Annual Report

12/31/2005

I T H A C A C O L L E G E I N V E S T M E N T C L U B

Annual Report

The year in review

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Table of Contents

Ithaca College investment club

1. Cover Page 2. Table of Contents 3. Letter to Current Shareholders 4. Letter to Current Shareholders (Cont.) 5. ICIC Analysts 6. Investment Philosophy and Portfolio Facts 7. Infrastructure 8. Goals 9. Composition of the Portfolio 10. Analysis of Holdings (eBay) 11. Analysis of Holdings (Citigroup) 12. Analysis of Holdings (Sirius Satellite Radio) 13. Analysis of Holdings (Abraxas Petroleum) 14. Analysis of Holdings (Wal-Mart) 15. Analysis of Holdings (General Electric) 16. Analysis of Holdings (Martek Biosciences) 17. Performance of the Fund 18. Performance of the Fund 19. Forward Looking Statement 20. Contact Information

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Dear Shareholders,

The Ithaca College Investment Club (ICIC) was started in 2005 by two students who were looking for a way to give undergraduates a chance to learn about investing in the financial markets. Today, ICIC serves as a model of success, as the fund has grown tremendously with regards to both assets under management and leadership. At the beginning of 2005, several buy presentations were put together by the leaders of the club in order to model the investment process for all of ICIC’s managers. These man-agers are part of an Ithaca College organization known as the Core Trading Consult-ants (CTC). Today, the number of managers stands at around fifty-five and these stu-dents choose to work within fourteen different analyst groups that represent the major sectors encompassed in the Standard and Poor’s 500 index. The CTCs work diligently with the capabilities in the school’s Trading Room during their weekly analyst shifts. Their job is to perform intensive research on companies within their respective indus-tries with the ultimate goal of selecting a firm to include in our portfolio. While infor-mative industry updates are given to shareholders throughout all meetings, this past semester there were four analyst groups that presented companies to the shareholders. Subsequently, the companies presented were added into our portfolio after a share-holder vote was taken. In addition, all CTCs attended the following training sessions to improve their knowledge in several key financial areas: Introduction to the Financial Markets, Valuation, Understanding Accounting Statements, and Software Capabilities at Ithaca College. These sessions provided substantial information to the funds’ man-agers that they were able to take back to their analyst groups in order to perform secu-rity selection in the most efficient and productive way.

Over the past year, ICIC has set several goals, all of which have been achieved. First, one of our main goals has been to diversify the portfolio across several industries. While ICIC has spent the past year investing only in equities, the portfolio is invested in six different companies, all in diverse sectors of the market. These companies were chosen by the funds’ managers and have solid fundamentals along with a strong busi-ness plan. Second, we wanted to expand our investor base. This has certainly been achieved, as the fund has investors that include Ithaca College students, faculty, staff, and alumni. In total, there are 67 investors in the Ithaca College Investment Club. Finally, our goal was to become profitable while giving students the opportunity to learn numerous aspects of financial application. The students in this organization are some of the best and brightest at Ithaca College, and they work extremely hard all while claiming a tremendous accumulation of knowledge. During presentations, stu-dents discuss business issues beyond just financial performance, such as a company’s ethical values and their sustainable practices. This is a tribute to the types of thinking minds that Ithaca College produces. In addition, our portfolio is well-rounded and we firmly believe that it will continue to move in the right direction. Our transactions for the year are listed towards the end of this report.

Letter to Current shareholders

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Going forward, we intend to maintain our analyst group format within the CTC organization. We believe this arrangement to be the best configuration for our members which will provide the investment club with the most accurate and timely information about stocks in various sectors. Additionally, working in an analyst group gives the CTCs the opportunity to gain valuable experience in team-work to better prepare them for their entrance into the workforce. We also plan on bringing in talented minds in order to keep the organization running at full capacity; this means appointing highly motivated and intelligent people that pos-sess strong ethical values. In the end, we intend on demonstrating all of ICIC’s hard work and effort through the solid performance returns of the club. We be-lieve that the portfolio is well-positioned for the current market conditions and we are highly optimistic of what next year will bring.

Ultimately, the Investment Club is run by and for the students. We are ex-tremely proud of the work done by the officers and members of the club. The following pages report on the events of the Investment Club since its initial fund-ing in January 2005. It is, in essence, a report that spans one year of investment activity and catalogs many of the achievements of this exciting group of students.

Sincerely,

Evan Gever Michael Staub Adrian Guenther

Chief Investment Officer Chief Financial Officer Chief Strategist

Letter to Current shareholders (cont)

Page 5 ICIC Analysts

6 Investment Philosophy & portfolio facts

Investment Philosophy

Several goals have been identified by management that complement the mutual fund. The first goal is to maximize return on each shareholder’s investment. The benchmark index that will be used is the S&P 500, and our goal will be to beat this benchmark year after year. With our active management, intense shareholder involvement, and continuous sector and market updates, we feel this is an attainable goal. The second goal of the mutual fund is to beat the benchmark S&P 500 while minimizing risk. As mentioned earlier, the target beta of the mu-tual fund will be between 0.8 and 1.2, depending on the economic cycle and the status quo of the markets. To beat the benchmark while main-taining a less than average beta will be quite an accomplishment; however, we believe that this is very possible. The final goal of the mutual fund is for shareholders to gain knowledge and practical experience with investing. The majority of shareholders are students who are eager to learn about how the financial markets work. However, even some professors and administrators do not fully under-stand the financial markets and wish to learn more. It will be the goal of the portfolio managers to teach all of the shareholders who wish to learn. At some point in every person’s life, they will be investing their money in some type of financial system. Our goal is to have them gain that practical experience during their collegiate years.

Portfolio Facts

Objective: Growth Benchmarks: S&P 500, Dow Jones Industrial Average Investment Focus: Equity securities, with a focus on large U.S. Corpo-rations (consideration given to: ADRs and ETFs) Investment Style: Large Cap Growth

Ithaca college investment club 7 Infrastructure

The mutual fund is operated in similar fashion to an investment bank’s research division. All student analysts are divided into specific industry groups, each group having a senior (lead) analyst, who will be responsible for heading up the group. Lead analysts are se-lected by the Executive Board based on demonstrated work ethic, commitment, and attitude.

The mutual fund consists of fourteen (14) analyst groups within the following industries.

Analyst Groups

1) Basic Materials: Gold and Silver, Wood Products, Chemicals 2) Healthcare: Biotech, Pharmaceuticals 3) Services: Advertising, Television, Retail 4) Conglomerates: (large caps) General Electric, 3M, Tyco 5) Consumer Cyclical: Footwear, Automobile, Jewelry 6) Consumer Non-Cyclical: Beverages, Food 7) Technology: Computers, Semiconductors 8) Transportation: Airlines, Railroads, Trucking 9) Energy & Power: Coal, Oil, Natural Gas, Electricity 10) Real Estate: REITs, Hotels, Restaurants 11) Financial: Insurance, Banks, Financial Services 12) Internet: Google, eBay, Amazon 13) Capital Goods: Aerospace, Defense, Construction 14) Telecom & Media: Verizon, Viacom, Time Warner

Each analyst group is expected to give a full report, including a buy or sell presentation on a specific company to the shareholders. If no investment opportunities have been identified, the analysts will be responsible for giving all shareholders and analysts an up-date on their respective industry.

Each sector may comprise up to approximately 9-10% of our portfolio. However, this will often not be the case, as the weightings on each sector will vary depending upon the variance or our risk assessment of each sector. The weightings will also be determined based on prior investments in the mutual fund. The goal of the mutual fund portfolio is to achieve on average a beta of between 0.8 and 1.2. Therefore, we will underweight or overweight certain industries based on our determination of the risk associated with a given industry.

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Goals 1. Educate our members and provide them with the most

pragmatic investment experience 2. To outperform our benchmarks on a consistent basis 3. To maintain a methodical approach to investing that bal-

ances the needs of our portfolio and the potential of an individual company

4. To uphold our commitment to making investment deci-sions based upon ethical considerations and sustainable practices

5. To further diversify our portfolio thus mitigating risk 6. To keep our members informed and involved in the in-

vestment process 7. To effectively communicate our goals, objectives, and

performance to our shareholders 8. To provide analysts with a competitive advantage in the

job market 9. To expand our investor base 10. Value maximization

Goals of the fund

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In 2005, the Ithaca College Investment Club constructed a portfolio which held positions in seven securities including:

Average Market Cap:

$176.6B

Portfolio composition

• eBay

• Citigroup

• Sirius Satellite Radio

•Abraxas Petroleum

• Wal-Mart

• General Electric

• Martek Biosciences

P/E Ratio: 25.04

P/B Ratio: 3.82

ROA: 7.06

ROE: 16.82

3 Yr. Earnings Growth: 42.27%

Yield: 0.72%

Analysis of holdings 10

(EBAY) After purchasing twenty-two shares of eBay Incorporated on February 25, 2005 at a price of $42.08, the Ithaca College Investment Club has held it during the summer months and into our fall semester. Because of its long term growth prospectus and possi-ble future gains, eBay was targeted as a company we could invest in for years. At year end, eBay was selling at $43.22 per share and positively influencing the Net Asset Value of the fund. Therefore, our analysis is proving to be successful as eBay continues to sup-ply positive gains to our diversified portfolio.

Over the time period owned, eBay fluctuated significantly in price. Major company headlines and other market movements can be attributed to these fluctuations. After buying eBay in late February at a price we thought was undervalued, the stock began its downward spiral. However, after first quarter earnings reports were better than ex-pected and optimistic news from Goldman Sachs arose, eBay began its rebound. Throughout the summer months and into the fall semester, quarters two and three posted positive earnings and even greater numbers in terms of revenue growth. The third quarter was a busy one for eBay as it partnered with internet services company VeriSign for its online payment business while also purchasing the rights of Skype tech-nologies. The $370 million deal with VeriSign will allow eBay users to secure transac-tions through VeriSign’s payment gateway business. Moreover, the $2.6 billion spent on Skype will provide eBay users with a telephone communication interface to facilitate transactions. Although it was reported as overpriced and pos-sibly non-strategic, we feel the acquisition of Skype is encour-aging for the future of eBay and for its long term and sustainable growth position.

To be expected after any acqui-sition, eBay’s stock took a sig-nificant hit after these pur-chases. However, earnings re-ports show that eBay has stayed on track and is continuing to expand its business. Moreover, eBay plans on facilitating the use of its services in its major markets, the United States and Germany, while also increasing its relations in China and other Asian markets. The fourth quarter poses great opportunity for eBay as the holiday season brings increased business and revenue. As Goldman Sachs reported an “outperform” rating for eBay on December 20, eBay stock is expected to do slightly better than the market return. Therefore, the future looks bright for eBay and its possible contributions to the mutual fund.

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Citigroup remains a top tier company and the addition of its stock to our portfolio early in the year proved to be a solid decision. As one of the most profitable compa-nies in the world, Citi’s strengths are clear. Citi is the largest and most diverse finan-cial services company in America. Recently, Citi has been working to increase its effi-ciency and sharpen its competitive strengths in order to make the most of its cash cow businesses. Citi’s rapid increase in size has made this necessary in order to keep grow-ing at its current clip. We also feel that Citi’s increased emphasis on risk management is a positive move. Although this may slow growth to some extent, it is necessary in order to move forward. Citigroup’s extensive lines of business and its sheer size expose it to heavy regulatory and political risk. Citi’s private bank was forced to close operations in Japan after fail-ing to act in accordance with regulations. We see the recent deal with Legg Mason involving a complicated swap of its asset-management business as part of a strategy to reduce regulatory risk. Since Charles Prince took over as CEO for Sanford Weill in 2003, he has made efforts to focus more on risk management and improving internal controls. We feel Prince’s vision makes him the right person to keep Citigroup at the forefront of the financial services in-dustry. Citigroup has made many changes in recent years and with new leader-ship, it is poised to see strong re-turns across the board. Operations in over 100 countries will prove to be essential to Citi’s growth in the future. In an industry where economies of scale are central to a business, Citigroup has a major advantage. Continuing to improve risk management while becoming more efficient and profitable is likely to be the key to Citi’s success in the next year.

(C)

Analysis of holdings

Analysis of holdings 12

(SIRI)

Shareholder Jeff Stein put together a presentation on Sirius Satellite Radio. Jeff believed that the growth potential in the satellite radio market was overwhelming and had already started. In his presentation, Jeff also stated that he thought Sirius was better positioned than rival XM Satellite. His two main reasons cited for this statement were: 1) Sirius had recently signed a deal with Howard Stern to broadcast his show over their system and, 2) Sirius had added on some other key players to improve their business.

It was noted that Sirius is a very risky investment, especially when added to a portfolio that already included EBay. However, the potential for short-term price appreciation was very high and because of this, it was decided to purchase 175 shares of Sirius at $5.40 and put in a stop loss order at $5.00. This way, although Sirius is a very volatile stock, our losses would be capped at $.40/share. A limit order was also set for $6.00/share in order to catch any jump in the stock. Right off the bat, the stock price of Sirius went up sharply. In fact, the stock hit around $5.75 before economic worries swept it away and started to bring it down lower. Ultimately, market pressures lead us to being stopped out of Sirius at around $5.00/share. However, because of the stop-loss order in place the losses on this investment were minimal. This was our only sale of the semester. It was later determined that we will no longer pursue short-term investment/trading initiatives as it does not fall within the objectives of our mutual fund.

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Abraxas Petroleum Corporation is a San Antonio-based crude oil and natural gas exploration and production company with operations in Texas and Wyoming. While posting significant gains on the year, ABP has retreated since late October. Purchased by our fund at a price of $7.20, ABP closed out end of year trading at $5.28. In early November, Abraxas announced their third quarter 2005 results with 47% revenue and 17% production growth in that period. However, the stock price fell because the company recognized a loss of about $3 million for the 4th quarter due to a significant increase in operating expenses which affected the gross profit margins. Analysts believed that Abraxas’ expenses were higher be-cause of a difference in the recording of their compensation expense.

Prior to their earnings report, a combination of rising energy prices, gas prices and production growth sparked a rise in ABP's stock price for a short time. ABP was trading in the low 7's for several trading days. However, in early to mid-November ABP announced third party pipeline constraints in southern Texas and their natural gas production de-clined signifi-cantly. Natural gas production in the Yoakum Fields located in southern Texas accounts for 16% of the company's current daily net production. The pipeline con-straints stemmed from capacity issues downstream that ultimately caused in-creased pipeline pressures upstream, and the gas from the Yoakum Field was un-able to meet the high-pressure demands of the third party pipeline. They restarted production in the Yoakum Fields on November 16, after a week of cessation, which caused a rise in the stock price through late November. Another cause for stock price movement came in the form of a rise in early December when winter temperatures struck early causing immediate spot prices to rise. Still, the stock price has experienced an overall decline throughout the month of December. We are expecting a rebound in energy prices to drive ABP’s profits in 2006.

(ABP)

Analysis of holdings

Analysis of holdings 14

(WMT)

Wal-Mart’s end of year trading price was $46.80, an increase of about 3% since the purchase of the stock in November. The stock has risen steadily over the last two months, at one time even surpassing the $50 mark per share. The day after Thanksgiving, also known as “Black Friday,” was very successful for the retailer. Hot discounts on electronics accounted for most of the profits capping off a No-vember same-store sales increase of over 4%. Throughout December, Wal-Mart has increased its advertising and aggressively cut prices to lure holiday shoppers. Despite pessimism from investors for retailers this holiday season, Wal-Mart ex-pects sales growth of 2% to 4% and is scheduled to release sales reports for the month of December on January 5th, 2006. Thus far, food comparative sales have been stronger than general merchandise sales for the month of December.

One of the cons of own-ing this company, how-ever, is dealing with the constant legal troubles it faces. The world's big-gest retailer has said it was informed by the U.S. Attorney's Office in Los Angeles that it is the target of a criminal investigation into whether it violated the Resource Conservation and Recovery Act. According to Wal-Mart, the government is looking into whether the company improperly used its own trucks to transport material deemed hazardous to centralized facilities, rather than using certified hazardous waste carriers to ship that material directly to designated disposal sites. Wal-Mart's stock dipped approximately 1 percent be-cause of the recent accusations. Wal-Mart has a variety of other legal troubles, including an on-going class-action lawsuit, their largest one ever, which charges the company with discriminating against women in pay and promotions. Other pending lawsuits include accusations of violating wage-and-hour laws.

Looking forward, the latest transit strike in New York City, while harming luxury retailers, could actually benefit Wal-Mart since their predominant location is in the suburbs. Analysts indicate that Wal-Mart is currently neutral, or at a hold stage. The one year target estimate looks very promising at $57.61. We maintain our investment rationale in that Wal-Mart is working hard to improve its’ contro-versial public image by making ethical and socially conscious business decisions.

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(GE)

Analysis of holdings

General Electric continues to be a solid company for our portfolio. With a large market cap, broad diversity, and low volatility, GE is a striking company with low risk. Recently, GE divested itself of the bulk of its insurance assets. Although the firm lost $2.8 billion in the recent deal with Swiss Re, we see this alliance as a positive in the long-term. The insurance business was capital intensive and was not producing the returns expected. This move will allow GE to become more effi-cient allowing for faster growth. General Electric also announced it is expanding its share repurchase program to $25 billion through 2008, an increase from its original plan of $15 billion through 2007. The move to accelerate their share re-purchase program suggests higher expectations from within the company. An an-nouncement was also made that GE would be boosting its dividend 1.4% to $1.00 per share annually. The dividend increase will produce a solid yield for our fund. Over the past 5 years GE has invested $12.5 billion in R&D and as a result is now unmatched as a technology company. The strength of their tech business should prove very profitable throughout 2006. Some concerns have arisen from GE’s immense size. If the company exploits its funding advantages in the future, its size will continue to be a competitive advantage. Much of the growth in the coming year will result from a longstanding focus on globalization. Nearly half of all cur-rent revenue is now from inter-national opera-tions. This change has come about from early investing in emerging mar-kets around the world. Healthcare and transportation are likely to be GE’s fastest growing industrials over the next few years. Gas turbine and aircraft engine services should continue to produce high margins while requiring low capi-tal. Also, their AAA credit rating is an important feature of this stock. General Electric is one of the largest companies in the world and we expect it to become more efficient while continuing its strong growth over the next year.

Analysis of holdings 16

(MATK)

The Ithaca College Investment Club (ICIC) added Martek Biosciences Corpora-tion (MATK) to the mutual fund on November 15, 2005. After two buy presenta-tions from the biotech industry group for both MATK and Gilead Sciences Inc. (GILD), the investment club purchased 25 shares of MATK at $29.14 per share. Weighted heavily with blue chip and large cap companies, the investment club decided to add a smaller, higher beta company to give itself more opportunity for bigger gains. However, due to the volatile nature of the company, Martek was underweighted in the portfolio. Although GILD had many favorable growth op-portunities, ICIC believed two risky biotech stocks would add an excessive amount of instability to its portfolio.

Martek develops, manufactures and sells products based from Micro algae and other natural substances. The company sells nutritional and dietary oil based goods such as infant formulas, nutritional supplements and other specialty food items. With a focus on healthy and organic living, docosahexaenoic acid (DHA) and arachidonic acid (ARA) are fatty acids found in their main nutritional oils. In newborn babies, DHA and RHA help the development of the eyes and central nervous systems. In addition, DHA helps improve adult cerebral and cardio-vascular wellbeing.

After adding MATK to the mu-tual fund, its move-ments were fairly stable. Following a small dip in price over the first 15 days, MATK rebounded. However, on December 14, Martek saw its shares drop 14 percent because of company misguidance, unmet quarterly expectations, and downgrades from various financial institutions. Since this drop in price, MATK is again on the rebound. As the Investment Club thought it was under priced when originally bought, they feel this investment has strong opportunities to grow and become more popular in various nutritional and health related markets because of its non-cyclical nature. Therefore, ICIC will continue to monitor Martek and its behavior in the biotech industry.

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For the year ended December 31st, 2005 our fund produced the following performance metrics:

Assets Under Management: $10,690 [1,087 shares outstanding]

Performance of the fund

ICIC 1 Year Return: -1.66%

S&P 500 1 Yr. Return: -0.11%

DJIA 1 Yr Return: 3.84%

Net Asset Value: $9.83

52 Week High: $10.21

52 Week Low: $9.59

ICIC 2005 Annual Fund Performance

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ICIC Performance vs. Benchmarks

Performance of the fund

Over the course of 2005, our fund, like most mutual funds, had its ups and downs. Despite the volatility, we were very satisfied with our overall per-formance and stock selection. Initially, after purchasing our first three com-panies, the market came under pressure and our securities fell well off their purchase prices. A combination of interest rate hikes, high oil prices, and poor earnings took a toll on our fund into the third quarter. By November, our fund rebounded and crossed into positive territory. Consumer confi-dence, a retreat in oil prices, and favorable earnings and guidance helped to lift our companies. For most of the year, ICIC outperformed the Dow Jones Industrial Average; however, we trailed our other benchmark, the Standard & Poor’s 500 index. Closing in on the last few weeks of the year, the market staged a rally which boosted our Net Asset Value to an all-time high. Never-theless, with four weeks remaining our portfolio declined due to poor guid-ance issued by Martek and Abraxas, investor skepticism, and the yield curve inversion. Still, our portfolio closed right at its one year average price. We believe that going forward, as we continue to develop our portfolio, we will be able to diversify away risk and achieve above-average returns, thus outper-forming our benchmarks.

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Forward looking statement

Going forward, ICIC anticipates making some fundamental shifts in the com-position of our portfolio. One goal we have in 2006 is to relinquish our reli-ance on the DJIA. Currently, three out of the six companies we own are Dow components, making it difficult to outperform the S&P 500. By making these structural adjustments to our portfolio, we can better diversify and hopefully outperform both benchmarks. In 2006, we believe that the Federal Reserve will cease tightening interest rates at around 5%, due in large part to a change in Fed governors as well as the occurrence of weak economic data. Conse-quently, this should help stage a rally in the financial markets. There are several industries in which we hope to penetrate in 2006. We fore-see the Oil & Gas sector continuing its stride. Moreover, our Chief Strategist believes that the Technology, Capital Goods, Precious Metals and Financial sectors are set for above-average returns this year. Our outlook is based upon the economic landscape, consumer sentiment, and profitability potential of these industries. We will focus on making several additions to our portfolio to increase our holdings in the upcoming semesters.

Phone: (607) 274-3673 E-mail: [email protected]

953 Danby Rd. Smiddy 405

Ithaca, NY 14850

I T H A C A C O L L E G E I N V E S T M E N T C L U B