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August 2002 performance review

September 15, 2002

We recently shifted some of our money market allocation in this fund into the very beaten down Vanguard Utilities Income fund. The fund rallied up, then promptly fee in recent market weakness. So far October looks strong for the fund. This move raised the risk level for this model portfolio slightly, but we feel with the time horizon most investors have who chose this portfolio the chance of these high yielding stocks not producing income in excess of most bonds is slim, and this is primarily an income model portfolio. We are more concerned that Vanguard is shifting the strategy of this fund but for know we will keep it. The new strategy shouldn't hurt the fund much, although it becomes more like a fund we already have in this portfolio, the Strong dividend income fund.

Where's the gold? As longtime MAXfunds readers know, we recommended gold mutual funds as our contrarian choice in our allocation models of a couple of years ago. We don't recommend gold funds any more, as many have risen over 50% in the last 12 months. Starting the first week in April 2002, we recommend selling out any gold funds you may own. In our opinion, this is yet another sucker's rally in gold stocks; especially, since the actual price of gold - on which the companies these funds invest in make money in the first place - has barely budged. Basically, what you're seeing now is a rally on "great expectations" of the price of gold taking off, and for merger activity in the sector to stay on its recent uptrend. While speculators could easily drive prices up another 30% - 50%, we're not banking on it and it would be a higher-risk bet than it was a year ago. The easy money has been made. Frankly, after 9/11, Afghanistan, a debt crisis, and a very loose monetary policy, if gold prices haven't taken off yet, they ain't gonna.