Apr 2003 Quarterly

Written by Nicholas Hirschey and approved by SEIG

OVERVIEW

The time to buy common stocks is now. Major indices show that common stocks are in the midst of a downturn. The Dow, NASDAQ, and S&P are all at levels last reached as long ago as 1997.

As was seen in the early 30s, 70s, and 80s, the best time to buy stocks is after periods of great depreciation. The majority of the SEIG's funds are currently invested in low yield bonds. It seems prudent at this time to shift focus towards investments in companies that exhibit superior forward-looking appreciation potential. This report describes our investment strategy and proposes a major investment of the SEIG assets. The administration and maintenance of the portfolio will provide the group with a chance to learn the art of asset allocation and hone investment research skills.

PORTFOLIO DESIGN

The size of the investment in the portfolio is $75,000. This is distributed among nine companies in order to diversify risk. These nine companies present attractive prospects for appreciation going forward. The companies are selected with at least a two year time-horizon in mind, a buy-and-hold strategy. Each company is different, but some underlying common attributes have made them attractive buys. These companies are undervalued in terms of projected future earnings potential in comparison to their respective industry, the market as a whole, or both. Various factors contribute to the undervaluation which will be more specifically outlined in the rational for investment in each company. Also, the amount invested in each of the nine companies is not equal. The companies are divided into two principal groups. The Premier group consists of the five companies identified as having the best potential for appreciation, as well as lower expected exposure to risk. The Premier companies are superb institutions that are currently out of favor. We expect them to rebound and also expect little risk from these investments. $10,000 will be invested in each of the five Premier companies. The Select group of companies is very similar to the Premier group. Some of the Select companies offer greater potential for appreciation. However, they differ in that the businesses are not as "wonderful", as renowned investor Warren Buffet would say. The Select companies present slightly greater risk than the Premier group and are given less weight in the portfolio because of this distinction. The difference is more that the Premier companies are so wonderful, rather than the Select companies being inferior. $5,000 is invested in each of the 4 Select companies.

Premier: $50,000 distributed evenly among 5 companies

PFIZER INC. - PFE 32.65

This pharmaceutical company has solid earnings and growth prospects. A strong drug pipeline, with new medicines such as Bextra, Spiriva, Vfend, Geodon, Repax, and Rebif, should propel future earnings growth. Established drugs will also continue to contribute to the bottom line. Lipitor, for example, will brought in $7 billion dollars in revenue in 2002. The well funded R&D suggests that earnings will continue to grow as they have in the past. Earnings are expected to grow 12.72% this year and 16% next year. The company is not particularly cheap at this point, but the company's 40% profit margin and high returns on shareholder equity and capital are worth the price. The superb profit growth will account for appreciation. Long-term, with the aging baby boomer population, profits and drug companies should be strong. Adjusted diluted earnings per share for the first quarter 2003 were $0.45, up from $0.37 a year ago. With 2005-2007 projected earnings of $2.80, we are looking for a price around 56-70 dollars. This confers a P/E of 20-25, which seems reasonable given company and industry history. The earnings prospects and appreciation potential for Pfizer make this a good buy. Nick HirscheyINVESTMENT = $10,000MORGAN (J.P.) CHASE - JPM 30.08

The J.P. Morgan company is a financial services leader. Earnings from this business took a hit with the recent economic downturn. Profits are expected to improve this year and further improvements will come with economic recovery. Financial services companies experience more severe cyclical fluctuations than does the market. When the market recovers, JPM's recovery should be greater on the upside in the same way that its collapse was greater on the downside. Now trading just under 13 times projected 2003 earnings, JPM looks cheap. The market seems to have overcorrected on the downside, leaving the stock with significant upside. We expect JPM to trade at a typical 15 times earnings from 2005-2007. This projects a stock price at that time of about $56.25. Even with the recent rise in the past month, the projected 3 year total return of 87% makes JPM an attractive purchase at current prices. Nick HirscheyINVESTMENT = $10,000

MAYTAG CORP. - MYG 20.18

The local Newton company has been hit hard recently in large part due to an unwise move by the former CFO. The former CFO sold put options against the companies stock in 1998 that resulted in significant losses and a significant depletion of share holder equity. While having no direct affect on continuing operations, this acute mistake wrecked the balance sheet during a time when earnings were also weak. The result is a severe market overreaction. The put option mistake is behind the company, and profits from continuing operations continue to improve. The acquisition of Amana in 2001 has and will continue to improve margins at the high-end appliance manufacturer. The company is building up equity to pre 1998 levels, which is reflected in the recovering book value. The company is and has been extremely profitable, note the high return on capital. This profitability should improve with the completion of the company's shift of more expensive operations to Mexico in 2004. The 1998 mistake of Maytag's CFO has resulted in an incredible buying opportunity in 2003. Maytag has traditionally traded in the range of 14-16 times earnings. With projected earnings of $4.95 a share 2006-2008, our price projection for this time is 69-79 dollars per share 2006-2008. This represents a conservative expectation of a 242% four year return. This leaves plenty of room for error. At these levels, Maytag looks to be a profitable ongoing operation with great potential for stock price appreciation.INVESTMENT = $10,000ELECTR. DATA SYS. - EDS 17.46

Electronic Data Systems is in the information technology business. The overall downturn in technology has affected EDS, but we feel that the company has overlooked potential. Bookings have dropped 20% in the most recent quarter, and the price has suffered. Nevertheless, EDS has a backlog of orders that amounts to four times annual revenue. This suggests that although short-term earnings will take a hit, particularly this year, the long-term earnings prospects are strong, with advances from customers beginning to kick in later this year. Information technology spending should also recover as shock from the internet collapse wears off. We are taking a long-term perspective on this stock, hit hard because of short-term concerns. Earnings for 2005-2007 are expected to be $3.50 a share. Using a conservative valuation of a future P/E of 15, the stock traded above an avg. P/E of 20 from 1992-2001, this projects a price of $56 2005-2007, well above the current price of 17.46. The SEIG expects exposure to the downside to be limited at these prices and that this year's well publicized earnings decline is already factored into the price. We are also willing to wait a couple of years to take advantage of the great expected appreciation.INVESTMENT = $10,000

BAXTER INT'L - BAX 18.97

Baxter International is an established pharmaceutical company. Recent concerns about liquidity and earnings have driven the price downward. Equity forward purchase contracts with an average exercise price of $49 dollars has also taken a bite out of equity and driven down the price. Looking forward, however, an announcement of lowered earnings in this month's conference call seems to already have been factored into the price. In a worse case scenario, earnings might be $1.75, but the stock price is still cheap relative to these per share earnings and liquidity should not be a concern, especially if there is a market rally. We expect that uncertainty has had a lot of downward pressure on the stock. Even in the worst case, the company will still have a P/E of only 11.3. The SEIG believes that as prospects become more clear later this year, the stock price will begin to rally. We are looking for strong gains in 2004-2005. INVESTMENT = $10,000

Select: $25,000 distributed among 4 companies

EL PASO CORP. - $6.22

No sector in the last year got hit harder than the energy sector. The aftermath of the Enron collapse resulted in the overcorrection in the price of some stocks. El Paso is one of these stocks. Though there were some problems pre-Enron, the market has corrected for these, and then some. Management should continue to improve the balance sheet, while earnings are expected to begin recovering from their 2002 drop. Trading at a price of almost a third its book value, EP is attractive at these prices. INVESTMENT = $7,500

WILLIAMS COS. - WMB $4.92

Williams has faced a situation similar to El Paso. The market was pessimistic about Williams's energy trading business, which the company has now given up in order to focus on pipelines. Further along in the restructuring process, WMB received funding last year from Berkshire Hathaway in order to meet it's covenants. The new management has shown that it is focused on resettling the company on sound footing and steady profits. The hardest part of the restructuring is over, and SEIP expects to take part in the upside as the value of Williams's assets become clear to the market.INVESTMENT = $7,500

SPRINT PCS GROUP - $4.16

Sprint PCS is the SEIG's foray into the heavily hit telecommunications industry. The growth prospects of the personal communications company seem to have been overlooked by the market in light of the low stock price and overall pessimism in the telecommunications industry. Sprint has recently restructured its pricing plan to produce more stable and profitable revenue streams and is positioning itself to take advantage of the budding digital phone industry. With projected 2005-2007 earnings of $1.75 per share, SEIG is taking a long-term approach to this company. We are confident that the stock price will rebound as the value of the company becomes more clear.INVESTMENT = $5,000

GOODYEAR TIRE - GT $5.34

The high P/E of Goodyear reflects the hard times the company is going through, not overvaluation. Oil is the main component in the manufacture of tires, and with record prices for oil this past year, earnings have been hurt. Further disappointments from operational missteps have hurt earnings also. However, earlier this month, amid an announcement of 4th quarter losses, management announced plans to turn North American operations profitable by years end. The stock is trading at a third of book value, and with 2006-2008 projected earnings of $1.70, SEIG expects Goodyear to trade above $17 in the next 3-4 years.INVESTMENT = $5,000