MOODY'S REVIEW

APRIL 2001

COMMENTARY ON INVESTMENT AND PLANNING ISSUES

ERROLD F. MOODY JR.

MASTER OF SCIENCE IN FINANCIAL PLANNING

LIFE AND DISABILITY INSURANCE ANALYST

REGISTERED INVESTMENT ADVISER

WWW.EFMOODY.COM

FLAMEOUT: The odds of using your fire insurance is about 1:1200

COLLEGE 529 PLANS- All but two states have developed plans, and 43 are up and running. Florida and Hawaii should be announcing their plans soon.

AUDITS (NY Times): In the last three years, audit rates among business owners, professionals and investors in partnerships have fallen by two-thirds, to about one in 131 returns. The IRS has asked for a few billion dollars to increase these. "The I.R.S. said it would also focus on illegitimate business tax shelters that make profits invisible to the I.R.S. These shelters are growing so fast, I.R.S. officials say, that despite soaring profits the taxes paid by large companies have actually begun to decline. Since hitting a record $38 billion in 1996, taxes collected through enforcement actions like audits and levies on bank accounts have fallen by 13 %, or $5 billion."

There are a lot of frauds being perpetrated- I know because I hear and see a lot of them.

"People feel that, while picking winning funds is hard, they can do it. "There is a sense that investing is governed by skill. Yet the evidence suggests that trying to pick winning stock funds is as futile as trying to pick winning lottery tickets."

Meir Statman, a finance professor at Santa Clara University in California.

MANAGED CARE ISN'T BAD (Harris) 69% of insured American adults give their own health plans an A or B rating.

INDEX: There are more than 70 S.& P. 500 index funds, including exchange-traded funds, or E.T.F.'s.

BIG SCREWING, TRUE STORY: A national insurance company everyone knows (mostly cars) and is highly advertised had a life agent working in a Northern California area. His manager thought he was top dog. Could sell anything to anybody. He was caught leaving a message on an answering machine that he was going to (fraudulently ) sign an insurance application and a check withdrawal plan for an individual who had already indicated she didn't want it. She had to call the company and demand the money back. Well, he was doing this to many other clients. The manager and executives were charged back tens of thousands of dollars. The client got her money back. They finally fired the agent after months and months of bureaucracy- but they let him keep the commissions and bonuses. The firm refused to submit his name to the Department of Insurance because they didn't want the press. So the guy retains his license as though nothing has happened and will continue his activity effectively unabated. It clearly was a "good" business decision by the firm but it sure ain't ethical. And it sure doesn't uphold the standards this company presents in all its brochures.

LOWER MORTGAGE EQUITY: (NY Times) millions of households borrowed heavily against their homes, often to help support greater spending.

The average homeowning household owed lenders 46% of the market value of its residence during last year's third quarter, up sharply from about 30% in 1982 and 40% in 1991, at the start of the current economic xpansion, the Fed reports show. For a typical family with a home worth the median market value of $144,000 late last year, that meant their equity was $77,760 while their debt was $66,240. But the slowing economy resulted in the average household owning less of a stake in its home than in any economic slowdown since the advent of the modern mortgage in the 1930's.

PPO's: A new report tracing the rise in popularity of preferred provider organizations (PPOs) shows that the number of PPO-eligible employees in America rose 8.6% to 106.8 million in 1999.

I am strongly in favor of common sense, common honesty, and common decency. This makes me forever ineligible for public office.

H. L. Mencken

I HAD NO IDEA THE COST WAS THIS MUCH: States spent $81.3 billion dealing with substance abuse in 1998 - or about 13% of their budgets, according to the study released Monday by the National Center on Addiction and Substance Abuse at Columbia University. New York  was at the top- 18% and South Carolina had the lowest percentage - under 7%. The report found that states spent $81.3 billion

PRODUCTIVITY: A half-percentage-point rise in productivity growth adds $1.2 trillion to the federal budget surplus over 10 years.

CPI REGRESSION: (FED Reserve Bank of NY): An article postulates on whether or not the CPI is a singular indicator- such as M2 growth, Commodity prices, Financial indicators (exchange rates, term premia); Capacity Utilization, etc.- that suggests future inflation. In a nutshell, no single indicator was valid through regression analysis. They end with, "clearly there is good reason to be wary of placing too much confidence in forecasts of inflation that rest on the signals of a single indicator".

Life is not a spectator sport...If you're going to spend your whole life in the grandstand just watching what goes on, in my opinion you're wasting your life.

Jackie Robinson

NURSING HOMES: (NY Times) The government did a 8 year study indicating that nursing homes are understaffed. (And this took 8 years? Ask any nurse and they would have told them the problem has always existed.) It noted that nursing homes that were understaffed were "significantly more likely to have a quality of care problems". It recommended patients get 2 hours of care per day by a nurses aide- but that 54% of homes fell below this minimum level. Many frail elderly need help with eating but do not get it- hence the problem with weight loss. 47% of patients need help with eating and 21% are totally dependent.

They noted that staffing was much better at non profit homes than at for profit homes. That might seem a dichotomy but many of these homes were large conglomerates that ran into problems when they were purchased with large debt that could not be handed. As a result, such for profit entities reduced staff to save money.

The American Health Care Association said it could not support minimum staffing levels unless the government helped pay the additional costs- estimated at several BILLION dollars a year.

About 1.6 million patients receive care in 17,000 nursing homes and 95% of those are under Medicare or Medicaid.

DIVIDENDS (NY Times) Historically, the total return on stocks is 11 percent a year, with dividends averaging 4.5 percent. (The total return over 50 years was 9.4% in the early 80's). Just 74 percent of the companies in the S.& P. 500-stock index paid dividends last year, a new low. S.& P. estimates that only about 30 percent of earnings were paid out as dividends last year, another new low. Through the 1990's, the average dividend payout was 50 percent. And last year, fewer than 1,500 companies raised their dividends, the lowest number since 1992.

AIDS: The CDC estimates that 800,000 to 900,000 Americans are now infected with HIV, and 40,000 more catch the virus each year, a figure that has been stable since the early 1990s.

If you had a half a glass of water, the optimist would say it was half full.

The pessimist would say it was half empty.

But the engineer would say you got twice as much glass as you need.

UNEMPLOYMENT RATE: Greenspan recently noted that "My forecast is that (the unemployment rate), which served as a very useful statistical procedure to evaluate how the economy was behaving, over a number of years, like so many types of temporary models which worked, is probably going to fail in the years ahead as a useful indicator."

FEDERAL PAYMENTS TO MEDICARE HMOS TO RISE 2% TO 5% IN 2002: Federal payments to HMOs participating in the Medicare program next year are expected to increase about 2% for many of the 174 Medicare+Choice health plans, but those operating in rural and lower cost areas of the nation should see rates rise by as much as 5%, based on a reading of preliminary 2002 payment rates released by the US Health Care Financing Administration.

"All labor that uplifts humanity has dignity and importance and should be undertaken with painstaking excellence."

Martin Luther King, Jr.

COUGH, SPUTTER: EPA's decade-long efforts to cut down on the amount of diesel exhaust that trucks and buses are allowed to emit has got a ways to go. The agency says the cancer risk from diesel exhaust could be as high as one in 1,000.

YOU REALLY DIDN'T WANT KIDS, DID YOU? (College Board) The price of a college degree continues to rise faster than inflation, with tuition and fees at public four-year colleges up an average 4.4% this fall, even more at private schools, a new survey has found. On-campus room and board now averages $4,960, up 5.1%.

Average in-state tuition and fees at public, four-year schools is $3,510 per year -- $148 more than last year. At private four-year colleges, tuition and fees average $16,332, up 5.2% from last year. Room and board on campus is now $6,209, a 4.2% increase.

Only public two-year schools, chiefly community colleges, stayed below the current inflation rate -- but barely. Tuition rose this year to $1,705, up 3.4%, the survey found.

Private two-year schools boosted tuition and fees to $7,458, a 7% rise.

"Every living creature that comes into the world has something allotted him to perform; herefore, he should not stand an idle spectator of what others are doing."

Sarah Kirby Trimmer

LIFETIME LEARNING CREDIT: This tax credit is equal to 20% of the first $5,000 of qualified expenses in total (whether incurred in one year or several). It is ONLY available when the hope scholarship is not claimed. For both credits, the qualified educational expenses must be incurred for the taxpayer spouse or dependents under age 24 who are claimed as dependents. The credit is phased out between $80,000- $100,000 for MFJ and $40,000- 50,000 for single. Unlike the Hope scholarship, the lifetime learning credit can be used for undergraduate, graduate or professional degrees, an unlimited number of years and any course that helps acquire or improve job skills and any course load.

STUDENT LOAN INTEREST DEDUCTION A deduction is available for interest paid don student loans during the first 60 months that interest payments are required. The maximum deduction for 2001 is $2,500. Eligibility is phased put for single filers between $40,000 to 55,000 and of MFJ between $60,000 and 75,000. The loan must be incurred for the cost of attending an eligible educational institution and can include room and board.

GERIATRIC CARE: Geriatric Care managers may cost between $50 to $150 per hour. Will Medicare take care of that. Essentially no. Medicaid? Same. Do you pay? Yes. Private policy? Yes- if you select the coverage. If you have money, opt for the better care and coverage and buy an independent policy.

WRINKLED OLD FAT: If you overeat, you are accelerating the aging process- Professor of Biology at Southern Methodist University.

ASSISTED LIVING: It generally means long term housing with private rooms, meals, social activities and regular help with functions such as bathing and taking medication that residents can no longer preform for themselves. It's current cost is about $2,000 a month. Though less than full time nursing home care, the costs are rapidly escalating. It is the fastest growing type of housing for the elderly growing at 15% to 20% per year. The industry currently houses about 1 million people.

But it is not a panacea. The GAO noted that "residents of a number of assisted living facilities are encountering problems with quality of care or consumer protection which, in some cases, can have a serious affect on their health. Marketing material are often incomplete and are sometimes vague and misleading."

TRADING: Mentioned previously, the study by ODean and Barber clearly showed that active traders underperformed the market. Between 2/91 and 1/97, the most active traders earned 11.4%, the average trader, 16.12% and the least active trader, 18.5%. Core funds- assuming they were selected properly- should not be changed that often. That said, if there was an economy similar to 1973/74, almost everything would be changed. This current drop is not the same as 73/74 no matter what anyone says. I did make some minor adjustments on a few funds but relatively everything else has stayed the course. I don't do active trading and neither should you.

DYING (Reuters) The British Medical Journal noted that doctors are overly optimistic about the survival rate of terminally ill patients and that may result in the overuse of aggressive treatments and underuse of hospice care in dying patients. ``American doctors refer patients to hospice too late.'' Doctors accurately predicted survival in only about 20% of cases.

More than 60% of the time the estimates were overly optimistic, with doctors predicting that a patient had an average of five times longer to live than they actually did. More experienced physicians generally make more accurate predictions, but the closer the physician was to the patients, the more optimistic they also were.

Bottom line- you do not want to die in a hospital. See Dr. Nuland's best seller How We Die.

ONE PROBLEM WITH DYING:(Reuters): - Researchers found that most medical textbooks get a ''failing grade'' when it comes to providing information on end-of-life care. Overall, surgical textbooks and those on AIDS were the most lacking and as a group had a score of about 30%. Among all the textbooks, 24% provided help on end-of-life care, while 19% had little information, and 57% had none.

INDEXING (Frank Armstrong) "Mutual Fund Performance: Mark Carhart supplies perhaps the most comprehensive and authoritative recent paper on mutual fund performance, "On Persistence in Mutual Fund Performance" (Journal of Finance, 1997). He finds that only very poor performance reliably persists, and that once adjusted for size and book-to-market weighting, mutual fund alphas virtually disappear. Academic support for active managers is almost nonexistent.

Are developing markets any different? For a while, active managers took refuge in foreign or smaller, less liquid, less efficient markets. But even there, they are destined to turn up a loser. Garrett Quigley and Rex A. Sinquefield's paper "Performance of U.K. Equity Unit Trusts" (Journal of Asset Management, February 2000) examines the performance of U.K. equity trusts (similar to our mutual funds). It finds, net of expenses, that they reliably underperform the market. Like Carhart, the study also finds that good performance does not reliably persist but bad performance does."

MORE DYING: (The Lancet Oncology) "Despite a consensus among medical professionals that terminally ill people should receive better palliative care, serious deficiencies persist in meeting the physical, spiritual, and psychological needs of dying cancer patients. Widespread disease, worsening prospect of survival, prolonged illness, and increased distress contribute to a low quality of life for patients and their caregivers. Poor communication among healthcare providers, patients and families hampers end-of-life care, the authors note, as do inadequate education and training in end-of-life care. Compounding these problems are logistical challenges, the researchers note. Identifying the point at which further care would be futile is fraught with uncertainty, as is predicting how much longer a patient will live. This further complicates hospice care, which often requires evidence--hard to come by--that the patient has 6 months or less left to live. The authors call for improved education and training among physicians, nurses, social workers, and others caring for dying  patients and suggest adoption of hospice and other end-of-life programs similar to those long used in Canada and the UK."

DEPRESSION: Depressed women face a 73% higher risk for heart disease than non depressed women. Men were 71% at a higher risk and were 2.34 times more likely to die than the non depressed.

EPILEPSY: (World Health Organization) About eight of every 1,000 people worldwide have epilepsy. Up to 80% of epileptics are suffering without treatment that could allow them to lead normal lives, mostly in the developing world where the stigma associated with the condition is greatest.

"Hard work never killed anybody, but why take a chance?"

Charlie McCarthy

DISABLED SOCIAL SECURITY: Private Social Security Investment Accounts Risky for Disabled Persons (GAO) A General Accounting Office study reveals that the disabled would lose benefits under President Bush's plan to establish investment accounts in Social Security. For a worker with average earnings who first receives disability benefits at the age of 45, the report said, the reduction in lifetime benefits would be in the range of 4 percent to 18 percent. The average benefit for disabled workers is now $786 a month. The new study concludes that "even under the best of circumstances, Social Security reform proposals would reduce benefits" for people with disabilities

MEDICARE HOMEBOUND DEFINITION: Any absence of an individual from the home attributable to the need to receive health care  treatment, including regular absences for the purpose of participating in therapeutic, psychosocial, or medical treatment in an adult day-care program that is licensed or certified by a State, or accredited, to furnish adult day care services in the State shall not negate the beneficiary's homebound status for purposes of eligibility. Any absence for religious service is deemed to be an absence of infrequent or short duration and thus does not negate the homebound status of the beneficiary.

TRUCK SALES RECESSION: (USA) "Brian Wesbury, chief economist for Chicago's Griffin Kubik Stephens & Thompson, says sales of trucks that weigh 5 tons or more -- chiefly tractor-trailer rigs -- are an infallible economic barometer. "If you look back, in every single one of our recent recessions, truck sales forewarned of a recession before it actually occurred. Typically, sales fell about 10% to 15% before the recession began. "Right now (a couple months ago) , we are down 26% from year-ago levels, so we are actually beyond the point where this has signaled a recession." (I still say its just a slowdown)

ASSET ALLOCATION: A client of mine who has most of her money invested properly bought a stock at (from a very hot tip) at 21 that went up to 28 then down to 14. Finally sold it at 17. She said that she had "learned her lesson. I only invested what I could afford to lose (a few thousand) but sometimes you have to learn the hard way. So even though I understood the rational for not doing this sort of thing, I learned that even I am irrational at times."

So I wrote her- "I will tell you what you did wrong with this investment."

Nothing

You have enough money to invest in a single issue of stock. You knew your limitations and you sold when it looked bad. The rest of the stuff is invested properly.

That's how it is supposed to be done."

SEX: Men and women share investment decision-making in more than half of households that own mutual funds, says the Investment Company Institute. Men are the sole decision-makers in 24% of homes, and women go it alone in 22% of homes.

"A substantial bond of research clearly indicates that most investors, not only individuals but financial institutions, do not manage their portfolios effectively, That is, investors do not construct or manage their portfolios in a manner that reflects their attitude toward risk, nor do they recognize the likely financial consequences of disappointing investment performance."

Investment Analysis and Portfolio Management by Cohen, Zinbarg and Zeikel, Irwin, 5th Edition

REAL ESTATE DEDUCTIONS: If you spend 750 hours per year or at least 50% of your working time involved in real estate activities, you are considered to be "materially participating" and effectively can deduct all losses and expenses form gross income. If you do not meet that definition, you are limited to a maximum $25,000 loss which starts being phased out when income exceeds $100,000.

HOPE SCHOLARSHIP: Maximum credit of $1,500 per student for the first two years of post secondary education- $1,000 in the first year and $500 (50% of tuition up to $1,000) in the second year. It is allowed for tuition but not for room and board. Eligible educational institutions include most accredited colleges that offer credit for a degree. Vocational and proprietary institutions may qualify if they satisfy the Department of Education student aid program.

Life is like a ten-speed bike. Most of us have gears we never use.

MONEY: (NY Times) Among households earning $25,000 to $50,000 in 1998, those stock holdings had a median value of $11,500. Among households earning $100,000 or more, the median value of stock holdings was $150,000. Of course, these values are down quite a bit now.

REALLY FAT: For the first time in the world, there are as many people overweight as there are underfed. In the U.S., 55% are overweight and 25% of the adult population is obese.

ILLEGAL FINANCIAL PLANNER: The WSJ had an article on CPA financial planners and talked about one in San Diego. I checked his licensing. He is NOT legally licensed to do financial planning in the state and the AICPA and Calfiornia Society of CPA's both know it. Pity that such people are glorified by the very publications that are supposed to weed out liars and frauds. The WSJ has actually validated activity of an entire organization- yet I know of not one CPA fee planner who can do fee comprehensive financial planning in this state.

More recently, a KRON "investigative reporter" chose to highlight a SF financial planner who was acting illegally in the state at all times. He has always been violating the law yet gets recognized as one of the best in the field. Financial Planning is an industry, not a profession. Ethical standards are primarily for show.

LOOKING BAD: Standard and Poors has revised the insurance industry's outlook from stable to negative "reflecting its view that pressures affecting the industry and the industry's attempts to confront those pressures over the next few years will leave the industry weaker." Also look for continued and greater consolidation.

STOCK FRAUD: (WSJ) A couple college students who started a stock subscribers site said, "buy a bunch of garbage stock. Tell your idiot subscribers about how great the stock is and like sheep they will run out and buy it. Dump the shares you bought a few hours ago to all these suckers. Watch the stock tank steadily for the next month. Laugh all the way to the bank".

They were (supposedly) busted by the SEC but they had managed to reap $345,000 gain on just four stocks.

I have no empathy for the people who were subscribers. Some people are simply stupid. Pity that they breed, though.

I had to go on two diets at the same time because one diet wasn't giving me enough food.

Barry Martin

ROTH (WSJ) Only 0.6% of regular IRA's are converted by people over age 70. About 5.6% for those age 60 to 69. But I'll tell you folks- if you ever wanted to leave money to your children, the conversion is hard to beat.

WOMEN AND DISEASE: Autoimmune diseases caused when the body starts attacking itself overwhelmingly strike women - and are often misdiagnosed, medical experts told a U.N. panel. Between 75% and 90% of those suffering from diseases like rheumatoid arthritis, multiple sclerosis and lupus are women. (Harvard Medical School)

DEPRESSION CAN WORSEN THE OUTCOME FOR HEART PATIENTS: Depression can have damaging effects on the heart. In fact, untreated depression appears to more than double the two- year death rate in patients with congestive heart failure, and may also increase the death rate after a heart attack

AIDS (AP) Registered HIV cases in Russia are rising steeply and there are now more than 30,000 infected people, with more than 50% of them contracting AIDS last year. The number of people who contracted AIDS in 1999 was four times higher than in the previous year. Ninety % of those infected are young drug addicts

SOCIAL SECURITY: Of the 3.3 million Social Security beneficiaries age 85 and older, about 2.5 million are women.

LTC: Most Americans are ill prepared for long-term care, unaware of their options and reluctant even to broach a discussion. Women across racial and generational lines need more information and guidance. These were among the findings of a series of focus groups on women's perceptions of long-term care released by the U.S. Department of Health and Human Services' Administration on Aging, the National Association of Area Agencies on Aging, and the National Association of State Units on Aging (NASUA).

Women constitute 60 % of the nearly 35 million Americans age 65 or older, and they comprise approximately 75 % of current caregivers. The research also suggests that without information, many older American women will continue to experience stress, frustration, physical and mental strain. They will be caught in family conflicts, will be unable to plan for their future, and they will not be able to make use of the supportive help that is available.

Home care costs (in 1997, $98 for each five-to-eight hour home health visit or $53 for a home health aide)

Even in groups whose traditions call for children to care for older relatives, most respondents do not want to "burden" their children with caring for them as they age. At the same time, many are reluctant to engage outsiders to provide in-home care, nor do they wish to enter a nursing home.

Many participants worried that their financial resources will not be sufficient to provide needed care. Middle class people, in particular, worry that they will "fall through the cracks," with incomes too high to qualify for government assistance and incomes too low to cover the costs of private long-term are.

The strict income limits of the Medicaid program are not widely known or understood. Further, only the medically indigent should use this since private pay invariably is better care.

In general, Baby Boomers were less aware than seniors about long term care insurance and few individuals had purchased insurance. Among those who are considering this option, questions were raised about affordability and the best age to purchase."

"Familiarity breeds contempt--and children."

Mark Twain

SSI: The number of persons receiving Supplemental Security Income (SSI) payments was virtually unchanged from 1998 to 1999, according to the Social Security Administration's Office of Policy. More than 6.5 million persons receive the federally administered payments, totaling $2.6 billion.

THIS IS GOING BANKRUPT: Medicaid spending grew by 4.1 % between 1996 and 1997, continuing the recent trend of slow spending growth. Spending for long-term care, however, rose 7.2 % during the same period.

SUICIDE: The New England Journal of Medicine found that in Oregon, physicians grant about 1 in 6 requests for a prescription for a lethal medication and that 1 in 10 requests actually results in suicide.

Substantive palliative (pain) interventions lead some -- but not all -- patients to change their minds about assisted suicide.

LITERATE?: (GE Center for Financial Learning Center) 79 % of consumers polled believed themselves to be financially literate, but a mere 16 % could correctly identify basic financial terms they claimed to understand.

I'll go one further. There is less than 0.00001% of adult Americans who know the definition of diversification that is a requirement to be a sophisticated investor- or even to have the foggiest idea what to do with stock .

DAY TRADERS: Before the tech market blew up, the GAO estimated that day traders make up only .01% of individual investors, but accounted for 10% to 15% of Nasdaq trading volume each day. 77% of all day traders lose part or all of their money. I don't have new statistics, but I bet there are very few of these left.

LIFE INSURERS:  Weiss Ratings reports that the nation's life and health insurers suffered a 50%, or $1.8 billion, decline in realized capital gains, while profits from underwriting increased by only 4.6%, or $1.6 billion, in the first nine months of 1999. Combining both capital gains and underwriting, the industry's overall profits declined $200 million, or 1.5%.

CLEANSHEETING: "The Viatical Association of America has publicly endorsed anti-fraud efforts. Most of the problems stem from a practice called "cleansheeting," in which seriously ill people lie about their medical condition in order to obtain new policies for  the sole purpose of immediately selling them."

The advice your child rejected is now being given to your grandchild.

OBESE: An estimated 97 million adults in the United States are overweight or obese. Obesity raises the risk of morbidity from high blood pressure, hyperlipidemia, type 2 diabetes, coronary heart disease, stroke, gallbladder disease, osteoarthritis, sleep apnea and respiratory problems and endometrial, breast, prostate, and colon cancers. Higher body weights are also associated with increases in all-cause mortality. Obesity is the second leading cause of preventable death in the United States. Most doctors believe obesity is a chronic disease that develops from an interaction of genetics and environment. Someone who is 40 % overweight is twice as likely to die prematurely as an average-weight person is. (This effect is seen after 10 to 30 years of being obese.)

ELDERLY: The number and percentage of elderly Medicare beneficiaries with an additional source of health insurance coverage (MEDIGAP for example) dropped significantly from 1994 to 1998, according to new research by the nonpartisan Employee Benefit. The number of noninstitutionalized elderly Medicare beneficiaries increased from 30.2 million in 1994 to 31.1 million in 1998, or about 3 %. During the same period, the number of those without an additional source of coverage increased from 6.9 million to 9.2 million -- or 33 %.

The data generally support the hypothesis that Medicare beneficiaries have enrolled managed care plans as a substitute for Medigap coverage. From 1994 to 1998, total managed care enrollment in the Medicare program increased from 3.1 million to 6.6 million. However, the 3.5 million additional beneficiaries in these plans do not necessarily include all of the 2.3 million additional elderly Medicare beneficiaries without an additional source of coverage.

Nearly 40 % of Medicare beneficiaries age 85 and older did not have a supplemental source of coverage in 1998, compared with slightly more than 20.7 % of those ages 65?69. However, all age groups experienced an increase in the number without an additional source of coverage.

In 1998, 27.1 % of white Medicare beneficiaries did not have a supplemental source of coverage, compared with 44.7 % of blacks, 44.6 % of Hispanics, and 34.3 % of beneficiaries of other races. However, the %age of white beneficiaries without additional coverage grew at a faster rate than that for both black and Hispanic beneficiaries.

Approximately 44 % of elderly Medicare beneficiaries just above the federal poverty levels were without an additional source of coverage in 1998, whereas only 21.8 % of those at 400 % or more of the poverty level were without additional coverage.

Among male beneficiaries, 27.9 % were without an additional source of coverage in 1998, compared with 30.9 % of female beneficiaries.

Research Institute (EBRI).

ECONOMIC SUBSTANCE: Abusive tax shelters cost the government $10 billion annually. The IRS noted "we must draw the line at the pursuit of engineered transactions that are devoid of economic substance."

The Treasury Secretary wants Congress to enact the "doctrine of economic substance." That doctrine, created by judges in tax cases, holds that transactions with a primary benefit of tax avoidance are not legitimate. Mr. Summers said enacting that doctrine would help "fight abusive tax shelters on a universal rather than case-by-case basis."

These comments were addressed to corporations. However, since I taught the Series 22 for many years (limited partnerships) I became familiar with many "unique" offerings that clearly nothing more than an attempt to bend tax rules with no viable economic substance. It is still happening today. Be very careful when something sounds too good to be true. The IRS IS cracking down right now.

BASIC ELEMENTS GENERALLY INCLUDED IN A WILL:

Your name and place of residence

A brief description of your assets

Names of spouse, children and other beneficiaries, such as charities or friends

Alternate beneficiaries, in the event a beneficiary dies before you do

Specific gifts, such as an auto or residence

Establishment of trusts, if desired

Cancellation of debts owed to you, if desired

Name of an executor to manage the estate

Name of a guardian for minor children

Name of an alternative guardian, in the event your first choice is unable or unwilling to act

Your signature

Witnesses' signatures

BOARD OF STANDARDS: This is pathetically moronic (is that an oxymoron?). The CFP Board of Standards prints out my 4 page Ethics text and accompanies it with a two page letter by Staff Counsel stating that I have violated trademark rules by not identifying CFP properly, etc., etc. What a joke. How much time did an attorney have to spend searching the thousands of pages on the Internet looking for "CFP" and then writing spurious letters demanding compliance?

But that's not the real problem. This is the same organization that has rationalized illegal activity by CFP practitioners that existed for years and years, refused to enforce their own standards, allows the illegal activity to continue and even refused to do anything with an ICFP Director at Large who told CFP attendees to violate the law. And beyond all that, the CFP President actually presented false and deceitful testimony to state regulators in an attempt to get them to give CFP's an exemption to the law. (Statements on file) And nothing happened to him. Clearly their priorities are skewed.  

STATE COLLEGE PLANS: The Montana Family Education Savings Program (800 888-2723) is the only prepaid state tuition plan available to residents of every state. State plans allow up to a $50,000 one time gift that remains under the control of the parent. If the student still needs a loan, it still looks beneficial because the parent dominates. Most colleges determine a student's financial need using a formula that requires a student to contribute 82 % of his or her assets over four years, but requires parents to contribute only 21 % of their assets.  

IRA: According to the Investment Company Institute, at the end of 1998, 44% of IRA balances were invested in mutual funds, 34% were held in securities directly through brokerage accounts, 12% were in bank and thrift deposits, and 9% were in insurance companies.)

NOT GOOD NEWS FOR LOGIC: (NY Times) The economy, they argue, also responds to skewed reasoning, self-indulgence, self-destructive behavior and a host of other human frailties and strengths. "the strict rationality assumptions that many economists still embrace may someday be seen as a quaint, unrealistic, special case."

MORE ASSISTED SUICIDE: (I am for this) Oregon, the only state that permits physician-assisted suicide, reported that 27 terminally ill residents committed suicide with the help of lethal prescriptions from their physicians in 1999. That's out of 29,281 deaths from all causes in Oregon last year. It has been used mostly by well-educated, elderly cancer patients with health insurance who were concerned about loss of autonomy, control of their bodily functions and physical suffering.

The 27 deaths represent .092% of all the deaths- a statistically insignificant number.

LIMITED PARTNERSHIP WOES: "Marriott will pay about 2,500 investors in 43 states compensation  of $500 million to $600 million to settle a series of lawsuits that contended it defrauded investors. The plaintiffs argued that the partnerships were set up so the company ended up with most of the profits from its hotels in the form of management fees, leaving the partners stuck with a bunch of buildings that generated little cash."

This happened last year but it bears repeating that most of the defrauded investors never should have been in this predicament. It is NOT the fact that limited partnerships are bad per se. It is the fact that they are high risk, long term, ILLIQUID investments that should comprise a relatively small part of a portfolio (generally no more than 5% or 10% and not all in one partnership.) It also requires an understanding of risk, asset allocation, unsystematic risk, etc. But that has been lost on investors as well as the brokers, B/D firms., attorneys, courts, arbitrators et al who normally try the case on extraneous issues.

HEALTH AND LONG TERM CARE. Read this carefully (Robert Wood Johnson Foundation). 24% of the population still smokes, abuse of  alcohol persists and the rate of obesity is rising. Such activity reflects that American health behavior will worsen as the exercise lessens, weight gains rise and the elderly fall victim to preventable chronic diseases. But medicine will get better and keep people alive longer.

I think the trade off will be a later stage of ill heath, but a longer period of chronic illness overall. So long term care will become more necessary since ill people will stay ill longer till death.

If you have money, buy a policy. But you should consider those companies that offer 10 pay plans that cannot increase in subsequent years. It is my contention that obesity and lack of qualified nurses will cause many insurers to increase rates in later years.

ESTATE DISCLAIMERS: For a disclaimer to qualify: it must be in writing,

it must occur within nine months from the transfer (or on the disclaimer's 21st birthday, if later),

the person disclaiming can not have already received any interest in the disclaimed property, or any of its benefits, and

the disclaimed property cannot pass to the person disclaiming it (unless that person is the surviving spouse, or unless it is to a trust for the benefit of the surviving spouse).

You can disclaim all or a portion of a gift or bequest.

Disclaimers have been effectively used to:

make tax-free gifts,

terminate existing trusts,

preserve Generation Skipping Trust exempt status while passing on wealth to subsequent generations,

avoid creditors,

increase or save a marital deduction,

preserve the tax-free roll-over of IRAs to surviving spouses,

increase a charitable deduction.

BONDS- (NY Times) the rate of corporate defaults on bond payments is already well above historical averages -- and climbing. Merrill Lynch expects it to rise to 7.7 percent this year from 6 percent at the end of 2000.

DOCTOR VISITS: According to the NAMCS data, the average duration of office visits in 1989 was 16.3 minutes, compared with an average of 20.4 minutes from the SMS survey. Both data sets indicate a 1- to 2-minute increase in the average office-visit duration between 1989 and 1998.

I told the doctor I broke my leg in two places. He told me to quit going to those places.

Henny Youngman

LTC: Though Medicaid pays less than half the cost of nursing homes nationally, it drags down reimbursement (and hence quality of care) for over two-thirds of all nursing home patients (those for whom Medicaid pays any amount) and four-fifths of all patient days (Medicaid patients tend to be the longest stayers and by far the most expensive patients.)

EXERCISE (American College of Sports Medicine journal) Not sticking with exercises to build strength may leave a person too weak to do what has to be done around the house. And the lifestyle limitations commonly associated with the aged can afflict the out-of-shape middle-aged.

HAVES AND HAVE NOTS:  About 15% of students at black institutions own a computer, compared with 55% of all college students.

Less than half of faculty members at the UNCF's member schools have computers, compared with 70% nationally.

Black schools have fewer network servers, and about 75% of the hardware is obsolete or needs to be replaced.

EVER BEEN IN DEEP "DUDU?" Actually you haven't. It's a Ugandan dish made up of bee larvae, large green bush crickets (don't use the brown ones- they're yucky), cicadas, large flying ants (check for wings) all fried in oil and salt. Let's see Emeril put that on his show.