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Daily Newsletter, Tuesday, 12/24/2002

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The Option Investor Newsletter                 Tuesday 12-24-2002
Copyright 2002, All rights reserved.                       1 of 1
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Lump of Coal For Markets
Futures Wrap: A Quiet Descend Lower
Weekly Fund Screen: Best in Class: Bond Funds
Weekly Fund Family Profile: Pacific Investment Management Co. (PIMCO)
Swing Trader Game Plan: Setting Up


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************ 
      12-24-2002           High     Low     Volume   Adv/Dcl
DJIA     8448.11 - 45.20  8491.99  8443.65  .57 bln 1441/1593
NASDAQ   1372.47 -  9.20  2382.93  1372.38  .52 bln 1345/1781
S&P 100   453.27 -  2.79   456.06   453.12   Totals 2786/3374
S&P 500   892.47 -  4.91   897.38   889.48             
RUS 2000  388.12 -  1.61   389.73   387.95
DJ TRANS 2307.99 - 13.70  2321.86  2307.13
VIX        30.01 +  0.68    30.35    29.49
VXN        45.13 -  0.76    46.50    45.03
Total Vol   1,161M
Total UpVol   388M
Total DnVol   785M
52wk Highs   143
52wk Lows    149
TRIN        2.23
PUT/CALL    0.55
************************************************************

Lump of Coal For Markets 

Santa delivered a lump of coal to the markets on Tuesday in 
the form of the Durable Goods Orders. He was not alone as the
North Korean grinch helped steal Christmas spirit as well. 
Despite the negative news the Dow managed to close right on
support one more time. 

Dow Chart – Daily


 

Nasdaq Chart – Daily


 

The biggest hurdle for the markets at the open was a huge
drop in Durable Goods by -1.4%. Analysts had been expecting
a +0.5% gain. New orders fell by -1.3%. This wiped out almost 
the entire increase for October and prompted worries that the
weak recovery bounce was failing. Orders for computers fell
by -3.7% which calls into question any future semiconductor 
sales numbers. Despite this very negative economic news the
Dow managed to rebound off the opening lows and was showing 
some growing strength until the grinch showed up.

Even weak retail sales numbers, which showed only +0.1% growth
for the week failed to make a significant impact on traders. 
Most have been hearing the bad news about the holiday sales
for weeks now and the bad news should already be priced into
the market. However, the news is going from bad to worse. The
analyst community is now beginning to claim that this is the
worst year for retailers since 1991. Profits are expected to 
be dismal and all eyes will be on next weeks reports to see
if the last minute shoppers helped pull the sector back from
the brink. 

Adding to the negativity was the Monthly Mass Layoff report
which showed an increase to -240,028 jobs lost in November
from -171,088 lost in October. There were 2,150 mass layoffs
announced in November, which was significantly above the 
1,497 in October. The continuing rise in the rate of 
unemployment and the drop in durable goods bodes ill for 
the 4Q GDP and any early recovery in 2003. 

One additional indicator of overall weakness is a rash of 
earnings warnings from video game manufacturers. This sector
is typically the last to be hit since teenage boys are the
predominate buyers and are relatively loose with their money. 
The lack of sales across this sector should have the same 
impact as the earnings warnings from Lance snacks. The snack
giant who depends on vending machines for a large majority
of their sales warned that they would miss 4Q earnings a
couple weeks ago. These extreme low-level indications of 
weakness are even more troubling when added to unemployment
and the larger trends. 

The final straw for the markets was the arrival of the grinch
in the form of North Korea, which warned on Friday of an
"uncontrollable catastrophe" if Washington failed to back 
off the current hostile policy towards them. They said the
confrontation between the US and NK was escalating into an
extremely dangerous phase. NK has intercontinental missiles
and scientists have said they could have a nuclear bomb ready
for delivery in as little as three months. It appears NK is
taking advantage of the worlds distraction with Iraq and using
the opportunity to engage in some brinkmanship in an effort
to improve their global stature. Rumsfield raised the ante
on Tuesday by saying the US could fight two wars at once if
pressed and could win them both. The implied threat was
directed at NK and was warning them not to pull on Superman's
cape. He said they could swiftly defeat NK if pressed into
a second conflict. This may be wishful thinking as NK is not
as weak as Iraq. 

The lack of positive movement in the markets during the holiday
week are distressing for the bulls. This typically bullish
period is slowly sinking in the quicksand of economic weakness
and global events. If traders cannot pull a rabbit out of the 
hat on Thursday the outlook for an end of year rally will grow
noticeably dimmer. The normal influx of end of year cash may
be derailed into money markets instead of stocks. The markets
are poised to close with losses for the third consecutive year,
which has not happened since the depression. The Dow closed 
right on the top of current support at 8450. With only a 150
point cushion between today's close and disaster (a drop under
8300) the stage is set for the end of the year. If the bulls
don't show up on schedule on Thursday we could easily see a 
serious trend change. 

I would like to wish all our readers a very happy holiday. 
The newsletter will operate a reduced content schedule today
and Thursday with no newsletter on Wednesday. Consider giving
yourself a present that lasts all year with our annual renewal
bonus. You will not be disappointed!

Jim Brown
Editor


**********************
Annual Renewal Special
**********************

The annual special this year is far too large to put into an
email. The highlights include two option expiration mousepads
to which we have added the FOMC meeting dates this year. There
are also two videos with Jim, Jeff and Buzz and seven books 
by leading market professionals like John Murphy. We even 
brought back the Trading Strategies CD from last year for all 
the new subscribers who have been asking for it. 

Click here for the full details:  

https://secure.sungrp.com/03renewal/


************
FUTURES WRAP
************

A Quiet Descend Lower
By John Seckinger
jseckinger@OptionInvestor.com

Volume was anemic on Wednesday, but bulls still failed to gain 
the upper hand and get a pre-Christmas rally to materialize.  

Tuesday, December 24th at 1:15 P.M. 

Contract          Net Change     High        Low        Volume    

YM03H    8430.00    -60.00     8504.00     8420.00        3,664
NQ03H    1024.00     -9.50     1038.50     1022.00       22,449
ES03H     891.50     -5.50      900.00      891.25       66,465

ES03H  = E-mini SP500 futures    
YM03H  = E-mini Dow $5 futures    
NQ03H  = E-mini NDX 100 futures     

Note:  The 03H suffix stands for 2003, March, and will change 
as the exchanges shift the contract month.  The contract months 
are March, June, September, and December.  The volume stats are 
from Q-charts.  

Fundamental News:  Durable Goods fell a greater-than-expected 
1.4% in November on Wednesday, but traders are well aware of the 
volatility associated with this report.  Durable Goods have 
always been sensitive to weakness in the economy.  In other news, 
Target reported softer year-over-year same-store sales and helped 
the Retail Index close lower by roughly one percent.  
Additionally, shares of Sun Microsystems (SUNW) advanced as a 
preliminary ruling stated that Java must be included in Windows.  
Looking ahead, Initial Claims is expected to fall from 433k to 
400k during the week of December 21st (report due out every 
Thursday morning); moreover, November New Home Sales should fall 
slightly to 1 million units as set to be reported at 10:00 a.m. 
during trading on Friday.  

Technical News:  Bonds rallied strongly during Tuesday’s 
shortened session, breaking out of a wedge pattern that began at 
the beginning of October.  This should be bearish for stocks, and 
the 111’18 settlement does portend prices will test the next area 
of resistance at 112.  A close under 110’09 should take sentiment 
to more neutral levels.  The Semiconductor Index continues to 
have problems staying above the 307-308 area; losing 1.45% on 
Wednesday to 301.57.  The high was 307.57.  Shorts should 
temporarily cover once under 308, while the main area of 
resistance is higher near 320.  Selling should pick up under 295.  
Note:  The Dollar has performed a Bullish Divergence within the 
RSI Index on a weekly chart.  If a bid in the dollar does 
develop, it should change the scope of the futures markets.  

=================================================================

The March Mini-sized Dow Contract (YM03H)

Chart of Dow Jones, Daily


 

Chart of YM03H, 120-minute


 

YM03H

Support               Resistance                Pivot    

8398.50               8482.50                   8451.25
8367.25               8535.25

Bold signifies levels based on Pivot Analysis (Globex included).  

The March E-mini Nasdaq 100 Contract (NQ03H)

Chart of NDX, 60 Minute


 

Chart of NQ03H, 30 Minute


 

NQ03H

Support              Resistance                 Pivot 

1018.00              1034.50                    1028.25
1011.75              1044.75

Bold signifies levels based on Pivot Analysis (Globex included).  

The March E-mini S&P 500 Contract (ES03H)

Chart of S&P 500 Index, 120-minute


 

Chart of ES03H, 120-minute


 

ES03H

Support              Resistance                 Pivot    

889.00               897.25                     894.50
886.25               902.75

Bold signifies levels based on Pivot Analysis (Globex included).  

Good Luck.

Questions are welcomed,

John Seckinger
jseckinger@OptionInvestor.com 


**********************  
Annual Renewal Special
**********************  

The annual special this year is far too large to put into an
email. The highlights include two option expiration mousepads
to which we have added the FOMC meeting dates this year. There
are also two videos with Jim, Jeff and Buzz and seven books 
by leading market professionals like John Murphy and and Jim 
Rodgers. We even brought back the Trading Strategies CD from 
last year for all the new subscribers who have been asking 
for it. 

Click here for the full details:  

https://secure.sungrp.com/03renewal/#m


******************
WEEKLY FUND SCREEN
******************

Best in Class: Bond Funds

These Morningstar nominees for 2002 bond fund manager of the year 
did an excellent job of security selection and risk management in 
comparison to their category peers.  While investment-grade funds 
have produced positive returns this year, speculative-grade funds 
have sustained losses in 2002.  As Morningstar puts it, the fixed 
income market has been full of "land mines" with "scores" of bond 
managers getting tripped up by WorldCom, Sprint, Qwest, Williams, 
and Conseco, to name a few of this year's corporate debt blowups.

Generally speaking, the more an investment-grade fund invested in 
lower quality, higher yielding debt securities, the poorer it did 
in comparison to bond funds with little or no high yield exposure 
to weigh them down.  According to Morningstar, the best bond fund 
managers were those that didn't stretch for yield and concentrate 
assets in a few debt securities.  That was true in the municipals 
(tax-free) market as well.

Each of Morningstar's five finalists for bond manager of the year 
have a different objective according to Lipper.  Below is how the 
Lipper's system classifies the five nominees:

 Dodge & Cox Income (DODIX) Corporate Debt A-Rated
 Fidelity Spartan Intermediate Muni (FLTMX) Intermediate Muni 
 Loomis Sayles Bond (LSBDX) Corporate Debt BBB-Rated
 WPG Core Bond (WPGVX) Intermediate Investment-Grade
 T. Rowe Price High Yield (PRHYX) High Current Yield       

Morningstar, meanwhile, puts the Dodge & Cox Income Fund and the 
WPG Core Bond Fund in the "intermediate-term" bond fund category, 
while Loomis Sayles Bond Fund is categorized as a "multi-sector" 
bond fund in Morningstar's system.  Three funds, including Dodge 
& Cox Income, Fidelity Spartan Intermediate Municipal Income and 
WPG Core Bond, currently sport an average credit quality of "AA" 
per Morningstar, giving them "high-grade" characteristics today.

By comparison, T. Rowe Price High Yield has a "B" average credit 
quality according to Morningstar, indicative of its "high-yield" 
designation.  The fund did not produce as much total return this 
year as investment-grade funds did but its positive 3.0% percent 
return looks great compared to the 2.6 percent loss generated by 
the average high yield bond fund this year, per Morningstar.

Below is a performance summary for the five Morningstar nominees 
through December 20, 2002.

 Dodge & Cox Income (DODIX):
 Manager: Team Managed 
 YTD +11.3% / 1Yr +10.3% / 3Yr Avg +10.3% / 5Yr Avg +7.6%
 
 Fidelity Spartan Intermediate Municipal Income (FLTMX):
 Manager: Team Managed
 YTD +8.2% / 1Yr +8.4% / 3Yr Avg +7.6% / 5Yr Avg +5.5%

 Loomis Sayles Bond (LSBDX):
 Manager: Dan Fuss & Kathleen Gaffney
 YTD +12.6% / 1Yr +13.3% / 3Yr Avg +6.7% / 5Yr Avg +5.7%

 Weiss, Peck & Greer ("WPG") Core Bond (WPGVX):
 Manager: Daniel Vandivort & Sid Bakst 
 YTD +10.2% / 1Yr +10.6% / 3Yr Avg +10.2% / 5Yr Avg +7.9%

 T. Rowe Price High-Yield (PRHYX):
 Manager: Mark Vaselkiv
 YTD +3.0% / 1Yr +3.5% / 3Yr Avg +2.0% / 5Yr Avg +2.9%

When you look at the equity-style returns put up by Dodge & Cox, 
Loomis Sayles, and Weiss, Peck & Greer (WPG) this year, it would 
be unrealistic to assume that bond funds can continue to produce 
such robust returns in the future.  Three years of economic down 
times have been rough for the equity market and U.S. dollar, but 
a boon for the fixed income market.  People jumping on board the 
bond fund train today may be setting themselves up for a decline, 
with the fixed income rally now into extra innings.

Still, you can't take away from what these portfolio managers or 
teams have accomplished in 2002.  When a core bond fund like WPG 
Core Bond Fund makes more than 10 percent in total return, it is 
an outstanding year for shareholders.    

According to Morningstar, all five finalists earned returns that 
ranked in their relative category's top one-third in 2002.  Four 
of them are ranked in top decile (10%) of their Morningstar bond 
fund category for the YTD 2002 period as follows:

 +11.3% Dodge & Cox Income (DODIX) 3rd percentile 
 +12.6% Loomis Sayles Bond (LSBDX) 6th percentile
 + 3.0% T. Rowe Price High-Yield (PRHYX) 9th percentile
 +10.2% WPG Core Bond (WPGVX) 6th percentile

While all of these bond fund managers are deserved of the honors, 
we particularly like the smooth ride provided by the Dodge & Cox 
bond fund management team.  Not only has the management team put 
up a YTD total return of 11.3%, it's done so with low volatility, 
as evidenced by the fund's 1-year chart shown below.





 


The above chart shows a steadily rising NAV price over the past 
year for the Dodge & Cox Income Fund.  This is exactly what you 
want from a bond fund - strong, consistent total returns with a 
low level of volatility.  For this reason, Dodge & Cox's income 
management team gets our vote in 2002.

Dodge & Cox Income (DODIX)

This $1.9 billion team-managed, intermediate-term bond fund has 
honed its skills through the years, focusing on "values" within 
the investment-grade bond market.  It pursues income consistent 
with preservation by investing at least 80% of assets in higher 
quality government and corporate debt securities.  Appreciation 
is a secondary consideration.

Through the years, the Dodge & Cox management team has produced 
stellar returns by overweighting the corporate bond sector, but 
this year, the numerous credit risk "land mines" were difficult 
to maneuver past.  Dodge & Cox's management team was one of the 
few bond managers to escape relatively unscathed in 2002, owing 
its success to the combination of many small bets.  Morningstar 
says the fund's interest-rate and credit-risk profile is "quite 
tame" relative to similar funds.  

Rather than make big sector, security or duration bets, Dodge & 
Cox focused efforts in 2002 on identifying higher quality, debt 
securities with "undervalued" prices.  Like in stock management, 
the lower relative prices of underlying holdings helps to limit 
volatility compared to similar funds.  The bonds that this team 
buys tend to be strong credits, which are not likely to default.

Contributing to this fund's strong relative performance in 2002 
is its low expense ratio.  At 0.45%, the fund's current expense 
ratio is less than half of the average intermediate, investment-
grade bond fund per Morningstar.  The fund's low expenses allow 
its management team to take fewer chances, and stay competitive.  
Managers with high cost hurdles may be inclined to take greater 
risks with portfolio assets (to overcome their higher expenses).

Conclusion

Unfortunately, I'm unable to tell you who the team members are 
because Dodge & Cox doesn't make public the names of its stock 
and bond team members.  That's Dodge & Cox's way of saying the 
process matters more than the people charged with managing the 
assets.  Proponents of team-management should like this mutual 
fund's conservative, team-managed approach.

Since 1989, the Dodge & Cox bond management team has generated 
superior "risk-adjusted" returns for shareholders, focusing on 
quality issues that are underpriced at time of purchase.  Bond 
investors seeking a fine core bond holding have an appropriate 
choice here.  For more information, go to the Dodge & Cox site 
located at www.dodgeandcox.com.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


**************************
WEEKLY FUND FAMILY PROFILE
**************************

Pacific Investment Management Co. (PIMCO)

Our last fund family profile of 2002 looks at the self-proclaimed 
authority on bonds, Pacific Investment Management Company (PIMCO) 
of Newport Beach, California.  In the year of the bond, we wanted 
to recognize the two-time recipient of Morningstar's bond manager 
of the year award, which was absent from the list of nominees for 
2002, not for lack of strong absolute and relative total returns.

With more than $300 billion in assets under management, PIMCO is 
one of the world's leading fixed income managers, providing bond 
fund shareholders access to the "highest standard of excellence."  
Their outstanding long-term record versus indices and fund peers 
among all bond styles and strategies has garnered many accolades 
through the years.

Bill Gross established PIMCO in 1971 to provide separate account 
management services to institutional investors, such as pensions, 
endowments and foundations.  Today, PIMCO's clients include over 
half of the Fortune 100 and over 60 of the top 200 pension funds 
in America per company sources.  They attribute their success to 
their "total return" approach and impressive long-term record of 
performance in both bull and bear markets.

PIMCO is also recognized as a fixed income innovator.  Gross and 
staff created the "total return" approach in 1975 and introduced 
the use of mortgage-backed securities in total return portfolios.  
They created a dedicated "low duration" product in 1980 and then 
in 1985 pioneered the use of "derivatives" in total return funds.  
In 1990, PIMCO introduced the use of international bonds in total 
return portfolios.  A dedicated high-yield product was introduced 
in 1992.

An institutional share class of the firm's flagship Total Return 
Fund (PTTRX) was launched in 1987, and in 1994 an administrative 
shares class was added.  The institutional/administrative shares 
have a $5,000,000 minimum initial investment.  In 1997, A, B and 
C shares were started, making the Total Return Fund available to 
the retail marketplace through financial advisors.  In 1998, a D 
share class was introduced with no sales loads but higher annual 
operating expenses.  The D shares are available on a no-load NTF 
basis via Schwab's OneSource program and other leading brokerage 
fund marketplaces, and carry a $2,500 initial minimum investment.

By 1998, PIMCO had over 200 institutional clients with separate 
accounts, and its flagship Total Return Fund topped $20 billion 
in total assets to become the nation's largest bond mutual fund.  
Total Return assets grew by $5 billion the following year (1999) 
to become the largest bond mutual fund in the world, a status it 
has since held.  Total Return Fund has $65.5 billion in combined 
assets today, ranking it as the second largest mutual fund after 
Vanguard 500 Index Fund (VFINX) which has $72.3 billion in total 
assets currently, per Morningstar.

In the next section, we review PIMCO's mutual fund lineup, which 
includes a broad range of equity and fixed income strategies and 
styles.
   
Fund Overview

According to the PIMCO Funds website (www.pimcofunds.com), there 
are 67 stock and bond funds in the PIMCO fund family, although I 
counted 70 of them in the complete PIMCO fund listing, including 
38 stock funds and 32 bond funds.

PIMCO stock funds are sub-advised by leading money managers, and 
span the range of investment classes and styles, including value, 
blend and growth oriented funds, as well as enhanced index funds, 
global/international stock funds, and sector-related stock funds.

PIMCO bond mutual funds are managed internally and incorporate a 
cyclical and secular overview in adding value across all sectors 
of the fixed income market.  The flagship Total Return Fund aims 
to provide total return, consistent with preservation of capital, 
by investing at least 65% of assets in debt securities including 
U.S. government securities, corporate bonds and mortgage-related 
securities.  Up to 20% of assets may be invested in fixed income 
securities denominated in foreign currencies.  In this fund, the 
portfolio duration generally ranges from three to six years.

The $8.7 billion PIMCO Low Duration Fund (PTLDX), PIMCO's second 
largest mutual fund, is also managed by Bill Gross and follows a 
similar approach as its Total Return Fund sibling except that it 
mainly invests in fixed income securities with average durations 
between one and three years.  In both mandates, Gross utilizes a 
variety of fixed income tools and techniques, including interest 
rate anticipation, credit-risk analysis, call-risk analysis, and 
foreign exchange rate forecasting.  The Low Duration product may 
invest up to 10% of assets in lower quality, higher yielding debt 
securities and may invest all assets in "derivative" securities.

PIMCO's Real Return Bond Fund (PRRIX) is the largest fund of its 
kind today.  This $5.9 billion intermediate-term bond fund seeks 
to realize maximum "real return" consistent with preservation of 
real capital.  It normally invests at least 65% of its assets in 
"inflation-indexed" bonds issued by U.S. and foreign governments, 
and the remainder in other fixed income securities including non-
U.S. dollar denominated debt.  Here, the fund's average duration 
will vary approximately within the range of the average modified 
real duration of all inflation-indexed bonds issued by the U.S. 
Treasury, per the PIMCO website.  The fund is "non-diversified." 

Portfolio managers (Bill Gross included) are mainly responsible 
for market research, portfolio strategy, and trading execution.  
Bill Gross oversees all investment management activities as the 
firm's chief investment officer.

PIMCO attributes its long-term success to having a "disciplined" 
approach to identifying values in the market and executing trade 
positions.  Their philosophy is to take a long-term and top-down 
view of the market as embodied in their 3-year to 5-year secular 
forecast.  These top-down views are then combined with bottom-up 
quantitative and credit research to identify short-term cyclical 
trends and to identify optimal strategies for implementing their 
long-term views in a consistent and cost-effective manner.

Another key aspect of PIMCO's investment success is tight "risk" 
management and controls.  Portfolios are continuously monitored 
on the basis of individual security and total portfolio risk, as 
well as strategy correlations.  Portfolio managers are involved 
in the risk management process, working with their "Engineering 
Group" to create portfolios that are theoretically sound, total 
return-driven, and reality-based.  While PIMCO managers do have 
extensive input into the risk-management analytics, they're one 
of few money management firms to separate their risk monitoring 
function from portfolio management.  This "separation of power" 
ensures that risk management and controls are strictly enforced.

The result are some of the best return-to-risk tradeoffs in the 
bond fund world.  In the next section, we look at PIMCO's fixed 
income fund ratings and performance.  Since our focus this week 
is on PIMCO, the authority on bonds, we'll limit our discussion 
to the bond mutual funds, where most fund assets are held today.

Fund Ratings and Performance

Below is a summary of Morningstar ratings for the largest, most 
successful PIMCO bond funds using the institutional share class 
for comparison purposes.

 PIMCO Total Return I (PTTRX):
 Morningstar Risk Rating: Average  
 Morningstar Return Rating: High
 Morningstar Overall Rating: 5 Stars
 
 PIMCO Low Duration I (PTLDX):
 Morningstar Risk Rating: Average
 Morningstar Return Rating: High
 Morningstar Overall Rating: 5 Stars
 
 PIMCO Real Return Bond I (PRRIX):
 Morningstar Risk Rating: Above Average
 Morningstar Return Rating: High
 Morningstar Overall Rating: 5 Stars
 
 PIMCO Short-Term I (PTSHX):
 Morningstar Risk Rating: Below Average
 Morningstar Return Rating: High
 Morningstar Overall Rating: 5 Stars
 
As you can see, each of PIMCO's largest bond funds have overall 
ratings of 5 stars (highest) by Morningstar for "risk-adjusted" 
returns relative to their respective category peer group.  Only 
one of them, though, has a below-average risk profile.  For the 
risks incurred, long-term shareholders have been amply rewarded.

Next, we show how these PIMCO bond funds have performed and are 
ranked in their relative Morningstar category over various time 
periods, using Morningstar data as of Friday, December 20, 2002.

 PIMCO Total Return I (PTTRX):
 2002 Return (YTD):  + 9.7% (10th percentile)
 3-Year Avg. Return: +10.4% (5th percentile)
 5-Year Avg. Return: + 8.1% (2nd percentile)
 
 PIMCO Low Duration I (PTLDX):
 2002 Return (YTD):  + 7.4% (13th percentile) 
 3-Year Avg. Return: + 7.8% (17th percentile)
 5-Year Avg. Return: + 6.7% (10th percentile)
 
 PIMCO Real Return Bond I (PRRIX):
 2002 Return (YTD):  +15.6% (1st percentile)
 3-Year Avg. Return: +12.5% (1st percentile)
 5-Year Avg. Return: + 9.6% (1st percentile)
 
 PIMCO Short-Term I (PTSHX):
 2002 Return (YTD):  + 2.9% (26th percentile)
 3-Year Avg. Return: + 5.4% (26th percentile)
 5-Year Avg. Return: + 5.4% (13th percentile)

You can see the superior returns delivered by John Brynjolfsson, 
who has managed the PIMCO Real Return Bond Fund since it started 
in January 1997.  The nation's largest inflation-index bond fund 
has returned more than 15 percent for investors in 2002, and has 
produced a stock-style 9.6% average annual total return over the 
past five years to rank in the top 1% of the "intermediate-term" 
bond fund category per Morningstar.  Gross's 8.1% average annual 
return for the trailing 5-year period on PIMCO Total Return Fund 
ranks in the top 2% of the intermediate-term bond category.  His 
6.7% annualized return on PIMCO Low Duration was solid enough to 
rank in the top 10% of the short-term bond category according to 
Morningstar.

These PIMCO bond funds, while the largest and most successful in 
asset base terms, are just some of the firm's top-notch products.  
In fact, six PIMCO bond funds have produced double-digit returns 
in 2002, led by PIMCO Global Bond Fund's 19.1% total return this 
year.  PIMCO Global Fund (PIGLX), managed by Sudi Mariappa since 
November 2000 is one of five PIMCO bond funds to rank in the top 
5% of their respective fund category, per Morningstar.  Below is 
a summary of PIMCO's top-performing bond funds of 2002 and their 
respective Morningstar category percentile rankings.

 +19.1% Global Bond (PIGLX) 12th percentile
 +17.0% Long-Term U.S. Government (PGOVX) 14th percentile 
 +15.6% Real Return Bond (PRRIX) 1st percentile
 +12.8% Emerging Markets Bond (PEBIX) 21st percentile 
 +10.8% New York Municipal (PNYAX) 4th percentile
 +10.6% Investment Grade Corporate Bond (PIGIX) 5th percentile
 + 9.7% Total Return (PTTRX) 10th percentile
 + 9.4% Moderate Duration (PMDRX) 14th percentile
 + 9.3% Total Return Mortgage (PTRIX) 2nd percentile
 + 8.9% GNMA (PDMIX) 5th percentile

All of these funds as you can see have produced returns that are 
ranked in their respective category's top quartile in 2002, with 
five of them ranking in the top 5% of their Morningstar category.  
Each of them would make compelling cases for bond manager of the 
year in 2002.  To be honest, I am surprised that at least one of 
the managers for PIMCO Global Bond, Long-Term U.S. Government or 
Real Return didn't make the list of nominees for bond manager of 
the year in 2002.

Conclusion

Morningstar does not like to give out its "Manager of the Year" 
awards two straight years to the same portfolio manager or team.  
Since Bill Gross and the PIMCO fixed income management team are 
two-time recipients of the honors, Morningstar may want to give 
this year's award to another effective fixed income manager but 
there's no question that PIMCO is still the top dog in the bond 
fund business.  

If I had to vote for the mutual fund company of the year, PIMCO 
would be among the list of nominees.  With the corporate credit 
debacles this year, they did an excellent job of enhancing fund 
returns while limiting downside risk in 2002.  Other successful 
bond managers, such as Metropolitan West, have slumped recently.  
WorldCom and Qwest holdings have dragged down their YTD returns 
to the bottom of the intermediate-term category per Morningstar.

For more information on the PIMCO bond funds, visit their PIMCO 
Funds website at www.pimcofunds.com or log on to www.pimco.com.
    
Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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Annual Renewal Special
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SWING TRADER GAME PLANS
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Setting Up

After waiting for another high percentage entry point, the short-
term charts are pointing to a possible post-Christmas gift.


To read the rest of the Swing Trader Game Plan Click here:
http://www.OptionInvestor.com/itrader/indexes/swing.asp



The annual special this year is far too large to put into an
email. The highlights include two option expiration mousepads
to which we have added the FOMC meeting dates this year. There
are also two videos with Jim, Jeff and Buzz and seven books 
by leading market professionals like John Murphy and and Jim 
Rodgers. We even brought back the Trading Strategies CD from 
last year for all the new subscribers who have been asking 
for it. 

Click here for the full details:  

https://secure.sungrp.com/03renewal/#m
**************************************************************


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