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Young Enterprise Shares
Small Cap Growth Portfolio

 

PORTFOLIO OVERVIEW (3/31/04)

 

We seek superior, long-term returns by identifying growth companies at an early or transitional stage of development, before the market discovers their potential. The team employs a bottom-up, fundamental, active management style, emphasizing growth companies at attractive valuations. We add value for clients by conducting extensive company due diligence, focusing on companies' long-term earnings potential, and differentiation versus their peers.

 

SMALL GROWTH STOCKS CONTINUED TO OUTPACE OTHER INVESTMENT STYLES

 

The gap between the small cap Russell 2000® Index (6.3%) and the large cap Russell 1000® Index (1.9%) widened to 4.4 percentage points for the quarter. The gap was only 2.2 points for the fourth quarter of 2003. Small and medium capitalization stocks have led large caps now for four consecutive quarters. After a few years of tremendous volatility, the first quarter reminded the investment community that the markets simply don't deliver large positive or negative returns in a typical quarter. Ongoing concerns over terrorism, the economy and rising oil prices seemed to muffle investor enthusiasm after a strong start in January. There are some investors who believe the market's valuation is too high after robust gains last year and they have sounded a more cautious note this quarter. Our research indicates some points of interest for the long-term investor. The Russell 2000, for example, has surged 73% since hitting a low about a year ago (March 11, 2003), while the Russell 1000 has gained 44% during the same period. The more economically sensitive areas were relatively weak for the quarter. By contrast, financial services seemed to gain favor with investors in the first quarter as the sector gained 7% in the Russell 2000. In our discussions with consultants, institutional investors and financial advisors, this quarter revealed some interesting dynamics. They cited many investment managers who expressed difficulty in beating their respective benchmarks by any significant margin this quarter because the quarter offered very little performance disparity in terms of style, sector and even at the individual stock level. Several investment managers were neither winning big nor losing big even though their actively managed portfolio might have looked quite different from comparison benchmarks.

 

Our top ten holdings contributed significantly to the portfolio's out performance as communications, semiconductors and technology showed improvement. The portfolio benefited from this trend as our greater-than-market exposure to technology stocks had the biggest positive impact on returns.

 

       AXT, Inc. - Provides gallium and compounds thereof for high performance wafers. The world has only a few producers of gallium, and the demand for gallium substrates, or high performance chips, is in a bold worldwide up-trend. AXT should win on both volume and price. It is vertical to the mine, and costs are largely Chinese, preferentially positioning the Company.

 

       TriQuint Semiconductor, Inc. - This is a lead candidate in mobile handhelds. The Company's balance sheet is strong. They have acquired intelligently in the last several years when demand phenomena was so weak. They are guided by sound strategies, and seem to understand their marketplace.

 

       InFocus Corporation - Clearly the best of breed that has overcome recent difficulties. New products addressing the home projector market give exciting possibilities to the shares. Shares could double from today's prices and still be cheap.

 

 

PERFORMANCE REVIEW - 3/31/04

 

 

YTD

One Year

Three Year

Five Year

Ten Year

YES (Net)

5.17%

92.08%

15.47%

14.52%

19. 32%

Russell® 2000

Growth Index

5.58%

63.16%

5.40%

2.31%

6.45%

Russell® 2000

Index

6.26%

63.83%

10.90%

9.66%

10.44%

 

SMALL CAP GROWTH EQUITY CHARACTERISTICS

 

 

Princeton

YES Portfolio

Russell®

2000 Growth

Russell®

2000

Price/Book

3.54 x

3.4 x

2.35 x

Weighted Average Market Cap

$549 M

$970 M

$950 M

Median Market Cap

$247 M

$492 M

$507 M

 

Info. Ratio (vs. Russell® 2000 Growth)

 

Since Inception:                    0.599

 

Performance figures are net of fees and commissions, and the composite calculation has been weighted for the size of each individual account. Performance reflects the inclusion of dividends, interest and other earnings. All performance figures for periods of one year and greater are annualized. Performance results for individual accounts may vary due to the timing of investments, fees, size of positions and other reasons. PAST PERFORMANCE SHOULD NOT BE CONSTRUED AS A GUARANTEE OF FUTURE PERFORMANCE. YES accounts are included in the above performance composite at the beginning of each account's first full calendar month under management. All accounts are managed on a discretionary basis. Performance results prior to 1/1/98 were compiled by the Concord Advisory Group. From 1/1/98, results are calculated internally using the Advent investment management software and information provided by outside custodial firms. 

 

TOP TEN HOLDINGS

COMPANY NAME
% OF PORTFOLIO ASSETS
Harris Corporation
10.0%
Universal Display
7.1%
MIPS Technology
6.6%
Nuance Communications
5.8%
Triquint Semiconductor
5.4%
Sonosite
5.3%
InFocus
5.1%
Creo
4.5%
AXT
4.5%
Pixelworks
4.4%
Percentage of Overall portfolio
58.7%
 

INVESTMENT PROCESS

Long-term experience, insight into the small cap market and extensive company research are the primary advantages in our ability to continue to achieve superior investment returns for our clients. We strive to understand the earnings power of businesses. Our process is designed to identify small cap companies with the ability to triple their price in three to five years, growing an above average rate of growth. With a steady stream of ideas and information derived from our own research and a well-established network of scientific advisors, we target the emerging companies most likely to fulfill their potential for rapid growth. Because of our emphasis on early recognition of investment potential and our openness to exploring new ideas, we believe that many promising opportunities will continue to come to our attention. Equally as important in the small cap market sector, we understand the inherent risks in companies that are often in the early stages of development. We perform extensive research on individual companies in order to develop target prices. Our focus is on understanding the dynamics of companies. We then develop intermediate term (12 to 18 month) target prices by applying appropriately 3-5 year conservative multiples. Investment candidates are determined by those that are selling at a substantial discount to our target price and tested against many sources, accenting input from industry and/or geographical area specialists. Our approach emphasizes the predictability of growth in order to deliver superior investment results with controlled risk.

 

INVESTMENT RESEARCH AND PORTFOLIO MANAGEMENT TEAM

Mr. James Fitzpatrick: Manager/ Analyst - Principal

Sector Responsibilities: Technology & Telecommunications

Education: B.A. - William & Mary; Ph.D. coursework Columbia University

Mr. Alfred R. Berkeley, III: Analyst - Principal

Sector Responsibilities: Computers and Software

Education: B.A. - University of Virginia; MBA - The Wharton School, University of Pennsylvania

Mr. Joseph M. Self: Manager/ Analyst - Principal

Sector Responsibilities: Pharmaceuticals and Healthcare

Education: B.A. - Duke University; MBA - Columbia University

Ms. Tanina Linden: Manager/ Analyst - Principal

Sector Responsibilities: Biotechnology & Healthcare

Education: A.B. - Middlebury College; MBA - Northeastern University

Mr. Willam C. Cox, III: Analyst - Principal

Sector Responsibilities: Media & Telecommunications

Education: B.A. - Boston University

Mr. William H.B. Hamill: Manager/ Analyst - Principal

Sector Responsibilities: Financial Services, Oil, and Gas Utilities

Education: B.A. - University of North Carolina; MBA - University of Michigan

Mr. Michael D. Underhill: Director of Portfolio Advisory Services - Principal

Sector Responsibilities: Economist

Education: B.S. - Pennsylvania State University

Please call Michael Underhill to arrange a meeting with our investment team or to request further information on our Small Cap Growth Portfolio or any other investment strategies. Office Phone (480) 419-1665 or email [email protected]