Osig Annual Report 2008

Oregon State Investment Group (OSIG)

www.oregonstateig.com

Ending Assets Managed

2007-2008 Fiscal Return

Benchmark Return

Outperformed Market By:

Range of Assets Held

Correlation to Benchmark

President

VP, Human Resources

VP, External Affairs

VP, Operations & Portfolio Manager

Key Statistics (10/1/07 to 3/31/08)

Management Team Style Box

$62,408 (1.52%) (13.36%) 11.84% $59,110 - $66,320 0.439

Justin Shanks Adam Gulledge Ryan Good Brooke Pollack

2007-2008 Fiscal Year

May 15, 2008

Value Blend Growth

La

rge

Mid

Sm

all

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

OSIG S&P 500

2007-2008 Annual Report

2

Letter From the President

May 15, 2008

Dear Members, Alumni and Friends:

In the Oregon State Investment Group, a culture of excellence, passion, and dedication is at the heart of everything we do.

Coming into a culture of high-achieving students in a competitive university environment, the expectations to perform are high. The

2007-2008 year can be characterized by nothing else than the word “hunger.”

The creation of this group has been a dream of mine that has developed over the past four years and has culminated in its

present form. Our year began with the excitement of recruiting with our first annual analyst class as a newly formed student

organization. With that our year has been marked by many successes that have set the foundation of the group as it is passed down to

future generations of Oregon State students. A few of the most notable successes for the year have been: outperforming our S&P 500

Index benchmark by over ten percentage points, competing in the RISE Conference portfolio competition, in June visiting the world‟s

top investment banks in New York City, possible taking under management a $1 million dollar portfolio for the OSU Foundation, and

creating an organizational structure that ensures the sustainability of our group‟s bright future. The vast amount of progress that we

have accomplished in just one short year is a true testament to outstanding quality of men and women that are involved with our

organization.

As I leave Oregon State and finish my term of leadership in the Investment Group, I will always hold a special place in my

heart for this school and organization. I will always remember the passion I see in the eyes of every analyst. I will always remember

the dedication our members have towards the never ending pursuit of knowledge in and outside the classroom. Mostly, I will always


3

remember the excellence we spur each other towards, while still keeping an intimate family environment founded upon respect that

bonds us together. We are truly uncommon in a common world.

Going forward, I see the future of the Oregon State Investment Group not only as being the face of the College of Business and

Oregon State University, but also being distinguished on a national level as one of the premier investment groups in the country.

Hunger, passion and dedication are the heartbeat of this organization and will propel us towards our future achievements. We will be

known for striving for excellence and continual improvement. The Oregon State Investment Group can be summed up by saying, “if

we are not growing, we are dying!”

Go Beavs!

Justin Shanks

Founder and President, 2007-08


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Table of Contents

Mission Statement 5

History 5

Group Structure 6

Portfolio Strategy 7

Decision-Making Process 9

Asset Allocation 9

Portfolio Performance 12

Risk Metrics 12

Recent Transactions 13

Sector Outlooks 14

Performance Commentary 19

OSIG Management Team 20

2008-2009 OSIG Management Team 23

OSIG Analysts 23

OSIG Events 25

A Look Forward 28

Social Responsibility 31

Transition to New Leadership 31

A Bright Future 32

Special Thanks 33


5

Mission Statement

Through our core values of accountability,

collaboration, integrity, and professionalism, the Oregon State

Investment Group‟s Mission is to maximize portfolio returns

and provide students the opportunity for experiential learning

in portfolio management and in-depth fundamental analysis.

The Oregon State Investment Group (“OSIG,” “we,” or “the

group”) has two primary objectives:

Consistent Portfolio Management: Using a large-cap

growth strategy, the OSIG portfolio seeks long-term

capital appreciation in excess of benchmark returns by

focusing on fundamental analysis and equity valuation

methods.

Experiential Education: The Oregon State Investment

Group aims to complement classroom education with

hands-on investment experience. In addition to

performing in-depth equity analyses of potential

portfolio companies, members have the opportunity to

establish contacts with the business world through guest

speakers and company visits with the Finance Club, as

well as through interaction with the OSU and OSIG

alumni networks during various OSIG events (see

Events section).

History

The Oregon State Investment Group officially began on

October 1, 2007, the start of our first fiscal year. Previously,

we were known as the Finance Club, but split into two groups

at the beginning of this school year; one, the Finance Club, a

seminar style class with a guest speaker every week to talk on

their specific field of finance, and the other, the Oregon State

Investment Group, which manages the portfolio. The Finance

Club, which had been managing money since 2005, did not

have close the processes or depth of research that our group has

today, but paved the way for OSIG to exist.

OSIG currently manages over $60,000, of which the

original balance came from alumni donations. The OSIG

management team is responsible for running both the Oregon

State Investment Group and the Oregon State Finance Club.

Currently, our brokerage account is through Raymond

James, but we are currently switching to E*Trade take

advantage of cheaper transaction costs and also because the

Founder, Bernie Newcomb, is an OSU alumnus.


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Group Structure

Currently, OSIG has 22 members, ranging from

freshmen to graduate students. Potential members are involved

in a professional interview process in order to make sure that

the students selected are self-motivated and excited to learn

about investments research and management. After

successfully recruiting six new analysts for the spring term, we

plan on recruiting a maximum of 10 analysts to bring the group

total to 25 members (7 members will be graduating). We feel

this will be easily achieved based on our increasing exposure

and reputation around Oregon State University.

OSIG maintains a professional setting and attempts to

imitate an atmosphere that would be found once our students

graduate and take jobs in the finance field. However, it is very

important for us to keep a very open learning atmosphere, and

we encourage friendly debate over any finance-related topic,

with the goal of having our members learn to create and back

their own opinions, as well as increasing their education of

investments.

The OSIG structure requires that every first-year

member is an analyst. Each analyst will report on and present

one stock each term through a detailed report, which is

expected to take 60-80 hours in the form of research, writing a

report, and preparing the financial statements and valuation

models. Analysts are assigned a sector, with each sector run by

a sector leader. In addition to the stock report, the sector leader

also presents a weighting recommendation for their respective

sector, which is used to help in sector allocation decisions.

Lastly, the management team, which generally consists of five

members, is responsible for the overall organization and

direction of the group. As we are very early in our life as an

organization, the management team is working mostly on

developing processes and a structure that will enable this group

to continue being the premier student-run organization at

Oregon State University.


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In addition to the student-members, OSIG has two

faculty advisors, finance professors Jimmy Yang and Prem

Mathew. Both are integral parts of the organization and help

not only in organizational matters but act as teachers and

mentors to all of the group‟s members. OSIG relies on the

knowledge of both professors in order to maintain accuracy of

information and develop the group.

Here you can see the basic structure of the Oregon State

Investment Group:

Portfolio Strategy

OSIG currently manages a large-cap growth equity

portfolio with a long-term investment horizon. At the end of

the 2007-2008 fiscal year, this portfolio held $62,408 in assets.

Using the S&P 500 as a benchmark, we actively

manage this portfolio and aim to produce better returns than the

index, both on an absolute and risk-adjusted basis. We use

sector allocations within the equity portion of our portfolio to

increase exposure in areas that we expect to outperform the

market, and vice versa.

OSIG uses fundamental valuation models to find

companies trading below their implied values. Our models

include discounted cash flow, residual income, and relative

valuation models. Although we manage a growth portfolio, we

use these valuation models as important tools when making

investment decisions.

OSIG does not short securities or invest in derivatives,

fixed income, or real estate securities.

Note: The 2007-2008 Fiscal year was shortened due to the new Investment

Group formation. The fiscal year will run from April 1 to March 31. This

past fiscal year ran from October 1, 2007 to March 31, 2008.


8

as of March 31, 2008, net of transaction costs

Company Ticker Date Bought Shares Purchase Price Current Price Gain/(Loss) Current Balance % of Portfolio

IME 30.1%

Chesapeake Energy Co. CHK 12/8/2005 79 30.22$ 46.15$ 52.71% 3,645.85$ 5.8%

FPL Group, Inc. FPL 12/4/2006 40 54.79$ 62.74$ 14.51% 2,509.60$ 4.0%

3M MMM 12/8/2005 70 78.24$ 79.15$ 1.16% 5,540.50$ 8.9%

Sasol, Ltd. SSL 12/4/2006 63 35.86$ 48.39$ 34.94% 3,048.57$ 4.9%

Waste Management Inc. WMI 12/8/2005 120 29.16$ 33.56$ 15.09% 4,027.20$ 6.5%

Consumer Goods & Services 14.1%

PepsiCo, Inc. PEP 12/8/2005 70 59.76$ 72.20$ 20.82% 5,054.00$ 8.1%

Yum! Brands YUM 3/13/2007 100 30.84$ 37.21$ 20.65% 3,721.00$ 6.0%

Financials 12.6%

Berkshire Hathaway BRK.B 1/17/2006 1 2,975.00$ 4,472.90$ 50.35% 4,472.90$ 7.2%

CME Group, Inc. CME 12/3/2007 4 665.64$ 469.10$ -29.53% 1,876.40$ 3.0%

Goldman Sachs GS 11/20/2007 9 232.86$ 165.39$ -28.97% 1,488.51$ 2.4%

Technology 11.5%

Apple, Inc. AAPL 6/6/2006 50 60.82$ 143.50$ 135.94% 7,175.00$ 11.5%

Healthcare 15.8%

Alcon ACL 3/11/2008 18 135.25$ 142.25$ 5.18% 2,560.50$ 4.1%

Becton, Dickinson & Co. BDX 1/29/2008 40 87.35$ 85.85$ -1.72% 3,434.00$ 5.5%

Novo-Nordisk NVO 11/20/2007 56 63.39$ 69.24$ 9.23% 3,877.44$ 6.2%

Other Holdings 15.8%

iShares Emerging Markets ETF EEM 1/27/2006 30 100.87$ 134.28$ 33.12% 4,028.40$ 6.5%

Cash Holdings 5,843.91$ 9.4%


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Decision-Making Process

Each term, every OSIG analyst researches and presents

a stock with a buy or hold recommendation. The group votes

after every presentation of a buy-rated stock with majority rule.

If the group votes to buy a new equity security, the portfolio

manager decides what amount to invest in the stock based on

sector allocations and the presenting analyst‟s

recommendation. The management team has veto power over

all transaction decisions, but will only veto a buy

recommendation under extreme circumstances, as interpreted

by the management team.

The sale of securities is done at the discretion of the

management team and the corresponding sector leader and

does not require a full group vote, although we will often

discuss the issue as a group to come to a general consensus.

Additionally, new first-term analysts are assigned update

reports on current holdings, which are used to assist in the

decision for possible sales of currently-held securities. These

reports also help new analysts learn the valuation models and

report structure with more familiar companies before preparing

a fully independent report and recommendation.

Partial sales are done at the discretion of the Portfolio

Manager for the purposes of maintaining proper asset and

sector weightings. Although faculty advisors are not involved

in the decision making, they oversee the whole process.

Asset Allocation

While considered an equity portfolio, this fund

currently holds an exchange-traded fund (ETF), representing

6.7% of assets. Although the portfolio holds this ETF, it was

bought prior to the formation of OSIG, and we are neither

currently researching nor investing further in ETFs for this

portfolio. At the end of the fiscal year, 22.4% of OSIG‟s assets

were held in four international equities, enabled by the use of

American Depository Receipts (ADRs). We have no target

allocation for international exposure, but encourage analysts to


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look overseas for attractive investment opportunities if they are

interested.

As of March 31, 2008, the OSIG portfolio consisted of

83.9% equity, 6.7% ETFs, and 9.4% cash. Due to the structure

of our group, we have not, at any point, been fully invested

during the 2007-2008 fiscal year. The cash position has no

target allocation and tends to be 5-10% of total assets in order

to reserve cash in case of a buy decision for a stock

presentation during a weekly meeting. If there is no cash or

liquidity option, then the weekly presentations that are the

backbone of OSIG lose importance and may not be taken as

seriously by analysts.


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Within the equity portion of the portfolio, asset

allocation is benchmarked against the S&P 500 Index. For

basic analysis, OSIG divides its analysts into five sectors:

IME (Industrials, Materials, Energy, & Utilities)

Consumer Goods & Services (Consumer Discretionary

& Consumer Staples)

Technology (Information Technology & Telecom)

Financials

Healthcare

However, for more in depth research, we use the ten-sector

breakdown that the S&P 500 uses, as shown in the parentheses.

Here you can see OSIG‟s equity weightings against the S&P

500 using the 5-sector breakdown (as of close March 31, 2008)

Every term, each sector leader presents a sector outlook and

provides a weighting recommendation for their respective

sector based on their research and analysis of the sector. These

are used to determine the portfolio sector allocations, although

they are taken at the discretion of the portfolio manager and

management team, as well as in context with the specific

holdings of each sector. Often, after a sector presentation, we

will discuss as a group in what sectors we should be over and

underweighted and what changes could be made to allow these

restructurings.

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

OSIG S&P 500

Fiscal Year Performance


12

Due to our presentation structure, we can only add

weighting to a sector when a stock is presented that the group

votes as a “buy.” This makes it hard to consistently maintain

proper weightings, although the portfolio manager may sell a

portion of any given current holding without conducting a

group vote to adjust the sector allocations. This structure also

creates the problem that we can not make transactions based on

proper timing, necessarily, but only when the stock is

presented. This may keep OSIG from buying stocks at the

ideal time, or at all, as votes are one-time only after each

presentation.

Portfolio Performance

During the 2007-2008 fiscal year, OSIG achieved

absolute returns of -1.52%, while the S&P 500 returned -

13.36% over the same period. OSIG outperformed the S&P

500 by 1184 basis points on an absolute basis.

OSIG‟s outperformance of the market was led by its

holdings in Chesapeake Energy Corporation (CHK), Berkshire

Hathaway Class “B” Shares (BRK.B), and Sasol Limited

(SSL). The worst performing equities, Chicago Mercantile

Exchange (CME) and Goldman Sachs (GS) came from the

financial sector, which struggled as a whole during the last

fiscal year. The following chart shows the best and worst-

performing stocks during the 2007-2008 fiscal year, and does

not include dividends, as they are currently not reinvested.

Risk Metrics

While absolute returns are the ultimate goal of the

Oregon State Investment Group, it is important that we

minimize risk in doing so. Therefore, OSIG also looks at risk-

31.1%

24.5%

14.5%

10.9%

9.2%

-14.4%

-29.0%

-29.5%

-40.0% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0%

CME GS MMM NVO YUM SSL BRK.B CHK


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adjusted returns when interpreting portfolio performance. Here

is a chart looking at some risk factors and risk-adjusted returns

(these numbers are not from our previous fiscal year, but from

January 1, 2007 to March 31, 2008 due to changes in

performance tracking):

1/1/07 - 3/31/08 OSIG S&P 500

Absolute Returns 12.28% -6.74%

Beta 0.9 1

Standard Deviation 4.26% 2.99%

Sharpe Ratio 1.75% -3.87%

Treynor Ratio 8.36% -11.50%

Jensen's Alpha 17.87% -

As you can see above, not only have our portfolio

returns been stellar, but we have done so with a very low risk

profile. The combination of high returns along with relatively

low beta and standard deviation allowed the OSIG portfolio to

have great risk-adjusted returns, as shown through the Sharpe

Ratio, Treynor Ratio, and Jensen‟s Alpha.

Additionally, although they have yet to be implemented

into the portfolio strategy, we have started to look at other

metrics, including correlation and covariance, to improve our

overall risk profile and increase portfolio diversification.

Recent Transactions

During the course of the 2007-2008 fiscal year, OSIG

made 10 portfolio transactions: 5 purchases, 3 sales, and 2

partial sales. Since OSIG‟s formation in October, we have

been restructuring our portfolio in order to better match our

target sector allocations. This has caused a large amount of

transactions (1.67 transactions/month). We expect that

transactions will not be as frequent for the remaining life of

this portfolio.

The following are all of the transactions made during

the 2007-2008 fiscal year:

Date Ticker Type Amount

10/15/07 GS Buy $2,096

11/2/07 BAC Sell $2,650

11/9/07 JWN Sell $2,598

11/14/07 NVO Buy $3,550

11/19/07 MSFT Sell $3,478

12/3/07 CME Buy $2,663

1/29/08 BDX Buy $3,494

2/13/08 CHK Partial Sale $2,133

2/27/08 SSL Partial Sale $2,550

3/10/08 ACL Buy $2,435


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Sector Outlooks

The OSIG Sector Leaders are very important to the

success of OSIG. They are responsible for being

knowledgeable about the OSIG holdings and any current

events in their respective sectors, as well as giving periodic

weighting recommendations based on their research. The

following are brief sector overviews by the OSIG Sector

Leaders:

IME – Scott Christianson

The Industrials, Materials and Energy (IME) sector had

a strong showing in 2007, with much of its success coming

from the high-performing Energy industry where OSIG has had

significant exposure. The Industrials industry, in contrast, had

a weaker overall performance, due in large part to higher

operating costs and staggering consumer demand for

manufactured goods. Our largest Industrials holding, 3M

Company (MMM), struggled in the second half of 2007 despite

having two breakout quarters early in the year. Waste

Management (WMI) followed a similar trend to MMM, with

small overall changes in its stock price to begin and end the

fiscal year.

OSIG had no exposure in the Materials sector in 2007

and was thus able to avoid the retraction in the Housing

Materials and Construction markets. Our energy exposure

came from Chesapeake Energy Corporation (CHK), a North

American natural gas producer/distributor, Sasol Ltd. (SSL), a

South African integrated oil and gas supplier, and Florida

Power and Lights, LLC (FPL) a Southern US utility provider.

In 2007, CHK made strong gains on the back of rising natural

gas prices, causing its stock to jump 31% during the year. SSL

had a strong year as well, fueled largely by the rise in energy

prices at the start of 2007. Its stock price increased from $42 to

almost $50 and has continued to rise since. FPL also had a

strong year in 2007, up only 4%, but well outperforming the

market.

OSIG‟s Industrials focus going into the next fiscal year

is tailored to companies who export goods and can benefit from

the weak US dollar. MMM and other Industrial conglomerates

should fair well in the export market despite increased

operating costs. WMI is strategically placed to pass on its

increased operating costs to consumers, while providing a

required service that consumers will be unlikely to go without.

The Materials sector should continue to see significant


15

volatility in the near future with tumultuous commodity

markets. However, certain areas in this industry are more

attractive than others, such as export-driven producers and

suppliers.

The Energy sector should continue to experience heavy

pressure from the oil and natural gas markets. Major integrated

oil producers should see a strong 2008 due to supply pressures

and continual demand requirements. CHK has multiple

exploration efforts in progress that should prove to be very

profitable in the future. SSL has seen increased adoption of its

coal to liquid gas products and should continue to see strong

growth as well. FPL is well placed in the market where it can

capture continual demand from its customers even in a

weakened economy.

Consumer Goods & Services – Michael Beall

Over the past year, the Consumer Goods & Services

sector has had a rough time, to say the least. In August, 2007

when the credit and housing markets started to deteriorate,

consumer confidence started its downward trend, recently

hitting a 16-year low. A number of factors have played into

this sharp decline in consumer confidence: declining home

values, higher gas and food prices, tighter credit markets and

rising jobless claims. All of these factors have combined to

create and atmosphere where consumers are looking for ways

to cut back on spending.

At the end of the recent fiscal year, the Consumer

Goods & Services sector accounted for 17.9% of equity

holdings, consisting of PepsiCo, Inc, and Yum! Brands, Inc.

Both companies well outperformed the market, by 12.3 and

24.3 percentage points, respectively, during the year. The

Fund is slightly underweight in this sector. Further, the Fund is

marketweight in Consumer Discretionaries and slightly

underweight in Consumer Staples.

Looking ahead, we see continued volatility and

unpredictable market patterns caused by an ailing economy. In

Consumer Discretionaries, the retail industry‟s valuations are

looking highly attractive. No doubt they are undervalued; it is

just a question of whether or not the retail market will continue

to struggle for a while with wary consumers or if a rebound is

already taking shape. Consumer Staples is recommended as a

marketweight with the Fund‟s benchmark, however it is

starting to look relatively unattractive compared to Consumer


16

Discretionaries. In general, these companies seem to be

becoming expensive.

The Fund should avoid buying or selling a company in

order to match the benchmark‟s sector weightings, seeing as

the goal of the Fund is to outperform the S&P 500, not follow

the S&P 500. Over the next year, the Fund should move to be

overweight in Consumer Discretionaries to take advantage of

bargain prices. Also, the Consumer Staples sector should

remain either underweight or increase to marketweight, relative

to the benchmark, seeing as these companies are becoming

expensive and relatively unattractive. Ultimately, the

investment strategy over the coming year is to find strong,

healthy companies that will best weather the current economic

storm and provide the most value to shareholders over the

long-term.

Technology – Jordan Plemmons

From the beginning of 4Q 2007, the Technology sector

felt the full blow of the slowing economy and poor

performance in the market. In January the technology sector

SPDR, XLK, broke its 50 and 100 day moving averages,

continuing to trail below them until mid-March. Currently, the

sector is down 8.85%, since 4Q 2007, 40 basis points below the

S&P 500. The Oregon State Investment Group portfolio,

currently underweight in technology, has significantly

outperformed in this sector. In December, OSIG realized a

28% gain on its holding in Microsoft and recently realized a

gain of greater than 200% on Apple (in a partial sell-off to

adjust the weight in the holding).

The future outlook for the Technology sector is

optimistic in the long-run; however, continued volatility is

foreseen short-term. The Consumer Cyclical sector, as well as

overall economic health, will play a large roll in the recovering

technology sector, as more than 50% of total semiconductor

consumption is through consumer industries. To minimize

volatility, the OSIG portfolio is currently underweight in

Technology and will continue to be until stability is

demonstrated in the sector. The 1Q 2008 earnings throughout

the technology sector hinted at the beginning of a turnaround,

however, according to a recent article by Forbes, “There has

been a bit of a bounce in the technology sector lately, but the

group is far from recovering. U.S. economic concerns are still

plaguing large corporate bankrolls, and [recent] abysmal


17

earnings indicated that the market is a long way from putting

the current credit crisis in the rearview mirror.”

Financials – David Schmunk

The last year has been a trying time for the economy as

a whole, but the heart of the distress has come from the

Financial sector. The collapse of the U.S. housing sector late in

the summer of 2007 and the ensuing liquidity problems have

wrecked havoc on economies worldwide. The problems

originating from this situation have had significant impact on

the operations of companies in this sector including our

holdings CME Group (CME), Goldman Sachs (GS) and

Berkshire Hathaway class B shares (BRK.B).

The most glaring instance of the effect of the „credit

crisis‟ on the marketplace is the collapse of the iconic

investment banking firm Bear Sterns. The uncertainty of the

market has showed itself in other events too, such as the

multiple bank runs on E*Trade. The unease is understandable

as just about every firm in the banking industry has been

posting record losses as they continue to write off bad debt. As

a result, the cash-strapped banks are unable, or unwilling, to

make loans that would be routine under normal circumstances

and the cost of borrowing has inevitably gone up. As for our

holdings, the increased volatility has benefited CME as

investors shy away from the stock market, while the market

turmoil has reduced the profit margins for both GS and BRK.

In the wake of the global crisis spawned from the greed

of the banking industry many are calling for tighter regulation,

increased public disclosure and accountability for the industry,

especially for Investment Banking firms. The tighter regulation

will likely reduce the profit margins of many firms, but the

increased public disclosure may provide the long awaited

insight into the operations of the formerly black-box industry.

The process of implementing these controls will probably be

slowed by the bureaucratic nature of such changes. As for the

coming months, more write-downs and a high cost of capital

will eat away at any earnings for the remainder of the second

quarter, but in the third quarter Wall Street should turn itself

around and begin to recognize profits again. Banks worldwide

have reported about $300 Billion in losses so far, and while

there is more to come, the end is now in sight. The OSIG

portfolio is currently underweight in the Financial sector and

should continue to be so until the companies in this industry

are once again able to be profitable.


18

Healthcare – Casey Sande

During the past fiscal year, the healthcare sector grew

considerably within the OSIG portfolio. We increased our

sector weighting from 0% to 18.8% of equity holdings.

Subsequently, as the volatility of the recent market started to

become apparent early in the fiscal year, we chose to become

overweight in the Healthcare sector. This was based on

research expressing strong recommendations for defensive

portfolio strategies, resulting from the volatility of the overall

market. This fiscal year, OSIG acquired Novo-Nordisk A.D.

(NVO), Becton, Dickenson and Company (BDX) and Alcon

(ACL). Since their acquisitions, each of these holdings has

outperformed the market.

Looking forward, Biotechnology and Drugs sector

areas involving knees, heart, vaccines and diabetes have a

strong likelihood of growth. Demand for these products is

rising, driven by growing patient volume, which in turn is

fueled by an aging population. Healthcare Facilities look to be

relatively flat over the next year. This is looked to be a result

of slowing growth in admissions and the length of time spent

by those admitted in facilities. Similarly, the Major Drug

industry looks to lose market-share to the increasing demand

for generic drugs. However, it must be noted research predicts

that ophthalmologists are less likely to prescribe generic drugs,

which should position ACL for continued growth. The

Medical Equipment and Supplies industry, in which BDX

operates, has fundamentals that reflect long-term growth

drivers that will reach the global market and remains bullish.

Additionally, the Healthcare sector could also be

greatly influenced by the 2008 presidential election.

Democratic nominees tend to support universal healthcare

coverage, introducing negative impacts on the Major Drugs

sector. Overall, the possible changes associated with the

upcoming election display strong reasons to explore

opportunities in the generic drug sector, or possibly minimize

our exposure in the healthcare sector after the election.

Furthermore, favorable foreign currency exchange rates

have benefited the industry considerably since the beginning of

the fiscal year. Given the dollar‟s weakness against the pound

and the euro in recent quarters, some analysts expect the

foreign exchange to raise the average top line by approximately

3% in 2008.


19

Performance Commentary

The Oregon State Investment Group well outperformed

its benchmark during the 2007-2008 fiscal year (see Portfolio

Performance section). This great performance only goes to

show that the hard work that has been put in by all of OSIG‟s

members is paying off. Every analyst is motivated to see this

group succeed, driving the overall success of our organization.

OSIG‟s performance can be attributed to its detailed

analysis of every decision that is made, whether it is a group

vote for a presented stock or where to free up cash for a

standing purchase order. We maintain a very well-balanced

and well-diversified portfolio for the amount of assets we

manage. Despite ongoing great presentations, only a small

amount of presented stocks are accepted as buys by our

analysts, which goes to show the strict standards that we

maintain in our decisions. As can be seen in the chart above

(see Portfolio Performance section), we do not have any one

holding driving our returns, but outperform the market by

having a balanced group of well-performing holdings. During

the last fiscal year, thirteen of our sixteen holdings

outperformed the market. Ten of these thirteen outperformed

the S&P 500 Index by over ten percentage points.

The asset allocation decision is also extremely

important to OSIG‟s portfolio performance, and is driven by

the work of the Sector Leaders (see Sector Outlooks). It has

been proven that asset allocation is as important, if not more

so, that individual stock selection. While we try to disprove

this notion through superior selection of individual equities, it

is still very important to our overall performance, as shown

through our active allocation strategy and quarterly sector

outlook presentations. During the last fiscal year, we took

advantage of our overexposure in the Energy and Healthcare

sectors, which remained strong despite a weak economy, as

well as our underexposure in the Financial and Retail sectors,

both of which struggled greatly in the last fiscal year.

After a great first fiscal year for the Oregon State

Investment Group, we look forward to continuing our superior

performance through hard work, detailed analysis, disciplined

investment strategies and guidelines, and strict decision-

making processes.


20

OSIG Management Team

The Oregon State Investment Group was founded by,

and is currently managed by Justin Shanks, Brooke Pollack,

Adam Gulledge, and Ryan Good.

Justin Shanks, President

Justin was born in Spokane, Washington and at the age

of one moved to Beaverton, Oregon, where he lived until going

to college at Oregon State. He attended Southridge High

School in Beaverton and throughout those years was heavily

involved in both his Football and Baseball teams. His family

consists of his Father Dan, Mother Alice, Step Mother Karen

and two brothers Bob and Josh. Justin believes the two most

important aspects of his life are his faith and family.

Justin is the founder and President of the Oregon State

Investment Group, along with being President of the Finance

Club for the past two years. Justin is also a student leader with

Navigators Christian Ministry on campus, participant in the

Big Brother Big Sister Program and member of Sigma Phi

Epsilon Fraternity.

After graduation Justin plans to move to New York in

search of an Investment Banking position for a bulge bracket

firm specifically within the Financial Sector, Mergers &

Acquisitions department.


21

Justin enjoys most outdoor activities including:

camping, mountaineering, hiking, rock climbing and any form

of extreme sport (especially skydiving). He also enjoys

competing in Sprint and Olympic Triathlons, salsa and

ballroom dancing, discussing theology with friends, and

reading.

Brooke Pollack, Vice President of Operations & Portfolio

Manager

Brooke was born in San Francisco, CA living in the bay

area until his family moved to Portland in 1995, where he has

lived since. After graduating from LaSalle High School in

Milwaukie, Brooke attended the University of Puget Sound in

Tacoma, WA. After five semesters, he transferred to Oregon

State University, where he is currently a senior.

Brooke joined the Finance Club in 2006. During his

time in Finance Club, Brooke served as sector leader for the

Energy and Consumer Goods & Services sectors, during which

time he analyzed Energen, Target, and SORL Auto Parts.

Brooke is still now working in the Financials sector, and most

recently analyzed American Capital Strategies.

During the past summer, Brooke worked for Riverlake

Partners, a small-middle market Private Equity Firm in

Portland. His responsibilities included performing initial

analysis on inbound buyout opportunities and industry research

and analysis in multiple sectors, including the investment

banking, construction and tradeshow markets. After

graduating this June, Brooke hopes to work for an asset

management firm to gain experience and eventually start his

own hedge or mutual fund. He is currently searching for a job

in the Portland area and will be sitting for the Level 1 CFA

exam in June.

Outside of the Oregon State Investment Group, Brooke

enjoys playing sports, especially tennis. He is also an avid

musician, mainly in jazz, in which he plays music during his

free time. Additionally, Brooke enjoys longboarding, traveling

everywhere possible, and spending time with his fiancé, Charli.


22

Adam Gulledge, Vice President of Human Resources

Adam Gulledge was born in Hillsboro then moved to

the Portland area in 1993. Adam graduated from Milwaukie

High School in 2005 and in the fall came to Oregon State

University. He is currently a junior studying Business

Administration with a minor is Psychology. Gulledge came to

the Oregon State Investment Group in the winter of 2005 as a

Technology Sector Analyst. In the spring of 2006 he became

the Healthcare Sector Leader. He is currently the President

Elect of the Oregon State Investment Group. Last year, he

started his own Online Auction Service specializing high-end

antiques and vintage collectibles. He is now working on setting

up his own investment fund, AGE Investments.

Outside of class Adam enjoys paintball, snowboarding,

golf, racquetball, hiking and an assortment of other outdoor

activities. He's a big fan of The Economist and The Wall Street

Journal. He is a big fan of The Office and follows college

football almost religiously. Adam is also an active member of

the Austin Entrepreneurial Program at Oregon State University.

Ryan Good, Vice President of External Affairs, President of the

Finance Club

Ryan Good joined the Oregon State Investment Group

in the spring of 2007 and has quickly risen to the positions of

Treasurer and Vice President of External Affairs. He also holds

the title of President of the Oregon State Finance Club, and has

held multiple jobs while in school, including an internship at


23

First Investors Corporation in Beaverton, Oregon. This

year he will be interning with Fisher Investments and studying

abroad in Hong Kong, PRC. He plans to use the skills that he is

acquiring and building upon as an analyst and officer in the

Investment Group to excel into an entry level position in

investment banking after his graduation in 2009.

2008-2009 OSIG Management Team

In anticipation of a great 2008-2009 fiscal year, next

year‟s OSIG Management Team has been chosen and will be

as follows:

Adam Gulledge* – President

Ryan Good* – Vice President of External Affairs

Ian McCormick – Vice President of Human Resources

Michael Beall – Senior Portfolio Manager

Jay Levesque – Junior Portfolio Manager

* - denotes returning management team member

OSIG Analysts

Every member from the President to the newest analyst

is crucial in the success of the Oregon State Investment Group.

Without the effort of every individual in OSIG, this

organization would be nowhere near where it is today. Here is

every current analyst of OSIG and the sector that each operates

in:


24

IME:

*Scott Christianson - Sector Leader

Ian McCormick

Ryan Good

Lars Nielson

Ryan Horton

Evan Gremillion

Clayton Smith

Consumer Goods & Services:

Michael Beall - Sector Leader

Jay Levesque

*Jaclyn Stenberg

Brandon Beall

Financials:

David Schmunk - Sector Leader

*Brooke Pollack

*Justin Shanks

Healthcare:

*Casey Sande - Sector Leader

*Dan Sellars

Denny Vo

Adam Gulledge

Technology:

Jordan Plemmons - Sector Leader

Tim Louden

*Christine Royer

Kirsten Mahoney

* - denotes graduating member


25

OSIG Events

This year, the Oregon State Investment Group has had

the opportunity to extend its education outside of the classroom

and our weekly meetings by hosting events, attending

conferences, and setting up company visits that have allowed

us to piece together what the “real” world of finance looks like.

Dennis Powell Visit

On October 1, 2007 we welcomed Dennis Powell, the

former CFO of Cisco Systems, to sit in on one of our stock

presentations. To get the best feedback possible, we presented

his company (CSCO) as a buy-recommendation. After

finishing our presentation, we were able to converse with Mr.

Powell about Cisco‟s business, getting his valuable opinions on

the state of his company as well as his thoughts on our

presentation and what we might improve on with future

valuations. While it was slightly nerve-racking, it was even

more exciting to present to Mr. Powell on his own company,

and it was an invaluable learning experience for all those

involved.

RV Kuhns

At RV Kuhns, we were able to learn about the work

done by a growing investment-consulting firm founded by

OSU alumnus, Russell Kuhns. We were treated to a

presentation on the exciting work that is done as an Investment

Consultant. We heard from young Analysts as well as Vice

Presidents on what it takes to make it in this fast-growing field.

This event was great for our analysts, as they saw that there are

other areas in investments besides equity research.

The RV Kuhns team was extremely welcoming and we

greatly appreciated not only their hospitality, but the sharing of

their extensive knowledge of the investment consulting

business.


26

Columbia Management

Columbia Management welcomed us with open arms

and provided a comfortable environment from which we could

learn. After touring their facilities, presentations were given on

portfolio management, fixed income, and trading desks. This

was a great experience for us because, among many other

reasons, most students had never seen a Bloomberg terminal.

The learning atmosphere created at Columbia Management

allowed this experience to continue to drive our members to

excellence.

Additionally, Mr. Rocky Irinaga was especially helpful

not only during this trip but in meeting with members outside

of this visit and imparting his wisdom in the form of advice on

a personal level as well as for OSIG as we prepared to start our

first year.

Investment Group Civil War

On January 25, 2008, we held the first annual

Investment Group Civil War. For this event, we traveled to

Eugene to join the University of Oregon Investment Group

(UOIG) weekly meeting. During the meeting, both groups

presented a stock, with UOIG presenting Chico‟s and OSIG

presenting Becton Dickinson, both recommended as buys.

This was a very exciting event for OSIG, as while we

are in our first year of existence, UOIG has been working for

seven years towards excellence as a group, and it was great to

see what can be accomplished through years of hard work and

dedication. After the meeting, we enjoyed a casual luncheon

where we discussed our groups and exchanged opinions on

what makes a great investment group

RISE: "Redefining Investment Strategy Education"

The RISE forum is the world‟s largest international

undergraduate finance conference in the world. The University

of Dayton hosts the conference each year and is dedicated to

bring the leaders of the investment world to speak to its

students. This year‟s speakers consisted of everyone from the

President and CEO of the Federal Reserve Bank of Cleveland,

to Chris Gardner (The Pursuit of Happiness) of Chris Gardner

International Holding Corp.

Each day, students have break out sessions with the

industry‟s leading businessmen. These sessions are designed to

be a forum, allowing students the opportunity to ask


27

professionals any questions they my have. These sessions

cover a wide range of topics, from Private Equity to Fixed

Income.

This year OSIG had the opportunity to send five of its

members to the conference. The members reported that “RISE

has a way of putting a face on the industry of finance.” OSIG

plans on sending members again next year and continuing our

participation for the foreseeable future.

D.A. Davidson Presentation

On April 19, 2008, we were delighted to welcome two

analysts from D.A. Davidson‟s Lake Oswego branch. Greg

Thomas and Matthew Yun spoke on what Investment Banking

is, how to get into the field, and described what it would be like

as a new analyst working at D.A. Davidson. This presentation

was a great look away from asset management and into a field

that many OSIG analysts were not as familiar with. Mr.

Thomas and Mr. Yun were extremely knowledgeable in their

presentation as well as during the following Q&A session.

Following this event, many upperclassmen were able to

make connections and pass along resumes. We hope that this

is the beginnings of a recruiting pipeline with D.A. Davidson,

and look forward to welcoming them back on campus next

year.

College of Business Centennial Alumni and Business

Partner Awards Dinner

On May 1, 2008, four members of the Oregon State

Investment Group had the opportunity to represent the group

and present to the Dean‟s Circle of Excellence. This

presentation was a part of the College of Business‟s Centennial

Alumni and Business Partners Awards Dinner, an all-day

event. These members had the opportunity to show valuable

members of the OSU business community just what it was that

we had been working so hard on for all this time. After leaving

the audience awestruck with our great performance, we had a

chance to talk and network with the business professionals who

attended the presentation.

Also included in the day was an exciting lunch with

Tod Perkins, an OSU alumnus, and Investment Banking

Managing Partner and Partner with JP Morgan in New York, a

tour of the Montgomery Park building, including a Q&A

session about commercial real estate investing, as well as the

main event, a reception and dinner during which the members


28

who presented earlier were able to network with the College of

Business‟s most successful and accomplished alumni. This

was an amazing event, and we look forward in hopes of

participating next year.

Annual Banquet

This spring will be our Third Annual Finance

Appreciation Banquet. This banquet is a way to say thank you

to the staff, students, and professionals who have been

instrumental in the success of the finance department and the

student organizations within. This year‟s banquet will be held

on May 15th

and will be an opportunity for the Investment

Group to continue building its relationship with the College of

Business as well as alumni and other finance professionals who

have helped the Investment Group and Finance Clubs become

what they are today.

New York City

On June 16th

, 2008, the Oregon State Investment Group

will send 10 members to embark on the First Annual New

York Trip. The purpose of this trip is to allow students the

opportunity to network for possible future employment.

Included into the trip will be the privilege of touring Wall

Street with some of New York‟s top financial firms including

Goldman Sachs, JP Morgan, Fortress Investments, and Pequot

Capital Management. Along with our visits, we will have to

opportunity to attend an OSU Alumni Dinner with some of

Wall Street‟s most prestigious OSU graduates.

Our hope is that this trip will be profitable for all who

are attending it, as well as be a capstone to their education.

This will provide priceless networking opportunities, and we

hope to make event an annual trip for our members to enjoy for

years to come.

In addition to all of these great events, we are either

planning or hope to attend many new events in the future,

including a trip to Nike headquarters, visiting a prestigious

Private Equity Conference, and attending the Berkshire

Hathaway Annual Shareholder Meeting in Omaha, Nebraska.

A Look Forward

Oregon State Investment Group‟s founder, Justin

Shanks, once said to the group, “If we are not growing, we are

dying.” This statement was not focusing on the quantity of the

group‟s members, but their quality and increasing group


29

identity. Each term, every member is expected to refine and

perfect their valuation and presentation skills, forcing

themselves to continually improve, not only in the accuracy of

their valuations, but also in the quality and detail of the reports

and presentations. Not only does this improve the knowledge

and expectations of the group as a whole, but it improves each

analyst, making them more ready for the responsibilities of a

fast-paced job in the finance world, a primary objective for the

Oregon State Investment Group

The goal behind continuous group improvement is to

take the organization to a new level, qualified to compete with

student-led investment groups not only across the nation,

around the world. The Oregon State Investment Group‟s aim

is to be the best, and most professional, student run investment

organization, providing best-in-class investment performance.

Achieving this aim requires that we exercise uncompromising

standards of superiority and perfection in every aspect of our

organization.

During the past year, we have executed a major project,

taking the Oregon State Finance Club and creating the Oregon

State Investment Group as a spin-off which focuses on asset

management and equity research, allowing the Finance Club to

focus exclusively on professional networking. The integration

of the Investment Group is complete, and the infrastructure for

our future growth is in place.

Portfolio Restructuring

On June 5, 2008, the Oregon State Investment Group

Management Team will be presenting to the OSU Foundation‟s

Investment Committee. The goal of this proposal will be to

manage $1 million of the Foundation‟s assets. If we are

successful in this attempt, the Oregon State Investment Group

will be managing approximately $1.1 million in assets by Fall

Quarter of 2008, including a $1 million dollar endowment fund

from the Oregon State University Foundation and twenty-

thousand dollars from Oregon State University‟s English

Department in addition to our current portfolio.

International Fund

Due to the acquisition of these new portfolios, Oregon

State Investment Group‟s current Large-Cap portfolio will be

liquidated and transformed into an international equity

portfolio under the management of next year‟s Junior Portfolio

Manager, Jay Levesque.


30

This portfolio will initially be composed primarily of

international Exchange Traded Funds (ETFs) and aligned with

the geographic and sector allocation of its benchmark. As the

analysts research and present international companies, the

ETFs will be replaced with equities in the form of American

Depository Receipts (ADRs) until the portfolio is transformed

into a 100% equity portfolio.

The International Fund will be comprised mostly of

large-cap equities due to the availability of information for

smaller companies overseas. However, analysts are

encouraged to research companies of any size that provide

adequate information.

Recently, we have agreed to manage $20,000 for the

Oregon State University English Department, a very exciting

acquisition for OSIG. These funds will be a part of this

International Fund and will be managed in hopes of raising

additional money for English Department scholarships.

Therefore, the International Fund will be structured similar to a

mutual fund and use Net Asset Value (NAV) for deposits and

withdrawals of English Department money. Additionally, now

that we have this set in place, we will be able to manage any

other money, scholarship-based or not, without have to

restructure our portfolio through the NAV-style International

Fund.

Endowment Fund

If our proposal and presentation are convincing, as

mentioned earlier, the Oregon State Investment Group will

manage $1 million in assets from the Oregon State University

Foundation, under the leadership of next year‟s Senior

Portfolio Manager, Michael Beall. The funds managed would

be in the large-cap portion of the Foundation‟s assets and used

for not-for-profit purposes. The new portfolio would start out

primarily composed of sector ETFs, strategically aligned and

weighted against the sector allocation of the Fund‟s

benchmark, the S&P 500. As with the International Fund,

qualified equities will slowly replace the ETFs until the

portfolio is 100% equity.


31

Social Responsibility

Ultimately, the objective of all portfolios managed by

the Oregon State Investment Group is to seek capital

appreciation. However, as a group, we have decided to invest

in companies which are socially responsible.

OSIG believes that social and environmental issues are

important to the ultimate performance of any company and

investing in companies who take these responsibilities

seriously will ultimately help us achieve our primary goal of

long-term capital appreciation. Also, as future business

professionals, we feel it is important to set to set an example as

a group to be socially and environmentally responsible in our

investing. Not only are these issues important to OSIG

members, but corporate responsibility in all forms is becoming

of more importance to corporate American and someday with

be a standard of required business practices. Therefore, if

OSIG is to manage the $1 million allocation of the

Foundation‟s money, this resulting portfolio, with the OSU

Foundation‟s approval, will only invest in companies that we

deem to be socially responsible.

Transition to New Leadership

The Oregon State Investment Group‟s current members

are extremely motivated to create a great organization that will

span generation upon generation of the most intelligent and

hard-working finance students in the OSU College of Business.

To ensure that the organization lives on beyond the current

leadership team, we have taken steps to create a structure and

processes that will continue to make the Oregon State

Investment Group the face of the College of Business. First,

2008-2009‟s management team is already in place, as shown

earlier. This team was chosen through an application and

interview process to be the group that the current management

team thought could best carry on the OSIG tradition. Working

to prepare this group for next year has only led us to reaffirm

our complete faith in this new management team.

Another major step that we have taken to prepare for

OSIG‟s future is the creation of the new Oregon State

Investment Group Analyst Guide. This extensive document,

spearheaded by next year‟s President, Adam Gulledge, will

cover everything that new Analysts should know and learn

during their first term with OSIG. Areas covered in this

document include Code of Ethics, Organizational Structure,


32

Presentation Guidelines & Format, and DCF & Relative

Valuations. This document will help to prepare future analysts

for the Oregon State Investment Group based on the principles

and high expectations that have been created in OSIG during

the last year.

A Bright Future

Achieving our aim as an organization to be the best,

and most professional, student-run investment management

organization requires that we exercise uncompromising

standards of superiority and perfection in every aspect of our

organization. However, the Oregon State Investment Group‟s

true goal is to be the best student-run organization of any kind

in the United States. We now have our infrastructure in place

and have made great strides in building the group towards this

goal over the last six months. We look forward to the bright

future of the Oregon State Investment Group, and as an

organization of passionate, motivated individuals, we are

excited to rise to the top.

“In business everyone is out to grab, to fight, to win. Either you

are the under or the over dog. It is up to you to be on top”

- Alice Foote MacDougall, American Businesswoman


33

Special Thanks

Countless professionals, faculty, and students have

supported the Oregon State Investment Group and its members

from day one. Without everyone‟s support, we would not have

been able to perform as well as we have. Below are those who

have had the biggest impact on our success in 2007. Without

these outstanding members of faculty, and professional and

alumni supporters, the Oregon State Investment Group would

not be where it is today.

Robert Zagunis, CFA

Principle, Portfolio Manager

Jensen Capital Management

Mr. Zagunis‟ track record for giving back is

exemplified by his support for the Oregon State Investment

Group. Without his and others contributions, managers and

members of OSIG would not have the opportunity to invest in

a real portfolio. Mr. Zagunis is also involved as a guest

lecturer and speaker for the Oregon State Finance Club.

Robert Pace

Managing Director, Partner

Goldman Sachs

Mr. Pace is an alumnus of Oregon State University and

has had great success on Wall Street. His success is being

shared this year OSIG in his support for the first annual New

York City trip, and for the College of Business overall with his

support for Finance Students Studying Abroad.

Steve Schauble

VP and CFO, OSU Foundation

Oregon State University

Mr. Schauble‟s experience with other student run

investment groups at previous schools has provided him the

cornerstone in which to help us develop our organization. He is

currently working hard to facilitate a management agreement

between OSIG and the OSU Foundation for a $1 million

portfolio.


34

Ilene Kleinsorge, Ph.D

Dean, College of Business

Oregon State University

Dean Kleinsorge‟s excellent leadership and networking

qualities have proven invaluable to our organization. She

continually supports both the Oregon State Investment Group

and the Oregon State Finance Club by leveraging her

friendships with professionals and alumni. Through Dean

Kleinsorge, numerous opportunities have presented themselves

for both organizations.

Aaron Escobar

Director of Development, College of Business

Oregon State University, OSU Foundation

Mr. Escobar‟s ability to encourage involvement from

professionals and alumni has helped to expedite not only the

OSU Foundation‟s partnership with the Oregon State

Investment Group, but has also provided for many talented

guest speakers and mentors for the Oregon State Finance Club

as well.

J. Jimmy Yang, Ph.D

Assistant Professor of Finance

Oregon State University College of Business

Professor Yang is a mentor and friend of both the

Oregon State Investment Group and the Oregon State Finance

Club. His experience in finance and investments is being

shared generously with both organizations. His unselfish

willingness to assist in all matters pertaining to both

organizations, while also maintaining an active professor status

cannot be thanked enough.

Prem Mathew, CFA, Ph.D

Assistant Professor of Finance

Oregon State University College of Business

Professor Mathew is a mentor to students in the Oregon

State Investment Group inspired and motivated to succeed.

Both he and Dr. Yang dedicate themselves to weekly meetings

and events for OSIG. His certification as a CFA is paying off

not only for him as a respected professor, but also for students

in the form of a generous scholarship for those interested in

pursuing the CFA designation under his guidance. His support

is highly appreciated.

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Osig Annual Report 2008

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