2007-2008 AIM Fund Annual Report

Transcription

Applied Investment Management Program
Student Managed Fund
2007 - 2008 AIM Fund Annual Report
Period Ending March 31, 2008
College of Business Administration
Marquette University
Applied Investment Management Program 2007 - 2008 Annual Report
Table of Contents
Letter from the Dean of the College of Business Administration
1
Letter from the Chair of the Finance Department
2
Letter from the Director of the AIM Program
3
The AIM Program Class of 2008
4
AIM Fund Overview
6
AIM Fund Portfolio Performance
9
AIM Fund Transactions
16
AIM Equity Fund
19
AIM Fund Relative Return Performance
73
AIM Equity Fund Sector Performance
74
AIM Equity Fund Top 10 Holdings
74
AIM Equity Fund Statement of Operations
75
AIM Fixed Income Fund
76
AIM Fixed Income Fund Statement of Operations
81
Contact:
Dr. David S. Krause
Director, AIM Program
Finance Department
P.O. Box 1881
Milwaukee, WI 53201-1881
Telephone: (414) 288-1457
Email: david.krause@marquette.edu
OFFICE OF THE DEAN, COLLEGE OF BUSINESS ADMINISTRATION
May 2, 2008
Since its inception, the Applied Investment Management (AIM) program has become a leading
example of where we are headed in the Marquette University‟s College of Business Administration. The AIM program provides a quality education in investment management that is firmly
grounded in Catholic Jesuit intellectual values. It addresses a major business need by combining academic and practical investment training at the undergraduate level. The program embodies the College of Business Administration‟s core mission of enabling our graduates to
function effectively and ethically in a diverse workplace and global economy.
We actively seek the input of top professionals in the investment community, many of whom
are College alumni, to sustain and enhance the AIM program. This past year we also sought
feedback from previous AIM Classes regarding how the program best prepared them for their
new investment industry careers. As you will see in this annual report, I believe we are succeeding in creating a world-class program.
The AIM program continues to evolve, having grown from 12 to 19 students over the past three
years. This past year, the International Applied Investment Management (IAIM) option was
introduced. This new program provides an opportunity for students with a passion for AIM and
international business to combine these studies through an overseas internship or state-side internship with an international investment management focus. Six juniors were admitted to the
IAIM program in the Class of 2009.
I am impressed by the success of the AIM program and I know
that Drs. Krause and Peck are looking forward to working
closely with Marquette‟s alumni and the investment community
to further enhance the learning experience of our students.
Congratulations to the AIM Class of 2008!
Dennis Garrett
Interim Dean
DEPARTMENT OF FINANCE, COLLEGE OF BUSINESS ADMINISTRATION
May 2, 2008
I am pleased to say that the AIM program has had another successful year. The students in the
AIM Class of 2008 all had meaningful internship experiences last summer, most have secured
entry level positions in a challenging investment environment, and now are busy preparing to
take the Chartered Financial Analysts Level I exam. AIM has become one of the leading undergraduate applied finance programs by serving the need for well-educated and ethical investment
research analysts.
The program has benefited all finance majors by increasing the overall quality of education
even though only a handful of finance majors participate in AIM. The AIM Program has reenergized Marquette‟s students, faculty, alumni, and the business community. The Financial
Management Association has been growing more active and numerous outside speakers have
visited our campus. During the past year, our students again traveled to Wall Street and the
R.I.S.E. Forum at the University of Dayton. We also hosted our inaugural AIM Forum and
“The Ins and Outs of Wall Street,” a day long event providing career advice from our alumni.
All of those events have allowed our faculty to help place more students within the financial
industry. Additionally, the curriculum requirements of the AIM program have created more finance electives that are open to all majors. One such course addresses investment ethics, corporate governance, and social responsibility. We have also added courses in Investment Banking,
Fixed Income, and Alternative Investments. Finally, the research tools in the AIM research lab
have stimulated new research projects for the faculty and students.
The Applied Investment Management program has served as a
model for innovative financial education. The Department of
Finance will continue to seek ways to develop other “niche” applied programs with a strong emphasis on ethics and social responsibility that help to create a truly transformational educational experience for our students. We appreciate your support
in this important mission.
Dr. Sarah W. Peck
Chair, Department of Finance
DEPARTMENT OF FINANCE, COLLEGE OF BUSINESS ADMINISTRATION
May 2, 2008
On behalf of the students in the Applied Investment Management program‟s Class of 2008, I am
pleased to present the third AIM Fund Annual Report for the period ending March 31, 2008. This
group inherited two portfolios consisting over sixty securities, and made numerous changes
throughout the year. The students faced the challenge of discovering and evaluating new recommendations for the portfolio, and also determining if they should hold or sell existing securities.
Students in the AIM program have been actively managing the equity and fixed income portfolios
since the Fall semester of 2005. They have been responsible for essentially all aspects of managing
the portfolio, which included establishing the process for screening and evaluating potential stocks
and fixed income securities; preparing and presenting recommendations to the AIM Fund Advisory
Board; and implementing portfolio trading strategies. In summary, the AIM students were accountable for organizing and managing two „real‟ portfolios with a market value in excess of $1 million
and they did a fine job.
Special thanks goes out to Marquette University‟s Office of Treasury Services for allowing the AIM
program to manage a portion of the endowment. John Hansen and Sean Gissal have provided valuable experience and guidance during the third year of our operations. The support of the professional investment community has also been outstanding. Many individuals have shared their time
and knowledge with our students in the classroom and during our AIM Fund Advisory Board meetings.
As always, it has been a rewarding year for me working with the students in the AIM Class of 2008.
In addition to being intellectually inquisitive, they were deeply committed to the responsibilities
associated with running a student-managed fund. The ongoing turmoil in the financial markets over
these past few months has provided an exceptional challenge and experience for the students. Despite the ongoing uncertainty of the investment climate, we are confident that the AIM Fund will
provide invaluable opportunities for learning as students in future classes apply their training to managing a portion of Marquette‟s endowment funds. We
are truly grateful to all of the supporters of the AIM program.
Dr. David S. Krause
We would like to thank the following investment professionals who have taken time out of their
busy schedules during the past year to meet with our class and offer their insight and expertise.
Brian Andrew - B.C. Ziegler & Co.
Ray Auth - Mason Street Advisors
Jon Baranko - Wells Capital Mgmt
Mary Ann Bartels - Merrill Lynch
Valarie Beech - Marquette University
Ashley Beckner - Morgan Stanley
Ashok Bhatia - Stark Investments
Jim Bianco - Bianco Research
Mike Blonski - Artisan Partners
Zach Bloom - Mason Street Advisors
Adam Bordner - Citigroup
Jeff Brigman - Legacy Capital Partners
Dan Braun - Stark Investments
Pat Brown - Citigroup
Matt Bruno - UBP Asset Mgmt
Jon Bruss - Fotress Partners
Amie Brouillard - Mason Street Advisors
Kristina Cerjak - Stark Investments
Caroline Chiodo - Wells Capital Mgmt
Eileen Cohen - J.P. Morgan
Lucia Cronin - Wells Capital Mgmt
Mike D‟Agostino - Principal Global
Investors
Greg Dahlman - Dana Investment
Jeff DeAngelis - Mason Street Advisors
Ryan Denton - Northwestern Mutual
Tom Digenan - UBS
Neal Dihora - Wasatch Advisors
Patrick Dorsey - Morningstar
Dan Dujmic - Marshall & Ilsley Bank
Tim Dunbar - Principal Global Investors
Tom Eck - Cortina Asset Mgmt
Mark Egan - Reams Asset Mgmt
Frank Espositio - Wells Capital Mgmt
Thomas Fink - Reams Asset Mgmt
Tim Fotsch - Wells Capital Mgmt
Dan Fuss - Loomis Sayles
Dan Geigler - Morgan Stanley
Jeff Geygan - Milwaukee Private Wealth
Mgmt
Brandon Giles - RBS Greenwich Capital
Sean Gissal - Marquette University
Izzy Goncalves - Banc of America
Matt Grimm - Stark Investments
Oleg Gurin - Northwestern Mutual
Jim Hamel - Artisan Partners
John Hansen - Marquette University
Keith Hanson - State Teacher‟s Retirement System of Ohio
Rodney Hathaway - Hathaway-Nguyen
Capital Mgmt
William Heard - Stark Investments
Ken Heller - True Bearing Asset Mgmt
Mike Hepp - Lehman Brothers
David Herro - Harris Associates
Steven Holtkamp - Morgan Stanley
Charles Holzencht - Banc of America
Tao Huang - Morningstar
Jaclyn Jensen - Stark Investments
David Johnson - Morningstar
Dan Keegan - Keegan House
Scott Kennedy - Driehaus Capital Mgmt
Sean Kennedy - Wells Capital Mgmt
Mike Ketter - Merrill Lynch
Tom Kruse - Banc of America
John Lagedrost - Calamos Investments
Chuck Lamb - Marquette University
Colin Lancaster - Stark Investments
Michael Larson - Bill Gates Investment
Gordon Lasic - R.W. Baird & Co.
Pat Lawton - R.W. Baird & Co.
Hailin Li - Morningstar
John Malooly - Wasatch Advisors
Dr. Jim McGibany - Marquette
Christina Mirarchi -Northwestern Mutual
Michael Morin - Merrill Lynch
Theran Motl - Wells Capital Mgmt
Shari Noonan - Goldman Sachs
Jeff Nelson - MBO Cleary
Don Nesbitt - B.C. Ziegler
Quinn Noel - Mason Street Advisors
Matt Notarianni - R.W. Baird & Co.
Bob Ollech
Kyle O‟Meara - R.W. Baird & Co.
Bob Organ - Northwestern Mutual
Maureen Oster - MBO Cleary
Terry Pavlic - Hathaway-Nguyen Capital
Mgmt
Dr. William Poole - St. Louis Federal
Reserve Bank
Randal Ralph - Northwestern Mutual
Greg Rawls - Calamos Investments
Dan Rea - Driehaus Capital Mgmt
Dan Renouard - R.W. Baird & Co.
Mike Rems - Goldman Sachs
Scott Roberts - DeSari Capital
Nicky Roden - Mercer Oliver Wyman
Matt Rose - Alpha Consulting
Jim Runde - Morgan Stanley
Jay Schwister - R.W. Baird & Co.
Mike Seeman - Wells Capital Mgmt.
Chris Simcox - Bernstein
Ben Somers - Stark Investments
Sarah Somers - Silver Lake
Robert Thomas - Bill Gates Investment
Andrew Tilton - Goldman Sachs
Sarah Tobolski - Fiduciary Mgmt Assoc.
Dan Tranchita - R.W. Baird & Co.
Dave Trotter - Pennant Mgmt
Derek Tyus - Northwestern Mutual
Kent Velde - Lakeview Equity Partners
Bob Venable - R.W. Baird & Co.
Pam Voelz - Wells Capital Mgmt
Greg Wait - Falcons Rock
Bill Walker - Mason Street Advisors
Ronald White - Citigroup
Stephanie Whittier - Morgan Stanley
Dan Williams - Banc of America
Tim Wojs - R.W. Baird & Co.
Xiaohua Xia - Morningstar
Paul Zandt - MBO Cleary
Mark Zellmer - Northern Oak
Jinnan Zhou - Morningstar
In addition we would like to thank the Marquette faculty – especially David Krause, Sarah
Peck, Michaël DeWally, George Kutner, Mateo Arena, Mark Eppli, Nicole Truog, Jim McGibany, David Shrock, Anthony Pennington-Cross, Jamshid Hosseini, Marq Stankowski, Cheryl
Maranto, and Don Giacomino. We would like to extend a special thank you to I-Chen Lim,
Graduate Assistant, for her service to the AIM program. We would like to wish good luck to the
classes that follow us and hope that they help continue the tradition of excellence in the AIM
program. With the ongoing support and guidance of the faculty and advisors, we believe this
will happen. Thank you.
AIM Fund 2007 - 2008 Annual Report
4
Applied Investment Management Program
Class of 2008
Back Row Standing (left to right):
Nick Ihn, Pat Flaherty, Chris Caparelli, Chris Williams, Joel Grebenick, Barrett Willich, Luke
Lamanna, Yaoting Zhuang, Andy O‟Connell, Luke Junk
Front Row Standing (left to right):
Paul Simenauer, Pat Ingber, Katie Provo, Mike Carlson, Stan Zurawski, Greg Sirotek, Katie
Koutnik, Peter Merkel, Jason Bednar
5
AIM Fund Overview
The AIM program was established in 2004 to provide Marquette University‟s undergraduate
students the opportunity to integrate the financial principles they are learning in the classroom,
along with relevant internships and investment experiences, so that they may become proficient
and ethical investment research analysts. The first three classes of students enrolled in the AIM
program gained valuable experience by managing a portion of the University‟s endowment
fund. The University initially contributed $500,000 of endowment funds in September 2005 to
establish the AIM Equity Fund. In January 2006, an additional $500,000 was contributed allowing for the creation of the AIM Fixed Income Fund. A third fund, focusing on international investing, will be added in the 2008 fall semester.
AIM Fund student managers are required to comply with the same policies and performance
guidelines as the other money managers retained to invest Marquette University‟s endowment
funds. In keeping with these requirements, the student managers have sought to achieve excess
rates of return while assuming risks similar to those of the Russell 2000 and the Lehman Brothers Aggregate Bond Indexes. Consistent with the investment policy guidelines, the AIM Fund
student managers hold two widely diversified portfolios of common stocks and fixed income
securities. Employing fundamental analysis, they seek to invest in well-managed, profitable
businesses without unnecessarily exposing the University‟s funds to imprudent risks.
The investment objective of the AIM Equity Fund was to achieve a long-term capital return in
excess of 200 annualized basis points of the benchmark (Russell 2000 Index) by investing in
small market capitalization companies. The investment criterion allows the student managers of
the Equity Fund to hold only those stocks held in the Russell 2000 index. Initial common stock
positions were not allowed to exceed 2% of the total market value of the AIM Equity Fund at
the time of purchase and no investment position was allowed to exceed 5% of the portfolio‟s
value at any time. Over 97.5% of the equity portfolio was required to be invested at all times in
marketable equities with a risk profile similar to that of the market benchmark. The students
were allowed to invest in American Depository Receipts (ADRs); however, these combined investments could not exceed 10% of the portfolio‟s market value at any time.
The AIM Equity Fund was well diversified with respect to exposure to different economic sectors, industry segments, and individual stocks. This was accomplished by implementing a
„sector neutral‟ policy, which restricted the maximum (minimum) allocation to any industry
sector (as defined by the Russell 2000 Index) to be no more (or less) than the lesser of: 2%
above (below) the Index‟s market value weighting of the AIM Equity Fund or 1.5 times above
(below) the Index‟s market value weighting of the portfolio‟s equity investment. This policy
promoted a „bottoms-up‟ or fundamental analysis approach, which involved stock evaluation
methods that used financial and economic analyses to identify mispriced securities. Students in
the AIM program learned to evaluate fundamental information which included a company's financial reports and non-financial information, such as estimates of the growth of revenue and
earnings; industry comparisons; analysis of the effects of new regulations or demographic
changes; and economy-wide trends. Discounted cash flow models and relative valuation techniques were employed to identify potentially mispriced securities.
6
The investment objective of the AIM Fixed Income Fund was to achieve a total return in excess
of 20 annualized basis points of the benchmark (Lehman Brothers Aggregate Bond Index). The
duration of the fixed income portfolio was not allowed to exceed that of the benchmark by more
or less than 20% at any time. The fixed income portfolio followed a „core plus‟ investment
management style, which permitted the student managers to add debt instruments with slightly
greater risk and return potential than found in the Lehman Brothers Aggregate Bond Index.
These investments could include the addition of Treasury Inflation Protected Securities (TIPS),
municipal bond, high yield debt, and global debt securities to the core portfolio of investmentgrade bonds – provided that the percentage of assets invested in extended non-benchmark investments was not greater than 20% of the fixed income portfolio‟s market value.
The AIM students utilized a „top-down‟ approach in establishing the fixed income portfolio.
Basing their investment strategy on economic and interest rate forecasts, they established fixed
income sector allocations based on the expected future movements of interest rates and the
yield curve. The student managers of the AIM Fixed Income Fund employed a „fund of funds‟
strategy which combined low-cost fixed income index mutual funds and exchange traded funds
(ETFs) to benefit from anticipated future trends. This strategy provided excellent diversification
and low transaction costs.
ACADEMIC ADVISORS
David Krause, PhD
Sarah Peck, PhD
MARQUETTE UNIVERSITY ENDOWMENT LIAISONS
John Hansen
Sean Gissal
BROKERAGE SERVICES
Robert W. Baird & Company
CASH MANAGEMENT SERVICES
Marshall & Ilsley Bank
7
AIM Fund Operations
The AIM Fund was divided into two autonomous funds: the Equity Fund and the Fixed Income
Fund. While the goal of each fund was to identify and acquire under-valued securities within its
respective investment universe, the student managers were free to determine the best way to
identify those opportunities within the investment policy guidelines. Throughout the holding
period, the AIM Fund student managers sought to improve their common stock and fixed income selection processes by applying their academic experiences, learning from their peers, and
building upon the existing knowledge base of professional investors and the faculty.
The AIM Fund management consisted of the student managers, the AIM Program Director, and
the AIM Investment Advisory Board. The Board members contained representatives from the
University‟s Office of Treasury Services, Department of Finance and Accounting faculty, and
various members of the investment community selected on the basis of their availability and
ability to enhance the educational benefits of the student-managed portfolio experience. The
function of the AIM Investment Advisory Board was to serve as counsel to the student members of the AIM Fund. The Board met seven times during the academic year with the students.
The role of the AIM Program Director was to help the students develop and enhance best practices in order to position the overall portfolio for continued success. In addition to teaching investment courses, the Director also served as the contact with Marquette‟s Office of Treasury
Services to insure that the students were developing and maintaining risk profiles consistent
with the University‟s policy. As well as helping place the AIM students in their summer internships and post-graduation investment positions, the Director is responsible for overseeing that
the AIM Fund is rebalanced in a timely manner; monitoring the Fund during the summer
months; and coordinating external relations through monthly newsletters, receptions, and outside visits. The Director works closely with the investment management community and the
Marquette alumni network, as well as with University Admissions and the Office of Career Services.
To maintain the safety of the portfolio, limit orders are established prior to the end of the fall
semester and at the conclusion of the school year. The AIM Program Director, with the approval of the Office of financial services, has the authority to execute trades during breaks in
the school year, if necessary. The proceeds of securities sold during the semester breaks are invested in the exchange traded funds of the respective benchmarks. The next class of AIM Fund
student managers have already presented stocks and began actively managing the portfolio.
8
AIM Fund Portfolio Performance
As noted earlier, the AIM Fund‟s benchmarks are the Russell 2000 and the Lehman Brothers
Aggregate Bond Index for the equity and fixed income portfolios. The inception dates for the
equity and fixed income funds were September 28, 2005 and January 30, 2006, respectively.
The funds‟ total return performance since inception and for the 12 month holding period ended
March 31, 2008 versus their benchmark is presented below.
Fund
Benchmark
Equity
Russell 2000 Index
Fixed Income
Lehman Aggregate Bond Index
Fund
Benchmark
Equity*
Russell 2000 Index
Fixed Income**
*9/28/2005 Inception
12 Month Holding Period Return (as of 3/31/2008)
Over / (Under)
AIM Fund
Index
Performance
-12.62%
-13.00%
0.38%
8.04%
7.65%
0.39%
Holding Period Return Since Inception (as of 3/31/2008)
Over / (Under)
AIM Fund
Index
Performance
6.77%
6.10%
0.67%
15.06%
14.02%
1.04%
**1/30/2006 Inception
For the holding period ended March 31, 2008, the AIM Equity Fund returned –12.62%, over
performing its benchmark by 38 basis points (bps). Since inception, the AIM Equity Fund has
returned 6.77% or 67 bps above the benchmark as of March 31, 2008. The AIM Fixed Income
Fund returned 8.04% during the same holding period, over performing its benchmark by 39 bps.
Since inception, the AIM Fixed Income Fund has returned 15.06% or 104 bps above the benchmark.
In accordance with the AIM Fund‟s investment policy, the equity portfolio was „sector neutral‟
during the holding period. Shown below are the AIM Equity Fund‟s industry sector weightings
versus the Russell 2000 benchmark at the end of the holding period.
AIM Equity Fund Sector Weightings
% of Portfolio
25
(as of 3/31/2008)
AIM Fund
Russell 2000
20
15
10
5
0
9
The AIM Fixed Income Fund‟s investment policy allows up to 20% of the portfolio to be invested in non-investment grade securities. As shown below, the portfolio is heavy in US corporate bonds and municipals, but light on short-term US Government debt. Of the overweight in
US corporate bonds, only 5.0% of the portfolio was invested in high yield bonds.
Fixed Income Sector Weightings
(as of 3/31/2008)
Lehma n Aggrega te Bond
45
40
% of Portfolio
35
30
25
20
15
10
5
0
US Govt LT
Debt
Mortga ge
Ba cked
US Corpora te Non-US
Credit
Corpora te
Credit
Asset Ba cked Municipa l US Trea suries
The following table shows a risk-return snapshot of the AIM Fund over its history and the 12
month period ending March 31, 2008. As measured by the standard deviation of returns over
the holding period, the AIM Equity Fund was slightly more risky than its benchmark (Russell
2000 Index) over the past 12 months but in line if viewed over the period since inception. The
equity fund‟s Sharpe ratio (a risk-adjusted measure calculated using standard deviation and excess return to determine reward per unit of risk) was –1.07 for the 12 months ended on March
31, 2008, is slightly higher than the benchmark‟s ratio of –1.2. The Sharpe ratio since inception
of –0.13 is again in line with the benchmark. The AIM Equity Fund‟s beta for the 12 months
ended on March 31, 2008 compared to the Russell 2000 Index was 1.06. Jensen‟s alpha (the
average excess return versus that predicted from the portfolio's beta and the average benchmark
return) was 1.68%, which was below the return objective. Since inception, the AIM Equity
Fund‟s alpha was +29 bps.
The AIM Fixed Income Fund‟s standard deviation was higher than the benchmark‟s (Lehman
Aggregate Bond Index) over the past 12 months once again in line if viewed over the period
since inception. The Sharpe ratio for the fixed income portfolio was 1.4, which is similar to the
benchmark. The AIM Fixed Income Fund‟s average duration, the most commonly used measure of risk in bond investing, was 4.59 or about 9 bps above the benchmark at the end of the
holding period. Duration incorporates a bond's yield, coupon, final maturity, and call features
into one number, expressed in years, that indicates how price-sensitive a fixed income security
or portfolio is to changes in interest rates. The excess return for the AIM Fixed Income Fund
versus the Lehman Aggregate Bond Index was 68 basis points since inception and 60 bps for
the 12 months ended March 31, 2008.
10
AIM Fund Holding Period Risk Return Measures (as of 3/31/2008)
Equity Fund
Holding Period
Std. Deviation
(annualized)
15.47%
14.14%
Holding Period
Std. Deviation
(annualized)
13.68%
Russell 2000 Index
13.33%
12 Month Period
Equity Fund
Russell 2000 Index
Since Inception (9/28/2005)
Holding Period
Std. Deviation
(annualized)
3.05%
12 Month Period
Fixed Income Fund
Lehman Brothers Aggregate Bond Index
Since Inception (1/30/2006)
Fixed Income Fund
Lehman Brothers Aggregate Bond Index
2.60%
Holding Period
Std. Deviation
(annualized)
2.63%
2.65%
Sharpe Ratio
Beta*
Alpha**
-1.07
-1.20
1.06
1.68%
Sharpe Ratio
Beta*
Alpha**
-0.13
0.94
0.29%
Sharpe Ratio
Average
Coupon
Excess
Return**
1.40
4.6%
0.60%
1.42
4.7%
Sharpe Ratio
Average
Coupon
Excess
Return**
0.87
0.61
4.8%
4.8%
0.68%
-0.16
*Computed on Russell 2000 Index **Relative to benchmark
The following chart shows the monthly total return figures for the AIM Equity Fund and the
Russell 2000 Index since the inception of the fund. The AIM Fund had positive returns during
16 of the 30 months in the holding period and excess returns for 17 of the 30 months.
Monthly Returns of AIM Equity Fund vs. Russell 2000
(since inception 9/28/05)
AIM Monthly Return
Russell 2000 Monthly Return
10%
8%
6%
Monthly Return
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
11
The following chart shows the monthly total returns for the AIM Fixed Income Fund and the
Lehman Brothers Aggregate Bond Index since the inception of the fund. The AIM Fund outperformed the benchmark for 6 months out of the last 12 months of the holding period and reported
positive earnings for 10 out of 12 months; a period of falling long-term interest rates.
Monthly Returns of AIM Fixed Income Fund vs. Lehman Aggregate Bond
AIM Monthly Return
Lehman Aggregate Monthly Return
2.5%
2.0%
Monthly Return
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
The following charts track the time series performance of the two AIM Fund portfolios. The
AIM Equity Fund outperformed the Russell 2000 for 8 out of 12 months during the holding period ended March 31, 2008. The AIM Fixed Income Fund has tracked more favorably than the
Lehman Brothers Aggregate Bond Index since its inception. The total returns of both AIM portfolios included brokerage fees, which depressed the equity and fixed income returns during the
holding period by about 55 and 17 basis points, respectively.
12
Market Value of AIM Equity Fund vs. Russell 2000
AIM Equity Fund
Russell 2000
$680,000
$660,000
$640,000
$620,000
$600,000
$580,000
$560,000
$540,000
$520,000
$500,000
$480,000
Market Value of AIM Fixed Income Fund vs. Lehman Aggregate Bond
AIM Portfolio Value
Lehman Aggregate Portfolio Value
$580,000
$570,000
$560,000
$550,000
$540,000
$530,000
$520,000
$510,000
$500,000
$490,000
13
The Chartered Financial Analysts (CFA) Institute issued the Global Investment Performance
Standards (GIPS) in 1999 to provide a basis for readily accepted and comparable presentations
of an investment fund‟s past investment performance. It is currently the intent of the AIM program to follow the GIPS reporting standards of including the tracking error while presenting the
total returns for the investment funds. The following charts present the tracking errors for the
AIM Equity and Fixed Income Funds.
Cumulative Excess Net Return of the AIM Equity Fund vs. the Russell 2000 Index
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
Cumulative Excess Net Return for the AIM Fixed Income Fund vs. the
Lehman Aggregate Index
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
-0.2%
-0.4%
14
The table below contains excess return attribution information for the AIM Equity and Fixed
Income Funds based on Fama‟s decomposition of risk. Risk premium due to selectivity indicates the AIM student managers‟ overall stock selection contribution and the portion of excess
return that was not explained by the portfolio‟s beta and market risk premium. This figure was
0.51 % for the AIM Equity Fund since inception and 1.41 % for the 12-month period. For the
Fixed Income Fund, the risk premium due to selectivity was -14 bps during the past 12 months
and +20 bps since inception for the AIM Fixed Income Fund.
Fama's Decomposition of Risk (Holding Period as of 3/31/2008)
AIM Equity Fund (12 month period)
AIM Equity Fund
Russell 2000
-12.62%
3.63%
-16.25%
-17.76%
-13.00%
3.63%
-16.63%
-16.63%
1.41%
0.00%
AIM Equity Fund
Russell 2000
Holding Period Return
- 3 Month Treasury Bill
Total Risk Premium
- Risk premium due to risk
6.77%
11.06%
-4.29%
-4.80%
6.10%
11.06%
-4.96%
-4.96%
Risk Premium Due to Selectivity
0.51%
0.00%
Total Risk Premium
AIM Equity Fund (since inception)
AIM Fixed Income Fund (12 month period)
AIM Fixed Income Lehman Aggregate
Total Risk Premium
8.04%
3.63%
4.41%
4.55%
7.65%
3.63%
4.02%
4.02%
-0.14%
0.00%
AIM Fixed Income Fund (since inception)
AIM Fixed Income Lehman Aggregate
Total Risk Premium
15.03%
10.00%
5.05%
4.85%
14.02%
10.00%
4.01%
4.01%
0.20%
0.00%
15
The following table displays the securities sold throughout the holding period for the two AIM
Funds. The turnover ratio for the AIM Equity Fund was about 84% for the period ending March
31, 2008, while the AIM Fixed Income Fund turnover was approximately 118% for the past 12
months.
AIM Equity Fund - Securities Sold (4/1/2007 Through 3/31/3008)
Ticker
Purchase
Date
Purchase
Price
Actel Corporation
ACTL
11/02/05
$13.90
740
$10,283.81
11/13/07
741
Air Methods Corp.
AIRM
09/25/06
$23.51
150
$3,526.20
09/27/07
Alpha Natural Resources
ANR
10/06/06
$15.97
160
$2,555.11
Alvarion, Ltd.
ALVR
09/25/06
$6.34
1,800
Asta Funding, Inc.
ASFI
10/12/06
$35.00
Astec Industries, Inc.
ASTE
11/02/05
$28.18
Astec Industries, Inc.
ASTE
11/02/05
$28.18
AudioCodes, Ltd.
AUDC
09/28/05
$10.74
Badger Meter, Inc.
BMI
10/05/05
$20.05
Biosite, Inc.
BSTE
02/26/07
$55.67
Calamos Asset Mgmt
CLMS
09/27/07
Chattem, Inc.
CHTT
12/05/06
Cogent, Inc.
COGT
Compass Minerals Int'l
Consolidated Water Co
Edge Petroleum Corp
Security
Ennis, Inc.
Ennis, Inc.
Gain / Loss
($)
$10.75
$7,930.74
($2,353.07) -22.88%
367
$47.22
$7,057.25
$3,531.05 100.14%
03/14/08
525
$41.91
$6,680.60
$4,125.49 161.46%
$11,419.00
06/27/07
275
$8.90
$15,991.04
$4,572.04
40.04%
300
$10,500.55
05/14/07
214
$42.45
$12,710.00
$2,209.45
21.04%
170
$4,791.29
09/27/07
694
$58.21
$9,871.21
$5,079.92 106.02%
200
$5,636.81
02/21/08
841
$33.10
$6,595.00
970
$10,413.70
05/14/07
593
$5.86
$5,659.88
($4,753.82) -45.65%
150
$3,007.21
12/12/07
798
$41.65
$6,221.90
$3,214.69 106.90%
200
$11,133.00
05/14/07
77
$94.55
$18,885.00
$7,752.00
$27.33
450
$12,298.89
03/11/08
166
$16.50
$7,400.00
$49.92
100
$4,992.00
09/27/07
296
$71.54
$7,129.00
$2,137.00
11/13/07
$12.22
300
$3,666.50
02/21/08
100
$10.30
$3,065.99
($600.51) -16.38%
CMP
02/08/06
$22.45
70
$1,571.65
12/12/07
672
$38.40
$2,663.00
$1,091.35
69.44%
CWCO
12/05/06
$24.87
150
$3,730.38
05/14/07
160
$26.44
$3,940.85
$210.47
5.64%
EPEX
09/28/05
$27.37
420
$11,495.16
11/09/07
772
$7.03
$2,925.50
($8,569.66) -74.55%
EBF
09/25/06
$20.76
250
$5,190.01
12/12/07
443
$18.26
$4,540.00
($650.01) -12.52%
($1,283.61) -19.95%
Sell Date
Days Selling
Held Price
Gain /
Loss
(%)
Net Proceeds
Shares Cost Basis
$958.19
17.00%
69.63%
($4,898.89) -39.83%
42.81%
EBF
09/25/06
$20.76
310
$6,435.61
02/21/08
514
$16.70
$5,152.00
Forward Air Corp
FWRD
10/12/05
$34.65
210
$7,276.70
02/21/08
862
$33.51
$7,011.99
Frontier Financial Corp
FTBK
09/14/07
$23.29
200
$4,657.62
03/11/08
179
$16.58
$3,291.00
($1,366.62) -29.34%
GNCMA 09/14/07
$12.28
200
$2,456.50
12/12/07
89
$8.57
$1,689.00
($767.50) -31.24%
($689.73) -18.78%
General Communication
Genesis Microchip, Inc.
($264.71)
-3.64%
GNSS
01/29/07
$9.93
370
$3,673.20
09/27/07
241
$8.13
$2,983.47
Haemonetics Corp
HAE
02/26/07
$47.17
150
$7,075.50
03/11/08
379
$58.78
$8,791.40
infoUSA, Inc. B
IUSA
05/14/07
$10.00
600
$6,001.00
02/21/08
283
$7.89
$4,709.90
($1,291.10) -21.51%
Iowa Telecom Services
Keystone Automotive
Ind
Keystone Automotive
Ind
IWA
10/06/06
$19.55
140
$2,736.80
12/12/07
432
$16.47
$2,280.80
($456.00) -16.66%
KEYS
01/03/07
$33.76
300
$10,129.00
09/14/07
254
$47.58
$14,248.33
$4,119.33
40.67%
KEYS
10/06/06
$39.99
150
$5,998.00
09/14/07
343
$47.66
$7,124.17
$1,126.17
18.78%
Komag, Inc.
KOMG
01/29/07
$33.72
120
$4,046.20
07/16/07
168
$32.03
$3,818.60
($227.60)
-5.63%
KongZhong Corp ADR
$1,715.90
24.25%
KONG
01/29/07
$8.22
500
$4,110.00
05/23/07
114
$5.31
$2,630.00
LifeCell Corporation
LIFC
10/05/05
$20.92
270
$5,646.19
05/14/07
586
$28.90
$7,778.54
$2,132.35
37.77%
LifeCell Corporation
LodgeNet Interactive
Corp
LIFC
10/05/05
$20.92
200
$4,188.12
09/27/07
722
$38.28
$7,631.40
$3,443.28
82.22%
LNET
11/06/06
$22.08
130
$2,870.26
12/12/07
401
$19.38
$2,494.14
($376.12) -13.10%
MHO
11/06/06
$35.46
250
$8,865.00
12/12/07
401
$12.03
$2,982.50
($5,882.50) -66.36%
M/I Homes, Inc.
16
($1,480.00) -36.01%
AIM Equity Fund - Securities Sold (4/1/2007 Through 3/31/3008)
Purchase
Date
Purchase
Price
Macatawa Bank Corp
MCBC 10/12/05
$19.27
131
$2,524.92
06/07/07
603
$15.13
$1,957.64
Macatawa Bank Corp
MCBC 10/12/05
$19.28
365
$7,044.00
11/13/07
762
$10.73
$3,890.72
ManTech Int'l Corp
MANT 10/06/06
$33.63
170
$5,716.60
11/13/07
403
$39.89
$6,755.96
Marten Transport, Ltd.
MRTN 10/06/06
$16.49
670
$11,045.50 11/13/07
403
$12.71
$8,490.03
($2,555.47) -23.14%
($2,082.51) -44.05%
Security
Ticker
Shares Cost Basis Sell Date
Days Selling
Held Price
Net Proceeds
Gain / Loss
($)
Gain /
Loss
(%)
($563.59)
-22.32%
($3,153.29) -44.77%
$1,039.36
18.18%
Multi-Fineline Electronix MFLX
10/12/05
$26.26
180
$4,727.63
09/27/07
715
$14.83
$2,645.12
North Pittsburgh Systems
NPSI
09/28/05
$19.63
150
$2,944.50
07/16/07
656
$24.06
$3,584.00
Novatel Wireless, Inc.
NVTL
10/05/05
$14.33
400
$5,731.53
02/21/08
869
$10.64
$4,231.80
Olin Corporation
OLN
09/27/07
$22.73
200
$4,545.00
02/21/08
147
$21.34
$4,243.00
Ormat Technologies, Inc.
ORA
10/12/05
$19.30
120
$2,315.63
09/14/07
702
$43.43
$5,186.60
Pantry, Inc.
PTRY
12/05/06
$49.47
200
$9,893.00
11/13/07
343
$25.38
$5,050.00
Petroleum Dev. Corp
PETD
11/09/07
$47.03
50
$2,351.70
03/14/08
126
$71.36
$3,543.00
Primus Guaranty, Ltd.
PRS
11/06/06
$11.89
850
$10,106.00 08/06/07
273
$7.74
$6,554.00
Quality Systems, Inc.
QSII
09/28/05
$34.23
150
$5,134.00
09/14/07
716
$33.32
$4,973.00
Radiation Therapy Serv.
RTSX
05/14/07
$28.04
220
$6,169.80
11/13/07
183
$31.11
$6,819.64
Rare Hospitality Int'l
RC2 Corporation
RARE
RCRC
10/12/05
12/05/06
$26.18
$44.32
400
100
$10,471.00 09/14/07
$4,432.00 09/14/07
702
283
$37.99
$30.45
$15,171.00
$3,020.00
Sanderson Farms, Inc.
SAFM
02/08/06
$27.19
200
$5,438.00
02/21/08
743
$35.64
$7,103.00
$1,665.00
30.62%
Sanderson Farms, Inc.
SAFM
02/08/06
$27.19
200
$5,438.00
03/11/08
762
$35.30
$7,035.00
$1,597.00
29.37%
ScanSource
SCSC
12/08/05
$30.07
160
$4,811.81
02/21/08
805
$35.80
$5,703.00
$891.19
18.52%
Stratasys
SSYS
11/02/05
$11.99
120
$1,438.20
05/14/07
558
$46.39
$5,541.32
$4,103.12
285.30%
Stratasys
SSYS
11/02/05
$11.99
180
$2,157.30
09/14/07
681
$26.31
$4,710.80
$2,553.50
118.37%
Stratasys
SSYS
11/02/05
$11.99
150
$1,797.75
09/27/07
694
$27.83
$4,149.20
$2,351.45
130.80%
Synaptics, Inc.
SYNA
12/15/05
$26.02
100
$2,602.14
09/27/07
651
$49.72
$4,946.60
$2,344.46
90.10%
Syneron Medical, Ltd.
ELOS
10/06/06
$23.14
250
$5,785.00
05/14/07
220
$25.78
$6,420.70
$635.70
10.99%
Tessera Tech, Inc.
TSRA
09/14/07
$36.34
100
$3,633.94
02/21/08
160
$40.48
$4,023.00
$389.06
10.71%
Toreador Resources Corp TRGL
11/02/05
$27.95
230
$6,428.42
11/09/07
737
$7.57
$1,715.18
Tradestation Group
TRAD
01/29/07
$12.55
800
$10,041.00 11/13/07
288
$11.52
$9,191.00
Triad Guaranty Inc.
TGIC
11/02/05
$42.30
250
$10,575.50 02/21/08
841
$6.46
$1,590.50
($8,985.00) -84.96%
True Religion Apparel,
Inc.
TRLG
10/06/06
$22.32
400
$8,929.00
11/13/07
403
$18.51
$7,378.60
($1,550.40) -17.36%
Trueblue Inc
TBI
01/29/07
$18.59
350
$6,507.00
04/24/07
85
$21.41
$7,468.50
ViaSat, Inc.
VSAT
09/27/07
$31.25
100
$3,124.50
02/21/08
147
$21.28
$2,102.80
($1,021.70) -32.70%
Vineyard National Bancorp
VNBC
09/28/05
$28.17
430
$12,112.40 06/27/07
637
$23.11
$9,913.12
($2,199.29) -18.16%
Vineyard National Bancorp
VNBC
11/02/05
$28.20
21
$592.14
09/27/07
694
$17.15
$335.15
($256.99)
ViroPharma, Inc.
VPHM
09/27/07
$9.21
500
$4,604.95
11/13/07
47
$8.55
$4,249.00
($355.95)
-7.73%
WD-40 Company
WDFC
02/26/07
$33.86
40
$1,354.28
11/13/07
260
$38.66
$1,521.40
$167.12
12.34%
Sub-Total
iShares Russell 2000
Index
$192,524.14
IWM
Multiple dates
($302.00)
-6.64%
$2,870.97
123.98%
($4,843.00) -48.95%
$1,191.30
50.66%
($3,552.00) -35.15%
($161.00)
-3.14%
$649.84
10.53%
$4,700.00 44.89%
($1,412.00) -31.86%
($4,713.24) -73.32%
($850.00)
$961.50
($6,260.26)
($17,567.35)
17
21.72%
-8.47%
14.78%
-43.40%
$181,213.38 ($11,307.09) -5.87%
Multiple dates
Total
$639.50
($1,499.73) -26.17%
AIM Fixed Income Fund - Securities Sold (4/1/2007 Through 3/31/2008)
Security
iShares iBoxx $
Invest Grade Corp
Bond
iShares Lehman
MBS Bond
iShares Lehman
TIPS Bond
Vanguard GNMA
Ticker
Purchase
Date
Purchase
Price
Shares Cost Basis
Sell Date
Days Selling
Held Price
Net Proceeds
Gain / Loss
($)
Gain /
Loss
(%)
LQD
11/14/2006 $107.70
160
$17,232.53
5/14/2007
181
$106.99 $17,093.40
($139.13)
-0.81%
MBB
5/14/2007 $100.66
410
$41,271.38 11/13/2007
183
$100.76 $41,286.60
$15.22
0.04%
TIP
11/13/2007 $105.10
380
$39,936.40
3/13/2008
121
$111.96 $42,519.80
$2,583.40
6.47%
14,699 $150,531.11 5/11/2007
452
$10.21 $150,077.80 ($453.31)
-0.30%
VFIIX
2/13/2006
$10.24
iShares Lehman 1-3
Yr Treasury Bond
CSJ
Multiple Dates
Multiple Dates
$2,025.06
iShares Lehman 20+
Yr Treasury Bond
TLT
Multiple Dates
Multiple Dates
$2,565.25
iShares Lehman 3-7
Yr Treasury Bond
IEI
Multiple Dates
Multiple Dates
$35.62
iShares Lehman 7-10
Yr Treasury
IEF
Multiple Dates
Multiple Dates
$2,860.47
iShares Lehman
Aggregate Bond
AGG
Multiple Dates
Multiple Dates
$118.15
iShares Lehman
Short Treasury Bond
SHV
Multiple Dates
Multiple Dates
$118.50
VWEHX Multiple Dates
Multiple Dates
$256.50
Vanguard HighYield Corporate
Total
$9,985.73
18
AIM Equity Fund
Business Services Sector
11.5% of AIM Equity Fund
Analyst: Joel Grebenick and Patrick Ingber
The business services sector features a wide variety of firms who, in turn, provide an array of
services to an assortment of companies in many different industries. While some of the firms
located within the business services sector enjoy wide economic moats that lead to impressive
profitability, others may only be able to sustain such profitability for short periods of time. In
2007, major macroeconomic factors played a critical role in the business service industry. The
three economic factors affecting the sector were oil prices, unemployment, and a weakening
housing market.
In 2007, oil prices reached record highs. One stock that was affected from the price of this
commodity was Forward Air Corporation. Historically, as the price of oil increases, Forward
Air follows, due to the company being an alternative to air transportation. Thus, with rising
fuel costs making traditional air transportation more expensive, Forward Air is able to capitalize
by providing a cheaper alternative. In addition to oil, employment had a direct effect on the
business service sector. Korn/Ferry International is a stock in the AIM fund that is greatly affected by employment. With a rising unemployment rate due to a weary US economic environment, Korn/Ferry had disappointing returns in 2007. Historically, the company tends to do well
in times of tight employment, because executives tend to move frequently between companies,
allowing executive search firms to prosper.
Finally, the weak housing market in the US has had a negative impact on the AIM fund.
American Reprographics derives nearly 15% of its revenue from residential housing, and with a
slowing market, the company‟s returns struggled.
During the course of the year, the AIM Fund had investments in twelve business services
stocks. Currently, the sector includes eight stocks: Administaff Inc., American Reprographics
Company, Apogee Enterprises, Inc., Arbitron Inc., Blackboard Inc., Forward Air Corporation,
Huron Consulting Inc., and Korn/Ferry International.
APOG
Apogee Enterprises Inc.
Weight (%)
1.30%
Price as of March 30, 2008
$15.40
Beta
1.53
P/E (ttm)
14.4x
Shares Outstanding (mm)
29.12
Total LT Debt (mm)
$35
P/B
1.8x
Market Cap (mm)
$468
Enterprise Value (mm)
$486
2007 EV/Sales
0.6x
7.3x
52 Week High
$30.30
2007 Sales (mm)
$778.8
2007 EV/EBITDA
52 Week Low
$14.08
2007 EBITDA
$66.3
ROE (after tax)
Average Monthly Volume
275,032
LTM EPS
$1.53
Country
18.77%
US
Source: Bloomberg and Thomson
Apogee Enterprises, Inc. (APOG), through its subsidiaries, engages in the design and development of glass products, services, and systems. The company operates in two segments, Architectural Products and Services, and Large-Scale Optical Technologies. The Architectural Products and Services segment designs, engineers, fabricates, installs, maintains, and renovates the
19
walls of glass and windows comprising the outside skin of commercial and institutional buildings. It provides installation, maintenance, and renovation services for window and curtain wall
systems. The Large-Scale Optical Technologies segment manufactures glass and acrylic products for the custom framing market.
Apogee Enterprises was added to the portfolio in November after posting its best quarter ever of
20% QoQ earnings growth and showing strong commitment to its core architectural glass
through exiting its less profitable businesses. The company‟s addition was expected to allow
entry into the engineering and construction subsector in an effort to add diversification to the
sector.
Shortly after its addition to the portfolio, Apogee recorded a $.14 hit to its third quarter earnings
from delays in three glass installation projects in one Florida market. Although this write-down
was partially offset by an $.08 per share tax benefit, the company was still forced to lower its
guidance by $.03 for the year, and the stock declined 10%. The company has rebounded in early
2008, surging 18% after its fourth quarter earnings beat analyst estimates by $.05 and increased
its 2009 outlook by $.10 per share. The company also reported that its backlog has climbed to a
record level of over $500M and fully expects to reach its 2008 goals of 8% growth in revenues
and 20% growth in earnings, leading to speculation that the residential construction industry
prospects were not as grim as many feared.
ARB
Arbitron Inc.
Market Cap (mm)
52 Week High
52 Week Low
$43.16
28.31
$1,329
$55.63
$34.81
357,350
Beta
Total LT Debt (mm)
2007 Sales (mm)
2007 EBITDA
LTM EPS
0.53
$7
$1,250
$338.5
$71.8
$0.53
Weight (%)
2.87%
P/E (ttm)
P/B
2007 EV/Sales
2007 EV/EBITDA
ROE (after tax)
Country
32.9x
24.8x
3.7x
17.4x
45.34%
US
Arbitron, Inc. (ARB) provides media and marketing information services in the United States
and internationally. It services include radio audience measurement and related services to radio
stations, advertising agencies, and advertisers in the United States; measuring national radio
audiences and the size and composition of audiences of network radio programs and commercials; and providing software used for accessing and analyzing its media audience and marketing information data. The company also provides consumer, shopping, and media usage information services to radio, cable television, advertising agencies, advertisers, retailers, out-ofhome media, and online media industries, as well as to broadcast television and print media industry.
Arbitron is the leading provider of radio listening habits, serving over 300 markets in the United
States. The company was initially added to the portfolio in September because of its strong
presence as the sole provider of listening habit measurement in the majority of its markets, and
its initiatives to improve its data gathering efficiency through new technologies, primarily its
PPM devices. Shortly after its addition, however, Arbitron‟s stock declined roughly 20% after
20
announcing the delay of its PPM technology into 9 markets, sending estimates for the company‟s full year EPS down $.10. In late February, the company‟s stock took another hit after
lowering its guidance by $.05-$.10 in late February.
For the full year, Arbitron reported earnings of $1.35 per share from increased costs of 14%
over 2006 from expense related to its PPM technology, and affirmed that it was on pace with its
revised rollout schedule of its PPM technology. Since then, renewed confidence in Arbitron‟s
revised rollout schedule of its PPM technology has boosted the stock over 10% and, combined
with the company‟s existing long term contracts radio giants such as Clear Channel and CBS,
has created confidence in the company‟s prospects for 4Q08 and beyond.
ARP
American Reprographics Co.
Weight (%)
0.92%
$14.84
Beta
1.19
P/E (ttm)
10.5x
45.56
Total LT Debt (mm)
$321
P/B
3.1x
Market Cap (mm)
$717
$1,084
2007 EV/Sales
1.6x
6.2x
52 Week High
$33.80
2007 Sales (mm)
$688.4
2007 EV/EBITDA
52 Week Low
$13.49
2007 EBITDA
$174.1
ROE (after tax)
315,026
LTM EPS
$1.19
Country
37.97%
US
American Reprographics Company (ARP) is the nation‟s leading reprographic services company. ARP provides business-to-business documentation management services, known as reprographic services, primarily to the architectural, engineering and construction (AEC) industry. The company also provides these services to companies in non-AEC industries, such as
technology, financial services, retail, entertainment, and food and hospitality. ARP operates
more than 230 reprographics service centers, including 225 service centers in 170 cities in 34
states throughout the United States and the District of Columbia, five reprographics service centers in Canada, and one in Mexico City, Mexico.
In 2007, a big-selloff occurred in ARP which was triggered by its residential housing exposure
and ongoing fear that the trouble in residential housing could seep into non-residential construction. Although ARP has limited exposure to residential housing (15% of revenue), the stock
had weak performance in 2007. Going forward, the company‟s fundamentals remain intact.
Moderate growth is forecasted in the non-residential market (68% of revenue), and the company is in good position to use its scale to post strong numbers in 2008. In addition, ARP continues to expand its offerings in Europe and Asia, which have potential of being a $200 million
market for the company. Being 6x the size of its next biggest competitor, ARP should be able
to spread its international footprint more effectively than the competition.
21
ASF
Administaff, Inc.
$23.61
Beta
1.53
25.93
Total LT Debt (mm)
Market Cap (mm)
$641
$1
$405
Weight (%)
0.68%
P/E (ttm)
14.0x
P/B
3.8x
2007 EV/Sales
0.3x
52 Week High
$41.87
2007 Sales (mm)
$1,570.0 2007 EV/EBITDA
52 Week Low
$22.82
2007 EBITDA
$78.8
ROE (after tax)
356,665
LTM EPS
$1.53
Country
5.1x
22.18%
US
Administaff Inc. (ASF) is the largest Professional Employer Organization (PEO) in the US
based on revenue and the fourth largest PEO based on Working Site Employees (WSEs). The
company provides a comprehensive Personnel Management System encompassing a broad
range of services, including benefits and payroll administration, health and workers‟ compensation insurance programs, personnel records management, employer liability management, employee recruiting and selection, and employee training to small and medium-sized businesses in
strategically selected markets. Administaff was founded in 1986 and has provided PEO services since inception. With 46 sales offices in 24 major metropolitan markets, Administaff services over 100,000 worksite employee at roughly 6,000 small businesses nationwide.
Administaff was added to the AIM fund in December 2007. Throughout the year, the stock
traded around $35.00/share, but has pulled back due to lowered guidance and weak employment
reports the past few months. When adding the stock, its leadership position in the PEO market,
strong balance sheet, and potential growth opportunity in the small/mid-market space were major factors that led to the investment. The risks associated with the company include an increase in claims activity, ability to replace clients, and intense competition from wellcapitalized firms like Automatic Data Processing (ADP) and Paychex.
In the near future, an issue to follow is the outcome of the 2008 US Presidential Election. If a
democrat is elected, the potential for major health care reform and a universal health care plan
is probable, which will have an effect on Administaff.
BBBB
Blackboard Inc.
Weight (%)
1.35%
$33.33
Beta
0.99
P/E (ttm)
39.4x
29.25
Total LT Debt (mm)
$162
P/B
6.8x
Market Cap (mm)
$991
$933
2007 EV/Sales
3.9x
52 Week High
$49.90
2007 Sales (mm)
$239.4
2007 EV/EBITDA
17.7x
52 Week Low
$26.83
2007 EBITDA
$52.8
ROE (after tax)
8.67%
337,962
LTM EPS
$0.99
Country
US
Blackboard Inc. (BBBB) is the market leader in enterprise software applications and related
services to the education market including the U.S. postsecondary, international, U.S. K-12, and
other markets. The company offers six software applications in two suites, the Blackboard
Academic Suite and the Blackboard Commerce Suite. The Blackboard Academic Suite includes tools for course content organization and presentation, communication, assessment,
22
grading, and general online activity management. The Blackboard Commerce Suite is a complete hardware/software solution that enables institutions to establish and manage a debit card
for students, which can be used for meals and other academic expenses both on campus and at
independent retail establishments. The company‟s annual subscription model gives a great deal
of visibility into revenue (70%), and boasts a 90% client retention rate.
Blackboard was added to the AIM fund in late September of 2007. After beginning 2007 trading around $30.00/share, the stock ran up over the summer to levels nearly reaching $50.00/
share. After adding the stock to the fund, an analyst downgrade, lowered guidance, and a questionable acquisition hit the stock and sent it back to trade at levels near its early 2007 mark. In
addition, throughout the course of the year, the company had been involved in a patent infringement lawsuit against its biggest competitor, Desire2Learn. In late February of 2008, a jury
ruled for Blackboard in the company‟s patent infringement lawsuit against D2L for an amount
of $3.1 million. This action is positive for the company as it could lead to licensing revenue
and has consumed management‟s time.
Blackboard still remains a solid investment based on its growth opportunity, attractive business
model, and market leader status. Currently, Blackboard has over 3,500 subscribers within the
US higher education, international higher education, and US K-12 markets out of a potential
customer base of over 34,500. In addition, the average license value per subscriber was
$56,000 and is expected to continue to increase to potential revenue of $280,000. Also, crossselling and up selling both domestically and internationally are key areas of growth for Blackboard.
Blackboard‟s business model gives visibility of 80% into the immediate quarter and 70% visibility into the next 12 months. In addition, the company boasts renewal rates of over 90%. Finally, Blackboard is the dominate market leader with 30% of US higher education using Blackboard, as well as 10% international higher education, and 2.5% US K-12 using the product.
HURN
Huron Consulting Group, Inc
Weight (%)
1.70%
$68.85
Beta
1.51
P/E (ttm)
15.4x
30.85
Total LT Debt (mm)
$150
P/B
2.7x
Market Cap (mm)
$2,228
2007 EV/Sales
2.1x
52 Week High
$77.42
2007 Sales (mm)
52 Week Low
$47.29
2007 EBITDA
$319.2
ROE (after tax)
537,688
LTM EPS
$1.51
Country
$2,358
$1,127.0 2007 EV/EBITDA
7.4x
30.02%
US
Huron Consulting Group (HURN) is an independent financial and operational consulting
firm headquartered in Chicago, Illinois. Formed in 2002 by a group of former partners and professionals from Arthur Anderson, the company employs over 1,200 consultants serving clients
in four primary segments: Financial Consulting, Legal Consulting, Health and Education Consulting, and Corporate Consulting. The Financial segment assists both laws firms and corporations by providing expertise in corporate litigation, business disputes, and regulatory and internal investigations. The Legal segment assists law departments, law firms, and government
23
agencies by helping reduce legal spending, and increase operating effectiveness. The Health
and Education segment consults hospitals, health systems, physicians, colleges, and universities. Finally, the Corporate segment leads companies through various stages of transformation.
Huron Consulting Group was recently added to the AIM fund in early March 2008. Due to the
subprime crisis and an increase in corporate restructuring, the environment seemed right to invest in the company. Through the year, the Huron posted strong earnings, with a great deal of
improvement in its Health and Education segment. The company enjoys an impressive reputation and strong client relationships in its Health and Education practice, where barriers to entry
and pricing power remain high. Recently, the company had a selloff of over 30%, due to a disappointing 1Q08 shortfall in earnings given the seemingly strong macroeconomic demand environment for the service.
Long term, the company remains a solid investment. With continued demand for professional
services, its diversified offerings, attractive business model, and international growth opportunities, Huron should bounce back and give impressive returns for the fund.
KFY
Korn/Ferry International
$16.90
Beta
46.39
Total LT Debt (mm)
Market Cap (mm)
$797
52 Week High
1.44
$0
$521
Weight (%)
2.01%
P/E (ttm)
13.4x
P/B
1.8x
2007 EV/Sales
0.8x
5.7x
$27.13
2007 Sales (mm)
$689.2
2007 EV/EBITDA
52 Week Low
$13.10
2007 EBITDA
$91.5
ROE (after tax)
386,996
LTM EPS
$1.44
Country
16.16%
US
Korn/Ferry International (KFY) provides talent management solutions worldwide. Its services include executive recruitment, middle-management recruitment, outsourced recruitment,
and leadership development solutions. The company's executive recruitment services comprise
executive search that focuses on board level, chief executive, and other senior executive positions for clients primarily in the consumer, financial services, industrial, life sciences, and technology industries. Its middle-management recruitment services include mid-level search, project recruitment, and interim solutions. The company's leadership development solutions comprise succession planning, management and team development, competency modeling, executive coaching, onboarding, merger integration, cultural change, integrated talent management,
and executive compensation consulting, which assist clients with the ongoing assessment and
development of their leadership teams.
Korn Ferry International has been one of the longest tenured AIM holdings. After taking control of the sector, Korn Ferry was thought to be a solid middle of long term horizon investment
because of its large global presence in the executive segment of the staffing industry and its established relationships with over 40% of the Fortune 500 companies. This established presence
was thought to insulate the company from short term fluctuations in unemployment and the
overall level of economic activity. Backing up this projection was the company‟s impressive
1Q07 increase in fee revenues of 27% over 1Q06.
24
Unfortunately, the increase in unemployment in the later parts of 2007 and into the first part of
2008 has taken a toll on the company‟s stock price. Despite seeing growth in its revenues,
KFY‟s increased costs in generating these revenues decreased margins over the second half of
2007, and earnings grew a mere $.01 from July to January. As a result, KFY‟s stock price declined more than 20% in the last half of 2007.
Consumer Goods Sector
Analyst: Jason Bednar
The consumer goods sector contains several sub-sectors. Many of these sub-sectors would be
considered staples or recession-resistant, while others have a greater exposure to discretionary
spending by the consumer. Regardless of sub-sector classification, there have been several factors affecting consumer-related companies during the past fiscal year. The large slowdown in
housing has affected millions of consumers in a variety of ways; the decline in home values has
prevented the continued use of the asset as a personal checking account and the continuation of
sub-prime problems has caused borrowing to become more difficult.
While these issues affect those sub-sectors associated with big ticket items, such as appliances
and furnishings, consumers have felt a more immediate impact from the rising price of oil. Increasing amounts of income devoted to the gas tank leads to fewer dollars to spend on goods,
regardless of whether it is for essential or discretionary items. Related to the large increases in
oil prices has also been the increased emphasis on producing ethanol from corn. Although corn
production rose substantially during 2007, corn prices still jumped due to the demand for an
alternative to oil and general overseas demand for the commodity. With both of these factors
continuing into the foreseeable future, corn prices will likely remain high. High oil and corn
prices will therefore continue to feed into other consumer prices in which they are inputs, further pinching the pocketbooks of Americans. As some of the food prices have just now begun
to rise since the beginning of the year, coupled with low interest rates and the flood of money to
boost liquidity in our financial system, the U.S. economy is poised for an inflationary period
that will be extremely difficult to control given the abovementioned factors. The Fed, however,
has shown a willingness and commitment to respond to crises with immediate action and may
need to do so again if we enter such a period of inflation in order to save the consumer.
The consumer goods portfolio in the AIM Fund struggled during the second half of 2007 and
beginning of 2008 with the weak consumer and poor market conditions. The portfolio ended
the fiscal year with holdings in Life Time Fitness (LTM), Maidenform Brands (MFB), JAKKS
Pacific (JAKK), and Silgan Holdings (SLGN). The consumer goods portfolio finished the fiscal year up 12.48% compared to the Morningstar‟s consumer goods sector‟s return of 7.73%.
Going forward, the portfolio is currently structured with all of the companies sharing a fairly
equal portion of the portfolio. Further, the only growth stock of the four is Life Time Fitness
with the remaining three being better described as slow but consistent growers or value holdings. Currently, the consumer goods portfolio is positioned well for a period of slow growth or
negative growth in the overall economy.
25
JAKK
JAKKS Pacific, Inc
Weight (%)
1.69%
$27.57
Beta
1.18
P/E (ttm)
10.4x
28.62
Total LT Debt (mm)
$98
P/B
1.0x
Market Cap (mm)
$836
$679
2007 EV/Sales
0.8x
5.1x
52 Week High
$31.42
2007 Sales (mm)
$857.1
2007 EV/EBITDA
52 Week Low
$18.19
2007 EBITDA
$133.7
ROE (after tax)
573,459
LTM EPS
$1.18
Country
12.63%
US
JAKKS Pacific (JAKK) is a multi-line, multi-brand toy company that designs, produces, and
markets toys, writing instruments, and pet products. The company focuses its business on licensing or acquiring well-known trademarks and brand names with extensive product histories.
The toys and accessories usually have a lower price point than other related toys. Products currently in JAKKS‟ portfolio include: Pokemon, Cabbage Patch Kids, Disney Princesses, Dora
the Explorer, Pirates of the Caribbean, Care Bears, Hannah Montana, WWE, and SpongeBob
SquarePants.
JAKKS succeeded during the pivotal 2007 holiday season with Hannah Montana and its EyeClops Bionic Eye performing well above expectations. The company has provided a somewhat
conservative guidance of 4% growth in sales and net income for the current fiscal year, but this
also reflects the uncertain consumer environment. Still, JAKKS maintains over $240 million in
cash which will likely be utilized for an acquisition during the year. JAKKS has elected to use
some of its cash for a $30 million buyback program, an option that management may continue
to use in future quarters if an acquisition does not materialize. In the recent months, JAKKS
did lose its WWE license to Mattel, but this was expected given the legal difficulties between
the two companies. The license with WWE does still remain effective until 2009. Despite this
loss, JAKKS has signed an exclusive 5-year agreement with TNA Wrestling, a WWE competitor, along with licenses for Animal Planet pet products, country music star Taylor Swift, and
American Gladiators.
LTM
Life Time Fitness, Inc.
Weight (%)
1.33%
$31.21
Beta
1.60
P/E (ttm)
18.7x
39.16
Total LT Debt (mm)
$555
P/B
3.5x
Market Cap (mm)
$1,278
$1,861
2007 EV/Sales
2.8x
52 Week High
$65.09
2007 Sales (mm)
$655.8
2007 EV/EBITDA
9.5x
52 Week Low
$25.64
2007 EBITDA
$196.4
ROE (after tax)
815,456
LTM EPS
$1.60
Country
17.16%
US
Life Time Fitness, Inc., (LTM) through its subsidiaries, designs, builds, and operates sports
and athletic, fitness, family recreation, and resort/spa centers in the United States. In addition to
traditional “health club” offerings, most Life Time Fitness centers include an expansive selection of premium amenities and services, offered within a resort-like setting. Amenities include
indoor and outdoor swimming pools, basketball and racquet courts, personal trainers and group
fitness programs, child care centers, cafés and spas. It currently operates 71 centers in 16 states.
The company was founded in 1990 and is headquartered in Eden Prairie, Minnesota.
26
The current fiscal year for Life Time Fitness provides for no new surprises with a continuation
of the company‟s past growth initiatives. Life Time typically adds new fitness centers to its
store base at a 12%-15% annual rate, and this year will be no different with the company‟s store
base growing to a projected 81 units. Top and bottom line growth are anticipated to decelerate
this fiscal year from levels of 25%-30% to a still lofty 20%. Specifically, revenue is anticipated
to rise 19%-22%, net income is expected to grow 20%-22%, and EPS has been guided to 15%17% growth. Overall, this implies a slight margin expansion but anticipated share dilution, a
common theme in Life Time‟s short history as a public company. Going forward, success for
the fitness center operator will hinge on membership growth, same-store sales, and revenue per
membership, all of which have been stable or accelerated in recent quarters.
MFB
Maidenform Brands, Inc
Weight (%)
1.81%
$16.27
Beta
1.17
P/E (ttm)
12.4x
22.45
Total LT Debt (mm)
$89
P/B
3.3x
Market Cap (mm)
$375
$450
2007 EV/Sales
1.1x
6.2x
52 Week High
$22.58
2007 Sales (mm)
$422.2
2007 EV/EBITDA
52 Week Low
$11.03
2007 EBITDA
$72.4
ROE (after tax)
227,032
LTM EPS
$1.17
Country
43.84%
US
Maidenform Brands, Inc. (MFB) is a global intimate apparel company with a portfolio of established, well-known brands, top-selling products and an iconic heritage. They design, source
and market an extensive range of intimate apparel products, including bras, panties and shapewear. They sell through multiple distribution channels, including department stores and national chain stores, mass merchants, company-operated outlet stores, other specialty and offprice retailers, and through the company‟s website. The company product and brand lines include: Maidenform, Flexees, Lilyette, Sweet Nothings, Rendezvous, Subtract, Bodymates, and
Self Expressions. Private brand products are also supplied to selected retailers.
Maidenform struggled in the second half of 2007, losing approximately half of its value over
that time. The intimate apparel manufacturer has forecasted sales to be flat for the first half of
2008 and mid-single digit growth in the second half. Gross margins have improved steadily,
rising 170 basis points during 2007 and will likely continue to expand during 2008 as the company continues to operate more efficiently and repay debt balances. Coupling this margin expansion with a potential continuation of share repurchases will be the primary catalysts for the
company to achieve its 10%-15% EPS growth in the current year.
SLGN
Silgan Holdings, Inc.
Weight (%)
1.43%
$49.63
Beta
0.63
P/E (ttm)
15.2x
37.74
Total LT Debt (mm)
$880
P/B
3.9x
Market Cap (mm)
$1,899
2007 EV/Sales
1.0x
52 Week High
$61.12
2007 Sales (mm)
52 Week Low
$44.13
2007 EBITDA
$397.2
ROE (after tax)
272,283
LTM EPS
$0.63
Country
27
$2,803
$2,923.0 2007 EV/EBITDA
7.1x
33.52%
US
Silgan Holdings, Inc.(SLGN), is a leading manufacturer of consumer goods packaging products. It operates 69 manufacturing facilities in North and South America, Europe, and Asia. In
North America, Silgan is the largest supplier of metal containers for food products and a leading supplier of metal, composite, and vacuum closures for food and beverage products. Currently, the company is divided into three operating segments – metal food containers, plastic
containers, and closures. The company has grown primarily through 23 acquisitions since it
was founded. Silgan now controls approximately fifty percent of the metal food container market with many well-known branded consumer companies under contract, including: Campbell‟s
Soup, Del Monte Fruits and Vegetables, Nestle, and Friskies Pet Food.
Silgan grew EPS 15.3% in 2007 on sales growth of 9.6%. As in many years, much of the top
and bottom line growth is attributable to acquisitions made by the company. In the current fiscal year, management is providing a 7%-13% growth forecast for EPS. Much will depend on
the company‟s use of cash; while the debt markets continue to remain unstable, large acquisitions may not be as likely given Silgan‟s already substantial debt load (approximately $1 billion). Nevertheless, low valuations could make small acquisitions tempting, particularly in the
closures business where the margins tend to be higher and internationally where the room for
expansion is greater. Potentially hindering any outperformance from the company in the current year would be a steady rise in input costs to cans, plastic bottles, and closures. Steel, aluminum, and resin costs have all been rising during the past six months. Silgan does have cost
escalators built into its contracts which pass along any raw material price increases to its customers, but there is typically a one quarter lag in which this takes effect. A consistent rise in
these prices throughout the year would be the only way to continually affect the company‟s financials.
Consumer Services Sector
Analysts: Nicholas Ihn and Gregory Sirotek
The consumer services sector is comprised of a variety of sub-sectors. The sub-sectors include
retail, restaurants, grocers, services, gambling and hotels, housing, and education. Retail comprises 41% of the sector and consists of auto retail, clothing stores, department stores, discount
stores, electronics stores, furniture retail, online retail, and specialty retail. Restaurants represent
14% of the sector and range from fast food restaurants to full service luxury dining. Grocers
represent 10% of the sector and include food wholesale and grocery stores. The services subsector, which is 16% of the consumer services sector, covers personal services, rental, and repair services. Gambling and hotels, housing, and education represent 6%, 6% and 7% of the
sector, respectively.
The Consumer Services sector declined in value 36.27% annually (Q207: 6.94%, Q307: 8.71%, Q407: -17.48%, Q108: -36.27%). This year was a tumultuous time for the American
consumer. Consumer spending has been extremely week over the past year and saving in on
the rise. However, there is light at the end of the tunnel. With the Fed and other organizations
intent on resolving the housing crisis and the current problems facing investment banks and
lending organizations, the plans have been put in motion to reinstall consumer confidence and
encourage spending creating viable investment opportunities in the consumer tied sectors.
28
ASCA
Ameristar Casinos Inc
Weight (%)
1.43%
P/E (ttm)
14.2x
$1,642
P/B
3.2x
$2,602
2007 EV/Sales
2.4x
$18.25
Beta
1.78
57.19
Total LT Debt (mm)
Market Cap (mm)
$1,071
52 Week High
$38.00
2007 Sales (mm)
52 Week Low
$17.24
2007 EBITDA
$273.3
ROE (after tax)
452,169
LTM EPS
$1.78
Country
$1,080.5 2007 EV/EBITDA
9.5x
16.00%
US
Ameristar Casinos, Inc. (ASCA) engages in the development, ownership, and operation of
casino entertainment facilities in the United States. It also offers slots, food, lodging, entertainment, and other services. The company primarily provides slot machine plays; and table games,
including blackjack, craps, roulette, and poker. Its signature restaurant concepts include steakhouses, elaborate buffets, and casual dining restaurants with sports bars featuring the audiovisual technology. As of December 31, 2007, the company operated eight properties in Missouri, Iowa, Mississippi, Colorado, Nevada, and Indiana. Its portfolio of casinos consists of
Ameristar St. Charles in the St. Louis metropolitan area, Missouri; Ameristar Kansas City near
the Kansas City, Missouri; Ameristar Council Bluffs at the bank of the Missouri River, Iowa;
Resorts East Chicago near Chicago, Illinois; Ameristar Vicksburg in Vicksburg, Mississippi;
Ameristar Black Hawk near Denver, Colorado; Cactus Petes Resort Casino and The Horseshu
Hotel & Casino in Jackpot, Nevada; and Resorts East Chicago in East Chicago, Indiana. Ameristar Casinos was founded in 1954 and is based in Las Vegas, Nevada.
Management has a goal of doubling the company‟s EBITDA though acquisitions or new
greenfield opportunities within the next 3-5 years. The firm made a major commitment to that
goal with the acquisition of Resorts East Chicago with expected EBITDA generation in the mid
-$60 million range in 2007. Looking forward, management has suspended guidance citing competitive reasons. Furthermore, indicated that the 1H of 2008 could be difficult because of a
weakening economy, adverse weather conditions, and increased competition in certain markets.
ISLE
Isle of Capri Casinos, Inc.
Weight (%)
$7.15
Beta
35.21
Total LT Debt (mm)
Market Cap (mm)
$275
52 Week High
52 Week Low
1.65
0.32%
P/E (ttm)
N/A
$1,410
P/B
N/A
$1,716
2007 EV/Sales
1.7x
$27.99
2007 Sales (mm)
$6.87
2007 EBITDA
$174.4
ROE (after tax)
N/A
LTM EPS
$1.65
Country
US
442,562
$1,001.4 2007 EV/EBITDA
9.8x
Isle of Capri Casinos, Inc. (ASCA) and its subsidiaries engage in the development, ownership,
and operation of gaming facilities and related lodging and entertainment facilities in the United
States and internationally. The company owns and operates casinos in Biloxi, Lula, and
Natchez, Mississippi; Lake Charles, Louisiana; Bettendorf, Davenport, Marquette, and Waterloo, Iowa; and Boonville, Caruthersville, and Kansas City, Missouri, as well as a casino and
harness track in Pompano Beach, Florida. It also operates two casinos in Black Hawk, ColoAIM Fund 2007 - 2008 Annual Report
29
rado. Isle of Capri Casinos' international gaming interests include a casino in Freeport, Grand
Bahamas; a casino in Coventry, England; and a two-thirds ownership interest in casinos in Dudley and Wolverhampton, England. The company operates its properties under the brands the
isle, Isle of Capri, Colorado Central Station, and Rhythm City. As of August 2, 2007, it operated 18 casino properties. Isle of Capri Casinos was founded in 1990 and is headquartered in
Saint Louis, Missouri.
In March, ISLE, and the new management team, announced that main components of the new
strategic plan which will focus on organic growth opportunities and splitting its portfolio of casinos evenly into two brands: Isle and Lady Luck. Looking forward, its Mississippi casinos
should benefit from the reopening of the US 90 bridge. Similar to our other casino holding,
ASCA, ISLE could also be negatively affected by a difficult economic environment and adverse weather conditions.
JTX
Jackson Hewitt Tax Service, Inc.
Weight (%)
0.87%
$11.47
Beta
0.75
P/E (ttm)
7.1x
28.43
Total LT Debt (mm)
$127
P/B
4.5x
Market Cap (mm)
$396
$749
2007 EV/Sales
2.6x
5.9x
52 Week High
$34.48
2007 Sales (mm)
$293.2
2007 EV/EBITDA
52 Week Low
$10.90
2007 EBITDA
$128.0
ROE (after tax)
LTM EPS
$0.75
Country
1,685,097
13.96%
US
Jackson Hewitt Tax Service, Inc. (JTX) provides computerized preparation of federal, state,
and local individual income tax returns in the United States. It also engages in electronic filing
of their tax returns. The company offers its services through a nationwide network of franchised
and company-owned tax offices operating under the Jackson Hewitt Tax Service' brand name.
In addition, it offers a range of financial products, such as refund anticipation loans, which are
made by third party financial institution to a customer and secured by a customer's anticipated
federal tax refund; assisted refunds that are provided by third party financial institutions and
provide the customer with the ability to have their tax return preparation fees and other charges
withheld directly from their tax refund; and gold guarantee, an extended warranty that a customer may purchase whereby the taxpayer may be reimbursed up to a set limit for any additional tax liability owed due to an error in the preparation of the customer's tax return. Further,
the company provides a service that enables customers to receive funds on the ipower CashCard, a debit MasterCard card. As of April 30, 2007, its network comprised 5,778 franchised
offices and 723 company-owned offices. The company was founded in 1985 and is headquartered in Parsippany, New Jersey.
H&R Block continues to take share away from JTX, mostly among low-income consumers.
Furthermore, the new management team has significant operating challenges and negative publicity to deal with surrounding the Department of Justice investigation of one of the company‟s
franchisees. The negative publicity affected five cities, with tax return volume dropping 26% by
the end of the third quarter. These concerns provide for limited near-term visibility.
30
SWIM
INVESTools, Inc.
Weight (%)
0.75%
$10.99
Beta
1.10
P/E (ttm)
33.4x
65.47
Total LT Debt (mm)
$100
P/B
7.7x
Market Cap (mm)
$746
$785
2007 EV/Sales
2.5x
14.3x
52 Week High
$18.23
2007 Sales (mm)
$318.0
2007 EV/EBITDA
52 Week Low
$9.29
2007 EBITDA
$54.8
ROE (after tax)
LTM EPS
$1.10
Country
796,819
17.98%
US
INVESTools, Inc. (SWIM) offers investor education and services to self-directed investors to
help them improve their performance. Its products and services include teaching basic investing concepts in classroom settings, providing workbooks and training manuals, and one-on-one
personal coaching. Its products are offered under the BusinessWeek, CNBC, Success Magazine, and INVESTools brands. INVESTools, Inc. was founded in 1996 and is headquartered in
New York, NY.
SWIM enjoyed great success during Q407 as its stock price rose nearly 50%. However, SWIM
has encountered many hardships in the first quarter of 2008. With its products and services focusing mainly on investment education and trade execution, as the masses of novice investors
have been scared away from investing by the tumultuous market revenue projections have not
been met causing SWIM‟s stock price to depreciate 38%. During this difficult time, SWIM has
executed the acquisition of Mytrade.com, a social networking platform for investors of all levels, and as with any acquisition the expected synergies will take time to yield positive gains but
should provide upside in the near term.
TPX
Tempur-Pedic International, Inc.
Weight (%)
0.78%
$11.00
Beta
1.26
P/E (ttm)
7.0x
74.60
Total LT Debt (mm)
$602
P/B
40.2x
Market Cap (mm)
$891
2007 EV/Sales
1.3x
$1,459
52 Week High
$37.87
2007 Sales (mm)
52 Week Low
$9.51
2007 EBITDA
$284.3
ROE (after tax)
LTM EPS
$1.26
Country
3,569,517
$1,106.7 2007 EV/EBITDA
5.1x
69.86%
US
Tempur-Pedic International Inc. (TPX) specializes in the manufacture, marketing, and distribution of bedding products worldwide. Its products include pillows, mattresses, and adjustable
beds, as well as various cushions and other comfort products. Tempur-Pedic markets its products through furniture, bedding, and specialty stores, as well as department stores; Internet; chiropractors, medical retailers, and hospitals; and third party distributors. It sells its products under the brand names, TEMPUR and Tempur-Pedic. The company was founded in 1989 and is
headquartered in Lexington, Kentucky.
TPX shocked analysts when they released a Q407 outlook (EPS of $1.74-$1.76) well above estimates (EPS of $1.63-$1.66). This declaration was quickly discovered to be over-extended as
TPX encountered slumped sales in Q407 in reaction to consumer difficulties. During this time
31
it was announced that H. Thomas Bryant, TPX‟s CEO, will be retiring mid-year 2008. In response, TPX and its board of directors have formed a replacement committee and will be naming a replacement during Q208. For 2008, TPX released a much more conservative outlook
(EPS of $2.03-$2.20) that its 2007 proclamation. Q108 has been extremely difficult, marked
by an unprecedented slowdown in the US mattress industry. Nearly one-third US mattress
makers have gone out of business in Q108 due to plummeting sales. Though TPX has been
weakened (stock price depreciation of 56%) it is still recognized as a market leader and with
decreased competition in the near term should see some enveloping of market share as American consumer spending begins to stabilize.
IMKTA Ingles Markets, Inc
Weight (%)
0.99%
$24.59
Beta
1.35
P/E (ttm)
9.9x
12.39
Total LT Debt (mm)
$512
P/B
1.8x
Market Cap (mm)
$599
$603
2007 EV/Sales
0.8x
3.3x
52 Week High
$41.22
2007 Sales (mm)
$777.1
2007 EV/EBITDA
52 Week Low
$20.42
2007 EBITDA
$183.2
ROE (after tax)
86,109
LTM EPS
$1.35
Country
19.81%
US
Ingles Markets, Inc. (IMKTA) operates a supermarket chain in the southeast United States. Its
supermarkets offer various food products, including grocery, meat and dairy products, produce,
frozen foods, and other perishables; and non-food products, such as health and beauty care
products, and general merchandise, as well as private label items. In addition, Ingles Markets
engages in the fluid dairy processing and shopping center rentals businesses. As of September
29, 2007, it operated 197 supermarkets, including 73 in Georgia, 65 in North Carolina, 36 in
South Carolina, 20 in Tennessee, 2 in Virginia, and 1 in Alabama. The company also operated
51 in-store pharmacies and 44 fuel centers. Its supermarkets are located primarily in suburban
areas, small towns, and rural communities. The company was founded in 1963 and is headquartered in Asheville, NC.
IMKTA has only been in the AIM portfolio since March 11, 2008 but has already proved to be
an advantageous holding. Added the portfolio for its stabile nature as a consumer staple offering, IMKTA‟s stock price has appreciated over 10% while still offering a dividend yield of
2.7%. IMKTA‟s large footprint in the southeast United States is allowing it to withstand competition from discount retail stores entering the grocery realm, while allowing it to acquire
smaller chains to extend its brand. IMKTA has instilled a $175 Million renovation plan to update its locations in 2008, which should aid in competition as well as increase marketability.
Also, IMKTA‟s entrance into the fuel service realm has proved extremely profitable (same
store sales up 12% with fuel, 8% without) even as most fuel service offerings have encountered
difficulties. Currently IMKTA only has 44 fuel centers, and intends to increase this offering to
capitalize on its profitability.
32
VLCM
Volcom Inc
$20.21
Beta
1.37
24.35
Total LT Debt (mm)
Market Cap (mm)
$509
$0
$415
Weight (%)
1.47%
P/E (ttm)
15.3x
P/B
3.2x
2007 EV/Sales
1.5x
7.8x
52 Week High
$51.00
2007 Sales (mm)
$268.6
2007 EV/EBITDA
52 Week Low
$13.82
2007 EBITDA
$53.5
ROE (after tax)
372,633
LTM EPS
$1.37
Country
25.08%
US
Volcom, Inc. (VLCM) designs, markets, and distributes young men and young women clothing, footwear, accessories, and related products primarily under the Volcom brand name in the
United States and internationally. Its products include t-shirts, fleece, tops, jackets, bottoms,
denim, boardshorts, outerwear, sandals, slippers, vulcanized slip-on footwear, creedlers, girls
swimwear, and accessories, as well as a collection of kids clothing for young boys ages 4 to 7
years. The company also designs certain signature product styles, called V.co-Operative; produces and sells music and films; and offers a line of sunglasses and goggles under Electric'
brand name. It serves retail customers primarily comprising specialty board sports retailers and
other retail chains through its sales personnel, independent sales representatives, and distributors. As of December 31, 2007, the company operated six Volcom branded retail stores located
in California and Hawaii. It also markets its products over the Internet through authorized
online retailers. The company was founded in 1991. It was formerly known as Stone Boardwear, Inc. and changed its name to Volcom, Inc. in 2005. Volcom is headquartered in Costa
Mesa, California.
Looking forward, a weakening domestic economy and consumer may negatively impact Volcom. Also, one of Volcom‟s leading retail suppliers, PacSun, experienced a 40% decline in
revenue in 1Q08. Key long-term growth initiatives include its European operations and the recently acquired Electric brand.
Energy Sector
Analyst: Paul Simenauer and Barrett Willich
Over past year the energy sector has outperformed due to $112/bbl oil and record high natural
gas prices. This surge has been fueled by a weak dollar and strong global demand. International
growth in the BRICs along with the US pushed prices upwards. Hedge funds, ETFs, and other
financial vehicles have migrated to commodity products for inflation protection and safety from
volatile equity markets. Since the 2005 season, hurricane activity has been light and no major
geopolitical changes have moved the price.
In the short term prices could fall. Global demand could slow as a result of the US financial crisis, and a slowdown in BRICs infrastructure building. At the same time, prices could also fall as
a result of stabilizing equity markets resulting in downside pressure from large outflows in the
rotation from commodity markets to equity markets.
33
In the long term as reserves become harder to discover, produce, and transport, prices should
continue to rise. In the US, there are many reserve areas that have been protected and have not
been opened to exploration. Also, there has been protection of major reserves in major exporting countries, too. Lack of drilling site will push prices higher. In our view, oil service companies will have the most to gain while private exploration and development will have to travel to
more costly drilling sites (deep water, oilsands, shales). A real adoption of alternative energy
will not start until their costs come to parity with the grid and no longer need subsidies.
ANR
Alpha Natural Resources, Inc.
Market Cap (mm)
52 Week High
52 Week Low
$43.44
66.08
$3,161
$51.64
$15.92
3,507,970
Beta
Total LT Debt (mm)
2007 Sales (mm)
2007 EBITDA
LTM EPS
1.74
$425
$3,477
$1,877.6
$233.7
$1.74
Weight (%)
1.74%
P/E (ttm)
P/B
2007 EV/Sales
2007 EV/EBITDA
ROE (after tax)
Country
108.6x
5.7x
1.9x
14.9x
8.12%
US
Alpha Natural Resources, Inc. (ANR) and its operating subsidiaries are engaged in the business of extracting, processing and marketing coal from deep and surface mines, located in the
Central and Northern Appalachian regions of the United States, for sale to utility and steel companies in the United States and in international markets.
There has recently been a global shortage in coal due to flooding in Australia, which has constricted supply, while demand from China reminds robust. Last year, the Australian port of
Newcastle saw a 70 ship queue to fill up coal. Alpha Natural Resources is also attractive because part of its reserves consist of high quality metallurgical coal, which helps ANR differentiate itself from other coal companies, a rarity in what is largely a commodity industry.
BQI
Oilsands Quest, Inc.
$3.94
Beta
1.11
213.11
Total LT Debt (mm)
$0
Weight (%)
0.25%
P/E (ttm)
#NM
P/B
1.3x
Market Cap (mm)
$879
$806
2007 EV/Sales
N/A
52 Week High
$6.38
2007 Sales (mm)
N/A
2007 EV/EBITDA
N/A
52 Week Low
$2.37
2007 EBITDA
N/M
ROE (after tax)
-24.21%
LTM EPS
$1.11
Country
Canada
2,078,067
OilSands Quest, Inc. (BQI), is an exploration stage company, together with its subsidiaries,
engages in the exploration and development of oil sands deposits in the provinces of Saskatchewan and Alberta. It owns a 100% interest in the Saskatchewan Oil Shale exploration permits, as
well as in the Alberta oil sands exploration permits comprising 67,053 acres. The company also
holds interest in the Pasquia Hills Oil Shale prospect; and the Eagles Nest prospect.
Oilsands represents a play on the long end of the crude curve. As crude prices continue to increase, Oilsands, as a high cost producer, will benefit. In a way, Oilsands can be thought of as a
34
long term synthetic call option on crude. Management currently has plans for testing production
this Spring, and plans on ramping production likely in 2010-2012. Management has also said
that its main exit strategy is to have an outside company come in to produce the company‟s reserves. Other exits include the sale of the assets to a strategic acquirer such as Suncor, or national oil companies (China comes to mind here).
BRS
Bristow Group, Inc.
Weight (%)
1.02%
$53.67
Beta
0.97
P/E (ttm)
19.4x
23.90
Total LT Debt (mm)
$254
P/B
1.8x
Market Cap (mm)
$1,334
$1,866
2007 EV/Sales
2.1x
52 Week High
$58.98
2007 Sales (mm)
$897.9
2007 EV/EBITDA
12.7x
52 Week Low
$36.47
2007 EBITDA
$147.3
ROE (after tax)
287,952
LTM EPS
$0.97
Country
14.03%
US
Bristow Group Inc. (BRS) provides helicopter transport services to offshore oil and gas fields.
BRS operates in 21 countries, with primary operations in the Gulf of Mexico and the US. The
company is over 50 years old and employs more than 3,500 people. BRS is headquartered in
Houston, Texas. BRS was added to replace a portion of the AIM portfolio‟s E&P exposure with
BRS to provide less downside in the case of an energy price collapse.
BRS provides an energy play that is less subject to the cyclicality of oil pricing and less volatile
in a down market. BRS‟s beta of 0.88 creates somewhat of a hedge for the sector. BRS provides
a defensive position during a downturn with an attractive upside, because the main driver is
production activity, not development activity. BRS is essentially part of a duopoly in the industry and has a huge market share of the helicopter transport business. Their revenues are heavily
diversified among all its locations with a majority coming from the Gulf of Mexico and Europe.
Management is investing heavily in a new fleet which will produce more flight hours and have
less maintenance costs.
PETD
Petroleum Development Corporation
Weight (%)
0.66%
$69.27
Beta
0.97
P/E (ttm)
32.6x
14.85
Total LT Debt (mm)
$235
P/B
2.2x
Market Cap (mm)
$1,096
$1,196
2007 EV/Sales
3.9x
52 Week High
$75.32
2007 Sales (mm)
$305.2
2007 EV/EBITDA
12.5x
52 Week Low
$35.73
2007 EBITDA
$95.6
ROE (after tax)
9.22%
277,699
LTM EPS
$0.97
Country
US
Petroleum Development Corporation (PETD) is an independent oil and gas producer engaging in exploratory and development drilling, acquiring producing properties, and natural gas
marketing operations. The company operates approximately 3,100 wells located in the Appalachian basin, Michigan, and the Rocky Mountain Region. End users include industrial end users,
utilities, other gas marketers, and other wholesale gas purchasers. PETD was incorporated in
35
1955, and is headquartered in West Virginia.
PETD has seen a return of 55% since the purchase on November 9th, 2007 due to a run-up in
natural gas and oil pricing. The completion of the REX Pipeline increased basis pricing in the
Rockies, further helping earnings. Management‟s acquisitions have built up huge reserves for
the company. Their new drilling prospects will increase shareholder value into the future.
WDFC
WD-40 Company
Weight (%)
0.78%
$33.25
Beta
0.84
P/E (ttm)
18.3x
16.95
Total LT Debt (mm)
$43
P/B
3.8x
Market Cap (mm)
$567
$556
2007 EV/Sales
1.8x
10.6x
52 Week High
$42.70
2007 Sales (mm)
$307.8
2007 EV/EBITDA
52 Week Low
$29.40
2007 EBITDA
$52.6
ROE (after tax)
100,224
LTM EPS
$0.84
Country
20.00%
US
WD-40 Company (WDFC) sells consumer products for cleaning and lubricating. For over 40
years the company only sold one product, its famous petroleum-based lubricant and degreaser,
WD-40. In 1995, the company began its product line expansion efforts by acquiring 3-IN-ONE
oil, another lubricant product for more precise applications. This was followed by acquisitions
of the Lava and Solvol brands in 1999 and 2000 which are heavy-duty hand cleaning products.
2001 marked the company‟s venture into the more traditional consumer products category with
the acquisition of 2000 Flushes, X-14, and Carpet Fresh from Global Household Brands. In
2002 and 2004 the company purchased Spot Shot and 1001 brand carpet cleaners, respectively.
The firm is headquartered in San Diego, CA and sells its products globally.
Margins have shrunk over time as a result of higher input prices and more advertising costs.
Revenues have grown as a result of international expansion. New markets in Europe and China
have been the driver of growth for the past few years. WDFC‟s brand name at home and expansion abroad will make it a “Steady Eddie” for years to come.
W-H Energy Services Inc. (WHQ) primarily provides products and services used for drilling,
completion, and production of oil and natural gas. They target operations onshore and offshore
in Canada, the North Sea, and the Gulf Coast. They are expanding internationally to Brazil, the
Caspian Sea, Italy, and the Middle East.
WHQ
W-H Energy Services, Inc.
Weight (%)
1.70%
$68.85
Beta
1.51
P/E (ttm)
15.4x
30.85
Total LT Debt (mm)
$150
P/B
2.7x
Market Cap (mm)
$2,228
2007 EV/Sales
2.1x
52 Week High
$77.42
2007 Sales (mm)
52 Week Low
$47.29
2007 EBITDA
$319.2
ROE (after tax)
537,688
LTM EPS
$1.51
Country
36
$2,358
$1,127.0 2007 EV/EBITDA
7.4x
30.02%
US
W-H Energy Services, Inc (WHQ) recently acquired Sup-R-Jar, LLC, a drilling jar rental tool
provider for ~$47.5m, with an estimated $.09-$.13 in accretive earnings. The company has recently been ramping up activity in the Rockies, and sell-side estimates have been raised around
the street over the past quarter (Q2). While there has been some pricing pressure for competitors in some of WHQ‟s business lines, management stated on the Q407 conference call that
WHQ has not been affected as much due to the areas in which they operate. WHQ remains a
strong performer in the oil services sector and could ultimately become a take-out target for a
larger oil services firm in our opinion.
Financial Services Sector
Analysts: Mike Carlson, Barrett Willich and Stan Zurawski
The financial services sector includes six major sub-sectors: regional banks, real estate, insurance and reinsurance, finance, securities and money management companies. Regional banks
take in deposits and make loans to individuals and businesses through a wide range of product
offerings. The real estate sub-sector is composed of companies formed as REIT‟s or other companies that own, develop, and sell real estate as their main source of income. The insurance subsector is composed of companies offering property, life, mortgage, malpractice, and reinsurance
to individuals and institutions. Making up the finance sub-sector are companies that specialize
in finance-related business, but do not fit the typical description of a commercial bank, investment bank, insurance company, or investment management firm. Money management firms
provide consulting, asset management, and brokerage services to individuals and institutions.
The credit crisis began in February of 2007 when one of Bear Stearns hedge funds could not
meet its margin calls. The credit markets reacted strongly to this incident, remaining stable but
skeptical. Leverage buy-outs stopped because there were no buyers of leveraged loans. As
credit markets ceased, spreads widened and investors began to move away from spread products into treasuries. Further investigation into the CDOs and CMOs markets revealed underlying securities were inappropriately priced for risked. Blame was placed on the investment
banks, rating agencies, and most of all the originators. FASB 157 required firms to mark to
market based on the ABX indices. This resulted in massive write-offs for many financial companies who struggled to find buyers. Government bail outs followed with Fed rate cuts, a lower
discount rate, and infusion of capital to some of the largest financial corporations. During our
holding period the Fed rate was cut from 5.25% to 3.25%
The turmoil in the credit markets spread through to all financial service companies regardless of
size and focus. The uncertainty of future credit market conditions and cash flows lowered the
prices of financial services stocks across the board. The Feds actions have helped ease concerns, yet there still may be some turmoil left. Nonetheless, the steep yield curve and low rates
will help financial companies going forward.
Over the holding period, the AIM Fund financial services sector returned -33.56% against a
small-cap financial services benchmark return of -23.94%. A significant part of the underperformance can be contributed to an overweighting of regional banks. Regional banks suffered
37
from credit crisis discussed previously. Macatawa Bank (MCBC) in Michigan, which was sold
in November, lost 41.70% over the holding period and First Cash Financial Services (FCFS), a
small consumer lender, lost 40.35% as well. Also contributing to the underperformance was
Triad Guaranty (TGIC), a mortgage lender, which lost 84.40% over the holding period. Strong
performers were private equity companies Apollo Investment Corporation (AINV) and Gladstone Capital (GLAD) which returned 7.46% and 9.09%, respectively.
Medical Properties Trust Inc. (MPW) is a Real Estate Investment Trust (REIT) that acquires,
develops, and leases healthcare facilities. They lease their facilities to experienced healthcare
operators with long-term leases that require the tenant to bear most of the operating costs. The
company focuses on acquiring and developing rehabilitation hospitals, long-term acute care
hospitals, regional and community hospitals, women‟s and children‟s hospitals and ambulatory
surgery centers. The company was started in August 2003, and is currently based out of Birmingham, Alabama. The REIT sector is very broad, but close competitors include Ventas Inc.,
Senior Housing Property Trust, and Health Care REIT, Inc.
MPW
Medical Properties Trust, Inc.
Weight (%)
2.69%
$11.32
Beta
0.58
P/E (ttm)
14.1x
53.71
Total LT Debt (mm)
$397
P/B
1.0x
Market Cap (mm)
$648
$1,039
2007 EV/Sales
10.8x
52 Week High
$15.10
2007 Sales (mm)
$96.3
2007 EV/EBITDA
12.6x
52 Week Low
$9.56
2007 EBITDA
$0.0
ROE (after tax)
9.72%
LTM EPS
$0.58
Country
1,331,175
US
Medical Properties Trust, Inc. (MPW) is still an attractive investment, because of its high
dividend yield and defensive position in healthcare. The company has kept its dividend consistent even though the financial crisis. Management has recently purchased seven new properties
by raising new equity and using their credit facility. Their aggressive acquisition strategy will
help to increase their earnings.
AEL
American Equity Invest Life Holding Company
Weight (%)
1.54%
$9.28
Beta
1.15
P/E (ttm)
9.0x
56.89
Total LT Debt (mm)
$537
P/B
0.7x
Market Cap (mm)
$550
$1,334
2007 EV/Sales
1.9x
$714.5
2007 EV/EBITDA
12.5x
4.33%
52 Week High
$13.97
2007 Sales (mm)
52 Week Low
$6.82
2007 EBITDA
$0.0
ROE (after tax)
LTM EPS
$1.15
Country
551,298
US
American Equity Investment Life Holding Company (AEL), through its wholly owned subsidiaries, engages in the development, issuance, administration, and marketing of annuities and
life insurance. It underwrites annuity and insurance products. The company‟s products include
fixed rate annuities, index annuities, variable annuity, and life insurance. The company is headquartered in Des Moines, Iowa. AEL currently employs 200 with offices in 49 states and the
District of Columbia. Fifty percent of annuity sales are in index-equity investments, the other
38
half are in fixed income products.
While the annuity market remains competitive, the normal yield curve is much more favorable
among insurers. A major concern is the amount of CMO, CDO exposure in their portfolio.
However AEL has mainly high grade securities. Performance and costs of their equity indexed
annuities have also seen some problems. New financial legislation for insurance companies and
the financial industry is a sector wide concern.
FPIC
FPIC Insurance Group, Inc.
$47.14
Market Cap (mm)
Weight (%)
2.60%
Beta
1.17
P/E (ttm)
9.2x
8.76
Total LT Debt (mm)
$46
P/B
1.4x
$428
$400
2007 EV/Sales
1.7x
3.8x
52 Week High
$49.99
2007 Sales (mm)
$230.0
2007 EV/EBITDA
52 Week Low
$33.25
2007 EBITDA
$105.0
ROE (after tax)
90,888
LTM EPS
$1.17
Country
18.96%
US
FPIC Insurance Group, Inc. (FPIC) provides specialty property and casualty insurance, as
well as insurance management services in the United States. It offers medical professional liability insurance products and related risk management services for physicians, dentists, and
other healthcare providers primarily in Florida and Missouri. In addition, the company provides
insurance management services to other insurance carriers, as well as offers administrative and
claims management services to municipalities and other employers that maintain group accident
and health, workers‟ compensation, liability, and property self insurance plans. FPIC Insurance
provides its products and services primarily in Florida, Georgia, and Arkansas. The company is
headquartered in Jacksonville, Florida.
The stock has had a huge return since last year, because life insurance is a relatively safe area in
the financials. There is some concern on earnings, because of their investment portfolio. Yields
have fallen in the fixed income markets and there is concern about their returns. New tort reform in Florida could also hurt earnings.
AINV
Apollo Investment Corporation
Weight (%)
0.60%
$15.83
Beta
1.15
P/E (ttm)
11.4x
119.30
Total LT Debt (mm)
$492
P/B
1.0x
Market Cap (mm)
$1,989
$2,271
2007 EV/Sales
8.5x
52 Week High
$24.17
2007 Sales (mm)
$266.1
2007 EV/EBITDA
N/A
52 Week Low
$12.49
2007 EBITDA
$0.0
ROE (after tax)
LTM EPS
$1.15
Country
2,532,202
14.55%
US
Apollo Investment Corporation (AINV) is a principal investment firm specializing in mezzanine and senior secured loans to private, middle market companies. A small part of their business is also in PIPES transactions. Their debt securities include: second lien debt, subordinated
debt, holding company PIK, convertible, preferred equity, common equity and co-investments.
39
The sectors they seek to invest in are: business services, cable television, chemicals, consumer
products, direct marketing, distribution, energy and utilities, financial services, healthcare,
manufacturing, media, publishing, retail and transportation. Apollo typically invests between
$20 to $150 million in portfolio companies.
The public companies involved in private debt took a hit during the credit crisis this past year.
These companies trade on many factors, including corporate and high yield bond spreads.
Apollo was a recent addition to the portfolio and has performed well since becoming a part of
the AIM fund. High historical spreads, a strong dividend (they are required to pay a certain percentage of their earnings as a Business Development Company (BDC)) and an historical undervaluation give Apollo a hopeful outlook.
FCFS
First Cash Financial Services, Inc.
Weight (%)
1.23%
$10.33
Beta
1.69
P/E (ttm)
11.1x
30.65
Total LT Debt (mm)
$59
P/B
2.2x
Market Cap (mm)
$367
$433
2007 EV/Sales
1.1x
6.7x
52 Week High
$25.80
2007 Sales (mm)
$388.5
2007 EV/EBITDA
52 Week Low
$7.54
2007 EBITDA
$64.9
ROE (after tax)
LTM EPS
$1.69
Country
593,577
18.72%
US
First Cash financial services, Inc (FCFS) provides specialty consumer finance products such
as pawn loans, short-term/payday advances, and buy-here/pay-here automotive retail and finance offerings. As of February 20, 2007, First Cash had 95 pawn stores, 145 payday stores,
and 10 buy-here/pay-here dealerships in the U.S., as well as 157 pawn stores in Mexico. With
the acquisition of Auto Master on August 25, 2006, First Cash diversified its revenue base. The
recent emphasis for growth has been the pawn shop segment in Mexico.
First Cash suffered a regulatory blow in the third quarter when they had to close their nine
Washington, D.C. stores due to changes in regulation. The stock took another hit after reporting a -52.6% surprise for their fourth quarter earnings, mainly due to their underperforming
automotive segment and store closings. The stock bottomed out in early March, but has made a
meaningful recovery since then. Their pawn store expansion in Mexico continues to be the
strong point of their business. The automotive retail segments performance and regulatory issues will be the main catalysts in the near future.
FIF
Financial Federal Corp.
Weight (%)
1.68%
$21.81
Beta
1.09
P/E (ttm)
12.2x
25.47
Total LT Debt (mm)
$571
P/B
1.5x
Market Cap (mm)
$587
$2,171
2007 EV/Sales
20.4x
13.0x
52 Week High
$32.05
2007 Sales (mm)
$106.4
2007 EV/EBITDA
52 Week Low
$17.66
2007 EBITDA
$166.0
ROE (after tax)
319,401
LTM EPS
$1.09
Country
40
12.60%
US
Financial Federal Credit Inc. (FIF) finances industrial and commercial equipment through
installment sales and leasing programs for dealers, manufacturers, and end users. The company
also provides capital loans secured by the same types of equipment and other collateral. The
company‟s customer base consists of small and medium sized businesses with annual revenues
below $25 million in general construction, road and infrastructure construction and repair, road
transportation, and waste disposal services. FIF has marketing personnel in over twenty locations nationwide with five full-service operations in Texas, North Carolina, New Jersey, Illinois, and California and is headquartered in Chicago, Illinois.
FIF has experienced some losses this past year, mainly due to general economic conditions.
But, rate cuts and their superior credit quality have maintained the stock price better than many
industrial and commercial lenders. Management, which is considered to be among the best in
the business, has commented that the rate cuts of the last year have improved their interest revenue. The stock has remained stable as of late and should rebound strong with improving economic activity.
GLAD
Gladstone Capital Corporation
$18.71
Beta
20.64
Total LT Debt (mm)
Market Cap (mm)
$388
Weight (%)
1.02%
P/E (ttm)
11.1x
P/B
1.1x
$540
2007 EV/Sales
14.7x
0.73
$0
52 Week High
$24.84
2007 Sales (mm)
$36.7
2007 EV/EBITDA
18.0x
52 Week Low
$15.91
2007 EBITDA
$29.5
ROE (after tax)
6.05%
142,834
LTM EPS
$0.73
Country
US
Gladstone Capital Corporation (GLAD) is a public investment firm specializing in debt security investments in small to medium sized private companies. Their debt securities are generally senior term loans, senior subordinated loans, and junior subordinated loans. They typically
invest $3 to $15 million in portfolio companies with maturities around five years. Gladstone
does not invest in technology, financial services, real estate, and oil and gas companies. The
companies they traditionally invest in are valued around $20 to $500 million and are typically
owned by LBO firms, venture capital firms, or families. Gladstone does not invest in distressed
companies.
Gladstone is relatively small compared to its small/mid cap peers, but the credit quality of their
portfolio exceeds that of their peers. The emphasis on senior debt has allowed their stock price
to hold in better than their competitors. All public companies focused on private securities decreased in value with many financials, but have performed well recently as credit spreads have
started to decrease. Gladstone offers a strong dividend and they are near the low of their Net
Asset Value. This stock has a strong opportunity to achieve strong returns for the AIM Fund.
41
FTBK
Frontier Financial Corporation
Weight (%)
1.01%
$17.68
Beta
1.61
P/E (ttm)
11.1x
46.99
Total LT Debt (mm)
$271
P/B
1.9x
Market Cap (mm)
$854
$1,329
2007 EV/Sales
6.6x
9.9x
52 Week High
$26.35
2007 Sales (mm)
$199.9
2007 EV/EBITDA
52 Week Low
$14.41
2007 EBITDA
$127.5
ROE (after tax)
356,997
LTM EPS
$1.61
Country
18.52%
US
Frontier Financial Corp. (FTBK) is a regional bank headquartered in Everett, Washington.
Founded in 1978, Frontier has grown to more than $3 billion in assets. The bank operates 50
branches in 9 counties surrounding Seattle and 3 counties in Oregon. Frontier emphasizes commercial real estate and construction lending to businesses in its region. In July of 2007, the bank
announced the acquisition of the Bank of Salem (BSOG), extending its footprint into Oregon.
Major competitors of Frontier include Washington Mutual, Bank of American, Cascade Financial, and City National.
Frontier continues to produce strong profitability and asset quality numbers. In 2007 Frontier
was ranked for performance of the top 150 banks and thrifts in the country. The regional bank
operates in the Seattle area which has witnessed some of the slowdown experienced across the
nation, particularly in the housing and construction markets. The majority of Frontier‟s loan
profile is concentrated in commercial construction. Nonetheless, the demographics in the area
remain strong.
PFBC
Preferred Bank
Weight (%)
1.38%
$16.69
Beta
0.84
P/E (ttm)
6.7x
10.30
Total LT Debt (mm)
$111
P/B
1.0x
Market Cap (mm)
$169
$200
2007 EV/Sales
2.8x
4.9x
52 Week High
$43.44
2007 Sales (mm)
$71.5
2007 EV/EBITDA
52 Week Low
$16.00
2007 EBITDA
$41.2
ROE (after tax)
72,045
LTM EPS
$0.84
Country
18.04%
US
Preferred Bank Los Angeles (PFBC) is a regional bank headquartered in Los Angeles, California. Founded in 1991, Preferred has grown to more than $1.5 billion in assets and is one of
the largest independent commercial banks in California focusing on the Chinese-American market. The bank operates 11 branches in 3 counties surrounding Los Angeles. Preferred provides
personalized deposit services as well as real estate finance, commercial loans and trade finance
to small and mid-sized businesses, entrepreneurs, real estate developers, professionals and high
net worth individuals. Major competitors of Preferred include Cathay General Bancorp, East
West Bancorp, and UCBH Holdings Inc.
Preferred has developed a strong niche in the Los Angeles market by catering to ChineseAmericans. PFBC is deeply undervalued as a result of a large sell off prior to our purchase in
October because of concerns about bank stocks in general, more widespread weaknesses in resiAIM Fund 2007 - 2008 Annual Report
42
dential construction fundamentals in the Los Angeles market, expected short-term margin compressions, and the departure of their Chief Credit Officer. The P/E is currently 8.76 and it historically traded at a range of P/E of 16-18.
PNFP
Pinnacle Financial Partners, Inc.
Weight (%)
1.80%
$25.60
Beta
1.37
P/E (ttm)
19.5x
22.42
Total LT Debt (mm)
$149
P/B
1.2x
Market Cap (mm)
$578
$873
2007 EV/Sales
8.9x
$31.48
2007 Sales (mm)
$98.2
2007 EV/EBITDA
18.8x
52 Week Low
$20.82
2007 EBITDA
$46.6
ROE (after tax)
8.08%
106,040
LTM EPS
$1.37
Country
52 Week High
US
Pinnacle Financial Partners, Inc. (PNFP) is a regional bank headquartered in Nashville, Tennessee. Founded in 2000, Pinnacle has grown to $2.3 billion in assets. The bank operates 31
branches in 5 counties surrounding Nashville and 2 branches near Knoxville in Knox County.
Pinnacle emphasizes commercial and industrial loans (45% of total loans), commercial real estate loans (18.2%) and consumer real estate loans (17.2%). In early December of 2007, the
bank completed its acquisition of Mid-America Bancshares Inc., extending its footprint in
Nashville. Major competitors of Pinnacle include Bank of America, First Horizon National,
and SunTrust Banks.
This regional bank out of Tennessee continues to grow its loan portfolio and branches. Two
banks were acquired in 2007, moving into the Knoxville market. The Nashville market has remained stable. Asset quality is normalizing from quite low numbers and net charge offs were
still low in the first quarter.
SBIB
Sterling Bancshares, Inc.
Weight (%)
1.87%
$9.94
Beta
1.16
P/E (ttm)
14.4x
73.16
Total LT Debt (mm)
$319
P/B
1.7x
Market Cap (mm)
$738
$932
2007 EV/Sales
4.2x
9.7x
52 Week High
52 Week Low
$12.70
2007 Sales (mm)
$221.8
2007 EV/EBITDA
$8.50
2007 EBITDA
$96.0
ROE (after tax)
LTM EPS
$1.16
Country
1,035,616
12.60%
US
Sterling Bancshares, Inc. (SBIB) is a regional bank headquartered in Houston, Texas.
Founded in 1974, Sterling operates in 45 banking centers in the greater metropolitan areas of
Houston, San Antonio, and Dallas in Texas. Sterling focuses on serving the banking needs of
small to medium-sized business. As of year-end 2007, real estate loans made up 48% of total
loans and commercial loans were 27% of total loans. In February, Sterling completed the acquisition of ten bank branches in the Dallas and Fort Worth areas from First Horizon National
Corp. In addition, Sterling announced the acquisition of the Houston-based Partners Bank of
Texas on March30, 2007.
43
Sterling operates in some of the better performing markets in the country (Houston, Dallas, and
San Antonio). The efficiency ratio continues to improve with room for more improvement.
Asset quality remains strong. The bank completed two acquisitions in 2007 and will continue
to grow through de novo branches and acquisitions while maintaining strong profitability numbers. The price has remained stable despite poor performance by banks in general.
UEPS
Net 1 Ueps Technologies, Inc.
1.20
Weight (%)
1.73%
P/E (ttm)
19.4x
P/B
5.2x
$22.55
Beta
52.52
Total LT Debt (mm)
Market Cap (mm)
$1,283
$1,077
2007 EV/Sales
4.2x
52 Week High
$33.82
2007 Sales (mm)
$253.6
2007 EV/EBITDA
10.0x
52 Week Low
$21.25
2007 EBITDA
$107.9
ROE (after tax)
592,182
LTM EPS
$1.20
Country
$4
26.73%
US
Net 1 UEPS Technologies, Inc. (UEPS) provides a universal electronic payment system as an
alternative payment system for the unbanked and under-banked populations of developing
economies, particularly South Africa, Botswana, Namibia, Nigeria, Colombia, Vietnam, Ghana,
and Iraq. Net 1‟s systems uses secure smart cards which operate in real time but differ from
most in that they are offline so that users of the system can enter into transactions at any time
with other card holders so long as a smart card reader is available. The four segments of the
company include: Transaction-Based Activities, Smart Card Accounts, Financial Services, and
Hardware/ Software sales. The transaction segment makes up 65% of revenue and 80% of
profits. Net 1 was founded in 1989 and is headquartered in Rosebank, South Africa.
Net 1‟s offline capability does not require constant use of electricity, unlike its competitors.
The SASSA is currently reviewing proposals from electronic payments system providers. Net
1‟s standing with SASSA might have been strengthened as a result of the recent electricity and
blackout problems in South Africa. The 2008/2009 budget announcements for South Africa
proved positive from Net 1. Welfare spending is expected to grow 14% (more than previously
expected) and a new corporate tax rate of 28%, reduced from the earlier proposed tax rate of
29%. The high spending on social welfare will be the result of increasing the number of beneficiaries as well as the size of the grants. The announcement of the Iraqi contract demonstrates
the UEPS applicability and suitability of the technology where other solutions have fallen short.
Over the past several quarters, Net 1 has entered Botswana, Namibia, Nigeria, Colombia, Vietnam, Ghana, and Iraq (many through joint ventures). These wins position Net 1 well for entries
into additional geographies.
44
Hardware Sector
Analysts: Patrick Flaherty and Luke Junk
Over the past twelve months, the AIM Hardware Sector has underperformed greatly, returning
-35.13% vs. 1.17% of the Morningstar Hardware Sector Index. By quarter, the sector has performed in the following (Hardware vs. Morningstar Hardware, respectively): Q1‟07: 6.03% vs.
-0.82%; Q2‟07: 12.76% vs. 12.37%; Q3‟07: -6.72% vs. -3.22%; Q4‟07: -33.53% vs. -14.33%.
The majority of the underperformance has been driven by disappointing company news, with
the general pessimistic view of the economy pushing the sector down further.
To minimize our exposure risk, we have taken a conscious effort to diversify the hardware sector. Prior to our holding period, the sector was heavily weighted in Semiconductors, Wireless
Equipment, and Wireline Equipment. Within diversification in mind, we modified with the addition of more companies in different sub-sectors. Currently, we hold seven stocks which include the following: Diodes Inc. (Semiconductors), IPG Photonics Corp. (Semiconductors), Littelfuse Inc. (Components), Novatel Wireless Inc. (Wireless Equipment), Rimage Inc. (Contract
Manufacturers), Sigma Designs Inc. (Computer Equipment), and Tessera Technologies Inc.
(Semiconductor Equipment).
The outlook for the hardware sector over the next twelve months is grim. The technology sector
in general is likely to suffer with the continuing credit crunch and possible slowdown in corporate earnings. Investors will likely be drawn to the larger, safer, and more well-known tech
names, as small cap tech lags behind. Yet, an overall healthy market sentiment with strong corporate performance and consumer spending may be able to turn things around for small cap
tech. Total information technology spending is also expected to rise in 2008, which should help
the hardware sector as a whole.
Diodes (DIOD) is engaged in the design, sale and manufacture of discrete semiconductor products, fixed-function devices that are less complicated than integrated circuits. The company
maintains a portfolio of over 4,000 products that are sold into a diverse group of end-markets,
including consumer electronics (36%), computing (37%), industrial (15%), communications
(10%) , and automotive (2%). The company are distributed both directly (52%) and through a
network of independent distributors (48%). DIOD has been a public company since 1966 and is
headquartered in West Lake Village, California. In addition to its US headquarters, Diodes
maintains sales, manufacturing and marketing facilities in the US, Taiwan and China. Major
competitors include Fairchild Semiconductor, International Rectifier, Vishay Intertechnology,
and ON Semiconductor.
DIOD
Diodes Inc.
Weight (%)
1.66%
$21.96
Beta
1.44
P/E (ttm)
16.7x
41.24
Total LT Debt (mm)
$237
P/B
3.5x
Market Cap (mm)
$1,023
$892
2007 EV/Sales
2.2x
52 Week High
$35.00
2007 Sales (mm)
$401.2
2007 EV/EBITDA
10.1x
52 Week Low
$19.51
2007 EBITDA
$88.5
ROE (after tax)
619,118
LTM EPS
$1.44
Country
45
20.48%
US
Diodes Inc, (DIOD) is a company that is built for long-term growth and consistency. The company has grown top-line revenues at an average of 28% annually over the last five years, while
boosting gross margin by over 10% over the same time period. Strong revenue growth will continue into the future, driven by the company‟s commitment to the continued development of
new products. The company typically looks to launch 200 new products annually. Accretive
acquisitions are also likely to occur in the future, further enhancing DIOD‟s revenue growth
profile. Looking forward, we expect the company‟s foray into the analog semiconductor market
should complement the existing discrete business well and be significantly accretive to revenues.
In addition to its strong growth profile, DIOD‟s portfolio of over 4,000 products limits exposure
to subsector-specific weakness in the hardware space. The company estimates that its indirect
customer base numbers over 10,000 with no single customer accounting for more than 10% of
revenues. Paired with this revenue profile is the likelihood of continued improvements in
DIOD‟s gross and operating margins. These improvements have come about by working
closely with customers on design specifications, low cost manufacturing processes, innovative
packaging, and by combining multiple discrete products into single arrays. Given DIOD‟s stable long-term growth profile, we view the company as a core long-term holding in the hardware
sector.
IPGP
IPG Photonics Corporation
Weight (%)
0.73%
$15.69
Beta
0.56
P/E (ttm)
25.1x
44.09
Total LT Debt (mm)
$20
P/B
4.7x
Market Cap (mm)
$720
$707
2007 EV/Sales
3.7x
12.1x
52 Week High
$23.94
2007 Sales (mm)
$188.7
2007 EV/EBITDA
52 Week Low
$13.80
2007 EBITDA
$58.6
ROE (after tax)
176,639
LTM EPS
$0.56
Country
17.58%
US
IPG Photonics (IPGP) is the dominant player in the fiber laser market, a disruptive technology
that is taking significant market share from traditional solid state and CO2 lasers. The company‟s product portfolio of low-, mid-, and high-power lasers are used in materials processing,
communications, medical and advanced applications. Customers include major OEMs and system integrators, including Gillette, Mitsubishi, Reliant, Alcatel-Lucent, and Boeing. IPGP
maintains sales offices throughout North America, Europe and Asia as 68% of sales come from
outside the Americas. Competition primarily comes from traditional laser suppliers such as
Trump, Rofin, and Coherent, while smaller firms provide some direct competition. IPGP has
1,000 employees and is headquartered in Oxford, Massachusetts.
IPGP is a pure play in the high-growth fiber laser market, which is expected to grow at a 37%
CAGR over the next five years. Growth will result as fiber lasers cannibalize the traditional laser market, which is currently a $2.5 billion market. Fiber lasers are technologically superior to
their traditional competitors, offering better beam quality, higher reliability, and lower operating costs. Given IPGP‟s dominant 70% market share, the company is well positioned to capitalize on this explosive growth. The company‟s leading market share is attributable to its technolAIM Fund 2007 - 2008 Annual Report
46
ogy leadership in the industry, which has enabled IPGP to build production high-power fiber
lasers while competitors struggle to bring mid-power fiber lasers into production. IPGP‟s market leader position is further solidified by its cost leadership role, as it is the only vertically integrated manufacturer in the space. We view IPGP as a significant long-term growth story that
will gain significant traction in the next 12 months.
LFUS
Littelfuse Inc.
$34.97
Beta
22.71
Total LT Debt (mm)
1.17
Market Cap (mm)
$791
$1
$773
Weight (%)
1.70%
P/E (ttm)
21.8x
P/B
2.1x
2007 EV/Sales
1.4x
10.7x
52 Week High
$44.99
2007 Sales (mm)
$536.1
2007 EV/EBITDA
52 Week Low
$26.90
2007 EBITDA
$72.0
ROE (after tax)
117,707
LTM EPS
$1.17
Country
12.09%
US
Littelfuse (LFUS) is a leading supplier of fuses and other circuit protection devices, which
make products more reliable and protect against events such as lightning or short circuits. The
company is organized into three strategic business segments: auto, electronics, and electrical;
these business units serve four end markets: telecom, automotive, consumer, and industrial.
Customers include major OEMs and EMS providers throughout the world, with 60% of the
company‟s revenues coming from outside of North America. Littelfuse‟s products are distributed through a direct sales force and an international network of distributors. The company was
founded in 1927, has 6,550 employees, and is based in Des Plaines, Illinois.
LFUS represents a significant earnings power story, as consensus EPS is expected to grow at a
23% CAGR from 2007-2009. This is the result of significant cost reduction efforts focused
around moving some of the company‟s manufacturing operations to lower costs locations overseas. Management expects this transition to deliver $10 million of cost savings in 2008 and $15
million of savings in 2009. Ultimately, the company is looking to raise its operating margins to
15%, a 500 bps improvement from their current levels.
LFUS‟s earnings power story is helped by the company‟s dominant market position and several
revenue drivers. The company maintains a dominant 90% market share in the automotive market. The company also maintains a market leadership position in the traditional fuse market,
holding an 80% share in the U.S. and 70% share in Europe. This dominant market share position is coupled with several revenue drivers, including several new product ramps in all three
segments and rising electronic content in the automobile sector. LFUS‟s earnings power story
should begin to materialize over the next 12 months, driving the stock higher during that time.
47
NVTL
Novatel Wireless, Inc.
Weight (%)
$9.68
Beta
1.08
32.76
Total LT Debt (mm)
Market Cap (mm)
$355
$0
$206
9.1x
P/B
2.5x
2007 EV/Sales
0.5x
3.2x
52 Week High
$29.14
2007 Sales (mm)
$429.9
2007 EV/EBITDA
52 Week Low
$8.33
2007 EBITDA
$64.4
ROE (after tax)
LTM EPS
$1.08
Country
1,260,240
0.58%
P/E (ttm)
26.64%
US
Novatel Wireless (NVTL) is a leading provider of wireless broadband solutions for the mobile
communications market. NVTL‟s products allow wireless, mobile access to information over
the internet. These products include third generation wireless PC cards and ExpressCard modems, embedded modems, and communication software. The company‟s products primarily
serve wireless network operators, infrastructure providers and distributors, and OEMs. With
over 230 employees, NVTL is headquartered in San Diego, California.
NVTL continues to remain on the cutting edge of the wireless communication industry with its
strategic relationships with such successful partners as Alcatel, Siemens, Dell, Qualcomm,
Sprint, Verizon, and Vodafone. NVTL has several growth catalysts ahead in the future. Management has hinted at acquiring in the future in order to diversify the company‟s business. With
Option underperforming and approximately $124 MM in cash on the balance sheet, this may
seem likely. The company also plans to transfer to their next generation USB products. In addition, the recent launch of NVTL‟s HUSPA USB products in Europe with Vodafone is expected
to be successful as a result of minor market infiltration.
Throughout the past twelve months, NVTL has seen a lot of volatility. It has faced pressures
from a competing Gobi chip from Qualcomm, has received numerous downgrades with the
fears of a saturated market and lower sales, and has seen several upgrades for beliefs that the
company is right on target for growth. Despite the increased risk of Novatel, we view the company as a strong performer but recommend keeping watch on its strategic position in the wireless communications market.
RIMG
Rimage Corporation
$21.90
9.79
Beta
Total LT Debt (mm)
0.57
Market Cap (mm)
$222
$0
$167
Weight (%)
0.72%
P/E (ttm)
14.8x
P/B
2.5x
2007 EV/Sales
1.5x
7.4x
52 Week High
$34.63
2007 Sales (mm)
$108.9
2007 EV/EBITDA
52 Week Low
$20.79
2007 EBITDA
$22.4
ROE (after tax)
57,141
LTM EPS
$0.57
Country
16.83%
US
Rimage Corporation (RIMG) designs, manufactures, and distributes CD, DVD, and Blu-Ray
Recordable duplication systems mainly for the retail, education, medical, and business services
industries. The company‟s products include premastering, recording, and labeling CDs and
DVDs for small or large volumes. RIMG‟s products can be separated into Producer, ProfesAIM Fund 2007 - 2008 Annual Report
48
sional, and Desktop segments, depending on the volume of copies. The company uses its own
direct sales force team to market in the United States, Europe, the Asia Pacific, and Latin America. Its main competitors include Primera Technology, Teac Corp., and Microtech Systems, all
privately-held. Headquartered in Minneapolis, Minnesota, RIMG was founded in 1987 and employs approximately 200 employees.
RIMG is built to reap the benefits of the transition from paper to CD/DVD/Blu-Ray. With the
result of greater information capacity, lower costs, and increased convenience, companies are
switching to optical technology for their storing, distributing, and archiving needs. The data
storage industry is even expected to grow 20% every year. As a result, from 2002 to 2006,
RIMG‟s sales have grown at 22% CAGR and EPS has grown at 20% CAGR. To build on its
technologically innovative products, the company recently announced the addition of the Bluray duplication system, providing five and thirty five times the capacities of DVDs and CDs,
respectively. RIMG is well diversified, marketing to the retail, healthcare, business services,
media, corporate, education, and government industries, and has a strong focus on expanding in
these areas.
SIGM
Sigma Designs, Inc.
Weight (%)
$22.67
Beta
26.54
Total LT Debt (mm)
Market Cap (mm)
$694
52 Week High
52 Week Low
2.51
$0
$376
P/E (ttm)
9.6x
P/B
1.9x
2007 EV/Sales
1.7x
6.2x
$73.00
2007 Sales (mm)
$221.2
2007 EV/EBITDA
$20.04
2007 EBITDA
$60.7
ROE (after tax)
LTM EPS
$2.51
Country
3,301,771
0.95%
106.37%
US
Sigma Designs (SIGM) is a leading provider of system-on-chip (SoC) semiconductors, which
refers to an integrated circuit that incorporates all the necessary components of computer and/or
electronic systems. The principal end-markets for Sigma‟s SoCs include IPTV set-top boxes,
DVD media centers, and digital TVs. Their major competitors include STMicroelectronics and
Broadcom. The company‟s products are sold worldwide through a direct sales force (Sigma Designs maintains sales offices in China, Europe, Hong Kong, Japan, and Taiwan) and distributors. The company is headquartered in Milpitas, California and also maintains R&D centers in
Europe and Asia, employing approximately 180 people in total. Sigma Designs was founded in
1982 and went public in 1986.
SIGM is a pure-play on two of the strongest trends in electronics: IPTV adoption (72% of revenues) and the transition to Blu-ray players (23% of revenues). SIGM is the leading silicon provider in the IPTV market, an alternative to traditional cable and satellite television services. The
company holds a 50% share in Linux-based set-top boxes and a ~100% share in Microsoftbased set-top boxes (60% of IPTV sockets). IPTV set-top boxes featuring SIGM chips are in
the early stages of ramping with several of SIGM‟s largest customers, including AT&T, British
Telecom, and Deutsche Telekom. The market is still in the early stages of penetration, and is
poised to grow at a 64% CAGR through 2010 according to Infonetics. SIGM is also the leading
silicon provider to the Blu-ray stand-alone market. Blu-ray is poised to explode in C2008, as the
49
next-generation format war has finally been resolved. With a 75% market share in the segment,
SIGM stands to benefit significantly from the emergence of Blu-ray. Conservative estimates for
Blu-ray in 2008 estimate 100% year over year unit growth, with a high potential for bias to the
upside. Given SIGM‟s clear market leadership position in two rapidly growing, underpenetrated markets, we view the company as a core holding in the hardware sector.
TSRA
Tessera Technologies, Inc.
0.96%
P/E (ttm)
24.1x
P/B
5.0x
2007 EV/Sales
4.0x
9.8x
$20.80
Beta
48.79
Total LT Debt (mm)
Market Cap (mm)
$1,073
52 Week High
$46.43
2007 Sales (mm)
$195.7
2007 EV/EBITDA
52 Week Low
$11.11
2007 EBITDA
$79.8
ROE (after tax)
LTM EPS
$1.60
Country
2,566,118
1.60
Weight (%)
$0
$784
14.27%
US
Tessera Technologies (TSRA) is an intellectual property company that develops and licenses a
portfolio of over 1,000 patented semiconductor packaging technologies, which includes advanced semiconductor packaging, substrate, interconnect and micro-optics solutions. These patents are licensed to semiconductor companies, enabling them to produce high-performance
packages for products such as mobile phones, MP3 players, digital cameras, personal computers, and other electronics products. Tessera Technologies currently licenses its packaging
technology to 70 companies, including Intel, Samsung, Sharp, Sony, Texas Instruments, and
Toshiba. The company was founded in 1990, employs 270 full-time employees, and is headquartered in San Jose, California.
TSRA offers a number of secular long-term growth catalysts. These catalysts include growth in
the market for its chip-scale packaging technology (growing at a 27% CAGR), a trend towards
higher integration in smaller form factors in the wireless market (Smartphone shipments are expected to double by 2009), and the company‟s entrance into the consumer optics market.
TSRA‟s competitors also face high barriers to entry in the semiconductor packaging industry.
The company‟s patent portfolio includes over 1070 patents, which the company vehemently
defends in court. In the past, TSRA has won settlements from companies such as Sharp, Micron
Technology, and Texas Instruments. Tessera has never lost a court case involving its patents.
Recent actions at the U.S. Patent and Trademark Office (PTO) have recently introduced a lot of
volatility into the stock. This volatility followed a decision by the PTO to conduct a review of
several key patents. This has effected a trial in the ITC, where TSRA has filed suit against several wireless companies (including Motorola and Qualcomm) alleging infringements of several
patents. The ITC initially issued a stay in the court proceedings, but has recently reversed that
decision and will allow the trial to continue. The trial will likely be resolved sometime in the
next several months, and provides a chance for huge revenue upside in both one-time postproduction payments (upwards of $200 million) and future royalty payments. We view high
near-term upside in the stock, and recommend that it continue to be held until the resolution of
the TSRA‟s current ITC proceedings.
50
Healthcare Sector
Analysts: Katie Koutnik, Peter Merkel and Chris Williams
The broad healthcare industry can be divided into four distinct sectors: Biotechnology, Pharmaceuticals, Medical Equipment, and Healthcare Services. Firms in the biotechnology sector
combine biological functions with technology to create a sophisticated product. Pharmaceutical
firms manufacture and sell over-the-counter and prescription drugs for both humans and animals. The Medical Equipment sector consists of firms that are responsible for designing, manufacturing, and selling supplies and instruments to treat and prevent medical conditions. The
overall industry also consists of firms that provide healthcare services such as managed care,
facilities, and distributors. As the aging Baby Boomer generation increases its demand for
medical care and the costs of healthcare continue to increase, the industry is looking to find cost
effective ways to treat patients with the highest quality products and services.
The performance of the entire healthcare sector in the last year was mixed, with great variations
between companies based on size and sub-sector. Managed care companies did quite well over
this period and will likely continue to outperform due to the increasing emphasis on low-cost
healthcare in this country. Small biotech firms have also performed relatively well due to consolidation in the industry. Conversely, big pharmaceutical companies have generally struggled
over the past few years in light of shrinking drug pipelines, slowed growth, stricter FDA guidelines, and safety concerns. Underperformance also was seen in areas particularly affected by
Medicare and Medicaid reimbursements. Looking into 2008, generic drug and clinical trial
companies appear to be attractive.
The AIM healthcare sector, like the overall industry, has seen its share of volatility over the
holding period. Holdings that were sold during the period include: Biosite, Syneron Medical,
Radiation Therapy Services, LifeCell, and ViroPharma. After purchasing Biosite in 1Q07, the
company was acquired and sold in 2Q07 for a premium of 70.2%. Syneron Medical, held for a
period of 8 months, was sold during 2Q07 for a premium of 11.9%. The sale of this company
was due to its removal from the Russell 2000 Index. Radiation Therapy Services was sold in
3Q07 after an acquisition from Vestar Capital. LifeCell, a biopharmaceutical company, was
sold in 4Q07 after an attractive acquisition, allowing for a 57.6% premium. In 4Q07, the entire
position in ViroPharma was sold after holding it less than 2 months. The slight loss of -6.7%
was due to a change in the investment thesis.
AMED
Amedisys, Inc.
Weight (%)
0.93%
$39.34
Beta
0.80
P/E (ttm)
17.0x
26.47
Total LT Debt (mm)
$13
P/B
2.9x
Market Cap (mm)
$1,104
$1,009
2007 EV/Sales
1.4x
52 Week High
$49.99
2007 Sales (mm)
$697.9
2007 EV/EBITDA
9.1x
52 Week Low
$29.76
2007 EBITDA
$110.3
ROE (after tax)
597,274
LTM EPS
$0.80
Country
51
23.54%
US
Amedisys Inc. (AMED) is a provider of home health services to the chronic, co-morbid, aging
American population. The services that the Company provides on a multi-state basis include
both home health and hospice services with approximately 89% of its revenue derived from
Medicare. As of December 31, 2007, Amedisys owned and operated 325 Medicare-certified
home health agencies, 29 Medicare-certified hospice agencies and managed the operations of
four Medicare-certified home health and two Medicare-certified hospice agencies in 30 states
within the United States. Its home health patient is Medicare eligible, 80 to 84 years old and
takes approximately eight different medications on a daily basis. For the Company‟s home
health patients, it receives a 60-day episodic-based payment from Medicare. On March 26,
2008, the Company completed the acquisition of TLC Health Care Services, Inc.
Since purchasing AMED in 1Q08 for $39.07, it has remained relatively stable, which has been
better than the overall market, and ended trading on 3/31/08 at $39.34. AMED was added to
diversify the healthcare subsector exposure and give the portfolio direct exposure to the potential changing healthcare system.
AIRM
Air Methods Corp.
Weight (%)
3.03%
$48.37
Beta
1.09
P/E (ttm)
22.0x
12.15
Total LT Debt (mm)
$77
P/B
4.4x
Market Cap (mm)
$583
$697
2007 EV/Sales
1.8x
11.0x
52 Week High
$59.50
2007 Sales (mm)
$396.3
2007 EV/EBITDA
52 Week Low
$25.68
2007 EBITDA
$63.4
ROE (after tax)
291,632
LTM EPS
$1.09
Country
25.33%
US
Air Methods Corporation (AIRM) is the leader in air medical transportation services and systems in the United States. It operates in three segments: Community-Based Model (CBM), Hospital-Based Model (HBM), and Products (PD). In 2007, CBM accounted for 64% of sales,
HBM for 33% and PD for 3%. Over the course of the past year, AIRM made an acquisition of
one of their competitors CJ Systems Aviation Group for $25 million. This adds another 113 aircraft to AIRM fleet. 2008 will be a crucial year for management to continue to integrate CJ systems into their operations and fully utilize the potential synergies and growth opportunities.
Looking Ahead, AIRM is aiming to continue low double digit sales growth through expansion
of their CBM and HBM divisions. Management continues to look for growth opportunities
through acquisitions as well. In addition, it will be management‟s goal over the course of the
year to resign 18 contracts with different hospital systems that expire in 2008. Operating profit
margins are expected to decrease over the next year as a result of higher costs, especially rising
fuel expenses. That being said we see AIRM as a well run company with the ability to integrate
CJ systems and continue to pursue other growth opportunities. A $60 price target has been set
for AIRM still leaving us with a large upside at its current trading price of $47.98.
52
AOB
American Oriental Bioengineering, Inc.
Weight (%)
1.65%
$8.10
Beta
1.72
P/E (ttm)
13.9x
78.20
Total LT Debt (mm)
$11
P/B
2.8x
Market Cap (mm)
$4,559
-$479
2007 EV/Sales
-3.0x
52 Week High
$14.48
2007 Sales (mm)
$160.5
2007 EV/EBITDA
-8.4x
52 Week Low
$6.83
2007 EBITDA
$56.9
ROE (after tax)
LTM EPS
$1.72
Country
1,191,752
24.76%
China
American Oriental Bioengineering (AOB) is a fully integrated, pharmaceutical company engaged in the development, manufacture and commercialization of a range of pharmaceutical
and healthcare products. A majority of its products are offered and derived from Chinese based
traditional medicines and are manufactured using plant based materials. Its diversified business
consists of prescription pharmaceutical products, over-the-counter (OTC) pharmaceutical products and nutraceutical products. Its pharmaceutical products have been approved by the Chinese
State Food and Drug Administration (SFDA), based on demonstrated safety and efficacy. It
sells its products primarily to hospitals, clinics, pharmacies and retail outlets at over 100,000
locations in all provinces, including rural areas and major cities in China. In October 2007, it
completed the acquisition of Guangxi Boke Pharmaceutical Company Limited. Since purchasing AOB in 2Q07 for $11.25, it has underperformed the market due to overall industry declines
and headline risk in the Chinese healthcare system. Since the price decline was not stock specific and the overall thesis did not change, the portfolio purchased additional shares at $8.51 in
3Q08 to take advantage of the market mispricing. AOB has added international diversification
and also added the chance to generate excess returns from the falling U.S. Dollar.
CHTT
Chattem, Inc.
Weight (%)
2.24%
$66.34
Beta
1.19
P/E (ttm)
21.4x
19.12
Total LT Debt (mm)
$505
P/B
7.4x
Market Cap (mm)
$1,266
$1,795
2007 EV/Sales
4.2x
52 Week High
$82.17
2007 Sales (mm)
$423.4
2007 EV/EBITDA
13.5x
52 Week Low
$55.68
2007 EBITDA
$133.1
ROE (after tax)
634,732
LTM EPS
$1.19
Country
42.41%
US
Chattem, Inc. (CHTT) engages in the manufacture, sale, and marketing of a portfolio of overthe-counter healthcare products, toiletries, and dietary supplements. A few of its staple brand
names are Selsun Blue, Goldbond, and Icy Hot. The company typically experiences large
growth through the acquisition of products from larger competitors such as Pfizer and Johnson
& Johnson.
Going forward, Chattem‟s diversified product portfolio of over-the-counter products in niche
categories will continue to drive its exceptional operating margins and stable cash flows. Over
the years, its products have proven to be need based rather than promotionally driven, showing
recession resilience. The current position continues to act as a hedge moving forward if an economic slowdown occurs. Chattem plans to introduce new products during the first half of 2008,
driving organic growth in the mid/high single digits.
53
EBS
Emergent BioSolutions, Inc.
Weight (%)
1.02%
$8.92
Beta
1.59
P/E (ttm)
12.1x
29.75
Total LT Debt (mm)
$43
P/B
0.9x
Market Cap (mm)
$274
$229
2007 EV/Sales
1.3x
6.0x
52 Week High
$14.85
2007 Sales (mm)
$182.9
2007 EV/EBITDA
52 Week Low
$4.40
2007 EBITDA
$37.9
ROE (after tax)
LTM EPS
$1.59
Country
205,604
15.35%
US
Emergent BioSolutions, Inc. (EBS) is a biopharmaceutical company focusing on the development, manufacture, and commercialization of immunobiotics primarily in the U.S. Its chief
product, BioThrax, is the only vaccine approved by the U.S. FDA for the prevention of anthrax
infection. Other immunobiotics produced include: Typhoid, Hepatitis B, Group B Strep, Chlamydia, and Meningitis B vaccines. Emergent‟s clients are primarily the U.S. Department of Defense (DoD) and the U.S. Department of Health and Human Services (HHS).
At the end of September 2007, Emergent was able to secure a $448M contract with the HHS for
the supply of BioThrax. This allowed for a substantial 18.4% boost in the stock price. However,
this run soon came to an end in the beginning of November when the DoD announced its intent
to not renew its existing contract with Emergent, and instead share the supply with the HHS to
lower costs. Drivers for 2008 include additional purchase of BioThrax doses to satisfy DoD requirements, continual advancement of its commercial pipeline, and acquisitions of late stage
vaccines.
HAE
Haemonetics Corporation
Weight (%)
1.08%
P/E (ttm)
27.7x
P/B
3.6x
$1,435
2007 EV/Sales
3.2x
2007 Sales (mm)
$449.6
2007 EV/EBITDA
15.3x
$44.85
2007 EBITDA
$93.9
ROE (after tax)
269,928
LTM EPS
$0.52
Country
$59.58
Beta
0.52
25.62
Total LT Debt (mm)
Market Cap (mm)
$1,550
52 Week High
$64.29
52 Week Low
$7
12.53%
US
Haemonetics Corporation (HAE) engages in the design, manufacture, and marketing of automated systems and single-use disposables for the collection, processing, and surgical salvage of
donor and patient blood. HAE is a pioneer and market leader in developing and manufacturing
products that help ensure a safe and adequate blood supply. HAE‟s systems assist blood banks
and hospitals in their efforts to operate efficiently and to comply with various regulatory requirements. The company operates world-wide with 57% of the 2007 fiscal year revenue occurring outside of the United States. Over 87% of net revenue is derived from their disposable
products line.
HAE improved Gross profit by 3.1% over the past year through cost reductions and sales
growth. All business segments have seen sales growth over the past year except for the red
blood cell disposable line which management has placed focus on for 2008. We have found that
54
HAE is able to achieve its market position by the quality of the product rather than the price of
each unit itself. Management continues to place emphasis on designing high quality products
for its customers. A strong product line and key acquisition synergies over the past year should
lead HAE to achieving our price target of $65.
PMTI
Palomar Medical Technologies Inc.
$15.10
Beta
1.61
18.34
Total LT Debt (mm)
Market Cap (mm)
$281
$0
$150
Weight (%)
0.91%
P/E (ttm)
14.5x
P/B
2.2x
2007 EV/Sales
1.2x
5.6x
52 Week High
$43.73
2007 Sales (mm)
$123.8
2007 EV/EBITDA
52 Week Low
$12.31
2007 EBITDA
$26.8
ROE (after tax)
299,365
LTM EPS
$1.61
Country
18.88%
US
Palomar Medical Technologies (PMTI) designs, manufactures, markets and sells lasers and
other light-based products and related disposable items and accessories for use in medical and
cosmetic procedures. It offers a range of products based on its technologies that include, but are
not limited to hair removal; removal of vascular lesions; removal of leg veins; removal of benign pigmented lesions; tattoo removal; acne treatment; skin resurfacing, pseudofolliculitis barbate (PFB) treatment; treatment of red pigmentation in hypertrophic and keloid scars; treatment
of verrucae, skin tags and seborrheic keratosis; skin tightening through soft tissue coagulation;
scars, and other skin treatments. During the year ended December 31, 2007, the Company introduced new hand pieces, including LuxDeepIR Fractional hand piece, the second generation of
the LuxIR Fractional hand piece, and LuxYs Pulsed Light hand piece for permanent reduction
of lighter, finer hair.
Since purchasing PMTI in 4Q07 for $21.05, it has underperformed the overall market due to a
slowdown in consumer spending and the industry. At the close of 3/31/08, PMTI traded at
$15.10. PMTI has been continued to be held for its attractive upside potential compared to its
possible future downside. With an aging baby boom generation determined to look and feel
young, PMTI still gives the portfolio an attractive exposure to a higher end consumer that will
likely feel less impact due to a recession.
VIVO
Meridian Bioscience, Inc.
1.37
Weight (%)
3.21%
P/E (ttm)
57.9x
P/B
10.7x
$33.43
Beta
40.08
Total LT Debt (mm)
Market Cap (mm)
$1,392
$1,341
2007 EV/Sales
10.9x
52 Week High
$36.09
2007 Sales (mm)
$123.0
2007 EV/EBITDA
34.0x
52 Week Low
$19.20
2007 EBITDA
$39.4
ROE (after tax)
435,441
LTM EPS
$1.37
Country
$0
29.16%
US
Meridian Bioscience, Inc.(VIVO) is an integrated diagnostics company with three segments;
U.S. Diagnostics, European Diagnostics, and Life Sciences. The company derives over 75% of
total revenue from its diagnostics business, which specializes in tests for four main categories of
55
ailments: respiratory, gastrointestinal (including the rapidly growing tests for C.difficile and
H.pylori bacteria), viruses and parasites. The Life Sciences segment produces antigens, antibodies, proteins, and other biological substances for use in research and drug testing.
Looking to the year ahead, Meridian should outperform the sector based on continued growth of
its key products, along with the development of new tests and formats. Meridian expects to license its technology, and has entered into two agreements recently. The first agreement is
aligned with Merck KGaA. This provides technology to expand its line of rapid tests for bacterial pathogens and has resulted in the resent launch of an E. coli test. Secondly, Meridian licensed a form of DNA-based diagnostic technology from Eiken Chemical Company of Japan
that would allow the development of highly sensitive, more specific tests. Meridian remains a
viable candidate for a buyout due to its niche products, strong cash position, and the age of its
CEO-founder.
Industrial Materials
Analysts: Andy O’Connell and Luke Lamanna
The industrial materials sector is among the largest of the economic sectors in the AIM equity
fund. Within this classification, there are twenty-one broad sub-industries including: steel, metals, chemicals, auto parts, industrial materials, agriculture, transportation equipment, electrical
equipment, defense, and many others. The performance of this sector is tied directly to economic environment affecting the overall business cycle and input prices.
The industrial materials sector has been one of the strongest over the last year, with the Morningstar Industrial Materials Index up 21%. Stronger than expected domestic demand for capital
goods, continued growth internationally, and a weak dollar has fueled the performance of this
sector. Going forward, a slowing domestic demand for capital goods will likely emerge, which
has already been evidence by the reduction in domestic capacity utilization and productivity.
Firms that are positioned either; domestically in growing niches, or are multi-national companies should slow less than other industrial materials companies that are exposed to these headwinds. Firms including, Mine Safety Appliances, Badger Meter, Clarcor, Tennant Company,
and Compass Minerals are poised for expansion in light of their exposure to international or
growth markets.
The AIM Fund currently holds seven firms. During the fiscal year the portfolio has seen many
changes. At the first AIM meeting in May 2007, Watsco (WSO) was added to the fund in order
to reach sector neutrality. This was shortly followed by the sale of Keystone Automotive
(KEYS) after LKQ Corporation offered to buy Keystone at a 10% premium. Other sales
throughout the year included Multi-Fineline Electronix Inc. (MFLX), due to customer concentration and legal issues, and Astec Industries (ASTE), due to the stock reaching its intrinsic
valuation. Additional stocks purchased include Mine Safety Appliances (MSA), Clarcor Inc.
(CLC), and Olin Corporation (OLN). Olin was sold shortly after purchase due to a significant
divestiture which changed the business significantly.
56
BMI
Badger Meter, Inc.
$43.20
Beta
1.38
14.52
Total LT Debt (mm)
Market Cap (mm)
$662
$3
$663
Weight (%)
3.00%
P/E (ttm)
36.3x
P/B
7.3x
2007 EV/Sales
2.8x
17.9x
52 Week High
$47.40
2007 Sales (mm)
$234.8
2007 EV/EBITDA
52 Week Low
$23.00
2007 EBITDA
$37.1
ROE (after tax)
102,477
LTM EPS
$1.38
Country
25.99%
US
Badger Meter (BMI) markets and manufactures products using flow measurements and control technologies. The company‟s products fall in to two categories: residential and commercial
water meters and industrial meters. Residential and commercial water meters are mainly sold to
utilities and constitute the majority of the company‟s sales. Industrial meters, which have a
wider range of applications, comprise of the remainder of the firm‟s sales.
Badger Meter has been somewhat volatile day to day, but the overall trend of the stock has been
excellent over our holding period. New innovations, especially on the automated meter front,
have driven and should continue to drive BMI‟s success. Badger Meter should be watched
closely for news about continued innovation, as well as expectations for remaining conversions
to automatic read meters. This transition from manual to automatic meters has been the key
driver in BMI‟s success. If growth in this area looks to be slowing without a new major innovation on the horizon, BMI‟s stock price could tumble. Without continued growth in these
higher margin products, BMI will struggle to continue at its current pace.
CMP
Compass Minerals International, Inc.
Weight (%)
4.96%
32.7x
$58.98
Beta
1.07
P/E (ttm)
32.34
Total LT Debt (mm)
$603
P/B
Market Cap (mm)
$2,207
$2,764
2007 EV/Sales
3.2x
52 Week High
$70.80
2007 Sales (mm)
$857.3
2007 EV/EBITDA
15.0x
52 Week Low
$30.54
2007 EBITDA
$184.3
ROE (after tax)
#N/A
799,163
LTM EPS
$1.07
Country
-288.3x
US
Compass Minerals International (CMP) is the second leading salt producer in North America. The company operates eleven production facilities, including the largest rock salt mine in
the world. CMP‟s products include road salts for consumers and governmental agencies, water
conditioning, and consumer and industrial food preparation. In addition, Compass Minerals is
the leading producer of sulfate potash, which is used in the production of specialty fertilizers for
high-value crops and turf in North America.
With stable demand and steady price increases year after year, CMP should expect healthy cash
flows well into the future despite a slowing economy. CMP has been one of the portfolio‟s best
performers, capitalizing on a true winter season, and has also benefited from continued price
increases on its sulfate potash products. While CMP mines and refines one of the simplest and
most abundant chemicals, it maintains a healthy advantage over its rivals through its size and its
ability to keep fixed cost low. We expect CMP to be a good performer going forward, espeAIM Fund 2007 - 2008 Annual Report
57
cially in a down economy, but CMP is beginning to reach very rich valuations. Trimming the
position will most likely be in line in the near future.
CLC
Clarcor Inc.
Weight (%)
1.66%
$35.55
Beta
0.92
P/E (ttm)
21.0x
50.49
Total LT Debt (mm)
$17
P/B
3.4x
Market Cap (mm)
$1,872
$1,945
2007 EV/Sales
2.1x
52 Week High
$44.01
2007 Sales (mm)
$921.2
2007 EV/EBITDA
12.7x
52 Week Low
$30.76
2007 EBITDA
$153.2
ROE (after tax)
466,173
LTM EPS
$0.92
Country
17.11%
US
Clarcor Inc. (CLC) operates through three business segments: engine/mobile filtration, industrial/ environmental filtration, and packaging. The company's products include oil, air, fuel, and
coolant filters for automobiles and industrial equipment, air filters for buildings, factories, and
residential buildings, and containers and packaging for the food, confectionery, and chemical
industries. Clarcor sells its products directly and through distributors. Major competitors include Donaldson Company and Pall Corporation.
Clarcor was added to the AIM portfolio in December as a defensive minded position. Over
80% of sales are derived from aftermarket replacement sales. Since the stock was added it has
traded relatively close with its purchase price through the end of the year. Fiscal year 2008 results will be dependent on continued slow growth in revenues, and more importantly, management execution of cost savings initiatives in the industrial segment and realizing synergies with
the recent PECO acquisition. Success in these areas will produce improved margins and accelerating earnings, failure will reduce the intrinsic value of the stock significantly.
MSA
Mine Safety Appliances
Weight (%)
1.72%
$41.19
Beta
1.10
P/E (ttm)
23.0x
35.67
Total LT Debt (mm)
$104
P/B
4.1x
Market Cap (mm)
$1,482
$1,583
2007 EV/Sales
1.6x
52 Week High
$60.64
2007 Sales (mm)
$990.3
2007 EV/EBITDA
12.5x
52 Week Low
$38.66
2007 EBITDA
$127.1
ROE (after tax)
271,173
LTM EPS
$1.10
Country
15.75%
US
Mine Safety Applications (MSA) designs and manufactures sophisticated safety equipment for
workers in the military, as well as the fire service, law enforcement, construction, oil and gas,
and homeland security industries. The company‟s product lines include Air-Purifying Respirators, Supplied-Air Respirators, Portable and Permanent Gas Detection Instruments, Thermal
Imaging Cameras, Fire Helmets, Body Armor, Head, Eye, Face and Hearing Protection, Fall
Protection, and Mining and Specialty Products. Products are sold worldwide through an industrial and retail distribution network, and directly through MSA‟s sales force. Major competitors
include Scott Health and Safety, Drager Safety, Bullard, 3M‟s Safety Business, and International Safety Instruments. MSA was founded in 1914 and is headquartered in Pittsburgh, PA.
58
Mine Safety Appliances was added to the AIM portfolio in September. The position added significant international exposure to the industrial sector, as the company produces over 40% of
their revenues internationally. The company missed earnings in both the third and fourth quarters, due to margin pressures created by sales mix and operating expenses, however excitement
over accelerating sales of their new SCBA product helped the stock price end the year about 4%
above its purchase price. Next year will be a telling year for Mine Safety Appliances, expectations for SCBA sales, international expansion, and margin improvements are high.
SCSC
ScanSource
Weight (%)
0.96%
$36.19
Beta
1.33
P/E (ttm)
16.1x
25.95
Total LT Debt (mm)
$108
P/B
2.3x
Market Cap (mm)
$895
$824
2007 EV/Sales
0.4x
52 Week High
$39.50
2007 Sales (mm)
$1,986.9 2007 EV/EBITDA
52 Week Low
$22.61
2007 EBITDA
$82.3
ROE (after tax)
386,172
LTM EPS
$1.33
Country
10.0x
7.19%
US
ScanSource, Inc. (SCSC) operates as a wholesale distributor of specialty technology products,
providing distribution sales to resellers in the specialty technology markets. It markets automatic identification and data capture (AIDC) and point-of-sale (POS) products. These interface
with computer systems to automate the collection, processing, and communication of information for commercial and industrial applications, including retail sales, distribution, shipping,
inventory control, materials handling, and warehouse management. The company‟s AIDC products include bar code printers, hand-held and fixed-mount laser scanners, mobile and wireless
data collection devices, and magnetic stripe readers. Its POS products include computer-based
terminals, monitors, receipt printers, pole displays, keyboards, peripheral equipment, and integrated processing units.
Once again, ScanSource posted another very volatile performance in 2H07 and into 2008. The
stock has essentially returned to its value one year ago, after being up as much as 25% and
down 15%. The volatility and some ties to consumer spending have been a concern for this
stock over our holding period. Wins for the company occurred after posting surprising 2Q
earnings in early 2008, as well as having an SEC investigation on the company dropped in relation to supposed backdating violations. SCSC continues to be very volatile at earnings releases,
even more than is expected for a Russell 2000 stock. This has been primarily been driven by
inconsistent performance and changes in expectations for earnings. It has been difficult to forecast earnings for the company. The ties to consumer spending have also been a question discussed as a class. The debate has been whether the industrial sector should have exposure to
consumers, as that risk is being taken in other more logical sectors in the portfolio. While
showing positive signs at times throughout the year, ScanSource continues to be a difficult
stock to evaluate and has dramatically added to the volatility of the portfolio.
59
TNC
Tennant Company
$39.81
Beta
0.97
18.47
Total LT Debt (mm)
Market Cap (mm)
$750
$2
$719
Weight (%)
2.46%
P/E (ttm)
22.4x
P/B
3.3x
2007 EV/Sales
1.1x
10.7x
52 Week High
$50.05
2007 Sales (mm)
$664.2
2007 EV/EBITDA
52 Week Low
$30.48
2007 EBITDA
$66.9
ROE (after tax)
158,142
LTM EPS
$0.97
Country
16.98%
US
Tennant Company (TNC) engages in the design, manufacture, and marketing of indoor and
outdoor cleaning solutions and specialty floor coatings for maintaining surfaces in nonresidential environments. The company‟s products include street sweepers, scrubbers, floor coatings,
brushes, detergents, carpet cleaning equipment, vacuums, and floor machines. Its products are
used to clean factories, office buildings, parking lots and streets, airports, hospitals, schools,
warehouses, and shopping centers. The company sells its products through direct sales organizations and distributors primarily to building service contract cleaners, healthcare facilities, and
schools, as well as federal, state, and local governments.
Tennant Company was added to the portfolio in the second week of November 2006. The company was added due to its strong position in the floor cleaning manufacturing market and the
opening of its production plant in China. International growth has been successful, but there is
concern about how Tennant will perform in a slowing economy. One of the risk factors established when this stock was first purchased was the adverse effects a slow growing economy
would have on the stock. TNC has historically performed poorly in slowing economies, as top
notch floor cleaning is no longer a top concern for schools, warehouses, etc. Keeping a close
eye on the economy and continued success internationally will be crucial for this stock‟s performance.
WSO
Watsco, Inc.
Weight (%)
1.67%
$41.42
Beta
1.39
P/E (ttm)
17.1x
24.30
Total LT Debt (mm)
$55
P/B
2.0x
Market Cap (mm)
$1,177
2007 EV/Sales
0.7x
52 Week High
$64.46
2007 Sales (mm)
52 Week Low
$30.14
2007 EBITDA
$117.6
ROE (after tax)
439,206
LTM EPS
$1.39
Country
$1,161
$1,758.0 2007 EV/EBITDA
9.9x
13.10%
US
Watsco Inc. (WSO) was added to the AIM portfolio in May as a defensive minded position.
Ninety percent of revenues are driven by replacement sales, while only 10% of revenues result
from new home starts. Despite the defensive nature of replacement revenues, Watsco has had a
tough year, being affected by the continued downturn in residential housing. Revenues were
about flat year over year, but margins were pressured, causing the company to miss earnings in
quarters three and four. The stock ended the year with exceptionally low expectations regarding
future earnings, as well as historically low trading multiples, limiting further price declines. An
improving housing and consumer situation is anticipated for the back half of 2008, which
60
should help buoy Watsco‟s stock price. However, if residential home starts and consumer
spending dip lower than current expectations Watsco would be exposed to more than the 5-10%
decrease in unit volume that management expects.
Media Sector
Analyst: Paul Simenauer
The business environment for media companies has been difficult to say the least. Ad spend in
general has been down over the last business cycle, although is expected to pick up in 2H08 because it is an election year. At the same time, I believe that there is a misperception amongst
investors that old media (publishing, newspapers, radio) is completely dead, and that new media
plays are the only worthwhile investment opportunities in this sector. However, as new media
(Google, Yahoo!) growth decelerates and companies begin to watch their margins more closely,
they will likely shift to promotional media such as radio and newspaper.
Old media has been burdened by inflation, high energy prices, and a lack of real wage increases
over the last 5 years. Because of advertising‟s high correlation to personal income, growth in
the entire advertising pie has stalled while competition for the marginal advertising dollar has
risen. Many companies have entered the ad space, consisting of not only internet players, but
also cable television and satellite.
The emergence of the internet and sophisticated telecommunication technology has blurred the
lines of what a media company is, in my opinion. There has currently been a trend of convergence over the past decade in this sector as traditional media companies seek to enter the digital
age. Convergence refers to the ability of a single wire, in the form of broadband, to transmit
voice, data, cable, video, and internet worldwide. One thing in media, however, has not
changed: content, at the end of the day, is still king as long as it has value for the consumer.
CNET
CNET Networks, Inc.
Weight (%)
0.84%
$7.10
Beta
1.29
P/E (ttm)
6.7x
152.22
Total LT Debt (mm)
$55
P/B
2.8x
Market Cap (mm)
$1,183
$1,152
2007 EV/Sales
2.8x
52 Week High
$9.88
2007 Sales (mm)
$405.9
2007 EV/EBITDA
20.3x
52 Week Low
$6.47
2007 EBITDA
$56.8
ROE (after tax)
LTM EPS
$1.29
Country
2,393,355
76.54%
US
CNET Networks, Inc. (CNET) is an interactive media company that builds brands for people
and the things they are passionate about, such as technology, entertainment, business, food and
parenting. The Company‟s leading brands include CNET, GameSpot, MP3.com, ZDNet,
TechRepublic, Webshots, CHOW and Urban Baby. Founded in 1992, CNET Networks has a
strong presence in the United States, Asia and Europe.
CNET, a value play, has recently come under pressure by activist shareholders JANA Partners.
I strongly believe that there is value in CNET that needs to be unlocked for shareholders and
61
agree with JANA Partners‟ statement that CNET is “a web 1.0 company operating in a web 2.0
world”. JANA released a white paper on April 1 outlining their strategic plans, if their board
candidates get elected, which mainly revolve around monetizing ads on their website more efficiently and outsourcing the technology that will allow them to do this. Employees have commented that, “management needs to be given more time,” but over the past 3 years, CNET‟s
stock price has dropped sharply. The company‟s valuation also seems cheap at 6x 2009 EPS.
The assets at CNET, in the form of highly valuable internet properties are there, but have been
poorly managed up to this point, and I‟m a believer of the philosophy that if the assets are in
place, good things will eventually happen.
LNET
LodgeNet Interactive Corporation
Weight (%)
0.11%
$6.09
Beta
1.28
P/E (ttm)
4.7x
22.99
Total LT Debt (mm)
$617
P/B
#N/A
Market Cap (mm)
$147
$743
2007 EV/Sales
1.5x
52 Week High
$38.11
2007 Sales (mm)
$485.6
2007 EV/EBITDA
6.0x
52 Week Low
$5.92
2007 EBITDA
$123.3
ROE (after tax)
#N/A
LTM EPS
$1.28
Country
560,003
US
LodgeNet Interactive (LNET) is a provider of interactive media and connectivity solutions to
the hospitality industry in the United States, Canada, and Mexico. LodgeNet also provides interactive television solutions in select international markets, primarily through local or regional
licensees. As of December 31, 2007, the Company provided interactive television and other services to approximately 9,900 hotel properties serving over 1.9 million hotel rooms. Within that
customer base, it also provides cable television programming, broadband Internet, and advertising media solutions in approximately 1.1 million, 220,000 and 400,000 hotels rooms respectively.
Based on median peer group enterprise value estimates, I feel that LNET shares should be valued in the high $20‟s, at ~$27.00 per share. Shares have been pummeled largely based on sentiment that the company won‟t achieve the benefits with the merger with its largest competitor
and the thinking that with digitization, Lodgenet‟s offerings will be obsolete.
However, because of the large installed base, ripping out LNET‟s systems to install IPTV
would present an extremely high switching cost at this point. In addition, since LNET is the
only full service hotel provider around, hotels likely do not want to abandon LNET and take on
managing entertainment on their own. As a result, I feel that this fear is over done.
Lodgenet has an attractive business with 50%-80% market share depending on who you talk
with. The company provides complete solutions for the hospitality industry from laying cable,
installing televisions, to billing, and has benign, if any, competition with the On Command acquisition. To make matters even more favorable, LNET is based out of South Dakota, one of the
last places on Earth that Wall Street analysts are dying to visit anytime soon, and as a result
management is extremely conservative and non-promotional.
62
Catalysts to arrive at my price target include extremely conservative growth rates of 2%-4%,
strong free cash flow generation, and cost savings from the merger with On Command going
forward. Lodgenet will also likely help manage the hospitality industry‟s conversion to HDTV,
which is another key catalyst, but more external in nature.
MORN
Morningstar, Inc.
1.33
Weight (%)
0.46%
P/E (ttm)
42.1x
P/B
9.6x
$61.35
Beta
45.38
Total LT Debt (mm)
Market Cap (mm)
$2,955
$2,662
2007 EV/Sales
6.1x
52 Week High
$85.50
2007 Sales (mm)
$435.1
2007 EV/EBITDA
19.2x
52 Week Low
$46.10
2007 EBITDA
$138.5
ROE (after tax)
196,282
LTM EPS
$1.33
Country
$0
26.48%
US
Morningstar Inc. (MORN) is a leading provider of independent investment research. The
company helps investors reach their financial goals by offering an extensive line of Internet,
software, and print-based products for individual investors, financial advisors, and institutional
clients. Morningstar also provides asset management services for advisors, institutions, and retirement plan participants. Morningstar serves more than 5.2 million individual investors,
210,000 financial advisors, and 1,700 institutional clients, with operations in 15 countries.
Morningstar‟s scalable business model and leverage to an emerging middle class globally and
retiring boomers in the U.S. make the company‟s prospects look attractive. While we purchased
MORN at relatively high valuations, I am comfortable with this, as I consider a superior business (89% recurring revenue and strong operating leverage) with excellent management, and an
ability to continue to grow earnings faster than the overall market due to the macro tailwinds
the company has behind it.
Software Sector
Analyst: Christopher Caparelli
The software sector includes a broad range of companies with customers in the consumer, business, and government sectors of the economy. The sector is driven in part by macroeconomic
trends including globalization, outsourcing, the ever-increasing demand for efficiency, and
overall corporate profitability. Despite record growth in corporate earnings in recent years,
businesses have been slow to translate that into large capital software expenditures. A macroeconomic outlook calling for slower global growth may result in a continued lag in software
sales to the business sector. While technology appeared immune to the credit crisis throughout
much of 2008, fear of a more widespread economic downturn has caused a collapse in the first
quarter of 2008. Software was among the worst performing sectors in the first quarter driven by
fears of the credit crisis causing a major slowdown in consumer spending. While the near-term
outlook for the sector will remain closely tied to developments in the macro-economy, longterm investments, especially those with international exposure should provide more positive
results.
63
Currently, there are five holdings in the Software Sector of the AIM Equity Fund. Acme
Packet, Inc. (APKT), Cogent Inc. (COGT), DivX, Inc. (DIVX), Stratasys Inc. (SSYS), and Synaptics Inc. (SYNA). For the 2007-2008 fiscal year, Acme Packet had a total return of -27.83%;
DivX returned -59.49%, Cogent had a total return of -22.50%, Stratasys returned 18.10%, and
Synaptics had a total return of 42.78%. Additionally, ManTech International Corp. (MANT)
was sold during the year at an 18.95% realized return, and Quality Systems Inc. (QSII) was sold
at a -17.71 realized return.
APKT
Acme Packet, Inc.
$7.99
Beta
1.32
60.47
Total LT Debt (mm)
Market Cap (mm)
$495
$0
$362
Weight (%)
0.66%
P/E (ttm)
22.9x
P/B
5.2x
2007 EV/Sales
3.2x
12.3x
52 Week High
$16.59
2007 Sales (mm)
$113.1
2007 EV/EBITDA
52 Week Low
$6.85
2007 EBITDA
$29.5
ROE (after tax)
LTM EPS
$1.32
Country
254,405
13.42%
US
Acme Packet (APKT) is the leading global provider of session border controllers (SBCs); devices that enable interactive communication service providers to deliver high quality and secure
communication over Internet Protocol (IP) networks. SBCs, which contain both hardware and
software components, play an integral role in the continuing development of the internet as a
viable medium for voice, video and other real-time multimedia communication. Primarily used
for Voice over IP (VoIP) transmissions, Acme‟s technology is sold to over 500 carriers in 85
different countries, comprising well over 50% of the SBC market.
Acme Packet struggled in 2007 as they did not see as much acceleration in their core business
as they had hoped. They did however continue to see an expanse in the breadth of their customers, increasing their customer count from 360 to over 500 during the year. Despite growing
revenues 34.5% during 2007 and increasing gross margin from 79.1% to 80.2%, Acme Packet‟s
operating margin fell from 27.6% to 21.7% on and increase in travel expenses for a larger sales
force and increases in R&D spending. In a business with high switching costs, Acme Packet‟s
management believes their largest competitive advantage moving forward is their dominance of
the customer landscape; 24 of the 25 largest, and 82 of the 100 largest service providers in the
world are Acme Packet customers. Although pricing pressures from increased competition
could begin to erode gross margins, Acme is shifting focus towards the depth of their customer
penetration. As Acme Packet‟s customers continue to increase the number of calls routed over
IP networks, Acme Packet stands to gain substantially as the incumbent provider of SBCs.
COGT
Cogent, Inc.
$9.43
Beta
1.17
95.03
Total LT Debt (mm)
Market Cap (mm)
$935
$0
$568
Weight (%)
0.51%
P/E (ttm)
30.7x
P/B
2.1x
2007 EV/Sales
5.4x
52 Week High
$17.02
2007 Sales (mm)
$105.8
2007 EV/EBITDA
19.2x
52 Week Low
$8.28
2007 EBITDA
$29.6
ROE (after tax)
5.83%
LTM EPS
$1.17
Country
711,515
64
US
Cogent Inc. (COGT) is a leading provider of Automated Fingerprint Identification Systems
(AFIS), enabling customers to electronically capture fingerprint images, encode these images
into searchable files, and accurately compare a set of fingerprints to a database of millions in
just seconds. Cogent primarily supplies systems to governments, law enforcement agencies and
other civil organizations, providing security solutions that offer industry leading accuracy in a
cost effective package. Cogent‟s systems are designed to seamlessly integrate with existing databases and have been deployed in over 150 organizations in 45 different countries.
With such a heavy customer concentration in the government sector, Cogent‟s revenues can be
extremely variable due to their reliance on the complicated and untimely process of government
contract procurements. The company‟s performance was lackluster in 2007 due to a number of
expected contracts being delayed into 2008. This led to top line revenue growth of only 4% for
the year, significantly behind analyst expectations of 7-9%. Despite a slow year in 2007, Cogent is expected to rebound in 2008 with most of its large backlog expected to convert into
revenue during the year. In the second half of 2008, a decision is expected to be made regarding the inclusion of an AFIS provider into Lockheed Martin‟s $1 billion contract with the FBI.
The contract is designed to overhaul the FBI‟s current biometrics database, and Cogent is expected to be a major candidate for inclusion in the contract. In addition to potential contract
awards, management has been making a strong effort to reduce Cogent‟s customer concentration. In 2005, the Department of Homeland Security and the National Electoral Council of
Venezuela comprised 31% and 38% of Cogent‟s respective revenues, further increasing revenue variability from quarter to quarter. In 2007, these organizations comprised only 12% and
13% of Cogent‟s respective revenue, suggesting that the breadth of their customer base has increased significantly. With a lower concentration of customers and major contracts expected to
be awarded, 2008 should prove to be a positive year for Cogent with even greater potential in
the future.
DIVX
DivX, Inc.
$7.00
Beta
34.98
Total LT Debt (mm)
$237
Market Cap (mm)
Weight (%)
0.62%
P/E (ttm)
11.7x
$0
P/B
2.9x
$99
0.49
2007 EV/Sales
1.2x
52 Week High
$23.76
2007 Sales (mm)
$84.9
2007 EV/EBITDA
27.2x
52 Week Low
$6.12
2007 EBITDA
$3.7
ROE (after tax)
5.69%
LTM EPS
$0.49
Country
1,167,874
US
DivX, Inc. (DIVX) is the creator of one of the world‟s most popular video technologies, designed to improve the overall experience of digital media. DivX‟s main product offering is a
video compression-decompression software library, or codec, designed to compress digital
video for faster transmission speeds and smaller storage size, while maintaining the original integrity of the file. The DivX media format, comprised of DivX video compression technology
and supporting software has been downloaded over 250 million times including 80 million in
the 2007 calendar year. Support for the DivX codec exists on over 100 million hardware devices such as Blu-ray players, high definition televisions, and mobile phones, manufactured by
OEM‟s such as Philips, Samsung, and LG.
65
2007 was a year of major ups and downs for DivX‟s young management team, resulting in
plenty of negative sentiment from the market and changes in leadership at the top of the company. One of the biggest struggles for management was the decision surrounding Stage 6,
DivX‟s viral video competitor to YouTube. The cost of running the popular website was becoming a heavy burden for the company, and failure to find an acceptable solution led to the
replacement of CEO Jordan Greenhall as well as the shutdown of a project that had potential to
be an integral part of the company. With licensing revenues from Blu-ray players not replacing
lost revenues from DVD players as quickly as expected, management declared 2008 a transition
year, lowering revenue guidance and causing the stock price to tumble. Despite major difficulties, management was able to grow revenue 43% in 2007 while increasing both gross and operating margins.
The company also entered into some major agreements that should get the company back on
track in the second half of 2008 and into 2009. Highlights for the year included swapping a licensing agreement with Google for a more lucrative Yahoo! deal, adding DivX compatibility to
Microsoft‟s Xbox 360 and Sony‟s Playstation 3 gaming systems, and a content distribution
agreement with Sony Pictures Television. Looking forward, the distribution agreement with
Sony represents perhaps the most important piece to the DivX ecosystem. With the backing of
a major Hollywood studio, the deal helps legitimize the DivX file format as the premier nonaligned video codec.
SSYS
Stratasys Inc.
$17.80
Beta
1.87
21.07
Total LT Debt (mm)
Market Cap (mm)
$390
$0
$356
Weight (%)
0.78%
P/E (ttm)
27.0x
P/B
4.4x
2007 EV/Sales
3.2x
15.2x
52 Week High
$31.45
2007 Sales (mm)
$112.2
2007 EV/EBITDA
52 Week Low
$16.75
2007 EBITDA
$23.5
ROE (after tax)
237,812
LTM EPS
$1.87
Country
13.91%
US
Stratasys Inc. (SSYS) develops, manufactures, designs, markets, and services its own line of
rapid prototyping (RP) devices. These devices allow customers, to quickly “print” 3D models
out of production grade plastic directly from a Computer Automated Design (CAD) enabled
computer workstation. This technology allows for more efficient model production and testing,
allowing clients to save time and reduce R&D costs. The cost savings that Stratasys‟ plastic
systems provide over competing laser systems represents their major competitive advantage.
Stratasys was a strong performer in the AIM software portfolio as the company continued to see
a phase shift in their core business. The market for rapid prototyping devices has continued
moving from an emerging technology towards the growth phase of the business cycle. This is
evidenced by a small shift in Stratasys‟ revenue distribution from product revenues to service
based revenues. While product revenues remain strong, services such as the Red Eye RPM
parts web site and full service maintenance contracts are beginning to generate a higher percentage of revenues. The services Stratasys offers generate higher margins than the equipment, allowing the company to expand gross margin from 49.6% in 2006 to 53.2% in 2007. Moving
66
forward, Stratasys expects the recent introduction of the FDM 900mc RP system to be a strong
addition to their current product offering. The FDM 900mc allows customers to build parts that
are 9 times larger than previous models, providing them with greater flexibility. Stratasys will
also continue to focus on the service side of their business, ensuring customers a higher level of
customer satisfaction while generating higher margins.
SYNA
Synaptics, Inc.
Weight (%)
0.84%
$23.88
Beta
1.21
P/E (ttm)
19.1x
24.04
Total LT Debt (mm)
$125
P/B
3.7x
$597
$447
Market Cap (mm)
2007 EV/Sales
1.7x
52 Week High
$61.72
2007 Sales (mm)
$266.8
2007 EV/EBITDA
13.4x
52 Week Low
$22.03
2007 EBITDA
$33.5
ROE (after tax)
860,073
LTM EPS
$1.21
Country
17.62%
US
Synaptics Inc. (SYNA) develops touch sensitive user interface devices for notebook computers, portable digital music players, mobile phones, GPS navigation systems, and other devices that allow the user to maneuver media on a screen. The custom designed user interface
solutions provided by Synaptics enable people to interact more easily and intuitively with a
wide variety of electronic devices. The company also develops software applications that ensure proper functionality of mice, keyboards, monitors and other PC peripherals. The company
sells worldwide to OEMs through its network of sales representatives.
Synaptics has had mixed results during the previous year, trading within a 52 week range of
22.03 and 61.72. The first two quarters of the year were overwhelmingly positive on news from
the smart-phone sector of its business. Although Synaptics was not chosen as the interface provider for Apple‟s iPhone, competing products, of which there are many, often look towards
Synaptics for solutions. During the second half of the year, news began to break suggesting
tougher times ahead for Synaptics. Alps Electronics, a competing provider of touch sensitive
user interfaces reported partnering with Hewlett-Packard for a portion of their notebook touchpad business. Previously, HP‟s entire notebook business went to Synaptics, and while the entrance of a new competitor did not have a major impact on revenues, it suggested pricing pressure and margin compression could be a future concern. In the beginning of 2008, amidst worries of a widespread slowdown in consumer spending, Synaptics missed earnings and lowered
revenue guidance, suggesting that macro-economic issues were beginning to impact customer
behavior and therefore the overall business outlook. Moving forward Synaptics is looking to
get back on track by capitalizing on trends such as the continued migration away from desktop
computers in favor of notebooks, strength in the portable digital music player market, and the
emergence of smart phones and other digital lifestyle products.
67
Telecommunications Sector
Analyst: Katie Provo
The telecommunications sector consists of two segments: telecommunication services, which
provides the necessary services for rural, urban and nationwide communication and wireless
services which provides wireless technology services to consumers. Telecommunications providers in emerging markets remain the hot spot for investors seeking to maximize their profits.
The domestic market has been dominated by major players AT&T, Verizon, and Sprint Nextel.
Competition in the local and long distance markets with competitive local exchange carriers and
cable companies entering the market. The major players have shifted their focus to wireless
communication services blurring the category of the two segments. The major trend remains the
“bundled services” offerings – where companies package video, voice, data, and now wireless
from one service provider through “quadruple play” services.
GNCMA General Communication Inc.
Weight (%)
0.24%
$6.14
Beta
0.67
P/E (ttm)
29.8x
49.96
Total LT Debt (mm)
$539
P/B
1.9x
Market Cap (mm)
$343
$875
2007 EV/Sales
1.7x
5.9x
52 Week High
52 Week Low
$15.20
2007 Sales (mm)
$520.3
2007 EV/EBITDA
$4.50
2007 EBITDA
$148.8
ROE (after tax)
LTM EPS
$0.67
Country
399,900
4.97%
US
General Communication, Inc. (GNCMA) is the leading integrated, facilities-based communications provider in Alaska, offering local and long-distance, cable video, data and internet to
residential and business customers. The company offers long-distance and phone service between Alaska and the US along with other foreign countries; cable television services throughout Alaska; and facilities-based competitive local access services in Anchorage, Fairbanks, and
Juneau. Also, the company engages in the resale of wireless telephone services, and the sale of
wireless telephone handsets and accessories. The company was founded in 1979 and is based
in Anchorage, Alaska.
After the addition of GNCMA in September the company acquired a local exchange provider
and an operator of a long-haul broadband microwave network - both in rural western Alaska to
achieve their strategic goal of expanding their addressable network from 60% to 99% of Alaska.
Then in November, GNCMA announced EBITDA of $39MM falling short of analyst expectations of $47MM due to weakness in the network access segment. The stock was hit hard falling
nearly 35% in the week of the announcement. The weakness in Network Access is attributable
to reduced minutes of use as well as competitive pricing pressures from AT&T and Alaska
Communications which are likely to continue. We currently have a small holding with a target
price of $8.
68
PAET
PAETEC Holding Corporation
Weight (%)
0.50%
$6.66
Beta
1.44
P/E (ttm)
57.9x
141.01
Total LT Debt (mm)
$791
P/B
4.5x
2007 EV/Sales
1.6x
Market Cap (mm)
$977
$1,671
52 Week High
$13.72
2007 Sales (mm)
52 Week Low
$6.39
2007 EBITDA
$177.5
ROE (after tax)
LTM EPS
$1.44
Country
757,158
$1,041.0 2007 EV/EBITDA
9.4x
34.86%
US
PAETEC Holding Corporation (PAET) is a facilities-based competitive local exchange carrier offering wire line communications services to medium and large businesses in 52 of the top
100 major metropolitan areas on the East Coast and in California. The company provides businesses with local voice, long distance, data, Internet, and other services. PAETEC Holding
Corp. was created on March 1, 2007 after the merger of PAETEC Inc with US LEC. PAET is
currently in the process of acquiring McLeod USA, which is on target to be completed in the
first quarter of 2008.
PAET was added to the portfolio to add diversity to the incumbent local exchange carriers
which we currently hold. At the end of February it announced 4Q07 EBITDA of $55.7MM
ahead of analysts‟ expectations of $54.5MM as they gain merger-related synergies from the
merger with US LEC. Management highlighted continued strength in its sales pipeline and having seen no impact on its business to date arising from the slowing economy.
SHEN
Shenandoah Telecommunications Company
Weight (%)
1.05%
$14.84
Beta
1.69
P/E (ttm)
19.3x
23.53
Total LT Debt (mm)
$18
P/B
3.8x
Market Cap (mm)
$359
$378
2007 EV/Sales
2.5x
6.2x
52 Week High
$25.80
2007 Sales (mm)
#N/A
2007 EV/EBITDA
52 Week Low
$13.51
2007 EBITDA
$60.7
ROE (after tax)
64,544
LTM EPS
$1.69
Country
13.91%
US
Shenandoah Telecommunications Company (SHEN), through its subsidiaries, provides regulated and unregulated telecommunications services to end-user customers and other communication providers in the Southeastern part of the United States. Services for the company include
personal communications service through a digital wireless telephone and data network, coaxial
cable based television services, internet services, and local and long distance voice, video and
internet services. In addition, SHEN provides paging services, sells and services telecommunications equipment, and provides information services and internet access.
SHEN had a strong year they saw double digit earnings growth in the second, third, and fourth
quarters of 2007 from the previous year resulting in a record year for the ILEC. In the third
quarter they announced a 70% increase in its annual dividend, from $0.16 to $0.27. In 2008 the
stock price has been weak with the termination of coverage on the stock by the only two sell
side analysts who covered it, and the resulting liquidation of the stock by large institutional investors.
69
Utilities Sector
Analyst: Yaoting Zhuang
Three segments comprise the utilities sector: electric, natural gas, and water. In the past year
utilities small cap stocks had one of the best performances of all market sectors. Electric and
natural gas utilities typically follow the prices of oil and natural gas. A recent trend occurring is
that water is now being viewed as a scarce commodity, which should translate into strong returns for water utilities. There exist many profit opportunities in this sector.
Weight (%)
0.90%
ORA
Ormat Technologies, Inc.
$43.01
Beta
1.20
P/E (ttm)
65.7x
42.22
Total LT Debt (mm)
$315
P/B
3.4x
Market Cap (mm)
$1,960
$2,231
2007 EV/Sales
7.5x
52 Week High
$57.93
2007 Sales (mm)
$295.9
2007 EV/EBITDA
23.8x
52 Week Low
$33.52
2007 EBITDA
$93.9
ROE (after tax)
6.08%
263,398
LTM EPS
$1.20
Country
US
Ormat Technologies, Inc. (ORA), together with its subsidiaries, operates in the geothermal
and recovered energy power business. The company operates in two segments: Electricity and
Products. The Electricity segment develops, builds, owns and operates geothermal power plants
and sells electricity primarily in the US, Guatemala, Kenya, Nicaragua and the Philippines. The
product segments designs, manufactures and sells power units for geothermal power plants;
power unites for recovered energy based power generation; and remote power unites and other
generators, including fossil fuel powered turbo-generators as well as heavy duty direct current
operators. These technologies are offered to contractors and geothermal plant owners and operators. The company was founded in 1965 and is based in Sparks, Nevada.
Revenues for ORA were 295.2 millions in 2007. Profit margin was around industrial average at
about 9.25%. ORA is a substitute for crude oil and natural gas firms, with a very high correlating relationship to the price of natural gas and crude oil. However, as geothermal technology
generates only about 1% of the world‟s energy, it still faces several challenges in order to see
robust organic growth in the near future; high oil prices and advancement of technology in thermal extraction will be the two biggest catalysts.
SWWC
Southwest Water Company
Weight (%)
0.81%
$11.07
Beta
0.92
P/E (ttm)
35.2x
24.44
Total LT Debt (mm)
$145
P/B
1.7x
Market Cap (mm)
$277
$420
2007 EV/Sales
1.9x
13.3x
52 Week High
$16.41
2007 Sales (mm)
$217.3
2007 EV/EBITDA
52 Week Low
$10.52
2007 EBITDA
$31.7
ROE (after tax)
134,450
LTM EPS
$0.92
Country
70
-3.10%
US
Southwest Water Company (SWWC) provides water, waste water, and public works services
principally in the United States. It services include water and wastewater system management;
construction management of water and wastewater systems; water and wastewater certified
laboratory services; pipeline inspections; refurbishment of manholes and sewer lines; water meter replacement; non-regulated wholesale water sales; wastewater treatment services; and municipal public works management and/or services. It operates in two groups, Utility and Services. The Utility group owns public water and wastewater utilities in Alabama, California,
New Mexico, Oklahoma, Texas, and Mississippi. The Services group operates and maintains
water and wastewater facilities owned by cities, public agencies, municipal utility districts, private entities, and investor-owned utilities. The company was founded in 1954 and is based in
Los Angeles, California
Revenues for SWWC came in at $217 millions in 2007, with a net loss of $8 millions. U.S. water utilities will continue to grant adequate rate hikes from their respective state commissions to
cover rising infrastructure costs for aging water systems. Local governments will continue to
turn to private entities to help repair decaying systems. However, soft economic conditions may
translate into tighter budgets and less state and local government revenue, resulting in delays in
water and wastewater projects. These outlooks translate to a limited growth potential for
SWWC‟s top-line for the foreseeable future.
EDE
Empire District Electric
Weight (%)
0.60%
$20.25
Beta
0.75
P/E (ttm)
18.9x
33.65
Total LT Debt (mm)
$542
P/B
1.4x
Market Cap (mm)
$630
$1,316
2007 EV/Sales
2.7x
$490.2
2007 EV/EBITDA
10.1x
7.04%
52 Week High
$26.13
2007 Sales (mm)
52 Week Low
$19.33
2007 EBITDA
$0.0
ROE (after tax)
164,751
LTM EPS
$0.75
Country
US
Empire District Electric Company (EDE) engages in the generation, purchase, transmission,
distribution, and sale of electricity to residential, commercial, and industrial customers in parts
of Missouri, Kansas, Oklahoma, and Arkansas. It provides water service to three towns in Missouri. The company, through its subsidiary, The Empire District Gas Company, also provides
natural gas distribution to communities in northwest, north central, and west central Missouri.
As of December 31, 2006, its gas utility properties consisted of approximately 87 miles of
transmission mains and approximately 1,105 miles of distribution mains. The company also
leases fiber optics cable and equipment, as well as distributes automated meter reading equipment. The Empire District Electric Company was founded in 1909 and is headquartered in
Joplin, Missouri.
Revenues for the year ended December 31, 2007 were $490.2 million vs. $413.5 million in the
prior year. For the fiscal year net income was $33.2 million, vs. net income from continuing
operations of $40 million in 2006. In December 2007, EDE completed an equity offering of
3,000,000 common shares which were sold at $23.00 per share. Empire received approximately
$65.8 million in net proceeds. With the equity proceeds, EDE‟s cash liquidity issue will be set
71
aside for at least the next few years, allowing them more leverage for potential expansions.
Moreover, its 5.9% dividend yield is a good cash return amidst this economic downturn.
PNY
Piedmont Natural Gas Company
Weight (%)
0.48%
$26.26
Beta
0.85
P/E (ttm)
19.1x
73.41
Total LT Debt (mm)
$825
P/B
2.2x
Market Cap (mm)
$1,940
2007 EV/Sales
1.8x
52 Week High
$27.98
2007 Sales (mm)
52 Week Low
$22.00
2007 EBITDA
$300.6
ROE (after tax)
524,111
LTM EPS
$0.85
Country
$3,041
$1,711.3 2007 EV/EBITDA
10.1x
13.47%
US
Piedmont Natural Gas Company, Inc. (PNY), an energy services company, engages in the
distribution of natural gas to residential, commercial, and industrial customers in portions of
North Carolina, South Carolina, and Tennessee. It also operates various energy-related businesses, including unregulated retail natural gas marketing, interstate natural gas storage, and
intrastate natural gas transportation. As of October 31, 2007, the company served 932,097 retail
customers and 62,000 customers served by municipalities. Piedmont Natural Gas Company was
founded in 1949 and is headquartered in Charlotte, North Carolina.
PNY recorded a record year in 2007, with its revenue at $1.82 billions, and an operating margin
of 11.65%. The biggest investment thesis for PNY is its stability. Natural gas consumption has
a very high elasticity of demand. In fact, the fluctuation of weather is the single most important
factor that influences PNY‟s stock price in the near future. The Piedmont region granted PNY a
decoupling pricing rate structure that further minimizes any revenue fluctuation due to weather.
Overall, highly earnings visibility and a generous dividend yield should make PNY an attractive
stock.
72
AIM Fund Relative Return Performance
The following table shows the relative return performance of the AIM Equity and Fixed Income
Funds since inception, 1 and 2 year periods. The AIM Equity Fund has outperformed the Russell 2000 since inception with a 3.62 % annualized return. The AIM Fixed Income Fund has
also outperformed the Lehman Aggregate Bond Index returns since inception with a 6.42 % annualized return.
AIM Equity Fund Relative Return Performance (as of 3/31/2008)
1 Year
AIM Equity Fund
-12.49%
Russell 2000 Index
-13.06%
** Since 9/28/2005 annualized return of 3.62%:
2 Year
-9.41%
-7.93%
Since Inception**
6.87%
6.10%
AIM Fixed Income Fund Relative Return Performance (as of 3/31/2008)
1 Year
8.12%
7.67%
** Since 1/30/2006 annualized return of 6.42%
73
2 Year
14.93%
14.77%
Since Inception**
14.80%
14.02%
AIM Equity Fund Sector Attribution Analysis
The industry sectors in the AIM Equity Fund were allocated based on Morningstar categories.
The following table displays the AIM fund sector attribution analysis. The business services,
financial services, and consumer services were the worst performing sectors; while the healthcare and industrial material sectors were the best performers by a huge margin.
AIM Equity Fund Sector Attribution Analysis (4/1/07 Through 3/31/08)
Sectors
Allocation Effect
Security Effect
Interaction Effect
Total Effect
Business Services
0.02
-2.49
0.02
-2.45
Consumer Goods
-0.07
0.19
0.01
0.13
Consumer Services
0.48
-1.76
0.22
-1.06
Energy
0.06
2.31
-0.38
1.99
Financial Services
-0.20
-1.94
-0.05
-2.19
Hardware
-0.22
-0.56
-0.05
-0.82
Healthcare
-0.57
6.38
1.12
6.92
0.28
6.54
-0.61
6.21
Media
-0.24
-0.16
-0.06
-0.45
Software
0.10
-0.55
0.04
-0.41
Telecommunications
-0.10
-0.04
-0.01
-0.15
Utilities
-0.01
0.18
0.00
0.17
Other transactions
0.00
-7.00
0.00
-7.00
Total
-0.48
1.10
0.26
0.88
AIM Equity Fund Top 10 Holdings
The top 10 AIM Equity Fund holdings are shown in the table below.
AIM Equity Fund Top 10 Holdings (as of 3/31/2008)
Name
Ticker
Sector
Holding Value
Weight
Compass Minerals International, Inc.
CMP
$23,866.90
4.52%
Meridian Bioscience, Inc.
VIVO
Healthcare
$17,049.36
3.14%
Air Methods Corp.
AIRM
Healthcare
$16,929.50
3.14%
Badger Meter, Inc.
BMI
$16,035.80
3.12%
Arbitron Corporation
ARB
Business Services
$15,537.60
2.88%
Medical Properties Trust, Inc.
MPW
Financial Services
$14,150.00
2.67%
FPIC Insurance Group, Inc.
FPIC
Financial Services
$14,139.00
2.63%
Tennant Company
TNC
$13,535.40
2.42%
CHTT
Healthcare
$11,941.20
2.11%
KFY
Consumer Services
$10,647.00
2.01%
Chattem, Inc.
Korn/Ferry International
74
AIM Equity Fund Statement of Operations
The table below shows the AIM Equity Fund‟s statement of operations for the 12 month period
ending March 31, 2008. The AIM Equity Fund‟s dividend income was $6,299, or a yield of
1.14% during the holding period. The Fund‟s realized capital loss was $77,609, or –13.7%.
Commissions for the holding period amounted to about 55 bps.
AIM Equity Fund Statement of Operations (Holding Period Ending 3/31/2008)
Income:
Dividend Income
Interest Income
Sub-Total
$5,972
$257
$6,229
Expenses:
Excise Tax
Commissions
Sub-Total
$5
$3,375
$3,380
Net Asset Gain / (Loss):
Realized Gain / (Loss)
Unrealized Gain / (Loss)
Sub-Total
($7,677)
($72,781)
($80,458)
Net Increase / (Decrease) in Net Assets from Operations
($77,609)
AIM Equity Fund Statement of Changes in Net Assets (as of 3/31/2008)
Beginning Market Value (4/1/2007)
Net Increase (Decrease) in Net Assets from Operations
Ending Market Value (3/31/2008)
$613,108
($77,609)
$535,499
75
Strategy and Holdings
During the fall semester, the student managers of the AIM Fixed Income Fund developed a
strategy to attempt to outperform the benchmark (Lehman Brothers Aggregate Bond Index) by
20 annualized basis points. The strategy had to adapt quickly to a very volatile and unique market. Responding to indications of the market, the AIM Fund took advantage of the flight to
quality fears of inflation, and concerns about a potential recession. In implementing the strategy, the assets selected for inclusion in the AIM Fund were low-cost fixed income ETFs and
index mutual funds. The following table shows the AIM Fixed Income Fund holdings as of
March 31, 2008.
AIM Fixed Income Portfolio Holdings (as of 3/31/2008)
Holding
Ticker
Money Market Fund
iShares Lehman MBS Bond
MBB
iShares iBoxx $ Invest Grade Corp Bond
LQD
iShares Lehman Aggregate Bond
AGG
iShares Lehman Intermediate Govt/Credit Bond
GVI
iShares iBoxx $ High Yield Corporate Bond
HYG
iShares S&P National Municipal Bond
MUB
iShares Lehman Short Treasury Bond
SHV
iShares Lehman 7-10 Year Treasury
IEF
iShares Lehman Government/Credit Bond
GBF
iShares Lehman 1-3 Year Credit Bond
CSJ
Vanguard High-Yield Corporate
VWEHX
Vanguard GNMA
VFIIX
Total AIM Fixed Income Fund
Category
Intermediate-Term Bond
Long-Term Bond
High Yield Bond
Muni National Intermediate
Short Government
Long Government
Short-Term Bond
High Yield Bond
Intermediate Government
Holding
Value
$2,390
$195,275
$115,720
$71,896
$49,412
$28,999
$27,983
$27,600
$22,923
$15,681
$15,456
$364
$291
$573,990
Some of the major decisions that the class made in regards to strategy were implemented primarily through asset allocation and our position on the curve. In October 2007, we reduced our
exposure to high yield corporate bonds and we continued to scale back our exposure to mortgage backed securities. The class expected weaker corporate profits and continued pain in the
housing market. In November 2007, recognizing the severity of credit and housing markets and
the fear in the market place, we quickly overweighted treasury securities and benefited from a
flight to quality. We also purchased TIPS, expecting further rate cuts and the chance of inflation creeping in. Finally we moved from a barbell strategy to more of a ladder strategy, hoping
to benefit from the movement in the short and medium parts of the curve. In March 2008, for
the first time ever, we added municipal bonds to the portfolio as their yields compared to treasuries were very attractive. We also sold out of TIPS after they had been bid up too much. Finally, we have made a move back into both investment grade and high yield corporate bonds.
76
As the strategy changed throughout the year, so did the composition of the AIM Fixed Income
Fund. While the portfolio had different looks throughout the year, the characteristics of the
fund as of March 31, 2008, are presented in the next table. As of the end of the holding period,
the AIM Fund‟s duration was higher than the benchmark at 4.48 compared to the benchmark‟s
4.43. Since this time, the duration has been reduced and the portfolio currently is duration neutral. In addition to a higher duration, the AIM Fixed Income Fund also has an average yield of
50 bps above the Lehman Aggregate Bond Index.
AIM Fixed Income Fund Characteristics (as of 3/31/2008)
Holdings
Weight (%)
0.79
5.07
20.16
2.68
3.93
12.41
2.72
8.57
33.86
4.79
4.92
0.05
0.06
100
Money Market Fund
iShares Lehman Intermediate Govt/Credit Bond
Vanguard GNMA
Total
Lehman Brothers Aggregate Bond
Average Effective
Average Yield
Duration
0.2
0.5
5.24
8.47
6.78
5.72
1.81
4.43
6.86
4.14
4.43
4.26
5.24
4.51
3.79
4.2
3.21
4.45
0.34
3.31
7.38
3.47
3.37
5.03
5.09
8.5
4.48
4.76
4.43
4.26
Since inheriting the portfolio from the class of 2007, the shape of the yield curve has dramatically changed. With short term rates at 5% and a general U-shaped or inverted curve originally,
the current yield curve looks very different today. With the many interest rate cuts by the Fed
in the second half of 2007 and into early 2008, the yield curve has taken on a much more normal, positively sloping curve.
As shown in the chart below, the major source of this change is from the short end of the curve
coming down substantially in response to the many Fed cuts, the sub-prime crisis, and the credit
crunch. The long end of the curve has acted somewhat as a pivot point, remaining relatively
stable compared to the movement in the other parts of the curve. High commodity prices and
the fear of inflation creeping in from rapid rate cuts has propped up the long end of the curve.
The 2-10 year spread has grown substantially from its once flat relationship to nearly a 200 bps
spread.
77
U.S. Treasury Yield Curve
(End-of-Quarter During Holding Period)
Interest Rate Forecast and Strategy
Although the class feels that we may be reaching the bottom of the crises that have plagued the
fixed income markets over the last nine months, uncertainty still looms. Concerns about inflation, a looming or already present recession, upcoming Fed decisions, and the status of the
housing market all played a role in setting our strategy for the summer months.
Corporate profits and the overall health of the economy, as well as fear of inflation were the
two biggest factors in setting our strategy. While there is expected to be at least one more cut in
the fed funds rate upcoming, over the next several months we expect interest rates to rise across
the board. As the flight to quality appears to be almost over, we expect the short end of the
curve to come up, as well as some movement upwards in the long bonds. For this reason, we
are implementing a slightly underweight position in treasuries. Along with this decision, these
expected trends also compel us to maintain a slightly short to neutral duration.
There is also a great concern about corporate profits and the chance of defaults going forward.
While the slumping economy is a concern, we feel that overall we would be compensated for
the risk we are taking with the current yields on both investment grade and high yield corporate
bonds. This is why we are suggesting a neutral to slightly overweight position in corporate
bonds.
With all of the concerns lingering in the market, there is no one asset class that we feel completely comfortable with. With that said, the assets that we find to be most attractive with all
the above considered are agency bonds. We feel that mortgages, especially agencies, will be a
good performer in the months upcoming. The industry appears to have begun to successfully
78
heal its wounds. Even with continued problems in the future, the expected support and backing
of the government make agencies the best play at this time. This is why we are recommending
an overweight in agencies.
Fixed Income Sector Distribution
AIM Fixed Income Fund (March 2008)
Holdings
AAA % AA %
Money Market Fund
A%
BBB % BB %
B%
Below
B%
100
0
0
0
0
0
0
0
0
0
0
33
44.6
19.8
8.3
29.4
31.6
28.6
0
0
0
20.7
30
29
16.2
0
0
0
98
0
0
0
0
0
0
74.5
7.1
8.8
6.9
0.5
0
0
iShares Lehman Intermediate Government/
Credit Bond
64.3
9.4
12.4
10.3
0.4
0
0
66.7
9.5
10
8.4
0.3
0
0
95
0
0
0
0
0
0
98.6
0
0
0
0
0
0
65.7
21.5
10.9
0
0
0
0
Vanguard GNMA
100
0
0
0
0
0
0
4.6
0
0
5.9
37.3
42.7
8.5
43.5
15.9
16.1
13.1
3
3.9
1.7
Total
74.5
7.1
8.8
6.9
0.5
0
0
The AIM Fund will continue to hold open-ended index mutual funds and ETFs to assist in implementing top-down strategies, such as sector allocations and duration management. The idea
of purchasing individual fixed income securities was explored, but the relatively small size of
the AIM Fund prohibited efficient execution at institutional pricing levels and the realization of
prudent levels of diversification. Another issue was the inability of the AIM Fund to gain access
to deep and liquid inventories. While the use of ETFs and mutual funds does prevent student
managers from making bottoms-up fixed income decisions like those of an active bond fund
manager, it does not detract from the educational benefits. The continued expansion in the number and composition of fixed income ETFs and index mutual funds has allowed more variety
and options for the AIM Fund student managers.
79
Performance
Holding period return information for the AIM Fixed Income Fund was presented in the previous sections of this report. The following chart shows the cumulative active return relative to
the benchmark. As the chart shows, the AIM Fund is currently the highest above the benchmark
it has ever been since inception. At the end of the holding period the AIM Fund was nearly 80
bps above the Lehman Aggregate Bond Index.
Cumulative Excess Net Returns for the AIM Fixed Income Fund vs.
the Lehman Aggregate Index
(Since Inception 1/30/2006)
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
-0.2%
-0.4%
80
AIM Fixed Income Fund Statement of Operations
The following table presents the AIM Fixed Income Fund‟s statement of operations as of March
31, 2008. The realized capital gain was $42,871 or 8.07 %. The Fund‟s addition, interest and
dividend income was $26,039 for a yield of 4.90 %. Commissions for the holding period
amounted to about 17bps.
AIM Fixed Income Fund Statement of Operations (Holding Period Ending 3/31/2008)
Income:
Additions
Dividend Income
Interest Income
Sub-Total
$80
$25,674
$285
$26,039
Expenses:
Commissions
Sub-Total
$904
$904
Net Asset Gain / (Loss):
Realized Gain / (Loss)
Unrealized Gain / (Loss)
Sub-Total
$9,846
$7,890
$17,736
Net Increase / (Decrease) in Net Assets from Operations
$42,871
AIM Equity Fund Statement of Changes in Net Assets (as of 3/31/2008)
Beginning Market Value (4/1/2007)
Net Increase (Decrease) in Net Assets from Operations
Ending Market Value (3/31/2008)
81
$530,914
$42,871
$573,785
Contact:
Dr. David S. Krause
Finance Department
P.O. Box 1881
Milwaukee, WI 53201-1881
Telephone: (414) 288-1457
E-mail: david.krause@marquette.edu
82

2007-2008 AIM Fund Annual Report

Transcription

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