Fund Performance - Fiscal Year 2005

The SIM portfolio had an ending value on June 30, 2005 of $19,247,976.86. There were a total of 42 stocks held at this time, with a weighted average beta of 1.03.

The SIM Portfolio gained 4.76% from July 1, 2004 to June 30th, 2005 compared to a 19.16% drop in the S&P 500 and a 32.28% drop in the NASDAQ Composite for the same time period. This loss reduced the equity balance in the Student Investment Management Portfolio from a beginning balance of $19,478,030.82 to an ending balance of $15,562,506.78.

In the last year, the SIM portfolio underperformed the S&P 500 by 33 basis points or 0.33%. When adjusted for its much lower total absolute (standard deviation) and relative (beta) risk, however, the SIM portfolio outperformed the S&P 500 as reflected by the higher Sharpe and Treynor ratios as well as the alpha and appraisal ratio (calculated as alpha deflated by tracking error).

As of the end of FY’05 the SIM Portfolio was significantly overweight in the Industrials, Health Care and Information Technology sectors by at least 144 basis points. By contrast, the Utilities, Consumer Discretionary and Financial sectors were each underweight by more than 135 basis points. The SIM Portfolio ended the fiscal year with cash position of $303,672, or 166 basis points of its total value.

Most Recent Performance (July 1, 2005 - present)

The portfolio has experienced much volatility in the 1st (July 1, 2002-September 31,2002) and 2nd (October 1, 2002-present) quarters of the 2003 fiscal year.

During the 1st quarter of the FY'06, the SIM portfolio gained 3.29% from $19,247,976.86 to $19,880,578.59. The SIM portfolio outperformed the S&P 500 by 15 basis points over this period. In the 2nd quarter of FY'06, the portfolio delivered a 1.45% return vs. 1.58% of the S&P 500, underperforming by 14 basis points. The performance of the SIM portfolio has closely matched that of the S&P 500, this is to be expected since we have maintained a beta close to 1.00 with a very low tracking error.

Market & Future Outlook

The US economy is already close to full employment, real GDP growth remains modestly above trend, and financial conditions have yet to tighten since the Federal Open Market Committee (FOMC) started to raise its funds rate target in June 2004. This evidence suggests that the Fed will continue to push its funds rate target upward, to 4% by the end of 2005.

For the first half of 2005, the S&P 500 has lost 1.70% in value and has yielded 4.52% over the last twelve months. This represents a decline from market returns of 17.07% in fiscal year 2004 and 6.90% in 2003. Although the economy has experienced healthy real growth over the last three years, the increase of short-term interest rates and sustained high oil prices will curb the performance of the equity markets for the rest of 2005. Given that we are likely to see a rising interest rate environment and continued (albeit slower) growth, the interest sensitive sectors (e.g. banks with high mortgage business and home builders) and the defensive sectors (e.g. consumer staples) are likely to under perform. On the other hand, the cyclical sectors (e.g. natural resources, capital-goods) and the growth sectors (e.g. Technology and Health care) are likely to out perform.