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Fixed Income Strategy: The Jefferson Fund managers acted to reduce the fixed income portfolio’sinterest rate sensitivity in September. The managers developed an outlook for a modest steepening ofthe yield curve and purchased what’s known as a “barbell” fixed income strategy between 2-year and 10year treasury notes to arrive at a portfolio target duration around 4.15 years. In this way, the Fund retainsa portfolio duration lower than its benchmark, but is hedged against yield curve flattening by purchasing 50,000 worth of 10-year notes.Round Table Discussion with Chuck PrinceBy Steven Majocha (’05)During my internship over the summer as a sell-side analyst at Citigroup, I had the opportunity toparticipate in a round table discussion with Citigroup CEO Chuck Prince. Two of the three Darden CapitalManagement funds—the Monticello Fund and the Jefferson Fund—currently hold Citigroup stock, whichwe believe is relatively undervalued. The DCM editorial board felt that a candid discussion with Citigroupsenior management concerning the future direction of the firm and its current regulatory issues would beof interest to current and potential investors.While a variety of topics were discussed throughout the meeting, Mr. Prince identified three challengesthat Citigroup must face that will shape the future direction of the company. Those challenges arecontinued growth, corporate governance, and human resource issues.Continued Growth: How can a company as large as Citigroup continue to grow? According to Prince,organic growth will replace the company’s recent history of growth through acquisition. One of the mainreasons for the company’s change in strategy in regard to acquisition is a result of the sheer size of theorganization. It is generally believed by management that the company is too big to be meaningfullyimpacted by future acquisitions. Therefore, management has continued to improve its capital allocationprocess to fund internal projects that offer the highest rates of return to maximize future organic growth.Corporate Governance: Compliance risk continues to be a major focus at Citigroup. Mr. Princerecognizes that Citigroup’s prominence often leads to scrutiny by regulators and investors alike. Heacknowledges that Citigroup’s must operate in a more cautious and responsible way than its smallercounterparts. In order to steer clear from future mishaps, Mr. Prince believes that designing andinternalizing best practices for managing compliance risk will be important to avoid controversialheadlines in the future. Citigroup’s most recent troubles in Japan are a prime example of the compliancerisk the company faces.Human Resources: People issues are possibly the most important challenges facing Citigroup today. Inthe words of Mr. Prince, “Creating a culture and environment for people to grow, for people who arestarting their careers, for people in the middle, and for people who are ending their careers is the mostconsequential thing that will determine whether Citigroup continues to grow and achieve the fullness of itspotential.” To achieve this goal, Mr. Prince believes creating small companies within a large one, wherepeople feel that they make a difference and are not a cog in a wheel will help Citigroup attract the besttalent.Shares of Citigroup have traded down over the past six months due to compliance issues in Japan andthe effect of rising interest rates on its underlying business. At its current valuation, Citigroup representsa potentially attractive investment. Please see Charles Hill’s Citigroup pitch on page 7.Darden Capital Management Advisor(4)

November 2004 Investment IdeasQuiksilver, Inc. (ZQK— 25.87)Stephen Eckert, ‘06EckertS06@darden.virginia.eduUnited Natural Foods, Inc. (UNFI— 26.79)David Khtikian, ‘05KhtikianD05@darden.virginia.eduTarget Price: 31.00Market Capitalization: 1.5 Bil.Target Price: 34.00Market Capitalization: 1.1 Bil.Description: Quiksilver, Inc. is a specialty apparelcompany focused on the design, production, anddistribution of clothing for individuals who enjoy theextreme sports lifestyle of “surf, skate, and snow”.The products range from t-shirts, board-shorts, andwet-suits to skate shoes and snowboard gear. Theproducts are sold primarily at surf shops, specialtystores, and Boardriders Club stores.Description: United Natural Foods, Inc. (UNFI) isa national distributor of natural and organic foodsand related products in the United States. Thecompany carries more than 35,000 natural andorganic products, consisting of national brand,regional brand, private-label, and masterdistribution products such as grocery and generalmerchandise. UNFI serves more than 18,000customers, including independently owned naturalproducts retailers, supernatural chains (includingWhole Foods and Wild Oats) and conventionalsupermarkets.Positive Considerations: Trends strongly suggestthat extreme sports are quickly growing inpopularity, driving demand for this type of clothing.Quiksilver offers the widest range of quality apparelwithin this space.Revenue has grown from 446 million in 1999 to 975 million in 2003. The age group loyal to thebrand has expanded through endorsements fromextreme athletes Kelly Slater and Tony s”—including a new Times Square NYC store.The acquisition of DC Shoes expands thecompany’s footwear offerings and is a logical brandextension for Quiksilver. The company has alsoexpanded with a new women’s line, Roxy, andEurope is a key growth market for Quiksilver.Positive Considerations:In an attractiveindustry (organic food industry growing at anannual rate of 8% v. 2% for conventional food),UNFI presents an excellent long term investmentbased on future earnings growth, continuedoperational efficiency improvement, soundmanagement, and loyal customer relationships.Risks: Risks include the potential decline in thenatural food trend due to reduced healthconsciousness and UNFI’s reliance on WholeFoods Market (WFMI) for sales.Risks: Competition within the industry is fierce andcutting edge vision is required to stay ahead ofpopular trends. There are also risks inherent tofurther expansion into international operations.UNFI’s stock has ridden the Whole Foods (WFMI)and Wild Oats’ (OATS) wave in performance. Webelieve it will continue to benefit from the battle formarket share and location between these twocompetitors as both sides’ primary distributor.Valuation: Our buy recommendation is basedupon realistic bottom line growth potential of 20% in2005. Our 31 price target is based on a P/Emultiple of 20x on estimated 2004 EPS of 1.55.Valuation: Our buy recommendation is based onthe positive fundamentals and positive valuationof the company. We believe that UNFI shares’intrinsic value is 34 based on a DCF model.Darden Capital Management Advisor(5)

SunGard Data Systems. (SDS— 25.95)James J. Fessel, CFA, ‘06FesselJ06@darden.virginia.eduHospira, Inc. (HSP— 29.72)Ed Weklar, ‘06WeklarE06@darden.virginia.eduTarget Price: 36.00Market Capitalization: 7.7 Bil.Target Price: 36.00Market Capitalization: 4.7 BillionDescription:SunGard provides software andprocessing systems that serves more than 20,000clients in more than 50 countries. The firm operatesthrough three main divisions – Investment SupportSystems (ISS), and Higher Education & PublicSector Systems (HEPSS) and Availability Services(AS).Description: Hospira, Inc. is a specialtypharmaceutical and medication delivery companythat is focused on developing, manufacturing andmarketing products that improve the safety andefficacy of patient care in the acute care setting.The company operated as a division of AbbottLaboratories until it was spun-off in April 2004.Hospira had LTM revenue and EBITDA of 2.6billion and 518.5 million, respectively.Positive Considerations: Sungard has built aconsistent track record of double-digit earningsgrowth, reinforced by tremendous barriers to entryin its core software and data processing business,high switching costs, deep client penetration, andover 90% recurring revenue. The recent positivemomentum in organic revenue growth looks to bethe beginning of a long cycle of improving demand,particularly from major clients in the financialservices industry.Increased trade volumes,greater demand for regulatory and compliancesystems, and a consolidation of vendors all playwell into SunGard’s hands. Near-term catalystsinclude the announced spin-off of its AvailabilityServices unit in a tax free distribution toshareholders expected in early ons, a downturn in the stock market ordecline in overall equity trading volumes, or a sharpdecline in technology spending in the financialservices industry could hurt sales and profits.Valuation: Our 12-month target price of 36represents a multiple of 23x our 2005 EPS estimateof 1.59 (PEG of 1.2x), close to the low end of thecompany’s historical trading range of 20x-32x 12month forward earnings, and consistent with theaverage premium of 20%-40% over the marketmultiple. We would expect SunGard to trade up tothis multiple level as internal growth improves in theISS segment and investors gain visibility on theearnings numbers for next year.Darden Capital Management AdvisorPositiveConsiderations:Thisnewlyindependent company can focus on new growth &profit initiatives. There is room for significantmargin improvement, as EBITDA margins are 3040% below those of competitors. The companyshould also benefit from favorable demographicsas the U.S. population ages. Hospira has astrong market position as 90% of the company’sproducts are #1 or #2 in its markets. Hospira’sstock is undervalued compared to comparablecompanies, trading at 10.2x LTM EBITDA vs.public comparables at 12.6x and a discount to tworecent industry transaction multiples of 15.0x.After the IPO in April, Hospira insiders acquiredapproximately 4 million worth of shares.Risks: The company may encounter difficultiesdeveloping infrastructure.Analysts forecastlimited revenue and earnings growth as AbbottLabs continues to pull business from Hospira andrevenue from certain products declines due tocompetition from generics. Additionally, the stockis up nearly 25% from its all-time low (but only 7%from its IPO). Hospira is up against strongcompetitors, such as Baxter International,Cardinal Health, and Teva Pharmaceutical.Valuation:Hospira’s stock is undervaluedcompared to comparable companies, trading at10.2x LTM EBITDA vs. public comparables at12.6x and recent acquisitions of two competitorsat 15.0x.(6)

Citigroup (C— 46.82)Charles Hill, CFA, ‘05HillC05@darden.virginia.eduJPMorgan Chase & Co. (JPM— 39.33)Ryan Walsh, ‘05WalshR05@darden.virginia.eduTarget Price: 55.00Market Capitalization: 243 Bil.Target Price: 45.00Market Capitalization: 140 Bil.Description: Citigroup Inc. is a financial servicesholding company that conducts its activities throughthe Global Consumer (54%), Global Corporate andInvestment Bank (33%), Private Client Services(5%), Global Investment Management andProprietary Investment Activities segments (9%).Description: JPMorgan Chase is the 2nd largestfinancial services firm in the U.S. Following theJuly 2004 merger with Midwest banking g

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