APRIL 1996





ANNUITIES: Many annuities offer first year bonuses to boost the appeal to potential purchasers. However, their long term rates may be - probably are- less than competitors who do not have the bonus. When you are in for a long time therefore, the lower initial rate can be a much better purchase. Check the table below. The top scale represents the First Year Bonus. The vertical scale represents Base Rate. The interior numbers represent $100,000 in seven years and are based on annual base rate renewals.
0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00%
4.25% 133,824 134,465 135,107 135749 136,391 137,033 137,675 138,316 138,958 139,600 140,242
4.50% 136,086 136,737 137,388 138,040 138,691 139,342 139,993 140,644 141,666 142,688 144,987
4.75% 138,382 139,042 139,703 140,363 141,024 141,684 142,345 143,005 143,666 144,326 144,987
5.00% 140,710 141,380 142,050 142,720 143,390 144,060 144,730 145,400 146,070 146,740 147,410
5.25% 143,072 143,751 144,431 145,111 145,790 146,470 147,150 147,289 148,509 149,189 149,868
5.50% 145,468 146,157 146,847 147,536 148,226 148,915 149,604 150,294 150,983 151,673 152,362
5.75% 147,898 148,597 149,296 149,995 150,695 151,394 152,093 152,793 153,492 154,191 154,891
6.00% 150,364 151,072 151,782 152,491 153,201 153,910 154,619 155,328 156,083 156,747 157,456
6.25% 152,863 153,582 154,301 155,021 155,740 156,459 157,179 157,898 158,617 159,339 160,056
6.50% 155,399 156,128 156,858 157,587 158,317 159,047 159,776 160,506 161,235 161,965 162,694
6,75% 157,970 158,710 158,710 159,450 160,929 161,669 162,409 163,149 163,889 164,629 165,369
7.00% 160,578 161,328 162,078 162,829 163,579 164,329 165,080 165,830 166,581 167,331 168,081

So what's the deal? Assume someone gives you a base rate of 5.50% but with a 4.00% first year bonus. Looks great with an advertisement of 9.50% the first year. The other agent only has a 6.25% overall rate and NO bonus. In seven years with the bonus, you would have $150,983. But if you had taken the 6.25% rate, you would have had $152,863. While not a huge difference, the difference gets larger and larger as the years roll by. You rarely will ever see this comparison because 99 44/100% of all agents do not have (never mind can't use) a financial calculator.

That's also the reason why looks can be deceiving. Let's be careful out there.

NATIONAL ASSOCIATION FOR VICTIM ASSISTANCE: (NOVA) 717 D Street NW, Washington, DC 20004, 202 393-6682 provides a national advocacy for victims rights, help for crime victims and will help locate assistance in your local community.

FUNERALS: (Survivor's Guide)

If a funeral is to be conducted:

There are apparently five types of funerals

Traditional with open casket- the body is embalmed and placed in a casket and religious services are held followed by earth burial, cremation or entombment

Traditional with casket closed- same as above except embalming is optional

Traditional with rented casket- either of the two above is possible. After the service, the body is transferred to a burial case or cremation.

Memorial service- a religious or secular service is held either before or after the body has been buried or cremated. Embalming is optional.

Direct burial or cremation- the body is NOT embalmed but is buried or cremated as soon as legally possible.

FUNERAL COSTS: The Federated Funeral Directors of America reported in 1991 that the average funeral sale was $3,247.46. This included owner and staff services, use of mortuary equipment, professional care, motor vehicles and the casket. The casket price averaged $526.96. That's from about 171,000 funeral of 1,400 privately owned funeral homes. Thirty two percent of funeral arrangements were preplanned. Another 21% involved some discussion or arrangement before needed.

GRAVESITES: In 1991, gravesites were estimated to cost from $500 an up in metropolitan areas and about half that in rural areas.

CREMATION: In 1970, cremation was 4.58%; in 1980 it was 9.74% and in 1989 it was 16.36% of all final dispositions. Four reasons for its increase

SURVIVOR: To be considered a legal successor, most states require that a survivor must outlive the decedent by 120 hours. Except in the case of simultaneous death, any person who fails to outlive the decedent by 120 hours is deemed to have predeceased the decedent. Makes a big difference in how estate are passed to beneficiaries. Check you local state regulations.

COMPASSIONATE FRIENDS: PO Box 3696, Oak Brook, IL 60522, 312 990-0010 provides help for families that have lost a child of any age through accident, illness, assault, suicide, etc.

LIVING BANK: 4545 Post Oak Place Drive, Houston, TX 77027, 713 528-2971 is a non profit organization to help those that wish to donate all or part of their bodies for transplantations, research, etc.

SUDDEN INFANT DEATH SYNDROME: (SIDS) National SIDS Foundation, 8200 Professional Drive, Ste 104, Landover, MD 20785 301 459-3388 will supply info about local chapters where parents can share grief with others.

SAMARITANS: 500 Commonwealth Ave., Kenmore Square, Boston, MA 02215, 617 247-0220 is a special group of volunteers trained to help those considering suicide or persons who have lost a friend or relative to suicide.

BUDGET DEFICIT: Though the budget gets balanced- and that's a very good thing in itself- it still won't forestall a major problem with the retirement of the baby boomers in the years to come. The entitlements will all be stretched to the hilt- and some will break. The hardest hit, obviously, are the poor. Mentioned here previously, most of the wealth of the poor- about 70%- is from future social security checks. They have little savings and no pensions. Even the middle class hasn't been saving that much. So in the future- from about 2020 onward- it's really going to hit the fan. This is the time you are apt to see major racial and economic turmoil embroil our society into, perhaps, further haves and have nots. What to do? Well, as stated, reducing the budget deficit was step one. Second is the lowering of benefits for the elderly and forcing them to spend more for the services they now get. They must take on more responsibility if, for no other reason, there is no money. To give you an idea of how far we have gone to a socialistic society, in 1995, per Chronicle article, every one earner couple that retires will receive an excess $260,000 in social security and Medicare benefits beyond which they contributed in taxes to those programs. (The figure is far less when allowing that interest could have been earned on the taxes collected.) The article further noted that when the baby boomers retire, younger workers would have to pay about 73% of their income to support federal spending. Ain't gonna happen. But just like politics of old, we'll roll merrily along until it's obvious that things are so bad that we must do something. It might mean a major restructuring of the entire tax and benefits system about 2005 to 2010.

INFLATION INDEXED BONDS: (FED Board of San Francisco) We don't have them in the U.S. yet, but the governments of England, Australia, Sweden, Canada and soon for New Zealand are offering them for sale. They are nice in that you don't have to worry either about the semi annual payments nor your principal at maturity. All are offset for inflation so, "you can't lose". They are a lot easier to sell and own since you don't have to figure out discounts and premiums based on anticipated further inflation. The general consensus is that any government issuing these bonds signals that it is serious about controlling inflation- certainly something that Greenspan has focused on for some time. We may see them in the next five years or so.

DYING: Several months ago you might remember my comments about my being named as an agent on some clients living wills so that they could be reasonably assured that I would be independent enough to see that their wishes were carried out. Well, it appears that that might be absolutely necessary since a four year study showed that Doctors repeatedly ignored their patients wishes, their pain often went unrelieved and their doctors many times persisted in using extreme measures to keep the person alive. They did indicate that things were better than previous, but still commented that the common hallmark of hospital deaths remains "a mechanically supported, painful and prolonged process of dying". The study of 4,031 patients with end of life care:

Those that indicated no resuscitation 31%

The doctors knew of this request 47%

The request had been entered on charts 49%

Patients who wrote a request for DNR (Do Not Resuscitate) within 2 days of death 46%

Spent a minimum of 10 days in ICU 38%

Were on a respirator within the last 3 days 46%

Conscious patients who died after 50%

experiencing moderate to severe pain in

at least half the time in the last 3 days of life.

Also about 1/3 of the families spent all or most of their savings "during an vain and unsought effort to postpone an inevitable death."

A later study of an additional 5,000 who used nurse advocates- those who attempted to encourage doctors to communicate with their patients and determine their wishes and to avoid the futility and unwanted high technological efforts when death was near- reported that patients still spent the same time in intensive care and almost all suffered as much unrelieved pain in their last days and almost as many ended up on ventilators- often against their wishes. Dying is bad enough without being abused in the process.

HOW TO CHOOSE A NURSING HOME: It's a book by Joanne Meshinsky, RN, Avon Books, 1991 that I will paraphrase from over the next couple issues because I think it has valuable insight to offer. (Good luck in finding the book- but it's probably worth the effort if you have someone going into a home. There's a tremendous amount of info from direct experience that is lacking in most other texts.) It's necessary since there were about 1.5 million nursing home residents in 1985 and they are expected to reach 3.1 million by 2025. That's because the number of elderly is growing so fast. It is estimated that the number or elderly over age 85 will be about 4.9 million by 2000 and up to 7.1 million by 2020. Admittedly, the odds of needing a home are fairly small when one is younger and less that 5% of the elderly end up in homes. From age 65 to 74, less that 1.5% are in a nursing home at any one time but over 20% of the elderly over age 85 receive nursing home care. Studies indicated that one in four will need nursing home care before they die. A key point for some of you is that if you live alone or in a cold weather state, the odds go up dramatically.

NURSING HOME INSPECTORS: (How to Choose a Nursing Home). This list is a brief rundown on what an inspector reviews at a nursing home. However, it seems to be an excellent list you can use yourself. You might have to dig deeply to check all of these, but since I'll assume a loved ones comfort is at stake.........


Looks like the Director of Nurses may be the person you may want to talk to before signing any papers and admitting a loved one.

MURDER: Parents of Murdered Children, 100 East 8th St. B-41, Cincinnati, OH 45202, 513 721-5683 supports local chapters for parents of murdered children


I thought the last comment was extremely noteworthy. Alzheimer patients experience a continual loss of motor skills and thought processes and do take an increased amount of time by the staff to take care of.

NURSING HOME COSTS: (How to Choose a Nursing Home) Here is an interesting example of how the facts are not what they appear to be. Every article on nursing home care focuses on the monthly cost- let's say $3,000 per month. But the nursing home may add $40.00 for laundry and $15.00 for ironing. Total $3,055 per month. Another home is substantially cheaper at $2,300 per month. But they have daily costs of $3.00 for incontinence care; $4.00 for spoon feeding; $15.00 per dozen for incontinence pads; $2.00 for tissues and $30.00 for laundry and ironing. Added together, they total more than the first home. Additionally, many of the other costs you think are covered by you basic monthly fee are NOT. Enema supplies, catheters, rubber gloves, bandages, syringes, hand and skin lotions and urine testing materials are among those added to monthly bills. As are doctor, pharmacy and surgical company supplies. Then you still need to consider renting a wheelchair, walker, cane. Maybe add in speech or physical therapy. Be prepared.

RESIDENTS BILL OF RIGHTS: (How to Choose a Nursing Home) Ms. Meshinsky has provided a concise review of the formal Bill of Rights for Nursing Home Patients. The Bill is for the patients safety, well being and privacy. They should be posted in the facility

NURSING HOME THEFT: The Bluegrass Long Term Care Ombudsman Program, 1530 Nicholasville Rd., Lexington, KY 40503 has info on the precautions one should take to prevent theft in the nursing home. Ms. Meshinsky also says that you should label EVERYTHING. Use sew in labels, laundry markers, indelible pens to tape and put on EVERYTHING- even the removable parts such as the footrests on wheelchairs.

CLANCY LOWERED THE BOOM: Or maybe vice versa. Tom Clancy, the noted author of "Red October" and other novels involving spies, etc., etc., should have done a little sleuthing himself. Seems he lost $1.4 million to "his friend" who supposedly invested it in a UNREGISTERED mutual fund he had guaranteed would return 30%. Investors in 17 states lost about $7 million. Stuff like this should never happen, but as long as people want trust without competency, there will always be a lot of room to get screwed. Sure trust is necessary, but there are very few people that I have ever met that have done the absolutely necessary scrutiny to review an investment adviser or financial planner as to education, qualifications and background.

VIDEO TAPES: Here is yet another excellent suggestion by Ms. Meshinsky. Many elderly and partly senile patients can become highly agitated and aggressive, calling for past partners and relatives. She indicated that using a video tape with the family, children and married partner eased the stress considerably. She thought that this could ultimately reduce the amount of tranquilizers used for such stressful situations. If you have anything like this, bring them to the patient or nurse.

NURSING HOME ADMISSIONS DAY: Use the list below for the info you should bring on admissions day. And, according to Ms. Meshinsky , the best time to bring your relative in is mid morning.

Also consider:

There's a lot more solid information that this book provides, so do try and check in out BEFORE you or a loved one needs to go into a home. At least keep this for reference.

MORAL OBLIGATION TO SUSTAIN LIFE: (The Essential Guide to a Living Will) In 1957, Pope Pius XII indicated that extraordinary means were not required to sustain life. "Even if the case is not hopeless, but the means are so extraordinary as to impose an enormous burden, be it one of pain or even of overwhelming obligation, its use is not obligatory". He further indicated that physicians were not morally obligated to use the new life extending technologies in a purely vitalist fashion. For example, if a person had pneumonia, the use of a respirator would probably benefit the patient since he could be well enough to breathe without it in a few days. However a chronically comatose patient would NOT benefit from a respirator. Hence, since the respirators use would be considered extraordinary, its would not be required morally. Even with all the commentary you could find, people are still loathe to let a parent or other loved one die instead thinking that they should do and use whatever means necessary to provide all the help necessary. A daughter might say, "but she was my mother!" True enough, but the benefit is NOT to the comatose or suffering person but to the child. You have to get beyond that and recognize that you are apt to be putting the dying person in a great deal of extra and severe pain and discomfort. If you can recognize that, the situation is much clearer.

RESPIRATORS: In defense of some of the doctors deliberate attempts to sustain life comes this commentary from the Essential Guide to a Living Will. Any patient that is admitted to a unit with a breathing problem is almost automatically put on a respirator since, as the doctors said, "allowing a patient to die of respiratory failure is an awful death". And once that happens, the "respirator will never be disconnected unless the patient no longer needs it or is dead." The living will at this point can be used to terminate or eliminate any other life sustaining measure- drawing blood for tests, intubation, antibiotics, feeding- just about anything except for turning off the respirator. The turning off of the respirator would be the proximate cause of death which is loathe to many doctors- justifiably so. But is there a way to avoid the respirator initially if you are brought in a "short to die" condition? Yes, apparently. Use a specific DO NOT RESUSCITATE. Even that is not perfect because it must be verified in sufficient time and legality to be accepted by the admitting physician. Certainly, some physicians are more liberal, but it's your life and your death. You can't decide how you want to come into this life, but you can decide, in many cases, how you'll go out. Based on some of the commentary from the book mentioned above, I have revised my living will to include some more definitive statements. The author, BD Colen, also indicated that irrespective of the written physicians directive, it's probably an excellent thing to have a video tape of your wishes made.


CACA: (FED Board of Philadelphia) Not exactly what you think- though by the time I get through with some of these definitions, it might be apt. It's a review of "simple" exotic derivatives.

A CACALL is a option to purchase a call as a hedge against interest rate movements foreign exchange for instance. They're trying to lock in an acceptable price if needed.

CAPUT- same thing for a put

Contingent Premium Call is similar to a standard call but no premium is paid up front. If the call ends up IN THE MONEY, a premium is paid. If it ends up OUT OF THE MONEY, no premium is paid. If a premium is paid, it is higher than the standard call

Average Rate Option pays off the difference between the strike price and the average exchange rate over the life of the option.

BARRIER OPTION comes into existence or is canceled depending on whether the exchange rates crosses a predefined barrier. For example, a down and out call is canceled if the value of the foreign currency declines below a certain level.

And from the New England Economic Review, here are their interpretation of derivatives overall.

Derivative instruments can be defined as financial contracts whose value is derived from the value of other assets, interest or exchange rates, indexes or financial contracts. The value of the derivative instruments is often linked to the prices of traded securities- call and put options on stocks are the most useful examples. The term derivatives is also used to refer to a variety of debt instruments, sometimes called structured securities, that have derivative characteristics or embedded options. For example, some bonds contain put and call options. This allows the holder to exercise certain opportunities depending on the direction of interest rates.

Many familiar financial instruments have embedded derivatives. Prepayment privileges on fixed rate mortgages are equivalent to the call option on a bond while early redemptions privileges on fixed rate deposits are equivalent to a put option.

Derivatives can be categorized according to several characteristics. First they can be classified on the basis of the underlying asset, index, or rate of exchange to which thy are linked. Second, derivatives can also be classified as whether a forward contract or an option contract (or combination of the two.) A forward contract is an agreement to buy or sell a security at a future date at a price determined at the time of the contract. In contrast, an option confers the right, but not the obligation, to purchase or sell a security at some future date at a predetermined price.

A distinction can be made between derivatives that are traded on an exchange and those that are traded over the counter. Over the counter contracts are usually between two financial institutions or between a financial institutions and its corporate customer and are often individually tailored to the customer's requirements. Standardized derivatives however, are traded on exchanges (where forward contracts are known as futures). As the two parties to this contract do not know each other, the exchange itself guarantees that the contract will be honored- not necessarily true in the OTC contracts.

DERIVATIVES: USE OR NOT: Cathy Minehan proposed 10 questions that should be asked by any end user of derivatives. They are repeated here verbatim. Admittedly, they might not apply to you directly- save for the fact that the mutual funds you are considering may use them. Maybe you would like to ask these questions of them. They must answer yes to all ten.

Yes, I know the above was very esoteric and perhaps beyond your ability to comprehend and possibly your interest as well. But the reason I forced you through this is the fact that Orange county did not institute rules like this- not did Bank of America, Merrill Lynch, etc., etc. or a lot of the other institutions that we "look up to" as having a supposed innate capability in securities and investing. As the New England Economic Review noted, the loss sustained by these entities was based on "it was the all too human tendency to "bet the ranch" that was responsible for these problems as much as the instruments themselves. participants must exercise self discipline and restraint." However the restraints must be overseen by people that have the knowledge and power to do something- not the norm.


P/E RATIOS: A study of stocks with news about the best versus worst P/E ratios shows that the worst stocks display above average returns for about 19 quarters thereafter. The long term reversion to the mean means that the stocks tend to revert to long term history- that which is down will tend to come back. It validates contrarian investing. However, one must also recognize that if some stocks are down, it's because the company is now terrible.

INDEX: About 70% of actively managed funds do not outperform the S&P 500 index over time. But what is worse is that 93% of all the Government bond funds do not beat the Lehman Brother's bond index. One major reason is that they charge a lot- particularly load funds. There are much better alternatives- corporate and high yield bonds for example.

BITCH: (Nursing Homes, The Complete Guide) I quote, people ....." do not grow old in direct proportion to their advancing years. Martha was a brat at 10, a bitch at 20, a witch at 40 and impossible at 80. Her children and grandchildren do not like her very much." Know anyone like this? I do. As mentioned previously, young bad people tend to not only become older but meaner. They play all the guilt trips, and some children may still feel a tinge of remorse for not bowing to an insufferable old cow. I guess it's for this reason that I sincerely hope there is a heaven and hell.

CHEATING STOCKBROKERS: Last year the SEC cracked down on some bad stockbrokers. But the communiqué also went on to say that for very broker that is caught doing wrong, about 100 are never caught. The 1:100 ratio seems about right.

COMATOSE: Never assume the comatose person cannot hear or understand you. Be sure to assume that they understand what you are saying to others when you are nearby.

STOCKS VERSUS HOMES: In the most recent past, the house was the largest equity holding by Americans. But that has been surpassed by the current holding In the stock market. From 1992 to 1994, the number of stock mutual fund accounts has climbed an astonishing 79%, from 33 million to 59.1 million.

LIFE EXPECTANCY: The IRS, life insurance companies, health insurers and all others involved in reviewing how long someone might live use various actuarial tables for their work (they vary depending upon their experience). Below is one used by an annuity company that should help to give you some idea of how long the average person is expected to live once they reach a certain age.

Age Life Expectancy Age Life Expectancy

70 16.0 80 9.5

71 15.3 81 8.9

72 14.6 82 8.4

73 13.9 83 7.9

74 13.2 84 7.4

75 12.5 85 6.9

76 11.9 86 6.5

77 11.2 87 6.1

78 10.6 88 5.7

79 10.0 89 5.3

As is clear, if you're 70, you can expect- and should anticipate and budget for- that you will live to 86 years of age because that is what is average. If you have a poor health history, you may want to discount that. By the same token, if you're very healthy, expect to live longer. But even if you did reach 86, you can see that there are several more years that you have to expect- over 6 years. This actually goes on and on till about 100. But I do have a client who had both grandmothers live till 100+ and her 90 year old mother is now living with her. Obviously, though she is only in her early 60's, I have her scheduled for a long lifetime and a need for a lot of money.

BANK ASSET ALLOCATION: Banks are having a tougher time attracting investment customers now that all the "easy pickings" have been gleaned out in the past few years as the novice investors got into the mutual fund marketplace. Banks are now taking a more active position by offering asset allocation accounts- where the allocation between stocks, bonds and cash is selected for the customer based on their risk and suitability. The article said the info was gleaned from an interview from the bank's "investment advisor or counselor" and is then run through a computer to determine the mix. A few troubling areas. One is the use of the "investment advisor or counselor." I ask you, from whence comes this supposed expertise in analyzing a client's past investment and planning history or in determining suitability? Not from any securities licensing training, that's for sure. From the bank? Nope. So where? No where. As for the info going through a computer, give me a break! There has never been a program developed that can decipher suitability for a client (many tried, all failed). However, as mentioned in several seminars, people tend to become mesmerized by the fact that since a computer did the analysis, it must be right. Wrong, wrong, wrong.

Another WSJ article on banks noted that the SEC is trying to stop the bank practices of giving referral money to bank tellers to "suggest" you invest with the account executive sitting just a few feet away. Something about "conflict of interest".

After all said and done, outside of an FDIC CD, never buy any investment or insurance product at a bank.

MORE BANKS: Think I'm harsh with my last statement? I do some insurance continuing education classes. On the last week in March I had a student tell me about this recent unethical situation that had just happened to his mother. He is about 70 years of age- his mother is 95, lives alone, drives a car, etc. although, obviously, is frail. She had a CD coming due and he suggested that they review it when he came back from vacation. Upon his return she said that she had gone down to the bank and got another CD. Not likely. She had been sold a 4.5% loaded bond fund that she could not access for three months. This had to be one of the most unethical sales and moronic behaviors by a rep I have heard about in years. If nothing else, she does not even have an actuarial lifetime long enough to outlive the sales load. She thought she had another CD. SHE TRUSTED THE BANK. What was most distressing was when her son confronted the bank officers. I would reasonably expect that the agent might try to defend the sale just because he was incompetent to begin with. But the rest of the bank officers also attempted to defend the sale with totally nonsensical commentary. Does this happen often? Maybe not, but the mere fact that it does and that supposedly ethical and knowledgeable people try to defend the practice should be clearly abhorrent to all. Unfortunately the NASD and SEC have done nothing about this- nor will they. They require testing on sophomoric and irrelevant issues, not training on ethics and real life suitability issues. Never trust anyone with your money unless they have proven track record of competency.



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