Penn State Investment Association
CONSTITUTION
Table of Contents:
1. Article I - of Name, page 2
2. Article II - of Purpose and Mission, page 2
3. Article III - of Membership, page 3
4. Article IV - of Membership Fees, page 3
5. Article V - of Organizational Structure, page 3-9
6. Article VI - of Officer Positions, page 9-10
7. Article VII - of Governance, page 10-11
8. Article VIII - of Meetings, page 11
9. Article IX - of Disbursement of Funds, page 11
10. Article X - of Investment Policy, page 12-17
Penn State Investment Association
ARTICLE I - OF NAME
The name of this organization is the Penn State Investment Association; hereafter
referred to as "PSIA" or the "Organization."
ARTICLE II - OF PURPOSE AND MISSION
The mission of the Penn State Investment Association (PSIA) is to create a studentmanaged mutual fund geared towards outperforming a composite index of mutual fund
indices as well as the S&P 500. Our goal focuses on creating an environment where
learning is a choice not a chore.
The Penn State Investment Association aims to revolutionize the study and practice of
investment finance here at the Pennsylvania State University. Involvement in PSIA helps
to bridge the gap between the theory taught in the classroom and applications of these
concepts in the real world.
Through its unique organizational structure, students are exposed to equity research,
trading, and economic analysis. Members with a more in depth understanding of
financial concepts assume any one of more than 20 leadership positions available in the
organization. These leaders act as mentors for their respective teams and this creates an
interactive atmosphere in which knowledge is sought by an individual and not simply
forced upon him or her. The end result is a group of students enjoying the educational
process while achieving a rich foundation and understanding of the dynamics of financial
markets.
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ARTICLE III – OF MEMBERSHIP
Membership in this organization is granted exclusively to all students attending The
Pennsylvania State University at University Park, PA, regardless of college or major.
ARTICLE IV – OF MEMBERSHIP FEES
Membership fees are determined by the Executive Board through a unanimous agreement
and will be stated at the first meeting of the organization each new academic year
(August).
ARTICLE V – OF ORGANIZATIONAL STRUCTURE
Executive Board
President
The primary duties and responsibilities of the president are to:
 Conduct the General Body meetings and chair the Executive Board meetings
 Chair the operation of the Portfolio Management Committee (PMC)
 Coordinate the interaction between the various departments within the
organization
 Devise strategies geared towards improving all areas of the club’s
organizational structure
 Promote the operation and purpose of PSIA to academic and professional
groups both internally at Penn State as well as externally
 Appoint committees, when necessary, to accomplish special projects
Vice President
The duties and responsibilities of the vice president are to:
 Assist in the completion of the president’s duties
 Assume any or all of the president’s responsibilities in his/her absence
 Focus on managing any special projects committees
 Maintain close contact with Functional Board members
 Oversees Educational/Training Program for members
Secretary
The duties and responsibilities of the secretary are to:
 Maintain all member information including attendance and contact
information
 Record minutes for all General Body and Executive Board meetings
 Maintain the organization’s e-mail list-serve
 Inform members of upcoming meetings and events
 Assist both Executive and Functional Board members in the completion of
any major tasks or special projects
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Treasurer
The duties and responsibilities of the treasurer are to:
 Collect membership dues
 Maintain record of any exchange of cash flow
 Deposit and withdraw funds from the organization’s account with the
University Associated Student Activities
 Present the Executive Board with a detailed monthly report of the
organization’s account activity
 Prepare purchase orders for expenses when necessary
Functional Board
The Penn State Investment Association is structured to operate like an investment bank.
The organization is broken down into several key departments of specialization listed
below. Further, these positions are by Executive Board appointment for one year and
may be revoked in the event that the Executive Board deems it necessary. Also, the
selections made by the Executive Board will be re-examined by the Board of Directors
for approval.
The Equities Research Department
The Equities Research Department serves as both the generator and disseminator of
information regarding the selection of securities for the portfolio. A respective team
composed of a Lead Analyst and several analysts covers each of the Fund’s ten sectors.
Each team carries the responsibilities of monitoring the major trends in its specific sector
and, consequently, advising the organization on appropriate buying, selling, and holding
strategies. This more narrow focus allows the team to build a strong understanding of the
dynamics of its particular sector. The Fund is composed of the following ten sectors:
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Consumer Discretionary
Consumer Staples
Energy
Financials
Healthcare
Industrials
Information Technology
Materials
Telecommunications
Utilities
All research presentations must include the fundamental research requirements
outlined below:
1. Financials – One of the most important components of the research strategy, the
financials will comprise all the relevant ratios acquired through all financial
statements. These ratios include the following: current, quick, inventory turnover,
dividend yield, debt to equity, return on assets, return on equity, interest coverage,
profit margin, and market to book ratios. Also, the market capitalization of each firm
in which we invest must be greater than or equal to $1.0 billion
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2. Sales – The sales data must include a percentage gain or loss from the last year and
five years ago. It must also include estimates for the year in dollars, growth in
market share, and the extent of the customer base.
3. Competition – The competition must be described including an analysis of the major
competitors, the barriers to entry, the percentage of sales relative to the industry and
its competitors, and foreign sales.
4. Management – At the discretion of the research analysts, an analysis of the
background on the top managers may be performed.
5. Patents – All important patents and/or copyrights must be researched and presented.
Director of Equities Research
The duties and responsibilities of the director of equities research are to:
 Coordinate the research efforts of all 10 sectors
 Conduct bi-weekly equities research meetings
 Chair bi-weekly Lead Analyst strategy meetings
 Notifies members of the PMC regarding any upcoming investment proposals
 Designs and administers exam for Lead Analyst selection process
 Participates in Education Seminars
 Trains Lead Analysts and analysts in procedures to prepare research reports
 Compiles sector commentary reports to be presented by specialized sector
teams
 Work with Lead Analysts in coordinating proposed plan of action to the
Portfolio Management Committee concerning the Fast Track process,
including investment emergencies (See Article X)
Lead Analyst
The duties and responsibilities of the lead analysts are to:
 Coordinate analyst coverage of the sector
 Coordinate the preparation of the research reports
 Notify Director of Equities regarding any upcoming investment proposals
 Teach basic accounting and finance concepts to team members that are
unfamiliar with the subject matter
 Lead the presentation of research reports during General Body Meetings
 Make the recommendation for the proposed purchase or sale of a security
 Coordinate research and market coverage efforts of analysts to formulate
sector commentary reports
 Work closely with the Trading Department to coordinate efforts to monitor
sector and specific equity movements
 Work with Director of Equities Research to coordinate proposed plan of
action to the PMC concerning investment emergencies
Analyst
The duties and responsibilities of the analysts are to:
 Assist Lead Analyst with the preparation of the research reports
 Cover specified areas of the sector that the Lead Analyst has assigned
 Report to the Lead Analyst on notable market movements
 Assist Lead Analyst in presentation of research reports during General Body
Meetings
 Organize research and market coverage material into a sector commentary
report
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Economic Analysis Group (EAG)
The primary purpose of the Economic Analysis Group (EAG) is to closely monitor
macroeconomic events/issues and to strategically advise the Equity Research Department
accordingly, so as to assist in maximizing the fund's performance. The group consists of
a Director and four analysts to fulfill the following functions:
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(1) News- Reporting on all Money, Equity and Fixed Income news, obtaining data
through software such as Bloomberg Professional, TradeStation Pro and
BridgeTelerate
(2) Money- Reporting on Federal Reserve actions, interest rates, economic
indicators, and relevant economic events; analyzing impacts to the economy as well
as PSIA’s portfolio
(3) Equity- Works in conjunction with the Equity Division to provide cohesive,
strategic advising. While the focus in the Equity Division is particular stocks, the
concern here is with industry and sector analysis. A recommended sector and
industry list is maintained and used to advise the Equity Division on future stock
purchases and sells
Director of the Economic Analysis Group (EAG)
The duties and responsibilities of the Director of EAG are to:
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Oversee the direction and focus of the division
Lead the analysts during General Body meetings and presentations
Organize the research efforts of all four analysts
Conduct bi-weekly EAG research meetings
Train analysts in procedures to prepare research reports
Analyst
The duties and responsibilities of the Analysts are to:
 Assist the Director of EAG with the preparation of research reports
 Remain abreast of major events occurring in their particular division
 Report and prepare summaries to the Director on notable market movements
 Assist Director in presenting research reports during General Body Meeting
The Trading Department
The trading division is responsible for monitoring the movement of the markets and
executing trades that are agreed upon by the organization. The group will consist of a
Director, Head Trader, Assistant Traders, and, if necessary, a Money Markets Trader.
Director of Trading
The duties and responsibilities of the Director of Trading are to:
 Assign all traders to specific sectors within Equities Research
 Coordinate all aspects of portfolio performance reporting and presentation
 Train new traders and assist them in performing their specific roles
 Train Equity Traders to use Bloomberg and Bridge software programs in the
Smeal College of Business Trading Room
 Maintain close communication with Directors of Equities Research in order
to ensure timely and accurate transaction execution and data management of
PSIA’s investments
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Head Trader
The duties and responsibilities of the Head Trader are to:
 Execute trades that the Organization has approved for either a purchase or
sale.
1. For the purchase of a security, the trader will monitor the investment’s
intra-day price movements and execute the transaction within the price
range specified by the Portfolio Management Committee.
2. Market information will be obtained using real-time quotes available on
Bloomberg.
3. The Head Trader will also be responsible for completing a confirmation
slip, recording date, time, price, number of shares, stock splits,
dividends, Beta, SIC Industry code, geographic region and any other
descriptive information as seen fit by both the Executive and Functional
Boards.
Assistant Traders
The duties and responsibilities of the Assistant Traders are to:
 Specialize in one of our covered sectors
 Record all transaction-related information in the organization’s Portfolio
Database.
 Track price movements and company news related to PSIA’s investments
within their respective sectors
 Notify the Equity Sector’s Lead Analyst and the Director of Equities
Research on noteworthy changes in the investment’s standing, which may
require immediate action
The Compliance Department
The Compliance Director shall maintain the fund’s Investment Policy with quarterly
reviews to ensure applicability (See Article X). The Compliance Director shall
recommend amendments to our investment policies to the Organization when he/she
deems it necessary. The investment policies aim to reflect the risk and return objectives
of the Fund as well as all constraints including the time horizon, taxability, unique needs
or circumstances, and liquidity requirements. The role will also ensure that the Fund is in
compliance with the Investment Policy by checking investments on a monthly basis. In
the event that the Fund is found to be out of compliance, the Compliance Director shall
recommend the necessary changes to the Organization.
The Information Services Department
A Webmaster will be in charge of producing and maintaining the PSIA website, which
will include up-to-date information on the Fund’s performance, informational fact sheets
about the club, past Research Report Presentations, officer contact information, the
Constitution, and any other relevant materials deemed appropriate by the Executive and
Functional Boards. The Webmaster must also maintain close contact with Research
Chairs and provide any other required learning materials. This role can be expanded at
the discretion of the Executive Board.
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ARTICLE VI – OF OFFICER POSITIONS
Election of Executive Board Positions
The selection of the Executive Board members entails a three-part process including the
General Body, the current Executive Board, and the Board of Directors. The process will
begin in the middle of the spring semester in order to provide students with adequate time
to decide on a desired position and prepare their presentations and applications. This also
allows sufficient training time for the newly elected Executive Board member; current
Board members are responsible for training each of their successors to perform all the
responsibilities of the particular position. A standardized application, subject to
amendment by the Executive Board, is to be completed by each candidate to be reviewed
by the Executive Board and the Board of Directors prior to General Body presentations
and elections. The Board of Directors' selection will contribute a 25% weight to the total
vote. Also, the current Executive Board will select a candidate for each position and
these choices will provide a 25% weight to each respective election. The Executive
Board decision process will also be comprised of interviews with each candidate.
Additionally, each candidate will present himself/herself and his/her intentions to the
General Body and a subsequent vote will provide a 50% weight to the overall selection
process. Further, the following requirements are necessary for nomination for an
Executive Board position:
President
The President must have a minimum of two semesters worth of experience with
PSIA in order to meet the technical requirements of training of new members and
advising the board on strategic issues.
Vice President
The Vice President must have a minimum of two semesters worth of experience
with PSIA in order to meet the technical requirements of training new members
and advising the board on strategic issues
Secretary
The Secretary must have a minimum of one semester worth of experience with
PSIA in order to meet the technical requirements of assisting with the training of
new members and advising the board on strategic issues.
Treasurer
The Treasurer must have a minimum of one semester worth of experience with
PSIA in order meet the technical requirements of assisting with the training of
new members and advising the board on strategic issues.
Functional Board Positions
Due to the highly technical nature of the Functional Board positions, the Executive Board
is responsible for the appointment of the Functional Board members. The Executive
Board will select candidates for the various positions by means of an application process
and conduct a series of rigorous interviews for each position. The Functional Board
consists of the Director of Equities Research, the Director of the Economic Analysis and
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Advisory Group, the Director of Trading, and the Director of Compliance. The
Executive Board will also consider individuals that have been nominated by current
members of the Functional Board. Upon completion of the interview process, the
Executive Board will consult the current members of the Functional Board and then
proceed with the decision process for the appointment of the new Functional Board.
Additionally, each Functional Board member appointment will be reviewed and approved
by the Board of Directors for official appointment.
ARTICLE VII – OF GOVERNANCE
Section 1.
Several groups including the Board of Directors, the CEO, the Oversight Board, and the
PSIA Portfolio Management Committee execute the governance of the Mutual Fund.
1. The Oversight Board - Following the decision of the fund managers to buy, sell, or
hold a security, the Oversight Board will submit their approval/disapproval to the
PMC after review of the decision.
2. The CEO – The CEO exercises fiduciary responsibility in ensuring that the fund is
effectively and efficiently carrying out its purpose (i.e., making certain that
accounting and other fiscal issues are correctly handled).
3. The Board of Directors – The Board of Directors acts with final fiduciary
responsibility in the approval/disapproval of Executive Board decisions.
Section 2.
The following description will elaborate on the structure of the Portfolio Management
Committee (PMC), the members of the PMC, as well as the system of checks and
balances that the committee has put in place.
The Portfolio Management Committee is the group responsible for the final investment
decisions for PSIA. The group is comprised of the following 5 individuals:
1.
2.
3.
4.
5.
President
Vice President
Director of Equity Research
Director of Economic Analysis Group
Director Trading
Investment Process
Outlined below are the specific steps related to the investment decision process:
1. Presentation of the research reports and voting by the general body members.
 There are 15 votes cast on behalf of the General Body.
Equities Research Department
10 votes (one per sector)
Trading Department
1 vote
EAG
1 vote
Secretary
1 vote
Treasurer
1 vote
Director of Compliance
1 vote
 These votes serve as recommendations for the PMC’s final investment
decision.
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2. The PMC will have had prior notification of the proposed investment(s).
 The Directors of Equities Research will e-mail the proposed investments to both the
PMC and the Oversight Board and follow up with the delivery of the research reports
once they have been presented to the General Body.
 The PMC members must notify the Secretary of PSIA of their votes. The secretary
then compiles the PMC’s votes and informs the members of the Oversight Board of
the final decisions. Members may conduct research on their own prior to submitting
their approval/disapproval of the PMC’s decisions.
ARTICLE VIII – OF MEETINGS
General Body Meetings will be held bi-weekly. Research meetings for each Functional
group are held at the discretion of the Director in that particular department. Although
typical General Body Meetings presently consist of the following format, they are
continually modified:
0-5min
Important General Announcements
0-20min
Economic Analysis Group presents on broad issues
concerning the economic environment and makes strategic
recommendations
20-50min
Equity Research division makes Buy, Sell, or Hold
recommendations
50-60min
Questions/ Special Announcements from the Executive Board
ARTICLE IX – OF DISBURSEMENT OF FUNDS
The disbursement of funds will be followed in accordance with the rules established by
the Office of Student Activities. A faculty advisor for the Organization must approve all
expenses and disbursement of funds. The Treasurer shall be responsible for completing
the necessary forms for the proper deposit and disbursement of funds.
ARTICLE X - OF INVESTMENT POLICY
Objective
The Investment Policy (IP) defines the framework of rules and regulations the Penn State
Investment Association (PSIA) will hereby follow when investing its funds in the Capital
Markets. Our investment arena consists of stocks and money market securities. It is the
responsibility of the Penn State Investment Association Portfolio Management
Committee (made up of Executive and Functional Board members, and external advisors
PMC) to ensure that the investments are made in a prudent and fair manner, as to
preserve capital and to comply with the rules and regulations set forth in the Investment
Policy.
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Investment Principals
1. Funds shall be invested with discipline, prudence, and due diligence.
2. The apportionment of set funds in the investment portfolio shall be diversified as
to minimize risk.
3. The level of risk posed by investments will be ascertained by the information
presented on the proposed transactions, and voting members will decide what
investments are too risky.
4. Positions in the portfolio should primarily be in securities that trade in large
volume so as to maintain liquidity.
5. Cash is to be employed productively at all times by investment in short-term cash
equivalents to provide safety, liquidity and return.
6. Under no circumstances shall the portfolio employ leverage.
7. All security transactions should be executed with the view of obtaining the best
net execution with due diligence given to all other externalities.
8. Short sale of securities will not be allowed.
9. The portfolio seeks to invest in companies that have a market capitalization of at
least $1 Billion.
10. The Portfolio is not allowed to invest in an Initial Public Offering (IPO) until it
has been publicly traded for 30 days.
11. The Portfolio will be benchmarked against the composite Lipper
Multi-Cap Blend Index. Each of the following indices will be
Weighted 25%:
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Lipper Large-Cap Growth Index
Lipper Large-Cap Value Index
Lipper Mid-Cap Growth Index
Lipper Mid-Cap Value Index
Additionally, we seek to outperform the S&P 500 Index.
Buy and Sell Policies
Selling Principals
1. When a stock loses 10% of its value from the purchase price, the Director of
Trading must notify the PMC. This is regarded as a warning; however, a
proposed sale can ensue if approved (see Principle 4.).
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2. When a stock loses 20% (and every 10% increment after that) of its value from
the purchase price, the Director of Trading must notify the PMC and a stock sale
must be reviewed.
3. When a stock has appreciated 20% in value over the purchase price and holds at
or above that level for five trading days a sale can be proposed unless otherwise
specified by a research analyst. The analysts who made the original
recommendation or the traders following the stock have the discretion to propose
a sale at any time.
4. Any proposed action must be brought to the attention of the Director of Trading.
The Director of Trading then proposes action to the PMC, which will, assume
authority to pass or negate transactions (60% approval of the committee is
required).
Buying Strategy
We focus on companies with consistent or rising earnings growth and compelling
business strategies. Researchers continually and rigorously study developments,
including business strategy, management focus, and financial results, to identify
companies with earnings growth and business momentum. In addition, valuation
is viewed in the context of prospects for sustainable earnings growth and the
potential for positive earnings surprises in relation to consensus expectations.
Ultimately, the goal of the portfolio is to find undervalued investment
opportunities that are allowed by this investment policy. In general, members of
the organization (Functional Directors, Lead Analysts, analysts) will conduct
research and make formal buy proposals by presenting a report to the
organization. The organization will make recommendations by voting on whether
or not to buy the security, and the PMC will make a final decision on whether or
not to buy and how much to buy (see Article III- of Governance Structure in
Constitution for details about investment decision-making process and power).
Risk/Investment Management
1. Preservation of the value of capital is a major concern regardless of whether price
action is due to the market, a sector or a particular issue and whether based on
technical or fundamental considerations.
2. Portfolio exposure to volatility is expected to be limited in order to be consistent
with the objective of capital preservation. Concentration in any one issue, issuer
industry group, or geographic area is to be avoided.
Risks
Because the following risks might negatively affect the Fund, causing
underperformance and, consequently, a loss of funds/money, it is imperative to
maintain an awareness of their presence and likelihood of impacting the Fund.
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Interest rate risk - Defines the possibility that bond prices will decline either
short-term or long-term
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
Economic risk - Economic trends might become materially unfavorable, such
as rising interest rates and levels of inflation or deflation, or a slowdown of
economic growth
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Investment style risk - Companies in our market segment fall out of favor
with investors
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Diversifiable risk - An adverse company specific event, such as an
unfavorable earnings report, negatively affects the stock price of a company
in which the fund invests
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Performance risk - Chance that stocks selected will underperform our
benchmarks, the Lipper Multi-Cap Blend Index and the S&P 500 Index.
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Management risk - our judgment about the attractiveness, growth prospects
or potential appreciation of a particular stock proves to be incorrect, causing
poor investment performance
Portfolio Strategy
Blended Equity Fund:
Investment Objective - Maximize long-term and total returns (share price +
income).
Basic Investment Strategy/Policy - common stocks and money market
instruments in proportion with our evaluation of expected risk/return for different
types of investments. The proportions are subject to change and the Fund may
allocate holdings within the parameters set forth in the Diversification/Allocation
section below.
Diversification/Allocation
The target portfolio allocation will be as follows: Allocation percentages will be
permitted to range from 5-25% for Cash/Money Market securities, and 75-95%
for Stocks. We will allocate funds to each of the following four categories with
respect to expected relative performance: Mid-Cap Growth, Mid-Cap Value,
Large-Cap Growth, and Large-Cap Value. The portfolio allocation will be
formally reviewed and re-balanced on a quarterly basis.
Asset Classes:
Equities: (75-95%)
 Domestic Common Stock
 American Depository Receipts (ADR’s)
 Real Estate Investment Trusts (REIT’s)
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Cash/Money Market: (5-25%)
 Money Market Funds
 Cash
General Guidelines:
1. Common stocks may represent no greater than 95% of the market value
of the total Fund.
2. Foreign investments (ADR’s) cannot represent more than 50% of the
Fund.
3. The Portfolio may not own more than 5% of the outstanding shares of
any one company.
4. No one security can be more than 10% of the Fund, if and when the
holding is valued at more than 20% of the Fund’s value, the holding must
be reduced to 20% or less.
5.
The following ten sectors will be covered:
 Consumer Discretionary
 Consumer Staples
 Energy
 Financials
 Healthcare
 Industrials
 Information Technology
 Materials
 Telecommunications
 Utilities
Sector allocations will be made relative to the percentage allocations within the
S&P 500. We will overweight or underweight based on expected sector
performance. Overweight sectors will be capped at a weight no more than 7
percentage points above the S&P 500 weight at any given time. There is no cap
on underweight sectors (i.e., % of our fund can be allocated to particular sectors
at any given time)
Specific Investment Goals:
1. The portfolio’s annual, inflation adjusted, long-term return will be benchmarked
against the Lipper Multi-Cap Blend Index, the composite index as outlined in
Article X.
2. Since a goal of PSIA is to outperform the composite Lipper Multi-Cap Blend
Index, the club should assume similar risk levels. PSIA shall limit overall equity
portfolio beta between the values of .75 and 1.25. If the overall beta of the
portfolio exceeds this level, the trading department is required to immediately
reduce portfolio risk. The trading department will continually monitor beta to
insure compliance.
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3. No more than 25% of the portfolio can be held in cash except for situations
where large cash positions are generated (on a temporary basis) prior to
reinvestment or in the event of the absence of the general body.
Semi-annual/Annual Reports
Report Highlights
1) Letter from Executive Board
 Review of Markets
 Performance Overview
 Investment Philosophy
 Outlook
2. Portfolio Highlights
 Largest Holdings
 Major Changes
3. Performance Summary
 Average Annual Compound Total Returns Table
1. Compare PSIA against S&P
 $10,000 invested in fund 10 years ago*
4. Financial Highlights
 Portfolio Value
 Statements of changes in Portfolio Value
 (Statement of Operations)
5. Portfolio of Investments
 Type of Investment
1. Sector/industry
2. # Of shares
3. Value
 Sector or Funds Diversification
6. Results from Meetings
 Executive Board Committee Changes
 Lead-Analysts Changes
7. Contact Information
 Website, e-mail, phone
* Indicates this will be shown in chart form
Note: Subject to change.
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