FYI: The good news is that Americans are living longer and spending more years in retirement than ever before. However, funding retirement is a fast approaching crisis. On this week’s WEALTHTRACK we have an exclusive interview with Financial Thought Leader and legendary investment consultant, Charles Ellis, who tackles America’s greatest domestic financial challenge in a new book, Falling Short: The Coming Retirement Crisis and What To Do About It.
Regards,
Ted
http://wealthtrack.com/recent-programs/ellis-fixing-the-retirement-crisis/
M*: 2015 Fee Study: Investors Are Driving Expense Ratios Down: (This is a relink in case you missed it the first time.)
http://wealthtrack.com/wp-content/uploads/2015/06/2015_fee_study.pdf

"Baird Advisors, the institutional fixed income investment management division of Baird, announced that it has hired a nationally-recognized municipal investment team from BMO Global Asset Management. Municipal bond portfolio managers Duane McAllister, CFA, and Erik Schleicher and analyst Joseph Czechowicz will join Baird."
"Baird expects to expand its municipal product offerings with additional municipal strategies. Said [Managing Director and Chief Investment Officer] Stanek, "While this is an opportunity to add to our municipal offering, we do not intend to change our existing strategies and funds." "
These guys are pretty fine. Since Baird has an Investor share class for quite a few funds, not a stretch to expect to gain some access to their talents , if you're into their thing. Perhaps they'll create and take charge of something new.
Probably most notable work at BMO: Intermediate Tax-Free (Y shares)
Lipper IT Muni Debt Category (as of 3/31/15)
1 yr 28 out of 219
3 yr 19 out of 184
5 yr 22 out of 158
10 yr 2 out of 103
http://bairdfunds.com/news/baird-advisors-adds-municipal-bond-team

I can't find a scorecard that will give me just a week's worth. One month results:
PRSNX -0.8%
DLFNX -0.81%
PREMX -1.95%
.......Can't say I'm terribly surprised. They keep doing what they're supposed to do for me. The share price has been sinking. But I'm not selling. All divs. reinvested. Both equities and bonds are currently in a funk. The Markets always overreact, both to the upside and downside. Rates? The inevitable will happen, Yellen style, and the Markets will go into a tizzy.

Gundlach was predicting that in 2015 the 10 year could potentially take out its modern day era low of 1.38%. It got down to around 1.64% and then the big bad bear began as we are now at 2.40%. This week was the largest weekly rise in yields since June 2013. One floating rate fund was up this week but it's not available in all states. It kills me to not be able to buy it. In deference to a poster here who's playing it shall remain unnamed.

FWIW, I own GIFAX (load waived) and it was even or slightly up over the past week. I know it's up overall during the past month.

Gundlach was predicting that in 2015 the 10 year could potentially take out its modern day era low of 1.38%. It got down to around 1.64% and then the big bad bear began as we are now at 2.40%. This week was the largest weekly rise in yields since June 2013. One floating rate fund was up this week but it's not available in all states. It kills me to not be able to buy it. In deference to a poster here who's playing it shall remain unnamed.

No, sir. Geist and Ende were the outliers at FPA for years. While the rest of FPA were hard-core absolute value guys, G&E ran splendid small to mid cap growth funds, fully invested in very high-quality companies, negligible turnover, drifted between small and mid, growth and blend. Returns were consistent and solid.
The funds were F P A Paramount (FPRAX), F P A Perennial (FPPFX) and the closed-end Source Capital (SOR), and they were pretty much clones. F P A decided, about a year ago, for whatever reason, to take FPRAX from the guys and convert it to a global all-cap absolute value fund. Now FPPFX is becoming the U S version of Paramount, it seems.
But ... Geist did retire in 2014 and Ende, at age 70, is moving toward the door. Greg Herr, more of a Romick-type guy, was added to the team several years ago, presumably in anticipation of the transition.
Two reasons to sell:
1. the new fund will likely have nothing in common with the old. If you had a reason for buying Perennial before, it's gone now.
2. the tax hit will be substantial. Morningstar calculates your potential capital gains exposure at 63%, that is, 63% of the fund's NAV is a result of so far untaxed capital gains. If the portfolio is liquidated, you could see up to $36/share in taxable distributions. During the Paramount transition, the fund paid out about 40% of its NAV in taxable gains including two large distributions in two weeks.
Certainly the tax hit will vary based on your cost basis, but my as-yet uninformed guess is that if your cost basis is high - $35/share or more - you might be better getting out before the big tax hit comes.
But, really, I'm not a tax guy. That's just a superficial take on it.
David

FYI: Talk to any money-management executive for more than two minutes and you will get an earful about how impatient investors are. And it is true: Individuals and institutions alike chase performance in good times and bail out in bad times.
Regards,
Ted
http://blogs.wsj.com/moneybeat/2015/06/05/why-mutual-funds-should-pay-investors-for-loyalty/tab/print/

Hi Bee,
Thanks for the reference to Dr. Craig Israelsen’s paper on the performance of portfolio asset mix options.
Based on precisely past performance data, he made a case for his equally divided 7 category portfolio.
Since I used the word “precisely”, and from my earlier submittals, you can easily guess where I’m headed with this post.
Israelsen’s work has a major shortcoming when using it for planning purposes. The results are perfectly tied to the exact schedule of returns recorded by past markets. They allow for no wiggle room. To expect identical results in the future requires that the order of returns must be precisely replicated. The chances of that happening are virtually zero.
The sequence of returns in any investment is significant to end wealth and portfolio survival. I’m sorry but once again, this uncertainty of the sequencing of future returns points to the use of Monte Carlo simulations to examine various portfolio options.
Although I favor the Flexible Retirement Planner for many Monte Carlo investment issues, I used the Portfolio Visualizer (PV) code to run a few sample cases because of convenience. I can run the PV version on my I-pad.
I examined 3 portfolios assuming a 1M dollar initial value with a 5.5% annual drawdown that was adjusted for inflation. To replicate Israelsen’s work as closely as possible, I assumed a 25-year retirement period. My analyses used the historical category returns formatted in a manner for random selections.
As a baseline, I inputted a simple 4 category portfolio with the standard 50/10/30/10 mix of US Equities, Foreign Equities, US Bond, and Money Market holdings. As a second portfolio, I duplicated the Israelsen 7 category portfolio that is equally divided. As a third case, I invented an 8 category portfolio which was more heavily weighted to US equities including Small Cap Value, TIPS, and a replacement of the money market holding with a Short Term Corporate Bond position. All three portfolios were basically a 60/40 split between equities and fixed income products.
I let the Portfolio Visualizer loose on all three portfolios.
The baseline portfolio had a median end wealth of 2.66M dollars with a survival probability of 83%. I’m not a happy warrior at that survival probability.
The Israelsen portfolio had a median end wealth of 3.73M dollars with an improve survival rate of 90%. So far, Israelsen wins.
But that winning record didn’t last beyond a single alternative option. The portfolio that I assembled had a median end wealth of 4.45M dollars with a much more attractive likelihood of survival at the 96% level. Note that I make no claims that my portfolio is optimum, but it is an improvement over the Israelsen construction.
This is yet another illustration of the powerful impact that Monte Carlo calculations can make when stress testing a portfolio designed for a long-term retirement period. The inputs are completed in minutes, the results are displayed in seconds, and a limitless set of what-if scenarios can be explored in a half-hour.
I urge all MFOers to become familiar with Monte Carlo tools. Your own analyses are superior to those reported by many financial advisors.
Best Wishes.

Sorry to hear about Mr. Keeley's passing. I believe he was 75. Just another reminder to enjoy life to its fullest in our retirement.

My condolences to his family and friends.
http://www.sec.gov/Archives/edgar/data/1324203/000119312515214195/d938418d497.htm
497 1 d938418d497.htm 497
KEELEY FUNDS, INC.
Supplement dated June 5, 2015
to the Prospectus dated January 31, 2015, as supplemented May 22, 2015
This supplement provides new and additional information for, or otherwise supplements, the Prospectus (as previously supplemented) for the Keeley Funds, Inc. (the “Corporation,” with each of its series being a “Fund” and collectively, the “Funds”) and should be read in conjunction with that document.
On June 4, 2015, Mr. John L. Keeley, Jr., the president and a director of the Corporation and a portfolio manager of certain of its Funds, passed away. As a result, all references to Mr. Keeley hereby are deleted from the prospectus.
Mr. Keeley founded Keeley Asset Management Corp. (“KAMCO”), the investment adviser to the Corporation. He also owned a controlling interest in Joley Corp., the parent company of KAMCO, and therefore was deemed to “control” KAMCO. Because of Mr. Keeley’s death, there was a change in control of KAMCO. Under the terms of the Investment Company Act of 1940, as amended, such a change in control results in an assignment and the automatic termination of a fund’s investment advisory agreement.
Therefore, each Fund’s investment advisory agreement with KAMCO (collectively, the “Advisory Agreements”) automatically terminated. For KAMCO to continue to provide services to the Funds, it is anticipated that shareholders of each Fund will be asked to approve a new investment advisory agreement with KAMCO on behalf of the Fund (collectively, the “New Advisory Agreements”). Except for the effective and termination dates, the terms of the New Advisory Agreements will be identical to the terms of the terminated Advisory Agreements.
To ensure the Funds receive continuity of investment advisory services until their shareholders have the opportunity to vote on whether to approve the New Advisory Agreements, the Board of Directors of the Corporation has approved interim advisory agreements between each Fund and KAMCO (the “Interim Advisory Agreements”), pursuant to which KAMCO will continue to provide investment management services to the Funds under the same terms as it did under the terminated Advisory Agreements. The Interim Advisory Agreements went into effect on June 4, 2015 and each will terminate upon the earlier of (i) November 1, 2015 (a period of 150 days), or (ii) the effective date of New Advisory Agreements approved by the Funds’ shareholders.
Please Retain This Supplement For Future Reference
--------------------------------------------------------------------------------
KEELEY FUNDS, INC.
Supplement dated June 5, 2015
to the Statement of Additional Information dated January 31, 2015, as supplemented May 22, 2015
This supplement provides new and additional information for, or otherwise supplements, the Statement of Additional Information (as previously supplemented) for the Keeley Funds, Inc. (the “Corporation”) and should be read in conjunction with that document.
On June 4, 2015, Mr. John L. Keeley, Jr., the president of the Corporation, passed away. As a result, all references to Mr. Keeley hereby are deleted from the Statement of Additional Information. On that same date, Mr. Kevin M. Keeley, previously a vice president of the Corporation, was appointed as president of the Corporation.
Please Retain This Supplement For Future Reference

"The challenge of asset allocation now is no longer having too few ingredients to consider but rather selecting among an ever increasing array of sector-specific mutual funds and exotic ETFs"
A Seven Asset Portfolio out performed all other asset allocations, both prior to and during retirement.
This would consist of:
-large-cap U.S. stock
-small-cap U.S. stock
-non-U.S. developed-market stock
-real estate
-commodities
-U.S. bonds
-cash
-in equal proportions, rebalanced annually.

and,
"The second part of this analysis compares three allocation models when used in a retirement portfolio — which is very sensitive to timing of returns, particularly large losses. This analysis assumed an initial nest egg balance of $250,000 — quite comfortable back in 1970, although fairly modest now — with an initial withdrawal rate of 5% (or $12,500 in year one) and an annual cost of living adjustment of 3%. Thus, the second-year withdrawal was 3% larger (or $12,875), and so on each year. The superior approach, however — with a median ending balance of over $2.1 million — is the model using seven different asset classes."


For retirees facing the future headwinds of rising rates this study found that:
-during the inflationary periods of the 1970s, the seven-asset model had considerably better performance as a retirement portfolio — finishing with a balance of $2,086,863 for the 1970 to 1994 period, while the 60/40 model ended up at $1,090,081. The pattern recurs in the first four 25-year periods.
-an asset allocation model that has a large commitment to U.S. bonds (such as the classic 60/40 portfolio) may be at risk because if interest rates rise, bond returns will likely be far lower than over the past three decades.
-that a more broadly diversified portfolio is prudent — both in the accumulation years and in the retirement years.
Source:
which-asset-allocation-mix-outperforms?

FYI: Every year, we are reminded to rebalance our stock portfolios. This year, maybe we shouldn’t.
Regards,
Ted
http://blogs.wsj.com/totalreturn/2015/06/04/portfolio-rebalancing-may-not-pay-off-this-year/tab/print/?mg=blogs-wsj&url=http%3A%2F%2Fblogs.wsj.com%2Ftotalreturn%2F2015%2F06%2F04%2Fportfolio-rebalancing-may-not-pay-off-this-year%2Ftab%2Fprint

FYI: Ron Surz uses a thought experiment to clarify sequence of returns risk and its perilous implications for target-date investors.
Regards,
Ted
http://www.thinkadvisor.com/2015/06/04/what-makes-sequence-of-returns-risk-so-dangerous?t=mutual-funds&page_all=1

This is not a trivial change, but it appears (to me) to be a pretty fundamental re-do:
http://www.fpafunds.com/docs/fund-announcements/2015-06-04-perennial-press-release-final.pdf?sfvrsn=2lease-final.pdf?sfvrsn=2
1. New manager change, plus an alteration from 2 managers to one manager. Eric Ende, as he transitions toward retirement, will move entirely away from this fund and yet remain with Source Capital for awhile, the CEF-equivalent of Perennial which presumably will retain its SC/MC quality mandate. Gregory Herr will pass the baton to Mr. Nathan and focus exclusively on his Paramount charge, which he currently co-manages.
2. Perennial will become US Value and morph, after temporary closure, to an all-cap posture. That this new mandate will result in significant portfolio change is apparent from their press release:
"FPA Perennial Fund will close to new investors on June 15, 2015, as the portfolio manager change will result in significant long-term capital gains. FPA expects to reopen the Fund to new investors in October, following the portfolio transition."
So, congratulations, Perennial holders, the role this MF plays in your portfolio has just been changed for you.

http://www.sec.gov/Archives/edgar/data/732041/000110465915043479/a15-13532_1497.htm
497 1 a15-13532_1497.htm 497
FPA Perennial Fund, Inc. (FPPFX)
Supplement dated June 4, 2015 to the
Prospectus dated April 30, 2015
This Supplement updates certain information contained in the Prospectus for FPA Perennial Fund, Inc. (the “Fund”) dated April 30, 2015. You should retain this Supplement and the Prospectus for future reference. Additional copies of the Prospectus may be obtained free of charge by visiting our web site at www.fpafunds.com or calling us at (800) 638-3060.
CHANGE IN NAME
Effective September 1, 2015, the Fund’s name will be changed to “FPA U.S. Value Fund, Inc.”.
CHANGE IN PORTFOLIO MANAGERS
Effective September 1, 2015, the paragraphs under the heading “Summary Section — Portfolio Managers” on page 7 of the Prospectus are deleted and replaced in their entirety with the following:
“Portfolio Manager. Gregory Nathan, Managing Director of the Adviser, has served as a portfolio manager since September 1, 2015.”
Effective September 1, 2015, the paragraphs under the heading “Management and Organization — Portfolio Managers” on page 13 of the Prospectus are deleted and replaced in their entirety with the following:
“Portfolio Manager
Gregory Nathan is primarily responsible for the day-to-day management of the Fund’s portfolio.
Mr. Gregory Nathan has been an analyst for FPA’s Contrarian Value strategy, including FPA Crescent Fund, since January 2007. Prior to joining FPA in 2007, Mr. Nathan was a managing member of Coldwater Asset Management LLC.
The SAI provides additional information about the Portfolio Manager’s compensation, other accounts managed by the Portfolio Manager and the Portfolio Manager’s ownership of shares of the Fund.”
Effective September 1, 2015, Eric Ende and Gregory Herr will no longer be Portfolio Managers of the Fund.
DISCONTINUANCE OF SALES TO NEW INVESTORS
Effective on or about June 15, 2015, the Fund has discontinued indefinitely the sale of its shares to new investors, except existing shareholders, directors, officers and employees of the Fund, the Adviser and affiliated companies, and their immediate relatives.
In addition, the Fund will allow new investors to purchase shares if they fall into one of the following categories:
1. Clients of an institutional consultant, a financial advisor, a financial planner, or an affiliate of a financial advisor or financial planner, who has client assets invested with the Fund at the time of your application;
2. Investors purchasing Fund shares through a sponsored fee-based program and shares of the Fund are made available to that program pursuant to an agreement with FPA Funds or UMB Distribution Services, LLC, and FPA Funds or UMB Distribution Services, LLC has notified the sponsor of that program, in writing, that shares may be offered through such program and has not withdrawn that notification;
3. Investors transferring or “rolling over” into a Fund IRA account from an employee benefit plan through which you held shares of the Fund (if your plan doesn’t qualify for rollovers you may still open a new account with all or part of the proceeds of a distribution from the plan);
4. You are an employee benefit plan or other type of corporate or charitable account sponsored by or affiliated with an organization that also sponsors or is affiliated with (or is related to an organization that sponsors or is affiliated with) another employee benefit plan or corporate or charitable account that is a shareholder of the Fund, and;
5. You are a participant of an employee benefit plan that is already a Fund shareholder.
The Fund may ask you to verify that you meet one of the categories above prior to permitting you to open a new account in the Fund. The Fund may permit you to open a new account if the Fund reasonably believes that you are eligible. The Fund also may decline to permit you to open a new account if the Fund believes that doing so would be in the best interests of the Fund and its shareholders, even if you would be eligible to open a new account under these guidelines.
The Fund’s ability to impose the guidelines above with respect to accounts held by financial intermediaries may vary depending on the systems capabilities of those intermediaries, applicable contractual and legal restrictions and cooperation of those intermediaries.
The Fund continues to reinvest dividends and capital gain distributions with respect to the accounts of existing shareholders who elect such options.
FPA Perennial Fund, Inc. (as of September 1, 2015, FPA U.S. Value Fund, Inc.) expects to re-open to new investors during October 2015.

http://www.sec.gov/Archives/edgar/data/313212/000031321215000150/485a.htm
Launches at the end of August. The manager hasn't really run a fund before, but has been managing some sort of TRP portfolio for the past five years.
Not a terribly informative prospectus, though perhaps an interesting idea. There are four or five open-end funds that bear the "emerging market value" label, mostly so-so or weaker. Andrew Foster made the interesting argument a while ago that value investing mostly didn't work in the emerging markets because there was, in a world of interlocking directorships and chaebols, such a limited prospect for value ever to be unlocked. Andrew suspected that the EM were maturing enough that corporations might feel more inclined to be responsive to shareholders, which might usher in an era of successful EM value investing.
For what interest that holds,
David

To read GMO's 1Q 2015 Letter, which contains Ben Inker's "Breaking Out of Bondage," and Jeremy Grantham's "Are We the Stranded Asset?
A brief update on the U.S. market: still not bubbling yet, but I think it will
■
The key point here is that in our strange, manipulated world, as long as the Fed is on
the side of a strong market there is considerable hope for the bulls. In the Greenspan/
Bernanke/Yellen Era, the Fed historically did not stop its asset price pushing until fully-
fledged bubbles had occurred, as they did in U.S. growth stocks in 2000 and in U.S. housing
in 2006. Both of these were in fact stunning three-sigma events, by far the biggest equity
bubble and housing bubble in U.S. history. Yellen, like both of her predecessors, has
bragged about the Fed’s role in pushing up asset prices in order to get a wealth effect.
Thus far, she seems to also share their view on feeling no responsibility to interfere with
any asset bubble that may form. For me, recognizing the power of the Fed to move assets
(although desperately limited power to boost the economy), it seems logical to assume that
absent a major international economic accident, the current Fed is bound and determined
to continue stimulating asset prices until we once again have a fully-fledged bubble. And
we are not there yet.
■
To remind you, we at GMO still believe that bubble territory for the S&P 500 is about 2250
on our traditional assumption that a two-sigma event,
based on historical price data only
We could easily, of course, have a normal, modest bear market, down 10-20%, given all of
the global troubles we have. If we do, then the odds of this super-cycle bull market lasting
until the election would go from pretty good to even better. So, “2250, here we come” is
still my view of the most likely track, but foreign markets are of course to be preferred if
you believe our numbers. Stay tuned.
https://www.gmo.com/docs/default-source/public-commentary/gmo-quarterly-letter.pdf?sfvrsn=8

FYI: It's Shiller vs. Siegel in the battle over equity market valuations.
Regards,
Ted
http://www.bloomberg.com/news/articles/2015-06-01/goldman-sachs-asked-two-of-the-world-s-best-known-economists-if-u-s-stocks-are-in-a-bubble

@MJG,
Is the 3-5 year cash on hand related to the average Max DD of funds? This would be my guess.

Hi BobC,
Thank you so much for responding to MFOer Davidrmoran’s questions with regard to the whys of your near-term cash portfolio asset allocation policy. Your explanations are clearly and understandably presented.
But you did not address the question of why you decided that a 3 to 5-year war-kiddy reserve is the favored approach for most of your customers. How was that reserve time-span determined?
Is it close to the historical average time length of a Bear market? Is it tied to the psychological behavior or biases of your clientele? I appreciate that it is a conservative approach that over the stated 30-year period of your business has been attractive to your customers. Congratulations on preserving their loyalty. It demonstrates that you are doing something right for them.
But that conservative approach is leaving much end wealth on the table. How happy would your clients be if they recognized that their end wealth could have been substantially higher without compromising their portfolio survival odds?
Let’s do a simple illustration over the lifetime of your advisory organization. I’ll use the Portfolio Vizualizer website option titled “Backtest Portfolio”. Since your firm has counseled investors for 30 years, I’ll imagine two starting portfolios in 1984 with one thousand dollars each and not touched through 2014. Portfolio Visualizer will effortlessly calculate the end wealth of each portfolio.
Like in the earlier Monte Carlo simulations, let’s assume a 40/10/30/20 mix of US Equities, International Equities, Bonds, and Cash, respectively as a baseline. That could be representative of a portfolio that your clients might find acceptable based on a 4-year cash reserve recommendation from you.
By way of comparison, let’s switch some of that cash into a Bond holding to reflect a 2-year reserve allocation. In that instance, the mix is 40/10/40/10. Both portfolios are a 50/50 equity/fixed income asset allocation.
What is the end value after 30 years of these two portfolio options?
The end value for the 4-year protective cash option is $12,793. The end value for the 2-year protective cash option is $14,120. That’s for every one thousand dollars invested in 1984. That’s roughly a 14 percent penalty.
The 2-year reserve cash portfolio does marginally increase portfolio volatility from 9.51% to 9.68%. However, during that period, the Worst year was a negative 17.39% and it was registered by the 4-year cash reserve portfolio. Go figure!
That’s a lot of money that you are asking your clients to sacrifice for “perceived” safety. I say “perceived” because the Monte Carlo analyses hint that the 4-year reserves portfolio is slightly more likely for bankruptcy. From an end wealth perspective, the 4-year option is an opportunity cost.
I like Short Term Corporate Bonds as a near-term alternative to cash. Using those to substitute for the 10% cash case generates an end wealth of $15,016 for every one thousands dollars invested in 1984. It does introduce a little more risk.
Let’s test the results for timeframes shorter than 30 years. The number magnitudes and percentages change, but the relative rankings of the three options examined do not change if the investment period is shortened to the recent 20 years nor for the current 10 year period. The 4-year reserve cash option comes at an opportunity cost.
There is a reduced end wealth price to be paid for keeping excess reserves in cash. That’s one reason why active mutual funds maintain a low cash allocation unless some downturn is projected.
I’m sure you access a back-testing tool similar to the one I used at Portfolio Visualizer. I’m equally sure that you generate these type of tradeoff studies for your customers to allow them to make an allocation decision. One size does not fit all clients well, especially given the many factors that influence a final asset allocation decision.
By the way, it took me ten times the effort to report these results than to actually do the calculations.
Best Wishes.