Legislature(2011 - 2012)BARNES 124

03/19/2012 03:15 PM House LABOR & COMMERCE


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03:59:19 PM Start
03:59:32 PM Presentation by Uaf Students
04:52:50 PM SB125
04:56:11 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 3:45 p.m. Today --
+ Presentation by University of Alaska - TELECONFERENCED
Fairbanks Students
+ SB 125 MOTOR VEHICLE TRANSACTIONS TELECONFERENCED
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                         March 19, 2012                                                                                         
                           3:59 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Kurt Olson, Chair                                                                                                
Representative Craig Johnson, Vice Chair                                                                                        
Representative Dan Saddler                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Lindsey Holmes                                                                                                   
Representative Bob Miller                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Mike Chenault                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATION BY UAF STUDENTS                                                                                                    
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
SENATE BILL NO. 125                                                                                                             
"An  Act relating  to certain  vehicles, including  trailers; and                                                               
relating  to  motor  vehicle dealer  advertising,  motor  vehicle                                                               
dealer  sales  of  used  motor   vehicles,  motor  vehicle  sales                                                               
contracts,  motor vehicle  service contracts,  and motor  vehicle                                                               
sales financing."                                                                                                               
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB 125                                                                                                                  
SHORT TITLE: MOTOR VEHICLE TRANSACTIONS                                                                                         
SPONSOR(s): SENATOR(s) MEYER                                                                                                    
                                                                                                                                
04/12/11       (S)       READ THE FIRST TIME - REFERRALS                                                                        
04/12/11       (S)       TRA, L&C                                                                                               
02/02/12       (S)       TRA AT 1:00 PM BUTROVICH 205                                                                           
02/02/12       (S)       Moved SB 125 Out of Committee                                                                          
02/02/12       (S)       MINUTE(TRA)                                                                                            
02/03/12       (S)       TRA RPT 5DP                                                                                            
02/03/12       (S)       DP: KOOKESH, HUGGINS, MENARD, THOMAS,                                                                  
                         EGAN                                                                                                   
02/09/12       (S)       L&C AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
02/09/12       (S)       Heard & Held                                                                                           
02/09/12       (S)       MINUTE(L&C)                                                                                            
02/16/12       (S)       L&C AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
02/16/12       (S)       Moved SB 125 Out of Committee                                                                          
02/16/12       (S)       MINUTE(L&C)                                                                                            
02/17/12       (S)       L&C RPT 4DP                                                                                            
02/17/12       (S)       DP: EGAN, GIESSEL, PASKVAN, DAVIS                                                                      
02/22/12       (S)       TRANSMITTED TO (H)                                                                                     
02/22/12       (S)       VERSION: SB 125                                                                                        
02/24/12       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/24/12       (H)       L&C                                                                                                    
03/19/12       (H)       L&C AT 3:15 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
CRAIG WISEN, PhD                                                                                                                
Director, Business Administration Program                                                                                       
University of Alaska Fairbanks (UAF)                                                                                            
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Facilitated the UAF Student Investment Fund                                                              
(SIF) presentation by the UAF Students.                                                                                         
                                                                                                                                
DANIEL GRONDAHL                                                                                                                 
Willow, Alaska                                                                                                                  
POSITION STATEMENT:  Presented the UAF Student Investment Fund                                                                
(SIF) as part of the UAF Student Presentation.                                                                                  
                                                                                                                                
JEFF BUE                                                                                                                        
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Presented the UAF Student Investment Fund                                                                
(SIF) as part of the UAF Student Presentation.                                                                                  
                                                                                                                                
PATRICK "Craig" MILLARD                                                                                                         
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented the UAF Student Investment Fund                                                                
(SIF) as part of the UAF Student Presentation.                                                                                  
                                                                                                                                
BRICE MILLER                                                                                                                    
Soldotna, Alaska                                                                                                                
POSITION STATEMENT:  Presented the UAF Student Investment Fund                                                                
(SIF) as part of the UAF Student Presentation.                                                                                  
                                                                                                                                
MITCHELL TITUS                                                                                                                  
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Presented the UAF Student Investment Fund                                                                
(SIF) as part of the UAF Student Presentation.                                                                                  
                                                                                                                                
SENATOR KEVIN MEYER                                                                                                             
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as sponsor of SB 125.                                                                          
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:59:19 PM                                                                                                                    
                                                                                                                                
CHAIR KURT  OLSON called  the House  Labor and  Commerce Standing                                                             
Committee meeting to order at  3:59 p.m.  Representatives Miller,                                                               
Johnson, Saddler,  Thompson, and Olson  were present at  the call                                                               
to order.   Representatives Holmes arrived as the  meeting was in                                                               
progress.                                                                                                                       
                                                                                                                                
^Presentation by UAF Students                                                                                                   
                  Presentation by UAF Students                                                                              
                                                                                                                              
3:59:32 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON announced  that the first order of  business would be                                                               
a Presentation by UAF Students.                                                                                                 
                                                                                                                                
3:59:55 PM                                                                                                                    
                                                                                                                                
CRAIG  WISEN,  PhD,  Director, Business  Administration  Program,                                                               
University  of Alaska  Fairbanks  (UAF), on  behalf  of the  UAF,                                                               
stated that  the students are not  here to ask for  money, but to                                                               
demonstrate how they are earning money.   He gave a brief history                                                               
of the U.S. financial chaos during  the years from 1861-1941.  He                                                               
related  the UAF  Student Investment  Fund's students  attempt to                                                               
earn money.   The two-part series is a compendium  of 75 years of                                                               
American finance,  beginning at the  Civil War and ending  at the                                                               
outbreak of World  War II.  During that time,  the U.S. endured a                                                               
tremendous  amount  of  chaos which  typifies  the  hardship  and                                                               
resilience  that American  has  gone through.    The last  twenty                                                               
years  students have  been managing  funds on  behalf of  the UAF                                                               
with the  goal of providing scholarships  for future generations.                                                               
These 20 years have been a  difficult time period, but not nearly                                                               
as  difficult as  what  is  outlined in  the  first  75 years  of                                                               
American  finance.    He  turned over  the  presentation  to  his                                                               
students to describe the process and the performance.                                                                           
                                                                                                                                
DANIEL GRONDAHL  stated that  he is  a senior at  the UAF  and is                                                               
pursuing a  degree in  finance.   He hopes  to work  for McKinley                                                               
Capital in  Anchorage.   He loves  Alaska and  wants to  pursue a                                                               
career in finance and remain in Alaska.                                                                                         
                                                                                                                                
4:02:26 PM                                                                                                                    
                                                                                                                                
JEFF BUE stated that he is  pursuing a finance degree at UAF, but                                                               
would like  to apply to dental  school.  He plans  on coming back                                                               
to Alaska after  dental school and would go to  school in Alaska,                                                               
but there  are not  any dental  schools in Alaska.   He  lived in                                                               
Nome until  he was 10-years old.   His parents lived  in Nome for                                                               
ten years and his mother was born and raised in Fairbanks.                                                                      
                                                                                                                                
4:03:14 PM                                                                                                                    
                                                                                                                                
PATRICK  "Craig" MILLARD  stated  that he  is a  fifth-generation                                                               
Alaskan  from  Juneau.   He  completed  his finance  degree  last                                                               
December.   He  is currently  finishing his  two jobs  during his                                                               
stay  in   Fairbanks,  one   of  which   was  working   with  the                                                               
supercomputing  center   and  the   other  with  a   GED  testing                                                               
nonprofit.   He related  he is  currently looking  for employment                                                               
and loves Alaska, but may end  up living in other places for some                                                               
time.  He  loves the freedom Alaskans enjoy.   He appreciated the                                                               
opportunity to testify before the committee.                                                                                    
                                                                                                                                
4:04:29 PM                                                                                                                    
                                                                                                                                
BRICE MILLER stated  that he is a third generation  Alaskan.  His                                                               
grandparents  homesteaded   on  the   Kenai  Peninsula   and  own                                                               
Kraxberger Drilling,  Inc., which is a  water drilling operation.                                                               
He said he has worked for them for  ten years.  He came to UAF to                                                               
study mechanical  engineering, but switched his  major to finance                                                               
and will graduate  in December.  He would like  to work in Alaska                                                               
and then get his Master's degree in Business Administration.                                                                    
                                                                                                                                
4:05:21 PM                                                                                                                    
                                                                                                                                
MITCHELL TITUS  stated that he  was born and raised  in Fairbanks                                                               
and is working  to earn a double major  in mechanical engineering                                                               
and finance at UAF.  He was  uncertain of his work path since his                                                               
interests are varied.  He would  like to combine his interests in                                                               
engineering, finance, and law, and live and work in Alaska.                                                                     
                                                                                                                                
4:06:43 PM                                                                                                                    
                                                                                                                                
MR.  GRONDAHL explained  that the  Student Investment  Fund (SIF)                                                               
course is  structured to provide the  best possible opportunities                                                               
for  students to  make  money.   He  highlighted  the concept  of                                                               
applied learning and  the fact that the students  learn by doing.                                                               
He characterized the  course as quite an  endeavor since students                                                               
are  dealing  with real  money.    Through applied  learning  the                                                               
students  build character  and accountability.   Each  student is                                                               
cognizant  that  the  money  they are  working  with  belongs  to                                                               
someone else.   Their  goal is to  manage the  money responsibly.                                                               
The students also  want to grow the fund to  help other students.                                                               
He  explained  the  core  structure,  such  that  the  course  is                                                               
presentation  driven  and  students   receive  peer  feedback  to                                                               
provide   checks  and   balances   and   to  ensure   responsible                                                               
investments [slide 1].                                                                                                          
                                                                                                                                
4:08:16 PM                                                                                                                    
                                                                                                                                
MR. MILLER turned  to the SIF's mission statement [slide  2].  He                                                               
read,  "The SIF  shall  manage endowed  funds  in a  professional                                                               
manner   to   maximize    risk-adjusted   returns   and   provide                                                               
experiential  learning opportunities."   He  explained that  this                                                               
basically means the students will  try to decrease their risk and                                                               
increase their  earnings in  a manner  that creates  a structured                                                               
learning  experience   for  all   students  and  gives   them  an                                                               
opportunity to expand the funds.                                                                                                
                                                                                                                                
4:09:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER asked whether the SIF is real money.                                                                     
                                                                                                                                
MR. MILLER answered  yes.  In further  response to Representative                                                               
Saddler,  Mr.   Miller  explained  the  original   endowment  was                                                               
$100,000 by the UAF, but the fund has since grown.                                                                              
                                                                                                                                
REPRESENTATIVE SADDLER  asked whether the responsibility  for the                                                               
management of the SIF is the finance students' responsibility.                                                                  
                                                                                                                                
4:09:43 PM                                                                                                                    
                                                                                                                                
MR. MILLER  outlined the SIF's  objectives and  guidelines [slide                                                               
3].  He  explained that one major benchmark is  to outperform the                                                               
Standard & Poor (S&P) 500 on  a risk-adjusted basis.  He outlined                                                               
that the students  work on screening valuation of  companies in a                                                               
bottom-up approach.  They work  to ensure that the companies they                                                               
select  have strong  fundamentals and  balance sheets.   Students                                                               
try to avoid companies that are on  the way in or on the way out.                                                               
He related  that students  seek high liquidity  so they  can sell                                                               
without taking a loss.                                                                                                          
                                                                                                                                
4:10:31 PM                                                                                                                    
                                                                                                                                
MR. MILLER reviewed  the SIF's timeline [slide 4].   He explained                                                               
that the timeline represents a  20-year period beginning with the                                                               
$100,000 principal  endowment in 1991.   He pointed out  that the                                                               
students  were very  conservative  in their  approach during  the                                                               
first few years.   In 1993, the fund focused  on small cap growth                                                               
and in 1993-1995  focused on large cap growth.   The stock market                                                               
did  very well  from 1997-1999,  with earnings  per share  growth                                                               
running  approximately 25  percent.   In  1999,  the SIF  program                                                               
restructured the fund  into three distinct portfolios.   In 2001,                                                               
the three  funds were consolidated  back to one portfolio  with a                                                               
focus   on  valuation   and   critical   analysis  of   corporate                                                               
governance.   He highlighted that  the SIF currently  focuses not                                                               
only on balance sheets, but who  owns these companies, as well as                                                               
details of  ownership and if  the company has engaged  in insider                                                               
trading.  He reiterated that this  program has been in effect for                                                               
20 years and the students have kept it alive.                                                                                   
                                                                                                                                
4:11:25 PM                                                                                                                    
                                                                                                                                
MR. MILLER  spoke briefly  about the  prior students  involved in                                                               
the program.                                                                                                                    
                                                                                                                                
MR. GRONDAHL explained that Mr.  Titus will discuss the screening                                                               
processes and  Mr. Bue will talk  about the process of  picking a                                                               
stock.                                                                                                                          
                                                                                                                                
4:12:32 PM                                                                                                                    
                                                                                                                                
MR. TITUS  explained each  approach to  the screening  process is                                                               
unique [slide 5].   He indicated this includes  both the weakness                                                               
and strength of  the process:  the weakness being  the sense that                                                               
the  students  do  not  use   any  proprietary  formula  and  the                                                               
advantage is  that each student observes  the market differently.                                                               
Since their  perspectives are unique,  each student can  view the                                                               
market  in ways  that  are different  from  other traders,  which                                                               
potentially allows  them to  see gains  they would  not otherwise                                                               
see.   He  described a  screening, which  included screening  for                                                               
factors  in  a   stock,  such  as  a  high   return  on  personal                                                               
investments, increasing  shares, and a lower  price in comparison                                                               
to the  fundamental value [slide  6].   He explained that  if the                                                               
criteria used is  not too specific it should result  in a list of                                                               
a broad  array of  industries [slide  7].   The students  use the                                                               
human element,  which identifies  qualitative factors  - entirely                                                               
up to  the individual student -  and may include factors  such as                                                               
insider trading,  price shocks, or  the internal analysis  of the                                                               
accounting [slide  8].   Next, the  student puts  the information                                                               
into differences models.                                                                                                        
                                                                                                                                
4:14:16 PM                                                                                                                    
                                                                                                                                
MR. BUE pointed  out one of his stocks,  the Cascade Corporation,                                                               
which   was  put   into  the   portfolio  [slides   9-10].     He                                                               
characterized  this process  as the  "meat and  potatoes" of  the                                                               
class.   As  Mr. Titus  previously mentioned,  the companies  are                                                               
narrowed down to ones the  students will delve into more closely.                                                               
Initially, each student will review  the basics, such as the type                                                               
of industry,  the size, and  the direction the company  is taking                                                               
[slide 9].   Next, the  students consider the specifics,  such as                                                               
the competitors and  a comparison between them  to determine such                                                               
things as whether they are losing  or gaining market share, or if                                                               
a  stock is  moving  up a  slot,  which can  be  a big  indicator                                                               
[slides  10-11].   The  students examine  the  revenues and  this                                                               
slide demonstrates  the cyclical nature  of this company  and how                                                               
it reacts  to the  overall economy  [slide 12].   He  pointed out                                                               
that this  specific company was  a small industrial company.   He                                                               
also pointed out that in 2010 -  on the right of the slide - this                                                               
company reacted greatly during the  changes in the world economy.                                                               
The students try to figure  out the reasons for any extraordinary                                                               
high or low changes.  He  explained that they also consider other                                                               
measures  such as  the earnings  and  forecasts [slide  13].   He                                                               
recapped  that   the  students  perform  due   diligence  on  the                                                               
companies to figure out their story and what has affected them.                                                                 
                                                                                                                                
4:16:25 PM                                                                                                                    
                                                                                                                                
MR. BUE elaborated  on the Cascade Corporation and  noted that he                                                               
considered  reasons for  reduced  earnings  during 2009-2010  and                                                               
presented his  findings to  the class to  show what  happened and                                                               
why his logic made  sense [slide 14].  He told  the class that he                                                               
concluded the company would not  be adversely affected overall by                                                               
their decisions and would come back even stronger.                                                                              
                                                                                                                                
4:16:51 PM                                                                                                                    
                                                                                                                                
MR.  BUE provided  some of  the changes  the Cascade  Corporation                                                               
made  in its  European restructuring  [slide 15].   He  explained                                                               
that  the  students spend  about  45  minutes  on each  stock  to                                                               
highlight  the  company  for  the class.    Everyone  trusts  the                                                               
research  the presenter  has taken  on the  portfolio stock.   He                                                               
emphasized that  students must be  honest with their  answers and                                                               
they  do the  best possible  job since  a $30,000  transaction is                                                               
riding on the outcome.  Sometimes  a student will discover a flaw                                                               
the  night   before  the  presentation   and  bring   forth  that                                                               
information  in his/her  presentation  so everyone  can make  the                                                               
right decision [slide 16].                                                                                                      
                                                                                                                                
4:18:09 PM                                                                                                                    
                                                                                                                                
MR.   BUE  pointed   out  another   area  students   consider  is                                                               
acquisitions [slide 17].   A company could grow  internally or by                                                               
acquiring other  companies.  He  highlighted that students  get a                                                               
feel for  the company's  growth by  examining what  decisions the                                                               
company is  making and  whether the  decisions make  sense [slide                                                               
18].                                                                                                                            
                                                                                                                                
MR.  BUE said  students also  consider the  quality of  corporate                                                               
governance  such  as  the  history   of  lawsuits,  any  internal                                                               
auditing  and  accounting anomalies,  as  well  as related  party                                                               
transactions,  such   as  whether   the  executives   are  buying                                                               
themselves  personal jets.   These  types of  considerations help                                                               
determine whether  the company is  ethical [slide 19].   Students                                                               
also check message boards for information outside SEC filings.                                                                  
                                                                                                                                
MR. BUE  related that students  assess executive  compensation to                                                               
determine whether the executives  are overly compensated, if they                                                               
are equivalent to similar industries.   Students consider whether                                                               
the  corporate  motivation  is  aligned  with  the  stockholders'                                                               
motivation - whether company incentives  are tied to how well the                                                               
company  performs  or if  they  have  different incentives.    He                                                               
recapped  that this  process helps  students  decide whether  the                                                               
company's goal is  aligned to the student's  interest [slides 20-                                                               
21].                                                                                                                            
                                                                                                                                
4:19:40 PM                                                                                                                    
                                                                                                                                
MR.  BUE detailed  that students  review  the executive  officers                                                               
profiles to  identify their backgrounds, including  which schools                                                               
they attended,  whether they are  buying into the company  and if                                                               
any   unusual   transactions   appear  in   the   related   party                                                               
transactions [slides 22-24].   Further, students review analysts'                                                               
forecasts, to  get a feel for  what analysts - who  are well paid                                                               
to analyze the companies - think about the company [slide 25].                                                                  
                                                                                                                                
MR. BUE explained that once  the qualitative process is completed                                                               
students  perform  their   quantitative  analysis  using  several                                                               
models and  spend a significant  amount of time on  each company.                                                               
Additionally, students  will also  spend a significant  amount of                                                               
time  on the  models during  their presentations  [slides 26-29].                                                               
He  related  that  the  short-interest  ratio  tells  what  other                                                               
investors have determined [slide 30].                                                                                           
                                                                                                                                
4:20:41 PM                                                                                                                    
                                                                                                                                
MR.  BUE summarized  that  students  draw conclusions,  including                                                               
considering  the pros  and cons,  making sure  due diligence  has                                                               
been  done  and  everything  relevant and  useful  is  presented,                                                               
including providing  graphs and  other technical  aspects [slides                                                               
31-33].                                                                                                                         
                                                                                                                                
4:21:03 PM                                                                                                                    
                                                                                                                                
MR.  BUE explained  that  in  order to  place  a  company in  the                                                               
portfolio  students must  have enough  money  to do  so and  must                                                               
identify another  stock to sell to  raise the funds.   He pointed                                                               
out that  the students hold  about 40 stocks valued  at $650,000.                                                               
He described  the process students  use to identify the  stock to                                                               
be removed,  which is to perform  the same due diligence  to find                                                               
reasons  to   sell  the   company  [slide   34].     The  overall                                                               
presentation  is about  a 45-minute  presentation.   The students                                                               
also field  questions.   He related that  the questions  are hard                                                               
and  students may  not always  know  the answer.   Students  vote                                                               
anonymously  on  whether to  purchase  stocks  and the  trade  is                                                               
executed in class.                                                                                                              
                                                                                                                                
4:22:25 PM                                                                                                                    
                                                                                                                                
MR.  MILLARD reiterated  that the  paradigm  of the  class is  to                                                               
manage someone else's  money with the goal being  to maximize the                                                               
risk-adjusted return  [slide 36].   He stated the portfolio  is a                                                               
well-diversified  portfolio that  includes  40  positions with  a                                                               
value  of  approximately  $650,000.   The  students  manage  risk                                                               
through active waiting  based on their benchmark of  the S&P 500.                                                               
They  also have  liquidity  requirements such  as  a tilt  toward                                                               
large  cap  stocks,  such   as  International  Business  Machines                                                               
Corporation (IBM).   He reiterated  that the portfolio  is tilted                                                               
for  larger companies.   Given  that they  have taken  12 percent                                                               
less risk than the benchmark,  the SIF student's portfolio has an                                                               
annual return  of 6.03 percent.   He characterized this  as great                                                               
since the risk-adjusted metric is  a formula that is difficult to                                                               
explain, but  basically students  are taking  less risk  than the                                                               
benchmark yet have generated an above average return.                                                                           
                                                                                                                                
4:25:00 PM                                                                                                                    
                                                                                                                                
MR. MILLARD reviewed the performance  through 1/31/12, noting the                                                               
SIF almost  always outperforms  the S&P  500.   Additionally, the                                                               
small stocks, Russell 2000, represent  the bottom 2,000 stocks of                                                               
the Russell 3000 index and  the Russell 3000 index represents the                                                               
smaller companies.  He pointed  out that the SIF students managed                                                               
to perform on term with them  since the students are using larger                                                               
stocks that are inherently less risky.                                                                                          
                                                                                                                                
MR. MILLARD said  this does not mean that the  SIF students don't                                                               
make mistakes  and at  any given  time their  choices are  a coin                                                               
toss.   He  referred  to a  graph that  shows  the calendar  year                                                               
returns [slide 38].  He pointed out the magnitude  of stocks that                                                               
outperform has  been better than  those that  underperform, which                                                               
offsets  any losses.   He  characterized that  at any  given time                                                               
period  it  is   a  50-50  chance  on  whether   the  stocks  are                                                               
outperforming - beating the benchmark or underperforming.                                                                       
                                                                                                                                
4:26:34 PM                                                                                                                    
                                                                                                                                
MR.  TITUS  referred  to  a   graph  that  shows  the  annualized                                                               
commissions [slide  39].  He  explained that at the  beginning of                                                               
the  SIF program,  students  had a  full-service  broker and  the                                                               
costs  were  much  higher,  but  due  to  the  advent  of  online                                                               
brokerage  services such  as  E-trade  Financial Corporation  (E-                                                               
trade),  the  commissions  are  much less.    He  emphasized  the                                                               
importance of lower commissions since  one of the easiest ways to                                                               
increase the  performance in  comparison to  the benchmark  is to                                                               
decrease costs.                                                                                                                 
                                                                                                                                
MR.  TITUS related  the average  holding period  over a  12-month                                                               
period, which indicates  that currently the SIF  program sells 75                                                               
percent of the stocks, resulting  in an average holding period of                                                               
about 16 months [slide 40].                                                                                                     
                                                                                                                                
MR. MILLER  showed the growth  of the investment fund  versus the                                                               
S&P  500 in  graph  form.   He pointed  out  the end  performance                                                               
indicates the  students beat their  benchmark by  about $150,000.                                                               
He stated that the graph  includes money paid out in scholarships                                                               
[slide 41].                                                                                                                     
                                                                                                                                
4:28:04 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON asked  whether they  ran their  numbers against  the                                                               
Alaska Permanent Fund Corporation for the same period.                                                                          
                                                                                                                                
MR.  WISEN answered  that the  Alaska Permanent  Fund Corporation                                                               
indexes  the  large  companies  held   in  their  fund  so  their                                                               
benchmark is  the S&P.   Since the  SIF students  actively manage                                                               
their funds  they have outperformed  the Alaska  Permanent Fund's                                                               
large cap portfolio.                                                                                                            
                                                                                                                                
CHAIR OLSON said, "That gives you bragging rights, I think."                                                                    
                                                                                                                                
MR. MILLER acknowledged that the  students have made mistakes and                                                               
some  stocks  have not  performed  well.    He pointed  out  that                                                               
Chipotle Mexican Grill  had a 277.88 percent  gain while Hewlett-                                                               
Packard had a 38.8 percent  loss, which was their worst performer                                                               
as of 3/2/12 [slide 42].                                                                                                        
                                                                                                                                
4:29:29 PM                                                                                                                    
                                                                                                                                
MR. GROHDAHL  summarized that that the  presentation has outlined                                                               
the  SIF students'  performance.   He said  their performance  is                                                               
solid, but  they have not  acted alone since  various individuals                                                               
and firms have supported them  [slide 43].  He identified members                                                               
of their advisors,  including Mr. Bob Gillam,  President and CEO,                                                               
McKinley Capital  Management, LLC;  Joe Beedle, President  & CEO,                                                               
Northrim Bank;  and members  of the  UAF's School  of Management.                                                               
He  also  commended  legislators  for their  support  of  the  UA                                                               
Fairbanks.  He  mentioned that Dr. Craig  Wisen indicated earlier                                                               
that the students are not here to  ask for money, but to show how                                                               
they make money  and to thank legislators and the  SIF's Board of                                                               
Advisors  for  their  support.    He  stated  that  the  students                                                               
continue  to work  hard to  generate results,  which demonstrates                                                               
that  the  advisors,  legislators, and  university's  support  is                                                               
paying off.                                                                                                                     
                                                                                                                                
4:30:56 PM                                                                                                                    
                                                                                                                                
MR. GROHDAHL pointed out their  recent developments including the                                                               
goal to establish a student-managed  real estate investment trust                                                               
(REIT),  which  would  be  managed  by  the  students  under  the                                                               
direction of Dr.  Craig Wisen.  The UAF School  of Management and                                                               
Finance is  excited about this  project and  hopes to have  it in                                                               
place by next spring or in the fall of 2013.                                                                                    
                                                                                                                                
4:31:32 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON asked  whether students  have  any emphasis  towards                                                               
using  Alaska-based companies  or  companies  with a  significant                                                               
presence in Alaska.   He also asked whether there  is any balance                                                               
or percentage used.                                                                                                             
                                                                                                                                
MR. BUE  answered that each  student has different  interests and                                                               
some students  may be  interested in a  country whose  economy is                                                               
doing  well, such  as China.   The  SIF students  can only  trade                                                               
publicly  traded  American companies,  but  some  of the  foreign                                                               
companies trade  on the  U.S. market.   Beyond that  the students                                                               
don't have any allocation to  any geographic area or bias towards                                                               
any industry.   The  companies must be  greater than  $60 million                                                               
and have  a basic  amount of liquidity.   Otherwise  students are                                                               
allowed to pick their own route,  which draws a lot of creativity                                                               
among the students.                                                                                                             
                                                                                                                                
4:32:55 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  responded that  legislators are  precluded ethically                                                               
from  doing  much investing  in  Alaska  companies.   He  briefly                                                               
discussed  his portfolio  and companies  he would  have liked  to                                                               
have invested in, including Alaska Communications (ACS).                                                                        
                                                                                                                                
MR.  MILLARD recalled  that ACS  is  traded on  the NASDAQ  stock                                                               
exchange.                                                                                                                       
                                                                                                                                
4:34:15 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON said  he wasn't sure if the SIF  invested in Alaska's                                                               
companies.                                                                                                                      
                                                                                                                                
MR.  BUE  answered that  part  of  the  reason the  students  are                                                               
outperforming  the market  is that  market movements  favored the                                                               
small cap companies  and the students have exposure  to small cap                                                               
companies.  He pointed out that  the S&P is composed of large and                                                               
small companies so the students'  exposure has gone above the S&P                                                               
to  some extent.   He  said  the SIF  is still  driven by  market                                                               
forces just like everyone else.                                                                                                 
                                                                                                                                
4:35:09 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON asked him to  identify any interest in current market                                                               
segments.                                                                                                                       
                                                                                                                                
MR.  MILLARD answered  that the  students use  performance sheets                                                               
that  break the  companies down  by  sector and  within that  the                                                               
students focus on  different industries.  The  students track the                                                               
S&P 500 and  follow leashes depending on how they  are rated.  He                                                               
pointed out one  of the largest areas of  interest is technology,                                                               
but  besides that  the  students  are allowed  to  engage in  any                                                               
industry  within  those  specific  leashes.    He  indicated  his                                                               
favorite industries are technology  companies since he has worked                                                               
for the supercomputer companies.  He  said the fun of working for                                                               
the  SIF is  the  program has  prerequisites  to ensure  students                                                               
understand basic premises  of finance, however; there  is a broad                                                               
array of  people coming into  the program.   He pointed  out that                                                               
Mr. Titus  mentioned he was  in a mechanical  engineering program                                                               
interested  in  economics,  but   he,  himself,  is  majoring  in                                                               
finance.  He acknowledged other  students in the program are more                                                               
interested  in  the  medical  field  and  that  health  care  has                                                               
previously been  one of the  favorite sectors.  He  recapped that                                                               
students  have  leeway  to  pick  companies  that  reflect  their                                                               
interests.                                                                                                                      
                                                                                                                                
4:36:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER remarked that  the UAF students have given                                                               
them a  great presentation.   He  related his  understanding that                                                               
the SIF began with a  $100,000 appropriation and is now $650,000.                                                               
He asked where the SIF is kept.                                                                                                 
                                                                                                                                
MR. TITUS answered  that the funds reside in  an E-trade account.                                                               
When the fund reaches a  certain percentage above the performance                                                               
the students distribute scholarships.                                                                                           
                                                                                                                                
4:37:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  asked whether the program  is class based                                                               
or a club.                                                                                                                      
                                                                                                                                
MR.  TITUS answered  it  is  a class.    In  further response  to                                                               
Representative Saddler, Mr. Titus  answered that the students are                                                               
aware  of  how  much  work  the other  students  put  into  their                                                               
presentations.  The students have  to convince their peers to buy                                                               
or sell the stock.                                                                                                              
                                                                                                                                
4:38:21 PM                                                                                                                    
                                                                                                                                
MR. MILLARD  said he  would not  say everyone  has a  grade point                                                               
average (GPA) of  3.9, but the students must be  approved to make                                                               
sure they meet  the prerequisites.  He did not  view the class as                                                               
one  that requires  pure  rote memorization,  but  rather as  one                                                               
which feels more like a job.   He reported that a couple of times                                                               
someone has been late to class.   Not only does that student feel                                                               
like  he/she has  let class  down,  but the  student receives  an                                                               
incentive not  to let it  happen again.  Further,  these students                                                               
feels like  they have  let themselves down.   He  reiterated this                                                               
class does feel  like a job.  Students don't  just have their own                                                               
interests  in  mind to  earn  grades,  but the  more  fundamental                                                               
interests  are to  provide scholarships  for future  students and                                                               
learn to be good money managers.                                                                                                
                                                                                                                                
4:39:38 PM                                                                                                                    
                                                                                                                                
MR.  BUE pointed  out  that none  of the  SIF  students know  the                                                               
scholarship committee  members or  the recipients.   He explained                                                               
that  the scholarships  are  not  limited to  SIF  students.   He                                                               
recapped that the scholarships are  totally separate from the SIF                                                               
class.     The   SIF  students   know  earnings   are  used   for                                                               
scholarships.    In  response to  Representative  Saddler,  after                                                               
conferring with his professor, Mr.  Bue said the scholarships are                                                               
available to all students.                                                                                                      
                                                                                                                                
4:40:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON likened  the  scholarships to  dividends.                                                               
He asked for the amount of the dividends paid out.                                                                              
                                                                                                                                
MR.  MILLARD  suggested  that  last   year  the  SIF  payout  was                                                               
approximately $10,000.   He  pointed out  an earlier  slide added                                                               
the scholarships back in and he  said it isn't as though the fund                                                               
pays  $50,000 a  year.   He  related his  understanding that  the                                                               
amount  would be  between $10,000  and  $50,000.   He offered  to                                                               
provide the total.                                                                                                              
                                                                                                                                
DR. WISEN  explained that  the payout  requirements for  the fund                                                               
require that  the SIF exceeds the  S&P index.  During  the period                                                               
2001  to 2009  the total  return  was not  in excess  of the  S&P                                                               
index.   He  elaborated that  when the  fund management  does not                                                               
hold  the principal,  students are  prohibited from  distributing                                                               
scholarships, but  once the threshold is  reached, which happened                                                               
two years  ago, the  program began distributing  funds.   He said                                                               
that the fund  contributed up to 50 percent of  the excess.  Last                                                               
year the  distribution was  $10,000 and  he thinks  going forward                                                               
the  program  will  distribute  another $10,000.    He  said  the                                                               
scholarships are given  out to the UAF at large,  but most of the                                                               
scholarships have gone to school of management students.                                                                        
                                                                                                                                
4:42:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER asked  whether the  fund ever  fell below                                                               
the initial capitalization of $100,000.                                                                                         
                                                                                                                                
DR. WISEN answered no.                                                                                                          
                                                                                                                                
4:42:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER  asked  whether  the  students  have  any                                                               
personal liability in case they lose money.                                                                                     
                                                                                                                                
MR. TITUS  answered that everyone  votes, but they  hold students                                                               
accountable  in  terms  of  peer pressure.    The  students  call                                                               
previous students to let them know their stocks didn't perform.                                                                 
                                                                                                                                
4:43:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER answered whether the  SIF ever resets.  He                                                               
acknowledged  that new  investments are  brought forward,  but he                                                               
wondered if the slate is ever wiped clean.                                                                                      
                                                                                                                                
MR. TITUS answered no.                                                                                                          
                                                                                                                                
4:43:38 PM                                                                                                                    
                                                                                                                                
MR. BUE related  that most of the students have  only been in the                                                               
program  for  two  or  three  semesters.    He  pointed  out  one                                                               
interesting  aspect  is  that  there   is  some  overlap  between                                                               
students  since  the  course  is  a  two-semester  course.    The                                                               
students mentor  new students.   He pointed out that  Mr. Millard                                                               
was a second-semester student last  year and this is Mr. Miller's                                                               
first  semester.   The  second-semester  students  help with  the                                                               
continuity  of  the program.    During  summers  the SIF  is  not                                                               
actively managed, but  students still pay attention  due to their                                                               
personal  interest in  the  fund.   In  some  instances, if  they                                                               
notice  something odd  happening, students  will bring  things to                                                               
Dr. Wisen's attention.                                                                                                          
                                                                                                                                
4:45:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER   commented  that  he  was   once  in  an                                                               
investment club.  He encouraged the students to continue.                                                                       
                                                                                                                                
4:45:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  THOMPSON asked  for  the  frequency the  students                                                               
review the portfolio.                                                                                                           
                                                                                                                                
MR. MILLARD responded the course  is presentation-based the class                                                               
consists  of  15-17  students  who  give  two  presentations,  so                                                               
students  have  approximately  34  opportunities  to  look  at  a                                                               
security  and  analyze  it.    He offered  his  belief  that  the                                                               
rigorous review  and structure  is one  reason the  portfolio has                                                               
done  so well.    He explained  that Dr.  Wisen  is the  stop-gap                                                               
measure so if  something awry the professor can step  in and take                                                               
action.   He  concluded that  the SIF  portfolio is  very much  a                                                               
hands-on effort.                                                                                                                
                                                                                                                                
4:46:55 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  asked whether the SIF  has any stock held  since the                                                               
beginning.                                                                                                                      
                                                                                                                                
DR. WISEN  answered that  the longest stock  was held  about four                                                               
and a half years.                                                                                                               
                                                                                                                                
MR. MILLER added  that the students give  another presentation on                                                               
top of the  other two presentations, which is market  news.  They                                                               
scan the  largest winners and  losers to ensure their  stocks are                                                               
not on  the list.   He explained  that each morning  the students                                                               
get a  print out  of their  stocks and  review the  portfolio for                                                               
movement.   In  response to  a  question, he  answered that  they                                                               
occasionally have surprises.                                                                                                    
                                                                                                                                
4:48:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HOLMES  related  that   it  seems  like  a  great                                                               
opportunity  and  training.    She   expressed  interest  in  the                                                               
potential  to get  into the  real estate  development, especially                                                               
since she is a real estate  lawyer.  She hoped the students would                                                               
brief the  legislature as  to how  that project  works out.   She                                                               
asked if anyone was interested in that project.                                                                                 
                                                                                                                                
MR. MILLER answered yes.                                                                                                        
                                                                                                                                
4:48:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON asked  who  is best  at  the stocks  [the                                                               
students looked to one student, not verbally identified.]                                                                       
                                                                                                                                
MR. BUE answered he has not invested any of his own money.                                                                      
                                                                                                                                
4:49:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER asked whether this is a popular class.                                                                   
                                                                                                                                
DR. WISEN said  that it is a difficult class  that involves a lot                                                               
more work,  which is widely known.   He said that  lazy students;                                                               
do not  sign up.   He approves  of anyone who  wants to  take the                                                               
class and he makes sure they  understand the main criteria of the                                                               
heavy workload, plus  the students must have a  sincere desire to                                                               
help  future  students.   When  students  demonstrate  those  two                                                               
things,  Dr. Wisen  makes sure  the student  has a  place in  the                                                               
class.   Currently  there are  16 students  enrolled across  both                                                               
semesters.   He suggested  if more  significant interest  were to                                                               
arise  that he  would  likely split  fund up  and  run two  class                                                               
sections.    In  response  to  a  question,  he  answered  female                                                               
students  are involved  and although  the field  is predominately                                                               
male about one third of his  students are female.  He remarked he                                                               
has not  seen any investment performance  differences between the                                                               
genders.                                                                                                                        
                                                                                                                                
4:51:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER thanked the students.                                                                                    
                                                                                                                                
CHAIR OLSON said he was delighted with the presentation.                                                                        
                                                                                                                                
4:51:58 PM                                                                                                                    
                                                                                                                                
MR.  WISEN  commented  that  1867  represents  one  of  the  best                                                               
investments  our policymakers  have ever  made -  which was  $7.5                                                               
million to  purchase Alaska.   He  said that  long-term decisions                                                               
really reflect well.                                                                                                            
                                                                                                                                
The committee took a brief at-ease.                                                                                             
                                                                                                                                
               SB 125-MOTOR VEHICLE TRANSACTIONS                                                                            
4:52:50 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON announced  that the final order of  business would be                                                               
SENATE  BILL  NO. 125,  "An  Act  relating to  certain  vehicles,                                                               
including  trailers;   and  relating  to  motor   vehicle  dealer                                                               
advertising, motor  vehicle dealer sales of  used motor vehicles,                                                               
motor vehicle  sales contracts, motor vehicle  service contracts,                                                               
and motor vehicle sales financing."                                                                                             
                                                                                                                                
4:53:55 PM                                                                                                                    
                                                                                                                                
SENATOR KEVIN  MEYER, Alaska State  Legislature, stated  that the                                                               
committee  previously  heard  the companion  bill  introduced  by                                                               
Representative  Thompson and  passed it  with six  do passes  and                                                               
that bill  rests in the House  Rules Committee.  He  related that                                                               
SB 125  is a consumer protection  bill to assist the  consumer in                                                               
finding  and  purchasing  competitively   priced  vehicles.    He                                                               
explained that  this bill basically updates  the statute referred                                                               
to  as the  Alaska  Auto  Dealers Practices  Act.   It  clarifies                                                               
several provisions that  were unclear to the consumer  and to the                                                               
dealers  who were  trying to  abide  by the  law.   The bill  was                                                               
drafted  closely   with  Ed  Sniffen,  the   consumer  protection                                                               
attorney, in the  Department of Law.  He offered  his belief that                                                               
the bill strikes a balance between the consumers, dealers, and                                                                  
the Department of Law.                                                                                                          
                                                                                                                                
4:55:41 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON agreed the committee heard the companion bill, but                                                                  
said the bill still would receive the proper vetting.                                                                           
                                                                                                                                
[SB 125 was held over.]                                                                                                         
                                                                                                                                
4:56:11 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Labor and Commerce Standing Committee meeting was adjourned at                                                                  
4:56 p.m.                                                                                                                       

Document Name Date/Time Subjects
UAF SIF Juneau Bios.pdf HL&C 3/19/2012 3:15:00 PM
UAF Student Presentation
UAF Students Power Point Presentation to HL&C 3-19-12.pdf HL&C 3/19/2012 3:15:00 PM
UAF Student Presentation
SB125 ver B.pdf HL&C 3/19/2012 3:15:00 PM
SB 125
SB125 Sponsor Statement.pdf HL&C 3/19/2012 3:15:00 PM
SB 125
SB125 Fiscal Note-1-2-020312-LAW-N.pdf HL&C 3/19/2012 3:15:00 PM
SB 125
SB125 Sectional Analysis.PDF HL&C 3/19/2012 3:15:00 PM
SB 125
SB125 Supporting Documents-Letter AADA.pdf HL&C 3/19/2012 3:15:00 PM
SB 125