately 250 million shares currently
outstanding with a market capitalization of $7.2 billion INDUSTRY: Internet Software & Services
dollars. The company has about 2500 employees.
MARKET CAP: 8.3B
VRSN is organized into two service-based lines of
business: Internet Services Group and Communications VRSN IND S&P
Services Group. The Internet Services Group consists of
Security Services business and the Naming and Directory P/E: 36.23 58.80 33.33
Services Group. The Security Services group is the leading
provider of electronic certificates and internet-based trust P/B 4.55 9.18 4.73
services needed by websites, enterprises, and individuals, ROE 13.92 6.20 13.88
to conduct trusted and secure electronic commerce and
communications. As a result of intelligent infrastructure D/E 0.00 N/A 1.35
services, VRSN enables people and businesses to find,
DIV. YIELD 0.00 N/A 1.62
connect, secure, and transact across today’s complex
global networks. The Naming and Directory Services
Group acts as the exclusive registry of domain names in Finance.Yahoo.com. 5/29/2005
the .com and .net generic top-level domains and certain
country code top-level domains. VRSN also provides devices. Vonage is a provider of Voice over Internet Protocol
Internationalized Domain Name (IDN) services that (VoIP) which offers telephone access over the internet to the
enable Internet users to access websites in over 350 local United States, United Kingdom, and Canada.
language characters. The Communications Services
Group provides Signal System 7 network services (an
VALUATION AND SMIF DECISION
industry-standard system of protocols and procedures),
intelligent database and directory services, application Despite favorable customer base, platform, and product
services, and billing and payment services, to diversification factors, Verisign is subject to a high competitive
telecommunications carriers and other users. environment and volatile earnings. The Internet security arena
is a high growth segment with a low cost of entry; hence, many
smaller companies are vying for a share of VRSN’s lucrative
COMPANY ANALYSIS market. Moreover, some companies prefer to develop in-house
A qualitative assessment exhibited Verisign’s strong security systems to protect and maintain control of sensitive
customer base, platform infrastructure, and product information. Due to this highly competitive environment and
diversification, but it also exhibited Verisign’s high the threat of new technology, VRSN has been incurring
competitive environment and volatile earnings. Verisign’s increasing research and development and marketing costs to
customer base is comprised of more than fifty Fortune maintain its market position. The amalgamation of these factors
100 companies such as Microsoft, Bank of America, Visa, resulted in negative earnings for Verisign which complicated
Hewlett-Packard, Texas Instruments, and Eastman Kodak. valuation.
Its Unified Authentication platform allows for inexpensive After analysis and presentation the management team decided
scalability which reduces its customers’ infrastructure costs not to invest in this company due to negative earnings over the
when enhancing their security platform. And although the past four years, and expected future earnings volatility. Negative
company is primarily known as an internet database earnings complicated evaluation on a comparative basis, and
directory, it has aggressively expanded into expected future earnings volatility complicated future growth
telecommunications with recent acquisitions and alliances determination. Based on these factors company’s intrinsic value
including Jamba! and Vonage. Jamba! is a provider of was difficult to assess, and the decision was made to forgo
ring-tone downloads for mobile users in Europe, multi- investment in Verisign.
media messaging services (MMS) which allows subscribers
and service providers to distribute content via electronic

21
 World Fuel Services Corp.
World Fuel Services Co. markets fuel and related services INT QUICK LOOK
to marine and aviation customers. In the marine fuel
services segment, it procures fuel for customers, assists in SECTOR: Services
cost control via price hedging, facilitates claims
management, brokers fuel purchases, transports fuel, and INDUSTRY: Basic Materials Wholesale
subcontracts fueling vessels for its customers. In the
MARKET CAP: 616.3M
aviation fuel services segment, it provides fuel
management, assists in price risk management, delivers
INT IND S&P
fuel for storage, issues weather reports and provides
ground handling for fuel.20
P/E: 21.00 N/A 33.33

P/B 3.16 2.90 4.73

COMPANY ANALYSIS
World Fuel Services was analyzed because it had a unique
niche, a global presence, and good expected future growth.
It holds 15 percent of the world marine service market and
3 percent of the world aviation services market.21 INT
provides fuel management for major airlines like Jet Blue
and America West Airlines. World Fuels’ service of
providing fuel price hedging for customers in a period
when oil prices were expected to rise was viewed as
perfect positioning. In addition, World Fuel’s competitive
advantage resides with its IT system, for it facilitates the
collection of global data and global fuel trading. World
Fuel’s IT system also drives revenue in the aviation
services by providing weather reports and flight plans for
customers.
A competitive environment analysis was conducted to
assess World Fuel’s prospects. The company faces
competition in the aviation services arena from Mercury
Air Group, and it faces competition from oil companies
which attempt to market directly to consumers. But
World Fuel’s broad focus allows customers to take
advantage of services across air-water without utilizing a
different company. It also offers credit to transporters
that oil companies viewed as too risky. In addition to
credit services, World Fuel’s global infrastructure and IT
resources decrease the threat of competitor entry. Thus,
after reviewing all qualitative information, the management
team continued with the next step in analysis.
FUNDAMENTALS
World Fuel Services, at the time of analysis, had more than
doubled its sales from the previous year, and over a four-
year span the average earnings growth was 39 percent. The
company was taking advantage of financial leverage by
increasing, the Debt-to-Equity ratio from 1.29 in 2000 to
ROE 17.20 10.90 13.88
D/E 0.46 N/A 1.35
DIV. YIELD 0.00 0.49 1.62
Finance.Yahoo.com. 5/29/2005
2.78 in 2004. In addition over the same time period Days-
Sales-Outstanding was reduced by 11 days to 32; Basic-Earning
Power increased by 51 percent, and Return-on-Equity increased
by 57 percent.22 The fundamentals of the company were
strong, and the management team proceeded to value the
company.
VALUATION AND SMIF DECISION
World Fuel Services was valued using the Free Cash Flow to
Equity method; hence, only earnings after normal capital
expenditures were considered for the valuation. Data points
for the last four years ending in 2004 were used; then, estimated
growth rates were applied for four additional years, and a
terminal value was added. The growth rate applied to earnings
was calculated by averaging the earnings growth from 2000 to
2004 excluding growth for 2003. The 2003 growth was not
included, for it was 121 percent, which was considered
abnormal. All forecasted data points were then discounted
back by the company’s Weighted Average Cost of Capital to
year-end 2005. The calculated intrinsic value for the firm was
$27.81 per share. The price for the equity at the time of
observation was $27.96, thus fairly valued. In all, the
management team abstained from purchasing World Fuel
Services due to market overvaluation apparent from the FCFE
method.
As of April 29, the last day of our holding period, INT closed at
$25 a share. Had SMIF purchased this equity, it would have
incurred a loss of 10.60 percent, excluding commissions.

22
 Performance
Performance is detailed on a quarterly basis. Although the
third quarter officially starts on July 1, 2004, the
management team received the funds on August 31, 2004.
Accordingly, the benchmark performance period accounts
only for the time span of 2004-2005 SMIF holding period.
The other quarters follow industry standards.
On August 31, 2004, the incoming management team was
handed the reins of the SMIF portfolio. The SMIF team
began the management process with the development of
its investment philosophy, while simultaneously actively
managing $100,000 virtual portfolio under the supervision
of OCSIMSF. For the remainder of the third and fourth
quarters, in addition to the development of its investment
philosophy, the management team analyzed all the major
economic indicators and examined the prospects of all the
sectors and industries, and developed their forecasts
based on this analysis. During this analysis period, the
management team held the funds in Smith Barney Bank
Deposit Program (SBBDP). Unfortunately, while the
funds were held in cash equivalents, most of the major
indices had exceptional performance during this period,
which negatively affected the comparison to SMIF
benchmarks, as can be seen in Exhibits 3 and 4.
The first major task for the first quarter of 2005 was
sensitivity analysis of potential fixed income investments.
Based on the results of this analysis, the management team
decided to strategically allocate the fixed income portion
of the portfolio into SBBDP, which at the time of analysis,
had an expected annualized return of 1.75%. The most
profitable alternative fixed-income investment prospect,
on the contrary, had an expected annualized return of
Exhibit 1. Quaterly summary of Activities
2004
3rd quarter
Beginning Balance $ 47,511.50
Interest Earned $ 43.28
Purchases $ -
Sales $ -
Ending Balance $ 47,554.78
0.54%. Viewing the implications of the decision in
retrospect, the SBBDP returned about 2.00%, annualized,
while the best performer from the available inventory of
prospective fixed-income investments returned -3.36%,
annualized. Similarly, an appropriate benchmark for our
fixed-income performance is the Lehman 1-3 year treasury
iShares, which yielded an annualized return of only 1.47%
over the holding period.
The active management of the equity portion of the
portfolio became the major focus of our activities near the
end of the first quarter of 2005. A number of equities
were considered for purchase during this period, although
the SMIF portfolio managers recommended against
investment in many of them. A major area of concern was
the increased amount of uncertainty surrounding the
small-cap segment of the market during the investment
period. Additional areas of concern included oil prices,
which continued to soar, and a rash of negative earnings
surprises on Wall Street, which jointly contributed to poor
performance in many of the major indices and created a
negative environment for investment.
Nonetheless, at its point of maximum investment, on
April 6, 2005, the portfolio held two positions which
together comprised 21.41% of the total portfolio
(transportation sector, 9.98%, and consumer cyclical
sector, 11.43%), while the remaining 78.59% continued to
be strategically held in the SBBDP. During the first and
second quarters of 2005, the portfolio’s performance
outpaced most of the major equity indices, as can be seen
in Exhibits 5 and 6.
2005
4th quarter 1st quarter 2nd quarter
$ 47,554.78 $ 47,722.63 $ 43,026.61
$ 167.85 $ 228.53 $ 79.01
- $ (4,924.55) $ (5,530.40)
- - $ 9,280.82
$ 47,722.63 $ 43,026.61 $ 46,856.04
23
 Performance

Exhibit 2. Monthly summary of activities

Date Debit Credit

Opening Balance June 28, 2004 $ 47,431.60

Interest Payment July 9, 2004 $ 22.52

Interest Payment August 13, 2004 $ 35.33

Beginning
Balance August 30, 2004 $ 47,511.50

Interest Payment September 10, 2004 $ 12.25

Ending Balance September 26, 2004 $ 47,523.75

Opening Balance September 27, 2004 $ 47,523.75

Interest Payment October 8, 2004 $ 42.85

Interest Payment November 12, 2004 $ 56.11

Interest Payment December 10, 2004 $ 54.09

Interest Payment December 31, 2004 $ 45.83

Ending Balance December 31, 2004 $ 47,722.63

Opening Balance January 1, 2005 $ 47,722.63

Interest Payment January 14, 2005 $ 34.35

Interest Payment February 11, 2005 $ 65.67

Interest Payment March 11, 2005 $ 73.85

Ending Balance March 27, 2005 $ 47,896.50

Opening Balance March 28, 2005 $ 47,896.50

KNX March 30, 2005 $ 4,924.55

GIL April 6, 2005 $ 5,530.40

Interest Payment April 8, 2005 $ 79.26

KNX April 12, 2005 $ 4,290.21

GIL April 29, 2005 $ 4,990.61

Accrued Interest April 30, 2005 $ 54.41

Ending Balance $ 46,856.04

24
 Performance

Exhibit 3. Third quarter 2004 performance

SMIF vs. Benchmark Third Quarter 2004

7.00%
6.00% 5.19%
5.00%
4.00% 3.20%
2.88%
3.00%
2.00%
0.94%
1.00%
0.08%
0.00%
-1.00%
-0.92%
-2.00%
SMIF Portfolio S&P 400 S&P 500 S&P 600 DOW NASDAQ
Percentage Change

Exhibit 4. Fourth quarter 2004 performance

SMIF vs. Benchmark Fourth Quarter 2004

16.00% 14.69%
14.00% 12.76%
11.82%
12.00%
10.00% 8.73%
8.00% 6.97%
6.00%
4.00%
2.00% 0.37%
0.00%
SMIF Portfolio S&P 400 S&P 500 S&P 600 DOW NASDAQ
Percentage Change

25
 Performance

Exhibit 5. First quarter 2005 performance

SMIF vs. Benchmark First Quarter 2005

SMIF Portfolio S&P 400 S&P 500 S&P 600 DOW NASDAQ
2.00%
0.56%
0.00%
-0.68%
-2.00%
-2.29% -2.59%
-4.00%

-6.00%

-8.00% -7.07%
-8.10%
-10.00%
Percentage Change

Exhibit 6. Second quarter 2005 performance

SMIF vs. Benchmark Second Quarter 2005

SMIF Portfolio S&P 400 S&P 500 S&P 600 DOW NASDAQ
0.00%

-1.00%

-2.00%
-2.01%
-2.30%
-3.00%
-2.96%
-4.00%
-3.95% -3.88%
-5.00%

-6.00% -5.66%

-7.00%
Percentage Change

26
 Learning Experience
The classroom environment typically provides students
with all of the variables needed to complete an assigned
task. However, the real world is seldom this organized
and structured. In the field of investments, it can be
especially challenging to adjust from the classroom to real-
world application. SMIF has provided us with a unique
opportunity to manage multiple portfolios, network with
industry experts, present findings to various professional
panels, work as a team, and learn by doing.
This year’s SMIF class quickly realized the importance of
time management and teamwork. We were presented with
unique and stimulating opportunities such as, managing
the existing OCSIMSF portfolio, applying for the 2005
OCSIMSF Request for Proposal, and constructing and
managing the SMIF portfolio. We learned to balance
these tasks with other course work, jobs and personal
obligations. Approximately 80 percent of the coursework
was completed outside of the classroom, requiring
“We developed enhanced valuation techniques... to value a firm
both qualitatively and quantitatively...”
complete dedication to the program by all students. In
order to be more efficient, the SMIF class was divided into
teams. Each member learned to take on different roles to
create synergy within and among the groups, enhancing
our productivity. The implementation of a rotating CEO
position also improved our productivity, as well as
encouraged leadership skills.
Throughout the year we learned and applied a variety of
technical and analytical skills in searching for appropriate
holdings for the portfolio. We developed enhanced
valuation techniques, which included conducting in-depth
analytical research to value a firm both qualitatively and
quantitatively, and made decisions based upon the results.
MS Excel was utilized in constructing; Discounted Cash
Flow to Equity, Comparative Analysis, Arbitrage Pricing
Theory, and Expected Return financial models. This
differs from other classes in that we had to make our own
assumptions based upon the data available and filter out
the pertinent information. One of the most beneficial
tools we used to locate and analyze this data was the
Bloomberg professional service, which is the pre-eminent
industry-standard electronic resource for the investment
profession. We were also able to attend Bloomberg
seminars and obtain program certification, which will
significantly augment our career prospects.
27
The actions we undertook were not without error, but we
learned from our mistakes. The OSCIMSF virtual
portfolio taught us the value of diversification and the
consequences of holding three highly correlated securities,
such as Texas instruments, Nokia, and Taiwan iShares.
We learned the importance of complying with our
investment policies in order to avoid larger than necessary
losses due to not enforcing stop losses. Our investment
decision of Gildan Activewear taught us how time is
costly; we suffered a loss on Gildan due to the lag time
between conducting research and purchasing the stock.
Although these experiences were unpleasant, we value
being able to learn from our mistakes before we enter the
workplace.
The SMIF team developed advanced skills in effective
delivery of oral and written presentations. Individuals and
teams regularly presented information and recommended
actions to the class by use of MS Power Point.
Throughout the year, we also gave multiple presentations
to investment professionals. The RFP presentation to the
OCSIMSF Investment Policy Board, the Portfolio
Performance Report to OSCIMSF, and the SMIF Annual
Report to the CSULB Investment Committee all gave
SMIF members the opportunity and experience to speak
in front of a panel of industry experts.
Participation in the 2004-2005 Student Managed
Investment Fund at CSULB has been an amazing
experience. The opportunity to carry out the investment
process from beginning to end has been insightful. From
the blank copy of the RFP, to the portfolio construction
and management of the OCSIM and SMIF portfolios, and
concluding with this annual report, we have grown
exponentially in our abilities. This process incorporated a
range of activities that we could never have realized from
simply reading a textbook. There is no doubt that our
experiences gained from SMIF have better prepared us for
our future careers and differentiated us from other
graduates. To quote CSULB President, Robert Maxson,
“…if all you learn at a university is what you learn in the
formal classroom, then you have not received the best
education possible.” We are confident that due to the
SMIF program, we have in fact received the best
education possible.
 OCSIM & LASFA
HISTORY OF CFA INSTITUTE nonvoting member societies. The board of governors
consists of 20 governors that are selected by members.
The building of CFA institute started in Chicago in 1925.
Analysts in Chicago founded the Investment Analyst
Society of Chicago to encourage investment education and LASFA
organize discussions with financial managers. Twelve
The Los Angeles Society of Financial Analysts, Inc.
years later Benjamin Graham and others founded the New
(LASFA) was established in 1931. LASFA is a non-profit
York Society of Security Analysts (NYSSA). The first
membership organization that serves the financial
publication of this society, The Analysts Journal, started in
community of Los Angeles. With its membership at over
1945 and is currently known as the Financial Analysts
1600 strong, the organization strives to have the highest
Journal® (FAJ).
ethical and investment standards. It provides access to
In 1947 financial analyst societies of New York, Chicago, information, expertise and personal interaction to further
Boston, and Philadelphia joined together to create the professional development.
National Federation of Financial Analysts Societies
It strongly promotes the value of the profession and
(NFFAS). Similar Organizations were founded in other
creates opportunities for CFA® candidates. Its
cities also. More societies joined NFFAS and contributed
partnership with University of Southern California
to its growth and organizational shape. In 1954 FAJ
provides a review program for CFA® candidates. One of
became the NFFAS major publication. The NFFAS
this year’s SMIF students, Xuemei (Pauline) Wei was
reputation, professionalism, integrity, standards and
awarded a LASFA CFA® scholarship.
professional competency contributed to its growth. It had
more than 20 members by early 1960s. LASFA conducts events such as seminars, presentations,
career expositions, dinners, luncheons, and social
The founding member of NYSSA, Benjamin Graham
functions for potential and experienced professionals in
proposed rating standards for the analyst designation.
the financial industry. Through LASFA’s forecast dinner,
The Institute of Chartered Financial Analysts (ICFA) was
annual career development exposition, and various other
created in 1959 to offer a certification of competence
events, SMIF students have had opportunities to network
exam. ICFA was incorporated in 1961 and by end of 1964
with experienced professionals and gain more in-depth
had created a set of three tests and incorporated a Code of
knowledge about the investment industry.
Ethics into the program.
Gradually the NFFAS changed its name to the Financial
OCSIM
Analyst Federation (FAF). The FAF and the ICFA
cooperated with member societies to create sophisticated The Orange County Society of Investment Managers
educational and training programs that consisted of (OCSIM) was founded 22 years ago by a group of
publishing books, engaging in educational endeavors, and investment managers who wanted an investment society
promoting conferences. near their home. The society recognized the importance
of the CFA Institute, and was admitted as an “Associated
There was a major difference in membership of ICFA and
Group” with Los Angeles Society of Financial Analysts
FAF. ICFA was open to only CFA charter holders while
(LAFSA) in 1997. In 2000, OCSIM officially became a
FAF was universal. Another difference was that FAF was
charter society. Since its inception the society’s mission
controlled by member societies while ICFA only by its
has been to “provide a forum for investment professionals
members.
to meet one another, exchange ideas, and establish
Through synergy of the ICFA and the FAF a new cohesion within the Orange County investment
organization was created in 1990 to control and organize community”. OCSIM is committed to keep its members
both societies, the Association for Investment up to date with the financial world through presentations,
Management and Research® (AIMR®). Even though and it emphasizes the importance of having an ethical
these organizations were united under the AIMR umbrella, career life.
they were acting as separate entities until 1999. In 2004
AIMR changed its name to CFA Institute.
CFA institute has offices in Hong Kong, London, China
and USA. It has about 70,000 voting members and 131

28
 OCSIM & LASFA
OCSIMSF The portfolio was funded through donations from the
OCSIM members and other financial institutions. Various
Orange County Society of Investment Managers
events were held to help finance the fund; among them
Scholarship Foundation (OCSIMSF) fosters and promotes
was a golf tournament at the Strawberry Farms Golf Club
the development of investment professionals within the
in Orange County on September 30, 2004. Several
Orange County community. Each year it awards a
students from the management team volunteered to assist
scholarship to a student from the Orange County area.
on the day of the tournament. The event gave the
This year it selected Anthony Mattero, a member of the
students an opportunity to network with investment
student management team at CSULB.
managers as well as raise awareness of the SMIF program
at CSULB within the Orange County community.
OCSIMSF AND SMIF
Student Management Investment Fund began its ANNUAL REPORT PRESENTATION
involvement with the Orange County Society of
The 2004-2005 SMIF team prepared the Annual Report
Investment Managers Scholarship Foundation in the fall
for the performance of the 2004 virtual portfolio. On
of 2003 by competing in the OCSIMSF first Request for
March 10, 2005 at the Northern Trust Bank, the current
Proposal competition. To participate, Student
SMIF team presented the final results of the 2004 virtual
Management teams from universities serving the Orange
portfolio to the OCSIMSF board. The students
County community were invited to submit a response to a
experienced a real world annual report presentation.
Request for Proposal (RFP). Given that the competition
was in its experimental stage, the winning students were
awarded a $100,000 virtual portfolio. The 2003-2004
Student Managed Investment Fund (SMIF) team from
California State University, Long Beach’s College of
Business Administration was honored to be the inaugural
winners of the OCSIMSF RFP Competition.

THE 2003-2004 VIRTUAL PORTFOLIO

The management of the fund transgressed a full fiscal year,
which resulted in participation by two distinct
management teams. The 2003-2004 SMIF team managed
the portfolio until the end of the 2004 spring semester.
Members of the outgoing SMIF team met in the summer
to update the incoming SMIF team of the portfolio’s
status. The current SMIF team officially took over the
management of the virtual portfolio in the beginning of
the 2004 Fall Semester.

2004-2005 RFP COMPETITION & $100,000

PORTFOLIO
In addition to managing the prior year’s portfolio, the
current SMIF team also entered the 2005 RFP
Competition. The management team won the RFP
competition for the second consecutive year earning the
honor to manage a $100,000 real money portfolio.

29
 Meet the SMIF Team

Members are listed from left to right

Back Row: Bryan Roth, Stephen Price, Carlisa Apple, Chiheb Kallala, Andre Robin, Anthony Mattero, Phiet Doan
Middle Row: Voskan Elbakyan, Lloyd Torres, Dimanch Bou, Xuemei Wei,
Ana Wantland, Irina Kutseva, Ali Oberoi
Front Row: Steven Horvat, Ryan Willey

30
Student Managers
CARLISA APPLE
Carlisa Apple is completing a Bachelor of Science in Finance with a concentration in
investments. She is a member of the Financial Management Association National Honor
Society and Phi Kappa Phi, a multidisciplinary honor society. Carlisa has leadership
experience managing personnel in various work environments, as well as, managing
resources and membership issues of a non-profit organization. Ms. Apple also has a
proven ability to manage small business financial accounting. Upon successful
completion of the Chartered Financial Analyst (CFA ®) Level I exam, she plans to
pursue a career in portfolio management. Having lived a number of years in Spain,
Carlisa is fluent in Spanish.

DIMANCH BOU
Dimanch Bou is an undergraduate at California State University, Long Beach majoring in
Finance, Real Estate and Law, with a concentration in Investments. He is an active
member of the FMA National Honor Society. Dimanch currently is employed at Bank
of America where he has been recognized for his exceptional skills in fraud detection.
He plans to pursue a MBA after his CFA designation. Dimanch plans to start his career
as a financial analyst, continue on to become a portfolio manager, and one day have his
own investment advisory firm. He is fluent in Khmer and English.

PHIET DOAN
Vincent Phiet Doan is a National Honor Society member of the Financial Management
Association. He is the Vice President of Marketing and Strategic Planning. Since joining
the SMIF program, Vincent has been a continual voice for conducting higher levels of
quantitative analysis. In doing so, he has not only encouraged his classmates to conduct
such analysis, but he has also spent countless hours working on a variety of spreadsheet
applications to facilitate their conduct of such analysis. In addition to working toward his
MBA, Vincent also plans to work toward earning the Chartered Financial Analyst (CFA)
charter.

VOSKAN ELBAKYAN
Voskan Elbakyan is a candidate for a Bachelor of Science in Business Administration
Finance, with concentration in Investments (3.7 GPA), and a Bachelor of Arts in
Economics (3.8 GPA). He has joined the University Honors program, The Golden Key
honor society, Beta Gamma Sigma Honor Society, and Financial Management
Association International Honor Society. He is a Financial Risk Manager and CFA®
Level I candidate. After completing his undergraduate work and obtaining three years of
work experience, Voskan plans to get an MBA in Finance/Investment Banking. He is
fluent in Armenian, English, and Russian, and plans to use his experience in former
Soviet countries.
31
Student Managers
STEVEN HORVAT
Steven Horvat is graduating from CSULB with a degree in Finance. He is a Peer Mentor
and a Corporate Mentee in the Mentoring Business Program. He is also a member of the
Leadership Academy. While attending college, he has been working as a web designer
and a freight forwarding agent. He is also a Chartered Financial Analyst (CFA®) Level I
candidate and plans to pursue a career through the Financial Management Program at
General Electric.

CHIHEB KALLALA
Chiheb Kallala is a MBA honors student, in Finance/Investment from California State
University, Long Beach. After graduating in May 2005, Mr. Kallala will pursue a career as
a financial analyst and a money manager performing valuation and managing portfolios.
He is currently an intern with a private investment company working on a statistical stock
price valuation and selection model. Mr. Kallala is on the dean’s list of outstanding
students and is a National Honor Society member of the Financial Management
Association. Presently, Mr. Kallala is preparing for his CFA® Level I exam.

IRINA KUTSEVA
Irina Kutseva is a candidate for B.S. Business Administration Finance with a
specialization in Investments. Irina graduated with honors from Santa Barbara City
College (SBCC) in 2001. She has been the recipient of numerous scholarships and
awards including Award from Business Administration College of SBCC for the
Excellence in Accounting. At CSULB, Irina became a member of the Golden Key
Honor Society. The SMIF program gave Irina experience in managing a real asset
portfolio. For the past four years, Irina has been working as Floor Manager at Pacific
Ford Long Beach Lincoln Mercury Mazda. This job provides her with extensive
experience in management, marketing, and sales.

ANTHONY MATTERO
Anthony Mattero is a student at CSULB, attaining a degree in Finance Investments.
Upon graduation, he plans to pursue a career in the financial industry conducting
research and valuing companies. Currently, Anthony is a mergers and acquisitions analyst
at Baker Tanks, where he conducts research for acquisition targets and global expansion.
Mr. Mattero is on the President’s list of outstanding students and is a member of the
Financial Management Association and the Mentoring Business Program. He was also
the 2005 Orange County Society of Investment Mangers Scholarship Foundation
scholarship winner. After gaining industry experience, he plans to pursue a Masters
Degree at the University of Southern California and obtain his CFA® designation.
32
Student Managers
ALI OBEROI
Ali H. Oberoi transferred from Arizona State University where he was enrolled in
Business Honors College majoring in Finance and Economics. Ali then transferred to
CSULB and is completing his Bachelor’s in Finance and Marketing. He is a member of
the following National Honor Societies: Phi Eta Sigma, National Society of Collegiate
Scholars, Gamma Beta Phi, and Golden Key. He is also an active member of the Delta
Sigma Pi, a professional business fraternity. He is currently working full time at Wells
Fargo Bank and is in the Top 5 in sales and referrals generated in Long Beach Coastal
Division. In his spare time, he loves to play golf and swim.

STEPHEN PRICE
Stephen Price is an undergraduate Finance major with an emphasis in Investments at
California State University, Long Beach. He is a member of Phi Kappa Phi Honor
Society, Phi Eta Sigma National Honor Society, and Alpha Lambda Delta National
Academic Honors Society. Stephen has also been nominated for the Dean’s Medal of
Outstanding College of Business Administration Graduate of 2005. He has enjoyed
being a peer mentor for the Learning Alliance and teaching a freshmen college course.
Upon graduation, Stephen intends to purse a career in investments.

ANDRE ROBIN
Andre Robin is a candidate for Bachelor of Science in Business Administration at
California State University, Long Beach. He is pursuing a triple major in Finance,
Marketing, and Management with a cumulative grade point average of 3.8. After
receiving his undergraduate degree, Andre will be obtaining a joint JD/MBA.
Subsequent to completing his graduate degree, Mr. Robin will be using his diverse
background and experience as a stepping stone to becoming a successful entrepreneur, as
well as, an active community leader.

BRYAN ROTH
Bryan Roth is graduating from CSULB with a Bachelor’s Degree in Finance, Real Estate,
and Law. He plans to obtain his MBA after gaining work experience in the financial field.
He was given the privilege to serve as President for the CSULB Chapter of Financial
Management Association. He has successfully completed The Equity and Fixed Income
Bloomberg Product Certification. Bryan plans to prepare himself for the Chartered
Financial Analyst (CFA ®) designation. After graduation, Bryan will pursue a career as a
research analyst with the ultimate goal of becoming a portfolio manager.

33
Student Managers
LLOYD TORRES
Lloyd Torres is a Finance major, with a concentration in Investments at CSULB. His
responsibilities within the SMIF include qualitative equity evaluation, spreadsheet equity
valuation, construction of Arbitrage Pricing Theory and Expected Return financial
models on potential equity positions, and development of PowerPoint presentations to
communicate findings. He is a Level I candidate in the CFA® program. And he is a
member of the Los Angeles Society of Financial Analysts, Financial Management
Association, Association of Financial Professionals, and Institute of Management
Accountants. Aside from Finance, he loves taking photographs with his old Yashica
camera and developing his own black-and-white prints.

ANA WANTLAND
Ana M. Wantland is an undergraduate student at California State University, Long Beach,
pursuing a Bachelor’s Degree in Finance with an emphasis in Investments. Ana is a
member of Phi Kappa Phi Honor Society. Ms. Wantland is also part of the College of
Business Administration’s Honors Program where she completed a disclosure project for
Toyota Motor Sales, USA. Additionally, she was awarded the Latino Business Student
Scholarship. Ana plans to pursue a MBA degree at the University of Southern California,
and become a CFA® charter holder. She is fluent in Spanish and English.

XUEMEI WEI
Xuemei Wei is a graduating MBA student majoring in Finance/Investments and
Accountancy. She is the Vice President of CSULB MBA Association, a member of Beta
Gamma Sigma and a National Honor Society member of Financial Management
Association. Ms. Wei is a Chartered Financial Analyst (CFA®) Level I candidate and was
awarded a scholarship from the Los Angeles Society of Financial Analysts. Xuemei has
experience in international business and is fluent in Chinese, English, and nearly fluent in
French. She is pursuing a career in financial management and is particularly interested in
Asian and U.S. markets.

RYAN WILLEY
Ryan S. Willey is an undergraduate Finance major with an emphasis in Investments. He
is an active member of the FMA National Honor Society. After graduation, he plans to
obtain his MBA from a top business school and later become a candidate for the
Chartered Financial Analyst (CFA®). Ryan has a strong desire to learn more about
investments and continues to gain a better understanding of portfolio management in
preparation for a career in the Finance field. He has been investing in securities for
himself for five years and along the way has gained valuable experiences.

34
 Acknowledgements
This annual report summarizes the accomplishments of SMIF throughout the academic year. SMIF would not have been able to
achieve this without the tremendous contributions and inputs of several people who helped us along the way.
The 2004-2005 SMIF managers would like to extend our deepest gratitude to the following entities and individuals:
Fixed-Income Guest Speaker:
Mr. Doug Lopez, CFA, Vice President and Portfolio Manager, Bradford & Marzec, Inc.
For taking his time to educate us and broaden our knowledge of fixed-incomes securities. His input was invaluable to our team in
determining our asset allocation strategy and enhancing our understanding of fixed-income security analysis and selection.
Orange County Society of Investment Mangers Scholarship Foundation (OCSIMSF):
Mrs. 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 Management, LLC
Members of the OCSIMSF Investment Policy Committee
For awarding the SMIF management team the honor of being OCSIMSF’s fund managers, and for their continued support and
feedback regarding the investment portfolio. Their insights have truly helped us progress toward becoming future professionals of
the investment community.
Orange County Society of Investment Managers:
Mr. Robert Panetti, President of OCSIM
Mr. Jay Tsai, CFA, (Need to get his correct OCSIM position (Program Director, I think) & job title from Andre)
Ms. Jackie Curran, Administrative Director, OCSIM
For inviting SMIF students to participate at the OCSIM Annual Forecast Dinner and providing us with greater exposure to profes-
sionals in the industry.
Los Angeles Society of Financial Analysts (LAFSA):
Ms. Linda Cahill, Administrator, LAFSA
Global Insight
For providing their annual, quarterly, and monthly economic forecast reports. These reports were extremely beneficial in determin-
ing our economic and market outlook.
CSULB IRA Board
For their continued support and funding of the Bloomberg Professional Service and the LCD projector.
Bloomberg
For supplying us with a great analytical tool for investment analysis and forecasts. Bloomberg enabled our team to make informed
investment decisions by allowing SMIF access to current and historical information in the investment world. In addition, for pro-
viding us the opportunity to gain Bloomberg Professional Certification through the training seminars.
Dr. Robert Maxson, President, CSULB
CSULB Investment Committee
For overseeing and supporting the SMIF program.
Dr. Luis Calingo, Dean of the College of Business Administration (CBA)
Mr. William F. Hendry, Director of Development, CBA
CSULB Department of Finance and Law
For continued support of the program..
Mr. Wes Seegers, Senior Vice President, Salomon Smith Barney
For being our portfolio advisor and securities broker and for executing all transactions related to our portfolio. His continuous
efforts allowed SMIF daily access to fixed-income inventory lists. The access to that information was vital in developing our portfo-
lio.
Special Thanks:
Finally, the 2004-2005 SMIF Team would like to express their very special thanks and deepest gratitude to the advisors of the fund,
Dr. L.R. Runyon and Dr. Peter A. Ammermann for their immense support, advising, and countless hours spent on our cause.
Without their priceless contribution, SMIF would not have been able to accomplish this challenging task.
35
 Notes
1Bureau of Economic Analysis, U.S. Department of Commerce. www.bea.doc.gov
2Graph of Federal Funds Rate. www.hsh.com/fedfundsrate.html
3The Conference Board. www.tcb-indicators.org
4Bureau of Labor Statistics, U.S. Department of Labor. http://stats.bls.gov/news.release/cpi.toc.htm.
5Effects of Oil Surge Confound Forecast. http://www.latimes.com/business/la-fi-petruno17oct17,1,7771240.column?coll=la-
headlines-business. October 17, 2004
6Chemical Manufacturing Profile. http://biz.yahoo.com/ic/profile/chmmfg_1085.html.
7Value Line. www.valueline.com
8Bureau of Economic Analysis. Gross Domestic Product. http://www.bea.gov/bea/dn/dpga.pdf
9Standard & Poor’s. Industry Surveys: Electric Utilities. New York: McGraw-Hill 5/8/2004
10Economic Research. Federal Reserve Bank of St. Louis http://research.stlouisfed.org/fred2/data/HOUST.txt
11 Yahoo Finance. http://finance.yahoo.com
12Reuters. Company Profile and Snapshot. www.reuters.com
13Gildan Activewear, Inc. Gildan Annual Report, 2004.
14 Bloomberg Machine.
15Yahoo Finance. http://finance.yahoo.com
16Damodaran, Aswath. Home page. http://pages.stern.nyu.edu/~adamodar. 3/1/2005
17Yahoo Finance. http://finance.yahoo.com
18Reuters. Company Profile and Snapshot. Reuters.com
19Value Line. www.valueline.com
20Reuters. Company Profile and Snapshot. Reuters.com
21World Fuel Services. World Fuel Services Annual Report 2003. Miami: World Fuel Services, 2003.
22Freeegar.gov. SEC Filings. http://www.freeedgar.com/

36
37