Fund Trading Indexes Newsletter 2002-21

December 31, 2002

Dr. Ben Buckner, Editor

2002 Trades through December 31

Trades were made using 0.20 difference in TIs as the specification. TIs are shown in the table. Trades are actually sells and

buys, the sale being executed on the next trading day (usually Monday) after the previous Friday TIs were compared. The

pairs of dates shown represent the sell and buy dates. Ameritrade trading fees are used, which are $18 per trade, totaling

$36 for each of the two transactions comprising a sell/buy. This $36 is reduced by the approximate money market earnings

on the balance held the one day between the sell and the buy. Thus, you will see a small reduction of the account balance

between the date of the sale and the date of the purchase of the new fund. Dollar amounts shown are rounded to the nearest

dollar, but were computed to the penny. If you try to compute the number of shares from the dollar amounts shown, you

could get a slightly different number.

The asterisk * means that a short term redemption fee was paid. The fee was 2% on MAKOX and 1% on PSPFX, PEERX, and RYTVX. The number of shares was reduced by the amount of the redemption fee. TIs can be checked by referring back to "hard copies" you may have kept on file. NAVs can be checked using www.bigcharts.com historical prices.

Trades compiled are only for the One-Fund Basic strategy. The other scenarios followed all had positive returns. Documenting the trades for all of them would require a lot of newsletter space. Hopefully, the documentation shown here will suffice to give confidence in the system.

Trades Using Basic One-Fund Strategy:

Date Fund TI NAV Shares Account YTD

12/31 MAKOX 1.24 $3.58 27932.961 $100,000

1/22 MAKOX* 0.86 $3.70 27374.302 $101,267 +1.3%

1/23 CGMFX 1.10 $23.43 4321.593 $101,254 +1.3%

2/11 CGMFX 0.54 $23.33 4321.593 $100,803 +0.8%

2/12 MAKOX 0.74 $3.76 26806.586 $100,790 +0.8%

4/29 MAKOX* 0.82 $4.59 26270.455 $120,560 +20.6%

4/30 BEARX 1.20 $5.94 20294.846 $120,548 +20.5%

5/20 BEARX 0.65 $6.09 20294.846 $123,574 +23.6%

5/21 PSPFX 1.13 $5.14 24040.003 $123,562 +23.6%

6/10 PSPFX* 1.06 $5.15 23799.603 $122,546 +22.5%

6/11 BEARX 1.28 $6.88 17810.749 $122,534 +22.5%

8/19 BEARX 0.44 $7.22 17810.749 $128,571 +28.6%

8/20 ACTAX 0.67 $26.79 4798.780 $128,559 +28.6%

10/07 ACTAX 0.85 $28.39 4798.780 $136,219 +36.2%

10/08 BEARX 0.96 $8.42 16176.688 $136,208 +36.2%

10/21 BEARX 0.01 $7.52 16176.688 $121,631 +21.6%

10/22 TGCEX 0.64 $11.73 10368.146 $121,618 +21.6%

11/11 TGCEX 0.19 $11.71 10368.146 $121,411 +21.4%

11/12 PEERX 0.68 $10.99 11046.283 $121,399 +21.4%

11/25 PEERX* 0.78 $11.43 10935.820 $124,978 +25.0%

11/26 RYTVX 1.14 $4.58 27285.206 $124,966 +25.0%

12/23 RYTVX* 0.20 $4.35 27012.354 $117,486 +17.5%

12/24 PEMDX 0.59 $9.28 12658.751 $117,473 +17.5%

12/31 PEMDX 0.50 $9.25 12658.751 $117,075 +17.1%

Market Index Returns for 2002

S & P 400 Midcap -15.4%

DOW Jones Ind. -16.8%

Russell 2000 -21.6%

S & P 500 -23.4%

NASDAQ -31.5%

Discussion:

The FTI System suffered a big shock in October when the world equity markets turned around significantly. We had just moved into BEARX, a fund that trends contrary to the stock market. Thus, when the markets turned around, the effect was to lose nearly as much as we would have gained had we been in a typical stock fund just before the turnaround. During its 13-day hold, BEARX dropped 10.7%. It could have been worse. The DOW added 1,000 points in that 13-day period, representing 13.8% gain, and the S&P 500 gained 12.7%. BEARX runs generally inverse to the major markets, but is somewhat on the value side, so its loss was not as large as the market index gains. After 10/21, the markets struggled for leadership, seemingly confused over the big turn of events. As can be seen in the table above, our next move (into TCW Galileo Select) was essentially a washout. We went to Eastern Europe for some strength in TIs then, and did make a good gain for that brief 13-day hold of PEERX, even with paying a 1% redemption fee. But, then, along with much of the rest of the markets, our next selection (Royce Tech Value) lost about 5% in NAV plus another 1% because we had to pay another short-term redemption fee. The next move into Pimco Emerging Markets Debt was to prove to be profitable in the longer term, but did not do much during the few days in 2002.

Despite being caught with our "bears down" in October, the system had a great showing for 2002, as compared to the major market indexes. The Basic strategy was ahead of the markets from 32.5 to 48.6 percentage points, if you do algebraic subtraction and deduct the market index returns from our +17.1%. The people that were hurt in 2002 were the ones coming into the system just before the October turnaround and who jumped right into the 1-fund Basic strategy. Those choosing any of the other strategies were not hurt nearly as much and should have recovered most of their losses by the end of the year. Overall results for 2002 will be shown for all three strategies in our next newsletter, along with the progress of the annuity accounts we track.

Historical note added (early 2004):

Those who started using the FTI System in September or early October 2002 and stayed with it should have had a net gain for the 15 months through the end of 2003, and beat the major market indexes for the period. Some people became discouraged in late 2002 and dropped out of the system. Many of these came back in mid-2003, after realizing that the system works in the long run. Shocks like this one can occur, but are not the usual. That upward shift in the markets was a turnaround of historical proportions, not likely to occur but every few years. And, the probability of our system leading us into an inversely correlated fund just a week before the jump is even less likely. We are more likely to be caught in aggressive funds during a bull market and suffer a correction of a few percentage points. When and if that happens, it will not have the doubling effect from being in funds headed in the opposite direction. Aside from that, it must be emphasized that anyone evaluating this system should count gains and losses over many months, even a year or more. When that is done, the net result has always been quite positive for this system. After all, our system had double digit gains during the third quarter of 2002 while the market had double digit losses of historical proportions. When you add the third and fourth quarter together, we won by a significant amount. BEARX may have produced losses in October, but its earlier gains, combined with those of ACTAX, more than made up for the losses. Of course, the ability of the system to find a fund like MAKOX earlier in the year cannot be overlooked. When we find one that trends well above the others for months, we bank a lot of money which usually more than covers later losses.

Ben Buckner, PhD

Creator of the Fund Trading Index System