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June 2003 performance review

July 15, 2003

Our Conservative portfolio was essentially flat, up just .36% in June. The weak link was international bonds, which have been among the strongest asset classes over the last year or so.

Last month the American Century International Bond fund slipped 1.9% on a strengthening U.S. dollar. Global interest rates seem to be edging up along with a rising U.S. dollar. Both are bad for foreign bonds so we expect next month's returns to be a bit lower.

Junk bonds were strong again with a gain of 1.92% in the Vanguard Hi-Yield Corporate fund. An improving economy is as good for higher-risk bonds as it is for stocks. Like stocks, these bonds have come very far, very fast this year and would be susceptible to any perceived weakness in the economy going forward.

Investors have moved into higher yielding stocks in this last leg of the recent stock rally, as exhibited by the SSgA Tuckerman Active REIT fund and the Vanguard Dividend Growth fund both climbing just over 2% - more than high risk tech stocks rose last month. This in contrast to the last few months where the market was led by low or no dividend (and even no earnings) stocks prevalent on the Nasdaq. 

The American Century Utility Income fund had the best month of those funds in the portfolio, with a 2.46% gain. Higher interest rates (if we get them) coupled with financial trouble for certain utility companies in the sector could unsettle utility stocks in coming months. The high dividends, particularly after the tax breaks, should help. It's still up in the air how much of the dividends from utility stocks will be taxed at the new low rate as some of these companies don't pay tax on the earnings the first time around, after years of losses on their books.

The Aggressive Growth portfolio was our strongest portfolio in June, up 3.36%. All the funds were up, and several were up strongly given the U.S. stock and bond markets returns for the month. 

Japan seems to have finally turned around; the top-performing fund in the portfolio was the T. Rowe Price Japan fund up 6.69%. This is the first time that fund has been the leader in this portfolio. Out of nowhere investors have become interested in Japan on some improved economic news and a general trend to contrarianism.

The Artisan International Small Cap fund continues to deliver, up 3.33% for the month.

The Bridgeway Ultra Small Tax Advantage fund was up 4.87% and continues to lead the way in all our portfolios. The fund was the strongest performer in the portfolio for the last 3 months, up 30.86%, and is up over 24% since we put it in the portfolio in April 2002. Meanwhile U.S. stocks are still down from those levels. The fund invests in microcap stocks (stocks with market caps below $250 million in most cases) and has low fees. We are a little concerned this area has done a little too well, but was cheap enough at the onset that it shouldn't have to give much back if the market slips. Investors are enamored with speculating these last few months, and many of this funds holdings fit the bill.

The Gabelli Global Telecom fund was up 4.55% in June and is now at break-even from April 2002. This was an area that everyone wrote off late last year at the bottom of the telecom wreck.

Gains in emerging market bonds have slowed, partially because the dollar is rising, partially because this area has already made big gains. The Fidelity New Markets Income fund is up over 25% since we put it in the portfolio over a year ago, but was up only .25% last month.