FundAlarm - Highlights & Commentary Archive

Highlights and Commentary

By Roy Weitz

(Originally posted October 1, 2005) [Archive Table of Contents]

We start the month off right, with an item about death and mutual funds: Let's say that you own mutual fund shares (a good guess, if you're reading this), and you want to pass your shares to a favorite relative at your death.....In the past, you generally could leave the shares in your will, transfer the shares to a living trust and have the trust distribute them at your death, or you could make your relative a joint tenant with rights of survivorship (JTWROS).....All of these methods still work, but there's also a relatively new method that many fund shareholders still haven't heard about: It's called "transfer on death" (TOD) registration.....With TOD, you generally just fill out a form and designate one or more persons you wish to inherit your fund shares.....Unlike JTWROS, you aren't required to make your beneficiary a co-owner during your life and, unlike wills and trusts, the TOD form can be completed by any non-lawyer and changed as often as you like.....As a bonus (or, for some, the main attraction), fund shares passing via TOD also avoid state probate procedures (although TOD shares are still included in the value of your estate for tax purposes).....So far, all states except Louisiana and Texas have recognized TOD registration.....While TOD can be a useful tool, especially in a smaller estate, it can also create huge and unexpected problems (for example, you execute a TOD form in the name of one child, assuming -- erroneously -- that the child will split your fund shares with her siblings).....If you're dealing with relatively large mutual fund accounts, or if you don't understand all the consequences of TOD registration, it's still best to consult with a lawyer or qualified financial advisor.
"N.C. is 48th state to approve 'transfer on death,'" Sara Hansard, InvestmentNews, September 12, 2005

Below: A portion of the American Funds TOD registration form

As of February 2005, the mutual fund market-timing scandal was 17 months old.....About 20 fund companies had already been hauled before regulators, and FundAlarm was still waiting for additional fund firms to confess their market-timing transgressions.....As we noted back in February:

"...a surprisingly simple pair of calculations can spotlight funds that have been preyed upon by market timers: All we need to do is compute the ratio of a fund's redemptions to net assets, along with its ratio of redemptions to sales.....If a fund's annual redemptions divided by average net assets (R/ANA, expressed as a percentage) is greater than 200%, and redemptions divided by sales (R/S) is greater than 95%, there's an excellent chance that the fund has been churned by market timers."

It's October now, and we've stopped waiting for voluntary confessions.....Mutual fund columnist Chuck Jaffe tends to agree with us.....In fact, Jaffe takes his pessimism to the next, logical level: He predicts that none of the remaining, market-timing fund companies will be sanctioned, or pay any price, for screwing thousands of their fund investors.....And how does Jaffe know that additional, guilty companies are out there?.....By looking at the same kind of ratios, above, that we looked at in February.....According to Jaffe, these ratios suggest that about 280 mutual funds welcomed market-timers just prior to September 2003, when the fund scandals first broke (of these 280 funds, about 220 were conventional funds, and 60 were from families like Rydex and ProFunds, which were specifically intended for market timers).....Recently, these same ratios suggest that about 110 funds are still hospitable to market timers, but only about ten of these funds are conventional, and the remainder are bona fide market-timing vehicles.....In other words, a suspicious number of conventional funds have kicked out the market-timing cockroaches, but only after the regulatory and law-enforcement authorities shined their light on market-timing abuses.....Of course, it could be mere coincidence that these 210 funds have chosen this moment to rid themselves of market timers, but we think not.....How shall we put this delicately?.....These couple-hundred funds were guilty as sin, they knew it, and they couldn't cover their corrupt asses fast enough once the fund cops got their act together.....Now, all these fund companies will get off scot-free.
"Bad deeds go unpunished," Chuck Jaffe, marketwatch.com, September 4, 2005

Fidelity has hired former Beatle Paul McCartney as a corporate pitchman.....McCartney, once known for his counter-culture hijinks, now appears to be sufficiently neutered to work for a financial services company.....According to a Fidelity marketer, "McCartney is innovative, authentic and a respected leader in his field. We see Fidelity as being the same in our field and we think this is definitely good for both parties".....The ad below (left) is the first fruit of the Fidelity-McCartney partnership.....FundAlarm's generally unreliable spies tell us that the ad on the right was in serious contention until the end, but several focus groups complained that "it gave them the munchies."

Fidelity's McCartney ad: The final version

Fidelity's other McCartney ad: Didn't quite make it

SunAmerica Focused Mid-Cap Value is about two months old, and the directors of this fund have signed off on a 1.72% expense ratio, which breaks down as follows:

(Class A shares)

Management fee	0.85%
12b-1 fee	0.35%
Other expense	0.52%
Total expenses	1.72%

The total expense ratio (1.72%) is high for a domestic mid-cap fund, but we can cut the directors some slack because this is a new offering.....But what about that management fee: Have the directors negotiated any breakpoints, so that the management fee will be reduced as fund assets increase?.....If you were negotiating a management contract for your own money, you would always -- always -- push for breakpoints, and you'd expect the directors of this fund to do the same on behalf of their shareholders.....But the directors of SunAmerica Focused Mid-Cap Value haven't negotiated breakpoints, and here's their reasoning (which appears in the fund's Statement of Additional Information):

"The Directors considered the relative advantages and disadvantages of an advisory fee with breakpoints versus a flat advisory fee that includes advisory fee waivers and expense reimbursements and concluded that the existing arrangement of a flat fee was advantageous to shareholders and suitable for the Portfolios given the size and structure of the Portfolios." [italics and underlines added by FundAlarm]

If this fund's expense ratio were to rise above 1.72%, the directors have, indeed, negotiated a deal whereby the fund manager would step in with fee waivers and expense reimbursements to cover any excess expenses.....But all this means is that the fund's expense ratio has an upper limit (which, by the way, is probably the highest it will ever be, since this is a new fund).....By failing to negotiate breakpoints, the directors have failed to secure any future economies of scale for fund shareholders.....This is a new fund in a post-scandal world, and it presumably started life with a perfectly clean slate.....If directors ever had an opportunity to negotiate even a moderately favorable deal for investors, you'd think it would be now, with a fund like this one.....Instead, these directors simply rolled over, and justified their uselessness with some boilerplate mumbo-jumbo.....If you're a director of this fund, we'd love to hear from you, especially how you rationalize accepting your director's fee for this kind of work.
Thanks to "x", who posted a slightly different take on this item on the FundAlarm Discussion Board

Robert Stansky has managed Fidelity Magellan for almost ten years, and during that time we're guessing that Stansky has been paid between $50 million and $100 million for his efforts (maybe more, certainly not less).....So, is it fair to expect that Stansky have a significant personal investment in his own fund?.....According to SEC filings, Stansky has somewhere between $500,000 and $1 million invested in Magellan, which isn't even the highest SEC ownership category (that would be "$1 million and over")*.....Folks inclined to go easy on Stansky, including "Jamma Mamma" on the FundAlarm Discussion Board, point out that we typically don't know anything about a manager's personal financial situation and, "for all we know, Stansky may be supporting 15 kids, elderly parents and a few ex-wives".....Ms. Mamma also points out that we don't know anything about Stansky's debts or asset allocation strategy.....Here at FundAlarm, we readily acknowledge that we know nothing about Mr. Stansky's personal life.....But let's assume that he has, indeed, lived a wild and fruitful life, and we'll even assume that he's supporting an ex-wife's parent or two, in addition to his own.....It's still inconceivable that Stansky hasn't accumulated at least a million dollars in liquid assets.....And it's inexcusable that Stansky hasn't invested that million dollars in his own fund, before investing in anything else.
* Half-baked goods: When managers don't invest in the funds they run," Jonathan Burton, MarketWatch.com, September 16, 2005

*Fidelity Magellan*		*Fidelity Contrafund*		Move over, Fat Bastard. Fat Bastard is gaining on you: Fidelity's bloated Magellan fund is the firm's largest, at about $54 billion in assets, but it's about the be overtaken by Fidelity Contrafund.....Only about $500 million in assets separated the two as of August 31 and, even as you read this, Contrafund may already have passed Magellan.....Performance-wise, Magellan's manager, Robert Stansky, has been clobbered* by Contrafund manager Will Danoff for all of 2005.....In fact, Danoff has trounced Stansky for the past five years.....Besides losing bragging rights, being eclipsed by Danoff isn't good news for Stansky.....If Danoff continues to post good numbers with his own behemoth fund, then Danoff's success will highlight Stansky's failure at Magellan....If Danoff also is dragged down, that will be more evidence that a $50+ billion fund is too large for any individual to run successfully -- something we, and many others, have been saying for years.
* "Contrafund closing in on Magellan," Kathie O'Donnell, MarketWatch.com, September 2, 2005

We have it on good authority that Vanguard isn't interested in a licensing agreement: The Rapture Index, at RaptureReady.com, is designed to factor 45 different end-time predictors into a "cohesive" end-times indicator.....The Index is also designed to standardize the various index categories (such as Tribulation Temple, Gog, Mark of the Beast, Liberalism), in an effort to "eliminate the wide variance that currently exists with prophecy reporting".....As of September 19, the Rapture Index was at 161, which is deep into the "Fasten your seat belts" category (i.e., the highest level of prophetic activity).....Fortunately, for those of us who still have laundry to pick up, the index is short of its all-time high of 182, reached on September 24, 2001.
"The Wild World of Unusual Indexes," Matthew Hougan, indexuniverse.com, September 14, 2005

I received my first market-timing signal on September 21 from Intelli-Timer.....The signal came, as promised, in an evening e-mail, and here's what it looked like:

A "long" signal was in place at the time I subscribed to the Intelli-Timer service, and Intelli-Timer advises its customers to wait for the first new signal after their subscription date.....So the "short" signal, above, was my clarion call.....A "short" signal means that Intelli-Timer thinks the market is about to head south and, personally, I didn't have any sense that the market was headed in that direction.....But I signed on to the Intelli-Timer program with the intention of being a good, obedient soldier, so I quickly fired up my computer, logged on to my Scottrade account, and typed in an order to buy a $5,000 bet on a declining market: ProFunds Short OTC Inv (SOPIX), for which I expected to incur a $17 Scottrade transaction charge .....And then I encountered a problem: I had exactly $5,000 in my account, plus a few cents interest, and the Scottrade Web site rejected my order to buy $5,000 worth of SOPIX because I didn't have enough funds to cover the $17 transaction fee.....When I tried to reduce the SOPIX purchase to $4,983, Scottrade again rejected my order, because I was trying to buy less than the $5,000 minimum investment for this fund.....My first trade, and my grand experiment was already in jeopardy!.....This problem was especially frustrating, since I had specifically addressed this issue when I opened my account: The Scottrade rep assured me that $5,000 was enough the cover the first trade, since the Scottrade computer would recognize it as a $5,000 trade, take out the transaction fee, and use the remaining amount to buy shares.....In great detail, he proved to be dead wrong.....Next morning, after several insistent phone calls, the manager at my local Scottrade branch agreed to waive the $17 transaction fee ("just this one time"), and he put through my order for $5,000 worth of SOPIX.....My order was executed on the trade date recommended by the Intelli-Timer program -- September 22 -- and I ended up buying 255.969 shares of SOPIX, at 19.60 per share, for a total value of $5,017.....(Scottrade credited me with an extra $17, probably because that's the only way its computer could handle my order. Scottrade still hasn't asked me to reimburse them, although they probably will. In any event, I'll use $5,017 as the starting value of my account.).....As of September 26, the cut-off date for this issue of FundAlarm, SOPIX was valued at 19.54 per share.

To recap the activity in my market-timing account for the (abbreviated) month of September:

Month	Date of signal (1)	Type of signal	Security bought (2)	Acct value (beginning)	Acct value (ending) (3), (4)	Change in acct value for month
Sept, 2005	Sept 21	Short	SOPIX	$5,017.00	$5,001.63	-0.31%
Notes: (1) Signal was executed (i.e., mutual fund trade date) was the next business day. (2) SOPIX=ProFunds Short OTC Inv. (3) Cut-off for valuation is 26th day of the month. (4) Account value includes value of fund shares only. We're ignoring a few cents interest on the uninvested cash that sat in the account at its inception.

Here's the performance of my market-timing account from September 22 through September 26, ranked against the performance of each FundAlarm benchmark for the same period (benchmarks are listed in descending order of return):

FundAlarm benchmark	% Return
Vanguard Small Cap Index (NAESX)	1.26%
Schwab International Index Inv (SWINX)	1.22%
Dreyfus Mid Cap Index (PESPX)	0.94%
Roy's market-timing account	-0.31%
Vanguard 500 Index (VFINX)	-0.39%
Vanguard Balanced Index (VBINX)	-0.71%

It was a very short period and, so far, the results are essentially meaningless.....Intelli-Timer didn't cause my hassles, but I can think of easier ways to lose sixteen dollars.

To be continued next month....

AIM Investments is sending a sticker to brokers and financial planners that's meant to be pasted onto a jar of ready-made spaghetti sauce.....The sticker is part of a new campaign that's designed to promote AIM's asset allocation mutual funds.....AIM likens its asset allocation funds to ready-made sauce that's been prepared by professionals, and AIM hopes that individuals will choose its asset allocation funds over self-constructed portfolios.....The AIM promotion also notes that spaghetti sauce can be difficult to make from scratch, and the results are often unpredictable.
Fund Action, September 19, 2005

(Yeah, but if you have even a little bit of cooking talent, the home sauce is going to taste better.....And the home stuff probably costs less, too.)

Briefly noted:

Dan Ahrens, the ubiquitous manager of the Vice Fund, has abruptly resigned.....Ahrens isn't providing details about his departure, but he doesn't deny that he was "put in a situation where he no longer felt comfortable".....Ahrens, who also managed Generation Wave Growth, has been replaced at both funds by 25-year old Michael Henry, who has no prior mutual fund management experience.....In fact, as far as we can tell, Henry has no experience whatsoever executing the type of investment strategy practiced by either of the funds he's now running.....Prior to 2002, Henry wasn't even in the investment business: According to his resume, he was a sales rep for a tool and equipment company.

New Vice Fund manager
Michael Henry gets ready
to analyze a stock

We're guessing that we haven't heard the last about Ahrens' departure, and the reasons behind it.
"Amid Lingering Legal Woe, Vice Fund Manager Departs," Lori Pizzani, Money Management Executive, September 19, 2005
Perkins Opportunity is a small fund that doesn't get a lot of press coverage.....Now, when the press coverage does come, we suspect that the folks who run Perkins Opportunity would just as soon have taken a pass.....The most recent Forbes mutual fund guide singles out Perkins Opportunity for a booby prize, noting that it has "woeful performance, steep fees and a stubbornly provincial [i.e., Minnesota-centered] investment strategy.....Absolutely no argument here.
Peter Lattman, Forbes, September 19, 2005
We're certain that no FundAlarm readers will recognize themselves in this study: If you're 30 years old and you contribute to a 401(k) plan, you probably won't be able to get your money out, or your employer's match, until you're at least 59½ years old.....We can actually understand why some young people wouldn't want to participate.....But if you're already 59½, and your company offers a matching contribution, are there any reasons why you wouldn't participate in your company's 401(k)?.....After all, you could simply make a contribution out of your salary, capture the matching contribution, withdraw your own money without a penalty, and be left with your employer's match, no strings attached (we're assuming that you're vested in your plan, and that the plan allows "in-service" withdrawals).....Incredibly, a recent academic study found that about 40 percent of older workers who could capture a no-strings employer match failed to participate at all in their company's 401(k) plan, thereby foregoing the match (another 10 percent of older workers participated in their plan, but didn't contribute enough to capture the full match).....Half of the "undersavers" received a personal explanation of the company match, including the opportunity for a penalty-free withdrawal, yet those who received the explanation still didn't significantly increase their contribution.
"Passing up the easy money," Kathleen Pender, sfgate.com (San Francisco Chronicle), August 23, 2005
Last month, we passed along a tip from a FundAlarm reader about a special program at broker Edward Jones, which allows mutual fund shareholders to transfer from one fund family to another without paying the usual sales load.....This month, we have more details: The program is called Free Switch, and it stems from Jones' recent revenue-sharing settlement with regulators (among the names reportedly considered for the program, but rejected, were "We Had-to-Do-It Switch" and "We-Got-Caught-and-Now-We're-Screwed Switch").....The program runs through November 16, it applies to funds that appear on Jones' preferred list,* and it's a great deal if you have serious, second thoughts about one of your fund choices.....As far as we can tell, there's still no mention of the Free Switch program on the Edward Jones Web site (edwardjones.com), which is shameful, but appropriate for a company that's already in trouble for not disclosing vital information to its customers.
Source: "Edward Jones Dumps Certain Fund Sales Fees," Tom Leswing, ignites.com, September 2, 2005
* Preferred list funds are American, Federated, Goldman Sachs, Hartford, Lord Abbett, Putnam, and Van Kampen
Well, it's better than the "Fiduciary Award" they wanted to give to Dick Strong: Brandweek magazine recently gave its "Customer Loyalty Award" to Putnam Investments.....Yet investors have pulled about $88 billion in assets from scandal-tarred Putnam, and it's been 50 months since investors have put more money into Putnam funds than they've taken out.....Putnam described the award, sheepishly we hope, as recognition of "improved recent investment performance."
Steven Syre, boston.com, September 22, 2005; thanks to Linkster Ted, of the FundAlarm Discussion Board, for bringing this item to our attention
Back in August, we reported that TIAA-CREF was asking shareholders at 23 of its mutual funds to approve either large, very large, or obscene increases in the management fees that TIAA-CREF would be allowed to charge.....TIAA-CREF claimed that it had unintentionally low-balled the funds' management fees when they were first introduced, and the funds had been money-losers ever since.....To their immense credit, and to the surprise of almost everyone who watches mutual funds, shareholders at nine of the TIAA-CREF funds rejected the increased management fees, and now the fate of those funds is in question.....TIAA-CREF had threatened to liquidate or merge any fund that wasn't allowed to increase its fees, and that may yet happen.....We have a better idea, especially if TIAA-CREF tries to follow through with its liquidation threat: Let the funds' trustees (directors) step forward, and arrange for a merger of the rebellious TIAA-CREF funds with similar Vanguard offerings.....Fund expense ratios will probably go down, shareholders will finally get the quality company they thought they were getting with TIAA-CREF, and shareholders won't have to deal with the potentially undesirable consequences of a forced liquidation.....In fact, if push comes to shove, it's difficult to imagine how the trustees could properly do their job and not consider some kind of deal with Vanguard.

First TIAA-CREF asks for an increase in its management fees (above), because its existing fees were set too low to generate a profit.....Now, the folks who run Quantitative Emerging Markets also want a management fee increase, in their case 25%, because "the low [management] fee currently charged by [Quantitative] is insufficient to cover the costs of providing services to the Fund..."*.....We're sniffing a trend here, and perhaps FundAlarm can get out ahead and provide some useful guidance to the fund industry.....If you run a fund, if you've voluntarily agreed to a management fee, and if you still claim to be losing money, you can use the chart below to determine the appropriate increase in your fee.....In the left-hand column, simply find the reason your current management fee is too low, then look across to see the increase that FundAlarm recommends you propose to your fund's Board of Directors:

Main reason your management fee was set too low, so that now you can't make a profit	Appropriate fee increase
- Incompetence - Clumsy attempt to "bait and switch" investors - Grandiose plans for marketing the fund never worked out	25% to 50%
- Gross incompetence - Cynical attempt to "bait and switch" investors - Hallucinatory plans for marketing the fund never worked out	50% to 100%
- In the wrong business - Investors viewed as pawns to be manipulated - Don't really know what happened, because nobody on staff can figure it out	100%+

*morningstar.com, Dieter Owen Bardy, September 23, 2005

Companies involved in the mutual fund scandals have paid hundreds of millions of dollars to the SEC, in the form of penalties and illicit profits, yet very little of that money has been paid out to aggrieved investors.....Each fund company's settlement payment sits in a separate account, until a special consultant and the SEC agree on a distribution plan.....If you'd like to see the status of a particular fund company's settlement account, the SEC has a special page just for that purpose: www.sec.gov/divisions/enforce/claims.htm.....This page includes many non-fund companies, so you'll have to search or scroll for the fund company you're interested in.
"Fund scandal settlements prove small," Chuck Jaffe, MarketWatch.com, August 28, 2005
Next thing you know, he'll be trying to define the word "is": The Investment Company Institute (ICI) is the trade and lobbying group for the mutual fund industry.....A recent Reuters news item reported that the ICI no longer claims to "represent" mutual fund shareholders*.....This item caused ICI President Paul Scott Stevens to get his legal briefs all in a bunch, even though Stevens acknowledges that the ICI is "not an organization whose membership includes investors or shareholders..., and in this sense [the ICI does] not and cannot claim to represent them".....What Stevens apparently prefers to say is that the ICI is "concerned with" and "looks after" the interests of fund shareholders**.....And why should any of this matter to anyone?.....When fund companies receive their annual dues statement from the ICI, many of those companies turn around and ask the funds they manage (i.e., fund shareholders) to foot some or all of the ICI bill.....If the ICI can't maintain the line that it's "concerned with" and "speaks for" fund shareholders, then fund companies would have to pay the dues entirely out of their own pockets, and wouldn't be able to pass them off on fund shareholders.....As it turns out, Stevens was right to be concerned with these subtle linguistic differences.....Apparently in response to the Reuters article, the SEC recently indicated that it expects mutual fund directors to take a long, hard look at whether its appropriate for their funds to pay any part of the ICI dues.***
* "ICI no longer says it represents fund shareholders," Herbert Lash, reuters.com, August 18, 2005
** "ICI: Press misses subtle distinctions," Dan Jamieson, investmentnews.com, August 29, 2005
*** "Insult and Injury," Neil Weinberg, forbes.com, August 31, 2005

More from the Investment Company Institute, this time from ICI spokesperson John Collins:

"To the extent that increased costs of regulation disproportionately affect small funds, regulatory costs are affecting current liquidations and mergers. Nevertheless, the number of funds liquidated and merged has not increased appreciably."*

The ICI desperately wants the world to know that the recent spate of mutual fund regulation has been costly and harmful to the fund industry.....Problem is, there's very little real-world data or experience to prove what the ICI wants the world to know.....Hence, the ICI's remarkably contradictory two-sentence statement, above: The first sentence states that increased "regulatory costs" are "affecting current liquidations and mergers" of mutual funds -- in other words, it's the ICI's typical, sky-is-falling propaganda.....The second sentence admits that there's no evidence to support the first sentence.
* "New Rules Haven't Caused Shakeout In Mutual Fund Industry," Arden Dale, Dow Jones Newswires, September 20, 2005

"We think exchange-traded funds (ETFs) will be one of the big investment stories of the new decade..."

--- FundAlarm Highlights and Commentary, January 2000

"Don't look back. Something might be gaining on you."

---Satchel Paige, legendary pitcher

After only about five years on the market, exchange-traded funds (ETFs) already have accumulated about half the assets of conventional index mutual funds (currently, all ETFs are index funds, so this is the appropriate comparison).....Based on current trends, ETFs (with $226 billion in assets at the end of 2004) should pass conventional index funds ($505 billion in assets) within three to four years (we predict sooner).
"ETFs Poised to Surpass Index Fund Assets," Tom Leswing, ignites.com, September 14, 2005

This pop-quiz is brought to you by the National Diversification Council:

	Over the most recent five-year period, which of the following fund categories had the highest annualized return:
	(a) China-region funds (b) Balanced funds (c) General municipal bond funds (d) Large-cap value funds

The correct answer is (c). General muni bond funds were up an average of 5.43% per year over the past five years, compared with 3.81%, 1.73%, and 3.09% for China funds, balanced funds and large-cap value funds, respectively.
"Cash-value questions," Charles Jaffe, MarketWatch.com, September 18, 2005

When the real estate bubble finally bursts, owners of real estate mutual funds may be in for a little extra pain.....Real estate funds tend to have low turnover, and many funds have built up considerable capital gains over the recent boom cycle.....If and when investors start bailing out of real estate funds, some of those long-term holdings will have to be sold, and the built-in capital gains will be realized.....If you hold a real estate fund in a taxable account, you could be hit with a substantial tax bill on your share of your fund's capital gains, even as the value of your shares is heading due south (some will recall this scenario from the recent technology fund implosion).....If real estate funds are a permanent part of your personal asset allocation (they are for us), this impending tax discomfort is no reason, by itself, to bail out of the sector.....But if you're just now thinking about joining the real estate party, this is another reason why you might not want to.
"Holders of realty funds could face double trouble," Ilana Polyak, InvestmentNews, September 12, 2005
For several years, we've reported that Mario Gabelli pays himself an exorbitant amount of money for managing his mutual funds and running his publicly-traded investment company (about $55 million in 2004).....Earlier this year, we questioned how Gabelli could be the well-compensated CEO of Lynch Interactive, a publicly-traded company, while also supposedly tending to his investment responsibilities.....Now, it turns out that two early financial backers of Gabelli's investment firm, and erstwhile personal friends, are troubled by these same issues.....And there are additional innuendoes and allegations: Gabelli runs a private holding company, which he and his sons drain of cash, to the detriment of the company's minority shareholders.....In arranging for his money-management firm to go public, in 1999, Gabelli intentionally cut out his early financial backers and minority shareholders.....Now, Gabelli refuses to allow the minority shareholders of his holding company to transfer their shares or cash-out at market value, insisting instead that they sell their shares back to the company under a pre-determined, unrealistic formula*.....FundAlarm considered contacting Gabelli for his side of the story, but we never have the slightest idea what he's talking about, so we decided not to bother.
* "'Super Mario' Has a Super Headache," Andrew Ross Sorkin, The New York Times, September 25, 2005
Something we've never seen before: The Chicken Little Growth Fund started up early this summer, and FundAlarm spies tell us that the "risk" section of the prospectus is soon to be amended, as follows: