Well in case you missed it, Ken Lay of Enron fame, passed away this summer. His cause of death was attributed to a heart attack, one could say he finally ran out of energy.

His untimely death voided his guilty verdict and temporarily halted the governments’ efforts to seize his remaining real estate and financial assets.

His estate is still subject to civil lawsuits by the SEC and former investors as well as Enron employees.

Enron collapsed in December, 2001, erasing a base of $68 billion in market capital. It was the biggest bankruptcy in U. S. history at the time.

A direct result of controversial accounting practices and a display of corporate excess that abandoned all rules of proper corporate conduct.

Within a year of Enron’s collapse, Congress passed the Sarbanes-Oxley Act, tightening accounting rules in an effort to rein in renegade executives and provide investors with more reliable information on companies true financial conditions.

As of the last week of September the market was still showing strong performance despite bumps that occurred over the summer. I would be happy if we finished the year above 10%, which is historically inline with traditional returns.

Oil prices have dropped, retailers are expecting solid holiday sales as a result of consumer spending (why they are still spending is a mystery to me) and housing is flat but inline with expectations. As for the third quarter ending September 29, here is where the indexes stand.

	wk start	wk end	chng.	% chng.	YTD
DJIA	11508.10	11679.07	170.97	1.5%	9.0%
Nasdaq	2218.93	2258.43	39.50	2.4%	2.4%
S&P 500	1314.78	1335.85	21.07	7.0%	7.0%
Russell 2000	718.63	72.59	6.96	7.8%	7.8%

This quarter both moderate and moderately aggressive portfolios were inline with the Dow. The portfolios came in at 7.1% and 10% respectively, after fees.

Please remember that no two portfolios are identical and this information should be used as a barometer for your own holdings.

It never fails, there isn’t a quarter that goes by, when a client doesn’t ask me about annuities. The answer is NO! No you do not need an annuity and it certainly does not belong in your IRA. I will once again go over the "Fee Factor".

Variable annuities charge asset-based fund fees & and include 12b fees, which can add 200 basis points (2%) in costs.
Insurance charges – these cover the basis death benefit and expenses associated with the cost of administering the account. This generally represents 1.35%.
Death benefit riders – these are enhanced features that can be added to a policy which equate to .40%.
Living Benefit Riders – and so the list of extras goes on, with this rider you can now expect to pay an additional .30 - .75% more in hidden annuity costs.
Surrender Charges – my all time favorite. No one goes over this one with you. There is a surrender charge attached to every annuity. If you want to release yourself from the annuity prior to the annuity lapsing, the charge can be up to 7%, most annuities hold you hostage for up to 7 years. The older policies have a caveat that holds you there until 59 ½.

What do these fees mean to you? Simply stated they erode the earning power of your investment year after year. You, the client only see performance after the fees are deducted.

So now let’s apply the "Fee Factor" to this example. You have taken most of the riders and the annual hidden fees amount to 4%.

The annuity you bought was for $100,000. You have now held it for four years. Your annual performance has only been 3%, well below market average. You have not seen or heard from your insurance agent in some time and you now want to move out off this investment into something with greater potential for growth.

First, how much money have you lost? Assuming you had instead invested in a fund that was held outside of the annuity with an initial 1.5% charge, you still would have had an additional 2.5% gain in year one, and an additional 4% gain in years 2, 3, & 4.

The additional interest combined with the value of compounding would give you $129,242 at the end of the 4 year with a mutual fund. With a variable annuity your return is $112,551 or a $16,691 reduction in investment return.

Now you are ready to cash out your annuity early. Your insurance provider has told you that you have a 3% surrender charge if you sell now. What does this mean – you now owe them $3,376.53 or 3% of the current value of your annuity. So, you will be receiving a check for $109,174.47, after 4 years with this wonderful insurance product.

Your actual loss in investment dollars now rises to $20,067. Your actual return on investment over the four year period is now 2.22%. Now do you understand?

In February, 2007, Coastal Financial Planning, Inc. will be celebrating 10 years in business. In light of this milestone, we will be moving off our annual client appreciation event into February, weather permitting.

I will keep you all updated as the details unfold and the arrangements for what I hope to be the gala of the year begins!

The Royce Fund Family has closed the Royce Premier Fund to new investors.

If you currently are invested in this fund, you may continue to make contributions. If you have any questions, please feel free to contact me.

Over the next few weeks I will begin to migrate assets from FiServ (DataLynx) to Fidelity Advisor Services