Commentary

April 2005 performance review

May 16, 2005

The Conservative portfolio rose .29% in April, reflecting a strong bond market. Our equity funds were down for the month, but strength in larger allocations to bond funds overshadowed the losses.

Harbor bond was up 1.45% which means manager Bill Gross is not running a very large short term bond allocation and likely has mostly intermediate term bonds as well as some exposure to foreign bonds.

Shorter term bonds did fine, with Vanguard Short Term Corporate up .67%. Junk bonds were down in April – our Vanguard High Yield Corporate was down .55% for the month – so Gross is probably light on higher risk corporates as well.

If junk bonds continue their recent underperforming of investment grade bonds we may increase our junk bond stake back to 10%. This move would require a big move down for junk (or a big move up for regular bonds with junk staying flat).

Foreign bonds were strong, but mostly as a result of interest rates falling globally. American Century International Bond was up 1% in April. The U.S. dollar has stabilized and in fact has been strengthening of late – another surprise to many investors who expected our dollar to keep falling amidst continuing trade deficits. Maybe a relatively strong economy trumps trade deficits, for now at least. Like junk, this is a category we would increase to our old levels if the dollar staged a very strong comeback, say 15% or more from current levels. For now, we’re cutting it back to just 5% as of the end of April.

Vanguard Dividend Growth was down .67%.

We like healthcare now enough to bring it into our lower risk portfolios like this one. We now have a 5% stake to Heath Care Select SPDR (XLV) an ETF (exchange traded fund). We think this sector has more appeal than Utilities (which have had a great run recently) so we cut back on American Century Utility Income. This utility fund was up almost 1% last month (bucking the general trend downward in stocks) and is up over 68% since we added it to the portfolio at the end of February 2003– far outpacing the S&P500 over the same time period.

In keeping with our easing-up-on-small-cap theme of recent months, we dumped Forward International Small Companies and added SSgA International Growth Opportunities. Forward was down 2.44% last month, but we are up 69% since we added it to the portfolio. We don’t’ expect a similar move in the new fund, but we’re trying to remove the risk foreign small cap stocks may give back some of their gains soon.

The Aggressive Growth portfolio fell 1.82% in April – our worst performing portfolio. Strong bonds didn’t make up for weak stocks.

What really held this portfolio back was smaller cap value stocks, exactly the area we are trying to ease up on across our portfolios. FMI Common Stock was down a sharp 4.22%, which was less than a small cap index, but nothing to brag about.

Shorter term bonds did fine, with Vanguard Short Term Corporate up .67%. Junk bonds were down in April – our Vanguard High Yield Corporate was dropped .55% for the month. Payden Global Short Bond did about as well, up .48%. We’ve added a new 5% position in Harbor Bond, a fund in several of our other portfolios.

The U.S. dollar has stabilized and in fact has been strengthening of late – another surprise to many investors who expected our dollar to keep falling amidst continuing trade deficits. Maybe a relatively strong economy trumps trade deficits, at least for the time being. Like junk bonds, foreign bonds are a category we would increase if the dollar staged a very strong comeback, say 15% or more from current levels.

We like healthcare now and added a 10% stake to Heath Care Select SPDR (XLV) an ETF (exchange traded fund). We think this sector has more appeal than Telecom so we cut the expensive Gabelli Global Telecom fund from the portfolio at the end of April.

In keeping with our easing-up-on-small-cap theme of recent months, we lowered our allocation to Artisan International Small Cap (and therefore the alternate for those who couldn’t get in to the now closed fund - Forward International Small Companies) from 10% to 5%. The fund was down 1.82% last month (Forward down 2.44%), but we are up 96% since we added it to the portfolio in April 2002. We’re trying to remove the risk that foreign small cap stocks may give back some of their gains soon.

We’re not as excited about foreign stocks as we have been in recent years. Our lack of enthusiasm is based primarily on fund investors in general plowing money into the category. We cut back on T. Rowe Price Japan (PRJPX) to 5% from 10% of the portfolio. The fund was down 1.3% last month - not bad for a country facing renewed economic concerns. We also cut back on SSgA Emerging Markets, now 5% from 10%. The fund was down 2.27% last month.

An increased stake in Bridgeway Blue Chip 35 moves us more into giant-cap U.S. stocks, an area we think will do well going forward.

We like Technology going forward for higher risk investors, and just added a 5% stake to another ETF, Technology SPDR (XLK).

March 2005 performance review

April 23, 2005

We are making the trades in the Conservative portfolio, effective April 30th, 2005.

Because of the relative complexity of these trades we have created an easy-to-use trade worksheet that subscribers who invest in the Conservative Portfolio can download, print out, and fill in to help them determine how much of their holdings need to be bought and sold to match our post-trade portfolios and to rebalance. You can download the Conservative Portfolio Worksheet by <a href="https://maxadvisor.com/newsletter/worksheets/conservative.worksheet.pdf">clicking here.</a> Please note that the document is an Adobe PDF. If you need to download Adobe reader, you can find it by <a href="http://www.adobe.com/products/acrobat/readstep2.html">clicking here</a>.

Sales

<ul><li>Decrease international bond allocation: American Century International Bond (BEGBX) from 10% to 5% of total portfolio.

<li>Decrease utilities sector allocation: American Century Utility Income (BULIX) from 10% to 5% of total portfolio.

<li>Sell entire international diversified allocation: Forward International Small Companies (PISRX) from 5% to 0% of total portfolio.

<li>Decrease balanced fund allocation: Bridgeway Balanced Fund (BRBPX) from 15% to 10% of total portfolio.</ul>

Buys

<ul><li>Buy new healthcare sector allocation: Health Care Select SPDR (XLV) from 0% to 5% of total portfolio.

<li>Increase diversified bond allocation: Harbor Bond (HABDX) from 15% to 25% of total portfolio.

<li>Buy new international stock allocation: SSgA International Growth Opportunities (SINGX) from 0% to 5% of total portfolio.</ul>

Portfolio After Trades

<td width="105" height="20">Category</td>

%</div>

</td>

<td height="20">Ticker</td>

</tr>

<td bgcolor="#f0eec5" width="105" height="20">Diversified Bond</td>

25%</div>

</td>

<td bgcolor="#f0eec5" height="20">HABDX</td>

<td bgcolor="#f0eec5" width="163" height="20">Harbor Bond</td>

</tr>

5%</div>

</td>

<td height="20">BEGBX</td>

<td width="163" height="20">Am. Century Intl. Bond</td>

</tr>

<td bgcolor="#f0eec5" width="105" height="20">Short Term bond</td>

30%</div>

</td>

<td bgcolor="#f0eec5" height="20">VFSTX</td>

<td bgcolor="#f0eec5" width="163" height="20">Vanguard S.T. Corp.</td>

</tr>

<td width="105" height="20">Healthcare </td>

5%</div>

</td>

<td width="163" height="20">Health Care Select SPDR</td>

</tr>

<td bgcolor="#f0eec5" width="105" height="20">High Yield Bond</td>

5%</div>

</td>

<td bgcolor="#f0eec5" height="20">VWEHX</td>

<td bgcolor="#f0eec5" width="163" height="20">Vanguard High-Yield Corp</td>

</tr>

<td width="105" height="20">Utilities</td>

5%</div>

</td>

<td height="20">BULIX</td>

<td width="163" height="20">Am. Century Utility In.</td>

</tr>

<td bgcolor="#f0eec5" width="105" height="20">Larger Cap Value</td>

10%</div>

</td>

<td bgcolor="#f0eec5" height="20">VDIGX</td>

<td bgcolor="#f0eec5" width="163" height="20">Vanguard Dividend Growth</td>

</tr>

<td width="105" height="20">Intl. Stock</td>

5%</div>

</td>

<td height="20">SINGX</td>

<td width="163" height="20">SSgA Intl. Growth Op.</td>

</tr>

<td bgcolor="#f0eec5" width="105" height="20">Balanced</td>

<td bgcolor="#f0eec5" height="20">BRBPX</td>

<td bgcolor="#f0eec5" width="163" height="20">Bridgeway Balanced Fund</td>

</tr>

</table>

Why: These are relatively minor changes and we're keeping our broad bond/stock allocations in our Conservative portfolio to 70% bond and 30% stock (adjusting for a balanced fund).

We want even less exposure to foreign bonds as we feel the dollar's fall is largely over. We have made a good deal on foreign bond funds, riding them all the way up as the dollar has fallen near 50% against European currencies.

Large cap stocks are slightly more attractive to us than hot smaller cap stocks globally, so we are selling our position in Forward International Small Companies and replacing it with a fund that invests in mega-cap foreign stocks (SSgA International Opportunities). We like healthcare funds given the long run of underperformance and are adding a stake here.

Redemption fee information: We have owned the funds we're selling for over twelve months so subscribers who purchased these holdings when at the same time we did are exempt from short term capital gains or redemption fees. Newer subscribers, however, may have bought at a later date.

Three of the four funds we are selling do not have fund imposed redemption fees.

Forward International Small Companies (PISRX) recently imposed a new redemption fee. Subscribers who bought the fund before April 5th, 2005 face a 2% redemption fee if they sell within 60 days of buying. If you bought after this date you face a 2% fee if you sell within 180 days of purchase.

Please check with your broker if you do not buy directly from the funds to see if you are beyond the time period of any broker-imposed short term penalty fees before selling.

<a href="https://maxadvisor.com/newsletter/mpagchanges.php">Pending trades!</a> Please see this portfolio's 'Changes' page for important trade information.

April 2005 Trade Alert!

April 21, 2005

We are making the trades in the Conservative portfolio, effective April 30th, 2005.

Sales

<ul><li>Decrease international bond allocation: American Century International Bond (BEGBX) from 10% to 5% of total portfolio.

<li>Decrease utilities sector allocation: American Century Utility Income (BULIX) from 10% to 5% of total portfolio.

<li>Sell entire international diversified allocation: Forward International Small Companies (PISRX) from 5% to 0% of total portfolio.

<li>Decrease balanced fund allocation: Bridgeway Balanced Fund (BRBPX) from 15% to 10% of total portfolio.</ul>

Buys

<ul><li>Buy new healthcare sector allocation: Health Care Select SPDR (XLV) from 0% to 5% of total portfolio.

<li>Increase diversified bond allocation: Harbor Bond (HABDX) from 15% to 25% of total portfolio.

<li>Buy new international stock allocation: SSgA International Growth Opportunities (SINGX) from 0% to 5% of total portfolio.</ul>

Portfolio After Trades

<td width="105" height="20">Category</td>

%</div>

</td>

<td height="20">Ticker</td>

</tr>

<td bgcolor="#f0eec5" width="105" height="20">Diversified Bond</td>

25%</div>

</td>

<td bgcolor="#f0eec5" height="20">HABDX</td>

<td bgcolor="#f0eec5" width="163" height="20">Harbor Bond</td>

</tr>

5%</div>

</td>

<td height="20">BEGBX</td>

<td width="163" height="20">Am. Century Intl. Bond</td>

</tr>

<td bgcolor="#f0eec5" width="105" height="20">Short Term bond</td>

30%</div>

</td>

<td bgcolor="#f0eec5" height="20">VFSTX</td>

<td bgcolor="#f0eec5" width="163" height="20">Vanguard S.T. Corp.</td>

</tr>

<td width="105" height="20">Healthcare </td>

5%</div>

</td>

<td width="163" height="20">Health Care Select SPDR</td>

</tr>

<td bgcolor="#f0eec5" width="105" height="20">High Yield Bond</td>

5%</div>

</td>

<td bgcolor="#f0eec5" height="20">VWEHX</td>

<td bgcolor="#f0eec5" width="163" height="20">Vanguard High-Yield Corp</td>

</tr>

<td width="105" height="20">Utilities</td>

5%</div>

</td>

<td height="20">BULIX</td>

<td width="163" height="20">Am. Century Utility In.</td>

</tr>

<td bgcolor="#f0eec5" width="105" height="20">Larger Cap Value</td>

10%</div>

</td>

<td bgcolor="#f0eec5" height="20">VDIGX</td>

<td bgcolor="#f0eec5" width="163" height="20">Vanguard Dividend Growth</td>

</tr>

<td width="105" height="20">Intl. Stock</td>

5%</div>

</td>

<td height="20">SINGX</td>

<td width="163" height="20">SSgA Intl. Growth Op.</td>

</tr>

<td bgcolor="#f0eec5" width="105" height="20">Balanced</td>

<td bgcolor="#f0eec5" height="20">BRBPX</td>

<td bgcolor="#f0eec5" width="163" height="20">Bridgeway Balanced Fund</td>

</tr>

</table>

Why: These are relatively minor changes and we're keeping our broad bond/stock allocations in our Conservative portfolio to 70% bond and 30% stock (adjusting for a balanced fund).

Three of the four funds we are selling do not have fund imposed redemption fees.

Please check with your broker if you do not buy directly from the funds to see if you are beyond the time period of any broker-imposed short term penalty fees before selling.

We are making trades in the Aggressive Growth portfolio, effective April 30th, 2005.

Because of the relative complexity of these trades we have created an easy-to-use trade worksheet that subscribers who invest in the Aggressive Growth Portfolio can download, print out, and fill in to help them determine how much of their holdings need to be bought and sold to match our post-trade portfolios and to rebalance. You can download the Aggressive Growth Portfolio Worksheet by <a href="https://maxadvisor.com/newsletter/worksheets/aggressivegrowth.worksheet.pdf">clicking here.</a> Please note that the document is an Adobe PDF. If you need to download Adobe reader, you can find it by <a href="http://www.adobe.com/products/acrobat/readstep2.html">clicking here</a>.

Sales

<ul><li>Sell entire short term global bond allocation: Payden Global Short Bond (PYGSX) from 10% to 0% of total portfolio.

<li>Decrease Japan allocation: T.Rowe Price Japan (PRJPX) from 10% to 5% of total portfolio.

<li>Decrease emerging market stock allocation: SSgA Emerging Markets Fund (SSEMX) from 10% to 5% of total portfolio.

<li>Decrease international diversified allocation: Artisan International Small Cap (ARTJX) from 10% to 5% of total portfolio.

<li>Sell entire telecom sector allocation: Gabelli Global Telecom (GABTX) from 10% to 0% of total portfolio.</ul>

Buys

<ul><li>Buy new diversified bond allocation: Harbor Bond (HABDX) from 0% to 5% of total portfolio.

<li>Buy new healthcare sector allocation: Health Care Select SPDR (XLV) from 0% to 10% of total portfolio.

<li>Increase large cap blend allocation: Bridgeway Blue-Chip 35 (BRLIX) from 20% to 35% of total portfolio.

<li>Buy new technology allocation: Technology SPDR (XLK) from 0% to 5% of total portfolio.</ul>

Portfolio After Trades

<td width="105" height="20">Category</td>

%</div>

</td>

<td height="20">Ticker</td>

</tr>

<td bgcolor="#f0eec5" width="105" height="20">Diversified Bond</td>

5%</div>

</td>

<td bgcolor="#f0eec5" height="20">HABDX</td>

<td bgcolor="#f0eec5" width="163" height="20">Harbor Bond</td>

</tr>

<td width="105" height="20">Short Term Bond</td>

15%</div>

</td>

<td height="20">VFSTX</td>

<td width="163" height="20">Vanguard S.T. Corp.</td>

</tr>

<td bgcolor="#f0eec5" width="105" height="20">Healthcare</td>

10%</div>

</td>

<td bgcolor="#f0eec5" width="163" height="20">Care Select SPDR</td>

</tr>

<td width="105" height="20">Japan Stock</td>

5%</div>

</td>

<td height="20">PRJPX</td>

<td width="163" height="20">T.Rowe Price Japan</td>

</tr>

<td bgcolor="#f0eec5" width="105" height="20">Em. Markets</td>

5%</div>

</td>

<td bgcolor="#f0eec5" height="20">SSEMX</td>

<td bgcolor="#f0eec5" width="163" height="20">SSgA Em. Markets Fund</td>

</tr>

<td width="105" height="20">Intl. Stock</td>

5%</div>

</td>

<td height="20">ARTJX</td>

<td width="163" height="20">Artisan Intl. Small Cap*</td>

</tr>

<td bgcolor="#f0eec5" width="105" height="20">Large Cap Blend</td>

35%</div>

</td>

<td bgcolor="#f0eec5" height="20">BRLIX</td>

<td bgcolor="#f0eec5" width="163" height="20">Bridgeway Blue-Chip 35</td>

</tr>

15%</div>

</td>

<td height="20">FMIMX</td>

<td width="163" height="20">FMI Common Stock*</td>

</tr>

<td bgcolor="#f0eec5" width="105" height="20">Technology</td>

<td bgcolor="#f0eec5" width="163" height="20">Technology SPDR</td>

</tr>

</table>

*closed to new investors, see alternates on model portfolio allocation page

Why: We've increased our overall stock allocation to 80% from 75% and cut bonds down to 20% from 25% given the recent weakness in the market and strength in bonds. If the Dow falls well below 10,000 we will increase our stock allocation further.

We want less exposure to foreign bonds. While Payden Global Short Bond is hedged and global (and is therefore not a falling U.S. dollar play) we still want to lighten up as foreign bonds are not yielding much right now.

Large cap stocks are slightly more attractive to us than hot smaller cap stocks globally, so we are selling down our position in Artisan International Small Cap (and those who bought Forward International Small Companies as a substitute should make the same adjustment). This also explains our increased exposure to Bridgeway Blue-Chip 35.

As noted in our last category outlook, we like healthcare funds given the long run of underperformance and are adding a stake here.

We've been writing for a few months how we think emerging markets are overheated. Our allocation cut to our hot emerging market fund above reflects that, as did our downgrade of the category in our last favorite funds report.

International stocks in general do not represent such a bargain as they did a few years ago when we loaded up on them. This explains our shaving down of our Japan fund and to some extent our global telecom fund.

Only one of the five funds we are selling does not have fund-imposed redemption fees.

Artisan International Small Companies has a 2%/90-day redemption fee.

Forward International Small Companies (PISRX), a substitute fund for the closed Artisan International Small Companies fund, recently imposed a new redemption fee. Subscribers who bought the fund before April 5th, 2005 face a 2% redemption fee if they sell within 60 days of buying. If you bought after this date you face a 2% fee if you sell within 180 days of purchase.

T. Rowe Price Japan (PRJPX) charges 2% if sold within 90 days of purchase.

SSgA Emerging Markets Fund (SSEMX) will levy a 2% fee for sales made within 60 days of purchase, as will Gabelli Global Telecom (GABTX).

Please check with your broker if you do not buy directly from the funds to see if you are beyond the time period of any broker-imposed short term penalty fees before selling.

February 2005 performance alert

March 18, 2005

There was nothing Conservative about adding 1.07% last month in a bad moth for bonds. This portfolio did better than it should have.

We’re happy this portfolio’s performance. Only two of the funds were actually down for the month, Vanguard Short Term Corporate was down .21% - a decent indication of how this fund does when interest rates climb a bit. It would be difficult – if not impossible - to lose more than 10% in a year in this fund no matter what happens to the bond market.

Harbor Bond was down .34%, which means Bill Gross is running a bond portfolio not too far off from what we do with our other bond funds these days – short to intermediate term bonds, with some foreign issues as well.

The U.S. Dollar is skidding again, enough to offset the loss bonds took from rates climbing. American Century International Bond was up .62% for the month, a 57.8% gain since added to the portfolio.

The conservative Bridgeway Balanced fund had a 1.44% return. Apparently this fund can make a few bucks even with option premiums at historic lows and when bonds are weak (which hurts fund income from option writing).

Junk bonds had another hot month; Vanguard High Yield Corporate was up 1.16%. If we didn’t already have our stake down to 5% in high yield we’d be cutting it down further – risk spreads, the extra return investors get from risky debt over safe debt – are at multi year lows. This in stark contrast to the multi year highs of such spreads when we got into junk bonds in our portfolios.

Vanguard Dividend Growth (VDIGX) was strong with a 2.69% gain, but not as strong as utilities which continue to rocket. American Century Utility Income scored over a 3% return for the month, up 67% since added to the portfolio. Buying out of favor pays. Let’s not forget Vanguard closed their utility fund before the 67% run in our utility fund pick for lack of investor interest.

Foreign stocks continued to outpace the U.S. market, and investors are eating it up – plowing billions into foreign funds (a worrying sign). Forward International Small Company was up 5.5% on top of last month’s 1.71% gain.

The Aggressive Growth portfolio rose 2.57% last month (our second best portfolio showing) ahead of all the major market indices. Only one of the funds was actually down for the month: Vanguard Short Term Corporate dropped .21% - a decent indication of how this fund does when interest rates climb a bit. It would be difficult – if not impossible - to lose more than 10% in a year in this fund no matter what happens to the bond market.

Foreign stocks continued to outpace the U.S. market, and investors are eating it up – plowing billions into foreign funds (a worrying sign). Artisan International Small Cap was up 3.93% on top of last month’s 1.37% gain.

Everything foreign was strong, notably emerging market socks. SSgA Emerging Markets was up 9.82%, and 120.44% since added to the portfolio. This emerging markets boom is starting to look a bit like the last one in the early 90s (but not quite as severe yet) where many emerging market funds rose big time and investors hopped in near the end, only to get burned in the ensuing multiyear bear market for most emerging market stocks. Most emerging market funds around today were launched in this peak of exuberance.

Larger cap U.S. stocks are starting to lead the charge this year, as we hoped. Bridgeway Blue-Chip 35 was up 2.24%.

January 2005 performance review

February 17, 2005

The Conservative portfolio lost .46% for the month of January. We were too light on longer term bonds to have a positive return in a month when most categories of funds slipped.

Vanguard Dividend Growth (VDIGX) was the worst performer, down 2.14%. This is currently our second highest risk fund in the portfolio (even though it is lower risk than many stock funds) so a drop like this should be expected in a down market.

American Century International Bond (BEGBX) slipped 2% as the U.S. dollar turned around, partially offset by an up month for bonds in general. The dollar has fallen just about as far as it is going to, in our opinion, and we may shave this holding down if an attractive alternative comes along.

Safer stock funds like Bridgeway Balanced (BRBPX) did relatively well, down 1.12%

Foreign stocks continued to outpace the U.S. market. Forward International Small Company – this portfolios highest risk fund, was up 1.71%.

The Aggressive Growth portfolio lost .95% for the month of January. We were too light on longer term bonds to have a positive return in a month most categories of funds slipped.

Foreign stocks continued to outpace the U.S. market, Artisan International Small Cap (ARTJX) was up 1.37%. Those in the alternate, Forward International Small Company (PISRX) – did fine with a 1.71% gain. Japan was fair, with T. Rowe Price Japan (PRJPX) down .59%.

So much for mega cap stocks to lead the market in 2005, Bridgeway Blue Chip 35 (BRLIX) was down 3.34% in January – our biggest dog last month.

Telecom stocks were weak, with Gabelli Global Telecom taking a 2.55% dive. We’re going to sell this fund soon.

Shorter term bonds were flat but flat wasn’t too bad in January. Payden Global Short Bond (PYGSX) was up .14%, Vanguard Short Term Corporate (VFSTX) was unchanged.

December 2004 performance review

January 17, 2005

The Conservative portfolio posted a nice 9.35% gain in 2004 – not bad for portfolio with a 30% short term bond stake.

The main drivers were utility and foreign stocks. American Century Utility Income was up a whopping 23.8% in 2004, as this formerly out of favor category finally caught investor’s attention. Forward International Small Company – a high risk fund we have at just 5% now – was up 25.5%.

On the downside, we sold our real estate fund holdings in the Safety portfolio too early. SSgA Tuckerman Active REIT (SSREX), our past pick, was up an astounding 37% in 2004 putting it in the top 10% of a high performing category. This after a 31% gain in 2003. Trends can last longer than would seem logical – well after prices reach fair value - and we need to wait until performance chasers start piling in before getting itchy trigger fingers to sell.

This year American Century International Bond was up 13% (and 60% since added), Vanguard Dividend Growth, up 11%, and Vanguard High Yield, up 8.5% as junk bonds continued to beat safer bonds. Bill Gross at Harbor bond continued to win, turning a 5.5% return on a low risk portfolio.

Going forward, we’re keeping an eye on junk bunds, aware that they may be overpriced. With just a 5% stake we probably won’t cut it back just yet.

Our Aggressive Growth portfolio was up 14.54% in 2004 – beating all major stock and bond indexes (and with 25% short term bonds no less!). The portfolio is up just over 50% since April 2002 – 5 times the return in the Vanguard 500 Index fund.

The one big miss was way back in 2002 when American Century Global Natural Resources shut down and we had to kill our 10% stake. While we’ve done well with Japan, the category we added in summer 2002 with the proceeds of the Amcent fund sale. Most global natural resource funds are up about 70%-100% since then.

If you can remember back to 2002, nobody wanted anything to do with global natural resource stocks, largely commodity and energy companies. Of course, this was why we were attracted to the area. Stupidly we ignored the ultimate sign of category opportunity – when fund companies have to close funds for total lack of investor interest – we should have doubled up on this area. We did recommend such a fund in our 2004 Hotsheet (iShares S&P Global Energy Sector Index - IXC) so all was not lost.

Fortunately when Vanguard reconfigured their Utility fund for lack of investor interest we were smart enough to add new utility funds to replace it. Utilities went on to become among the best categories in short order. Not to keep kicking ourselves, but fund companies killed many internet funds in 2002, another contrarian buy sign we missed for our high risk portfolios.

Japan wasn’t as hot in 2004 as it hade been the previous year, with the Nikkei index up 7.6% for the year. Returns were muted by fears that a falling dollar could sink Japan’s export business. T. Rowe Price Japan managed to double this market return with a 16.8% move.

We turned away from microcap a few months early. Now-closed Bridgeway Ultra Small Company Market fund was up almost 15% in the last few months alone. Microcap stocks have now beat the S&P500 for six years running and believe us, the gig is up here. We made over 100% on this fund while we owned it, from an unknown fund with a few million to a near billion dollar closed fund. When a billion dollars gets an idea – it never leads to a 100% return. We’re more optimistic about another unknown Bridgeway fund with just a few million in assets, recently added Bridgeway Blue-Chip 35

Telecom stocks were a top performing category in 2004. Gabelli Global Telecom (GABTX), an overpriced but decent fund, was up a nice 23% in 2004 after a 42% gain in 2003 for us. Despite the positive performance, this fund is on the block to be removed from our portfolios. We want to lower our fees and the great telecom comeback is about over. More money is in the fund and the tax loss carryforwards on the books has dwindled.

We cut back our stake way too soon in Artisan International Small Cap – now 10% from a high of 20% when it was a really good buy. We’re up 94% since added, and the fund managed to return 25.7% in 2004 alone. This fund remains closed to new investors but our alternate Forward International Small Company did equally well with a near identical showing in 2004.

The profits just keep flowing in emerging markets, with SSgA Emerging Markets (SSEMX) up near 25% and about 100% since we added the fund.

We’re thinking about less bonds and foreign stocks, more U.S. stocks for the future.

November 2004 performance review

December 16, 2004

No funds in this portfolio are issuing a capital gains distribution that warrants the selling of the fund to avoid a tax hit. We do advise new investors who are just adding a stake to wait until after the record date to purchase this portfolio’s funds in a taxable account.

Harbor bond is paying out about $.40 per share or 3.3% in year end distributions, about 2/3rds of which is high tax.

American Century International Bond paid out about 3.3% to shareholders of record 12/6/04, and virtually all of it is ordinary income from bond interest. New money has watered down the dividend, and the fund had some losses from when the dollar was strong a few years ago.

Although there is no big dividend planned (thanks to past losses and big inflows) Vanguard High Yield Corporate has a 1%/360 day redemption fee.

There is generally very little in year end distributions with bond funds. Bond funds pay out the income they receive from bonds in the portfolio during the year, either quarterly or monthly, so there is little in stored up income to distribute. There is generally very little capital gains made owning bonds, compared to stocks.

In theory you could avoid a small taxable income dividend by selling a fund a day before the distribution and getting a slightly higher NAV. This could be taxed as a low tax long term capital gain tax rate assuming you owned the fund for over a year. Shorter term holdings are not worth selling at a gain as the tax hit is just as bad as the distribution.

In a good year or two for bonds, the manager may have realized some capital gains selling bonds at a profit.

The worst distribution was in one of the best funds. Artisan International Small Cap paid out an 11.38% distribution to shareholder of record on 11/17/04. As this fund has a 2%/90 redemption fee, and most of this dividend was low tax long term capital gains, it is unlikely it was worth avoiding.

SSgA Emerging Markets paid a 3.92% distribution in October, but with a near 90% return since we added it we can’t complain. The fund has a 2% redemption fee for 60 days.

October 2004 Performance Review

November 15, 2004

The Conservative portfolio climbed just over 1.5% in October, aided by a 4.35% increase in American Century Utility Income (BULIX).

Utilities are proving to be one of the strongest areas in the market this year. We’ve owned a utilities fund in most of our model portfolios these past few years so we are pleased to see this formerly out of favor area take off.

What really kicked off the current Utilities rally, in our opinion, was not just falling interest rates which make utility dividends more attractive. The main cause was Vanguard’s decision to kill their Utility fund, which they did by re-branding it a more diversified dividend growth fund in late 2002. What happened after the change? In 2003 the Dow Jones Utility Index gained 29%, 20% this year alone- trouncing the S&P500. When fund families want out of certain types because of a lack of investor interest, it’s often a good time to invest in that area.

Another plus for the portfolio was the 3.72% jump in the American Century International Bond fund (BEGBX). Bonds were strong last month, but the real pop was from a falling U.S. dollar.

Speculative debt continued to climb; Vanguard High Yield Corporate was up 1.71%, our second best fund in the portfolio. No fund in the portfolio was in the red last month.

Value oriented large cap stocks performed poorly, and the Vanguard Dividend Growth fund was up just .79%. The Dow was actually down .36% last month – essentially the only index that didn’t post a gain. The main culprit was Merck (MRK), but general weakness in mega cap stocks explains the poor showing.

The Dow is down 2.47% for the year at the end of October, compared to the S&P500’s 3% gain. The upside in the S&P500 was mostly from the smaller companies in the index. The S&P100 index, which tracks the largest stocks in the S&P500, is actually down for the year.

Giant cap stocks have performed poorly compared to the broad market for the last five years – correcting years of mismatched outperformace by large caps in the last ‘90s. It’s time to consider these mega cap stocks again.

The Aggressive Growth portfolio climbed 1.88% in October.

We just sold our remaining stake in Bridgeway Ultra Small Company Market (BRSIX) after a near 80% return since we added it to the portfolio in early 2002 – thanks for the ride Bridegway! The fund was up 2.13% for October, ending our run on a strong note.

There is just too much money going into microcap stocks for us to be comfortable with these funds right now. We’ve moved the money into a fund with the opposite strategy the Bridgeway Blue Chip 35 (BRLIX), which owns the very largest stocks in the market. This is one of the lowest fee funds in the business, and can’t attract a dime in assets because mega cap stocks are out of favor with investors.

Smaller cap and emerging market stocks performed well again last month, with Artisan International up 4.27% on the heals of September’s 3.4% rise. This fund is now up 70% since we added it back in early 2002. SSgA Emerging Market gained 2.61% and is now up 13.77% over the last three months.

Telecom continues to have a good run this year, with the Gabelli Global Telecom posting a 3.48% gain in October.

September 2004 Trade alert!

October 27, 2004

The Conservative portfolio rose 1.34% in September – a nice move for a lower risk portfolio and well above our Safety portfolio’s return.

Since mostly longer term bonds did well last month, most of our action was in stocks. The Vanguard Short Term Corporate fund, which makes up 30% of the portfolio, was up just .18%. Since every other fund but one beat the S&P500 and Dow, the portfolio scored a good return anyway. The other small gainer was Harbor Bond.

We thought Bill Gross, Pimco’s bond manager extraordinaire, might be easing up on longer term bonds in response to rates falling (after correctly adding some longer term treasuries after rates rose earlier this year). His moderate risk Harbor Bond fund rose just .28% in September. Junk bonds and longer term bonds did well last month (Vanguard High Yield was up 1.22%), while shorter term bonds were up only slightly. The Vanguard Total Bond Index fund, which represents the entire investment-grade U.S. market, was up .16%. Gross likely has a bit more in lower credit quality bonds than you see in the index, as well as some foreign bonds.

The yield curve has been flattening out for a few months now, ever since Alan Greenspan started raising rates. Last month longer term rates fell, while shorter term rates remained largely the same. This is flattening out effect – which means shorter term bonds did not go up in price significantly.

Our top performer in our lowest risk portfolio was a 1.86% return in American Century International Bond fund. The dollar is still under pressure as our ongoing trade gap and low interest rates chip away at any dollar strength.

The nice thing from these yield curve moves is money market rates and ultra short term bond funds (our preferred near cash holding) is starting to yield almost as much as inflation.

Falling interest rates are part of the reason Utility stocks have been hot this year. We’ve been big utility investors in our MAXadvisor model portfolios because the category had been one of the most out of favor with fund investors. In fact, many fund companies closed their Utility funds in recent years. As is often the case, this category went on to impress. Our American Century Utility Income fund (BULIX) was up 2.3% last month, and some 43.8% since added in early 2003 – far more than the S&P500. A little more of this and we’ll have to ease up on our stake.

Our most speculative choice in this portfolio, the Forward International Small Company fund, was up a solid 5.18% in September, regaining much of the ground lost in recent months. The whole small cap and emerging market areas have regained some interest in recent weeks.

Real estate, an area we wrote off about 14 months ago in our two lowest risk portfolios - has been hot. We had thought the good times were over for real estate in 2003. We sold our real estate fund holdings too early, but won’t back a stake without a significant pullback.

Bridgeway Balanced recovered nicely from a mysterious setback last month, up 2.28%. This gain was almost as odd as last month’s decline. How could a fund that owns stocks and writes covered calls (which lowers upside) and owns bonds beat both bond and stock indexes for the month?

We are making the following change to our Aggressive Growth portfolio on October 31st, 2004:

<ul><li>SELL Total holding of Bridgeway Ul-Sm Co Mkt (BRSIX). This holding was 5% of the total portfolio.

<li>BUY Add to existing 15% stake in Bridgeway Blue-Chip 35 (BRLIX) to make this holding 20% of the total portfolio.

Micro cap has outperformed larger cap for years now, and too much mutual fund money is going into the category. Large cap should beat micro cap for the next 1-3 years.

August 2004 Performance Review

September 17, 2004

A strong bond market helped the Conservative portfolio gain 1.15% in August.

Foreign bonds led the way, with the American Century International Bond (BEGBX) up a sharp 2.4%. That funds strong performance was based largely on strength in bonds, but partially on a weakening dollar as our ongoing trade imbalances weighed on investor’s minds.

Junk bonds were a close second in terms of performance in the portfolio, as some signs of a slowing economy (or rather growing at a slower rate) didn’t drag down more speculative debt. Vanguard High Yield (VWEHX) was up near 2% in August and has done about as well as the S&P500 over the last year. The time to overweight junk bonds is officially over.

Even short term bonds were strong. Vanguard Short Term Corporate (VFSTX) rose .84%.

Bridgeway Balanced had a weak month, down .72%. This is surprising because many stocks were up slightly last month, and bonds were strong. Such an environment should be good for this fund.

Utility stocks have been strong for a year. Last month American Century Utility Income (BULIX) rose 2.9% and is up some 40% since added to the portfolio in early 2003, outpacing the S&P500 by more that 5% in that time. We are considering easing up on our utilities allocation if this keeps up.

More speculative smaller cap stocks continued on a weak note. Forward International Small Company (PISRX) slipped .38%. Our lowering of our smaller cap exposure across all our portfolios is starting to pay off, and is one reason we’re beating the broad market for virtually all time periods in all of our portfolios.

Bonds posted larger gains than stocks in August, so the stock heavy Aggressive Growth portfolio was only up .82% - our worst showing but still ahead of the market.

Even short term bonds were strong. Payden Global Short Bond (PYGSX) was up .81%, while Vanguard Short Term Corporate (VFSTX) rose .84%.

More speculative smaller cap stocks continued on a weak note in August, but Artisan International managed a .9% return.

Microcap stocks continued to pull back. The once red hot Bridgeway Ultra Small Company Market (BRSIX) fell 2.28% and is down near 7% in the last three months. Our reduced stake in smaller cap stock funds is helping us stay ahead of the market indexes.

The hottest area in the portfolio was emerging markets, which bucked a trend against speculative stocks. SSgA Emerging Markets was up 4.78% - our best performer in August.

July 2004 performance review

August 17, 2004

The Conservative portfolio was down .45% in July. We’d like to have seen this fund up last month given the positive returns for bonds, but the small stock stake wiped our bond gains.

The biggest hit was a sharp 4.66% drop in the Forward International Small Company fund (PISRX). This market is hitting higher risk funds the hardest, and this top performer is the type that falls the most when the going gets tough. There is a reason we cut our stake in this fund in half to just 5% a few months ago – the downside risk was increasing with the rising market.

Another poor showing was Vanguard Dividend Growth (VDIGX) falling 2.62% - a touch more than the fund was up in the previous month. This fund still beat major stock market indexes, so “poor showing” only means when compared to other holdings in the portfolio.

There is a significant difference between Bridgeway Balanced (BRBPX) and Gateway (GATEX), the former is in this portfolio, the latter in the safety portfolio. While both use stock options as the main ingredient, the strategies are quite different.

Gateway is lower risk – the fund owns a basket of stocks similar to an index, writes covered calls on the holdings, and buys protective stock index puts. Bridgeway buys slightly higher risk stocks, writes covered calls on some of them, and sells “secured” puts, meaning the fund has the money required to buy the stock if the stock falls.

Secured put writing has the risk profile of stock ownership, without the upside. This sounds undesirable (all of the downside, none of the upside?), but serves a purpose. If the market is flat, such a strategy creates income. In an up or flat market Bridgeway Balanced should beat Gateway, which “wastes” money buying protective puts – which only make money if the market goes down. In a down market Gateway should win.

In July Gateway fell just .76% while Bridgeway Balanced slipped around 2.3% - almost as much as the market fell - as the put writing incurred losses. In June, an up month, Gateway rose 1.15% compared to Bridgeway’s 1.25%.

Another explanation of the big discrepancy in July was that option premiums increased. As Gateway is both long and short options (writes calls but buys puts), option premium increases don’t hurt as much as with Bridgeway, where all option stakes are shorts (the fund sells options on both sides, calls and puts). Option premiums tend to go up when the market gets crazy as investor’s buy options to either insure their portfolio or speculate that plus option prices are based on volatility. If option premiums rise after investors sell a call or put, they can lose money. We noted this risk in the last commentary, and it came to pass in July.

Harbor Bond (HABDX) was up just over 1% as bonds rallied again. As noted last month, fund manager Bill Gross loaded up on longer term bonds in recent weeks (right when everyone was sure bond prices would keep falling) and benefited from the fall back in rates.

Fears of a weakening economy didn’t hold back junk; high yield bonds had another good month, with Vanguard High Yield Corporate (VWEHX) up 1.11%.

Foreign bonds were weak even though we’d expect the dollar to fall with fears of a slipping U.S. economy – apparently investors are afraid of a global slowdown. American Century International Bond (BEGBX) was down .52%.

The Aggressive Growth portfolio was down just under 3% in July – our worst showing. In July, higher risk stocks fell the hardest.

All foreign markets were weak, but Japan fell more than most. T. Rowe Price Japan fell almost 7%, erasing the previous month’s big gain. Investors were worried about the U.S. economy decelerating. Such fears tend to hit Japan as the U.S is obviously a big market for their exports. Other foreign markets were almost as bad. Artisan International Small Cap fell 4.5%. Oddly the SSgA Emerging Markets fund (SSEMX), which is the highest risk of the bunch, fell just 1.78%. This could be explained by rising energy prices, which tend to benefit some emerging markets. Latin America was strong last month, which helped some diversified emerging market funds.

The worst showing was a 7.31% drop in Bridgeway Ultra Small Company Market (BRSIX). Microcap’s big run of outperformance is likely over and we’re happy we reduced this stake to 5% from 20% last summer, even though that move was a bit premature.

Foreign bonds were weak despite that we’d expect the dollar to fall with fears of a slipping U.S. economy – apparently investors are afraid of a global slowdown. American Century International Bond (BEGBX), which is in other portfolios, was down .52%. The recently added Payden Global Short Bond fund was up .43%. Unlike BEGBX, this fund hedges currency fluctuations (and has U.S. as well as foreign bonds).

This portfolio didn’t have any action in the few strong areas of the stock market to help prop up returns in July – namely Utilities and Energy.

June 2004 performance review

July 15, 2004

The Conservative portfolio climbed just over 1% in June. Two of the funds in the portfolio were flat; American Century International Bond didn’t budge, while low risk Vanguard Short Term Corporate moved up less than one tenth of one percent.

The biggest gainer was in Forward International Small Company (PISRX) which rebounded sharply, up 4.78%, as investors got comfortable with higher risk international stocks again.

Vanguard Dividend Growth fund (VDIGX) was up 2.4% as investor’s interest in safer U.S. stocks continued.

Harbor Bond (HABDX) was up .46%. It’s worth noting the fund’s manager, Bill Gross, recently bought more U.S. bonds as rates on the ten year treasury bond inched closer to 5%. The move seemed to work as rates came down in recent weeks, pushing bond prices up.

In these flattish markets, a fund like Bridgeway Balanced (BRBPX) offers a fairly consistent, lower risk income return. The fund was up 1.25% in June. This fund sells covered call options. Unfortunately for option writers, volatility has been low in the market and option premium has been minimal, leaving a potential for a lower return if volatility returns quickly and option prices rise, hurting recent sellers. The bond side of the portfolio worked in their favor in June as well.

Junk Bonds rebounded, with the Vanguard High Yield Corporate fund (VWEHX) up 1.26% for the month. This is a fairly conservative junk bond fund and doesn’t climb as much when more speculative debt rises in price. As such the fund is more correlated to general interest rate fluctuations as credit risk takes a back seat to interest rate risk.

The Aggressive growth was our strongest performer in June, up 2.14%. The portfolio is up over 27% over the last twelve months, outpacing the Nasdaq, Dow, and S&P500, even though the portfolio holds bonds, is more diversified, and is less risky.

The biggest gainer was a 7.22% increase in T. Rowe Price Japan (PRJPX). The hot fund is now up 61% over the last twelve months, far outpacing a 19% move in the S&P500, a 26% jump in the Nasdaq, and a 33% rise in the smaller cap Russell 2000. The volatility of Japanese stocks has risen recently, which has led to some spectacular big months (and some quick drops). In the last thirteen months, this fund has posted monthly gains of over 5% eight times. No question about it - the hot money has found Japan. If the U.S. market stays weak and Japan gains another 20% we may lower our stake here.

There was good action abroad beyond Japan; Artisan International Small Cap (ARTJX) moved 2.62%, while Gabelli Global Telecom rose 1.69%. Emerging markets were weak, possibly on falling commodity prices and fears about the risks of emerging market investing.

The later was brought front and center with Russia’s ongoing battle with Yukos and the company’s jailed Billionaire 41 year old executive Mikhail Khodorkovsky. Shareholders hate it when emerging market governments deal too aggressively with companies. The strong handed moves can smack of nationalizing, the ultimate fear of an emerging market investor. In such a scenario the state takes over control of a company and jails or kicks out the former executives and the shareholders they ostensibly represent. SSgA Emerging Markets (SSEMX) fell .48% last month. Emerging markets was one of the only weak fund categories last month (the old Dreyfus Emerging Markets fund we had in this portfolio before it went load was actually up last month, but most emerging market funds were flat to weak.)

Artisan International Small Cap was up less then the near 5% move in the Forward International Small Company (PISRX) fund which is in our other portfolios. Artisan has a bigger Russian and smaller Japan stakes, explaining some of the gap. Artisan is more mid cap oriented, partially because the fund’s size leaves less options open. Smaller cap stocks have been hot again.

FMI Common Stock (FMIMX) was up 4.71%. More conservative stock funds in the mid cap range should be the best performers over the next year.