reality investing at stern

The Fund Stern Alumni Presentation April 25th 2006 1

Reality Investing at Stern

The Michael Price Student Investment Fund

April 25, 2006

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Tonight’s Program

Overview of MPSIF – Richard Levich, Faculty Advisor

The MPSIF Funds –

Questions & Answers

MPSIF Experience – Debbie Jones, President

Fixed Income Growth Small Cap Value


Overview of MPSIF

MPSIF as an Endowment Fund

Origin of The Michael Price Student Investment Fund (MPSIF)

Organizational Overview

MPSIF as an MBA Course

Goals for the Future


MPSIF Established in 1999

Founded with $2.0 million gift - Michael F. Price

Gift enabled establishment of three funds

Fund part of the overall NYU endowment

Fund has a mandated 5% per annum distribution

Michael F. Price - Managing partner of MFP Investors and former chairman of Franklin Mutual Series funds.

Three Funds - Red, Green and Blue - Each allocated $600,000. Each Fund had a different investment objective.Note: $200,000 allocated for administrative expenses

Distribution provides scholarships to selected students from the Price College of Business at the Univ. of Oklahoma for study at NYU Stern.


Organizational Overview

Advisory Board for MPSIF

Management Advisory Council

Board determines general investment guidelines and provides administrative oversight

Council receives annual and semi-annual reports and visits class to review operating practices

Executive Committee

Individual Funds

The Faculty Advisor, President, Treasurer and Portfolio Managers - Exec Committee oversees activities of the fund over the semester

Student portfolio managers oversee day-to-day operations, other students perform related tasks


Organization of MPSIF

Advisory Board

Fixed Income

Growth Small Cap Value

Executive Committee

Portfolio Manager (2)



Faculty Advisor, President, Treasurer, Portfolio Managers



Pedagogical Objectives

We operate MPSIF as a Course not a Club

Goals

• Course promotes responsibility for managing significant real assets, and a vehicle for selecting and organizing students

• To promote continuity, students are required to participate over two semesters. Half register fall-spring, half register spring-fall. “Overlapping generations” setup

•An 8-11 month immersion course for honing analytical and presentation skills

•A capstone, interdisciplinary course in which managing diverse tasks relies on teamwork

•Deeper understanding of governance and fiduciary responsibilities in running an endowment fund


MPSIF as an MBA Course

Not an ordinary class

Students perform all of the key tasks

• Some outside speakers, but very few lecturers• Emphasis is hands-on, experiential, learning-by-doing

The deliverables

• Financial writing, oral presentations, financial decision making in a group setting

• ~ 45 students populate 3 equity fund teams• Economic, sector and company research• Stock selection, buys & sells, monitoring• Fiduciary duties – Annual and semi-annual reports, minutes of

activities, Board presentations


Recent MPSIF Initiatives

Alumni Panel and Alumni Reunion

Management Advisory Council

Wilshire analytics portfolio analysis

Annual Report upgrade

Resume book

Web-site upgrade

“The Educated Investor” newsletter

Proxy voting, litigation filings

Re-balancing of MPSIF portfolio

• Gross flows in excess of $400,000


Deliverables


MPSIF as an Endowment Fund

Student run MPSIF, but within limits “Rules of the Game”

MPSIF Operates on an open book policy

• MPSIF is a long-only endowment fund.• Permitted securities include: Stocks, bonds, money market instruments,

and limited mutual funds. NYU is a tax exempt institution.• Goals include (a) returns in excess of inflation over a 3-5 year period, (b) returns exceeding an appropriate benchmark, (c) focus on long-term opportunities rather than short-term trading gains,

(d) an acceptable level of diversification

• Stands ready to make its results, activities, reports available to anyone within the NYU community with an interest. (Active web site)


How has MPSIF Performed?

Six year record – Inception March 1, 2000

The Michael Price Student Investment Fund vs. Blended BenchmarkPerformance of $1000 Investment since Inception (March 1, 2000)

$1,443

$1,243

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Price Fund

Blended Benchmark

Monthly returns are time-weighted and thus exclude effects of the Fund's annual 5% distribution. The Blended Benchmark is equally comprised of the Russell 2000 Index, the Russell 1000 Growth Index, the Russell 1000 Value Index, and the Vanguard Total Bond Index Fund.

Since Inception1.8M to $2.01M

44% Total Returnin first six years (~6.18%

p.a.)

Does not include $461,000 in distributions

Well ahead of benchmark 75% Equity, 25% Debt


Goals for the Future

Enhance MPSIF profile inside and outside Stern

Enhance MPSIF as a vehicle for student recruitment and placement, as well as fundraising

Attract more funds under management – from NYU endowment or other benefactors


MPSIF – Student Experience


President: Debbie Jones

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The Fund


My Story…Why NYU, Why MPSIF

Why to get my MBA

Where to get my MBA

Previously analyzed mutual funds…needed to improve my fundamental stock picking skills

Met with alum from my undergraduate school who was also the original MPSIF President

How to get a job/internship

MPSIF After Stern

Stock pitches are standard for MBA internship and full-time job applicants (both buy side and sell side)

With six years of history there are numerous MPSIF alum working in the investment management profession

Financial Modeling?

DCF?

CMC & NYU

Deutsche Bank

First Annual Student Alumni

Mixer


The MPSIF Experience

Placement into Fund (Team)

MPSIF Pitch/Update Format

Generally 15 students per fund – requests are considered. Management seeks a diversified background.

Standard MPSIF written pitch format Presentation to Individual Fund (mon/weds mtgs)

Student Feedback

Student Responsibilities

Question & Answer period – students are required to defend their ideas – Students vote on stock purchase

Additionally Students are required to take on an extra role, (e.g. alumni relations, historical analytics)

• Spent three years at a successful start-up biopharmaceutical company.

• Spent a year as a post- doctoral fellow at Harvard

Medical School, focusing on the research of anti- cancer drugs.

• He holds a Ph.D. degree in chemistry from

Harvard University.

• Investment Summary

• Performance

• Valuation (DCF, multiples, etc.

• Business Description

• Industry Outlook

• Competitor position

• Earnings Outlook

• Financial Statements


Benefits of Reality Investing

You are accountable

Fund Simulation just isn’t the sameSEACOR is in the business of owning, operating, investing in, marketing and remarketing equipment, primarily in the offshore oil and gas and inland transportation industries. It also provides oil spill response and environmental remediation services.

Seacor (CKH)

Russell 2000 Index


Performance as of February 28th, 2006

Beating our Benchmark25% Russell 1000 Value Index

25% Russell 1000 Growth Index

25% Russell 2000 Index

25% Vanguard Total Bond Index

The Michael Price Student Investment Fund vs. Blended BenchmarkPerformance of $1000 Investment since Inception (March 1, 2000)

$1,443

$1,243

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1,400

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Price Fund

Blended Benchmark

Monthly returns are time-weighted and thus exclude effects of the Fund's annual 5% distribution. The Blended Benchmark is equally comprised of the Russell 2000 Index, the Russell 1000 Growth Index, the Russell 1000 Value Index, and the Vanguard Total Bond Index Fund.


Performance of $1000 Investment since Inception (March 1, 2000)

$1,164

$852

$2,273

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Fixed Income

Growth

Small Cap

Value

CAGR since inceptionFixed Income: 2.56%Growth: -2.63%Small Cap: 14.66%Value: 6.51%

Monthly returns are time-weighted and thus exclude effects of the Fund's annual 5% distribution. The Fixed Income Fund was created on May 10, 2002 with transfers from each of the stock funds.

Source: Wilshire Analytics

* The Quantum growth/value style score is created from a weighted average of a standardized book/price and forward looking earnings/price (standardized against the Dow Jones Wilshire U.S. 2500 Index, 75% book/price and 25% forward earnings/price).


The Fixed Income Fund


Portfolio Managers: Marc Strauss and Michael Flood

___________________________________

Fixed IncomeFixed Income


Fund Overview

Growth Fund

Fund Objective• The fund aims to outperform its benchmark, the Vanguard Total Return

Bond Fund (VBMFX) by taking positions in mutual funds and exchange traded funds (ETFs).

Fund Strategy• The Fund implements its views through a top-down allocation approach to

the main sub sectors of the US Fixed Income [investment grade] market, namely – U.S. Treasuries, Corporates and MBS/ABS, as well as the

Foreign investment grade bond market

Fund is tax exempt – No municipal bonds

Looking forward, we hope to start the next semester with the ability to trade in individual bonds across all sectors

Fixed Income



Growth Fund

For the six months ended February 28, 2006, the fund had a negative net return of 69 basis points, trailing our benchmark by 50 basis points

• Overexposure to the short end of the Treasury yield curve

• Failure to capitalize on the continued strength of the MBS market

• Slight overweighting of the Corporate sector

After bottoming out in October 2005, the fund enjoyed four straight months of positive returns, with a YTD return of 98 basis points, 70 basis points above our benchmark

Over the past three months, we have focused our attention to being more closely aligned with our benchmark, reducing our exposure to the foreign sector and spreading our exposure to Treasuries across the yield curve

Fixed Income



Fixed Income

The Fixed Income Fund vs. The Vanguard Total Bond FundPerformance of $1000 Investment since August 31, 2005

$991

$994

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Fixed Income Fund

Vanguard Total Bond Fund

Monthly returns are time-weighted and thus exclude effects of the Fund's annual 5% distribution.


Sector Allocations as of February 28th, 2006

Fixed Income

Sector Weightings vs Benchmarks

3.65%

35.61%

20.63%

34.96%

2.94% 2.21%

11.46%

7.78%

27.35%

22.55%

27.36%

3.51%

0.0%

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VBMFX MPF


Fund Holdings as of February 28th, 2006

Fixed Income

Fixed Income Fund Holdings as of Febuary 28, 2006

Company Ticker Sector# Shares

HeldClosing

PricePosition Value

% of Assets

PIMCO Total Return Mortgage A PMRAX MBS 17,073 10.60 180,974 39.5%iShares GS $ InvesTop Corp Bond Fnd LQD Corporates 875 107.54 94,098 20.5%iShares Lehman 1-3 Year Treasury Bo SHY Treasuries 875 80.13 70,114 15.3%Templeton Global Bond Fund TPINX Foreign 5,124 10.62 54,417 11.9%iShares Lehman 20+ Year Treasury Bo TLT Treasuries 275 91.35 25,121 5.5%iShares Lehman 7-10Year Treasury Bo IEF Treasuries 300 82.97 24,891 5.4%

Total Securities 449,614 98.1%Cash 8,608 1.9%Total Assets 458,222 100.0%


Sector Update and Outlook

Growth Fund

U.S. Treasuries

Fixed Income

• The Federal Reserve, reacting to inflationary fears as the economy remains resilient, is likely to continue to raise rates one or two more times in the short term. Future policy is likely to remain data dependent.

• Should the economy start to sputter, rate cuts are a distinct possibility by Q4 2006.

• Although the calendar year started with softness in the Treasury market, we are bullish on Treasuries and recommend overweighting the index with longer duration positions.

MBS

• With mortgage rates forecasted to rise to as much as 6.40% by the fourth quarter of 2006, slower growth in the housing market is expected. Higher rates will slow prepayments and curb home price appreciation, creating potential credit challenges ahead.

• As spreads widen we will continue take a slightly underweight position with respect to the index.


Sector Update and Outlook cont.

Growth Fund

Corporates

Fixed Income

Foreign

• In terms of business fundamentals, competition from emerging economies has challenged many U.S. companies and industries.

• Rising interest rates will likely erode future profitability as borrowing costs rise and consumer spending slows.

• We recommend avoiding sectors like consumer discretionary, which may be adversely affected by a slowing housing market

and high energy prices.

• A shrinking interest rate differential, coupled with an ever growing current account deficit, could spell trouble for the dollar.

• With rates in Europe and Japan likely to rise, we will look to further reduce our exposure in the near term, especially as the Fed looks

to put the brakes on future rate hikes.


Challenges Looking Forward

Fixed Income

Challenges

Switching Platform

• Future Fed Policy• Future of the MBS market• Dollar weakness• Tight credit spreads

• Performing our own credit research

The Fund Stern Alumni Presentation April 25th 2006 28Fixed Income

The Growth Fund


Portfolio Managers: Nelson Shim and Rafael Tejada

___________________________________

Growth FundGrowth Fund


Fund Overview

Growth Fund

Fund Objective

Investment Strategy

• Achieve returns above Russell 1000 Growth Index benchmark.

• Achieve positive absolute returns.

. • Search for stocks with long-term EPS growth expectations exceeding 15% that are attractively priced on a fundamental and relative basis.

• Search for stocks with a long-term, sustainable competitive advantage.

• Such companies may be:

pioneering a new product or service that will see dramatic future demand

altering pre-established norms in a static industry and gaining significant market share

applying their business model to new regions or leading in an industry that is experience high levels of growth


Fund Performance as of February 28th, 2006

Growth Fund

The fund outperformed its benchmark by 365 bps with an absolute return of 8.75% through the six months ended February 28, 2006

$1,087

$1,051

$960

$980

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$1,040

$1,060

$1,080

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Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06

Growth Fund

Russell 1000Growth Index


Sector Allocation as of February 28th, 2006

Growth Fund

The Growth Fund - Sector Allocation

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MPSIF Growth - Aug 05

Russell 1000 Growth - Aug 05

MPSIF Growth - Feb 06

Russell 1000 Growth - Feb 06


Fund Holdings as of April 23rd, 2006

Growth Fund

Ticker Name Sector Shares Held

Current Price

Current Holdings

% of Total Assets

AEA Advance America Financials 1,600 14.65 23,440 4.8%AMAT Applied Materials, Inc. Information Technology 1,141 18.06 20,606 4.2%BHE Benchmark Electronics, Inc. Information Technology 981 28.30 27,762 5.7%CSCO Cisco Systems, Inc. Information Technology 1,157 20.68 23,927 4.9%DELL Dell Inc. Information Technology 565 27.01 15,261 3.1%DOVP DOV Pharmaceutical, Inc. Health Care 1,269 14.78 18,756 3.9%FDC First Data Corporation Information Technology 501 48.00 24,048 4.9%FDG FORDING INC Materials 266 38.96 10,363 2.1%GFIG GFI Group Inc. Financials 448 59.16 26,504 5.4%HOT Starwood Hotels & Resorts Consumer Discretionary 350 54.32 19,012 3.9%MOGN MGi Pharma, Inc. Health Care 944 17.84 16,841 3.5%MRX Medicis Pharmaceutical Health Care 330 33.14 10,936 2.2%MSCC Microsemi Corporation Information Technology 366 28.10 10,285 2.1%MXIM Maxim Integrated Products Inc. Information Technology 558 36.54 20,389 4.2%PETM PETsMART, Inc. Consumer Discretionary 825 28.90 23,843 4.9%PRAI PRA International Health Care 385 26.32 10,133 2.1%RIG Transocean Inc. Energy 367 87.00 31,929 6.6%SMOD SMART Modular Technologies Information Technology 1,111 9.39 10,432 2.1%TELK Telik, Inc. Health Care 656 18.31 12,011 2.5%TPX Tempur-Pedic International Inc. Consumer Discretionary 1,050 15.49 16,265 3.3%XMSR XM Satellite Radio Holdings Inc. Information Technology 454 22.15 10,056 2.1%WAG Walgreen Company Consumer Staples 431 42.41 18,279 3.8%WFT Weatherford International Ltd. Energy 608 49.69 30,212 6.2%

Total Equities 431,289 88.7%Cash 55,139 11.3%

Total Assets 486,429 100.0%

The Fund Stern Alumni Presentation April 25th 2006 33Growth Fund

The Small Cap Fund


Portfolio Managers: Shivanker Saxena and Lei Mu

___________________________________

Small CapSmall Cap


Fund Overview

Small Cap

Strategy• Focused upon stock selection and Identifying small-cap companies

with strong fundamental prospects, and that are under followed by the market.

• No explicit bias toward “growth” or “value” investing.

• Invest exclusively in U.S.-traded equities, (market cap < $2B).

• Concentrated portfolio of 20 to 25 positions, with a standard position size of $20,000.

• Security selection driven primarily by bottom-up fundamental research.

• In conjunction with the team’s overall sector and economic views.

Objective• Achieve returns above Russell 2000 Index benchmark.

• Achieve positive absolute returns.



Small Cap

The Small Cap Fund vs. The Russell 2000 IndexPerformance of $1000 Investment since August 31, 2005

$1,157

$1,102

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Russell 2000 Index

Monthly returns are time-weighted and thus exclude effects of the Fund's annual 5% distribution.

• An absolute return of 28.22% in LTM ended Feb

28, 2006 (Russell 2000 return – 16.59%)

• An absolute return of 15.70% in 6 months ended

Feb 28, 2006 (Russell 2000 return – 10.24%)

• An absolute return of9.05% in 3 months ended Feb 28, 2006 (Russell 2000 return – 7.88%)

The Fund outperformed its benchmark by an average monthly 100 bps in the last sixth months



Small Cap

The Small Cap Fund - Sector Allocation

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MPSIF Small Cap - Aug 05

Russell 2000 - Aug 05

MPSIF Small Cap - Feb 06

Russell 2000 - Feb 06


Winners and LosersName % Change Reason

WINNERS

DIOD 59.73% DIOD has completed a significant transition over recent years and constantly brings competitive new products to the market. The company has right mix of revenue, lean operations and predictable demand. We are still holding full position of the stock as we believe the company’s competitive edge could continue to support its price growth. The stock is now 75.07% higher than purchase price.

MIPS 44.46% Royalty payback on significant number of licenses signed in 2003 together with end users’ strong momentum in consumer electronics have boosted MIPS’s royalty revenue in recent quarters. We had chosen a good entry point for the stock when MIPS announced a disappointing Q4-FY05 result which lowered its P/E ratio down to a quarter of the sector average. Robust royalty revenue in Q1-FY06 made the stock price soar and we reduced to half position in Jan 06, right before it went down with a 52.75% return.

RI 35.24% RI’s stock price growth has benefited from the improving same stores sales growth, a successful marketing strategy and a business turnaround in FY06. The high margins also grant the stock price higher multiples relative to its peers. We began to hold the stock when it had an adverse run in the last 12 months, with the share price declining quite near to its 52-week low. We sold the stock in Mar 06 when it hit target price.

NFP 34.05% NFP enjoyed successful expansions in institutional life insurance market via aggressive acquisitions, providing a complementary geographic footprint to NFP. We liquidated the stock in Mar 06 with a 40.30% gain.

LOSERS

MOGN (34.61%) While its biggest revenue source Aloxi remained strong revenue growth, MOGN suffered from further delay in FDA approval on its widely-expected product Dacogen as well as failures in Phase 3 trials of its next important product. We liquidated the position in Mar 06 for a loss.

Small Cap


Current Holdings as of April 23rd, 2006

Small Cap

Ticker Sector NameShares Held

Current Price

Current Holdings

Current weight among equity

holdings

Current Weight in

Total Fund

IWM Index IWM 100 76.68 7,668 1.6% 1.3%

ARLP Materials Alliance Resource Partners, L.P. 535 38.98 20,854 4.4% 3.5%ARO Consumer Discretionary Aeropostale, Inc. 825 29.55 24,379 5.1% 4.1%AXL Industrials American Axle & Manufact. Holdings, Inc. 1,170 17.69 20,697 4.3% 3.4%BBBB Information Technology Blackboard, Inc. 650 29.44 19,136 4.0% 3.2%BBI Consumer Discretionary Blockbuster Inc. 4,500 4.81 21,645 4.5% 3.6%CKH Energy Seacor Holdings, Inc. 280 86.73 24,284 5.1% 4.0%DIOD Information Technology Diodes Incorporated 840 41.41 34,784 7.3% 5.8%ELNK Information Technology EarthLink, Inc. 1,070 9.63 10,304 2.2% 1.7%FVE Health Care Five Star Quality Care, Inc. 2,000 10.17 20,340 4.2% 3.4%LTM Consumer Discretionary Life Time Fitness, Inc. 581 46.21 26,848 5.6% 4.5%MIPS Information Technology MIPS Technologies, Inc. 1,750 7.06 12,355 2.6% 2.1%OPEN Information Technology Open Solutions Inc. 1,285 28.15 36,173 7.6% 6.0%PHH Financials PHH Corporation 500 27.48 13,740 2.9% 2.3%POP Industrials Pope & Talbot, Inc. 2,900 5.79 16,791 3.5% 2.8%PROS Financials ProCentury Corporation 1,800 13.90 25,020 5.2% 4.2%RAIL Industrials FreightCar America, Inc. 290 70.00 20,300 4.2% 3.4%RARE Consumer Discretionary RARE Hospitality International, Inc. 650 32.38 21,047 4.4% 3.5%RURL Health Care Rural/Metro Corporation 2,350 7.82 18,377 3.8% 3.1%TXI Materials Texas Industries, Inc. 375 60.50 22,688 4.7% 3.8%USNA Health Care USANA Health Sciences, Inc. 476 37.90 18,040 3.8% 3.0%VB - VANGUARD SMALL-CAP V - 67.38 - 0.0% 0.0%WDFC Industrials WD-40 Company 740 32.00 23,680 4.9% 3.9%WLDA Consumer Discretionary World Air Holdings, Inc. 2,200 9.04 19,888 4.2% 3.3% Direct Equity Holdings 471,371 98.4% 78.5%Total Equities 479,039 100.0% 79.7%Cash as of April 23, 2006 121,698 20.3%Total Assets 600,737 100.0%

The Fund Stern Alumni Presentation April 25th 2006 39Small Cap

The Value Fund


Portfolio Managers: Benjamin Macdonald and Chao Mui

___________________________________

Value FundValue Fund


Fund Overview

Value Fund

Fund Objective• Outperform the benchmark on a total return basis by investing in securities that provide superior returns on a risk/return basis through capital

appreciation and dividends.

Fund Benchmark – Russell 1000 Value Index

New Strategic Implementations• Stronger Discipline• Top-Down Approach• ETFs • Increased Holdings to 30 Positions• Mid-Large Cap Focus (over $2bn) • Minimum 20% Total Return Potential • Stop-Loss on Every Position • Stop-Loss and Sell Limit During Summer and Winter Breaks



Value Fund

(a) Prices as of 4/21/2006



Value Fund

The Value Fund - Sector Allocation

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MPSIF Value - Aug 05

Russell 1000 Value - Aug 05

MPSIF Value - Feb 06

Russell 1000 - Feb 06


Winners and Losers

Ticker Name Buy Date Sell Date Buy PriceSell/Current

Price (a) Return

PERFORMERS

AWGI Alderwoods Group, Inc. 12/13/04 02/15/06 $12.03 $16.73 39.1%

EC Engelhard Corporation 11/08/04 01/09/06 29.79 37.84 27.0%

FSL Freescale Semiconductor Inc 03/30/05 NA 16.85 31.45 86.6%

RML Russell Corporation 10/05/05 NA 13.54 18.23 34.6%

STX Seagate Technology 11/02/05 NA 14.87 25.10 68.8%

LOSERS

BCGI Boston Communications 02/14/05 04/04/06 7.29 2.90 -60.2%

BSX Boston Scientific Corp. 03/09/05 NA 29.65 22.49 -24.1%

HELE Helen of Troy 11/29/04 04/04/06 27.08 20.51 -24.3%

SAFM Sanderson Farms, Inc. 10/13/05 NA 36.51 24.77 -32.2%

Value Fund

(a) Prices as of 4/21/2006


Current Holdings as of April 24th, 2006

Value Fund


Reality Investing at Stern

Questions & Answers

___________________________________

reality investing at stern

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