D’Artagnan Capital Fund
Williams College of Business
Xavier University
3800 Victory Parkway
Cincinnati, OH 45207-5162
Annual Report
April, 1 2011 – March 31, 2012
TABLE OF CONTENTS
XUDCF Fund Manager Bios .................................................................. 3
XUDCF BEA Board Members ............................................................... 7
Annual Performance Report ................................................................. 9
Fund Strategy ...................................................................................... 13
Fund Officer Positions ......................................................................... 14
Economic Report ................................................................................. 16
Sector Reports
Consumer Discretionary ....................................................................... 19
Consumer Staples ................................................................................ 23
Energy .................................................................................................. 28
Financials ..............................................................................................33
Health Care ........................................................................................... 37
Industrials ............................................................................................ 42
Information Technology ...................................................................... 46
Materials ............................................................................................... 51
Telecommunication ..............................................................................54
Utilities ..................................................................................................56
Current Holdings as of March 31, 2012 .............................................. 59
Fiscal year trades……………………………………………………………………… 61
2 | D C F A n n u a l R e p o r t DCF Members
Consumer Discretionary/ Consumer Staples
Manager Steve Latos
Class of 2012
Steve Latos is a Finance major/Information Technology minor from the Northwest suburbs of
Chicago, IL. As a member of the investment fund, Steve was a Consumer Staples Analyst during his
first semester and currently manages both the Consumer Staples and Consumer Discretionary
sectors. Currently, he is an intern for the River Hills Group at Merrill Lynch. Out of the classroom,
Steve is the Vice President of the Xavier Club Golf team and a starting pitcher on the Xavier Club
Baseball team. Upon graduation, Steve is planning to start his career in investment banking.
Manager Steve Rosenbaum
Class of 2012
Steve Rosenbaum is a Finance major/Information Technology minor. From Oak Lawn, Illinois,
Steve was a Consumer Staples Analyst for his first semester in the Investment Fund. He now helps
manage the Consumer Staples, Consumer Discretionary, and Information Technology sectors. Steve
currently interns for Raymond James Financial Services as the branch "client care specialist." He is
also the President of the Xavier Club Baseball team and a member of the Financial Management
Association. In his free time, Steve enjoys golfing, playing softball, watching the Chicago White Sox,
Green Bay Packers, and Xavier Basketball.
Manager John Barber
Class of 2012
In John Barber’s first semester with the fund, he was an analyst in the Energy sector. John is a
Finance major from Springfield, KY. He is a former intern for Fort Washington Investment
Advisors, and currently interns at Horan Associates. He is also a board member of Xavier's
Alternative Breaks program, the 4pm Student Mass Coordinator, a volunteer mentor/tutor, and
enjoys playing intramural football and basketball at Xavier. Upon graduation in May 2012, John will
be employed by Macy’s, Inc. in the Finance Executive Development Program.
Analyst Nathan Bailey
Class of 2013
Nathan Bailey is a Business Finance major/Economics minor from North Bend, OH. Nathan held an
internship at Haberer Registered Investments Inc. over the summer of 2011 where he worked
alongside the Senior Portfolio Manager. He currently holds an internship at the Foster Kavanaugh
Group at Merrill Lynch. Nathan looks forward to moving up to a manager position next semester in
the DCF.
Analyst Scott McSweeney
Class of 2012
Scott McSweeney is a senior Finance major from Cincinnati, Ohio. Scott currently is an intern for
the Foster Kavanaugh Group at Merrill Lynch. Aside from the Fund, Scott is a member of Xavier's
Distance for Dreams club and enjoys playing basketball in his free time.
3 | D C F A n n u a l R e p o r t Industrials/Materials
Manager Ryan Alleman
Class of 2012
Ryan is a Finance major from the Greater Cincinnati area. This past summer Ryan completed an
internship in the Purchasing Department of Toyota Motor Engineering & Manufacturing of North
America. Currently, Ryan serves as a student representative to the Advisory Committee of the
University Planning & Resourcing Council at Xavier, as well as Student Body President. Upon
graduation, Ryan will be employed with Macy's Inc. within the Finance Executive Development
Program.
Analyst Matt Willert
Class of 2013
Matt Willert is a Finance major from Chagrin Falls, Ohio. Matt is an accounting intern at Medpace,
Inc., and hopes to eventually become a financial planner. Outside the classroom, Matt enjoys golfing
and participating in intramural sports.
Analyst Julie Wedel
Class of 2013
Julie is a Finance major, Statistics minor from Richmond, KY. Currently, Julie is the Treasurer of
the Club Gymnastics Team, Secretary of the Actuarial Club, and member of the Club Soccer team.
Also, Julie is a student tutor for all statistic courses at Xavier University. She is planning on
completing an internship this summer with the Federal Reserve Bank of Cleveland in the Credit Risk
Management Department.
Information Technology
Manager J. Curtis May
Class of 2012
J. Curtis May is a senior Finance major from Akron, Ohio. He oversees the Information Technology
sector for the Investment Fund. Curtis is currently interning with UBS and is also employed by the
Applied Finance Department at Xavier as a Bloomberg Research Analyst. Aside from the Fund,
Curtis is the Treasurer for the Xavier University Men’s Club Volleyball team, and is also a practice
player for the Xavier Women’s basketball team.
Analyst Kyle Varrone
Class of 2013
Kyle Varrone is a Finance major from the Akron/Cleveland area. This summer, Kyle will be
interning with Northcoast Research. In his free time, Kyle enjoys hanging out with friends, working
out, playing golf and basketball, reading, and watching sports.
4 | D C F A n n u a l R e p o r t Analyst Wes Hampson
Class of 2013
Wes Hampson is a Finance major and Economics minor from Portsmouth, NH. He is currently an
intern at Ohio National Financial Services in Cincinnati. Previously, he held an internship with
Willis Programs in the insurance industry. Wes is also the fundraising/public relations chair of the
Xavier University Running Club and a member of the Financial Management Association. Wes is a
passionate New England sports fan and enjoys watching and playing sports in his free time.
Healthcare
Manager Jaclyn O’Driscoll
Class of 2012
Jaclyn is a Finance major with an Economics minor, who is from Los Angeles, CA. Jaclyn is the
senior resident assistant in Buenger Residence hall, and over the summer she interned at Merrill
Lynch. She has previously interned at Fifth Third in their Investment Advisors division as well. As a
junior, she was Vice President of the Financial Management Association and a member of the
University Board for Scholarships and Financial Aid. Upon graduation, Jaclyn will be employed with
Macy's Inc. in the Executive Development Program.
Analyst Austin Behan
Class of 2013
Austin is a Finance and Economics double major, from Tiverton, Rhode Island. In addition to being
an analyst for the D’Artagnan Capital Fund, he is also a member of the Xavier Men’s Rugby Club.
Austin is currently the Vice President of Operations for the Financial Management Association. He
also serves as a student representative on the University’s Financial Aid & Scholarship Committee.
In his free time he enjoys keeping up with current events and reading “The Economist.” In the
summer Austin hopes to intern in the field of investments.
Energy/Utilities Sector
Manager Phillip Weickert
Class of 2012
Phillip Weickert is currently a senior Finance major at Xavier University. In his first semester with
DCF, he was one of the Information Technology Sector Analysts. When he is not working on his
finance coursework, Phillip enjoys playing basketball. He is also in Alpha Psi. In addition to his
Finance major he is majoring in Accounting. Phillip has been successful in two internships in Public
Accounting, where he worked busy season at Deloitte & Touché, LLP as well as Grant Thornton, LLP.
Analyst Ian O’Neil
Class of 2013
Ian O’Neil is a double major in Finance and Marketing from Youngstown, OH. He is currently
working at The Nielsen Company, finishing up his second internship in custom analytics. Ian is also
the president of the Financial Management Association.
5 | D C F A n n u a l R e p o r t Financials
Manager Joe Simoneau
Class of 2013
Joe Simoneau is a Finance major with a minor in Economics. He is from Trumbull, Connecticut and
will be working for the Royal Bank of Scotland this coming summer. He is a member of the Xavier
S.T.A.R. club and helps write for the Xavier Economics Magazine. In his free time, Joe likes to play
soccer and watch football.
Analyst Jacob Hretz
Class of 2013
Jacob Hretz is a Finance major, Economics minor from Canton, Michigan. His prior work
experience includes working at a grocery store, local pizza restaurant, and State Farm Insurance.
Jacob enjoys watching sports, and his favorite teams include Xavier basketball, Detroit Tigers, and
Detroit Lions. He also enjoys playing and listening to music as well as attending concerts.
Analyst Nick Albin
Class of 2012
Nick is a Finance major/Spanish minor from Washington, DC. His previous work experience
includes interning for the U.S. Department of State. His involvement at Xavier includes having
served on Student Government as a Senator for three terms, the club President of Life After Sunday,
and a player on the Club Tennis team. Nick has a passion for business, politics, and reading
leadership books. He enjoys rooting for the Xavier Musketeers, New York Yankees, and the
Washington Redskins.
6 | D C F A n n u a l R e p o r t XAVIER FINANCE BOARD OF EXECUTIVE ADVISORS
April 2012
Maribeth Amyot
Senior Vice President-Financial
Administration and CFO
Xavier University
Mike Andriole
Senior Director
Emerging Markets Business Development
Eli Lilly and Company
Tony Beal
Regional Director, Great Lakes Region
The Travelers Companies, Inc.
Rebecca Hochstetler
Associate Director, Finance
North America Fabric Care Financial
Analysis
The Procter & Gamble Company
J. Hunter Brown
Watson Wilkins & Brown LLC
Jim Brugger
Director Cash Management
Macy’s Inc
John E. Callahan
Chicago Board of Trade
Brian Gilmartin
Portfolio Manager
Trinity Asset Management
George A. Haddad, CFP
Vice President-Wealth Management Advisor
Merrill Lynch
Tami Hendrickson
Vice President, Treasurer
FHLB
Bill Hogan, CFA
Sr. Vice President- Investments
American Money Management
John Horan
Vice President
Merrill Lynch
R. Bryan Kroeger
Senior Vice President-Middle Market
Lending
U.S. Bank, N.A.
Thomas Lieser, CFP
Vice President-Investments
CUBS Financial Sevices
Thomas M. Cooney
President
Cooney, Faulkner & Stevens, LLC
Matthew D. McCormick
Vice President, Principal and Portfolio
Manager
Bahl & Gaynor Investment Counsel
William Effler
Senior Vice President
American Money Management
Kimberly Renners
Director of Wealth Management
OJM Group
James Eglseder
Investor Relations Manager
Fifth Third Bank
Juan Rivera
Vice President, Internal Audit
Chiquita
J. Douglas Gerstle
Assistant Treasurer, Global Treasury
Procter & Gamble
Christopher M. Rowane, CFA
Senior Vice President & Senior Portfolio
Manager
Huntington Financial Advisors
7 | D C F A n n u a l R e p o r t James D. Schade
Senior Vice President
Merrill Lynch
Kevin P. Whelan, CFA
Vice President and Portfolio Manager
Opus Capital Management
Dora J. Vorherr
Director of Finance
Corporate Research and Development
The Procter & Gamble Company
James Wilhelm, Jr.
Senior Portfolio Manager
Fort Washington Investment Advisors, Inc
Edward N. Waldvogel
Vice President – Capital Management
The Kroger Company
Rebecca S. Wood
Managing Principal
Fund Evaluation Group, LLC 8 | D C F A n n u a l R e p o r t D’ARTAGNAN CAPITAL FUND ANNUAL PERFORMANCE
(4/1/2011 – 3/31/2012)
RETURNS
Statistics
Total Return
Sharpe Ratio
Treynor Ratio
Beta
Alpha
M2
DCF
Gross: 8.64%
Net: 8.15%
5.49
0.090
0.934
65 bps
-.459%
S&P 500
8.54%
5.81
.083
1.0
INTERPRETATION OF DATA
Total Return
Overall the portfolio outperformed in the fiscal year returning 8.64%. In comparison, our
benchmark of the S&P 500 Index returned 8.54% over the same time frame.
Beta
The fund’s Beta of 0.934 for the fiscal year is slightly lower than the implied beta of 1.0 for its
benchmark. This lower beta indicates throughout our fiscal year the portfolio was constructed to
experience slightly less volatility of returns than the market as represented by the S&P500
benchmark.
Sharpe Ratio
The Sharpe Ratio is the excess return of the portfolio over its standard deviation. The portfolio
returned a Sharpe Ratio of 5.49. In comparing this to the benchmark’s ratio of 5.81, it can be
determined that on a risk-adjusted basis the portfolio underperformed the market, given its
exposure to total risk.
Treynor Ratio
The Treynor Ratio is the return of the portfolio less the risk-free rate over its beta. The portfolio
returned a Treynor Ratio of 0.090. In comparing this to the benchmark’s ratio of 0.083, it can
be determined that on a risk-adjusted basis the portfolio outperformed, given its exposure to
systematic risk.
Alpha
During the fiscal year, the portfolio returned an alpha of 65 basis points, indicating we
underperformed our benchmark by 0.65% on a systematic risk adjusted basis
M2
The portfolio returned an M2 measure of -0.459%. Similar to the Sharpe ratio, M2 measures the
excess return over total risk.
9 | D C F A n n u a l R e p o r t BEST AND WORST PERFORMANCE
Best Performers
1) Apple, Inc.
2) Visa, Inc.
3) Intel Corp.
4) Microsoft
5) Abbott Labs
Return
72.03%
61.56%
44.10%
30.49%
29.57%
Worst Performers
1) Peabody Energy Corp.
2) Alcoa, Inc.
3) NRG Energy
4) Chesapeake Energy
5) Keycorp
Return
-59.49%
-42.72%
-35.11%
-30.17%
-19.38%
The table above shows the best and worst performers during the past fiscal year. Four of the top
five performers were in the Information Technology Sector (Apple, Visa, Intel, and Microsoft),
with Abbott Laboratories in Healthcare. Our worst performers came from Energy (Peabody and
Chesapeake Energy Companies), Materials (Alcoa), Utilities (NRG Energy), and Financials
(Keycorp).
TOP HOLDINGS
Top Holdings
(3/31/2012)
1) Visa Inc.
2) Apple Inc.
3) PNC Financial
4) Cognizant Tech
5) Microsoft Corp.
% of
Portfolio
5.76%
5.51%
4.42%
4.27%
4.02%
*It’s the fund’s policy to keep holdings underneath 6% of the total portfolio.
10 | D C F A n n u a l R e p o r t ATTRIBUTION ANALYSIS AND SECURITY SELECTION
Sector
Information Technology
Consumer Staples
Health Care
Industrials
Energy
Financials
Utilities
Materials
Telecommunication
Services
Consumer Discretionary
Total
Excess Return
Attribution
Relative
Weight to
Benchmark
+
+
+
-
Asset
Allocation
Return
+
+
+
+
+
Security
Selection
Return
+
+
+
-
+
-
N
+
+
-
0.0103
0.0897
Total
Excess
Return
+
+
+
+
-
Industrials, Energy, Utilities and Consumer Discretionary all had negative security selection.
The rest of the sectors had positive security selection. Information Technology, Consumer
Staples and Materials had positive asset allocation (Utilities and Telecom were neutral). Excess
return was positive for all the sectors except Industrials, Energy, Utilities and Consumer
Discretionary.
*All trades for the year 4/1/2011 – 3/31/2012 are filed at the end of the report.
INCEPTION PERFORMANCE (4/01/09-3/31/12)
Year
S&P 500
Alpha
Beta
2009
43.53%
49.77%
221bps
0.827
2010
13.58%
15.64%
-21bps
0.883
2011
8.64%
8.54%
65bps
0.934
Total
77.35%
87.99%
10bps
0.897
2009-2011
DCF
11 | D C F A n n u a l R e p o r t CONCLUSION
In closing, our fund outperformed our benchmark on a total return basis by 10 bps. Four of the
top five best performers were in the Information Technology sector, with the fifth in Healthcare.
In addition, our worst performers came from the Energy, Utility, Materials, and Financial
sectors. Apple and Visa were out top performers, returning 72.03% and 61.56% for the fiscal
year. Peabody Energy Corp. was our worst performer.
12 | D C F A n n u a l R e p o r t Xavier University
D’Artagnan Capital Fund
Strategy Statement
The D’Artagnan Capital Fund is an opportunities fund which
seeks to position itself in undervalued stocks in the marketplace
utilizing a bottom-up approach. Our analysts extensively research
company financials, management, and industry competitors in
formulating financial valuation models which lead to investment
decisions. Our goal as a fund is to continuously outperform our
benchmark – the S&P 500 – on a risk-adjusted return basis while
remaining compliant in accordance with our prospectus.
13 | D C F A n n u a l R e p o r t Xavier University
D’Artagnan Capital Fund
Officer Positions
Chief Executive Officer
Student and staff appointed position at the beginning of each semester. This individual
is in charge for leading the operations as well as providing oversight to the rest of the
fund per strategic objectives. Also responsible for updating board members and other
key individuals on performance reporting and current initiatives within the fund, as well
as act as a contact between these individuals and other fund members.
Chief Investment Officer
Student and staff appointed position of a second semester student who is responsible for
all investing related decisions as well as leading class discussions per each meeting. This
individual initiates trade requests which the fund analysts and managers approve upon,
and acts as a liaison between the course professor and fund members in each
transaction. It is a rotated position for fist semester students in which the individual is
also responsible for leading class discussions and managing discussion objectives for the
day.
Compliance Officer
Student and staff appointed position of a second semester student who is in charge of
making sure current fund holdings align with prospectus guidelines and that the fund
never falls out of compliance. Updates fund members each meeting on current state of
fund and areas of concern in terms of compliance, as well as gives trading oversight to
each transaction and how it will effect overall compliance. This is also a rotated position
amongst first semester students in which they also ensure fund holdings remain in
compliance and give relevant updates to fund members.
Economist
A monthly rotated position which is in charge of keeping up with current market and
economic trends as well as updating fund members on current economic happenings.
This individual gives a brief overview of current and relevant economic events at the
beginning of each fund meeting, and is responsible for having a broad knowledge of how
these economic activities effect current fund positions.
14 | D C F A n n u a l R e p o r t Controller
Responsible for compiling monthly, annual, and semi-annual performance reports.
Web/Tweet Master
Student in charge of maintaining the fund's website (www.xudcf.com) and twitter
account (@XUDCF). Doing so allows for alumni, the Board of Executive Advisors,
faculty, family, and friends to stay up to date with recent developments within the fund
and helps to increase our exposure. The website includes past and present student
biographies, performance reports, class discussions, and other miscellaneous items.
Risk Officer
Manages the risk of individual companies and the market using financial risk tools as
well as qualitative data.
VP of PR
The VP of Public Relations for the DCF is responsible for preparing timely information
for University press releases, maintains contact with former fund members, and works
with professionals throughout the Tri-State Area to schedule appearances that aid the
fund in its endeavors. VP of Competition (R.I.S.E.)
Responsibilities include getting funding, registration, and planning of the annual trip to
the R.I.S.E conference and investment competition at Dayton, OH.
15 | D C F A n n u a l R e p o r t Economics Report
By: Austin Behan
Application of Economics to DCF Strategy
As a Large Cap Equity fund we utilize important economic information in order to
forecast the growth of securities. This enhances our bottom-up valuation process that
we use to value equities. We begin each class meeting with an economic report that
summarizes major news and turning points in the global and domestic economy in the
last few days. These reports can include speeches from Ben Bernanke, labor reports,
reports of the housing market, and news affecting the entire market as well as individual
companies we hold. We use economics in conjunction with our bottom up approach to
align with our strategy of taking advantage of market mispricings and form outlooks for
sectors and specific companies.
In our valuation of individual equities we provide an in-depth qualitative analysis of our
assumptions that is backed by our discounted cash flow (DCF) and relative valuation
models. In this analysis, current economic conditions are especially necessary in order
to accurately forecast the outlook of a stock. Correctly indentifying macroeconomic
factors allow us to identify the best opportunities in each sector. As an opportunities
fund, this is key in making decisions on the best opportunities that we can invest in.
Macroeconomic conditions are mostly used in deciding on growth rates of our
companies, EBIT margins and interest rates used in calculating Weighted Average Costs
of Capital for our DCF analysis. We also use microeconomic factors that deal with
consumer outlook in building assumptions for potential sales growth and other inputs.
2011 In Review
1. In the 4th quarter of 2011, U.S GDP grew 3.0%, compared to previous
quarter’s growth of 1.8%.
2. 2011 GDP ended at 1.65%, due the slow growth in the beginning of the
year.
3. Unemployment rate dropped to 8.2%, down 0.6% from the previous year.
4. The U.S current account balance (as % of GDP) is -3.1%.
5. The International Monetary Fund (IMF) approved a €28 billion bail-out
for Greece.
6. United States credit rating by Standard & Poor’s was downgraded to AA.
7. Ben Bernanke pledged to keep interest rates low until 2014.
8. The Bank of England flooded their banking system with more than £75
billion.
9. The MSCI Emerging Markets Index rose 14.3% for the last quarter of this
year; the surge was following a 20% drop for the year 2011.
10. India and Brazil, having grown at 6.1% and 3% respectively, did not meet
their expected GDP for 2011.
16 | D C F A n n u a l R e p o r t 11. China posted GDP growth of 9.2% for the full year.
12. The United States’ House Price Index (HPI) saw a decline in housing
prices of 2.9% in 2011.
13. The United States’ Consumer Price Index for All Urban Consumers (CPIU) increased 2.9%, before seasonal adjustment.
International Exposure
Emerging Markets
Growth, and the potential for it, is what leads to an increase or decrease in the value of
stocks. While many of the developed world countries have income that has not risen in a
few years, consumers are no more likely to purchase products these days then before
when income was steadily rising, i.e. before 1975. Emerging markets, such as China and
India, are currently undergoing similar Industrial Revolutions compared to the one
experienced in the 19th century which helped to grow and advance the current developed
economies of the world. In these nations incomes have steadily increased and are
expected to rise as their economies continue to develop. They are also beginning to
create a material demand for products and services, giving rise to a new consumer base
for many companies. These new, previously untapped markets provide the potential for
companies to expand in the next few years. As these economies continue to import more
products and increase consumption, we expect to see the emerging markets act as a
catalyst for continual growth in the coming years.
In the creating of our valuation models we must build assumptions based on the current
and expected customer base of these economies. In identifying the growth in emerging
markets, many companies, both domestic and international, can expect revenue derived
from outside of the United States to rise in the coming years. In our fund strategy, it is
crucial to have companies who have large potential in growth and adequate exposure in
these markets since that is where many of the best opportunities can be found.
Debt Crisis
This year, many of the world’s richest economies were facing massive debt crises. The
United States was downgraded by Standard & Poor’s from AAA to AA. Greece also
defaulted on their sovereign debt and required two bailouts. During the year we also saw
stable economies like France be downgraded. After the recent global recession, it is not a
surprise that many countries were going to face cutbacks in both spending and
borrowing.
Greece was the first country to default, and following this the countries of Italy,
Portugal, Spain, and Ireland all were facing possible bailouts. But, Greece is the only
nation to have received bail outs as a result of a debt crisis.
Global financial markets all took significant hits, due to both the United States
downgrade and the downgrading of many European nations. The Financial markets and
investor confidence all suffered as Greek bond holders took a little over 70% loss on
their investments; these effects were not felt lightly at the time. Although the United
States downgrade was significant, the domestic financial markets did not suffer as much
as could have been expected.
17 | D C F A n n u a l R e p o r t SECTOR REPORTS
Consumer Discretionary........................................................ 19
Consumer Staples ................................................................. 23
Energy ................................................................................... 28
Financials .............................................................................. 33
Health Care ............................................................................ 37
Industrials ............................................................................. 42
Information Technology ....................................................... 46
Materials ................................................................................ 51
Telecommunication ...............................................................54
Utilities...................................................................................56
18 | D C F A n n u a l R e p o r t CONSUMER DISCRETIONARY SECTOR REPORT
By: Nathan Bailey, John Barber, Steve Latos, Scott McSweeney, & Steve Rosenbaum
Sector Allocation Recommendation:
Current Sector Weight in Portfolio
Current Sector Weight in Benchmark
Benchmark Weight ± 50%
Underweight
8.78%
10.93%
5.47-16.40%
Sector Stocks in Portfolio
4
Sector Stocks in Benchmark
80
Portfolio Sector Weighted Average Beta
0.96
Benchmark Sector Weighted Average Beta
1.04
SECTOR SUMMARY
The Consumer Discretionary Sector includes all industries that provide non-essential goods and
services. Its manufacturing segment includes leisure equipment, textiles, apparel and
automotive. The services segment includes media production and services, consumer retailing,
and hotels and restaurants.
Other notes:
1) While the economy is still recovering from the 2009 recession, the recent earnings rally
seems to have priced in expected gains in the sector’s securities. Because of its cyclical
nature, being overweight in the sector during an upswing is ideal, and the converse
applies during a downturn.
2) Continuous, above expected consumer discretionary spending needs to occur in order to
capitalize on mispricing.
3) Falling unemployment will lead to increased consumer spending.
4) Price and inflation pressures on commodity costs will negatively impact consumer
spending.
5) Austerity measures being taken in Europe may hinder the ability of consumer
discretionary companies to sell products abroad.
19 | D C F A n n u a l R e p o r t Total Returns
Consumer Discretionary Index vs. S&P 500
Over the period 4/1/2011-3/31/2012 the Consumer Discretionary Index returned 17.64% v.
8.54% for the S&P 500 Index.
SECTOR HOLDING ANALYSIS
Macy’s, Inc. (M)
Price: $39.73
Shares: 600
Percentage of Portfolio: 1.55%
Percentage of Sector: 17.68%
Purchased December 2011, Macy’s is undergoing a change in their corporate image and
structure. Beginning in February 2008, the “My Macy’s Localization Initiative” customizes
shopper’s experiences at each Macy’s location by providing merchandise assortments and
marketing programs that are custom-tailored to the core customers surrounding each location.
Also, as part of its restructuring, Macy’s has turned to increasing its supply chain efficiency.
Rather than doing large replenishment buys, Macy’s is focused on a “replenish to sales” method,
meaning smaller, more frequent deliveries to stores and less inventory. Finally, Macy’s internet
business is rapidly expanding. Macy’s dedication to provide convenient shopping options to its
customers places it in a competitive position for the long-term.
At the time of purchase, analysts had clearly under estimated the effect of Macy’s effort to
customize shopping experiences, increase the efficiency of its internet channel, and create a
flexible supply chain. This has led to higher than expected earnings and capital gains
throughout the holding period which we expect to continue as the market corrects.
Time Warner Cable, Inc. (TWC)
Price: $81.50
Shares: 315
Percentage of Portfolio: 1.675%
Percentage of Sector: 19.04%
20 | D C F A n n u a l R e p o r t Purchased February 2012, TWC is the second largest cable provider in the U.S. with 14 Million
cable customers. They also provide Digital Phone service (4.5 M customers), high speed internet
(9.9M), and video subscribers (11.9M). Most of these services are part of package deals giving
TWC a total of 14.5M current customers. Also, TWC announced a $.56 Dividend on 1/26 (17%
increase from last year’s dividend) along with a $4 Billion dollar buyback plan. This shows TWC
has confidence in their business and a focus to return capital to investors (they returned $3.3B
in capital in 2011 to shareholders). Despite their size, TWC is currently only in 28 states.
DCF purchased TWC believing in the company’s opportunities for domestic growth, coupled
with the fact that TWC is on the high end for dividends in its industry.
McDonald’s Corp. (MCD)
Price: $98.10
Shares: 425
Percentage of Portfolio: 2.72%
Percentage of Sector: 30.93%
Purchased moving into the summer months in 2011 (April), investing in McDonald’s
Corporation was a move that not only sought to capitalize on a mispricing, but also to reduce
risk levels while the portfolio was left largely unmanaged.
McDonald’s remains a large position in Discretionary for a few reasons. While almost universal
in name recognition, the company has not reached a point of global saturation and has
significant room to grow in emerging markets (especially in South America and China). Also, the
Company’s choice of franchise structure and royalty fees provides a consistent stream of income
regardless of the economic climate.
General Motors Co. (GM)
Price: $26.65
Shares: 1700
Percentage of Portfolio: 2.84%
Percentage of Sector: 32.35%
Purchased March 2011, GM is the largest holding in DCF’s Staples sector. After emerging from
Chapter 11 Bankruptcy (file June 1, 2010), GM has continued to expand its fuel efficient vehicles
fleet (with a strong arsenal of intellectual property related to increasing fuel-efficiency). In
November 2011, GM introduced its newest electric car, the Spark. The Spark minicar will be
sold in select markets starting in 2013. Other electric vehicles include the Sail (China), Cruze
(Korea), Beat (India) and Volt (mainly U.S.).
Couple GM’s forward looking fuel-efficient strategy with strong partnerships in China and
Russia and a major presence in South America, DCF believes the market has underestimated
GM’s position to capitalize on the growth of fuel efficient vehicles as well as developing
economies in the long-run.
21 | D C F A n n u a l R e p o r t ANALYST ’S FUTURE OUTLOOK
The D’Artagnan Capital Fund remains an opportunities fund which aims to find mispricings
regardless of sector weightings, but built in to our a bottom-up analyses is an understanding
that a decline in unemployment in the United States is a good sign for overall sector
performance, only to be tempered negatively by rising commodity costs, mixed consumer
sentiment, and the implementation of global austerity measures. It is likely that the affect this
will have on valuations will lead to an underweight-to-neutral weighting in the Staples sector
moving forward.
22 | D C F A n n u a l R e p o r t CONSUMER STAPLES SECTOR REPORT
By: Nathan Bailey, John Baber, Steve Latos, Scott McSweeney, & Steve Rosenbaum
Sector Allocation Recommendation:
Underweight
Current Sector Weight in Portfolio
8.26%
Current Sector Weight in Benchmark
11.55%
Benchmark Weight ± 50%
5.77-17.32%
Sector Stocks in Portfolio
5
Sector Stocks in Benchmark
41
Portfolio Sector Weighted Average Beta
0.62
Benchmark Sector Weighted Average Beta
0.67
SECTOR SUMMARY
The consumer staples sector includes companies whose businesses are less sensitive to
economic cycles. The companies within the sector include manufacturers and distributors of
food, beverage and tobacco and production of non-durable household goods and personal
products. It also includes food and drug retailing companies as well as hypermarkets and
consumer super centers.
The consumer staples sector has historically had a low correlation relative the market (current
weighted average beta of S&P 500 Consumer Staples firms is 0.67). This results from the makeup of the products within the sector. Due to these two facts, this sector typically outperforms
other sectors in economic downturns, and underperforms other sectors in boom periods.
The products have a low price elasticity of demand, meaning a change in prices will have a small
effect on the demand for goods. Given this, a change in price can move a consumer from one
product to a substitute, thus pricing in the consumer staples sector plays an important role.
Other notes:
1) Given the defensive nature of the sector, these companies generally tend to depend less
on strong, growing economies.
2) Given the increase in consumer spending and consumer sentiment, near future outlooks
are brighter, as consumers will be able to move to premium brands.
3) Consumption represents 70% of the economy, further proof of the defensive nature of
the sector.
4) Although continued economic growth will prove to be beneficial for the sector, top-line
growth does not appear to be great given the mature nature of the firms within the
sector.
23 | D C F A n n u a l R e p o r t 5) If the U.S. dollar gains strength against other currencies, a majority of companies within
the sector could experience negative operating results because companies will have to
pay more to sell their exports.
Total Returns
Consumer Staples Index vs. S&P 500
Over the period 4/1/2011-3/31/2012 the Consumer Staples Index returned 17.34% vs. 8.54% for
the S&P 500 Index.
SECTOR HOLDING ANALYSIS
Campbell Soup Company (CPB)
Price: $33.85
Shares: 630
Percentage of Portfolio: 1.39%
Percentage of Sector: 16.82%
View: Purchased at the end of February 2012, Campbell Soup is the newest addition to the
Consumer Staples sector. As commodity costs prove to be an evident threat to nearly all firms in
the sector, Campbell’s margins, which rank the highest of its competitor set, put the company in
good position to absorb costs in the future.
While sales have stalled in previous quarters, an opportunity with one of their distributers
provides revenue growth potential. Wal-Mart, who accounts for 17% of CPB’s sales, has
announced and begun opening Express stores in urban areas across the United States. These
stores, which are about 1/10th the size of a Supercenter, will focus on consumable goods, such as
Campbell’s soup, beverage and snack products. As more express stores are built, we expect an
increase in sales for Campbell.
24 | D C F A n n u a l R e p o r t Kellogg Company (K)
Price: $53.63
Shares: 500
Percentage of Portfolio: 1.75%
Percentage of Sector: 21.15%
View: Due to pressures faced from increased commodity prices, Kellogg has passed costs onto
consumers to offset the additional costs of product inputs. In turn, Kellogg has paired with
Epsilon, a subsidiary of Alliance Data, and a leading provider of loyalty and marketing solutions,
to increase Kellogg’s customer engagement. Through the partnership, Kellogg will maintain a
consumer relationship management platform with which it can analyze customer tastes and
preferences.
Kellogg also recently acquired Pringles, making the company second to only Pepsi in the global
snack food market. With an already strong market position, and a dedication to improving its
product line through its acquisition of Pringles, look for Kellogg’s sales growth to improve even
in times with volatile commodity prices, eventually leading to higher profits.
PepsiCo Inc (PEP)
Price: $66.35
Shares: 600
Percentage of Portfolio: 2.59%
Percentage of Sector: 31.39%
View: PepsiCo, Inc. (PepsiCo) is a global food, snack and beverage company. The Company’s
brands include Quaker Oats, Tropicana, Gatorade, Lay’s, Pepsi, Walkers, Gamesa and Sabritas
and are organized into four business units: PepsiCo Americas Foods (PAF), PepsiCo Americas
Beverages (PAB), PepsiCo Europe and PepsiCo Asia, Middle East and Africa (AMEA). On
October 23, PepsiCo acquired the remaining 23% of Wimm-Bill-Dann Foods that it had not yet
purchased. The move made PepsiCo the largest food and beverage company in Russia.
Although PepsiCo did not have a particularly strong 2011, there is potential for a strong 2012
year given its market-leading snack brands and a potential split of its snack food and drink
companies. Frito-Lay and its brands make PepsiCo the largest distributor of snack foods in the
world. A widely speculated split into separate snack food and drink companies could add value
by focusing the companies.
Risks toward PepsiCo include diminishing market share for soft drinks in North America and
larger exposure to commodity prices after taking over their two largest North American bottlers.
PepsiCo’s loss of market share has been addressed by an intended increase in marketing. Taking
over bottling operations increases PepsiCo’s commodity risks and could lead to price increases.
Procter and Gamble (PG)
Price: $67.21
Shares: 500
Percentage of Portfolio: 2.19%
Percentage of Sector: 26.50%
View: Given P&G’s size, they gain advantages in terms of distribution, brand reach, and scale
with suppliers. Throughout its history, P&G has proven to be an outstanding company that can
change with the times and the markets it operates in. In turn, P&G is focusing on both higherend and lower-end consumers (i.e. Tide and Gain).
25 | D C F A n n u a l R e p o r t P&G recently announced a joint venture with Powermat Ltd., the leader in wireless charging.
With joint ventures, such as the Powermat case, or acquisitions such as Gillette, P&G has shown
a commitment to increasing business operations. Combine P&G’s ambition to acquire new
business, its market power, its historical success, and its commitment to dividends (P&G has
paid a dividend for 121 consecutive years); P&G is a solid hold heading into the summer.
Philip Morris International (PM)
Price: $88.61
Shares: 300
Percentage of Portfolio: 1.73%
Percentage of Sector: 20.96%
View: Since Philip Morris was added to the portfolio in October 2011, the cigarette industry has
exceeded growth expectations. The high margins of Philip Morris made the company a more
attractive long term play; they possessed higher margins than competitors such as Lorillard,
British American Tobacco, and Altria. While the yield of 3.50% is lower than some competitors,
it ranks in the top half of Consumer Staples firms and shows PM’s dedication to growth and
possible acquisitions.
Growth in emerging countries such as India and China led to the belief that Philip Morris can
continue to maintain its revenue growth. In addition, Philip Morris’ strong corporate leadership
led to the company having above average performance metrics, such as return on equity and
EPS growth. While the percentage of smokers worldwide will decrease in the next ten years, the
total amount of smokers will experience an increase, assuring that Philip Morris will continue to
have a loyal customer base in the near future.
SECTOR BREAKDOWN
Beverage
Due to increased commodity costs and no real growth in demand, companies within the
beverage industry have to either pass increased input costs onto consumers or find a way to
improve manufacturing efficiency. S&P staples such as PepsiCo and Coca-Cola are the main
companies within the beverage industry, but global alcoholic beverage company Diageo has also
faced increased pressure with its higher-end brands lagging in a volatile economic climate.
Household & Personal Care Products
Because of continued economic volatility, the main focus within this industry has been the
development and promotion of higher and lower end products. Companies like P&G are
developing products such as Gain detergent to market to consumers with tighter budgets, while
still producing Tide, its higher end detergent.
Packaged Food
Companies within this industry, such as Kellogg, H.J. Heinz, General Mills, and Kraft are all
facing increased commodity prices. To offset the costs of increased commodities, these
companies are focusing on marketing and client management to improve products and focus on
consumer tastes and preferences in order to improve sales.
26 | D C F A n n u a l R e p o r t Retailing – Broadlines and Department Stores
Because of the increase in social media in today’s day and age, the retail industry is focusing on
this media to drive sales growth. Nearly seventy percent of retail executives have reported
increases in marketing and deals through sites such as Facebook and Twitter. A majority of
these executives expect sales to grow over the next twelve months.
*Source: WSJ-Study based on results of September 2011 survey of 100 retail industry executives
at U.S. middle market retail companies (revenues of $25 million to $1 billion).
Retailing – Food
Given the minimal barriers to entry and strong competition from dollar stores, warehouse clubs,
etc., this industry continues to be competitive. Additionally, with increased commodity costs,
food prices have also increased, separating consumers into a high-end and low-end grouping.
Tobacco
Health concerns have led to a decrease in the percentage of smokers worldwide. However, with
the population rising, the number of smokers worldwide has actually increased. Still, health
concerns and marketing efforts will tend to generate a negative attitude towards tobacco
products. Combining that with increased government taxes and regulations, and the long-term
outlook for tobacco is shaky.
ANALYST ’S FUTURE OUTLOOK
Our recommendation for the Consumer Staples sector is to continue to underweight given the
continued, although not robust, growth the economy is experiencing. Our fund is an
opportunities fund, and while we expect the sector to be underweight in the future, it will
ultimately be proven in our valuation models. In the discounted cash flows model, sales growth
rates will not be as high as companies in other sectors that will benefit more from a better
economy. The other alternative is the potential for a double-dip recession. While these are rare,
sales growth would be better for staples than for in other sectors, as evident in 2008 and 2009
financial statements. Since the chance of a double-dip is small, we will look to keep the sector
underweight for the foreseeable future.
27 | D C F A n n u a l R e p o r t ENERGY SECTOR REPORT
By: Phillip Weickert & Ian O’Neil
Sector Allocation Recommendation:
Overweight
Current Sector Weight in Portfolio
11.46%
Current Sector Weight in Benchmark
11.11%
Benchmark Weight ± 50%
5.55-16.66%
Sector Stocks in Portfolio
6
Sector Stocks in Benchmark
43
Portfolio Sector Weighted Average Beta
1.3
Benchmark Sector Weighted Average Beta
1.15
SECTOR SUMMARY
One of the key factors in the Energy sector is the price of natural gas. The price of natural gas is
hitting lows which make it tough for the energy industry to make big profits. Since the natural
gas prices are low and a cheaper form of energy many companies are pushing to use natural gas
as a new energy. Crude oil is staying constant around the 100 dollar mark which has been a
positive for the sector. The future in energy has big promises because of the rising cost of oil.
What will be the next energy or will the economy change to natural gas? Another possible
opportunity for the future of energy stocks will be the service portion of the sector
Total Returns
Energy Sector vs. S&P 500
Over the period 4/1/2011 to 3/31/2012 the Energy Index returned -6.90% vs. 8.54% for the S&P
500 Index.
28 | D C F A n n u a l R e p o r t SECTOR HOLDING ANALYSIS
Total SA (TOT)
Price: $21.12
Shares: 600
Percentage of Portfolio: 2.00%
Percentage of Sector: 17.44%
Total S.A., together with its subsidiaries and affiliates worldwide, is an integrated international
oil and gas company. With operations in more than 130 countries, TOTAL engages in all aspects
of the petroleum industry. These include upstream operations of oil and gas exploration,
development and production, liquefied natural gas (LNG) and downstream operations of
refining, marketing and the trading and shipping of crude oil and petroleum products. It also
produces base chemicals (petrochemicals and fertilizers) and specialty chemicals for the
industrial and consumer markets. In addition, TOTAL has interests in the coal mining and
power generation sectors, as well as a financial interest in Sanofi-Aventis. It is also active in
solar-photovoltaic power, both in Upstream and Downstream activities. TOTAL’s worldwide
operations are conducted through four business segments: Upstream, Downstream, Corporate
and Chemicals.
Peabody Energy Corp (BTU)
Price: $28.96
Shares: 790
Percentage of Portfolio: 1.49%
Percentage of Sector: 13.01%
Peabody Energy Corporation is a coal company. The company owns interests in 30 coal mining
operations, including an interest in 29 coal operations located in the United States and Australia
and a 50% interest in the Middlemount Mine in Australia. Peabody’s operations consist of four
principal segments: its three mining segments and its Trading and Brokerage segment. Its three
mining segments include Western U.S. Mining, Midwestern U.S. Mining and Australian Mining.
Peabody’s fifth segment, Corporate and Other, includes mining and export/transportation joint
ventures, energy-related commercial activities, as well as the management of its coal reserve and
real estate holdings. Peabody also owns interest in a joint venture mining operation in
Venezuela. In addition to its mining operations, the Company markets, brokers and trades coal
through its Trading and Brokerage segment.
Chevron Corp (CVX)
Price: $107.21
Shares: 440
Percentage of Portfolio: 3.07%
Percentage of Sector: 26.82%
Chevron Corporation manages its investments in subsidiaries and affiliates and provides
administrative, financial, management and technological support to the United States and
international subsidiaries that engage in petroleum operations, chemicals operations, mining
operations, power generation and energy services. Upstream operations consist primarily of
exploring for, developing and producing crude oil and natural gas; processing, liquefaction,
transportation and regasification associated with liquefied natural gas; transporting crude oil by
international oil export pipelines; transporting, storage and marketing of natural gas; and a gasto-liquids project. Downstream operations consist primarily of refining crude oil into petroleum
29 | D C F A n n u a l R e p o r t products; marketing of crude oil and refined products; transporting crude oil and refined
products by pipeline, marine vessel, motor equipment and rail car, and manufacturing and
marketing of commodity petrochemicals, plastics for industrial uses and fuel and lubricant
additives.
Chesapeake Energy Corp (CHK)
Price: $23.17
Shares: 750
Percentage of Portfolio: 1.13%
Percentage of Sector: 9.88%
Chesapeake Energy Corporation (Chesapeake) is a natural gas and oil exploration and
production company. Chesapeake is engaged in the exploration, development and acquisition of
properties for the production of natural gas and oil from underground reservoirs. It also
provides substantial marketing, midstream, drilling and other oilfield services. Its operations
are located onshore and in the continental United States. In 2011, the Company owned interests
in approximately 45,700 producing natural gas and oil wells that produced approximately 3.5
billion cubic feet of natural gas equivalent per day, net to its interest. The Company operates in
three segments: exploration and production; marketing, gathering and compression, and oilfield
services. In June 2011, the Company acquired Bronco Drilling Company, Inc. In December 2011,
CMD sold its wholly owned subsidiary, Appalachia Midstream Services, L.L.C. (AMS). In March
2011, it sold all of its Fayetteville Shale assets.
Halliburton Co (HAL)
Price: $33.19
Shares: 630
Percentage of Portfolio: 1.36%
Percentage of Sector: 11.89%
Halliburton is an oilfield services company. The Company is a provider of services and products
to the energy industry related to the exploration, development, and production of oil and natural
gas. It serves national and independent oil and natural gas companies worldwide and operates
in two segments: Completion and Production and Drilling and Evaluation. The Company
conducts business worldwide in approximately 80 countries. The business operations of its
divisions are organized around four primary geographic regions: North America, Latin America,
Europe/Africa/CIS, and Middle East/Asia. During the year 2011, 55% of its consolidated
revenue was from the United States.
Murphy Oil Corp (MUR)
Price: $56.27
Shares: 655
Percentage of Portfolio: 2.40%
Percentage of Sector: 20.96%
Murphy Oil Corporation is an oil and gas exploration and production company with retail and
wholesale gasoline marketing operations in the United States and refining and marketing
operations in the United Kingdom. It operates in two business activities: Exploration and
Production and Refining and Marketing. Murphy’s exploration and production activities are
subdivided into six geographic segments: the United States, Canada, Malaysia, the United
Kingdom, Republic of the Congo and all other countries. Murphy’s refining and marketing
activities are subdivided into segments for the United States and the United Kingdom. Murphy’s
30 | D C F A n n u a l R e p o r t worldwide crude oil, condensate and natural gas liquids production during the year 2011
averaged 103,160 barrels per day. The Company’s worldwide sales volume of natural gas
averaged 457 million cubic feet (MMCF) per day in 2011.
SECTOR BREAKDOWN
Upstream
Upstream operations deal primarily with the exploration stages of the oil and gas industry, with
upstream firms taking the first steps to first locate, test and drill for oil and gas. Later, once
reserves are proven, upstream firms will extract any oil and gas from the reserve. Global
demand for oil is expected to grow significantly in the long term, driven particularly by rapid
economic and population growth in emerging markets such as China and India. Long term
demand issues are further punctuated in Asia which is expected to account for the majority of
the demand increase. Oil & gas companies are responding to this challenge by intensifying
exploration activities to bring new discoveries on stream. However as cost of explorations rise
margins are being squeezed.
Downstream
Downstream oil and gas operations take place from the production and refinery phase through
to the point of sale. Outlook for the downstream oil and gas companies is that it will remain
under pressure. Margins for refineries will continue to be squeezed by increasing crude prices.
In addition, plan expiation and growth through the short term periods of reduced demand will
continue to weaken margins
Midstream
A midstream oil and gas operations deal with the transportation of oil and gas through pipes for
which the company receives a toll. Prices are set by a regulator commission. Midstream
companies are benefiting from increases in oil, natural gas and natural gas liquids production,
as well as higher margins, according to Moody's. Exploration and production companies'
increase in drilling activity is driving the demand for new midstream infrastructure, which
should offset the decline in natural gas drilling due to prices that are at 10-year lows. The largest
and most diversified midstream companies and those with existing infrastructure near shale
plays are best positioned for earnings growth
ANALYST ’S FUTURE OUTLOOK
Outlook for the Energy sector is bullish. This sector is controlled by two main forces, political
regulation and commodity prices. Oil prices will continue to rises as demand grows, as will costs
related to exploration and extraction. Prices will be further strained by the continued political
unrest in countries where oil is extracted and produced. Because of the high price in oil, we
forecasts a rise in natural gas and coal prices within the next year as demand shifts from high
priced oil to cheaper sources of energy. Natural gas will not see a substantial jump in price as
increased levels of supply will outpace increases in demand.
The two subsectors that will benefit the most from these events are the service/construction
companies and the midstream companies within the energy sector. Exploration companies are
primed to receive a lot of work as shale finds begin to look more profitable to investors due to a
future increase in natural gas prices. In addition traditional drilling and deep water drilling will
31 | D C F A n n u a l R e p o r t see increased activity all over the world but primarily in South America, East and West Africa.
North America should see a rise in rig count as government relaxes restrictions set up after the
Gulf spill. The other area of great opportunity in the energy sector, Midstream companies, has
its advantage in that its profits are not tied to the commodity prices. We see this as a very low
risk subsector of the energy sector with a good amount of upside. The upside would come from
extra tax breaks which could potentially come from a republican president. We are not going to
make any projections in the political race but do believe that a Republican president would help
the midstream companies.
32 | D C F A n n u a l R e p o r t FINANCIAL SECTOR REPORT By: Joe Simoneau, Jake Hretz, & Nick Albin
Sector Allocation Recommendation:
Neutral
Current Sector Weight in Portfolio
10.77%
Current Sector Weight in Benchmark
14.95%
Benchmark Weight ± 50%
7.48-22.43%
Sector Stocks in Portfolio
4
Sector Stocks in Benchmark
81
Portfolio Sector Weighted Average Beta
0.95
Benchmark Sector Weighted Average Beta
1.19
SECTOR SUMMARY Total Returns
Financial Index vs. S&P 500
Insurance companies gained lower earnings than the SP 500 due to the large amounts of
catastrophic losses and claims paid throughout the world over the past twelve months. The S&P
500 was up 8.54% over the year, whereas the financial sector was down 1.76%. There are several
reasons for the financial sector underperforming the S&P 500. Banks around the world faced
uncertainty and large losses due to the European debt crisis, and stock prices reflected this with
companies experiencing losses instead of growth for 2011. Insurance stock prices also took a hit
with the large amounts of catastrophic losses throughout the world. From flooding in Australia
and New Zealand, to the Tsunami in Japan, to the tornadoes in the U.S., large amounts of claims
were paid out in 2011 leading to less income for these companies. Banks in the financial sector
33 | D C F A n n u a l R e p o r t for 2012 should see gains, but they may still struggle to recover as uncertainty remains
throughout Europe and the banking industry around the world. Insurance companies are
poised for a huge year in 2012 as they should see less losses and more income due to less
catastrophic losses. Also, extremely high renewal rates and rising premium prices should lead to
extremely high growth among insurance companies. SECTOR HOLDING ANALYSIS JPMorgan Chase & Co (JPM)
Price: $45.98
Shares: 780
Sector Weight: 21.70%
Portfolio Weight: 2.34%
Headquartered in New York City, JPMorgan Chase, the U.S.’s second largest bank behind Wells
Fargo, struggled through the problems left by the financial crisis. After the summer financial
downturn, JPM’s stock took more hits due to the fiscal crisis in Europe because of their debt
obligations overseas. Their net income dropped 3.53% in the third quarter, but it proved to be
nothing of major concern. Since then, they have been amongst the leader in banks thriving stock
prices in 2012. The market proved to overreact to the fiscal problems and JPM, led by Jamie
Dimon, has gotten back to its pre-crisis standing. They are also one of a few banks positioned to
raise their dividend at the end of the first quarter.
US Bancorp (USB)
Price: $31.68
Shares: 755
Sector Weight: 14.47%
Portfolio Weight: 1.56%
US Bancorp is a regional bank based in the Midwest that provides financial services to a variety
of clients. They have fared well throughout the financial crisis and continue to maintain a safe
debt position while also increasing capital reserves. Because USB has done a great job of keeping
their debt obligations in check, they were able to go through the summer almost completely
unscathed. USB provides the fund with good security in the financial sector based on their
quality of credit, upper management strategies, and asset allocation.
PNC Financial Services Group Inc (PNC)
Price: $64.49
Shares: 1100
Sector Weight: 42.92%
Portfolio Weight: 4.62%
Like USB, PNC Financial Services is a regional bank and is headquartered out of Pittsburgh,
Pennsylvania. PNC is another bank that has handled the 2008 financial crisis fairly well, but the
summer crisis took a small toll on their stock price. Since the summer downturn, things have
looked much better for the Pennsylvania-based bank. They continue to expand and their growth
potential continued to improve greatly. Their bad debt control and risk management have been
two of the main factors behind the fund’s position to hold them and a main reason why they are
a good position as the summer months approach.
34 | D C F A n n u a l R e p o r t The Chubb Corp (CB)
Price: $69.11
Shares: 500
Sector Weight: 20.91%
Portfolio Weight: 2.25%
The Chubb Corp. is an insurance company based out of Warren, New Jersey focused mainly on
property and casualty insurance. CB’s stock is one that we believe to have even more growth
potential than it has already shown since the fund purchased the stock. They have faced major
bottom-line issues because of hurricane Irene, causing their pretax catastrophe cost to rise from
$58 million to $420 million. Following this Chubb has managed their problems well. Their
dealings with the issues of natural disaster have separated them from other insurance agencies
of similar nature. With premium prices rising and renewal rates reaching new highs, Chubb
should see continued growth through 2012.
Watch list
Below are some banks and insurance agencies that the financial sector is currently watching and
may consider bringing into the fund’s portfolio within the next six to twelve months.
Ticker
trv equity
td equity
bk equity
std equity
bmrc equity
Company Name
Travelers Cos Inc/The
Toronto-Dominio Bank/The
Bank of New York Mellon Corp
Banco Santander SA
Bank of Marin Bancorp
Price
$ 59.33
$ 85.30
$ 24.49
$ 7.74
$ 38.18
Market Cap(in millions)
$
23,320.97
$
77,259.95
$
29,505.39
$
70,254.84
$
204.10
EPS
$ 3.40
$ 6.45
$ 2.03
P/E
18.26
12.43
11.23
$ 2.94
12.2
Price/Book
$ 0.95
$ 1.88
$ 0.89
$
1.50
Beta
0.81
1.04
1.19
1.35
0.73
SECTOR BREAKDOWN Insurance
In the insurance industry there has been a large amount of catastrophes in the world in the past
year resulting in companies paying out large sums of claims due to these catastrophes. As a
result, stock price fell a large amount during the middle/end of 2011, but rebounded in the end
of 2011/quarter one of 2012 to reach about where they were at the beginning of our fiscal year.
Renewal rates at the end of 2011 were up, and premiums have begun to increase in the past few
months. One of our holdings (Chubb: CB) has been able to avoid many of these losses in the past
year. Their stock price has actually gone up about 13% over year, outperforming the S&P 500.
Over the past year, the housing market has improved, but did not improve as much as expected.
The housing market is supposed to continue it’s slowly recover in 2012. Unemployment rates
are supposed to fall below 8.3%, which will lead to more consumer spending. As consumer
spending increases, more homes will be sold and built, and home insurance premiums
purchased will rise.
Diversified Financials & Regional Banks
Financial Services and Banks continue to struggle dating back to 2009. The steepest downfalls
compared to the S&P 500 include larger banks such as Bank of America Corporation and
Citigroup Inc. who contributed substantially to the government’s loss of its AAA credit rating
two years ago. Many investors share hesitancies to invest in banks because they are concerned
about possible legal actions within the industry, ongoing mortgage-related issues, the unknown
impact of Dodd-Frank and its implementation, and the recent Moody’s warning of the political
climate growing less hospitable toward future bailouts. However, smaller regional banks are
35 | D C F A n n u a l R e p o r t showing signs of slow recovery since the financial crisis in 2008 since they have worked to
manage their operations more conservatively than their larger competitors. They believe that a
lesser exposure to Wall Street will decrease the risk of losses. Additionally, with the struggling
economies in Europe, the financial industries invested with other countries have experienced a
rise in their financing of public debt.
ANALYST ’S FUTURE OUTLOOK At this time a year ago things did not look well for the financial sector. It experienced some of its
worst quarters (mainly the 2nd and 3rd) in 2011 since the Lehman crisis three years prior. The
summer took a huge toll on banks across the board and nothing was looking good in Europe or
the United States’ financial markets. However, things are different now. Banks began to rebound
late in the 4th quarter of 2011 and continued to rally further into the first quarter of this year. As
of March 31st, 2012, the S&P 500 financials index led all other sectors with the exception of
information technology, but only by 0.8%. The sector has posted a 22.42% return this year thus
far and shows no sign of slowing this pace moving towards the upcoming quarters. Big banks are
continuing to raise their dividends, showing signs of growing stability in the major fiscal
markets. Insurers in the U.S. supplement this by having the highest renewal rates and premiums
since 2008. Both of these together points to investor confidence rising in the next year, pending
the Eurozone can keep to its pending agreement plans. There are a lot of “what-ifs” in the global
economy, but the truly bad times have passed. As long as the government of both the United
States and Eurozone countries can avoid further policy issues, pre-2008 stability will be attained
in the next year and financials will see the returns they have seen in 2012 thus far.
36 | D C F A n n u a l R e p o r t HEALTHCARE SECTOR REPORT By: Austin Behan & Jaclyn O’Driscoll
Sector Allocation Recommendation:
Neutral
Current Sector Weight in Portfolio
10.37%
Current Sector Weight in Benchmark
11.32%
Benchmark Weight ± 50%
5.66%-16.98%
Sector Stocks in Portfolio
6
Sector Stocks in Benchmark
51
Portfolio Sector Weighted Average Beta
0.79
Benchmark Sector Weighted Average Beta
0.785
SECTOR SUMMARY The current environment of healthcare and how it relates to the healthcare sector is changing.
Currently in the United States, the healthcare reform bill is being challenged in the United
States Supreme Court. The healthcare bill, officially titled as the Patient Protection and
Affordable Care Act, will forever change healthcare in the United States, if not over turn it.
During the past fiscal year the healthcare sector has been fairly volatile with many uncertainties
as how healthcare coverage might change in the United States. The Supreme Court’s decision
will have a large impact, as the bill calls for an individual mandate that requires healthcare
insurance for all. It also helps to expand medical insurance by expanding Medicaid and
Medicare.
Our portfolio holdings in healthcare have remained well diversified throughout the different
subsectors of healthcare. We current own 6 securities which have exposure to the bio-technology
side, the pharmaceutical side, health services/ management, and insurances.
37 | D C F A n n u a l R e p o r t Total Return
Healthcare Index vs. S&P 500
Over the period 4/1/2011-3/31/2012 the Healthcare Index returned 16.36% v. 8.54% for the
S&P 500 Index. SECTOR HOLDING ANALYSIS Johnson & Johnson (JNJ)
Price: $65.96 Shares: 400 Percentage of Portfolio: 1.72% Percentage of Sector: 16.58% Johnson and Johnson is one of the largest holdings in the health care sector portfolio, and is the
largest health care company in the index based on market cap. The company and its subsidiaries
are engaged in the research and development, manufacture and sale of a range of products in
the health care field. This company is a strong hold based on their stable and high dividend. JNJ
has been able to steadily increase its dividend for the past 49 years. They also are only one of
four publicly traded companies with an AAA credit rating, which indicates that this security is as
reliable of a holding as a U.S. government treasury. They also currently have the lowest beta in
this sector due to their diverse lines of products and businesses.
Express Scripts (ESRX)
Price: $54.18 Shares: 400 Percentage of Portfolio: 1.41% Percentage of Sector: 13.62%
The company is a full service pharmacy benefits management and specialty managed-care
company operating in North America. The company’s customers include insurance carriers,
third party administrators, employers, managed care organizations, and union-sponsored
benefit plans. Their main driver of business is their pharmacy benefits management, which has
38 | D C F A n n u a l R e p o r t grown on average for the past two year by 49.95%. Since the company is only limited to the U.S.,
there is some distress that their growth will begin to slow down.
The FTC recently approved their acquisition of Medco Health Solutions. This deal makes them
the largest pharmacy benefit management company in the United States, giving them a share of
over 50% in that market. This deal will provide them with future resources and the ability to
influence lower prices for consumers, a result of existing contracts and contracts acquired
through the deal.
Abbot Laboratories (ABT)
Price: $61.29 Shares: 500 Percentage of Portfolio: 2.00% Percentage of Sector: 19.26%
Abbot Laboratories is involved in four areas: pharmaceutical products, diagnostic products,
nutritional products, and vascular products. They discover, develop, manufacture, and sell their
products and services worldwide. Currently the company’s pharmaceutical business is their
revenue driver, with a two year average growth of 9.67%. The company is currently experiencing
growth in Japan and developing markets in the countries of Southeast Asia.
On October 18th of 2011, they announced the splitting of Abbot Labs into a research based
pharmaceutical company and a company based on diversified medical devices. The
pharmaceutical company will take on the name AbbVie, and the medical devices side will retain
the name Abbot.
Watson Pharmaceuticals (WPI)
Price: $67.06 Shares: 198 Percentage of Portfolio: .86% Percentage of Sector: 8.34%
Watson is our newest acquisition in the healthcare field. Watson specializes in the creation,
manufacturing and selling of low cost generic medicines. Their business is based on creating low
cost replicas of existing prescriptions in the market. The company has recently made a number
of acquisitions with a focus on increasing exposure in the emerging markets. They have
accomplished this by becoming the largest generic medicine manufacturer in Singapore, and the
4th largest in Australia, which provides many products to the markets in Southeast Asia. They
are poised for greater growth through these acquisitions and their new medicines that are
expected to hit the market in the next two years.
Bristol-Meyers Squibb Co. (BMY)
Price: $33.75
Shares: 680
Percentage of Portfolio: 1.49%
Percentage of Sector: 14.42%
Bristol-Meyers Squibb Co. is a global biopharmaceutical company. The company license,
manufactures, markets, distributes, and sells pharmaceutical products. Product lines focus on
the areas of cancer, cardiovascular disease, hepatitis B and C, HIV/AIDS, rheumatoid arthritis,
and psychiatric disorders. Their most popular drug currently is Plavix, and will have its patent
expire at the end of 2012; it has global sales of around $6.7 billion. The company has several
39 | D C F A n n u a l R e p o r t drugs that have been approved, or are in Phase III, which should replace a majority of the lost
revenue from the upcoming expiration of patents. The company has been collaborating with
other pharmaceutical companies in order to create new drugs and diagnostics tests. They are
also currently exploring M&A opportunities in the sector.
UnitedHealth Group Inc. (UNH)
Price: $58.94
Shares: 750
Percentage of Portfolio: 2.88%
Percentage of Sector: 27.78%
UnitedHealth Group Inc. owns and manages organized health systems in the United States and
internationally. The company provides employers products and resources to plan and
administer employee benefit programs. They also service the health needs of older Americans,
provide specialized care services, and provide health care information and research to providers
and payers. The company offers services through a network of 730,000 physicians and other
healthcare professionals and 5,300 hospitals. Possible changes in government healthcare
programs expose the company to additional risks associated with program funding, enrollments,
and payment adjustments. They are a participant in government programs including Medicare
Advantage, Medicare Part D, various Medicaid programs, and CHIP.
SECTOR BREAKDOWN The healthcare sector is comprised of three major subsectors; biotechnology and
pharmaceuticals, healthcare services and management, and medical equipment/devices.
Biotechnology and Pharmaceuticals (WPI)
This subsector is comprised of companies that create and manufacture medicines for the public.
Within this biotechnology companies focus on the creation of drugs to fight life threatening
genetic diseases. They look to create products that treat previously unmet medical needs. On the
other side are pharmaceutical companies, which either specialize in the creation of brand name
drugs or generic medicines. The main goal of these companies is to provide medicines for your
everyday sickness.
Healthcare Services/ Management (UNH, ESRX)
This subsector is focused on the services provided to consumers and patients. These range from
healthcare coverage to pharmacy benefit managers, which mange the prescriptions consumers
receive at pharmacies nationwide. The companies within this subsector are focused on providing
services to help patients meet their medical needs. They provide coverage and help manage
prescriptions as part of certain coverage plans connected to Medicaid, Medicare or company
specific insurance coverage.
Medical Equipment / Devices (ABT, JNJ, BMY)
Within this subsector companies are focused on the creation of medical devices that help to ease
the burden on healthcare professionals while trying to provide care for their patients. Also
within this sector are devices used by patients every day, i.e. pacemakers and defibrillators.
40 | D C F A n n u a l R e p o r t ANALYST ’S FUTURE OUTLOOK The future of healthcare is uncertain in the United States as the Supreme Court decides whether
to overturn the recent Affordable Care Act. The case is being brought before the court by
President Obama and being challenged by Florida and 26 other states. Within this Act was an
individual requirement that all Americans must have a form of healthcare coverage. There is
also legislation that would expand Medicaid and Medicare coverage. The bill is supposed to
increase medical coverage to 30 million more Americans. The Supreme Court’s decision on the
Act won’t be released until June.
It looks as if the individual mandate will be overturned as they decide whether such a mandate is
constitutional. It seems that the mandate will be deemed unconstitutional but healthcare
coverage may be expanded to more Americans, by further expanding Medicaid and Medicare.
The main motivation of the Act is to increase coverage for all Americans at reasonable costs, and
not allow insurance agencies to deny coverage based on pre existing conditions.
As it relates to the healthcare sector, we look for pharmaceutical companies that specialize in
generic medicines to experience continual growth and in government regulations that
incentivize consumers to purchase generic medicines. Also, with the expanding coverage of
healthcare, companies such as Express Scripts will be able to increase their customer base, due
to more Americans having coverage.
The emerging markets will benefit from the increase of coverage being in constant demand. As
the countries in these markets continue to grow there will be a push for more coverage. Also as
income per person in these countries continues to rise, the demand for modern medicines will
increase. We expect in a few years for there to be a substantial demand for modern medicines
and healthcare services in the emerging markets.
41 | D C F A n n u a l R e p o r t INDUSTRIAL SECTOR REPORT By: Matt Willert, Julie Wedel, & Ryan Alleman
Sector Allocation Recommendation:
Overweight
Current Sector Weight in Portfolio
13.85%
Current Sector Weight in Benchmark
10.36%
Benchmark Weight ± 50%
5.18-15.53%
Sector Stocks in Portfolio
6
Sector Stocks in Benchmark
61
Portfolio Sector Weighted Average Beta
Benchmark Sector Weighted Average Beta
1.23
1.1
SECTOR SUMMARY The industrials sector can be broken down into several categories, and even further within each.
Some of the main businesses of the sector include:
• Manufacturing and distribution of capital goods
o Construction
o Aerospace and Defense
o Electrical Equipment
o Industrial Machinery
• Professional and commercial services and supplies
o Printing
o Office Services
• Transportation services.
o Airlines
o Rail
o Couriers
Over the last twelve months, the industrials sector has closely tracked the performance of the
S&P 500, though was slightly more volatile at points. The sector saw a significant drop in August
of 2011, as did the general market, upon growing fears involving the European debt crisis as well
as the downgrade of the US credit rating. Since then there has been steady and significant
growth in both the sector and the S&P 500. The end of the fiscal year saw the industrials sector
finish slightly below the April 1, 2011 starting point, and the S&P finishing higher.
42 | D C F A n n u a l R e p o r t Total Returns
Industrials Sector vs. S&P 500
Over the period 4/1/2011-3/31/2012 the Industrials Index returned 1.72% v. 8.54% for the S&P
500 Index. SECTOR HOLDING ANALYSIS
In the fiscal year ending March 31, 2012, the landscape of the industrials sector underwent
significant change. The fund decreased its position in Illinois Tool Works and sold its entire
FedEx holding. On the other hand, the fund invested in 3M Corporation, Caterpillar, and RR
Donnelley and Sons. At fiscal year end, other holdings within the industrials sector include
General Electric and CSX Corp.
CSX Corp (CSX)
Price: $21.52
Shares: 1950
Percent of Portfolio: 2.73%
Percent of Sector: 19.73%
CSX provides rail-based transportation services. The company transports various types of goods
such as raw materials, food and consumer products, and automotives. CSX operates 4,000
locomotives along a rail network of approximately 21,000 miles east of the Mississippi River in
the U.S. and Canada.
General Electric (GE)
Price: $20.07
Shares: 1450
Percent of Portfolio: 1.9%
Percent of Sector: 13.68%
General Electric is a technology and financial services company. Major product lines offered by
GE include wind, gas, and steam turbines, aircraft engines, and electrical equipment systems.
GE also has large healthcare and transportation segments.
43 | D C F A n n u a l R e p o r t Illinois Tool Works Inc. (ITW)
Price: $57.12
Shares: 750
Percent of Portfolio: 2.79%
Percent of Sector: 20.14%
Illinois Tool Works Inc. is a manufacturer of many industrial products and equipment. Its
products and services are divided into power systems and electronics, transportation, industrial
packaging, food equipment, polymer and fluids, decorative services, and construction products
segments.
RR Donnelley & Sons Co. (RRD)
Price: $12.39
Shares: 2735
Percent of Portfolio: 2.21%
Percent of Sector: 15.93%
RR Donnelley works to provide custom communications solutions for its customers. The
company’s products and services include premedia, printing, logistics and business process
outsourcing. Some of its main print products include magazines, catalogs, retail inserts, books,
directories, and some office products.
Caterpillar Inc. (CAT)
Price: $106.52
Shares: 450
Percent of Portfolio: 3.12%
Percent of Sector: 22.54%
Most of Caterpillar’s business is made up of the manufacturing of mining (28% of revenue) and
construction equipment (30%). CAT also makes diesel and natural gas engines, industrial gas
turbines, and locomotive engines, amongst other products. The company also provides financial
and logistics services.
3M Co. (MMM)
Price: $89.21
Shares: 190
Percent of Portfolio: 1.1%
Percent of Sector: 7.97%
3M is a leader in diversified technology worldwide. The company operates six main business
segments: industrial and transportation, healthcare, consumer and office products, displays and
graphics, safety, security & protection, and electronics & communications.
SECTOR BREAKDOWN Manufacturing and Distribution
Our current holdings, which conduct a large proportion of their business in the manufacturing
segment, include General Electric, Illinois Tool Works, Caterpillar, and 3M. The manufacturing
segment of the industry has been very successful in recent years, with March 2012 marking the
32nd straight month in which manufacturing experienced growth. Going forward, this trend is
44 | D C F A n n u a l R e p o r t expected to continue. Considering over 60% of assets within the industrial sector are
distributed, the fund has a strong foothold in the industry and will grow along with it.
There are risks associated with this particular industry, however. Manufacturing is extremely
sensitive to the overall health of the economy. We saw this in 2002 as well as 2009 as the
industry suffered. US companies also have to worry about low cost competitors from overseas.
Our holdings that fall into this category, conversely, tend to be less affected by such factors due
to their global presence and unique technologies.
Professional and Commercial Services
When a company begins to see declining profits, one initial measure taken is to cut outside
expenses. For companies that fall into the professional and commercial services sector, this
causes problems. The nature of the industry can sometimes cause uneven workloads and cash
flows, since sales are often based on projects and not long term contracts. These companies,
especially small firms, can also easily be affected by the wellbeing of one or two larger clients.
Revenue in this industry typically acts as a lagging indicator of the overall economy. This is
largely due to corporate outsourcing, which rises and falls due to past performance. Currently,
with the economy recovering and companies sitting on piles of cash, this sector will begin a
steady climb.
Transportation Services
Transportation services will always be at the forefront of any economy. The global economy in
which we reside requires constant advances and innovation within the transportation industry
whether it be by land, sea or air. We see this in action at CSX, where advances in fuel efficiency
have made rail transportation three times more fuel efficient than moving freight by highway.
While CSX is currently our only holding in the industry, we are seeking new positions, including
Kansas City Southern.
Also noteworthy is the recent successes of airlines. 2011 was a significant step forward in air
transportation, as airlines became more efficient in terms of cutting cancellations and delays.
Add to this the always advancing fuel efficiency of jet engines, and the industry has potential to
see significant growth in coming years. However, consumer sentiment has not yet reflected
these advances, so growth may not be instant.
ANALYST’S FUTURE OUTLOOK As the economy continues to improve out of the recession, the industrials sector will continue to
provide significant growth opportunities in various realms of the sector. The construction and
manufacturing segments have underperformed since the recession, but are beginning to grow.
We have begun to see manufacturing growth in the makers of construction equipment, and
expect to see continued success in this segment both locally and abroad.
The only questions looming are in regard to business services and construction as a whole. If the
economy continues to improve as envisioned, companies in these sectors will lead the way in
2012 and into 2013. Fears of a double dip recession cannot be dismissed though. If the nation
were to fall back into a recession, these companies sit in a vulnerable position, and profits would
take a hit. It is important in this economy to remain diversified within the industrials sector to
hopefully take advantage of economic growth, but remain invested in manufacturing and
transportation firms with a clearer direction into the future.
45 | D C F A n n u a l R e p o r t INFORMATION TECHNOLOGY SECTOR REPORT By: Kyle Varrone, Wes Hampson & J. Curtis May
Sector Allocation Recommendation:
Overweight
Current Sector Weight in Portfolio
28.1%
Current Sector Weight in Benchmark
35.4%
Benchmark Weight ± 50%
10.45-31.35%
Sector Stocks in Portfolio
7
Sector Stocks in Benchmark
71
Portfolio Sector Weighted Average Beta
1.03
Benchmark Sector Weighted Average Beta
0.98
SECTOR SUMMARY Total Returns
Technology Sector vs. S&P 500
Through the period 4/1/2011 to 3/31/2012 the Information Technology Sector returned 20.22%
v. 8.54% for the S&P 500 Index.
SECTOR HOLDING ANALYSIS We currently hold 7 stocks in the Information Technology industry, Cognizant Technology
Solutions Corporation, Intel Corporation, Google, Microsoft, Visa, Qualcomm, and Apple. Our
holdings are well diversified throughout the sector. This gives us exposure to various sub-sectors
such as software, hardware, semi-conductors, consumer electronics, and business solutions.
46 | D C F A n n u a l R e p o r t Cognizant Technology Solutions (CTSH)
Price: $76.95
Shares: 850
Percent of Portfolio: 4.25%
Percent of Sector: 15.15%
Cognizant provides information technology, consulting, and business process outsourcing
services globally. Their areas of expertise are business intelligence, data warehousing,
technology consulting, and systems development. Amidst the sluggish economy their top line
has done relatively well since they are well diversified among verticals such as financial services,
health care and life sciences, retail, manufacturing and logistics.
Intel Corp (INTC)
Price: $28.12
Shares: 1500
Percent of Portfolio: 2.74%
Percent of Sector: 9.77%
Intel is the largest semiconductor maker based on revenue. They design, manufacture, and sell
digital technology platforms such as microprocessors. Other products include processors and
microcontrollers flash and graphics products. Their main market is providing computer chips
for PCs, but have recently made steps into the smart phone and tablet markets as a chip
provider.
Qualcomm Inc (QCOM)
Price: $68.06
Shares: 600
Percent of Portfolio: 2.66%
Percent of Sector: 9.46%
Qualcomm develops and designs digital telecommunications products and services, similar to
Intel, although with more emphasis on tablets and smart phones. They license out their
intellectual property to other companies and produce software that enables wireless content.
Google Inc (GOOG)
Price: $641.24
Shares: 60
Percent of Portfolio: 2.50
Percent of Sector: 8.91%
Google is a technology company whose main service is a search engine via it’s’ website. Their
Android operating system is a market leader in tablets and smart phones. They recently
acquired Motorola Mobility, in part because of their large portfolio of relevant industry patents.
The company has been unable to penetrate the Chinese market and has been the focus of several
lawsuits recently.
47 | D C F A n n u a l R e p o r t Microsoft Corp (MSFT)
Price: $32.26
Shares: 2100
Percent of Portfolio: 4.40%
Percent of Sector: 15.69%
Microsoft makes software products and services and is best known for their Windows operating
system. They also engage in search and Internet software, and are expanding into the tablet and
smart phone markets in addition to their traditional area of expertise in personal and enterprise
computing. Their Xbox entertainment console and cloud computing services remain industry
leaders.
Visa Inc (V)
Price: $118
Shares: 765
Percent of Portfolio: 5.87%
Percent of Sector: 20.90%
Visa is a payments technology company that operates retail electronic payments and global
financial services. Their clients for global commerce include financial institutions, governments,
consumers, and businesses. Visa along with MasterCard form a financial services duopoly, and
have been forced to adjust to several regulatory measures that attempt to force increased
competition in the industry.
Apple Inc (AAPL)
Price: $599.55
Shares: 145
Percent of Portfolio: 5.65%
Percent of Sector: 20.13%
Apple produces mobile communication and media devices, personal communication, and
portable digital music players and sells related software among other things. They recently
overtook Exxon Mobile as largest market capitalization at over $500 billion. Their products are
sold worldwide through either their own retail stores, third party sellers, and on-line.
Our top holdings in the sector are Apple, Visa, Microsoft, and Cognizant as we believe these
companies are well positioned to continue to post strong growth rates. Returns were strong for
the sector as a whole. With Apple’s rise from $ 350.96 last year to $599.55 on March 31st this
year, the fund had to sell off many shares to remain in compliance and keep it under 6% of the
portfolio. Our holdings in this industry operate with high cash and low debt which protects them
in poor economic conditions and gives them flexibility to innovate in a constantly changing
industry. However, due to constant innovation and increased competition there are risks that
must be considered when valuing companies in this sector. Often, the cash carried by these
companies is for growth through mergers and acquisitions, research and development, or can be
paid out in dividends as Apple did with their recently declared quarterly dividend of $2.65 a
share.
48 | D C F A n n u a l R e p o r t SECTOR BREAKDOWN We feel that we are well diversified within our technology holdings and adequately exposed to
developing trends within the sector.
Intel, our main semiconductor holding, experienced record revenues for the second consecutive
year due to increased data storage and server revenue resulting from more people, and devices,
becoming connected and leading to growing demand for their chips. Intel’s new focus on chips
targeted towards smart phones and tablets show the industry’s shift away from its traditional
focus on PCs. Qualcomm manufactures semi-conductors for communication equipment and has
an early lead in market share in mobile based chips. Their products are seen in the products of
market leaders such as Apple, Samsung, Sony, and LG Electronics. We expect growth to
continue as more devices and people become connected to the Internet.
Consumer transactions have shifted from checks and cash to electronic payments. Visa has
benefited from this trend with record revenues as more people and organizations use their
global payment system in the trend toward digital currencies away from cash and checks. They
recently agreed to have their cards part of Google Wallet, which allows cards to be stored on
phones and payments made by tapping / swiping the phone over a sensor. The company has
also expanded into mobile, prepaid accounts in emerging markets that offer growth due to the
lack of traditional banking infrastructure.
Apple continued its explosive growth, becoming the largest handset maker by revenue with their
iPhone representing 21% of industry sales. The phone represented 9% of market share yet
earned 75% of smart phone profits worldwide in 4Q11. However, the high end handset market is
starting to reach saturation, especially in the developed world, indicating that average selling
prices will go down as sales growth in emerging economies of less expensive phones takes
market share. Mac computers had strong sales, the iOS operating system remains one of the top
choices of consumers, and tablets have exploded since their first release two years ago to make
up 21% of all Apple revenue. The company also announced their first dividend of $2.65 per
quarter.
Google also benefitted from the growth in mobile devices. Android OS has 53% market share,
and even though they did lose ground to Apple’s iOS their vendors include Samsung, HTC and
Motorola in the tablet and smart phone space. Android phones could potentially be placed for
high growth in emerging markets due to low and mid priced products offered. Advertising
revenues through search did increase, but the company does face several headwinds due to
litigation over several issues and competition in foreign markets.
Business solutions and services have risen in demand with businesses attempting to cut costs in
a tough economy and outsource IT and data warehousing. Cognizant has profited from these
trends as a result of their expertise in off-shore IT activity. Due to client diversification ranging
from industries such as healthcare, financial services, retail, and manufacturing amongst others
the company has defense against potential economic downturns. They have been led into Asia
and India by CEO and 18 year IT and Cognizant veteran Fransisco D’Souza.
Microsoft remains the industry leader in software, competing against such companies as Oracle,
SAP, and IBM. They are also an extremely diversified company, with exposure to search,
through Bing, the enterprise market, tablets, computers with their relatively new Windows 8
OS, and have become a leader in cloud computing and entertainment through the Xbox
platform. The company supports a solid dividend yield at approximately 2.50% and has total
cash of nearly $51 billion.
49 | D C F A n n u a l R e p o r t ANALYST ’S FUTURE OUTLOOK The overall outlook for the information technology sector remains positive. Our
recommendation is to keep the Information Technology sector overweight as it has shown high
returns and the potential for more growth remains. There is major growth to be realized in the
smart phone and tablet industries, especially in emerging markets. However there is the risk of
emerging markets not supporting growth for certain companies due to increasing competition in
these markets. Online advertising is expected to increase as companies continue to go green and
as China gains computer users. Only about 38.3% of their population uses the internet,
compared with 78.2% for the USA. Data growth continues to benefit storage spending and IT
outsourcing as well as the growing number of new devices and people connecting to the
Internet. Cloud computing will help to synchronize data and software and has the potential for
major growth. The Initial Public Offering of Facebook is an event that we will have to keep a
close eye on as Facebook is a major player in the technology sector and may affect the valuations
of some of our current holdings.
50 | D C F A n n u a l R e p o r t MATERIALS SECTOR REPORT By: Julie Wedel, Matt Willert, & Ryan Alleman
Sector Allocation Recommendation:
Underweight
Current Sector Weight in Portfolio
3.15%
Current Sector Weight in Benchmark
3.45%
Benchmark Weight ± 50%
0-0%
Sector Stocks in Portfolio
2
Sector Stocks in Benchmark
30
Portfolio Sector Weighted Average Beta
1.48
Benchmark Sector Weighted Average Beta
1.176
SECTOR SUMMARY The Materials Sector is a volatile area that closely follows the trends of the market and the S & P
500. Correlating closely with the market, the Materials Sector is known to have higher highs, but
also lower lows. It is our belief that it would be best to keep the materials sector underweight in
the near future. Because of the debt crisis in Greece, even though it has been aided, the
Materials Sector will most likely see larger losses than the S&P 500.
Highly involved in the discovery, development, and processing of raw materials the companies
in the Materials Sector are greatly dependent on industry and market performance.
Consequently, the companies that make up this industry are very dependent on the demand of
their products. The demand for materials is primarily driven by the business cycles of the
automobile industry and the construction industry. As the outputs for these industries are not
increasing rapidly, I do not see materials having great gains in the near future.
51 | D C F A n n u a l R e p o r t Total Returns
Materials Sector vs. S&P 500
Over the period 4/1/2011 to 3/31/2012 the S&P 500 Materials Index returned -3.92% v. 8.54%
for the S&P 500 Index.
S ECTOR H OLDING ANALYSIS Alcoa Inc (AA)
Price: $9.32
Shares: 2300
Percent of Portfolio: 1.42%
Percent of Sector: 48.26%
Alcoa is the world’s leading producer of primary aluminum and fabricated aluminum, as well as
the world’s largest miner of bauxite and refiner of alumina. In 2011, Alcoa and Alcoa Foundation
contributed more than $38 million to nonprofit organizations throughout the world to enhance
communities, improve the environment and prepare tomorrow’s leaders for careers in science,
technology, engineering, mathematics, and manufacturing.
As Alcoa’s sales are tied largely to aluminum prices, it has been a rocky few months as
aluminum prices have continued to fall in the end of 2011. On the other hand prices have
increased this past quarter by 4.9% and are expected to increase slightly for the second quarter
as well. With prices most likely falling again towards the end of the year, it would be in our best
favor to begin to look for other opportunities in the Material Sector.
The Dow Chemical Co (DOW)
Price: $31.70
Shares: 725
Percent of Portfolio: 1.53%
Percent of Sector: 51.74%
The Dow Chemical Company is a diversified chemical company that provides chemical, plastic,
and agricultural products and services to various essential consumer markets. The Company
serves customers in countries around the world in markets such as food, transportation, health
and medicine, personal care, and construction.
52 | D C F A n n u a l R e p o r t The Americas Chemical Performance had outperformed their peers by 17%. As sales have slowly
decreased over the past few quarters, they are expected to rise in the near future. This positive
news may already be accounted for in their stock price, but what we do not feel is accounted for
is their ability to outperform the estimates. The last 6 out 8 estimates DOW has outperformed,
making it a good company to keep in our portfolio for now.
SECTOR BREAKDOWN Chemical Analysis
The chemicals subsector is made up of 3 different groups. They are specialty, diversified, and
commodity companies. The specialty companies have high value added and low volume
products that serve the diverse needs of customers. The companies in this subsector offer
specialization of their products to accommodate customers, often in the biomedical field. The
diversified companies are market leaders that have expanded products across many product
lines. Because of their wide scope, they are the most susceptible to cyclical trends. A large
diversified company can be a safe haven for conservative investors who are only looking to
replicate market returns. Lastly, the commodity group manufactures large quantities of basic
chemicals. As their name implies, there is not much specialization of products. Therefore, the
companies in this group move with the overall economy. It is pricing power, not service, that
allows a company to become dominate in this sector.
Metals and Mining Analysis
The Metals and Mining sub group is largely made up of companies that specialize in one area.
The major metals included in the group are aluminum, gold, and copper. The success of a
company is determined by two major factors. First of all, a company must create products that
are in high demand during the economic times. For example, AA should produce aluminum
products with upstream demand to capture the business recovery in the short term and
transition to products with downstream demand as the economy improves. Secondly, these
companies must have excellent management that can creating cost savings to become a pricing
leader and that can provide guidance during all cycles of the economy.
ANALYST ’S FUTURE OUTLOOK Since the Materials sector is known for its cyclicality and dependency on commodities prices, it
would be wise to seek out market leaders that can better navigate during these economic times.
Within that screening, we can identify companies with strong competitive advantages that will
allow them to stay strong through the slow growth and expand rapidly when we enter the next
bull market. 53 | D C F A n n u a l R e p o r t TELECOMMUNICATION SECTOR REPORT By: Kyle Varrone, Wes Hampson & J. Curtis May
Sector Allocation Recommendation:
Overweight
Current Sector Weight in Portfolio
2.85%
Current Sector Weight in Benchmark
2.63%
Benchmark Weight ± 50%
1.31-3.94%
Sector Stocks in Portfolio
1
Sector Stocks in Benchmark
8
Portfolio Sector Weighted Average Beta
0.72
Benchmark Sector Weighted Average Beta
0.75
SECTOR SUMMARY Total Return
Telecom Index vs. S&P 500
Over the period 4/1/2011 to 3/31/2012 the Telecom Index returned 3.52% vs. 8.54% for the S&P
500 Index.
The Telecom industry in North America is dominated by Verizon Wireless and AT&T, with both
companies having over 100 million subscribers. The sector has experienced growth from
increased smart phone use as well as tablets entering the market. This trend is expected to
continue in the future with the number of smart phones and tablets in the market increasing
and carriers continue to improve wireless capabilities for these products. 54 | D C F A n n u a l R e p o r t SECTOR HOLDING ANALYSIS AT&T (T)
Price: $31.23
Shares: 1400
Percent of Portfolio: 2.85%
Percent of Sector: 100%
Currently our only position within the Telecom industry is AT&T, as it is a small sector with only
8 stocks. AT&T provides telecommunications services to consumers, businesses, and other
providers worldwide. We currently hold 1400 shares of AT&T worth $31.23 a share for a total
value of $43,722. This position makes up 100% of our portfolio and 2.85% of the sector.
Surprisingly, this is overweight in comparison to the S&P 500.
Overall, AT&T has been a steady holding in the industry. It has gone from $30.62 to $31.45 over
the year and pays a yearly dividend of $1.76. It has been a strong force in the industry
comprising about 33% market share. Companies in the telecom industry are competing to
expand with increased LTE coverage and Wi-Fi hot spots as more devices become connected to
the Internet and companies compete to offer the best services.
SECTOR BREAKDOWN AT&T and Verizon Wireless are the industry leaders as they combine for about two-thirds of all
revenue in the sector effectively creating a duopoly. Sprint and T-Mobile are the next largest
companies in the sector. The industry’s two main segments are wireless and wire line services.
Wireless has been the catalyst for growth in recent years, as it has been driven by the increase in
data revenue from the growth in smart phone use and tablets entering the market. The wire line
aspect has been hampered by the decline in voice services, but this has been offset by increases
in wire line video and business services demand. North America telecom industry shrank 0.7%
sequentially in the fourth quarter of 2011 but grew 5% year over year. Also, AT&T’s attempted
acquisition of T-Mobile was blocked by regulators due to monopolistic fears, although the
company continues to believe it would have been in the best interest of consumers.
ANALYST ’S FUTURE OUTLOOK Revenue for telecoms continue to shift from wireline to wireless as the industry has benefited
from increased smart phone use, and more recently tablets and the data revenue that has
accompanied this growth with more devices connected to the Internet. In the developed world,
the high end smart phone market is becoming saturated, with sales of low to mid end phones
potentially increasing, which would lead to lower margins. Increased tablet use will also
continue to support data revenue. However, data growth is causing telecom companies to
innovate and to find the most efficient way to handle the increased data traffic. Carriers are
looking to increase their subscriber base and better prepare and equip themselves for more data
usage through expanding LTE networks.
55 | D C F A n n u a l R e p o r t UTILITIES SECTOR REPORT By: Ian O’Neil & Phillip Weickert
Sector Allocation Recommendation:
Underweight
Current Sector Weight in Portfolio
2.4%
Current Sector Weight in Benchmark
3.39%
Benchmark Weight ± 50%
1.69-5.08%
Sector Stocks in Portfolio
2
Sector Stocks in Benchmark
33
Portfolio Sector Weighted Average Beta
0.74
Benchmark Sector Weighted Average Beta
0.67
SECTOR SUMMARY The utilities industry is not the same as it used to be. The once safe utilities stocks have
undergone many regulatory changes, demand fluctuations, price volatility, and new competition
causing the industry to face major changes. The once big regional monopolies who ran the
industry from start to finish are no longer the leaders throughout the whole process. Since the
consumption of electricity is expected to rise due to growing demand, new competition has been
able to step in and take market share. Some of these new companies have also been developed
with the push towards greener energy. We saw some of the industry giants step in and attempt
to go green but the ones who have done well with the green energy were the ones who
specialized in it.
After experiencing a mild winter, the demand of electricity was low which reflected in many
stock prices, but the key is to remember that in long run electricity demand will grow. Currently
electricity prices are fluctuating with supply and demand and are no longer set by regulatory
agencies. This can result in the risk of uncontrollable price increases. As natural gas prices keep
hitting lows it is tough for these companies to grow because of the cuts in revenue. The industry
has been hurt over the years from the restrictions of coal-powered plants and nuclear plants
which stem from the regulations.
The value in the utilities sector will be determined not only by the financial statements of the
company but by the company’s reputations; with increased regulations and a growing number of
environmentalists companies have more individuals and regulators watching over them.
56 | D C F A n n u a l R e p o r t Total Return
Utilities Sector vs. S&P 500
Over the period 4/1/2011 to 3/31/2012 the Utilities Sector returned 14.75% vs. 8.54% for the
S&P 500.
SECTOR HOLDING ANALYSIS Progress Energy (PGN)
Price: $53.11
Shares: 300
Percentage of Portfolio: 1.04%
Percentage of Sector: 43.33%
Progress Energy was originally bought April 2010. The fund saw the best potential in Progress
compared to some other comparable companies, and we have revaluated it and it still shows
potential upside. The upside comes from the potential acquisition of Progress by Duke Energy.
Since Duke Energy is one of the largest Utility companies, this acquisition would make them the
largest. The analyst believes that this acquisition will be a great move for Progress stock holders.
The management at Duke has done a good job and can lead Progress in the right step to a
brighter future.
NRG Energy (NRG)
Price: $15.67
Shares owned: 1330
Percentage of Portfolio: 1.36%
Percentage of Sector: 56.67%
NRG Energy, Inc. is one of two of the holdings in the Utilities sector. NRG was originally bought
May 2011 with the prospect of some major growth of a small S&P 500 company. Along with
being a small company it seemed to have some huge upside. The fund bought NRG at roughly
24 dollars a share. In March the fund revaluated the company since the stock had a value of 16
dollars a share. After extensive research the analyst saw a lot of potential growth with the
company’s knowledge of solar power. They are one of the largest solar power producers of
energy. Also their potential with the electric car showed upside. NRG has developed charging
stations for electric cars, where customers can plug in and receive enough charge for roughly 50
57 | D C F A n n u a l R e p o r t miles for every 15 minutes of charge. This would be ideal for shopping around town. The
analyst also revaluated Pacific Gas & Electric Corporation (PG&E). This evaluation showed a lot
of downside after many lawsuits and bad record keeping of their gas pipes. Therefore in March
of this year the fund decided to do a full swap of PG&E with NRG to have the best opportunity in
the Utilities sector.
SECTOR BREAKDOWN Electric
The electricity industry value chain consists of four elements. The first is the energy generation,
which requires a fuel source and a power plant to convert that into electricity. Second is
electricity transmission which involves both transforming generated electricity into electricity
that can be transmitted over power lines and matching end user requirements with energy
availability. Electricity must be distributed to individual end users via a vast network of power
lines and substations. Lastly there is delivery, where electricity is transformed again and
delivered directly to an end user. Electricity has a lot of potential growth over the long run
which all four elements will increase. The more volatile portion will be the fuel source because
of all the regulations.
Natural Gas
The Gas Utilities sector covers the full value chain from upstream production, to liquefied
Natural Gas, transmission and storage, local distribution, trading and through customer supply.
It embraces a diverse range of issues including technology risk, commodity markets, trading and
contract systems, regulation of networks and political intervention in pricing and margins.
Future profit growth depends on gas use in power generations, market liberalization and new
uses for natural gas. Since the prices of natural gas keep falling it has become the cheapest form
of energy to use.
Water
The water industry provides drinking water and wastewater services to residential, commercial,
and industrial sectors of the economy. The water industry includes manufactures and supplies
of bottled water. As cleaner water is pushed throughout the world there could be potential for a
better purification of water. This could come from a better sewage treatment plants to new
technology.
ANALYST’S FUTURE OUTLOOK
Although utilities are less volatile, less risky, and offer high dividend yields to investors, the
opportunities for capital appreciation and high returns are lacking. With new government
implementations and regulations dealing with emissions of pollutants and nuclear power plant
safety issues, there will be a long-term struggle for utilities companies in general. As prices
continue to rise, more and more companies have cut down on their dividend growth, which
happens to be the most attractive reason to invest in utilities. Companies will also be faced with
issues passing on rising prices to consumers as the government may intervene and disallow
companies to do so. With the U.S. economy recovering and Europe starting to show signs of life,
investors will lean more towards cyclical sectors rather than defensive ones. For these specific
reasons, underweighting the utilities sector and focusing on allocating money towards better
opportunities would be the strategically correct thing to do. This being said, because the fund
takes a bottom-up approach to investing, the fund will always be looking for opportunities in the
utilities sector that have good growth potential and high returns.
58 | D C F A n n u a l R e p o r t CURRENT HOLDINGS AS OF MARCH 31, 2012
3M Company (MMM)
190 Shares
Dow Chemical Co. (DOW)
725 Shares
Abbott Laboratories (ABT)
500 Shares
Express Scripts Inc (ESRX)
400 Shares
Alcoa Inc. (AA)
2300 Shares
General Electric Co (GE)
1450 Shares
Apple Inc. (AAPL)
145 Shares
General Motors Co (GM)
1700 Shares
AT&T Inc. (T)
1400 Shares
Google Inc. (GOOG)
60 Shares
Bristol-Myers Squibb Co. (BMY)
680 Shares
Halliburton Co (HAL)
630 Shares
Campbell Soup Company (CPB)
630 Shares
Illinois Tool Works Inc (ITW)
750 Shares
Caterpillar Inc (CAT)
450 Shares
Intel Corp. (INTC)
1500 Shares
Chesapeake Energy Corp (CHK)
750 Shares
Johnson & Johnson (JNJ)
400 Shares
Chevron Corp (CVX)
440 Shares
JP Morgan Chase & Co (JPM)
780 Shares
The Chubb Corp (CB)
500 Shares
Kellogg (K)
500 Shares
Cognizant Technology (CTSH)
850 Shares
Macy’s Inc (M)
600 Shares
CSX Corp (CSX)
1950 Shares
McDonald’s Corp (MCD)
425 Shares
59 | D C F A n n u a l R e p o r t Microsoft Corp (MSFT)
2100 Shares
Murphy Oil Corp (MUR)
655 Shares
NRG Energy Inc (NRG)
1330 Shares
Peabody Energy Corp (BTU)
790 Shares
PepsiCo Inc (PEP)
600 Shares
Philip Morris International (PM)
300 Shares
PNC Financial Services Group (PNC)
1100 Shares
Proctor & Gamble Co (PG)
500 Shares
Progress Energy (PGN)
300 Shares
Qualcomm Inc (QCOM)
535 Shares
RR Donnelly & Sons Co (RRD)
2735 Shares
Time Warner Cable (TWC)
315 Shares
Total SA (TOT)
600 Shares
United Health Group Inc (UNH)
750 Shares
US Bancorp (USB)
755 Shares
Visa Inc. (V)
765 Shares
Watson Pharmaceuticals Inc (WPI)
198 Shares
60 | D C F A n n u a l R e p o r t Trades 4/1/2011 – 3/31/2012
Date Ticker 5/3/2011 VZ 5/3/2011 TWX 5/3/2011 MCD 5/10/2011 WFC 5/10/2011 USB 5/10/2011 UNH 5/10/2011 RIG 5/10/2011 SYK 5/10/2011 SIAL 5/10/2011 PX 5/10/2011 PCG 5/10/2011 NRG 5/10/2011 MDT 5/10/2011 JPM 5/10/2011 JEC 5/10/2011 ITW 5/10/2011 DVN 5/10/2011 DEO 5/10/2011 CVX 5/10/2011 CVS 5/10/2011 BP 6/1/2011 SPY 7/7/2011 SPY 7/28/2011 SPY 9/1/2011 SPY 9/7/2011 SPY 9/7/2011 RRD 10/26/2011 FDX 10/26/2011 RRD 10/27/2011 WMT 10/27/2011 PM 10/27/2011 KEY 10/27/2011 KEY Buy/Sell Sell Sell Buy Sell Sell Buy Sell Sell Sell Sell Sell Buy Sell Buy Sell Buy Sell Sell Buy Sell Buy Buy Buy Buy Buy Sell Buy Sell Buy SELL BUY SELL SELL # of Shares -­‐300 -­‐1500 700 -­‐800 -­‐500 750 -­‐250 -­‐400 -­‐100 -­‐75 -­‐200 280 -­‐325 780 -­‐350 280 -­‐200 -­‐200 440 -­‐300 1140 9 35 6 16 -­‐66 535 -­‐450 2200 -­‐375 300 -­‐100 -­‐4100 Price 38 37.14 78.2 28.41 25.48 50 71.01 59.89 68.89 103.88 45.52 24.1 42.59 45.53 47 57.66 84.74 81.14 103.33 36.43 43.75 132.67 133.71 134.02 120.15 121.17 14.79 78.5 15.89 56.74 70.12 7.1 7.1 61 | D C F A n n u a l R e p o r t 10/27/2011 CAT 10/27/2011 T 10/27/2011 AMT 11/4/2011 V 11/10/2011 MUR 11/10/2011 MUR 11/10/2011 BP 11/14/2011 K 11/16/2011 V 12/5/2011 V 12/9/2011 SIAL 12/9/2011 SIAL 12/9/2011 PX 12/9/2011 M 12/9/2011 M 12/9/2011 M 12/9/2011 DOW 12/21/2011 TEVA 12/21/2011 BTU 12/21/2011 MUR 12/21/2011 ITW 12/21/2011 CAT 12/21/2011 CAT 12/21/2011 CAT 12/21/2011 BMY 1/31/2012 HAL 1/31/2012 AAPL 2/7/2012 MCD 2/7/2012 HAL 2/14/2012 V 2/14/2012 TWC 2/14/2012 AAPL 2/14/2012 AFL 2/22/2012 USB 2/22/2012 MCD 2/22/2012 MCD 2/28/2012 MMM 2/28/2012 AAPL BUY BUY SELL SELL BUY BUY SELL BUY SELL SELL SELL SELL SELL BUY BUY BUY BUY SELL BUY SELL SELL BUY BUY BUY BUY BUY SALE SALE BUY SALE BUY SALE SALE BUY SALE SALE BUY SALE 325 800 -­‐500 -­‐50 85 765 -­‐1140 100 -­‐30 -­‐30 -­‐100 -­‐100 -­‐75 400 100 100 725 -­‐575 540 -­‐195 -­‐280 110 3 12 680 195 10 150 435 60 315 10 250 455 15 110 60 10 92.04 29.03 56.65 92.01 54.62 54.6 43.45 49.95 93.02 95.66 65.99 65.98 102.62 33 33 33 28.14 42.64 33.09 51.52 46.09 87.86 87.85 87.85 34.27 37.12 447.43 98.61 36.72 113.07 76.27 485.04 48.59 28.66 99.07 99.07 87.98 514.57 62 | D C F A n n u a l R e p o r t 3/06/2012 3/06/2012 3/06/2012 3/06/2012 3/06/2012 3/06/2012 3/27/2012 3/27/2012 3/27/2012 3/27/2012 3/27/2012 3/27/2012 MMM XOM XOM XOM CPB AAPL WPI WPI PCG PCG NRG AAPL BUY SALE SALE SALE BUY SALE BUY BUY SALE SALE BUY SALE 130 100 100 100 630 10 197 2 300 125 1050 15 87.63 86.75 86.75 86.75 33.07 542.55 65.75 66.01 43.19 43.17 16.53 601.65 63 | D C F A n n u a l R e p o r t