• EQUITY FUND OUTLOOK -- Thurman Smith: Small- and mid- cap areas present opportunities
• Forbes/Lehmann INCOME SECURITIES -- Richard Lehmann: Bond Funds: Stay away in 2004
• THE INTELLIGENT FUND INVESTOR -- Dr. Gary Harloff: Wireless, Black Gold, Health & Finance

• PERSONAL FINANCE -- Neil George: The 12 percent solution
• Richard Band's PROFITABLE INVESTING -- Richard Band: Funds for the next 10 years

Forbes/Lehmann INCOME SECURITIES
6175 NW 153rd St., Ste. 201, Miami Lakes, FL 33014.
Monthly, 1 year, $195.

        Richard Lehmann: "Despite all predictions, interest rates continue to trend downtrend. Surprise, corporate rates are leading the way with AAA corporates, at 4.00% being 14 basis points below Treasuries. This anomaly appears to be due to most corporates selling on a yield-to-call rather than a current-yield basis. Hence, we are comparing non-callable ten-year Treasuries with likely-to-be-called corporate bonds. It's my belief this call will not come for most of these securities because in a year or two, rates will be higher. Hence, fixed income investors need to be thinking of how to minimize their exposure to an erosion of their portfolio's value while at the same time preserving the same cash flow yield. I continue to believe that the best protection will be in convertible bonds and preferreds. Investors should also seek issues selling at current yields one percent or more below their coupon rate, that also have near-term call dates. If rates rise, such issues will not be called providing you with a market-rate security going forward. But that's advice for new investments. Let's review what you may be holding now that should be off loaded.
       My first candidates for sale are open-end investment grade bond funds. These funds achieve superior returns through trading and leverage. Leverage is great when rates are falling. It is deadly when rates rise. Also, these funds will be buying the new issues coming to market with the current low yields as their coupon rates. This means they face sizeable erosions of principal since calls will not factor into their likely maturity date. The low coupon bonds the funds purchase will be outstanding until their maturity date, be it is ten years or thirty. This will depress bond fund returns.
        The second candidates for sale are high-yield bond funds, albeit for different reasons. These funds still look attractive because high yields still run from 5.89% to 11.10% and are not as tied to overall interest rates. However, such funds face different hazards in 2004. First of all, the current demand for yield is causing lower-quality companies to come to the market. This means the default risk is rising. Secondly, there is a noticeable deterioration in the bond indenture protection provisions. Specifically, early redemption features are becoming more liberal and use of proceeds more dubious. A great concern here is that bond proceeds will be used to declare special one-time dividends for closely held companies to take advantage of the new dividend tax rate to cash out some equity. Another vulnerability of high yield funds is that they will likely see net share redemptions in 2004 as investors begin to realize that the risks outweigh the marginally higher returns. The way I see it, it is yet another example of the worst mistakes being made in the best of times because euphoria clouds judgment. The high yield bond market is currently in a euphoric state. After June, I expect the Fed will stop pumping excess liquidity into the credit markets. When that happens high yield credit availability will dry up first.
        But all bond mutual funds are not equal. For 2004 I am recommending you avoid the bond fund and if you don't want to buy the individual securities that I typically recommend, focus instead on closed-end preferred funds. The bond funds are more vulnerable because current bond yields are ridiculously low. Preferred funds, most of which are only one or two years old, have up to a 2% yield advantage over bonds and preferreds have traditionally been significantly less sensitive to interest rate rises. In addition, many will be offering a dividend that is at least partially eligible for the 15% tax rate. In fact, 2004 may well be the year that the market starts to fully value the lower tax treatment of true preferreds. Note that such closed-end funds may sell at a premium or at a discount to their net asset value. Those with a well-structured portfolio and low leverage are worth a premium today so don't be turned off by the fact that they usually sell at a small discount."

Richard Band's PROFITABLE INVESTING
P.O. Box 60042, Potomac, MD 20859.
Monthly, 1 year, $199.

       Richard Band: "Amid the noise and bustle of the markets, it's easy to get absorbed in trifling daily events. Let's take a deep breath. Think long-term for a minute - really long-term, say 10 years or more. Are there any "core" mutual funds you might want to keep that long, without ever selling a single share?
       Not many, I suspect. Portfolio managers come and go, especially at the big mutual fund complexes. "Hot" investment themes light up the sky for a while - like the Internet mania in the late 1990s - then crash and burn, turning star fund managers into goats.
       Clearly, you've got to be extra picky if you hope to find an outstanding fund to put away for the long haul. But the rewards for choosing well are enormous.
       A true long-term winner not only brings you great returns but also spares you the bother of constantly having to move money around in search of the next big trend. You save on taxes, too. (Remember, our favorite Uncle demands a piece of the profits whenever you cash in a successful investment.)
       Sifting through the 14,000 or so funds out there, I came up with just a handful of no-load (no sales charge) funds that I wouldn't mind owning for the next decade or longer. Here they are, with my reasons for trusting them:

       Perhaps, as you read this, you're in your 20s or 30s, salting away a few dollars for retirement. Or maybe you've got a child or grandchild you want to help reach some distant goal (college education, down payment on a house, etc.). In either case, you can probably live with fairly wide interim fluctuations in the fund's share price - as long as the account ends up in the right neighborhood.
       You're the ideal candidate for an aggressive fund. (For a young person, as Kierkegaard pointed out, "the greatest danger is not to take a risk.") However it's crucial to avoid funds that may wipe you out in a bear market. Losses of 80% or 90% are tough to recover from, even after many years.
       My #1 aggressive fund takes carefully calculated risks. I'm talking about Royce Low-Priced Stock Fund (RYLPX; 800/221-4268; $2,000 minimum). In stark contrast to the "we don't care what we pay for a stock" bozos who captained so many growth funds during the bubble, skipper Whitney George has an uncanny eye for value.
       Over the past three years (including awful 2001 and 2002), George has racked up a handsome 50.8% cumulative return. Even more impressive, he has created almost twice as much wealth as the S&P 500 index over the past decade. Such numbers, sustained over such a lengthy period, are too good to shrug off as mere luck.
       What to do now: Buy RYLPX at $15.10 or less. Available without a transaction fee through leading discount brokers, including TD Waterhouse, Fidelity and Schwab.

       Accumulators? They're the folks trying to build wealth as rapidly as possible, but within a framework of moderate risk. You'll often find them in the 40 to 55 age range. While they're not quite ready for retirement yet, the eventuality does cross their minds - and they're keenly aware that the last lap of the race is the one that counts most.
       For those of us in the accumulator class, it's a toss-up between Dodge & Cox Stock Fund (DODGX) and Selected American Shares (SLASX; 800/243-1575, $1,000 minimum). Both of these large-cap value funds have trounced the S&P for a decade or more, including 2003, when both posted sparkling returns in excess of 30%.
       Unfortunately DODGX has just closed to new investors. If you heeded my plea to sign up before the deadline, you can pat yourself on the back. Keep buying DODGX at $119.20 or less.
       Otherwise, I'm confident you'll be well-served with SLASX. This fund is more concentrated than DODGX, stashing a higher percentage of its assets into a smaller number of companies. However, SLASX follows a strict price and quality discipline for choosing stocks, which helps keep the fund's own share price on a steadier path than the S&P 500 index.
       Three other things I like about SLASX:

• Lead manager Chris Davis is still only 38 (despite more than 10 years' experience running the fund). Chances are, he'll be at the helm for a long time.
• The Davis family, plus employees and directors of the Davis funds, have poured $2 billion of their own money into the funds. These folks eat their own cooking. Their interests are aligned with ours.
• Portfolio turnover typically runs about 20% annually. In other words, SLASX holds its stocks for an average of about five years (compared with less than one year for the typical equity mutual fund). Low turnover cuts the fund's operating costs, as well as your tax liability.

       What to do now: Buy SLASX at $34.20 or less. No transaction fee when purchased through leading discount brokers.

       OK, let's say you're on the verge of retirement. Now you've got a big decision to make. Where will you get the money to live on? If you plan to rely on investment income to help meet the bills you needn't look much further than the Vanguard family of funds. Vanguard's ultra-low overhead funnels more cash into your pocket (and less into the fund manager's).
       For a solid foundation to your income portfolio, go with Vanguard's Wellington Fund (VWELX; 800/662-2739, $3,000 minimum). Like our Profitable Investing model portfolio, team-managed VWELX owns a mix of stocks and fixed-income instruments. The bonds and cash stabilize the portfolio in rough markets, while the stocks provide long-term growth of principal.
       Despite the hefty fixed-income component, Wellington has put up surprisingly strong numbers. In the 10 years ended December 31, the fund garnered a total return (price gain plus reinvested dividends) of 186.5% - slightly more than Vanguard's all-stock Index 500 fund. Meanwhile, VWELX share price tends to fluctuate much less, from month to month, than the leading stock indexes.
       Some retirees can probably do without bonds altogether. If you've got a generous pension plan behind you (plus Social Security) to cover necessities, you might consider Vanguard Equity Income Fund (VEIPX) instead of Wellington.
       Granted, VEIPX has generated almost exactly the same return as VWELX over the past decade, and both funds are throwing off virtually identical cash yields of around 2.3% - 2.4%. (Distributions are paid quarterly.)
       Looking to future years, however, I believe that Equity Income will increase its payout faster than Wellington, thanks to the power of dividend growth. If you're just entering retirement now, with a life expectancy of 20 to 30 years, the all-stock fund will likely reward you with a richer lifestyle - assuming you can handle the inevitable thrills and chills of the stock market roller coaster.
       What to do now: Buy VWELX at $29.70 or less, and VEIPX at $22.90 or less. For retirees and other investors needing a regular paycheck, Vanguard offers an optional automatic withdrawal plan (every month, two months, three months, six months or once a year). Proceeds are transferred electronically to your bank account. Transfers can range from $50 to $100,000 each. Call 800/662-2739 or visit www.vanguard.com to get the necessary forms.
       At age 65, I advise you to limit your withdrawals to 4.5% of the balance annually. That way, you all but eliminate the risk that you might outlive your money."

PERSONAL FINANCE
1750 Old Meadow Rd., Ste. 301, McLean, VA 22102.
1 year, 24 issues, $97.

        Neil George: "A few of my favorite companies in Korea have been trouble for prospective buyers. Here's the solution: Buy the Korea Fund (NYSE KF). The fund has a big collection of some of my favorite companies, which are building impressive sales, improving margins and are still cheap when compared to their better-known US peers.
       One holding is Samsung Electronics - a favorite of mine ever since it got liberated from its old Chaebol group during the market reformation of the '90s.
        You know this company really well. More likely than not you've been buying its products either with its own name or other US or Japanese brand names on the boxes. From the latest televisions to computer screens to phones to nearly anything with a chip in it-including your microwave-it's likely Samsung had a hand in it.
        But try to buy it; your broker will tell you over and over that it's too hard to do. Well, the Korea Fund is made up primarily of this stock-it's the No. 1 holding.
And the list of other greats continues. Hyundai went from a joke of a company to having its products parked in more and more driveways around the world. It's in Korea Fund too. Then there's Posco, the renamed Pohang Iron and Steel. These guys export tons of their steel to China-a huge market that's hard to crack.
       And the best part: The Korea Fund is priced at a discount of 12 percent to what the stocks are actually worth. It's a buy with or without your broker."

THE INTELLIGENT FUND INVESTOR
26106 Tallwood Dr., North Olmstead, OH 44070.
Monthly, 1 year, $179

       Dr. Gary Harloff: "Our readers know that our investment philosophy and capability differs substantially from the usual broker/planner. They are generally once-a-year (buy-and-hold) sales people focused on sales. They may propose a large bond allocation, a very diverse core position, and a small sector allocation. A typical investor receives 1/3 of the S&P 500 return. In contrast, we promote concentrated portfolios, with few if any bonds, and a large composition of sector rotating/country/index investments that change with the markets. We try to stay with changing market money flows. Almost none of the brokers/planners peoples do any research beyond counting morning stars from stale 3 year old statistics.
        International funds with high rating this month include: Emerging Markets (MGEMX), Eastern Europe (EUROX and LETRX), Pacific Rim (SCOPX), and China (FHKCX). Sectors doing well include: wireless (WCPIX), oil service (RYVIX and ENPIX), finance (FNPIX), and health care (RYHIX). We no longer invest in AIM funds due to their onerous restrictions.
       Weak areas include: high technology (UOPIX), US dollar (DXY-Z), long-term treasury bond yields (US30-), London (FTSE-), and Germany (FDAC-).
        Our HVI indicator for gold is positive, while our other gold timer is weak and this indicates a topping sideways action. So are neutral on gold this month. Our timing models are long the S&P 500 index and neutral for the NDX100.
        Our analysis of the style box indicates that value is beating growth. This suggests that money is moving into the industrial sector and away from the technology sector."

EQUITY FUND OUTLOOK
P.O. Box 76, Boston, MA 02117.
Monthly, 1 year, $139. www.equityfundoutlook.com.

       Thurman Smith: "The now more gradual rate of gain than in the March-July period and modest variances from the 39-week trend argue for a sustainable period of continued gains. The decennial and presidential election cycles are moderately positive. Valuation levels in large-cap stocks continue to limit gains in this sector, but the still less-overvalued small- and mid-cap areas continue to present opportunities.
       The percentage of mid-cap funds with a buyable rating has increased to 67%. At 76%, small-cap funds remain the healthiest cap group. There is still little to choose from among large-cap funds.
       Editor's Note: Out of thirty-eight fund newsletters tracked by the Hulbert Financial Digest over the five years ending December, Equity Fund Outlook was the top-ranked service.