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tony

Sec-no More Heavy Reading

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Guest Skeptical

Tony,

 

Well less information is never better when it comes to funds. A few thoughts:

 

1. Total Annual Fund Operating Expenses is a misleading term because it's not the total, but a portion because as we know brokerage commissions are not included. They offer a short paragraph on portfolio turnover, giving the data as ratio of assets rather than disclosing actual costs deducted from shareholders accounts. The expense information is fatally flawed, unreliable, and cannot be used as an evaluation tool.

 

How about this instead:

 

Brokerage commissions paid in FY 2007: $11,876,280 on Shares traded: 273,525,600 for an Average transaction cost per share: $.05. If included in the expense ratio, the annual operating costs would increase by .78% for a total of 1.95% for Class A shares and 2.88% for Class B shares.

 

I would also eliminate the dollar expense chart because as noted it's not all of the expenses.

 

2. Annual total Return also has the potential to be misleading. As I pointed out in a previous post about a RiverSource fund, the old performance data is replaced with data from the survivor. So when Ameriprise rolled a $2 billion fund with negative returns into a smaller one ($200 million) that lousy performance vanished. One way to be honest here is to include the old data, maybe on an asset weighted basis. Not a great solution but better than nothing. Fund asset size should also be included. If a manager has a home run year with say a 77% return on a measly $18 million in assets, that return gets carried over and appears in the 3,5,10 years numbers, after it has swelled to $5 billion with performance dropping to well below the index.

 

How about adding fund assets to that chart so we can see if the managers are still impressive after getting a sizable amount of money to run.

 

3. Top Ten Portfolio Holdings

 

I would eliminate this paragraph because the fund may have held those shares for a few days over the quarter end period, ala the old "window dressing" trick. Keep in it the financial reports but it is of little value to the investor in a summary.

 

Finally, ban the use of this summary -prospectus information by insurance companies who place participant assets in the retail fund indirectly through a variable annuity product, either group or individual. Participants either own the fund or they do not, period. This little lie leads people to believe they own funds when they actually own insurance. Some participant web sites actually provide a link to the retail fund with retail performance and expense info, when in fact participant contributions go to a variable annuity. Shameful.

 

Cheers,

 

Jim

 

 

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Guest Skeptical
I do..

 

..sometimes..

 

..when I'm really bored..

 

...but I don't think that's very common.

 

 

 

Vince,

 

I thought you were in the business as a rep. You don't read every single prospectus as part of your fund evaluation process? Bet your clients think you do. Just kidding with you! Have a great day.

 

Jim

 

 

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Jim

 

I don't know whats worse. A concise prospectus that may leave important information out or one that is so long and complicated that the average joe won't read it.

 

 

 

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Guest Skeptical

 

Jim

 

I don't know whats worse. A concise prospectus that may leave important information out or one that is so long and complicated that the average joe won't read it.

 

 

 

 

Tony,

I'm with you. My real beef is that the information presented is either:

 

1). A fabrication. As in the hypothetical expense charts. This data will never be accurate for an investor because it doesn't include all costs

 

2). Easily changed The expense ratio, investment approach, manager, etc. can all be changed the day after an investor makes a purchase.

 

Maybe a summary is a good idea. But the info should be accurate and include the important factors in a fund's success. Broken record here but maybe start with revealing all expenses and fund size by year.

 

Jim

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Haha.. I hope you could tell I was being facetious! Annuity prospectuses are so much more fun to read though. Ever want a jaw opening experience? Forget about going to the ######s, check out those riders!

 

 

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