<THE RULE MAKER PORTFOLIO>

A Company Becomes Foolish on the Fool's Day

By Phil Weiss

TOWACO, NJ (April 1, 1999) -- My April Fool's Day this year is especially Foolish. The story begins at the end of this past year when I changed employers. During the interview process, I asked about the contribution rules related to my new employer's 401(k) plan, but I didn't delve into the specific details of the plan. As a result, one of the first things I did after starting work there was to ask for more information about the investment options in the plan. Like any good Fool, I wanted to do some research on these options before just plunking my money into any old mutual fund.

During this process, my focus was on the funds' historical returns and annual expenses. Such expenses are the primary reason for the substandard performance that plagues the vast majority of actively managed funds. Since a 401(k) provides for tax deferred earnings, I was not as concerned as I might otherwise have been about the turnover of stocks held by the funds.

I was really disappointed in how little information my company made available to help answer my questions. I found that only one of the funds is available to the general public -- the rest are managed exclusively for my company. This meant that I had to call each fund manager to get the performance-related data that I needed. The results were disappointing to say the least. However, I will admit that I had fun (in a Foolish sort of way) listening to the fund managers try and explain away the underperformance of their funds.

Even worse than the funds' performance history was the fact that an index fund was not included among the choices. One afternoon, I walked down to our Human Resources Department to find out who was responsible for administering the plan. I was prepared to articulate the S&P 500 index fund's many advantages, such as the broad representation of America's biggest and best companies, extremely low annual turnover of the fund's stocks, and especially the very low annual expenses. As it turned out, the appropriate individuals were unavailable, and I was unable to reach anyone by phone.

My next plan of attack was to send an e-mail message voicing my concerns. Just as I started putting together my e-mail message, I happened to go by the mailbox that I'd been told might contain some additional information. I was pleasantly surprised to learn that my company has decided to add an index fund to the options available under our 401(k) plan. Best of all, the first date that this fund is available happens to be today. So, my company has become Foolish on the most Foolish day of the year. I've already transferred my funds into the index fund.

Does your company have a 401(k) plan that offers an S&P 500 index fund? If not, consider talking to your Human Resources Department about upgrading the investment options. The S&P 500 index has crushed the returns of nearly 90% of all other equity funds over the past decade (according to Lipper Analytical Services). Many fund companies offer S&P 500 index funds, but the Vanguard 500 Index Fund seems to offer the lowest expense ratio -- only 0.18% for 1998.

If your company has a 401(k) or other similar retirement plan, and you don't contribute to it, this is also a great time to start doing so. These plans allow you to invest a portion of your pre-tax income out of each paycheck you receive. Plus, your 401(k) investments grow tax-free until funds are withdrawn. 401(k) plans are one of the best benefits that your company can offer you.

For more on IRAs, don't miss the Fool's new IRA area.

Finally, before you head off to enjoy your weekend, be sure to check out the news on Rule Maker holding Yahoo!'s (Nasdaq: YHOO) purchase of broadcast.com (Nasdaq: BCST), which Louis Corrigan discusses on in today's Fool Plate Special.

That's it for the Fool's Day report, and that's it for me until three weeks from now.

See you on the boards,

Phil Weiss, Fool

04/01/99 Close

Stock  Change    Bid
AXP   +3 1/4   121.00
CHV   -1 15/16 86.81
CSCO  +  3/8   109.94
KO    -  7/16  60.94
GPS   -  1/16  67.25
EK      ---    63.88
XON   -  7/16  70.13
GM    -1 9/16  85.44
INTC  +1 3/4   120.88
MSFT  +3 1/16  92.69
PFE   +  15/16 139.56
SGP   +  1/16  55.31
TROW  -2 13/32 31.97
YHOO  +11 3/8  179.75
                   Day   Month    Year  History
        R-MAKER  +0.73%   0.73%  12.20%  41.97%
        S&P:     +0.57%   0.57%   5.57%  30.62%
        NASDAQ:  +1.28%   1.28%  13.71%  50.85%

Rule Maker Stocks

    Rec'd    #  Security     In At       Now    Change
    2/3/98   48 Microsoft     39.13     92.69   136.84%
    5/1/98   55 Gap Inc.      34.37     67.25    95.67%
   6/23/98   34 Cisco Syst    58.41    109.94    88.22%
    2/3/98   22 Pfizer        82.30    139.56    69.58%
   2/13/98   22 Intel         84.67    120.88    42.75%
   2/17/99   16 Yahoo Inc.   126.31    179.75    42.31%
   5/26/98   18 AmExpress    104.07    121.00    16.27%
   8/21/98   44 Schering-P    47.99     55.31    15.25%
    2/6/98   56 T. Rowe Pr    33.67     31.97    -5.06%
   2/27/98   27 Coca-Cola     69.11     60.94   -11.82%

Foolish Four Stocks

    Rec'd    #  Security     In At     Value    Change
   3/12/98   17 General Mo    72.41     85.44    18.00%
   3/12/98   20 Exxon         64.34     70.13     9.00%
   3/12/98   15 Chevron       83.34     86.81     4.16%
   3/12/98   20 Eastman Ko    63.15     63.88     1.15%

Rule Maker Stocks

    Rec'd    #  Security     In At     Value    Change
    2/3/98   48 Microsoft   1878.45   4449.00  $2570.55
    5/1/98   55 Gap Inc.    1890.33   3698.75  $1808.42
   6/23/98   34 Cisco Syst  1985.95   3737.88  $1751.93
    2/3/98   22 Pfizer      1810.58   3070.38  $1259.80
   2/17/99   16 Yahoo Inc.  2020.95   2876.00   $855.05
   2/13/98   22 Intel       1862.83   2659.25   $796.42
   8/21/98   44 Schering-P   2111.7   2433.75   $322.05
   5/26/98   18 AmExpress   1873.20   2178.00   $304.80
    2/6/98   56 T. Rowe Pr  1885.70   1790.25   -$95.45
   2/27/98   27 Coca-Cola   1865.89   1645.31  -$220.58

Foolish Four Stocks

    Rec'd    #  Security     In At     Value    Change
   3/12/98   17 General Mo  1230.89   1452.44   $221.55
   3/12/98   20 Exxon       1286.70   1402.50   $115.80
   3/12/98   15 Chevron     1250.14   1302.19    $52.05
   3/12/98   20 Eastman Ko  1262.95   1277.50    $14.55

                              CASH    $185.03
                             TOTAL  $34158.22

Note: The Rule Maker Portfolio began with $20,000 on February 2, 1998, and it adds $2,000 in cash (which is soon invested in stocks) every six months.

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