S t u d e n t M a n a g e d I n v e s t m e n t F u n d

Annual Report 2008-2009

Presentation for the SMIF Advisory Board

Presentation Overview

Background & GuidelinesTop-Down ApproachAllocation TriggersCapital Markets Outlook Asset AllocationFixed-Income AnalysisEquity AnalysisPortfolio PerformanceFund ExpansionNetworking & OutreachLearning Experiences

PresentersBrooks ZimmerTien DoWayne BrownKristin TranCasey HughesGreg StrandReuben Conceicao

S t u d e n t M a n a g e d I n v e s t m e n t F u n d

Brooks Zimmer

Background & Guidelines

Background of SMIF

Honors-level program administered by the College of Business Administration’s Department of FinanceEstablished August 1995Program Goals

“Real dollar” experience in portfolio managementApply this knowledge toward career advancement

Class Structure

Sixteen senior-level undergraduate students and second-year MBA students majoring in Finance/InvestmentsSixteen students divided into four teamsRigorous selection process & boot campDiversity within the ranks

Background, Academics, Philosophy

Students spend an average of 20 hours per week on SMIF

Portfolio Guidelines

Growth of Income objectiveEquity Allocation

50-75%

Fixed Income Allocation25-50%

DiversificationNo more than 15% in each industryNo more than 5% in one company

Trailing 10% Stop-Loss

Top-Down Approach

Economy•Consensus of professional forecasters•Economic reports

Sector/Industry•Cyclical & Structural effects•Outside sources

Securities•In-depth analysis, debate and discussion•Potential risks and expected returns

S t u d e n t M a n a g e d I n v e s t m e n t F u n d

Tien Do

Allocation Triggers

Allocation Triggers

Triggers for entry into equity positionsGovernment Interventions

Effectiveness of TARP & TALF

Volatility Index (VIX)30 day SMA fall under 30

Credit SpreadsNarrowing of credit spreads

Government Interventions

TARP (Troubled Asset Relief Program)Goal: Resume lending among banks

TALF (Term Asset-Backed Securities Loan Facility)

Goal: Resume consumer lending

S t u d e n t M a n a g e d I n v e s t m e n t F u n d

Wayne Brown

Capital Markets Outlook & Asset Allocation

Fixed-Income Outlook

Treasury YieldsIn September 2008, rates were forecast to increase in first half of 2009

Credit SpreadsExpectations of a weak economic environment in 2009 suggest continuation of historically wide credit spreadsAnticipation of spreads narrowing as the economy begins to recover

Fixed-Income Outlook

Based on our fixed-income outlook, short-term instruments would be more suitable to alleviate interest rate risk

Appropriate instruments• CDs• MMMFs• Short-term Investment Grade Bonds

Equity Outlook

CBOE Volatility Index (VIX) S&P 500 volatility reached four times the historical normLikelihood of triggering a stop-loss order increased dramatically

Market became a trader’s marketBuy-and-hold strategy questioned

Uncertainty rendered any point forecast of the S&P 500 almost meaningless

2009 S&P 500 Earnings

Standard and Poor’s operating earnings estimates for 2009 were very uncertain

S&P 500 Earnings Estimates November 2008 April 2009

Top-down $62.98 $44.41

Bottom-up $91.85 $60.26

Asset Allocation

Based on our capital markets outlookSMIF allocated 100% of the portfolio to Guaranteed Cash Equivalents

• Our primary concern was to mitigate the risk of capital losses

• Uncertainty in the market was too high for equity investments

• Volatility would have stopped-out any equity investments

Asset Allocation

Fixed-Income BenchmarkNBBITR - NASD Bloomberg Active Investment Grade US Corporate Bond Total Return Index

Equity BenchmarkS&P 500 Index

CDs35%

MMMFs65%

SMIF Portfolio

Fixed-In-

come30%

Equi-ties70%

Composite Benchmark

Sector Analysis

ForecastOutperform

Consumer StaplesHealthcareInformation TechnologyTelecommunicationsUnderperform

FinancialsConsumer DiscretionaryEnergyMaterials

GICS Sector Ranked Returns+

Sector Return

Telecommunications -14.42%

Information Technology -18.01%

Consumer Discretionary -21.05%

Consumer Staples -23.10%

Health Care -23.44%

Utilities -27.04%

S&P 500 -28.36%Materials -31.35%

Energy -32.19%

Industrials -32.93%

Financials -46.78%+9/25/2008 to 4/24/2009

S t u d e n t M a n a g e d I n v e s t m e n t F u n d

Kristin Tran

Fixed-Income & Equity Analysis

Fixed-Income Selection

SMIF preferred Money Market Mutual Funds and CDsPortfolio was protected against market dislocationsHad the flexibility to change with market conditionsPreservation of capital

Chose not to invest in the Bond MarketCredit markets were frozen in the 2nd half of 2008In this market environment, bonds embodied far greater risk than historical levels

Equity Selection

Several equities were analyzed throughout the yearNone were selected for inclusion in the portfolio

Equities analyzed includedApple Inc. (AAPL)Burlington Northern Santa Fe Corp. (BNI)Cal-Maine Foods (CALM)Apollo Group (APOL) Johnson & Johnson (JNJ)

Each of the four groups screen for equities independently

Equity Selection Process

Team 4 used a screening process based on:• Favored Sectors• Low Implied Volatility• Low Market Correlation

Introduce security of interest

Full presentation of analysis

Equity Selection Process

Team 4 analyzed Johnson & Johnson (JNJ), a diverse health care company that has product segments in pharmaceuticals, medical devices and consumer staples

JNJ’s equity presentation consisted of a fundamental analysis, technical analysis, competitive analysis, multiple valuation models, and qualitative risk factors

Debate and discussionProfessors ask critical-thinking questionsClass vigorously critique the presentations

Equity Selection Process

JNJ was analyzed at great length• Three consecutive weeks of rigorous discussions• Re-evaluation of information

Equity Selection Process

Voting processSupermajority of 75-percent required for placement into portfolio

JNJ did not pass the vetting process, therefore there was no vote• Due to further significant declines in the stock market,

the team decided to abandon their original thesis

JNJ Technical Analysis

Source: Bloomberg (02/10/09)

JNJ Residual Income Valuation

JNJ stock price at time of analysis: $ 56.73

JNJ Price Graph

03/03/09: Suspended JNJ Analysis

Price: $47.64Decline of

16%

2/10/09: Initial JNJ

PresentationPrice:

$56.73 03/09/09: Intraday low Price: $46.25

05/05/09: JNJ Close

Price: $54.21Hypothetical Loss of 4.4%

S t u d e n t M a n a g e d I n v e s t m e n t F u n d

Casey Hughes

Portfolio Performance & Fund Expansion

Transaction History

Date Item Amount 9/1/08 Beginning balance $100,000.00

Interest/mm div - Sept $18.84

9/30/08 Ending balance $100,018.84

Interest/mm div - Oct-Dec $383.27

12/31/08 Ending balance $100,402.11

Interest/mm div - Jan-Mar $403.51

3/31/09 Ending balance $100,805.62

Estimated Interest/mm div - Apr $134.50

4/30/09 Estimated Ending balance $100,940.12

Date Purchased Security Amount Maturity

11/7/08 CD 3.5% $25,000 8/19/09

11/14/08 CD 3.25% $10,000 8/26/09

Fund Performance

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

SMIF Benchmark

Performance SMIF: 0.94% gain Benchmark: 23.16% loss

CFA Society of Orange County Foundation Annual RFP Competition

Request For Proposals CompetitionProcess through which CFAOCF Portfolio is awarded

Chapman UniversityArgyros School of Business Board Room

Professional environment with panel of CFA’sCompetition between rivals CSU, Fullerton and UC IrvineCSULB SMIF’s competitive edge

Portfolio winners six consecutive years

Forty-Niner Shops Inc.

Forty-Niner Shops Inc. Board Member Alvaro Castillo approached SMIFStudent managers met with Board of DirectorsSynergy between mission, vision, and values for both organizations Forty-Niner Shops Inc. engaged SMIF to manage a portion of their portfolio

Associated Students, Inc.

Introduced to ASI Representative through Forty-Niner’s meetingsRelationship purely student-driven

Portfolio management for students, by students

ASI Senate Chambers MeetingUnanimous decision to pursue working relationship with SMIF

Client Relationships

ASI

SMIF

Forty- Niner Shops

CFAOCF

S t u d e n t M a n a g e d I n v e s t m e n t F u n d

Gregory Strand

Networking & Outreach

Networking

CFALA Forecasting DinnerCFALA Career Expo

Career Search Techniques/Resume workshopNetworking opportunities with industry professionals

CFAOCF Host-A-Student ProgramOffers students a first-hand view of the investment profession

Redefining Investment Strategy Education ForumBrings leading students, faculty, government, and Wall Street together in an interactive learning environment

Outreach

Business CardsSMIF Information Night

A gathering of prospective SMIF members to learn more about the program

Website DevelopmentCreated a website for students who are interested in SMIF

www.csulbsmif.org

S t u d e n t M a n a g e d I n v e s t m e n t F u n d

Reuben Conceicao

Learning Experiences

Analytical Skills

Real-World ConsiderationsCritical ThinkingPresentation SkillsBloomberg CertificationCFA Charter

Grading Components Quality of Analysis Teamwork Networking

The program is about learning, not performance

Organizational Skills

TeamworkLeveraging on each other’s strengths

Leadership & OwnershipRotating CEOs

Client ManagementSecuring clients and meeting their needs

Networking

Hard Work

In-Class Meetings•3 hours per student per week for 30 weeks•1,440 hours

Outside of Class Preparations•20 to 35 hours per student per week•9,600 hours

Summer Boot Camps and Winter Break•5 hours in Winter, 15 hours in Summer for Boot Camps•320 hours

Total Time Commitment to SMIF• 11,360 hours• 22 hours per student per week

CFAOCF RFP

SMIF Annual Report

R.I.S.E.

CFAOCF Quarterly Meeting

CEO Meetings

Host-A-Student

Forty-Niner

ASI

CFAOCF Annual Report

Marketing SMIF

CFALA/CFAOCF events

IRA

896

580

360

283

256

165

150

90

60

48

45

16

Special Projects

Dedication

Extra 20% per student per week dedicated to special projects

Learning Experiences

Working with UncertaintyActing on incomplete information

Resilience and PatienceThe worst investing environmentThe best learning experience

As we embark on our careers, we extend our gratitude to the newly-formed SMIF Advisory Board for its

dedication to the SMIF program.

S t u d e n t M a n a g e d I n v e s t m e n t F u n d

Annual Report 2008-2009

Question and Answer Session