1. Investment Challenge Program January 2003, Volume III, Issue 12 Website of the Month: Investors, Quote of the Month: 2002 CBOE Volatility Index Check out http://clearstation.etrade.com for a daily dose of market commentary broadcast over the internet. Membership to the site is free. The site offers technical commentary, which is updated on a daily basis, as well as a market flash with the latest news and market numbers that updates three times daily. The site also offers an open forum for discussion on various subjects relative to the stock market. The future does not belong to those who are content with today, apathetic toward common problems and their fellow man alike, timid and fearful in the face of bold projects and new ideas. Rather, it will belong to those who can blend passion, reason, and courage in a personal commitment to the great enterprises and ideals of American society. -Robert F. Kennedy Important Announcements… The graph above represents the CBOE Volatility Index, which basically measures the volatility of the U.S. equity market. The index was introduced in 1993 by the Chicago Board Options Exchange and trades under the ticker symbol VIX. It is based on the implied volatility of eight S&P 100 puts and calls which form a composite option. S&P 100 options are the most widely traded and most liquid options on the CBOE and because of this, they provide a good proxy for the implied volatility of the market as a whole. Typically, the level of volatility measured by the VIX increases when the market declines and decreases when the market rises. This is because declining markets are usually viewed as more risky than rising markets. Therefore, a greater perception of risk in stocks means a greater implied volatility, which in turn means a greater implied risk in the market and causes the price of options to increase. Conflicting signals between the VIX and the market as a whole can provide clues to short-term sentiment. For example, if the market declines sharply and the VIX remains unchanged to down in value, it could mean that the market has not yet reached a bottom and will continue to decline. In general, this happens because there is not enough bearishness in the market to warrant a bottom. In 2002, the market saw an incredible amount of volatility between July and October, relative to the first six months of the year. During November and December, market volatility dropped off slightly, though it remained higher than in the first half of the year. Welcome back! Its time for a new year and a new semester of the Investment Challenge Program. We would like to extend a warm welcome to the six new universities that will be joining us this month. Joining us will be Belmont University in Nashville, TN, Christian Brothers University in Memphis, TN, Lipscomb University in Nashville, Trevecca Nazarene University in Nashville, Union University in Jackson, TN, and Vanderbilt University in Nashville. Also, we would like to wish everyone good luck in the coming year! As a reminder, the new set of guidelines go into affect January 1 st, 2003. Also, universities will be receiving the additional funding on January 2 nd, 2003 and will able to begin investing the new money at this time. In order to make an easier transition, the additional money will be temporarily placed in Standard and Poor’s Depository Receipts (SPDRs) in order to allow time for universities to make sound investment decisions. We are willing to help in any way we can to make the transition a smooth one. Please feel free to contact me at (865) 632-3258 or pdnunley@tva.com or Julia Gass at (865) 632-3711 or jcgass@tva.com or James Orintas at (865) 632-4102 or jforinta@tva.com with any questions you may have.