APM Quarterly4th Quarter 2003

a publication of Applied Portfolio Management, KU School of Business

I n s i d e T h i s I s s u e

• Message from Professor Shenoy

• Remarks from Dean Fuerst

• LSB

• Forest Oil

• NovaStar Financial

• WWCA

• Beru AG

• Garmin Ltd.

• Group Profiles - 2 and 3

• Gains and Losses

• Stockholding and Performance

• Day at AG Edwards

• End of Semester Awards

David Padgettis the

recipient ofthis year’s

APMBasketball

Scholarship.Photo courtesyof JeffJacobsen/

KUAC

The APM portfolio ended the year at$643,720 – up 108% for the year and 8.6%for the 4th quarter. The NASDAQ ended theyear up 50% for the year and 12.1% for the4th quarter.

A large part of the success of the APMportfolio in 2003 has been due to our realizedgains of $186,858, primarily in Sohu andChinadotcom. Seventy-five percent of ourrealized gains are due to those two positions.We also have $201,821 in unrealized gains.The unrealized gains are spread over manyof our holdings.

In July, Kent McCarthy donated$100,000 to the KU Athletics. The APM port-folio was the temporary home of the donationfrom August 1 until December 4, when $50,000

was withdrawn to support the softball teamand the basketball team. Next semester, theremaining $50,000 will be withdrawn and themen’s basketball scholarship will be paid.David Padgett is the APM basketball schol-arship recipient. We look forward to the suc-cess of all. The adjusted versus unadjustedperformance numbers in the chart and tablesreflect the inflow and outflow of these mon-ies.

The risk return profile shows that theAPM portfolio is less risky and has out-per-formed the market portfolio. Jensen’s alphais positive and statistically significant. Theportfolio beta is 0.474 and the portfolio stan-dard deviation of weekly returns is 2.7% com-pared with 2.9% for NASDAQ.

All about the APM Portfolio

Investing in China – June 12 - 25htpp://www2.business.ku.edu\apm

Special thanks to KU Men’sBasketball Coach Bill Self, whodonated $500 to the APM class.

Total Return YTD

1st Quarter Return

2nd Quarter Return

3rd Quarter Return

4th Quarter Return

SP500 25% -1% 27% 2% 10% SP600 37% -5% 45% 7% 14% Val. Line 37% -6% 45% 7% 13% NASDAQ 46% 5% 39% 10% 10% APM 106% 13% 40% 12% 17%

Weekly Average Return

Standard Deviation

Correlation with Nasdaq APM Beta

Jensen’s Alpha r2

NASDAQ 0.8% 2.9% APM 1.4% 2.7% 0.404 0.476 0.0137 0.164

Portfolio Performance Statistics for 2003

Risk/Return Profile for APM Portfolio

Thank you for all the support you have provided over 2003. Fall2003 had a great group of speakers.Speakers in Q4 2003 TopicMark Hirschey LVLT and EPTim Dahaemers, A G Edwards Bond TradingTodd Ludgate, KC Life (now Wisconsin Pension Fund) Bond AnalysisJim Sight LSB IndustriesJack Gaumnitz, Don Zimmer,and Dan Drake Real EstatePatrick Lin, Primarius Capital Security Analysisand ChinaDaniel Widdicombe, CFO Chinadotcom CHINAScott Hartman, CEO Novastar Financial NFIMarcey Berges, CFO Jayhawk Capital Hedge fundsTodd Preheim, Campanile Capital Trading on ideas

We finished up our last class of the semester on December 5 inSt. Louis. We toured the A G Edwards headquarters. Thanks go out

Message from Professor Catherine Shenoy

4th Quarter 2003 Page 2

The School of Business is prominentamong U.S. universities as a leader in inter-national business education. We provide nu-merous opportunities for students to studyabroad through the School’s Italy Programsand the Center for International Business Edu-cation and Research. Thirty-five percent ofbusiness students took advantage of one ormore of these opportunities during the 2002academic year. This is the highest percent-age student involvement in study abroad pro-grams among leading public business schools.

The international opportunities involvenot only students, but our faculty as well. Ina typical year, between one third and one halfof the faculty members from the School ofBusiness travel abroad to teach, conduct re-search and present papers at internationalconferences.

I’m proud that the APM class is an im-portant contributor in this area of the School.Over the years, APM classes have evaluatednumerous international equities and have in-vited representatives of these firms into the

classroom. More recently, Kent McCarthy hasbeen taking APM on the road to Italy. CIMBA isan MBA program located in Asolo, Italy. KU isthe degree-granting institution for the CIMBAprogram that is supported by a consortium of30 leading U.S. universities. For the last threeyears, Kent has taught an intense, week-longsession of APM in Asolo, Italy. I hear fre-quently from the CIMBA students that this isone of the most valuable classes they haveduring their program.

Plans are now underway to take APMto China. Cathy Shenoy is developing a studyabroad opportunity for students interested inChina. The course will involve a 10-day tripto Beijing and the investment communities ofChina, and will include visits to the China stockexchange and several firms that have beenan important part of the APM class recently.Cathy and Kent will offer the course in Juneof 2004.

The new course in China is an excitingaddition to the School of Business. APMclasses are now being offered at both the

to Al Simmons for helping to set up the tour. Darrel Collins , ourtour leader, was great. Group 4 has a complete article later in thenewsletter. The final exam was held at Gambucci’s. Everyone stud-ied very hard, especially for the dessert consumption portion. Asummary of the awards is also included in the newsletter.

Many of you know that I will be on leave for the Spring 2004semester. The class will be taught by Josh Selzer with Allen Ford,Paul Koch, Joan Huber, and Sara Kaufman helping out as needed.Some of the APM-related things that I’ll be doing in the spring include anorientation trip to China from Jan 1 to Jan 19. I’ll visit Shanghai andHong Kong. This will help get ready for the “Investing in China” classwhich will be held from June 12 to June 25. We already have our firststudents enrolled. Anyone interested in more information, check theAPM website for a presentation and schedule. My other APM-relatedactivity will be teaching the APM class in Italy from April 5 – 8. For mostof the semester, I will be in Denmark with my husband, Prakash,working on several different research projects at the University ofAalborg. My e-mail will stay the same, so I would love to hear fromyou.

Remarks from Dean Fuerst

Call to AlumniSend in your news, personal or professional. We would love to hear from you.

To keep in touch, email apm@ku.edu.

graduate and undergraduate levels, and onthree continents. I want to thank Kent, Cathy,Allen Ford, Paul Koch, and others, who havebeen instrumental in developing APM, for theirexcellent work. These efforts make a signifi-cant contribution to the reputation of the Schooland the education of our students.

William L. FuerstDean and H.D. Price Professor of Business

Visit our website atwww2.business.ku.edu\apm

4th Quarter 2003 Page 3

LSB INDUSTRIES, INC. (LXU) is a di-versified manufacturing, marketing, and engi-neering company headquartered in OklahomaCity, OK. Its two core businesses manufac-ture and sell industrial and agricultural chemi-cals, as well as climate control products. Italso markets machine tools for the metalwork-ing industry, and provides industrial engineer-ing services worldwide.

LSB’s success is largely dependant onClimaChem, which, through its subsidiaries,owns substantially all of the core businessesconsisting of the chemical and climate controlbusinesses. Because LSB Industries is a di-versified holding company, it depends on creditagreements and an ability to obtain funds fromthese subsidiaries in order to pay debts andobligations. After moving from the Over-the-Counter Bulletin Board (“OTC”), where ittraded as LSBD, to the American Stock Ex-change, the common stock of LSB began trad-ing during the week of December 15, 2003under the ticker symbol LXU. It is expectedthat this will provide enhanced liquidity forshareholders and greater market awarenessof its business and prospects. The APM port-folio also holds preferred shares which tradeunder the ticker symbol LSBDP.

LSB’s chemical business manufac-tures and sells ammonium nitrate products,liquid fertilizers and high-grade specialty ac-ids to the industrial, commercial explosives,and agricultural markets. It manufacturesexplosives and also develops and tests newcommercial explosives for the explosive in-dustry worldwide. It markets and licenses anumber of proprietary explosive products inthe U.S. and foreign countries.

The climate control business manu-factures and sells a broad range of fan coils,air-handling, air-conditioning, heating, watersource heat pumps, geothermal heat pumps,dehumidification, and air purification productstargeted to commercial and residential new-building construction, renovation of existingbuildings, and replacement of existing sys-tems. The company is the leading producer inthe U.S. of hydronic fan coils, is the leadingproducer of water source heat pumps, andgeothermal products for heating and cooling.It currently has operations in the U.S. andWestern Europe and markets its productsworldwide.

LSB’s net sales for the nine-month pe-riod ended September 30, 2003 increased by$22.3 million over that of the same period in2002, which is attributed to increased salesin its Chemical Business of $33.4 million. How-ever, the increase was partially offset bydecreased sales of $11 million in the ClimateControl Business, which recently has beenthe better performing business. The orderlevel of the Climate Control Business wasdown approximately 6% from the calendaryear 2002 level and can be attributed to a

general slowdown in the industry as a whole.For the nine months ended September

30, 2003, the Company reported net incomeof $3.1 million, compared to a net loss of $3.6million for the comparable period last year.For the three months ended September 30,2003, the Company reported a net income of$2.4 million and the net income applicable tocommon stock was $.12 per share fully di-luted.

Business StrategyAfter experiencing large losses in sev-

eral years prior to 2001, LSB determined thatin order to return to profitability it would benecessary to narrow the company’s focusand concentrate on its core businesses, theclimate control and chemical businesses.

During 2002, LSB continued to pursueits long-term objectives in each of these corebusinesses. LSB has a two-fold strategy inthe chemical business: 1) to expand the areain which they sell agricultural products, and2) to enter into cost-based contracts with itscustomers wherever possible for industrialproducts. Because the company believes thatthe nitrogen chemical industry is ready for amajor consolidation, LSB has restructured itschemical management team. LSB is continu-ing its strategy in the climate control businessto develop proprietary products for nichemarkets where it thinks it can achieve signifi-cant market share. In order to reduce thedebt on its balance sheet, LSB has and willcontinue to sell non-core assets to furtherde-leverage the company.

Class Discussion with Jim SightJim Sight, a professional investor with

a position in LSB, led the class in a discussionover the company. He effectively pointed outthat the industry in which LSB operates itschemical business has been going through arapid consolidation. In terms of LSB’s maincompetitors, Jim noted the following recentchanges in the industry landscape:Companies that have filed for Bankruptcy:-Nitrium – which had been a major player inFlorida.-Farmland – a local Kansas company.-Will-gro – which had been a major competi-tor in Oklahoma, but has now been bought byLSB for a balance sheet cost less than half ofthe cost it would have taken to build.-Mississippi Chemical – a company that wasin Louisiana and owned an offshore facility inTrinidad, but is now owned by Koch.-Bordon – also filed for bankruptcy.-La Roche – an integrated producer of ammo-nia that LSB was able to buy two plants fromin bankruptcy for costs that are a fraction oftheir replacement costs.-Norsk Hydro – the largest player in the world,though strictly an importer to the U.S. fromNorway.

Competitors that are still in business:-Koch – largest privately owned chemical sol-

vent company.-Potash – a major player in phosphates.-Agrium – primary competitor in the northwestU.S. and Canada in this industry.-TERRA, CNF – Midwestern oriented produc-ers of ammonia that are reliant on natural gasin the Midwest due to not having access tocheaper offshore gas.

Throughout his explanation and dis-cussion of the competitive landscape in whichLSB operates, Jim gave the class insight intohis investment strategy. Identifying areas ofshrinking supply, as in LSB’s case, is a goodopportunity because it is much easier thanidentifying areas of growing demand in cer-tain situations. By focusing on businessesthat he is able to thoroughly understand, Jimtries to maintain a consistent investment phi-losophy.

After convincing the class of the op-portunity for LSB to grow in terms of marketshare due to the shrinking list of suppliers,we next focused on LSB’s apparent high le-verage. Many of the plants LSB has acquiredhave minimal book values listed due to thediscounted cost of acquisition from compa-nies going through bankruptcy. The actualvalue of these plants is far higher. Jim pointedout that when analyzing the long-term debt ofLSB that we also need to factor in the valueof assets in order to determine the true lever-age ratio. This is difficult to do because itrequires estimating the future sale price ofthese plants.

Consistent with LSB’s current strategy,LSB plans to sell off non-core assets in orderto reduce its debt and position itself for thefuture. The most probable places to build newplants are in Russia or the Middle East due tolower costs of entry and of natural gas, a keyingredient in ammonia production. The man-ner in which ammonia is supplied is going tochange in the future because of the muchlower costs of natural gas in Russia ($0.10/unit) versus the U.S. ($6.00/unit). An existingplant can be disassembled, moved and reas-sembled in another location at a significantlylower cost than building a new plant.

Because LSB was diversified and notas dependent on ammonia production as someof its competitors that ultimately had to file forbankruptcy, it has been able to survive therapid consolidation of the industry and takeadvantage of acquiring assets for pennieson the dollar. Now, as long as it can resellmore of the non-core assets in order to booklarge gains and pay down debt, the financialstrength of the company should continue toimprove. Management has developed a verygood strategy that appears to be paying off,and we expect the stock price to increaseover the next year or two due to the newlandscape of the industry.

LSB – Group 1: Drew Keller, Yeliz Sunucu, and Grace Kim

4th Quarter 2003 Page 4

Forest Oil (NYSE: FST), one of the largest national indepen-dent exploration and production companies, is involved in the explo-ration, acquisition, development, production and marketing of naturalgas and crude oil in North America and in selected internationallocations. Forest has a market cap of $1.4 billion and an enterprisevalue of roughly $2.2 billion. It recently reported record third quarterearnings of $26.3 million, and net earnings for the nine months end-ing September 30 of $88.6 million. In its first nine months of 2003, thefirm’s earnings have increased over 600% due to an increase inhigher average oil and gas sales prices and lower production ex-penses. 2003 has been a busy year for Forest in terms of acquisi-tions since it began concentrating on increasing its oil and gas as-sets in the Gulf of Mexico, Gulf Coast, and the Permian Basin. Itsrecent acquisitions have increased its proven oil and gas reservesby 310 Bcfe with an estimated reserve life of approximately eightyears. In September, the firm announced its plans to acquire Unocal’sproperties in South Louisiana and offshore Gulf of Mexico in Sep-tember. The acquisition was financed in part by a public issuanceof 5 million shares of its common stock at a price of $23.10 pershare. The shares were issued in late September and the Unocaldeal was finalized at the end of October. Just last November, FSTannounced its plans to acquire oil and gas assets located primarily inthe Permian Basin plus five fields in South Texas. This deal closedon December 31, 2003. FST shares, purchased at an average costof $12.63, currently comprise about 1.3% of the APM portfolio. FSTclosed on December 30, 2003, at $29.31.

Western Wireless Corporation(WWCA), located in Bellevue, Washington,serves over 1.2 million subscribers in 19western states under the Cellular One® andWestern Wireless® brand names. Throughits subsidiaries and operating joint ventures,Western Wireless is licensed to offer servicein eight foreign countries. Western Wireless’CDMA network covers more than 820,000square miles in the western and MidwesternUnited States and is the largest wireless net-work devoted to rural communities in America.

In November, 2003, Western Wirelesslaunched Qualcomm’s BREW-based “Hello2

Forest Oil – by Grace Kim

WWCA

NovaStar Financial, Inc. is the publicly owned (NYSE: NFI)parent company for the NovaStar family of companies. Founded in1996 as a REIT, the firm is one of the nation’s leading lenders andinvestors in residential mortgages. Today, NFI consists of two mainsubsidiaries: NovaStar Mortgage, Inc. and NovaStar Home Mort-gage, Inc.

NovaStar Mortgage is a nationwide originator of primarily non-conforming mortgage loans. Through a network of more than 7,000approved brokers and 140 sales people, NovaStar Mortgage’s whole-sale business originates loans throughout the country.

NovaStar Home Mortgage is an affiliated broker program of-fered by NovaStar. NovaStar branch officers operate under theguidance of NovaStar policy, but are largely independent in wherethey outplace loans – working with as many as 200 different lend-ers in addition to NovaStar

The majority of NovaStar’s profitability is derived from its se-curities portfolio. Every part of the company exists to drive theprofitability of this portfolio. The company originates and invests inmortgage securities.

Nonconforming mortgages are converted into mortgage-backed securities (MBS) and then sold into the market.

NFI has benefitted tremendously from a favorable interestrate environment. Since 2001, NFI stock has outperformed the mar-ket. Its stock price was $17.91 in Dec 2001 and $81.76 as of Dec2003. We were so fortunate to have that stock during those times.We are still holding 400 shares of Novastar Financial.

NovaStar Financial – by Group 1

Fun” service which will enable Cellular Onecustomers to access enhanced wireless dataapplications and services - such as games,ringtones, and other entertainment and busi-ness applications - and download them overthe air directly to their wireless device. Thisshould help WWCA improve revenues by in-creasing its customer base and also tempt itscustomers to use more airtime while usingthe BREW based services.

Wireless number portability, which wasintroduced in November, is another significantdevelopment. Even though number portabilityis expected to affect the wireless industry, it

may not affect WWCA becasue it tends tocompete against only one or two of the na-tional wireless carriers, as opposed to all six,in its markets. The company should beshielded from price wars once the numberportability functionality kicks in.

Overall, WWCA will continue to lever-age its investment in infrastructure in the ru-ral areas and continue to increase revenuesby offering innovative services while decreas-ing costs per subscription as the customerbase increases.

Beru AG (BZLG.DE) is a manufacturerthat concentrates on high-growth technolo-gies in the automotive industry, such as igni-tion systems, tire pressure monitoring andauxiliary heating systems, and is also the glo-bal leader in the field of diesel cold-start tech-nology. The company is headquartered inLudwigsburg, Germany, where it wasfounded in 1912.

Beru’s core business unit is the dieselcold-start technology segment. Beru’s instantstart system will start a diesel powered en-gine as quickly as a petrol engine. Beru an-ticipates strong growth in its core businessover the next several years. According to acompany presentation, European diesel pen-etration rates for passenger cars are ex-pected to grow from 40% in 2002 to 55% in

2008. Growth in the US market is also ex-pected to be solid. Currently less than 1% ofAmerican cars are diesel powered, but Beruexpects penetration to reach 15% by 2010.Several diesel options for American automo-bile consumers are currently available (or willbe in the near future) including the Jeep Lib-erty, VW Beetle and Golf, Ford Focus, andsome Mercedes-Benz models. Beru is confi-dent that rising oil prices over time will causeAmericans to seek out diesel as an alterna-tive to petrol (diesels consume 30% less fuelthan petrol equivalent).

On November 13, 2003, Beru an-nounced earnings for the first six months ofthe business year. Sales increased 9.6% fromEUR 140.3 M to EUR 153.8 M, fueled by stronggrowth in Beru’s newest division – Electron-

ics and Sensor Technology. EPS increased12.1% from EUR 1.41 to EUR 1.58. Manage-ment affirmed that the company is on track tomeet its original full year guidance of 15%revenue growth and a minimum of 15% EBITmargin. The stock closed at $62.38 on Dec.31. Alex Verbov, APM mentor for Beru AGand member of WestLB Leveraged Financegroup, has been bullish on this current APMholding. He provided a recent WestLB ana-lyst report that offered a target price of ap-proximately $55. However, due to the recentweakness of the USD, Alex has believed thatBeru should benefit strongly from overall eco-nomic recovery - whenever that may takeplace. He also commented that current weakerU.S. sales are more than offset by exchangegains on the stock.

Beru AG – by Brian Chamblin (Group 3)

Garmin Ltd. is a worldwide provider ofnavigation, communications, and informationdevices. The majority of its products are en-abled by global positioning system (GPS) tech-nology. The company designs, develops, andmanufactures its products for the generalaviation and consumer markets. Each prod-uct utilizes Garmin’s proprietary integratedcircuit and receiver designs to collect the datanecessary to provide location, direction,speed, and other necessary tracking infor-mation. Garmin’s consumer segment includesportable GPS receivers and accessories formarine, recreation, land and automotive use.These products are primarily sold to retailoutlets. The latest hit product in this divisionis the iQue 3600, which was rolled out in thethird quarter. It is a PDA that contains a turnby turn voice navigation system fueled by its

Jeff Arroyo, Jon Blumb, David Iliff,and Pravin Kedia are Group 2. They met onthe first day of class, and the group wasformed by chance, when members just askedeach other if they were available. From sucha coincidental start, Group 2 has had a verygood working relationship, and two of theirreports (one on Inergy and one on Williams, ElPaso, and Level 3 Valuations) have beenposted on the APM web site.

Jeff Arroyo is a full-time mechanicalengineer working in the power and energyindustry, for Black & Veatch; Jon Blumb is aphotographer and self-employed, David Iliffis a full time student in the School of Businessand works two part time jobs, and PravinKedia is an electronic and telecommunicationengineer for IBM. While their motivations fortaking APM range from wanting to better man-age their personal portfolios to preparing foran investment banking career, to starting amutual fund, these four students agree thatthe hard work they put in this semester haspaid off.

David Iliff comments, “Applied PortfolioManagement is probably the most challengingclass that I have taken. It has really helpedme grow from a finance perspective and pre-pared me for a job in the finance industry.The real world, crossed with the classroom,is just the thing I needed to prepare me for myrecent job search.”

David has found the class to be “anincredible help” in his recent job search. “Iwas recently interviewed in New York by a

4th Quarter 2003 Page 5

Garmin Ltd. – Group 3 – Bryan Clegg, Brian Chamblin, Mindi Johnson, and Joshua Tieman (group 3)

GPS technology. The price is approximately$500, but is the first such item on the marketproviding Garmin a jump on the competition inthis realm of technology. The aviation divisionproduces portable and panel-mount avionicsfor Visual Flight Rules and Instrument FlightRules navigation. The products from the avia-tion division are primarily sold to aviation deal-ers and certain aircraft manufacturers.

The stock price for Garmin closed at$54.55 on December 4,2003, an increase of$9.19, or 20% since its announcement of thirdquarter earnings on October 29, when thestock opened at $45.36. For the nine monthsended September 30, 2003, revenues haverisen 22% to $402.8 million and net incomerose 27% to $124 million. However, the EPSfor the third quarter actually decreased to 32cents per share compared with 36 cents per

share last year, due to a currency-relatedcharge. For the year, Garmin is projectingearnings of $1.65 to $1.67 per share beforeforeign currency adjustments. Revenue forthe year is estimated to be $558 million to $563million. The consumer segment will continueto fuel the growth of Garmin. While this divi-sion only provides gross profit margins of57%, compared to the 64% gross profit mar-gins for the aviation division, the sales of theconsumer division have increased 27% andthe sales for the aviation division have onlyincreased 6% for 2003.

Garmin is one of the few “growth”stocks in the APM portfolio, but has provideda good return thus far and will continue to doso as long as it is able to provide innovativenew products ahead of the competition thatconsumers find attractive.

“This APM class is a real jewel in the MBA course at KU.”Group 2 Profile – by Jon Blumb

Group 2 – (Left to right)Pravin Kedia, David Iliff,

Jeff Arroyo, and Jon Blumb.

Power and Energy investment bank ana-lyst. I happened to mention that in one ofmy classes we had studied Inergy andthat the CEO, John Sherman, came andspoke to the class. The analyst had re-cently prepared a pitch that was given toInergy. It made the interview go by much morequickly. It also helped me show the inter-viewer that I have knowledge of the marketsthat other candidates might not have,” Davidreports.

In Jeff Arroyo’s opinion, “Taking theAPM class has been a very eye-opening andenjoyable experience for me. As an engi-neer, I’ve typically been more conservative inmy investments. This means investing inmostly stock mutual funds (for diversification)and large blue-chip growth stocks (lessrisky). Since participating in the APM class,I’ve become more comfortable investing insmall-cap “value” stocks, which, if done prop-erly, have the potential to give larger long-term returns. Investing in smaller value-basedstocks requires much more research and abetter understanding of investing fundamen-tals, which is a must to participate in theclass.”

Jeff also appreciates the perspectivethat APM has given him. “Since I currentlywork for numerous clients in the power in-dustry (i.e. electric utilities), I’ve seen a lottake place in the energy market since the col-lapse of Enron. It has had a detrimental im-pact on many regulated and non-regulatedenergy companies over the past two years.

It has been very interesting working in a fieldthat has been in the limelight (although in anegative way) the past few years. In otherwords, the downturn and volatility that haveoccurred in the power and energy sector haveresulted in many investment opportunities forinvestors who have done their research.Also, many of the holdings in the APM portfo-lio are international, high-tech companies fromChina and Europe, which means they aremore difficult to track than U.S.-based com-panies. Overcoming the US versus interna-tional company barrier has been very benefi-cial to me when it comes to making invest-ments in companies that aren’t householdnames in the U.S.”

Pravin Kedia has found that his per-sonality thrives on the skills needed for theAPM class. “At the start of the MBA programI got hooked on accounting and finance. I seethese as very technical areas and, given myengineering background, I like the rigor ofanalysis and effort required in finance. It allstarted in Jan 2003 after I took an investmentclass from Mark Hirschey (and global riskmanagement class from Paul Koch) that I tooka plunge into financial analysis. I was veryconservative before that and always thought

Group 2 Profile (continued on page 6)

We have a group of four, all part-timeMBA students with concentrations in Finance.Our group may be the most unusual group ofthe class, given that none of us are engi-neers, which says a lot, considering most ofour classmates are! Members of the groupare Brian Chamblin, financial analyst, BryanClegg, controller, Mindi Johnson, IT projectmanager/systems analyst, and JoshuaTieman, project analyst.

Brian Chamblin is a Financial Ana-lyst working at Sprint PCS in the Competitive& Industry Economics group. Brian’s role pro-fessionally is to analyze and report on SprintPCS’s competitive position within the wire-less industry. Brian plans on graduating inthe spring of 2004 with his MBA, and beginpreparing for the Level II CFA exam in earlyJune. Brian does not plan to immediatelysearch for a new career following gradua-tion, but feels that his MBA, as well as theCFA charter, will help provide him new oppor-tunities in the corporate finance/investmentfields. When asked about his experience inAPM, Brian had the following to say, “I reallyenjoyed the opportunity to listen to and inter-act with the diverse group of professionalswho presented to our APM class.  Althoughthe weekly cases and other assignments re-quire a considerable time commitment and ef-fort, we are rewarded with a valuable expe-rience in terms of knowledge gained andgroup teamwork.  This has been the most in-teresting class in my MBA curriculum.”

Bryan Clegg is the Corporate Con-troller at The Eby Group, Inc. in Olathe, KS.The Eby Group is the parent company of the

4th Quarter 2003 Page 6

that banks were a great place to earn moneywith no risk. The equity/bond market seemedto be a gamble. Due to the financial knowl-edge and techniques gained through variousfinancial classes and APM, I feel quite confi-dent to succeed in the financial field. I amnow fully into the equity/bond market, and oneday hope to create a mutual fund of my own.I feel that finance is my second and biggestcareer opportunity.”

Pravin is a believer in the APM system.“APM class has come to me at the right op-portunity and time in my career. It has taughtme many things. It has made me more open toother people’s ideas. It is the perfect play-ground to apply my gained knowledge andknow-how to real money that needs to befought for and looked after as your ownmoney.”

“The best thing that I like about this classis that I learned so much from my classmates

and colleagues,” continues Pravin. “I love tohear their most radically different ideas onthe same stock that gives me another chanceto correct my analysis. This would not bepossible in the real world. I will remember thisclass all my life.”

Jon Blumb appreciates the researchtechniques stressed in APM. “We are taughtto present only original research, which wehave personally gathered from SEC filings,corporate records, and direct sources. Weare not allowed to rely on the reports or opin-ions of analysts and brokers. In the process,we have learned how to go about finding outa company’s situation and the value of its’stock on our own. As an investor, I find thisparticularly valuable, because this part of thedecision making process was always theeasiest in which to be lax. Now I have moreconfidence to ignore the financial writers,reporters, and celebrities who cloud our in-vestment decisions with distracting opinions.”

Jon has found APM to be beneficial interms of developing an open attitude. “I amvery impressed with the level of access to

information that is available, and with the will-ingness of colleagues, class guests, and cor-porations to share it. I have changed my opin-ion of several of the companies we studiedbetween the beginning and end of our reportprocess. Each case has been a story wait-ing to be interpreted, but many are messy andhard to see simply. For example, before tak-ing APM, I would not have considered makingan investment in Eastman Kodak at any price,because my mind was closed because of myprevious professional experiences with thecompany. Those experiences led me to formopinions, but not opinions that were relevantto assessing the current investment potentialof Eastman Kodak’s stock. After our grouphas made a class presentation and writtenour analyst report on Eastman Kodak, I havelearned to look for the value in such a corpo-ration, and to recognize the potential for in-vestment in it.”

For their various reasons, the mem-bers of Group 2 agree with Pravin when hesays, “This APM class is a real jewel in theMBA course at KU.”

Group 2 Profilecontinued from page 5

Group 3 Profile Group 2 – (Left to right)Brian Chamblin, Mindi Johnson,Bryan Clegg, and Joshua Tieman

following: Eby Realty Group, LLC, ownsand manages assisted living residencesin the five-state area; EBCO ConstructionGroup, LLC, a general contractor; and EbyDesign Group, LLC, an architect firm.Bryan plans to graduate in spring 2004with his MBA and continue as controller ofThe Eby Group. When asked what the mostvaluable part of APM was, he replied “I haveenjoyed doing the research on companies,some of which I have never heard of before.In addition it has provided me with the knowl-edge base to apply to my personal invest-ments. It has also given me some investmentideas, which helps.”

Mindi Johnson is currently a ProjectManager/Systems Analyst in Information Tech-nology for Sprint Corp. Mindi expects to com-plete her MBA program in the spring or sum-mer of 2004; just in time, as Sprint’s IToutsourcing strategies are going to give Mindithe opportunity to make a choice about herfuture career path. Mindi hasn’t decided ifshe will continue down the IT path or look ather recent misfortunes with IT at Sprint as asign and move into the finance world. Mindi’sthoughts on APM, “I enjoy researching com-panies and finding out what they do. Theresearch into the foreign companies has mademe less afraid to invest in those companiesand countries. I will likely diversify now intoChina and perhaps other countries as well.

APM has also helped in pointing out differentcareer opportunities in the finance world thatI may be interested in. I’m glad I worked out asituation with my management to be able totake this class.”

Joshua Tieman is a Project Analystfor Sprint Corp. in the Finance organization.Joshua’s primary responsibility professionallyis business case analysis for technology in-vestments, focusing on economic justifica-tion measures such as NPV, discounted pay-back, and EVA. Joshua will graduate in thespring of 2004 with his MBA and will continueto work at Sprint and focus on opportunitiesinternally in the short-term. Longer term Joshuahopes that the experience he has gained inhis MBA program will aid him in his march upthe corporate ladder at Sprint, or if the rightopportunity presents itself, external to Sprint.When asked about how APM has impactedhim, Joshua said, “The most important skill I’velearned in APM is how to think like a success-ful investor. Anyone can call themselves aninvestor, but to be truly successful you must

Group 3 Profile (continued on page 7)

4th Quarter 2003 Page 7

first learn how to think like one, meaning you need to know the keycomponent that is vital to a company’s success. Once you havelearned how to think as a successful investor, you can start to makemoney like one. The skills I have gained in APM are invaluable. For meit will not immediately benefit me professionally but personally, I hopeone day that might be the case as I build out my own portfolio and findthe road to riches.”

Group 3 Profilecontinued from page 6

Check out our website forup-to-date information

http://www2.business.ku.edu\apm

Ticker Shares Sold Earliest Purchase Last Sale Cost Proceeds Gain/Loss Mentor

APC 97 12-Nov-01 14-Nov 9,740 9,000 (740) Todd Ludgate

CHINA 9,629 16-Jun-01 23-Dec 19,650 62,554 42,905

CHN 650 12-Feb-02 23-Dec 8,707 24,712 16,005

CNET 6,000 17-Oct-02 17-Mar 1,821 12,910 11,089

CRO 1,400 11-Nov-02 25-Apr 2,655 280 (2,375)

DUSA 700 21-Jun-00 3-Nov 5,965 3,680 (2,285) Betsy Rowe

EP 500 25-Apr-03 12-Dec 3,750 3,395 (355) Mark Hirschey

GDT 150 7-Oct-02 27-Mar 3,998 5,475 1,477 Paul Koch

JNS 300 2-Jan-01 5-Jun 11,611 5,043 (6,568) Mark Hirschey

JOSB 300 19-Dec-02 20-Aug 6,240 13,070 6,830 Jim MacMurray

LSBDP 200 30-Apr-01 2-Jun 3,550 6,400 2,850

LTD 200 21-Nov-01 14-Nov 2,690 3,582 892 Brendan Woodbury

LXU 500 6-Dec-02 2-Jun 1,306 2,250 944

NFI 200 21-Nov-01 24-Jul 2,700 14,619 11,919

RDN 200 16-Apr-03 19-Aug 7,647 9,180 1,533 Brian Murray

REMC 750 14-Jul-00 18-Sep 12,749 8,617 (4,132) Greg Greenberg

SOHU 6,200 31-Jan-01 12-Aug 9,630 106,382 96,753

TGT 100 4-Feb-02 14-Nov 4,307 3,880 (427) Jessica Reuss

TUNE 500 8-Feb-02 13-Jan 7,060 1,431 (5,629) Preston Raison

TYC 500 1-Aug-03 3-Dec 9,300 9,300 -

UKC 1,000 25-Nov-03 7-Nov 200 850 650 Erica Christian

WFSG 30,000 12-Apr-01 3-Dec 120,972 134,818 13,846

WMB 650 17-Jul-02 19-May 4,047 5,265 1,218 Mark Hirschey

WR 400 3-Mar-00 10-Mar 4,572 4,856 284

XZR 500 11-Dec-03 1-Aug 125 300 175 Mark Hirschey Total Portfolio 280,860 467,717 186,858

Realized Gains and Losses

Ticker Shares Held Earliest

Purchase Current

Holding Percentage Cost Basis Market Value Gain/Loss Mentor

ASGR 800 15-Sep-03 3.81 15,870 24,240 8,370

BRKZB 8 27-Mar-03 3.47 19,056 22,135 3,079

BZLG.DE 70 6-Dec-02 0.56 3,051 4,367 1,315 Alex Verbov

CFFN 250 6-Dec-02 1.42 6,955 9,033 2,078

CHINA 4,500 28-Feb-01 5.84 17,155 36,990 19,836

EP 1,000 25-Apr-03 1.25 7,770 7,800 30 Mark Hirschey

XZR AV (1,000) 1-Aug-03 (0.05) (600) (150) 450 Mark Hirschey

FST 300 29-Jan-99 1.36 4,620 8,760 4,140 Brett Young

GBLBF 300 13-Jun-03 2.57 13,998 15,991 1,993 Robert Tracy

GRMN 600 6-Dec-02 5.07 20,417 32,406 11,989 Matt Taylor

HRB 500 11-Nov-02 4.22 19,260 27,025 7,765

ICM 6,500 30-Nov-98 7.71 29,411 49,075 19,664

ISCB 200 22-Sep-94 1.37 4,294 8,830 4,536

JOSB 500 20-Nov-03 2.69 17,013 16,760 (253) Jim MacMurray

KR 300 21-Dec-01 0.85 6,060 5,442 (618)

LXU 3,500 6-Dec-02 3.39 9,144 21,525 12,381

LSBDP 600 23-Aug-00 4.37 10,650 26,400 15,750

LVLT 2,500 25-Jul-03 2.16 12,218 13,950 1,732

MHK 250 12-Aug-03 2.74 16,868 17,675 808

NFI 400 16-Apr-01 2.83 8,326 17,900 9,574

NRGY 500 7-Apr-03 3.73 17,760 23,785 6,025

PCTI 1,500 12-Aug-03 2.45 15,975 14,805 (1,170) Erica Christian

PLB 225 14-Aug-00 1.47 3,981 9,324 5,343

SOHU 900 26-Jan-01 4.24 4,003 26,721 22,718

TYC 500 1-Aug-03 2.07 9,300 13,100 3,800

VLO 75 3-May-02 0.54 3,155 3,449 293 Robert Tracy

WFSG 13,800 8-Aug-00 12.84 47,548 82,800 35,252

WWCA 400 8-Nov-02 1.12 2,316 7,256 4,940 Total Portfolio 345,572 547,393 201,821

4th Quarter 2003 Page 8

Unrealized Gains and Losses

Ticker Shares

Current Weight in Portfolio

12/31/2003 Date SoldDate

Purchased Days Held in 2003

Return on 2003

Holding

Annualized 2003

Return Beta Standard Deviation

APC 150 11-Nov 318 -6% -7% 0.68 0.07 ASGR 800 3.79% 15-Sep 107 53% 324% 0.68 0.07 BRKB 8 3.47% 27-Mar 279 16% 22% 0.68 0.06 BRUXF 70 0.56% 365 43% 43% CFFN 250 1.41% 365 25% 25% 0.15 0.06 CHINA 4,500 5.79% 365 190% 190% 0.76 0.08 CHN 650 23-Dec 15-Jan 342 176% 196% 0.73 0.07 CNET 6,000 17-Mar 76 -21% -67% 0.82 0.08 CRO 1,400 25-Apr 115 -89% -100% DUSA 700 3-Nov 307 224% 304% 0.69 0.08 EP 1,000 1.22% 25-Apr 250 2% 2% 0.73 0.08 FST 300 1.37% 365 6% 6% -1.53 0.07 GBLBF 300 2.59% 13-Jun 201 14% 27% 1.86 4.13 GDT 150 27-Mar 86 18% 104% 0.69 0.07 GRMN 600 5.07% 365 84% 84% 0.71 0.07 HRB 500 4.23% 365 34% 34% 0.71 0.07

ICM 6,500 7.68% 365 9% 9% 0.67 0.06 ISCB 200 1.38% 365 19% 19% -0.67 0.06

JNS 300 5-Jun 156 29% 80% 0.73 0.07 JOSB 500 2.62% 365 57% 57% 0.71 0.07

KR 300 0.85% 365 17% 17% 1.13 0.07 LSBDP 600 4.41% 365 83% 83% 0.91 0.65

LTD 200 14-Nov 318 29% 33% 0.70 0.07 LVLT 2,500 2.18% 25-Jul 159 14% 36% 0.69 0.07 LXU 3,500 3.42% 365 120% 120% 0.65 0.07 MHK 250 2.77% 12-Aug 141 5% 13% 0.70 0.07 NFI 400 2.80% 365 44% 44% 0.72 0.07 NRGY 500 3.72% 7-Apr 268 34% 49% 0.67 0.06 PCTI 1,500 2.32% 12-Aug 141 -7% -18% 0.73 0.07 PLB 225 1.46% 365 15% 15% 0.38 0.07 RDN 100 19-Aug 231 24% 40% 0.70 0.07 REMC 750 18-Sep 261 196% 356% 1.00 0.08 SOHU 900 4.18% 365 364% 364% 0.74 0.08 TGT 100 14-Nov 318 29% 34% 0.70 0.07 TUNE 500 13-Jan 13 -9% -92% TYC 500 2.05% 1-Aug 152 41% 128% 0.72 0.07 VLO 75 0.54% 365 24% 24% 0.41 0.07 WFSG 13,800 12.96% 365 36% 36% 0.68 0.08 WMB 650 19-May 139 200% 1690% 0.74 0.08 WR 400 10-Mar 69 23% 194% 0.70 0.07 WWCA 400 1.14% 365 242% 242% 1.21 0.07 XZR AV (1,000) -0.05% 1-Aug 152 75% 96%

4th Quarter 2003 Page 9

Stock Holdings and Performance Statistics During 2003

Please mail your donation to:KU Endowment AssociationMcCarthy Fund% Patrick MikesicSchool of Business1300 Sunnyside AvenueLawrence, Kansas 66045-7585or contactPatrick MikesicPhone: 785 -832-7461Toll free: 1-800-444-4201 ext. 461PMikesic@KUEndowment.org

Kent McCarthy is still matching alumni gifts2 for 1, so now is a great time to make adonation.Contact Patrick Mikesic1-800-444-4201 ext. 461,PMikesic @KUEndowment.orgfor more information. n

Thank you for your contributions!

If you would like to contributeto the portfolio

4th Quarter 2003 Page 10

Fall 2003 End of Semester AwardsThe end of the semester celebration was held at Gambucci’s in the wine cellar. The awardsfor the semester were:Hope Springs Eternal - Entrepreneurial Spirit - Group 4Ming Awards - look smart so you don’t have to answer questions – Bryan Clegg/David Iliff/Sanjiv KamatDinosaur Award - start strong - fade at the end – no award this semesterHot dog - Pravin KediaForeign currency award – not this semesterGeritol - Managing to stay awake in class – Erin NicholsBack Benchers – Group 1Magnetic Personality – Jason LehtinenMagic 8 Ball - for asking the best questions – Yeliz SunucuSoap Opera Award – Group 3 for Level3 and El PasoPoker Face Award – Mindi JohnsonHugh Gill Award - Hair Gel - Slick work on the class

participation – Michael QuinnMoney to Burn -Most buy votes – Bryan CleggChuck Taylor -Pump it up – Group 2Lost Shirts - Biggest Loss – Joan Huber and Group 4

The APM class took a trip toSt. Louis on Friday, December 6th totour the AG Edwards building. AGEdwards has been the broker for theportfolio for about two years now.The tour lasted about four hours ona blustery autumn day and began with a grouplunch at Syberg’s Café down the street fromAG Edwards.

The AG Edwards operation in St. Louisis the corporate headquarters and employsapproximately 5,000 employees in its facility.From its headquarters they support 7,000 fi-nancial consultants in 49 states and over3,000,000 clients. They primarily support theirbrokers by providing analysis of stocks andindustries. They monitor 500-600 stocks.Darrel Collins , Community Relations, es-corted us on our tour.

AG Edwards utilizes an internal TVnetwork to provide market updates to boththeir brokers and clients. This studio is lo-cated at the St. Louis headquarters and ismanaged by Bob Zahnweh who providedan overview of their studio operations.

Maggie O’Brien and FrankChildress presented their NASDAQ andForeign Trading Floor. From their trading pit,they are able to trade stocks on both theNASDAQ as well as several other foreignmarkets. Their operations in St. Louis allowthem to execute trades for clients in as littleas 15 seconds.

AG Edwards has a very active Invest-

Day at AG Edwards –by Group 4

ment banking operation as presented byLorenzo Boyd. Its investment banking op-eration enables governments and other smallermunicipalities to raise capital to finance newschools and improvements of other existingfacilities. AG Edwards also provides othermore traditional investment banking activitiesthat one generally associates with the invest-ment banking activities such as corporate fi-nance and taking companies through the IPOprocess.

Our next stop on this trip was a ques-tion and answer session with one of AGEdwards’ on-air personalities, Scott Wren.Scott mentioned that it is critical for their ana-lysts to cover the industries that their clientsneed analysis on and not try to monitor everystock or every industry. Scott believes that itis imperative that any analyst understand themacro-economic environment of the businessworld in all of their analysis, as this is a criti-cal component in understanding the futuregrowth potential of any company or industry.

No trip to AG Edwards with a class ofsuch astute investors as one finds at KU couldbe complete without a visit with the AGEdwards financial consultant recruiter, BillBlakney. Bill provided the class with an over-

view of various career paths availableat AG Edwards for graduating studentsand was adamant that a career as afinancial consultant was a great ca-reer path for those graduating with theirMBA at KU.Upon completion of the AG Edwards

tour, the class had dinner with Scott Jones,a former KU graduate, at Blueberry Hill. Scottis currently trading stocks on his own as wellas investing in real estate. Scott shared someof his experiences in both fields and treatedthe class for dinner.

This dinner capped a very long, butinteresting and enlightening day in St. Louis atAG Edwards. The class would like to thankall of those at AG Edwards who took time outof their day to show us around their facilityand explain how their business functions, aswell as Scott Jones for his time and the din-ner at Blueberry Hill.