Moody's Review December 2001

MOODY'S REVIEW

DECEMBER 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

529 PLANS: Under current regulations, investments in Section 529 college savings plans are locked in when the funds are deposited. In Notice 2001-55, the IRS announced that, effective immediately, investment selections in a 529 plan can be changed annually, or at any time when the account's designated beneficiary is changed. Check your individual states

LIFE INSURANCE Term life insurance rates are at an all time low. If you need insurance for a set period of time, now is a great opportunity. But don't be lulled that term is absolutely "simple". Insurance of any type is complicated, but term is the least "annoying"

BYE, BYE: MEDICARE+CHOICE (Financial Enews) At least 58 managed care plans have opted to no longer offer Medicare+Choice plans to Medicare recipients. Medicare+Choice allows those who opt out of traditional Medicare to join an HMO plan and pay a premium to receive extra benefits, such as prescription drug coverage. Over 500,000 older and disabled Americans will have to find other managed care plans or return to the traditional Medicare program

I often quote myself. It adds spice to my conversation.

George Bernard Shaw

OIL: Russia is really turning on the oil spigot much to the chagrin of OPEC. It would not surprise me to see gas prices in the $.80 range early next year.

MANAGED CARE- (NY Times) Large Employers Reducing Number of Health Plan Contracts, Offering Employees Fewer Options. In a "narrowing trend," large employers are beginning to "sharply reduce their rosters" of HMOs and other managed care insurers, forcing employees to drop their health plans and to select different ones. Large employers are attempting to limit the number of large contracts, "forc[ing] the managed care companies to hold down their charges." By reducing the number of plans, employers can save money and "tighten control over the quality of care." The "widespread" change comes after years during which companies increased the number of medical options available. Because of the "managed care backlash," employers "backed away from the tougher forms of managed care. But now employers are facing rising health costs and a weak economy, and their "only way" to control costs is to "negotiate more aggressively with the carriers. Employers said that using many insurance plans, each with a relatively small number of employees enrolled, limited their power to negotiate better rates with the insurers. In addition, the recent economic downturn has forced employers to downsize their benefits departments, "leaving fewer workers to deal with Health care insurers."

WOMEN SHOULD RULE: The world's population could hit 10.9 billion by 2050 if women do not gain better access to education and health care.

MORE LIFE INSURANCE: The MIB (Medical Insurance Board) Life Index, which represents over 95% of the premium dollars of individual life insurance written in the U.S. and Canada, showed an almost 9% increase in activity over October 2000, and a 26% increase over the activity of September 2001.

LARGE MORTGAGE. My reply to a reader- I have suggested that for 30 years. Instead of the house having the money, you do. Of course one has to look at various interest rates, economy etc., but I have even told people to get a 40 year loan when it was available. Don't like the long term or don't need the extra money from the lower payment?- well, just pay it down with the extra money you saved. The only difference might be the higher initial interest and/or points. But compare that to the flexibility and it usually is worth it.

TAXES- The top 38.6% federal income-tax bracket for next year typically will start on taxable income of more than $307,050. That is up from $297,350 in the comparable bracket this year. This applies to married couples filing jointly, singles and heads of households. The 35% bracket for married couples filing jointly will start on incomes above $171,950 ($141,250 for singles).

The 30% bracket will start at $112,850 for joint filers and $67,700 for singles.

"The deepest recess of Hell is reserved for those souls who witness moral outrage and remain neutral."

Dante's Inferno

CREDIT (Financial ENews) "The IRS is reminding qualifying employees to begin making plans now to benefit from the new Saver's Credit, which will become available in 2002. This tax credit, which will be available from 2002 through 2006, will help offset the cost of the first $2,000 contributed to IRAs, 401(k)s and certain other retirement plans. The Saver's Credit is available to individuals with incomes up to $25,000 and married couples with incomes up to $50,000. The available credit ranges from 10% to 50% of the contribution amount, depending on income. Participants in 401(k) plans may want to set up their deferral elections prior to January in order to spread their contributions throughout the year."

ODDS: According to the U.S. Department of Justice, nearly 1.3 million cases of forcible or unlawful entry of residences, 1.4 million stalkings, 50,000 car jackings and between 3,200 and 4,600 non-family-related child abductions occur each year.

VENTURE CAPITAL DRYING UP (NY Times) Third-quarter venture investments totaled $6.7 billion, down 72% from the same quarter a year ago. The number of private companies receiving venture capital dropped to 540, down 67% from a year earlier and down 39% from the second quarter.

Egotism is the anesthetic that dulls the pain of stupidity.

Frank Leahy

HEALTH CARE (HCS) Forty-six percent of Americans are extremely or very satisfied with the health care they have received in the past two years, up from 39 percent in 2000.

Only one-third of Americans are extremely or very confident that they will be able to get the treatments they need during the next 10 years (34 percent), and only 21 percent are extremely or very confident that they will be able to get needed treatments once they are eligible for Medicare.

Thirty-eight percent each are not too or not at all confident in being able to afford prescription drugs without financial hardship and being able to afford health care without financial hardship in the next 10 years.

Two in 10 name health care as the most critical issue facing America today (20 percent), placing health care behind the top-rated issue, education (23 percent), and about even with crime (19 percent) as the issue considered to be most critical.

Medicare: -- One-half of Americans not yet eligible for Medicare are not too or not at all confident that they will be able to afford prescription drugs (51 percent) or health care (49 percent) without financial hardship once they are eligible for the Medicare program.

Managed Care: -- Only 19 percent of Americans say they are extremely or very familiar with managed care (an increase of 5 percentage points from 14 percent in 2000). More than half (52 percent) say they are not too or not at all familiar with managed care.

Employment-Based Health Coverage: -- More than half of Americans with employment-based health insurance are extremely (11 percent) or very (41 percent) satisfied with their current health plan. Only 1 in 10 say they are not too (7 percent) or not at all (4 percent) satisfied.

Forty-seven percent of those with employment-based coverage are extremely or very confident that their employer has selected the best available health plan for its workers. Only 32 percent are extremely or very confident that they could choose the best available health plan for themselves if their employer stopped offering health insurance.

Sixty-three percent of Americans under age 65 prefer the current employment-based system, in which employers choose the plans and pay many of the health insurance costs, over a system of "defined contribution," in which they would be given the money their employers currently spend on health care to purchase insurance on their own.

The Uninsured: -- Of Americans without health insurance, 32 percent have delayed seeking health care since they lost their coverage, and 22 percent have decided not to get health care they thought they needed.

Only 31 percent of those without coverage are aware of low-cost or free insurance programs for uninsured adults or children in their state, down from 37 percent in 2000.

Some are born great, some achieve greatness, and some hire public relations officers.

Daniel J. Boorstin

ALZHEIMERS: The WTC was a tragedy- but many tragedies befall the ordinary person on a daily basis. I got a call last week from a guy I used to work with. They had relocated to Oregon from Southern California for a better lifestyle. He had noticed a "problem" with his wife for a couple years and they have done a battery of tests to see what was wrong. She has early onset Alzheimers at age 50. My uncle died of Alzheimers in January. My mother is now in the last stages. It is a terrible way to die.

LTC AND MEDICAID: a recent BDO Seidman study noted that the gap between nursing home costs and Medicaid reimbursement in Washington is $11.61 per patient per day. The only way nursing homes can now stay in business . . . is to charge private pay patients $20 to $30 a day more than what Medicaid pays.

Do you really want to die in a Medicaid ward or do you want to consider a long term care policy where you could go to a private facility?

MEDIAN DURATION OF UNEMPLOYMENT

Weeks, Seasonally Adjusted

Source: U.S. Department of Labor, Bureau of Labor Statistics

1996.11 7.7

1997.05 8.0

1997.11 7.6

RESERVE MORTGAGES

1998 7,937

1999 7,973

2000 6,650

2001* 10,000

* -- estimate

Source: National Reverse Lenders Association

Info from Fannie Mae by calling 800-732-6643; National Reverse Mortgage Lenders at www.reverse mortgage.org, or by calling 866-264-4466.

KNOWLEDGEABLE? (Nationwide Financial) A 2001 study found that while 60 percent of men were willing to take substantial financial risk for possible substantial gain, only 36 percent of women were willing to do so. These numbers are much the same as those seen in the 2000 survey when 57 percent of men were willing to take these risks versus 40 percent of their female peers.

Both men and women were less knowledgeable about many protection products, such as fixed annuities. Only 22 percent of respondents were very knowledgeable about fixed annuities. This percentage did not vary by sex.

The study further noted, " Women also report that they are less knowledgeable about key financial products than their male peers. In fact, while 70 percent of men reported being very knowledgeable about mutual funds, only 51 percent of women describe themselves that way. Stocks were very familiar to 65 percent of men and only 50 percent of women. ``Women are often busy with the demands of careers, households and families and .....this often leaves less time for learning about specific financial products.''

(Sorry- that's crap. Men say they are knowledgeable because they like to think so. It's their ego and arrogance. But I can assure you that they don't normally have a clue. Women tend to indicate less knowledge because they are more honest. As far as individual stocks- both are dumb as a post. If you do not know diversification by the numbers, you know nothing about the fundamentals of investing. You can be lucky with stock picking- but rarely (very rarely) from knowledge about what you are truly doing.)

Overall, women and men valued many of the same attributes. However, women are more likely to value: certification (86 percent versus 76 percent) - recommendations (85 percent versus 75 percent) - expert status (66 percent versus 56 percent) - national brokerage firms (28 percent versus 19 percent) Morecrap- not one of these entities is truly competent

Women are slightly more inclined than men to go to a financial planner or investment advisor first (45 percent versus 32 percent).

Women value assistance in planning for income management in retirement more so than men (76 percent versus 66 percent).

Retail investors who think they're clever enough to beat the markets usually don't even understand traditional ideas.

Hersh Shefrin, a professor of finance at Santa Clara University

BAD LOANS ACOMING: (NY Times) "Excessive confidence among consumers and companies and easy access to debt capital meant banks made a lot of bad loans, and a lot of high- yield bond issues were made to companies facing extreme risks. These are to take a little longer to work through the system." As a percent of net worth, corporate debt has risen to 77 percent last year, from 73 percent in 1995. Many companies have run short of cash and have simply stopped paying their obligations. Default rates on corporate bonds have already zoomed past the levels seen in the last recession, in 1990. By August, even before Sept. 11, default rates on high-yield bonds had reached 9.6 percent, above the 8.7 percent peak of 1990.

TRUST INVESTMENT AND MANAGEMENT FEES SUBJECT TO 2% INCOME TAX FLOOR: The Federal Circuit Court of Appeals here holds that investment advice and management fees incurred by a trustee are subject to the 2% floor for income tax deductibility imposed by IRC sec. 67(a). Although the 6th Circ. has previously ruled that prudent investor rules impose duties on trustees that are not imposed on individual investors, the Federal Circuit argues that, required or not, such advice and management are commonly used by private individual investors. Given that reality, decides the Federal Circuit, such fees are not uniquely trust administration costs and are therefore subject to the 2% floor.

A GREAT PART OF THE EMOTIONAL REASON WHY SO MANY PEOPLE SCREW UP WITH INVESTING: (John Nofsinger)

Do these common investment laments sound familiar?

I tend to buy at a high price and sell at a low price.

The stock I sold just went up $10!

My coworkers seem to pick better stocks than I do.

I thought I was doing well with my investments, but now I am not so sure.

I knew I shouldn't have done that, but I did anyway.

It took two years for that stock to get back to where I paid for it.

Your Psychological Biases

Your experiences can lead to specific behaviors that harm your wealth. For example, you are prone to attribute past investment success to your skill at investing. (Ho! Ho!)This leads to the psychological bias of overconfidence. Overconfidence causes you to trade too much and take too much risk. As a consequence, you pay too much in commissions, pay too much in taxes, and are susceptible to big losses. See commentary by O'Dean and Barber on Internet

The attachment bias causes you to become emotionally attached to a security. You are emotionally attached to your parents, siblings, children, and close friends. This attachment causes you to focus on their good traits and deeds. You also tend to discount or ignore their bad traits and deeds. When you become emotionally attached to a stock, you also fail to recognize bad news about the company.

When taking an action is in your best interest, the endowment bias and status quo bias cause you to do nothing. When securities are given to you, you tend to keep them instead of changing them to an investment that better suits your needs. You also procrastinate on making important decisions, like contributing to your 401(k) plan.

Emotions get in the way of making good investment decisions. For example, your desire to feel good about yourself--seeking pride--causes you to sell your winners too soon. Trying to avoid regret causes you to hold your losers too long. These emotions have the consequence that you sell stocks that are performing well and keep those that are performing poorly. This hurts your return and causes you to pay higher taxes.

When you are on a winning streak, you may feel like you are playing with the house's money. The feeling of betting with someone else's money causes you to take too much risk. On the other hand, losing causes emotional pain. The feeling of being snake bit causes you to want to avoid this emotional pain in the future. To do this, you avoid taking any risks by not owning stocks at all. However, a diversified portfolio of stocks should be a part of everyone's total investment portfolio. Experiencing a loss also causes you to want to get even. Unfortunately, this desire to get even clouds your judgment and induces you to take risks you would not ordinarily take.

So that you can avoid feeling bad about previous decisions that didn't turn out well, your brain filters the information you receive. This process, called cognitive dissonance, adjusts your memory about the information and changes your recollection about your previous decision. Obviously, remembering inaccurately will reduce your ability to evaluate and monitor your investment choices properly.

Finally, the brain uses shortcuts to reduce the complexity of analyzing information. These shortcuts allow the brain to generate an estimate of the answer before fully digesting all the available information. For example, the brain makes the assumption that things sharing similar qualities are quite alike. Representativeness is judgment based on stereotypes. Additionally, people prefer things that have some familiarity to them. However, these shortcuts also make it hard for you to correctly analyze new information and can lead to inaccurate conclusions. Consequently, you put too much faith in stocks that are familiar to you or represent qualities you desire.

Self-Control and Investing

The self-control problem can be thought of as the interaction between your two selves--the planner and the doer. The doer wishes to consume now instead of later and to procrastinate on unpleasant tasks. The planner wishes to save for later consumption and to complete unpleasant tasks now. This conflict between desire and willpower occurs because you are influenced both by long-term rational concerns and by emotional factors that are more oriented toward the short term.

Most people want to maintain self-control and implement decisions that provide benefits over the long term. However, you often recognize that your desire is stronger than your willpower. Therefore, you may employ many techniques to help your willpower. I categorize these techniques into two groups: rules of thumb and environment control. These techniques help you to reduce desire and increase willpower.

For example, if you like to trade actively, you may realize this behavior is not optimal in the long term. As a compromise between the two selves (the planner and the doer), you open two brokerage accounts. One is for the majority of your wealth to implement a long-term buy-and-hold strategy while the other is used to have fun. Of course you could leave it all in just one account and actively trade only a small portion of your overall wealth, but it might require too much self-control to do that. Having two accounts give you a better chance of learning self-control.

Perhaps instead of handling your self-control problems by controlling your environment, you may have gone to the other extreme. Online traders are using information obtained in chat rooms to make investment decisions. These decisions are usually irrational because they are spur-of-the-moment decisions based on rumor, not information.

OLD: Life expectancy has increased to about 77 for a child born today- maybe tomorrow.

GIFTING: (WSJ) donors can deduct their gifts only if they itemize their deductions. (About seven of every 10 returns take the standard deduction, instead of itemizing.) Second, itemizers "must have evidence." What type may vary depending on the size of the gift. In general, canceled checks or credit-card receipts "offer the best evidence, but contemporaneous notes of small cash contributions are normally sufficient," the IRS says. However, for each single gift of $250 or more, donors must get a written statement showing the amount and describing any goods or services provided in return. "Donors must have the statement when they file their return." When a charity receives more than $75 that is partly a gift and partly in return for something, it generally must give the donor a written statement that only the amount worth more than the goods and services received by the donor is deductible. The statement also must include "a good-faith estimate of their value."

Cats are smarter than dogs. You can't get eight cats to pull a sled through snow.

Jeff Valdez

MUTUAL FUNDS (NY Times) In 1999, there were 10 mutual funds that performed the best in a great year for stocks. All the funds more than tripled in value during the year, and the best of them leapt nearly 500 percent. Most of the funds were small and had little in the way of a track record; for four of them, 1999 was their first full year. Nine of the 10 funds have lost at least two-thirds of their value since 1999, and the 10th is down almost 50 percent. Over the same period, the Standard & Poor's 500-stock index fell 29 percent, while the Nasdaq composite lost 63 percent of its value.

Most of the big winners in 1999 were funds that were willing to enthusiastically embrace the new economy and to ignore traditional valuation parameters. These funds bought new issues, particularly of Internet companies.

ALPHABET SOUP- These are just some of the designations a planner can get- ChFC, CFP, CFA, CLU, CMFC, CFS, CRS, CSA, CAA, RFC, CDP, PFS. The ChFC and the CFP are the most recognized. But people should not use these either. Do you know why? Because even these designations are limited in scope since few of the true fundamentals may be taught in training and even fewer practiced. There is no reason why any legitimate person would use a CFP to do planning.

LACK OF HEALTH CARE (New England School of Medicine) Ages 51 though 61-Among 6,035 people who retained their medical insurance, 8.3 percent reported a major decline in health during that period. Among 825 who had health insurance for only part of the time, the rate was 16.1 percent. And for the 717 people who never had any health insurance during that span, 21.6 percent said they health had gone downhill.

The findings come at a time when the number of uninsured people in the United States between the ages of 55 and 64 has been increasing, from 12.9 percent in 1998 to 16.1 percent in 1999. Other research has also shown that health tends to decline in people who lose their coverage.

HMO's(: Weiss) In the four years from 1997 to 2000, a total of 52 HMOs failed, and, based on the most recent data, 192 companies are rated D+ or lower, representing a large 40.9% of the 469 HMOs rated by Weiss.

MORE ECONOMICS- (Aon Consulting's Loyalty Institute) In just seven months, U.S. workforce commitment has gone from a five-year low to a five-year high. , workers are far less likely to change jobs for a higher salary, with 54 percent saying they would remain with their organization even if offered a similar job with slightly higher pay. Nearly four in five (79 percent) employees gave their organizations grades of A or B at doing the right things to stay competitive. And 74 percent gave out an A or B in their company's effort to cut costs before resorting to layoffs.

Nearly one in five (18 percent) of respondents gave their organizations a D or F in helping employees who may be suffering stress or anxiety due to recent events.

American workers are also shifting priorities in the past two months. More than four in five (82 percent) said they have re-examined their priorities and decided they need to spend more time and energy on personal, family or community activities and less time on their jobs. Women were more likely than men to take this approach, with 85 percent saying they had reorganized their priorities, compared to 78 percent of men.

Power corrupts. Absolute power is kind of neat.

John Lehman, Former Secretary of the Navy

STUPIDITY THAT NEEDS REPEATING: From a reader," Have a work colleague that on the advice of an old college friend (who happens to be a broker!), put 35 grand into three AIM funds in Oct 2000 (GTTBX, EMEBX, BWEIX)..a tech/telecom fund, a midcap and a large co growth Expense fees are 2%+ per year, Back end loads go out for 7 years...my friend is pretty conservative, but didn't do his homework on the funds...trusting that his friend would take care of him...

Needless to say, the portfolio stands at $14K right now, having lost 60% of its value...when my friend talked to his "old college buddy," he got the typical..."if i knew it was going to go down that much, i wouldn't have put you in it..." also said, "hang in there, it will probably come back..."

If you select your advisers that way- and most people do- just bend over.

TRANSAMERICA RETIREMENT POLL: The 2001 Transamerica Retirement Survey, as well as a follow-up poll taken after Sept. 11, reveal nearly nine in 10 think most Americans do not salt away enough money to live comfortably throughout their retirement years. More than half the employees polled say they are somewhat or very likely to trim their lifestyles to set aside more for retirement. The polls indicate that retirement programs like 401(k) and profit-sharing plans are extremely popular benefits, poll data also show many small businesses still don't offer them, and many employers do not realize how important these benefits are to employees. While less than one-quarter of workers say they are familiar with the recent tax law changes regarding retirement savings, when asked about specific retirement provisions, many workers express an interest in the enhanced retirement savings opportunities.

Two out of three employers who are familiar with the increased contribution limits and catch-up provisions think these new opportunities will have an impact on their companies and their employees. However, the survey data also show that many employers are not yet aware of the enhanced pension provisions, less restrictive requirements and tax credits offered through recent tax legislation to small businesses setting up new retirement plans.

The vast majority of workers (86 percent) surveyed report they do have some retirement savings and half started saving before age 30. Seventy percent report that their company offers a retirement savings plan, such as a 401(k) or profit-sharing plan, and among workers whose company offers a plan, 80 percent say they participate. In addition, six out of 10 workers currently save for retirement outside of work, such as in an IRA or mutual fund.

Verbosity leads to unclear, inarticulate things.

Dan Quayle

BANKS (Weiss) The percentage of banks and thrifts receiving a weak rating is 16.2%, or 1,591, of the 9,821 institutions rated

CRIME: Serious crime in America is 14 percent lower than in 1996 and 22 percent less than in 1991. Normally it would go up in a recession but the terrorist attack is finally making people more vigilant in moving against crime.

GOING UP: Profits for managed care companies are staying ahead of rising medical costs, but a weakening economy could mean more unemployment, fewer enrollees and lower profits.

COMMISSION AGENTS: Captive agents can sell for only one company. They were once the key distribution channel for the vast majority of traditional life insurance policies, now account for less than half the premiums paid.

COLLEGE COSTS FROM STEPHEN ADVOKAT When schools try to determine how much you should contribute to college, they concentrate on your income and savings. You should make those look as small as possible. How?

Don't sell stocks and property the year your child applies. Those one-time capital gains will appear as ordinary income on your tax return and inflate your real annual income.

Contribute as much as possible to retirement plans, such as 401(k)s and IRAs. (And if your children have earned income, consider setting up IRAs for them, also.) Many schools do not consider these assets when determining financial need.

If possible, defer raises or bonuses until after your child starts school.

Oddly enough, this may be a good time to make certain pricey purchases, like needed car repairs. Schools also scrutinize your savings. If you think you're a good candidate for grant money, reducing your savings accounts could make sense.

Invest in your name, not your kid's. Schools expect as much as 35% of a child's savings to be used for school before you have a "financial need." That compares to only 5.6% of parental assets.

Open an Education IRA. Even if your child will become a freshman next year, your senior class bills are still four to five years away, enough time for a conservative Education IRA to grow a little, and then be withdrawn tax-free!

REAL ESTATE- Corporate shareholders and officers aren't shielded from personal liability if an agent or employee violates the U.S. Fair Housing Act, according to July 31 ruling--and reversal of a lower court's decision--by the U.S. Court of Appeals for the 9th Circuit.

ARBITRATIONS: Filings slow, but still up 19% over last year, with 4,979 cases filed through September 2001. Mediation filings are down 25%. I am acting on several arbitrations and court filings. But I urge caution when you select an attorney. In one ongoing case, the attorneys are really limited in their understanding of the fundamentals of investing and are merely filing on the only issue they can grasp- say churning or unauthorized trading. But they dismiss unsuitability because they do not posses the background to make that case. As such, the claimant may be limited in recovery.

EMOTIONAL INVESTING: (Terrance Odean, professor of finance at the University of California at Berkeley) In the late 1990s, using data from a large brokerage firm about the common-stock portfolios of individual investors, O'Dean found that people were much more likely to hold on to a losing investment and to sell a winning investment, relative to their opportunity cost, than they should have been. "That's what the behavior theory predicted and it's the opposite of what was normative behavior for tax reasons.

BAD KARMA: (Weiss) More than 18% of insurance companies, HMOs, banks, thrifts, and brokerage firms (a total of 2,634 institutions) currently exhibit weaknesses that make them vulnerable to financial difficulties in a recession.

Total No. of Cos. Industry Rated by Weiss - No. of Cos. Rated Weak - % of Cos. Rated Weak

{(a) Companies rated D+ (weak) or lower are considered weak.}

Banks and Thrifts 9,821 1,591 16.2%

Blue Cross Blue Shield Plans 54 1 1.9%

Brokerage Firms 507 7 1.4%

HMO 469 192 40.9%

Life and Health Insurers 1,146 297 25.9%

Property and Casualty Insurers 2,327 546 23.5%

Total 14,325 2,634 18.4%

844 Vulnerable Insurance Companies

Among the 2,327 property and casualty insurers rated by Weiss, 546 companies, or 23.5%, receive a rating of D+ or lower, indicating they are vulnerable to financial difficulties in a recession. Among the 1,146 rated life and health insurers, the number of weak companies is 297, or 25.9%.

At the end of last year, property and casualty insurers' stock holdings equated to 36% of the industry's capital and loss reserves, while corporate bonds(1) represented an additional 47% of capital and reserves.

By comparison, life and health insurers hold stocks equaling 12% and corporate bonds equaling 377% of their capital and reserves. Particularly worrisome are the industry's junk bonds, which equate to 40% of capital and reserves.

BIG SUIT: (WSJ) Unilever Superannuation pension fund accused Merrill Lynch & Co.'s asset-management division of inadequate diversification and failure to provide downside protection. As a result, the pension fund claims, it suffered irreparable damage even after a fund manager who made the investments was removed from the account.

The article, however, clearly identified that none of Merrill's

Last night I stayed up late playing poker with Tarot cards. I got a full house and four people died.

Steven Wright

AIDS: It is the leading cause of death in South Africa with women in their 20's are dying faster than women in their 60's. 40% of adult deaths last were caused by AID's related diseases. Over the next decade, AIDS will kill between 5 and 7 million South Africans.

TRUST LANGUAGE (Financial Planning) This is a list of key statements that a grantor may wish to include in a trust. Some were pretty good, others ??????

1. I would like my spouse to receive an annual income of $______ starting this year and adjusted for inflation.

2. My spouse can obtain an additional $________ each year just by asking for it

3. The initial investments for my trust will be ______% stocks and _____% bonds

4. As stocks increase in value, do not rebalance the portfolio. (The position is too static if you consider 20 or 30, more years of a lifetime coupled with economic scenarios such as existed in 1973/74).

5. All required payments can be made from principal as well as income.

6. My spouse shall have the authority to remove the trustee and appoint a new trustee. (Very necessary)

7. My spouse can instruct my trustee to distribute income to any or all of my children in amounts that she determines each year

8. My spouse, subject to limitations I have set, can instruct my trustee to distribute principal in equal amounts to my children (but they still must understand basis.)

9. The trust will pay reasonable travel expenses for visits by my children to my spouse when he or she is ill or in a nursing home (good idea)

10. The trust will pay reasonable travel expenses for visits by our grandchildren to my spouse when he or she is ill or in a nursing home

11. The trustee will pay travel expenses for children to attend the funeral of my spouse.

Also include any special needs of the client's family such as a particular requirements for individual members, providing for special events, anticipating unplanned or unusual happenings that may occur in the lifetime of the family.

WE MAY BE IN BAD SHAPE- BUT THEY ARE TERRIBLE: The Bank of Japan has stated that Japan's economy is in bad shape and becoming worse. Japan's economy will shrink 0.5% this year, compared with an earlier prediction of 0.7% growth, according to the U.N.

All the other Asian countries will suffer as well. However, the U.N. highlights China as a standout among Asian nations. It predicts China's economy will remain unchecked by the attack, growing 7.5% this year.

MEDICAID CARE IN A NURSING HOME: "Maybe the care in nursing homes appears the same regardless of payment status, but the overall experience may be quite different. We actually do have a nursing home here in Spokane that has a Medicaid Wing. I told them that Washington State has a statute prohibiting Medicaid discrimination. I don't think it stopped them. This same facility has some rooms that are much less desirable than others. One of our Medicaid clients was in a room where the air conditioner blew cold air on him constantly. (He developed pneumonia and died at that facility. No, the family did not sue, but they really would have liked to have him around longer.) The nursing home told me, We give Medicaid patients the least desirable rooms.The best rooms go to those who can pay for them."

"Even if you get the same care, it can be the little things that make a real difference in the quality of care. For example, having a telephone in one's room matters a great deal to most residents. Have your ever seen the line at the public phone in a SNF [skilled nursing facility]? Besides that, there's no privacy. The ability to have some spending money for the beverage cart that comes around in the afternoons is a big plus. There are lots of examples of the little extras that make life so enjoyable, I need not say more. "