Presentation for the SMIF Advisory Board

1. Presentation for the SMIF Advisory Board Annual Report 2008-2009

2. Presentation Overview • Background & Guidelines • Top-Down Approach • Allocation Triggers • Capital Markets Outlook • Asset Allocation • Fixed-Income Analysis • Equity Analysis • Portfolio Performance • Fund Expansion • Networking & Outreach • Learning Experiences Presenters Brooks Zimmer Tien Do Wayne Brown Kristin Tran Casey Hughes Greg Strand Reuben Conceicao

3. Background & Guidelines Brooks Zimmer

4. Background of SMIF • Honors-level program administered by the College of Business Administration’s Department of Finance • Established August 1995 • Program Goals • “Real dollar” experience in portfolio management • Apply this knowledge toward career advancement

5. Class Structure • Sixteen senior-level undergraduate students and second-year MBA students majoring in Finance/Investments • Sixteen students divided into four teams • Rigorous selection process & boot camp • Diversity within the ranks • Background, Academics, Philosophy • Students spend an average of 20 hours per week on SMIF

6. Portfolio Guidelines • Growth of Income objective • Equity Allocation • 50-75% • Fixed Income Allocation • 25-50% • Diversification • No more than 15% in each industry • No more than 5% in one company • Trailing 10% Stop-Loss

7. Top-Down Approach

8. Allocation Triggers Tien Do

9. Allocation Triggers • Triggers for entry into equity positions • Government Interventions • Effectiveness of TARP & TALF • Volatility Index (VIX) • 30 day SMA fall under 30 • Credit Spreads • Narrowing of credit spreads

10. Government Interventions • TARP (Troubled Asset Relief Program) • Goal: Resume lending among banks • TALF (Term Asset-Backed Securities Loan Facility) • Goal: Resume consumer lending

12. Capital Markets Outlook & Asset Allocation Wayne Brown

13. Fixed-Income Outlook • Treasury Yields • In September 2008, rates were forecast to increase in first half of 2009 • Credit Spreads • Expectations of a weak economic environment in 2009 suggest continuation of historically wide credit spreads • Anticipation of spreads narrowing as the economy begins to recover

14. 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

15. Equity Outlook • CBOE Volatility Index (VIX) • S&P 500 volatility reached four times the historical norm • Likelihood of triggering a stop-loss order increased dramatically • Market became a trader’s market • Buy-and-hold strategy questioned • Uncertainty rendered any point forecast of the S&P 500 almost meaningless

16. 2009 S&P 500 Earnings • Standard and Poor’s operating earnings estimates for 2009 were very uncertain

17. Asset Allocation • Based on our capital markets outlook • SMIF 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

18. Asset Allocation Fixed-Income Benchmark NBBITR - NASD Bloomberg Active Investment Grade US Corporate Bond Total Return Index Equity Benchmark S&P 500 Index

19. Sector Analysis Forecast GICS Sector Ranked Returns+ +9/25/2008 to 4/24/2009

20. Fixed-Income & Equity Analysis Kristin Tran

21. Fixed-Income Selection • SMIF preferred Money Market Mutual Funds and CDs • Portfolio was protected against market dislocations • Had the flexibility to change with market conditions • Preservation of capital • Chose not to invest in the Bond Market • Credit markets were frozen in the 2nd half of 2008 • In this market environment, bonds embodied far greater risk than historical levels

22. Equity Selection • Several equities were analyzed throughout the year • None were selected for inclusion in the portfolio • Equities analyzed included • Apple Inc. (AAPL) • Burlington Northern Santa Fe Corp. (BNI) • Cal-Maine Foods (CALM) • Apollo Group (APOL) • Johnson & Johnson (JNJ)

23. Equity Selection Process • Each of the four groups screen for equities independently • Team 4 used a screening process based on: • Favored Sectors • Low Implied Volatility • Low Market Correlation

24. Equity Selection Process • Introduce security of interest • Full presentation of analysis 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

25. Equity Selection Process • Debate and discussion • Professors ask critical-thinking questions • Class vigorously critique the presentations • JNJ was analyzed at great length • Three consecutive weeks of rigorous discussions • Re-evaluation of information

26. Equity Selection Process • Voting process • Supermajority 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

27. JNJ Technical Analysis Source: Bloomberg (02/10/09)

28. JNJ Residual Income Valuation JNJ stock price at time of analysis: $ 56.73

29. JNJ Price Graph 05/05/09: JNJ Close Price: $54.21 Hypothetical Loss of 4.4% 03/03/09: Suspended JNJ Analysis Price: $47.64 Decline of 16% 2/10/09: Initial JNJ Presentation Price: $56.73 03/09/09: Intraday low Price: $46.25

30. Portfolio Performance & Fund Expansion Casey Hughes

31. Transaction History

32. Fund Performance • Performance • SMIF: 0.94% gain • Benchmark: 23.16% loss

33. CFA Society of Orange County Foundation Annual RFP Competition • Request For Proposals Competition • Process through which CFAOCF Portfolio is awarded • Chapman University • Argyros School of Business Board Room • Professional environment with panel of CFA’s • Competition between rivals CSU, Fullerton and UC Irvine • CSULB SMIF’s competitive edge • Portfolio winners six consecutive years

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

35. Associated Students, Inc. • Introduced to ASI Representative through Forty-Niner’s meetings • Relationship purely student-driven • Portfolio management for students, by students • ASI Senate Chambers Meeting • Unanimous decision to pursue working relationship with SMIF

36. Client Relationships

37. Networking & Outreach Gregory Strand

38. Networking • CFALA Forecasting Dinner • CFALA Career Expo • Career Search Techniques/Resume workshop • Networking opportunities with industry professionals • CFAOCF Host-A-Student Program • Offers students a first-hand view of the investment profession • Redefining Investment Strategy Education Forum • Brings leading students, faculty, government, and Wall Street together in an interactive learning environment

39. Outreach • Business Cards • SMIF Information Night • A gathering of prospective SMIF members to learn more about the program • Website Development • Created a website for students who are interested in SMIF

40. www.csulbsmif.org

41. Learning Experiences Reuben Conceicao

42. Analytical Skills • Real-World Considerations • Critical Thinking • Presentation Skills • Bloomberg Certification • CFA Charter • Grading Components • Quality of Analysis • Teamwork • Networking The program is about learning, not performance

43. Organizational Skills • Teamwork • Leveraging on each other’s strengths • Leadership & Ownership • Rotating CEOs • Client Management • Securing clients and meeting their needs • Networking

44. Hard Work

45. Dedication • Extra 20% per student per week dedicated to special projects

46. Learning Experiences • Working with Uncertainty • Acting on incomplete information • Resilience and Patience • The worst investing environment • The best learning experience

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

48. Question and Answer Session Annual Report 2008-2009