Archive-name: investment-faq/general/part4
Version: $Id: faq-p4,v 1.35 1996/09/18 12:47:54 lott Exp lott $
Compiler: Christopher Lott, cml@cs.umd.edu

This is the general FAQ for misc.invest, part 4 of 7.

Compilation copyright (c) 1996 by Christopher Lott.  Use and copying
of this information, distribution of the information on electronic
media, and preparation of derivative works based upon this information
are permitted, so long as the following conditions are met:
    + No fees or compensation are charged for this information,
      excluding charges for the media used to distribute it.
    + Proper attribution is given to the authors of individual articles.
    + This copyright notice is included intact.

Disclaimer: This information is made available AS IS, and no
warranty is made about its quality or correctness.

-----------------------------------------------------------------------------

Subject: Information Sources - Internet
Last-Revised: 3 Sep 1996
From: ..a cast of thousands..

The following sites offer access via the Internet to investment information
of all kinds, including but not limited to historical price data, current
equity quotes, company addresses and phone numbers, and newsletters.  Some
are free, some are not.  This article lists sources in the following order:

** Commercial organizations
** Newspapers and other media
** Stock and commodity exchanges
** Brokerage houses
** Mutual fund organizations
** Banks and other financial institutions
** Government agencies
** Non-profit institutions and individuals.

Of course this list will never be complete, but please do send the compiler
a note if you find that a site has closed down.



** Sources maintained by commercial organizations:

Security APL sells real-time financial market data and offers *free*
15-minute delayed stock quotes on their WWW server. 
<http://www.secapl.com/secapl/Welcome.html>

QuoteCom sells financial market data via the net and e-mail.  Registered
users may request 5 free quotes daily; paid services include portfolio 
tracking, S&P reports, and more.  Call them at 800 261-7740 or 
+1 (702) 324-7129, or send e-mail to info@quote.com.
<http://www.quote.com/>

InterQuote offers interactive access to real-time and delayed
quotes, as well as end-of-day updates via e-mail.  Call them at
+1 (414) 697-7770 or send e-mail to support@interquote.com.
<http://www.interquote.com/>

The Global Network Navigator, a service of O'Reilly and Associates,
maintains a personal finance center for users of the World-Wide Web. 
<http://nearnet.gnn.com/gnn/meta/finance/index.html>

NETworth calls itself the internet resource for individual investors.
They offer help with finding information relevant to personal investing 
and financial management on the Web, detailed information about mutual 
funds, free quotations, etc.
<http://networth.galt.com/www/>

TeleSys offers free access to day-old data from stock exchanges around
the world.  They have data on over 60,000 different stocks.
<http://www.teleserv.co.uk/stock/>

Farcast.Com sells stock quotes and press releases, and delivers them
via e-mail.  About $20/month.  Send e-mail to info@farcast.com

InterTrade provides historical quotes etc. and can deliver them via
e-mail.  See their entry in the article "Info. Sources - Dialup."

Bozeman Technology sells historical and current quotes via e-mail.
Send e-mail to prices@bozeman.com with subject line "INFO".

The company A2I Communications offers access to some data by telnet-ing
to the site bolero.rahul.net and logging in under user guest.

The Stock Research Group offers offers information about high-growth
stocks on the NASDAQ, VSE, and Alberta exchanges.
<http://www.stockgroup.com/>

The Info-Mine contains information on over 3,000 mining companies.  
Users can obtain addresses and other detailed information on each 
company including news and brokerage reports.  The URL is
<http://www.info-mine.com/> 

Bank Net collects pointers to many sites that offer information about
finance, investing, etc.  Access the URL <http://bank.net/finance/>

InvestNet Canada offers a newsletter, links to Canadian mutual
fund WWW sites, Canadian company profiles, and links to other
Canadian company WWW sites.
<http://www.islandnet.com/invest>

CanadaNet offers a historical quotes database for equities listed
on Canadian exchanges.
<http://www.visions.com/finance/finance.html>

Numa Financial Systems Ltd. offers information on derivatives,
archives of Finance NetWatch newsletter covering Internet financial 
developments, directory of investment software companies, etc.
<http://www.numa.com>

Bankruptcy Creditors' Service offers a free T&W Newswire newsletter,
and comprehensive database on stocks and bonds of bankrupt companies.
<http://bankrupt.com>

889 Info offers investment freeware, data files comprised of closing
prices of 30 stocks comprising DJIA, etc.
<http://www.889info.com>

Flexsoft offers demonstration versions of investment software.
<http://www.flexsoft.com>

The Internet Closed-End Fund Investor offers an overview of closed-end
funds, weekly and daily charts, relative performance results, etc. 
<http://www.icefi.com>

PrognoSYS focusses on the prediction of stock indices using Neuro Nets.
<http://www.webcom.com/~progsys>

Zacks Investment Research maintains the investor's window, a searchable
list of corporate WWW sites that include investor information.
<http://iw.zacks.com>

InvestorWeb helps WWW users to locate and browse company financial 
information, and assists companies in publishing their message.
<http://www.investorweb.com/>

Rand Financial Services serves the global futures markets.
<http://www.rand-usa.com/>

InSight InFormation offers technical market opinions.  Their analysts
update their web site daily with comments on the stock, bond, currency, 
precious metals, and other world markets.
<http://avidinfo.com/>

The New Mexico Tech. Petroleum Recovery Research Center offer daily
oil and gas prices (crude oil, not gasoline at the pump).
<http://baervan.nmt.edu/prices/current.html>

Wall Street Direct lists brokers, sources for software, data, etc. etc.
<http://www.cts.com/~wallst>

Yahoo.Com maintains pages of links to many investment-related sites.
<http://www.yahoo.com/Business_and_Economy/Markets_and_Investments/>

Wall Street News offers information gleaned from financial newsletters
published by Wall Street's leading forecasters.
<http://Wall-Street-News.com/forecasts/>

PR Newswire offers full-text corporate news about public and private
companies, government agencies, associations and other organizations.
<http://www.prnewswire.com/>

The Silicon Investor offers information about technology stocks.
<http://techstocks.com/>

Netfund analyzes investment opportunities on the Paris stock exchange.
<http://www.fastnet.ch/NETFUND/HTML/home_finance.html>

Mutual Fund Research Inc. offers links to WWW sites of mutual fund 
families and a weekly mutual fund report.
<http://www.webcom.com/~fundlink/>

Liberty Research offers information about technical analysis.
<http://www.libertyresearch.com/>

PC Quote offers free delayed quotes including a real-time DJIA quote.
<http://www.pcquote.com/>

Berkshire Online allows individual investors to gain timely,
comprehensive information about such growth-oriented companies.
<http://www.growth.com/>

The PitStar BBS maintains prices data for futures.
<http:www.geopages.com/wallstreet/>

The Investor Channel offers corporate profiles and news releases.
<http://www.wimsey.com/Magnet/> 

IPO Watch offers details on selected initial public offerings.
<http://iss.net/ipo/>

Intervest Financial Corp. offers corporate profiles and news
releases for junior companies.
<http://www.intervest.com/finance/> 

Billington Publications offers an online edition of "Stock Focus."
<http://www.billington.com/>

INVESTools offers the individual investor information and services
including newsletters, company research reports, earnings estimates,
mutual fund reviews, and discussions.  Documents are sold individually.
<http://www.investools.com/>

The Wall Street Research Net helps investors perform fundamental
research on companies and locate economic data that moves markets.
<http://www.wsrn.com/>

The Investor Relations Group offers corporate profiles and other
information about their client companies.
<http://www.invrel.com/>

The Securities Industry Association offers news releases, position
papers, and other reports.
<http://www.sia.com/>

Paracel offers a custom, real time news service delivered via the
web, email, or Lotus Notes.
<http://www.online.paracel.com>

INO Global Markets is an umbrella site for futures and options
information.  Houses more than 50 organizations.
<http://www.ino.com>

Hoover's Online Co. offers several sharp newsletters with links to
prior and related stories, foreign news, and Hoover's other products. 
<http://www.hoovers.com>

IBC/Donoghue offers up-to-date money and bond fund news, special 
reports, and free product samples. 
<http://www.ibcdonoghue.com>

Nelson's offers earnings estimates to paid subscribers.
<http://www.cinteractive.com/ssnhome.html

Dataquest offers summaries of surveys of different product markets.
<http://www.dataquest.com>

The Gartner Group and Forrester Research provide offerings in
info-tech market research. 
<http://www.gartner.com>

Standard and Poor's Equity Investor Services offers current headlines,
market activity, records of stock splits, research reports, etc.
A subscription fee is charged for most services.
<http://www.stockinfo.standardpoor.com/>

RCM Financial Group LLC offers discussion groups for financial 
professionals, multimedia presentations, online active spreadsheets,
links to over 300 search engines, etc.
<http://www.rcmfinancial.com>

Carlson On-line Services offers information, press releases, stock
quotes, charts, and links to home pages (if they exist) for Canadian
companies listed on the TSE, VSE, ASE, and ME.  A free site.
<http://www.fin-info.com>

Alpha Micro StockVue displays data on your portfolio using an internet
feed to update the information constantly.
<http://www5.alphamicro.com/stockvue/>

DataStream International offers daily closes and charts for world stock
market indexes, also monthly key economic indicators.
<http://www.datastream.com>

The Financial Information Warehouse offers quotes for German stocks, in
German-language of course (ueberhaupt kein Problem).
<http://www.financial.de>

The Virtual Stock Market offers quotes for companies listed on the Tokyo
Stock Exchange, also market indexes.
<http://www.hayato.com>

InvestIndia offers quotes for companies listed on the Bombay Stock Exchange,
also market indexes and daily business news reports.
<http://quark.kode.net/india>

The Primark Investment Research Center offers a searchable database of
I/B/E/S consensus earnings estimates reports and surprise reports.
<http://www.pirc.com>

Streetnet offers a searchable American Depository Receipt (ADR) database. 
Some brokerage firm research reports, free registration is required.
<http://www.vestnet.com>

InTechTra offers the Hong Kong Stocks Report with charts, news, etc.
<http://www.asiawind.com/pub/hksr/>

Team17 Software of the UK runs a game "Profits Warning" that investors
can use to track sample portfolios using data from the exchanges.
<http://www.team17.com/TGR/profits/>

FourSquare Systems Inc. of Dallas, Texas offers links to the annual reports
and financial information of thousands of publicly-traded companies.
<http://www.register.com/fsq/>



** Sources maintained by newspapers and other media organizations:

Dow Jones News Retrieval is on the Internet - see the article on
information sources available by subscription elsewhere in this FAQ.

The _Wall Street Journal_ is offering free, on-line access for a
limited time.
<http://update.wsj.com/>

The _New York Times_ offers a daily summary edition online.
<http://nytimesfax.com/>

The _Financial Times_ offers current levels of many stock indexes.
<http://www.ft.com/stocks/>

USA Today offers leading business headlines with some full articles.
<http://www.usatoday.com/>

The Globe & Mail offers articles from recent issues.
<http://www.globeandmail.ca/> 

Abstracts of selected articles from current issue of "Fortune"
<http://pathfinder.com/fortune/>

Southam offers stories published in the "Northern Miner" newspaper.
<http://www.southam.com/northernminer/>

The Financial Journal covers the NASDAQ.
<http://www.law.cornell.edu/nasdaq/>

The Nando Times offers business news headlines.
<http://www2.nando.net/nt/biz/> 

The Age offers daily Australian business headlines.
<http://www.theage.com.au/>

Die Welt Online offers complete daily German stock prices.
<http://www.welt.de/>



** Sources maintained by stock and commodity exchanges:

The American Stock Exchange offers information about the companies 
listed on that exchange.
<http://www.amex.com/>

The Philadelphia Stock Exchange maintains a directory of sector
index options and currency options.
<http://www.libertynet.org/~phlx>

The Vancouver Stock Exchange offers a searchable directory of
listed companies, quotes, etc.
<http://www.vse.ca> 

The London International Financial Futures And Options Exchange
(LIFFE) offers various information on-line.
<http://www.liffe.com/>

The Chicago Mercantile Exchange offers intraday currency quotes and
daily settlement prices of all CME futures and options.
<http://www.cme.com/>

The New York Mercantile Exchange lists contract specifications, charts,
data, and a glossary of terms.
<http://www.nymex.com/>

The Coffee, Sugar & Cocoa Exchange
<http://www.csce.com>

The Minneapolis Grain Exchange
<http://www.mgex.com>

The New York Cotton Exchange
<http://www.nyce.com>

The Hong Kong Futures Exchange offers an overview, news releases, contract
specifications, member directory, and daily and historical datafiles.
<http://www.hkfe.com>

The Montreal Exchange offers an overview, news releases, member broker
directory, listed company directory, and quotes for companies listed there.
<http://www.me.org>
  


*** Sources maintained by brokerage houses:

Lombard Institutional Brokerage offers free access to delayed quotes,
graphs, and other information about securities.
<http://www.lombard.com/>

K. Aufhauser & Co. offers information on bonds and equity research with
a global perspective.
<http://www.aufhauser.com>

E*TRADE Securities offers several back issues of Investor's Edge 
newsletter; quote server for stocks, options, market indices, etc.
<http://www.etrade.com>

J. P. Morgan & Co. offers information about their services.
<http://www.jpmorgan.com/>

The Futures & Options Trading Group offers information about futures.
<http://www.teleport.com/~futures/>

Lind Waldock & Co offers information about futures trading.
<http://www.ino.com/broker/home.html>

The Fund Library Inc. offers links to WWW sites of Canadian mutual
fund families, etc.
<http://www.fundlib.com/>

Volpe, Welty & Co. offer profiles and their analyses of companies.
<http://www.vwco.com/>

Montgomery Securities offers an index to prospectuses and stock
research reports.
<http:// www.montgomery.com>

Gruntal & Co. offers extensive coverage of technology issues, and
will send you reports by mail.
<http://www.gruntal.com>

Piper Jaffray offers summaries of recent research reports, fixed-income
market commentary, and updates of current rates.
<http://www. piperjaffray.com>

Smith Barney offers daily equity research notes, futures reports, and
fixed-income data to registered users.
<http://nestegg.iddis.com/smithbarney>

Daiwa Securities Group offers summaries of yearly and interim financial
reports from publicly held Japanese companies. 
<http://www.dir.co.jp/cib>

Nikko Securities provides detailed summaries of the financial and
operating prospects of hundreds of Japanese firms.
<http://www.nikko.co.jp>



** Sources maintained by mutual fund organizations:

Dynamic Mutual Funds offers an overview of mutual fund basics, monthly 
market outlook, and closing prices for their funds.
<http://www.dynamic.ca/>

Ameristock Mutual Fund maintains a page with financial planning
information, mutual fund FAQs, risk tolerance test, etc.
<http://www.ameristock.com> 



** Sources maintained by banks and other financial institutions:

Deutsche Bank offers histories and stock price data for German companies.
<http://www.deutsche-bank.de/index_e.htm>

Baring Securities' research arm (part of Dutch ING Bank) offers
copious world market analyses to registered users.
<http://www.ingbank.com>



** Sources maintained by government agencies:

Current exchange rates for major currencies and a wealth of other data 
that is downloaded from the U.S. Department of Commerce's Economic
Bulletin Board is available from the University of Michigan. 
<ftp://una.hh.lib.umich.edu/ebb/indicators>
<gopher://una.hh.lib.umich.edu/11/ebb>

The Electronic Data Gathering and Data Retrieval (EDGAR) Project offers
access to a number of documents (10-K, 10-Q, etc.) which companies file
with the US Securities and Exchange Commission (SEC).  Send e-mail to
edgar-interest-request@town.hall.org or access these URLs:
<ftp://town.hall.org>
<http://www.town.hall.org>
<http://town.hall.org/cgi-bin/srch-edgar>
<http://edgar.stern.nyu.edu/EDGAR.html>

The Securities and Exchange Commission (SEC) offers electronic
access to 10-Ks, 10-Qs, 8-Ks, 14-Ds, etc. from their EDGAR pages.
<http://www.sec.gov/edgarhp.htm>

The FedWorld Information Network offers information and links for
US government agencies.
<http://www.fedworld.gov>

The U.S. Patent and Trademark Office offers online publications with
general information on patents and trademarks, press releases.
<http://www.uspto.gov>

The U.S. Department of Commerce offers online information.
<http://www.doc.gov>

Thomas: Legislative Information on the Internet offers information
on federal bills, the Congressional Record, GAO, etc.
<http://thomas.loc.gov>

The U.S. Library of Congress offers online information.
<http://www.loc.gov>

The U.S. Bureau of Mines offers information about minerals and mining.
<http://www.usbm.gov>

The Royal Bank of Canada offers a daily currency and credit market
report, Canadian and U.S. interest rates, and an exchange rate table.
<http://www.royalbank.com> 

"Beige Book" - Summary of U.S. Economic Conditions
<http://woodrow.mpls.frb.fed.us/economy/beige/beigeb.html>

Economic Research and Data for the Ninth Federal Reserve District
(Upper Midwest)
<http://woodrow.mpls.frb.fed.us/economy/index.html>

Board of Governors of the Federal Reserve System, with links to the
individual banks.
<http://www.bog.frb.fed.us/>

Federal Reserve Bank of Boston
<http://www.bos.frb.org/>

Federal Reserve Bank of New York
<http://www.ny.frb.org/>

Federal Reserve Bank of Philadelphia
<http://www.libertynet.org/~fedresrv/fedpage.html>

Federal Reserve Bank of Cleveland
<http://www.clev.frb.org/>

Federal Reserve Bank of Atlanta
<http://www.frbatlanta.org/>

Federal Reserve Bank of Chicago
<http://www.frbchi.org/>

Federal Reserve Bank of St. Louis
(see FRED--it's the best site for Fed stats)
<http://www.stls.frb.org/   

Federal Reserve Bank of Minneapolis
<http://woodrow.mpls.frb.fed.us>

Federal Reserve Bank of Kansas City
<http://www.frbkc.org/contents.htm>

Federal Reserve Bank ou Dallas
<http://www.dallasfed.org>

Federal Reserve Bank of San Francisco
<http://www.frbsf.org/index.html>



** Sources maintained by non-profit institutions and private individuals:

Addresses and phone numbers for about 8,500 companies may be requested,
one at a time, by sending e-mail to conamadph@happy-man.com using the
subject line "conamadph tkr please".  Note that the quotes are NOT part
of the line, tkr means the ticker symbol of the company, everything is
lower case, the please is required, and the body of the msg is ignored. 
If the company is not in this database, the return msg will be empty.

Ed Savage (savage@vnet.net) collects equity data.  Stated purpose:
"To collect publicly available market data in one place so people can
FTP it easily."  Users are invited to donate *freely redistributable*
data or access same.  This is NOT a real-time or 15-minute delay quote
server.  It does have a limited number of close-of-day quotes.
<ftp://sunsite.unc.edu/pub/archive/misc.invest>

Martin Wong's QUOTESERVER.  Summary of stock market activity updated
at approximately 21:45 EST with the current day's closing information
for the market and about 200 individual issues.  Available by e-mail
by contacting martin.wong@eng.sun.com - but see the next entry.

Experimental Stock Market Data - a page that provides a link to data
and charts based on the most recent closing information from the stock
markets.  The URL is
<http://www.ai.mit.edu/stocks.html>

George Holt makes his market reports available via this URL:
<http://turnpike.net/metro/holt/index.html>

Jason (?) maintains the "Stock Room," a collection of graphs based
on data from George Holt's reports and other sources.
<http://loft-gw.zone.org/jason/stock_room.html>

Information about some European markets is maintained by students at
the University of Frankfurt, Germany.  Most text is in German.
<http://www.wiwi.uni-frankfurt.de/AG/JWGI>

Carl Soderholm manages the "On-Line Investment Center," a collection
of pointers to investment-related WWW pages. 
<http://www.thegroup.net/invest/ichome.html>

Douglas Gerlach maintains "Internet Resources for Individual Investors,"
a collection of links online resources such as brokers, mutual funds, 
financial reports, etc.  
<http://www.interport.net/~gerlach/>

Waldemar Puszkarz maintains a collection of links about futures.
<http://www.internode.net/~allend/futures.html>

Pierre Omidyar maintains a historical data file of futures prices.
<http://www.best.com/~pierre/invest/data>

R.F. Potts maintains a page with historical futures price data, including
tables of futures symbols
<http://www.teleport.com/~rpotts/prices/prices.html>

Brill Editorial Services offers an independent source of information
about mutual funds.
<http://www.ultranet.com/~marla/funds.html>

Daniel Feuer maintains a page with research reports from the Canadian
brokerage firm Marleau, Lemire and other investment informatino.
<http://www.io.org/~invest>

A. J. Davis maintains FutureLook, a page with charts and intraday 
forecasts on six major financial futures. 
<http://www.wp.com/futurelook> 

Jake Bernstein maintains FuturesWeb, a site with much information
about futures and the futures markets.
<http://www.trade-futures.com/>

Richard Vicars maintains The Investment Club, which offers "club" and
"user" stock picks.
<http://pages.prodigy.com/IN/vicars/vicars.html>

William Rini maintains The Syndicate, a collection of information for
private investors and brokers.  A new edition is made available monthly.
<http://www.moneypages.com/syndicate/>

Richard Sauers maintains a huge compilation of World Wide Web sites
that are of interest to investors.  Updated monthly.
<http://www.enter.net/~rsauers/>

The Department of Finance, part of the College of Business at The Ohio
State University, has a financial data finder.
<http://www.cob.ohio-state.edu>

The GreatStocks project is an online investment group sharing stock tips
and education for individual investors.  This page includes the FAQ for
#DayTraders, an Undernet IRC channel dedicated to short-term traders.
<http://pobox.com/~gsp>

Grimly Snit maintains a page of market commentary.
<http://www.grimly.com>


-----------------------------------------------------------------------------

Subject: Information Sources - Investment Associations (AAII and NAIC)
Last-Revised: 1 Aug 1996
From: rajeeva@sco.com, dlaird@terapin.com, aaner001@maroon.tc.umn.edu
	a_s_kamlet@att.com, jay@concannon.llnl.gov,
	gerlach@better-investing.org


AAII:	American Association of Individual Investors
	625 North Michigan Avenue 
	Chicago, IL 60611-3110
	+1 312-280-0170

A summary from their brochure: AAII believes that individuals would
do better if they invest in "shadow" stocks which are not followed
by institutional investor and avoid affects of program trading. 
They admit that most of their members are experienced investors with
substantial amounts to invest, but they do have programs for newer
investors also.  Basically, they don't manage the member's money,
they just provide information.

Membership costs $49 per year for an individual; with Computerized
Investing newsletter, $79.  A lifetime membership (including
Computerized Investing) costs $490. 

They offer the AAII Journal 10 times a year, Individual Investor's guide
to No-Load Mutual Funds annually, local chapter membership (about 50
chapters), a year-end tax strategy guide, investment seminars and study
programs at extra cost (reduced for members), and a computer user'
newsletter for an extra $30.  They also operate a free BBS.


NAIC:	National Association of Investors Corp.
	P. O. Box 220
	Royal Oak, MI 48068
	Tel +1 810 583-NAIC, Fax +1 810 583-4880
	E-mail: service@better-investing.org
	Web: www.better-investing.org

The NAIC is a nonprofit organization operated by and for the benefit
of member clubs.  The Association has been in existence since the 1950's
and has over 25,000 members.

Membership costs $39 per year for an individual, or $35 for a club and
$14 per each club member.  The membership provides the member with a
monthly magazine, details of your membership and information on how to
start a investment club, how to analyze stocks, and how to keep records.

NAIC also offers software for fundamental analysis, discounts on 
investing books, research information on member companies, and other 
educational manuals and videotapes.  A network of over 75 Regional 
Councils across the US provide local assistance.

In addition to the information provided, NAIC operates "Low-Cost
Investment Plan", which allows members to invest in participating
companies such as AT&T, Kellogg, Wendy's, Mobil and Quaker Oats... 
Most don't incur a commission although some have a nominal fee ($3-$5).

Of the 500 clubs surveyed in 1989, the average club had a compound
annual growth rate of 10.8% compared with 10.6% for the S&P 500 stock
index...Its average portfolio was worth $66,755.


-----------------------------------------------------------------------------

Subject: Insurance - Annuities
Last-Revised: 1 Aug 1996
From: perlman@think.com

A variable annuity is an investment vehicle designed for retirement
savings.  You may think of it as a wrapper around an underlying 
investment, typically in a very restricted set of mutual funds.  
The selling points of a variable annuity are that the underlying 
investments grow tax-deferred, as in an IRA, and that when you
retire, the annuity will pay you an income, based on how well the
underlying investment performed, for as long as you live.  Annuities
are sold by insurance companies, and use an insurance policy to
provide the tax deferral.  (Remember, tax deferral is not tax-free.
It means that taxes are delayed.  That can be both good and bad.)

Unlike an IRA, the money you put into an annuity are not deductible
from your taxes.  And also unlike an IRA, you may put as much money
into an annuity as you wish.  But beware, because this may sound at
first like a good investment, annuities look pretty bad when you
examine them in close detail.  

The following discussion compares an annuity to an index fund (see
also the article on index funds in the FAQ for misc.invest.funds).

Variable annuities are just about the worst investment vehicle you can
put your money into.  They are extremely profitable for the companies
that sell them (which accounts for their popularity among sales
people), but are a terrible choice for you.  You are much better off
in an equity index fund.  Index funds are extremely tax efficient and
provide, overall, a much more favorable tax situation than an annuity.

The growth of an annuity is fully taxable as income, both to you and
your heirs.  The growth of an index fund is taxable as capital gains
to you (which is good because capital gains taxes are always lower
than ordinary income) and subject to *zero* income tax to your heirs.
This last point is because upon inheritance the asset gets a "stepped
up basis."  In plain English, the IRS treats the index fund as though
your heirs just bought it at the value it had when you died.  This is
a major tax advantage if you care about leaving your wealth behind.
(By contrast the IRS treats the annuity as though your heirs just
earned it; they must now pay income tax on it!)

If you remove some money from the index fund, the cost basis may be
the cost of your most recent purchase (or if the law is changed as the
administration currently recommends, the average cost of your index
investments).  By contrast, any money you remove from an annuity is
taxed at 100% of its value until you bring the annuity's value down to
the size of what you put in.  (The law is more favorable for annuities
purchased before 1982, but that's another can of worms.)

Tax considerations aside, the index fund is a better investment.  Try
to find some annuities that outperformed the S&P 500 index over the
past ten or twenty years.  Now, do you think you can pick which one(s)
will outperform the index over the *next* twenty years?  I don't.

Annuities usually have a sales load, usually have very high expenses,
and *always* have a charge for mortality insurance.  The insurance is
virtually worthless because it only pays if your investment goes down
AND you die before you "annuitize".  (More about that further on.)
Simple term insurance is cheaper and better if you need life
insurance.

Annuities invest in funds that are difficult to analyze, and for which
independent reports, such as Morningstar, are not always available.

Annuity contracts are very difficult for the average investor to read
and understand.  Personally, I don't believe anyone should sign a
contract they don't understand.

Annuities promise a guaranteed income for life.  If you choose to
annuitize your contract (meaning take the guaranteed income for life),
two things happen.  One is that you sacrifice your principal.  When
you die you leave zero to your heirs.  If you want to take cash out
for any reason, you can't.  It isn't yours anymore.  You have made the
insurance company rich.

In exchange for giving all your money to the insurance company, they
promise to pay you a certain amount (either fixed or tied to
investment performance) for as long as you live.  The problem is that
the amount they pay you is small.  The very small payoff from
annuitizing is the reason that almost no one actually does it.  If
you're considering an annuity, ask the insurance company what
percentage of customers ever annuitize.  Ask what the payoff is if you
annuitize and you'll see why.  Compare their payoff to keeping your
principal and putting it into a ladder of U.S. Treasuries, or even
tax-free munis.  Better yet, compare the payoff to a mortgage for the
duration of your expected lifespan.  If you expect to live to 85,
compare the payoff at age 70 to a 15-year mortgage (with you as the
lender).

For a fixed payout you would be better off putting your money into US
Treasuries and collecting the interest (and keeping the principal).

Now let's consider a variable payout, determined by the performance of
your chosen investments.  The problem here is the Assumed Interest
Rate (AIR), typically three or four percent.  In plain English, the
insurance company skims off the first three to four percent of the
growth of your investments.  They call that the AIR.  Your monthly
distribution only grows to the extent that your investment grows MORE
than the AIR.  So if your investment doesn't grow, your monthly
payment shrinks (by the AIR).  If your investment grows by the AIR,
your monthly payment stays the same.  When the market has a down year,
your monthly payment shrinks by the market loss plus the AIR.

If you do decide to go with an annuity, buy one from a mutual fund
company like T. Rowe Price or Vanguard.  They have far superior
products to the annuities offered by insurance companies.

For more information about annuities, you might find these articles
helpful:

1. "Annuities: Just Say No" in the July/August 1996 issue of Worth
   magazine.

2. "Five Sad Variable Annuity Facts Your Salesman Won't Tell You" in
   the April 5, 1995 Wall Street Journal quarterly review of mutual
   funds.

Just to be complete, note that there is such a thing as a fixed
annuity.  A fixed annuity is a completely different animal from a
variable annuity, and is not very popular.  The idea of a fixed
annuity is that you give money to an insurance company, and they
promise to pay you a fixed monthly amount for as long as you live.
When considering a fixed annuity, compare the annuity with a ladder 
of high-grade bonds that allow you to keep your principal.


-----------------------------------------------------------------------------

Subject: Insurance - Life
Last-Revised: 30 Mar 1994
From: joec@fid.morgan.com

This is my standard reply to life insurance queries.  And, I think
many insurance agents will disagree with these comments.

First of all, decide WHY you want insurance.  Think of insurance as
income-protection, i.e., if the insured passes away, the beneficiary
receives the proceeds to offset that lost income.  With that comment
behind us, I would never buy insurance on kids, after all, they don't
have income and they don't work.  An agent might say to buy it on your
kids while its cheap - but run the numbers, the agent is usually
wrong, remember, agents are really salesmen/women and its in their
interest to sell you insurance.  Also - I am strongly against insurance
on kids on two counts.  One, you are placing a bet that you kid will
die and you are actually paying that bet in premiums.  I can't bet my
child will die.  Two, it sounds plausible, i.e., your kid will have a
nest egg when they grow up but factor inflation in - it doesn't look
so good.  A policy of face amount of $10,000, at 4.5% inflation and 30
years later is like having $2,670 in today's dollars - it's NOT a lot
of money.  So don't plan on it being worth much in the future to your
child as an investment.  In summary, skip insurance on your kids.

I also have some doubts about insurance as investments - it might be a
good idea but it certainly muddies the water.  Why not just buy your
insurance as one step and your investment as another step? - its a lot
simpler to keep them separate.

So by now you have decided you want insurance, i.e., to protect your
family against you passing away prematurely, i.e., the loss of income
you represent (your salary, commissions, etc.).

Next decide how LONG you want insurance for.  If you're around 60
years old, I doubt you want to get any at all.  Your income stream is
largely over and hopefully you have accumulated the assets you need
anyway by now.

If you are married and both work, its not clear you need insurance at
all if you pass on.  The spouse just keeps working UNLESS you need
both incomes to support your lifestyle (more common these days).  
Then you should have one policy on each of you.

If you are single, its not clear you need life insurance at all.  You
are not supporting anyone so no one cares if you pass on, at least
financially.

If you are married and the spouse is not working, then the breadwinner
needs insurance UNLESS you are independently wealthy.  Some might argue
you should have insurance on your spouse, i.e., as homemaker, child
care provider and so forth.  In my oponion, I would get a SMALL policy
on the spouse, sufficient to cover the costs of burying them and also
sufficient to provide for child care for a few years or so.  Each case
is different but I would look for a small TERM policy on the order of
$50,000 or less.  Get the cheapest you can find, from anywhere.  It
should be quite cheap.  Skip any fancy policies - just go for term and
plan on keeping it until your child is own his/her own.  Then reduce
the insurance coverage on your spouse so it is sufficient to bury your
spouse.

If you are independently wealthy, you don't need insurance because you
already have the money you need.  You might want tax shelters and the
like but that is a very different topic.

Suppose you have a 1 year old child, the wife stays home and the
husband works.  In that case, you might want 2 types of insurance:
Whole life for the long haul, i.e., age 65, 70, etc., and Term until
your child is off on his/her own.  Once the child has left the stable,
your need for insurance goes down since your responsibilities have
diminished, i.e., fewer dependents, education finished, wedding
expenses done, etc

Mortgage insurance is popular but is it worthwhile? Generally not
because it is far too expensive.  Perhaps you want some sort of Term
during the duration of the mortgage - but remember that the mortgage
balance DECLINES over time.  But don't buy mortgage insurance itself -
much too expensive.  Include it in the overall analysis of what
insurance needs you might have.

What about flight insurance? Ignore it.  You are quite safe in
airplanes and flight insurance is incredibly expensive to buy.

Insurance through work? Many larger firms offer life insurance as part
of an overall benefits package.  They will typically provide a certain
amount of insurance for free and insurance beyond that minimum amount
is offered for a fee.  Although priced competitively, it may not be
wise to get more than the 'free' amount offered - why? Suppose you
develop a nasty health condition and then lose your job (and your
benefit-provided insurance)?  Trying to get reinsured elsewhere (with
a health condition) may be *very* expensive.  It is often wiser to have
your own insurance in place through your own efforts - this insurance
will stay with you and not the job.

Now, how much insurance?  One rule of thumb is 5x your annual income.
What agents will ask you is 'Will your spouse go back to work if you
pass away?' Many of us will think nobly and say NO.  But its actually
likely that your spouse will go back to work and good thing -
otherwise your insurance needs would be much larger.  After all, if
the spouse stays home, your insurance must be large enough to be
invested wisely to throw off enough return to live on.  Assume you
make $50,000 and the spouse doesn't work.  You pass on.  The Spouse
needs to replace a portion of your income (not all of it since you
won't be around to feed, wear clothes, drive an insured car, etc.).
Lets assume the Spouse needs $40,000 to live on.  Now that is BEFORE
taxes.  Lets say its $30,000 net to live on.  $30,000 is the annual
interest generated on a $600,000 tax-free investment at 5% per year
(e.g., munibonds).  So this means you need $600,000 of face value
insurance to protect your $50,000 current income.  These numbers will
vary, depending on interest rates at the time you do your analysis and
how much money you spouse will need, factoring in inflation.  But the
point is that you need at least another $600,000 of insurance to fund
if the survivng spouse doesn't and won't work.  Again, the amount will
vary but the concept is the same.

This is only one example of how to do it and income taxes, estate
taxes and inflation can complicate it.  But hopefully you get the
idea.

Which kind of insurance, in my humble opinion, is a function of how
long you need it for.  I once did an analysis of TERM vs WHOLE LIFE and
based on the assumptions at the time, WHOLE LIFE made more sense if I
held the insurance more than about 20-23 years.  But TERM was cheaper
if I held it for a shorter period of time.  How do you do the analysis
and why does the agent want to meet you?  Well, he/she will bring
their fancy charts, tables of numbers and effectively lead you into
thinking that the biggest, most expensive policy is the best for you
over the long term.  Translation: lots of commissions to the agent.
Whole life is what agents make their money on due to commissions.  The
agents typically gets 1/2 of your first year's commissions as his pay.
And he typically gets 10% of the next year's commissions and likewise
through year 5.  Ask him (or her) how they get paid.

If he won't tell you, ask him to leave.  In my opinion, its okay that
the agents get commissions but just buy what you need, don't buy some
huge policy.  The agent may show you compelling numbers on a $1,000,000
whole life policy but do you really need that much? They will make
lots of money on commissions on such a policy, but they will likely
have sold you the "Mercedes Benz" type of policy when a Ford Taurus or
a Saturn sedan model would also be just fine, at far less money.  Buy
the life insurance you need, not what they say.

What I did was to take their numbers, review their assumptions (and
corrected them when they were far-fetched) and did MY analysis.  They
hated that but they agreed my approach was correct.  They will show
you a 12% rate of return to predict the cash value flow.  Ignore that
- it makes them look too good and its not realistic.  Ask him/her
exactly what they plan to invest your premium money in to get 12%.
How has it done in the last 5 years? 10? Use a number between 4.5%
(for TBILL investments, quite conservative) and 8-10% (for growth
stocks, more risky), but not definitely not 12%.  I would try 8% and
insist it be done that way.

Ask each agent: 1)-what is the present value of the payment stream
represented by the premiums, using a discount rate of 4.5% per year
(That is the inflation average since 1940).  This is what the policy
costs you, in today's dollars.  Its very much like paying that single
number now instead of a series of payments over time.  If they disagree
with 4.5%, remind them that since 1926, inflation has averaged 3.5%
(Ibbotson Associates) and then suggest they use 3.5% instead.  They may
then agree with the 4.5% (!)  The lower the number, the more expensive
the policy is.  2)-what is the present value of the the cash value
earned (increasing at no more than 8% a year) and discounting it back
to today at the same 4.5%.  This is what you get for that money you
just paid, in cash value, expressed in today's dollars, i.e., as if you
got it today in the mail.  3)-What is the present value of the life
insurance in force over that same period, discounted back to today by
4.5%, for inflation.  That is the coverage in effect in today's
dollars.  4)-Pick an end date for comparing these - I use age 60 and
age 65.

With the above in hand from various agents, you can see fairly quickly
which is the better policy, i.e., which gives you the most for your
money.

By the way, inflation is slippery and sneaky.  All too often we see
$500,000 of insurance and it sounds great, but at 4.5% inflation and
30 years from now, that $500,000 then is like $133,500 now - truly!

Have the agent do your analysis, BUT you give him the rates to use,
don't use his.  Then you pick the policy that is the best value, i.e.,
you get more for your money.  Factor in any tax angles as well.  If
the agent refuses to do this analysis for you, get rid of him/her.

If the agent gets annoyed but cannot fault your analysis, then you
have cleared the snow away and gotten to the truth.  If they smile too
much, you may have missed something.  And that will cost you money.

Never agree to any policy unless you understand all the numbers and
all the terms.  Never 'upgrade' policies by cashing in a whole life
for another whole life.  That just depletes your cash value, real cash
available to you.  And the agent gets to pocket that money, literally,
through new commissions.  Its no different that just writing a personal
check, payable to the agent.

Check out the insurer by going to the reference section of a big
library.  Ask for the AM BEST guide on insurance.  Look up where the
issuer stands relative to the competition, on dividends, on cash
value, on cost of insurance per premium dollar.

Agents will usually not mention TERM since they work on commission and
get much more money for Whole Life than they do for term.  Remember,
The agents gets about 1/2 of your 1st years premium payments and 10%
or so for all the money you send in over the following 4 years.  Ask
them to tell you how they are paid- after all, its your money they are
getting.

Now why don't I like UNIVERSAL or VARIABLE?  Mainly because with Whole
Life and with TERM, you know exactly what you must pay because the
issuer must manage the investments to generate the appropriate returns
to provide you with the insurance (and with cash value if whole life).
With UNIVERSAL and VARIABLE, it becomes YOU who must decide how and
where to invest your premium income.  If you guess badly, you will
have to pay a higher premium to cover those bad decisions.  The
insurance companies invented UNIVERSAL and VARIABLE because interest
rates went crazy in the early 80's and they lost money.  Rather than
taking that risk again, they offered these new policies to transfer
that risk to you.  Of course, UNIVERSAL and VARIABLE will be cheaper
in the short term but BE CAREFUL - they can and often will increase
later on.

Okay, so what did I do?  I bought both term and whole life.  I plan to
keep the term until my son graduates from college and he is on his own. 
That is about 10 years from now.  I also bought whole life (NorthWestern
Mutual Life, Milwaukee, WI) which I plan to keep forever, so to speak.  
NWML is apparently the cheapest and best around according to A.M. BEST.
At this point, after 3 years with NWML, I make more in cash value each
year than I pay into the policy in premiums.  Thus, they are paying me
to stay with them.

Where do you buy term? Just buy the cheapest policy since you will
tend to renew the policy once a year and you can change insurers each
time.  Check your local savings bank as one source.

Suppose an agent approaches you about a new policy and wishes to
update your old ones and switch you into the new policy or new
financial product they are offering?  BE CAREFUL: When you switch
policies, you close out the old one, take out its cash value and buy a
new one.  But very often you must start paying those hidden commissions
all over again.  You won't see it directly but look carefully at how
the cash value grows in the first few years.  It won't grow much
because the 'cash' is usually paying the commissions again.  Bottom
line: You usually pay commissions twice - once on the old policy and
again on the new policy - for generally the same insurance.  Thus you
paid twice for the same product.  Again - be careful and make sure it
makes sense to switch policies.

A hard thing to factor in is that one day you may become uninsurable
just when you need it, i.e., heart attack, cancer and the like.  I
would look at getting cheap term insurance but add in the options of
'guaranteed convertible' (to whole life) and 'guarranteed renewable'
(they must provide the insurance).  It will add somewhat to the cost of
the insurance.

Last thought.  I'll bet you didn't you know that you are 3x more
likely to become disabled during your working career than you to die
during your working career.  How is your short term disability
insurance looking?  Get a policy that has a waiting period before it
kicks in.  This will keep it cheaper.  Look at the exclusions, if any.

These comments are MY opinion and not my employers.  All the usual
disclaimers apply and your mileage may vary depending on individual
circumstances.

For additional information, see the in-depth, three-part series which
Consumers Reports printed in their Jul/Aug/Sep 1993 issues. 


-----------------------------------------------------------------------------

Subject: Misc - Derivatives
Last-Revised: 28 Feb 1994
From: bob_costa@delphi.com, williams@vierzk.bates.scarolina.edu

A derivative is a financial instrument that does not constitute ownership,
but a promise to convey ownership.  The most simple example is a call
option on a stock.  In the case of a call option, the risk is that the
person who writes the call (sells it and assumes the risk) may not be
in business to live up to their promise when the time comes.  In
standarized options sold through the Options Clearing House, there are
supposed to be sufficient safeguards for the small investor against this.

What really concerns regulators is the fact that big banks swap all kinds
of promises all the time, like interest rate swaps, froward currency swaps,
options on futures, etc.  They try to balance all these promises (hedging),
but there is the big danger that one big player will go bankrupt and leave
lots of people holding worthless promises.  Such a collapse could cascade,
as more and more speculators (banks) cannot meet their obligations because
they were counting on the defaulted contract to protect them from losses.
 
All of this is done off the books, so there is no total on how much
exposure each bank has under a specific scenario.  Some of the more
complicated derivatives try to simulate a specific event by tracking it
with other events (that will *usually* go in the same or the opposite
direction).  Examples are buying Japan stocks to protect against a loss in
the US.  However, if the *usual* correlation changes, big losses can be
the result.

The big danger with the big banks is that while they can use derivatives
to hedge risk, they can also use them as a way of taking ON risk.  Not
that risk is bad.  Risk is how a bank makes money; for example, issuing
loans is a risk.  However, banks are forbidden from taking on risk with
derivatives.  It's just too easy for a bank to hedge bonds with derivatives
that don't have the same maturity, same underlying security, etc. so the
correlation between the hedge and the risky position is weak.


-----------------------------------------------------------------------------

Subject: Misc - Hedging
Last-Revised: 11 Dec 1992
From: nfs@princeton.edu

Hedging is a way of reducing some of the risk involved in holding
an investment.  There are many different risks against which one can
hedge and many different methods of hedging.  When someone mentions
hedging, think of insurance.  A hedge is just a way of insuring an
investment against risk.

Consider a simple (perhaps the simplest) case.  Much of the risk in
holding any particular stock is market risk; i.e. if the market falls
sharply, chances are that any particular stock will fall too.  So if
you own a stock with good prospects but you think the stock market in
general is overpriced, you may be well advised to hedge your position.

There are many ways of hedging against market risk.  The simplest,
but most expensive method, is to buy a put option for the stock you own. 
(It's most expensive because you're buying insurance not only against
market risk but against the risk of the specific security as well.) 
You can buy a put option on the market (like an OEX put) which will
cover general market declines.  You can hedge by selling financial
futures (e.g. the S&P 500 futures).

In my opinion, the best (and cheapest) hedge is to sell short the
stock of a competitor to the company whose stock you hold.  For example,
if you like Microsoft and think they will eat Borland's lunch, buy MSFT
and short BORL. No matter which way the market as a whole goes, the
offsetting positions hedge away the market risk.  You make money as
long as you're right about the relative competitive positions of the
two companies, and it doesn't matter whether the market zooms or crashes.


-----------------------------------------------------------------------------

Subject: Misc - Insider Trading
Last-Revised: 3 Jan 1996
From: mash@sgi.com

This article offers a primer on insider trading, with some focus on a
common insider's mechanism, namely stock options.  While I make no
claim to be an expert on this, I was an officer for a few years at a
company that was private and went public, but that was in  1992, so a
few rules may have changed since then.  The discussion below assumes
U.S.A. rules.

SUMMARY: the insider-trading sections of newspapers can be very
misleading if you don't know how to interpret them, but briefly:

a) If you see insiders buying a lot of stock on the open market, this
   might be worth investigating as a BUY signal ... although insiders
   are often wrong.

b) If you see insiders in fairly young companies *selling* stock,
   either by selling very cheap stock they've had a while, or by
   same-day exercise of a stock option and selling the resulting stock
   ... this rarely means very much.

The list of stock still owned strangely doesn't mean very much either,
for reasons explained below.  That is, sometimes readers get very
excited if they see that Joe Blow, CEO, has sold 10,000 shares and now
owns 0. What is not obvious from the paper is whether:

(1) Joe Blow has no options left, is cashing out, and about to
    leave.
OR
(2) Joe Blow has vested options on a million shares, and has
    thus sold 1% of his stock to buy a new house.

Obviously, the imputed meanings are rather different ...

c) The *timing* of sales also means relatively little:

   (1) Silicon Valley financial advisors tell people to sell some
       stock *every* year for tax reasons.  More later.

   (2) Normally, there are at most 4 times during a year when an
       insider can sell stock anyway, and it is easy for other
       events to knock this down to 1-2, or even 0.  I've heard of
       cases where people got stuck for 2 years post-IPO not being
       able to sell *any* stock.

d) In general, interpreting the data from the paper alone is hard, you
   need the last couple years of annual reports and then read the fine
   print about executive compensation, special loans, extra covenants
   about non-sale of stock around IPO, merger, acquisitions, etc.

EXPLANATIONS:

(1) If you are a founder of a company, or even an early employee, you
    likely get some stock options, or own stock at minuscule prices
    (i.e., like $.10/share on stock you hope will be worth at least $10
    at IPO.) I don't know how the rules are now, but they used to
    strongly encourage actual purchase of some of that stock, at least
    2 years in advance of a potential IPO, in order to have stock that
    could get capital gains handling when sold 6 months after IPO.
    [When a company is founded, of course, no one has the foggiest clue
    of the likely increase in value ... although there are many hopes :-)]

(2) When you get closer to IPO, stock option pricing gets closer to an
    IPO price, which is usually adjusted via splits or reverse-splits
    to be in the $10-$30 range.

(3) Many companies continue to grant stock options after IPO, although
    the prices are of course much higher, which tends to force some
    different strategies.  From tax-treatment, it is advantageous to
    spread this out, as only a certain amount per year gets the
    favorable Incentive Stock Option (ISO) treatment, any above gets a
    Non-Qualified Option treatment.

Silicon Valley companies use stock options extensively, and usually,
broadly across employees, not just for executives.  [Which is why the
Valley went berserk with the proposed law that required charging the
bottom line for the "expected future value of stock options" :-) if
anyone can predict such a thing, they are really smart ... but even
worse, it would have discouraged broad use of stock options, which
would have been truly sad.]

(4) If you have been in a high-tech startup, or even fairly early in,
    it is likely that most of your net worth exists in stock ownership
    and options of that company.  It is far more complicated, and takes
    longer than you'd expect, to get that money out without giving it
    to the IRS :-) [I do first-in-first-out on option exercises ... I'm
    still working on some I got in 1985...]

This is especially so if you are an insider, given:

        (1) SEC rules

        (2) Lawsuit issues [which fortunately have just improved!].
            I.e., if you are an officer, you're likely to learn some
            extra rules from the lawyers, that aren't laws, but are
            insurance against lawsuits.

        (3) Tax laws, like Alternate Minimum Taxes, which encourage you
            to *not* to sell in big lump sums.

(5) Briefly, when it comes to trading stocks, insiders:

   (1) Usually do no trades in month 1 and month 3 of a quarter:

    Month 1: no trades until quarterly report appears, plus
    a few days for market to digest the results.

    Month 3: theoretically, by the beginning of month 3 you
    know how the quarter will be.  This may be actually true in some
    businesses, but not others. In some parts of the computer business,
    an awful lot of business is booked during month 3, and shipped in the
    last 2 weeks, so people quite often have no idea at this time whether
    they'll make the numbers or not.  This is especially true for
    high-end machines (like supercomputers, where pure-supercomputer
    companies have occasionally had crazed fluctuations because some $20M
    machine got held up a week).  Right now, the government shutdown and
    its effects on buying and export licenses is a bit strange.  Similar
    weirdnesses go on, for example, in some retail businesses, where the
    Christmas season is crucial.

    Anyway, that leaves <= 4 months a year for an insider.

  (2) Usually do no trades when in possession of material
   information that might affect the stock, and is not yet
    public, at least partly because it might or might not
    happen. For instance, somebody might be negotiating a
    merger or some really major sale, and the lawyers will tell
    you that you shouldn't trade then, to avoid lawsuits.  This
    may knock out some of the 4 months, and may be difficult to
    predict a year in advance; that is, it is personally
    dangerous to say: "I expect to sell stock 9 months from
    now."  Don't count on it.

        (3) Do no trades when forbidden by covenants that are part of
    IPOs or merger deals. There is usually a minimum of a
    6-month block after an IPO, and probably 3 after a merger.

        (4) (Don't know if this rule is still around, but): do not usually
    both buy and sell their stock in within the same 6 months.
    I think the rule has been mellowed to allow purchase of
    options and sell them off, but there used to be a terrible
    trap where you (a) sold some stock (b) then, slightly less
    than 6 months' later, were reminded that you had options
    expiring.  You exercised the options ... and *blam*
    computer at SEC nails you for illegal trading. [Years ago,
    advisors mentioned some horror stories, whose details I
    forget, but whose import stuck.]

    When combined with (1) and (2) and (3), plus some other
    rules about tax-treatment on pre-IPO stock options ... this
    might be paraphrased as: "You are in a maze of twisty
    little rules, all alike." But in general, the rules
    (explicit and implicit) strongly discourage insiders from
    *trading* (mixtures of buying and selling) their own stock
    very often; since insiders usually *have* stock options,
    that means they mostly sell.

   (5) Finally, some executive employment contracts have some
    really complicated agreements, often involving loans made
    the company to the executive to buy stock (so they can buy
    it when they aren't allowed to sell any to get the money to
    buy it with), but also saying placing restrictions on
    buying/selling stock.

(6) Financial advisors tell people that, no matter how well they think
    the stock will do over the long run, they should sell some % of
    what they have left every year, for diversification, so they have
    the cash available, and to spread it out to lessen the effects of
    the alternative minimum tax.  We once had a "class" in this, and
    the recommended percentage was 10%, but that was years ago, and
    was not a hard rule, just a general idea.

    Remember: unlike "regular" people, if an insider needs some money
    quickly, they *cannot* call their broker and sell some of their
    company's stock on the spur of the moment, and in fact, they cannot
    even be guaranteed that a window of opportunity to do so will
    necessarily be predictable.  It may be that with the changes to
    stockholder lawsuit rules, this will get a little more rational; as
    it has been, lawyers have recommended extreme paranoia regarding
    lawsuits, for good reason.  (So, what insiders do is use existing
    money, or quite often, borrow money with the options as security
    ... which has often caused people trouble later on.)

(7)  When you exercise an option (i.e., purchase the stock), you can:

   (a) Do a same-day exercise, that is, purchase the stock and
       immediately sell it, keeping the difference, and of course,
       incurring a normal tax liability on the difference between
       option price and exercise price, and non-qualified option
       treatment forces this. 

   (b) Purchase the stock and keep it for a year, then sell it,
       thus getting capital-gains treatment (at least sometimes)
       on any gain.  Of course, in doing so, are subject to later
       price fluctuations.  If you are an insider, note that you
       may not be allowed to sell when you'd like to, as described
       above.

    Needless to say, if the current stock price is $20, and you have
    10,000 options:

	(a) And your option price is $.10, you might do (b), i.e.,
	    spend $1000.

	(b) But if your option price is $10, you need to come up with
	    $100,000; the only way to get that might be to sell some
	    shares you already own.  If what you have is vested
	    options, then you might exercise some, and sell less, thus
	    keeping some shares.  This gets tricky, as you have to sell
	    enough to:

            (1) Cover the purchase.
            (2) Cover the tax liabilities.
            (3) Get some actual cash out.

        So, in the example above:

           You get $200K (sell 10,000 shares @ $20), pay $100K
           (exercise the options @ $10), leaving $100K.
	   Probably ~40% goes to IRS & (here) California, leaving
           $60K in cash to actually do something with.

Bottom line: founders often actually own lots of stock, sometimes so do
early employees. But, for many insiders (and in fact, not just legal
insiders, but other officers and actually, *any* employees who have
significant stock positions and/or legal advice that restricts the
timing of sales), the natural state of affairs gets to be (as the
absolute cost of options goes up)

        (a) Have a bunch of vested options that account for a big chunk of
            one's net worth.

        (b) Do same-day exercise once or twice a year.

        (c) Actually *own* zero shares.

And these are basically driven by SEC rules, legal advice, and tax
laws, not by short-term price fluctuations.  [Note: anyone in high-tech
investing who doesn't expect short-term stock price fluctuations ... is
crazy :-)].

Thus, moderate sales by insiders ... simply don't mean much.   It takes
work to know whether or not a sale is substantial - for instance, an
executive may have an employment contract that includes an $X loan
(where I've heard of $X in the millions), where they moved to the area,
wanted to buy a nice house, and the deal is that within N months of
being allowed to exercise options, they are required (or encouraged by
interest on the loan) to do so ...  meaning they'd better sell off
enough stock to cover the loan, and the taxes incurred from selling the
stock.  The only way to figure this stuff out is to backtrack through
the annual reports and read the fine print.

OF COURSE, there have been cases where some insider sold a ton of stock
and should have known better...  but by-and-large, the pattern in young
high-tech companies is that insiders gradually sell over time to move
more of their net worth into more diversified holdings and be able to
enjoy it :-)

A slightly different pattern shows up in more-established companies
where stock options are not as widespread, insiders were not founders
or early employees. Here, there are often key executives who do *not*
have large stock positions (either owned or vested options) may decide
their stock is undervalued and buy a bunch on the open market.


-----------------------------------------------------------------------------

Compilation Copyright (c) 1996 by Christopher Lott, cml@cs.umd.edu
-- 
Christopher Lott	Compiler of the FAQ for misc.invest, misc.invest.stocks
cml@cs.umd.edu		http://www.cs.umd.edu/users/cml/
