1. INTERIM REPORT TO THE INVESTMENT ADVISORY BOARD OF THESTUDENT MANAGED FUND Prepared by Graduate Student Fund Managers MBA Class of 2004 Storrs, CT November 14, 2003

2. November 14, 2003Dear Foundation Members and Investment Advisory Board Members, We would like to begin by thanking the Foundation and the IAB for this unique opportunity. It has not only given our team the experience of managing the fund as professional asset managers, but has also taught us the benefits of diligent investment research and teamwork.The MBA Managers of the Student Managed Fund are excited to present our portfolio. We have taken great care in our investment decisions and on due diligence, analyst report preparation, and stock presentation.Throughout this report, we will discuss how we constructed our portfolio and more importantly the reasoning behind our decisions. We will present the portfolio allocation, our selection criteria, our holdings, and our returns. We will also demonstrate why we believe we have added value to the portfolio's return.Thank you again for providing our team with this invaluable experience. Sincerely, The MBA 2004 Managers 3. Executive SummaryUniversity of Connecticut Student Management Fund MBANovember 14, 2003 Investment Philosophy: Outperform S&P 500 through careful stock selection, periodic re-evaluation of sector allocation, and consistent monitoring of our portfolio Focus on companies with consistent historical performance and a strong business model, as well as a positive economic projection for the overall industryPortfolio Performance: S&P 500MBA Started trading as of 10/14/03, with $75,993.05 Portfolioinvested as of 11/06/03Sep. 04, 2003 $1027.97$251,741 Our target is to be fully invested by February, Nov. 06, 2003 $1058.05$258,0252004 Return 2.93%2.50% Funds overall return since inception is 2.5% including initial position in the Vanguard S&P500Index fund Our performance is comparable to that of the S&P500SMF Sector Allocation Sector Allocation 10 sectors S&P 500 based H a Ca e lth reMa riate ls Methodology: emphasis on sectors withstronger 25 %17% economic outlookConsum r eDiscretion. 13% The biggest sectors represented in our allocation are:Financia18% lsFinancials, IT, Consumer Discretionary, Health Care, andInformationTechnolog Materials. y 27%Investment Criteria Invest in stocks with solid financials, strong management, high projected earnings growth, attractive valuation, and a higher return/ risk relative to the market Perform fundamental analysis by studying historical performance and detailed ratio analysis Screen quantitative and qualitative factors from our investment check list for potential stocks Our risk control philosophy is based on a 20% stop-loss and 30% upside price review Continuous monitoring of our portfolio for a dynamic response to changes in market situations and altering economic conditionsOutlook: Business profits growing at double-digit pace Profits are being funneled into investment Recovery is accelerating and unlikely to stall Our goal: Invest funds quickly, but wisely 4. Investment Philosophy The overriding goal of the SMF is to beat the return of the S&P 500 by careful stock selection, periodic re-evaluation of sector allocation, and consistent monitoring of our portfolio and underlying economic changes.The graduate SMF managers have taken a moderate approach to investing, focusing on companies with proven track records while looking for strong long-term (5-year) growth potential. Our goal is to outperform the S&P 500 over the short-term while minimizing the risk of the portfolio by selecting stocks of companies with solid fundamentals. We invest in stocks that have a potential for a 15% compounded annualized rate of return per year over our five year horizon.We focus on companies with consistent historical performance and a strong business model, as well as a positive economic projection for the overall industry. We used the sector allocation of the S&P 500 as a guideline to begin our portfolio, but in order to beat its return we aim to weight our portfolio towards those sectors with a stronger economic outlook. Investment Process Investment CriteriaAs a team, we look for companies that satisfy the following criteria: Solid financial structure relative to industry Strong management High projected earnings growth Attractive valuation relative to the indexOur general buying criteria involves fulfilling the above objectives as well as seeking stocks withan intrinsic value higher than their current value, above-average yields and an upside/downsideratio above two. In addition to criteria for buying, we also have several criteria for potentialselling, including reevaluation of fundamentals after a 30% appreciation, adjustments to ourportfolio if the industry weightings change from our predetermined limits, and alteration of ourportfolio for a change in risk/reward profile.Fundamental AnalysisWe use fundamental analysis to ensure the growth potential and financial stability of thecompanies we consider. Our fundamental analysis has two major features:We conduct a thorough trend analysis of all companies we consider, with a focus onhistorical growth, free cash flow and profit margin. We also conduct a ratio analysis of the firms we consider in order to judge theirprofitability and liquidity. 5. ValuationIn addition to strong growth, we look for stocks that are undervalued and are therefore likely toexhibit strong short-term as well as long-term growth. We evaluate the stocks using several differentmodels and criteria: Business Model Analysis Intrinsic Value PEG Ratio SSG Model CAPM Internal and external risk factorsPerformance MonitoringWe are active fund managers, and therefore monitoring of the performance and changes in thefundamentals of our portfolio companies is exceptionally important. Below are some of thecriteria we use to monitor our portfolio. We implement stop-loss measures to protect any downside losses. Stop-loss measures are in place for a 20% loss in value. If our stock increases in value by 30%, we automatically review the stocks fundamentals and decide if it is still worth our investment or if better opportunities now exist. We constantly monitor our portfolio for a dynamic response to market situations such as new company news and changing economic conditions.Sector AllocationSMF Sector Allocation vs. S&P 500Asset allocation is one of the most important investment decisions for portfolio management. In order to beat the performance of the S&P 500, we decided to allocate funds based on an equal allocation strategy among the sectors of the S&P 500. Each of the 10 sectors was assigned two fund managers. Each manager was then responsible for finding the top performing stocks within their sectors and presenting detailed stock reports for their stock picks. Recent data from the S&P 500 GICS Sector Scoreboard (as of 10/31/2003) indicate that certain industries in the index have significantly outperformed others since the beginning of year 2003. Thus, the majority of our stock picks in the current portfolio are from those growth sectors. In particular, industries within the consumer discretionary, financial services, IT, and materials sectors have been growing steadily under the current economic recovery, with the YTD growth rates of 30.0%, 22.7%, 40.6%, and 20.1%, respectively. Therefore, approximately 83% of our current stock portfolio is in these sectors. Although health care sector does not have an impressive YTD growth rate (only 5.6%) compared to those mentioned above, the fund managers allocated money to this sector (17% of the current portfolio) due to the firm-specific growth potential. In the next few months, we will keep looking for both growth and value stocks in these and other prospective sectors such as industrials and consumer staples to further allocate our remaining fund. The telecommunications sector has been the poorest performing sector in the S&P 500, with a YTD growth rate of -39%, and was thus excluded from our portfolio for now. It should be noted that, as we continue to re-evaluate our allocation approach and gain experience in investing, our current equal allocation method may change. The current allocation of the S&P 500 Index is illustrated in figure 1. 6. Allocation of Capital among Sectors A total of 7 stocks were selected from 5 different sectors based on industry research and analysis of both macro and micro economic situations. Each of those stocks was allocated to an equal amount of funds worth $10,000 or so. Data from the Bloomberg Service, Valueline, and a number of financial websites such as InvestorPlus, Moneycentral, Quicken, Multexinvestor, and Yahoo! Finance was used to screen the top stocks in each sector. The final decision on a stock was determined by many factors, including historical (past 5 years) and projected (next 5 years) growth rates, P/E and PEG ratios, the intrinsic value calculated from different valuation models, financial health of organizations, competitors positions, management effectiveness, and corporate governance. The overall decision is largely based on a holistic approach taking all these factors into consideration. The current sector allocation of the SMF holdings is illustrated in figure 2, below.Figure 1Figure 2 S&P Sector AllocationSMF Sector AllocationTelecomm Services Utilities Materials Financials Health Care 3% 3%3% Materials 17% Energy 20% 25% 6% Consumer Staples Consumer12%Discretionary Information 13% TechnologyIndustrials 17%Financials 11% 18% Health CareConsumerInformation 14%DiscretionaryTechnology11%27% MBA Fund Holdings SMF HoldingsCurrently, our portfolio consists of seven stocks across five sectors. Our team adopted an equal sector weighting strategy with initial investments of $10,000 each (approx.). As the teams experience level increases, we intend to evaluate our strategy and re-assess sector weights based on the economic outlook and return potential of each sector. Of the quarter million dollars allocated to the graduate SMF team, we have invested about $75,993.05 (as of 11/06/03). The basic gain of our portfolio since Sept. 4, 2003 is 2.50%, while that of the S&P500 is 2.93%. It is important to note here that the % basic gain in each of the stocks shown in Table 1 is the gain since their respective investment and hence, cannot be compared directly to the S&P performance (which is since Sept. 4, 2003). 7. Table 1: SMF Holdings as of 11/05/03 Date ofPrice Market Value % Basic TickerQuantity Purchase PricePurchase(11/05/03) (11/05/03) Gain ALV10/29/03 300$32.43 $32.58$9,7740.15% COGN10/31/03 300$34.80 $35.12$10,536 0.34%FDC11/04/03 280$35.90 $35.59 $9,965.20-1.16%JEC10/24/03 200$47.86 $45.51$9,102-5.21%OCR11/05/03 350$36.93 $37.00$12,950 -0.04% 10/14/03 100$34.96TOL $40.28$10,070 8.86% 11/04/03 150$38.01WFC11/05/03 250$55.23 $55.69 $13,922.50 0.61%Investment CriteriaThe criteria that we use to evaluate selected stocks are manifold. The primary methods indicators that we use are contained in the table below: Table 2: Investment CriteriaQuantitative QualitativeROA Industry GrowthROE Company Market ShareROIC Corporate GovernanceGovernance*Growth in EPS Institutional Ownership Free Cash Flow/Net Income Income*Insider TradingTrading*Gross Margin (%) Market Power Product DifferentiationRetention Ratio Low - cost Producer Customer RelationshipEconomic Profit Profit*Debt/EquityBetaNote: Please find below a few definitions for the above criteria: 8. Free Cash Flow shown in the above table were either obtained from Bloomberg or were calculated using the formula in the Valuations textbook. Economic Profit is defined as the product of invested capital and the spread between ROIC and Cost of Capital. Corporate Governance refers to the extent of independence of the Board of Directors of the company. We look for more than 50% of the Board of Directors to be independent as favorable to the choice of the stock. We view independence as not being involved in the day-to-day operations of the company and as not receiving any pecuniary advantage for influencing the company growth. Insider trading is calculated as the net change in number of shares owned by insiders (over a 6- month period) as a percentage of the total number insider shares.The quantitative analysis is used to compare the historical performance of each stock. While this is a good predictor of future performance, we recognize that it is also important to understand the position of the company within its respective industry. The qualitative analysis provides us with insight into more tacit qualities such as the companys market power or the competitive advantage with respect to its competitors. We measure market power as a function of three parameters: product differentiation, low-cost producer and customer relationship. They are ranked as High, Medium or Low compared to their peers in the industry, with High being the preferred status. Being High in at least one of the three areas is a prerequisite for our stock selection.A summary of the graduate SMF team holdings according to these criteria is shown in tables 3 &4. Table 3: Quantitative Investment Criteria ALVCOGN FDC JEC OCRTOLWFC ROA 3.72%9.13% 5.00% 5.30%3.50% 7.67%1.41% ROE 7.30%15.80%26.93%13.67% 7.00% 20.83% 15.53% ROIC 10.12%16.93%18.17%23.93% 19.93%13.04% 10.54%Cost of Capital7.29%8.94% 8.00% 7.87%6.80% 7.02%6.68% Economic Profit 3.89M40.4M718M 73.05M 19.08M90.29M 2.091B EPS Growth 63.70%6.96% 23.51%34.53% 44.77%29.43% 16.29%FCF/NI68.30% 152% 129.46% 71.20% 46.3% -109%n/a Gross Margin 17.91%n/a 42.17%13.73% 29.64%8.95%n/a Ret. Ratio 51%100%96%100% 90.67%100%61%Debt/Equity 0.54 0 0.71 0 0.650.69 1.45 Beta11.21.130.95 0.78 1.1 1.05Table 4: Qualitative Investment Criteria 9. ALV COGNFDC JECOCRTOLWFC Industry Growth 23.23% 6.80% 10.81% -5.0% 6.12% 20.34%6.90%75% money 31% airbagstransfer33% sidebags 40% merchant Company Market 15% steering 0.40% processing 12.58% 1.4% 4.78%17.71% Share wheel 25% card-14% safety issuingelectronicsservicesMarket Power ProductHigh High High Medium MediumHighMedium Differentiation Low-cost High High High MediumHigh HighMedium Producer Customer High High High HighHigh HighHigh RelationshipCorporate Data not8/117/8 5/9 6/9 6/12 7/11 Governance available Institutional 99.05% 66.60%95% 77.80% 95.6% 60.30% 67%Ownership Insider Trading 0.07%0% 1.13%2.70%25%5.5% 0.11%As can be seen, we have invested in companies that have a strong historical performance and can be considered to have a dominant position in their respective industry (with the exception of COGN). For instance, Autoliv (ALV), a Sweden based company, is the largest supplier of safety components (airbags, seatbelts, etc) to the automobile industry in the USA, Europe and Japan. This company differentiated itself from its competitors by performing relatively well under discouraging market conditions such as declining auto production in the triad region of Japan, Europe and the USA. ALV has combated these adverse forces by decreasing its cost of production (e.g. transferring 30% of its labor to low labor-cost countries), introducing new safety products, and venturing into emerging markets like China and India.Similarly, our portfolio contains Cognos (COGN), the world leader in business intelligence, which has successfully created a niche market in the field of business intelligence. This company has shown strong revenue growth over the past five years, and we expect the company to continue this trend, particularly after the release of its new first-of-its-kind product Reportnet (a tool to collectively report on all aspects of company data). ALV and COGN are prime examples of stocks with very strong qualitative and quantitative attributes.At the same time, the fund managers invested in the shares of Jacobs Engineering Corporation (JEC), a strong company in a difficult industry with a negative growth rate. Our decision to invest in JEC was based on its strong quantitative features. The company has had a strong positive growth rate for the past eight years. We believe that JEC will perform well in the future due to the following factors: Long backlog of contracts (for next 10 years). New government contracts Relationship-based business model (long-term customer relationships and alliances)Thus, our portfolio reflects a dynamic strategy of investing that stresses financial performance along with value/growth inclinations, rather than market cap or country of origin. 10. Outlook Economists had been predicting modest economic growth throughout 2003, but few had expected the 7.2% explosion in third-quarter real annualized GDP growth. Many credit the growth to special one-off factors, such as personal income tax cuts and rebates, which helped consumer spending jump 6.6%. However, doing so ignores other more sustainable factors that suggest that solid gains in GDP are likely. First, business profits are growing at a double-digit pace. With dollar depreciation, rising productivity, and cost reductions still a high priority, more profit gains are expected. With excess capacity outside the manufacturing sector mostly eliminated, these profits are finally being funneled into investment as the 15.4% rise in machinery, equipment and software spending in the third quarter attests. The recovery is not only accelerating; it is broadening out beyond consumer spending, thus limiting the risks that the recovery will stall once more.1The graduate SMF team sees this economic outlook as a call to fully invest the SMF funds quickly. Of course we all agree that this must be done prudently, so our desire to invest the funds rapidly will not outweigh adherence to our established stock evaluation practices. 1 RBC Financial Group: Financial Markets Monthly, Vol. 7, No. 11, November 2003.