Originally allowed back in the 1980s by the SEC, in some mutual funds they have become a permanent fixture. Are 12b-1 fees necessary for the operational profitability of a fund? True or False. False In the great chase to find the least expensive fund with the highest returns, the lowly 12b-1 fee is often overlooked as a fixture in the mutual funds operational base. Designed back in the 80s as a way for new or small funds to pay for advertising and promotion, it is paid by the fund, not by the investor. But don't kid yourself, you eventually end up with the bill in the form of lower overall returns. But suppose your fund has grown to become a rather hefty investment beast or even worse, closed itself for new investment, shouldn't these fees be the among the first eliminated? Not necessarily. The industry has taken this fee help and expanded it to a cost of doing business, using it for other means of promotions often within brokerage houses themselves. Over 70% of the mutual funds in existence today,

at least according to Morningstar, have these fees firmly added to their bottom line. Some funds use the fees to reduce sales loads, which BlueCollarDollar investors avoid anyway, right? In the case of brokerage commissions, the additional money generated by these fees allows a greater than market rate to be paid for sales of their funds often under the guise of revenue sharing. In recent years, brokerages have used these fees much the way supermarkets do. The fund pays a "slotting fee" to have their product represented on the shelves. As to their need for continued profitability, we don't believe that this is necessary. And the SEC might tend to agree based on some compelling numbers. In the two decade period ending in 1999, the average mutual fund fee has risen from the 1.10% range to a hefty 1.36%. Funds should allow their performance to sell shares, not advertising or brokerages. You can be certain of tow things, the SEC will move slowly in this, and the industry, fond of generating these indirect methods of financing, will want something that doesn't disrupt the current status quo.

In a moment of amusement, the Security and Exchange Commission issued a warning and a deadline demanding that CEO's sign off on their company's balance sheet. Is this oath going to restore confidence among investors that the books are true and accurate? True or False. False High anxiety is not only a state of mind for individual investors, but it can be somewhat epidemic if this lack of belief continues. But whose to say that these mostly honest CEOs will not suddenly find themselves in a position of divulgence. The corporate confessional could have far more adverse effects than it would do good. To often we have seen perfectly good companies take some serious beatings at the hands of investors because of the bad apple syndrome. One bad one does not make the whole basket tainted.

Unless of course you are invested in an industry that deserves a pummeling. But they all do not deserve to be punished for the sins of one or two greedmeisters. Not taking the oath would have the same effect of some sort of revelatory disclosure that yes indeed, the CEO of XYZ corp does know that the books are slightly incorrect. Should that happen, and I believe that everyone should come clean so we can move on, the market would take another collective beating. Suppose the CEO who signs the oath, "to the best of my knowledge" really doesn't have much in the way of knowledge. Where will be then? And does Mr. Pitt really believe that those who do wrong will stop because of some oath? Let's hope not.

Performance can often mean not losing as much. Four years ago, that would have meant you were getting strange looks from friends, family and co-workers. Has that statement finally come to pass? True or False True I remember when internet funds were the rage. They were up in triple digit range and money was pouring in from every angle. The current fashion funds are those that bet against good performance and involve themselves in bear market investing. But for many of us, staying in the market has been the most difficult thing to do. Unless of course you have indexed. The comfort food of the investor, indexing, a passive way to buy total markets or individual sectors such as the S&P 500, gained favor in the nineties from the conservative crowd.

These funds spread their risk across many different companies and thereby, diluting the gains and recently, protecting from loses. Even when the market was at the top of its game, indexes where still high on my list as a major part of anyone's holdings. Passive investing by more folks would have probably kept the market more in check, that and better accounting. (On a side note, that type of accounting was standard procedure and was applauded by managers of actively traded funds.) Perhaps, and I am speaking without the benefit of having created some sort of economic what if model, indexing by a greater number of investors may have kept some of the legs beneath the market. Nonetheless, indexing, which has suffered along with the companies in their funds, have headed south. But when the dust settles and the markets recover (yes, Virginia, they will recover), investor who had dollar cost averaged their investments in these funds will reap the benefit at lower costs (expenses) and with greater reward (no transfer fees).

Options matter. If the government decides to make companies account for these as expenses, will it make a difference? True or False False And the reasons are simple really. I believe that the administration, any administration for that matter will not change the way these things are accounted for largely because any change would likely change their post political careers. These folks did not get where they are thinking in single dimensions. they know that they have political careers and that they may be lived. You can't be president for more than two terms, and when that's over, it back to the business of being a director or CEO for some company that you helped while in office. It's a fact of life. But what are options and why all the hoopla? They are executive compensation (although someone thought to add lower rung employees into the mix, but failed to add the small percentage of these middle managers in the options loop). It is stock offered at lower prices in the form of payment for a job well (or poorly) done. Booking options as an expense is a good idea. They are essentially a debt that the company owes its employe and should be booked immediately so the investor,

small and institutional knows what to expect for the company's profit and loss statement. Companies hand these things out as an incentive to make the employee work hard, making the company profitable, which in turn lowers the price to earnings ratio. This lower P/E makes the shares look more attractive. Booking options would change the P/E ratio only slightly and have little effect on the stock price. But suppose you tried to figure the value of those options on a long term basis. This is where you would run into some difficulties. You could arrive at this numbers from many different angles, but the end result would not be good either way. Unable to figure out the number in clear fashion, would make the company seem unable to tally their own worth. Options could be eliminated causing workers to work less hard and this according to economist would slow whatever the company produces and this resultant slow down would do more damage to the economy that good. Investors would not like this. Capital markets would not like this. And the company would suffer. The difference would be made if companies had to predict the worth of the options. And if they missed that number, stating too low a figure, well then next quarter, they would have to fix it.

Benjamin Graham was the first to identify what a value stock was. Can the same formulation be used today? True or False True But you would be hard pressed to find anything worth investing in based on his description of what a value stock is. Mr. Graham believed that stock was considered a value if it was worth two thirds of its net current assets. (As a footnote, I don't recommend that readers purchase individual securities. So any reference here to value stocks are those that your mutual fund manager might include in your portfolio.) What that means is that if your fund manager was on the lookout for a value investment, they would be looking for an equity that would be worth 67 cents on the dollar. But these are not that easy to find these days, even with the market in a steady doldrums. So beware the fund manager that has changed their definition of what value is. The current favorite definition goes something like this: A value stock trades in the bottom half of all companies based on their price to book ratios. These book values take into account

both the assets of the company that are current, and those that are not. So what makes value different than growth? Not a whole heck of a lot, really. Believe it or not, by this definition, the only way a company could be in the value arena is because of the January effect. The January effect is really quite simple to understand. Small companies have a price, both bid and ask. For most of the year, these small concerns trade close to their bid price, which is really closer to reality. But at the end of the year, mutual funds, hedge funds, and investors sell some of their holdings in a tax strategy that protects their losses and gains. In January, as a result of this sudden activity, the asked price is more often used during the trade. This sudden jump in price leads many investors to believe that it is a year long event, not a single phenomenon. This skewed thinking allows investors to think that value, in the long run is better than growth. Be careful with categorizations. What is value, may not be classically defined, especially if you remove January from the picture.