By Andrew Leckey

Q. Why haven't my shares of Monsanto Co. done better? - P.M., via the Internet
A. The world's biggest maker of seed for corn, soybeans, cotton, fruits, vegetables and other crops is a fierce competitor battling strong rivals such as DuPont.
       It faces issues besides weather and commodity prices.
       The Justice Department is investigating whether Monsanto violated antitrust rules in trying to expand its dominance of the market for genetically engineered crops. Competitors contend it uses licensing agreements to squeeze competitors and control smaller seed companies. The company denies it.
       There is the question of public perception of genetic food, since a negative image in the eyes of consumers can discourage farmers from planting. In addition, regulation of the agricultural industry is on the rise, which increases the possibility of future legal actions against various seed producers.
       Yet the company boasts powerful research and development, as well as excellent production and distribution facilities.
       Shares of Monsanto (MON) are up 20 percent this year following a 36 percent decline last year. The company has a healthy balance sheet and plenty of cash.
       It is opening its first research center in China, with the goal of boosting ties with Chinese research institutions in plant biotechnology and genomics. It has also received import approval for its high-yield soybean seeds with weed control in China.
       It plans to launch its new all-in-one corn protection system in 2010, with rapid adoption likely to boost market share in the corn business.
       Analyst consensus recommendation on Monsanto stock is between "buy" and "hold," according to Thomson Reuters, consisting of three "strong buys," four "buys" and eight "holds."
       The fourth-quarter loss widened to $233 in the fourth quarter on lower revenue, compared to a loss of $172 million a year earlier. There was a drop in sales of its Roundup herbicide, which is facing considerable generic competition, and it also divested its sunflower operation.
       It posted a $114 million charge in the quarter for its restructuring plan that started last summer with a target of 900 job cuts. That target has since been increased to 1,800 jobs. However, CEO Hugh Grant said it is still on target to meet its 2007 goal of doubling that year's profits by the year 2012.
       Earnings are expected to decrease 25 percent in its fiscal year ending in August 2010 and rise 33 percent the following fiscal year. The projected five-year annualized return is 14 percent compared to 9 percent for the agricultural chemicals industry.

Q. When is it likely I will see some significant improvement in my KB Home shares? - P.L., via the Internet
A. The nation's fifth-largest homebuilder as ranked by 2008 closings has seen its losses decline but remains cautious about the near-term future due to economic uncertainty.
       Lower-cost, smaller homes that better fit family budgets and reduce utility costs are its strategy to rekindle homebuyer interest.
       Its "Open Series" models trim space by combining living and dining areas into "great rooms" and eliminating hallways. CEO Jeffrey Mezger said this addresses the problem that consumers "could no longer afford the homes builders were building."
       His firm builds single-family homes in 29 markets, with its most significant domestic operations in California, Arizona, Florida, Texas and Nevada.
       Shares of KB Home (KBH) are up 4 percent this year following declines of 33 percent last year and 56 percent in 2007. Its fiscal-third-quarter loss of $66 million was an improvement over a $144.7 million loss a year earlier, and its financial position remains strong.
       Homebuilder stocks have fluctuated on a variety of factors this year, ranging from periods of improved sales to negative reports from the government and from industry analysts. This uncertainty is expected to continue well into 2010.
       One positive is the government extension of the $8,000 tax credit for first-time homebuyers to April 30, 2010. It also allows people who have lived in a home for at least five years to receive $6,500 if they purchase a new home.
       Consensus analyst recommendation on shares of KB Home is "hold," according to Thomson Reuters, consisting of one "strong buy," four "buys," 11 "holds" and one "underperform."
       The Securities and Exchange Commission is investigating KB Home for possible accounting and disclosure violations. The firm says it does not believe liabilities or costs from the problem will have a material effect on its financial position or operations. A year ago, KB Home's former CEO, Bruce Karatz, paid more than $7 million to settle SEC charges of backdating stock options. He resigned his position with the company.
       Cause for keeping the faith: In October, newly hired Chief Financial Officer Raymond Silcock bought more than 30,000 KB Home shares, more than doubling his direct stake in the firm.
       Earnings are expected to increase 84 percent in the fiscal year ending in November 2010, compared with a 28 percent rise for the residential construction industry. The forecast of a five-year annualized return of 11 percent compares to an expected 10 percent rise industry-wide.

Q. What's the outlook for the Bruce Fund? - P.F., via the Internet
A. It has amassed a great track record by investing in anything it feels like, whether zero coupon bonds or large-cap stocks.
       That flexibility raises the question, however, of how to gauge its outlook when you don't really know what its portfolio will contain. It makes the strengths and drawbacks great big unknowns.
       The $204 million Bruce Fund (BRUFX) is up 37 percent over the past 12 months to rank in the top 12 percent of moderate allocation funds. Its three-year annualized decline of 3 percent places it in the lowest one-third of its peers.
       "With a typical fund you know where the investments are going to be focused, whereas this one at various times has been focused on micro caps, large caps, small caps, fixed income and so on," said Jonathan Rahbar, analyst with Morningstar Inc. in Chicago. "It's a fund with demonstrated investing prowess that investors can use in portfolios, but limit the amount of assets dedicated to it because of its approach."
       Robert Bruce, who has managed the fund since its 1983 inception, and his son Jeffrey are in charge. Each has more than $1 million of his personal money invested in it, a good sign that they have the interests of shareholders in mind. While returns have often been amazing, its aggressiveness can mean some wild rides of volatility.
       "The Bruce Fund is one for the long run and has a very low turnover approach," explained Rahbar. "It generally has less than 50 holdings of stocks and bonds, so there is the possibility of some of its bets going sour and the fund enduring some big losses."
       Thirty-seven percent of the Bruce Fund is in stocks, 30 percent in bonds and the rest in cash or other investments. Health care and consumer goods each represent about one-fourth of the stock portfolio. Its top portfolio holdings include U.S. Treasurys, America Service Group, American Italian Pasta Co. Airboss of America and Kinross Gold.
       This "no-load" (no sales charge) fund requires a $1,000 minimum initial investment and has an annual expense ratio of 0.93 percent.

Q. Can I depend on Artisan Opportunistic Value Fund to continue to rise? - B.R., via the Internet
A. While this relatively small fund has little more than three years under its belt, its managers have been successful value fund managers a long time.
       They made a misstep into financial stocks early in 2007 but have since righted their course. They have sought out companies with consistent revenues yet whose stocks hadn't been keeping up with their peers, among them Nestle and Lockheed Martin.
       The $181 million Artisan Opportunistic Value Fund (ARTLX) is up 53 percent over the past 12 months to rank in the top 5 percent of large value funds. Its three-year annualized decline of 5 percent places it in the upper one-fifth of its peers.
       "I recommend this fund because, although these managers haven't invested much specifically in large-cap stocks before, they have tremendous expertise and we like their approach," said Greg Carlson, analyst with Morningstar inc. in Chicago. "It is a concentrated fund, which makes it a little more volatile than the typical large value fund, but it can play a significant role in an individual's portfolio."
       George Sertl, Scott Satterwhite and James Kieffer run this fund, as well as Artisan Mid Cap Value, Artisan Small Cap Value and related separate accounts. All have significant prior experience. They enjoy a lot of wiggle room, with the ability to invest in virtually any company with a market cap greater than $1.5 billion.
       They prefer financially healthy companies with competitive advantage and don't like to pay too much. They can invest as much as one-fourth of the assets abroad. The fund typically has 30 to 40 stock names and keeps its holdings a long time.
       Financial services represent about one-fifth of the fund's portfolio, with other significant concentrations in consumer services, health care and industrial materials. Top holdings were recently Lockheed Martin, Hewlett-Packard, Berkshire Hathaway, Microsoft, Accenture, Wal-Mart Stores, Ingram Micro, Pfizer, Nabors Industries and Kroger Co.
       This "no-load" (no sales charge) fund requires a $1,000 minimum investment and has an annual expense ratio of 1.23 percent.

Q. My mutual fund charges something called a 12b-1 fee. What is that? - L.J., via the Internet
A. It is the annual marketing or distribution fee on a mutual fund, named for the Securities and Exchange Commission rule authorizing it.
       The 12b-1 fee, generally between 0.25 and 1 percent of assets annually, can include items such as advertising, printing and sales literature. To most investors, it's just another fee to annoy, especially when fund companies toss commissions to salespersons into it under marketing.
       "The original thinking behind the fee was that it would increase attempts to increase assets of a fund (through more marketing) and thereby enjoy economies of scale leading to lower costs overall," explained Mark Salzinger, publisher and editor of The No-Load Fund Investor, Brentwood, Tenn. "But there's no evidence it has resulted in lower costs."
       The amount of the 12b-1, which can be as high as 75 basis points for commissions and 25 basis points for service fees, is taken from a fund's returns. Some funds charge 12b1 fees and some do not, depending on whether their boards authorize them. Most "no-load" (no sales charge) funds do not.
       As an operational expense, the 12b-1 is included in a fund's expense ratio.

Q. I am unhappy that a stock I own cut its dividend. Why does this really happen? - A.G., via the Internet
A. Companies cut dividends to preserve capital.
       After all, a dividend of $1 a share on a million shares is a million dollars coming out of the corporate coffers. Even if a company has enough cash on hand to pay its debt, it might not be able to cover its dividend.
       Dividends are typically cut in difficult economic times - which, unfortunately, is when investors desire them the most.
       The surprise over the past year and a half has been the number of dividend-steady companies making cuts, such as General Electric Co., Dow Chemical Co. and Pfizer Inc. Some other cash-strapped companies, especially financial firms, have suspended their dividends.
       "What companies are doing is no different from what individuals are doing - trying to stop the money outflow by cutting back on spending," said Paul Nolte, managing director with Dearborn Partners in Chicago. "There are dividend cuts every week, including some high-profile ones, though the companies could always increase their dividends again - which we've seen in some cases."
       A sign of the times: Wall Street is much less inclined to punish the stock of firms that cut or suspend dividends these days.
       Editor's Note: Andrew Leckey's column, "Successful Investing," appears regularly in The Bull & Bear Financial Report - both in print and online.