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June 2002 performance review

July 15, 2002

We've cut back on funds that invest in REITs (real estate investment trusts) compared to our allocations of a couple years ago, as they have had a very good run-up in price since then. We feel the real estate market is long overdue for a correction. Portfolios #1 and #2 are now our only model portfolios with any REIT allocation, and in those it is only 5%. If REITs continue to rise in price, we may remove the allocation completely by the end of the year.

We are very positive on utilities right now, and have chosen good utilities funds operating at the appropriate risk level for each portfolio. For the safety portfolio, we chose the conservative Strong Dividend Income fund. Its quest for high dividends has caused it to be heavily weighted in utilities and energy/natural resource stocks, two areas we like right now. This fund won't have a huge year if utilities rebound sharply, but it also will not drop significantly if we are off the mark.

Value stocks are not supposed to play a roll in more aggressive portfolios. While we chose funds with higher-risk/higher-reward profiles, as we increase our overall portfolio risk, we still try to hit areas that we feel have the best opportunity to perform well. Hence our utilities pick and our value stock pick. We are much less negative about growth and tech stocks than we were two years ago, but we still feel that there is a valuation gap between the two asset classes, albeit much less than in early 2000. Our value choice for this portfolio is the newly launched Royce Value Plus fund, run by the great Chuck Royce.