- The Washington Times - Monday, May 22, 2006

QI own shares of Eastman Kodak Co. and am really concerned about the company’s future, which seems uncertain. What’s the prognosis?

A: The future of this 125-year-old photographic brand is indeed blurred as it undergoes a painful transformation to keep up with the times.

With the traditional businesses in which it is the leader eroding faster than expected, Eastman Kodak has been closing film, paper and other plants worldwide, making drastic staff cuts and increasing prices because of higher costs for raw materials.

Meanwhile, it is aggressively bringing to market new digital cameras, printing presses and health care imaging systems.

The company ranked No. 1 in the U.S. digital-camera market for the second straight year in 2005, with 7.05 million shipments, a 43 percent increase over 2004. Japanese competitors Canon Inc. and Sony Corp. placed second and third. Kodak also ranks in the top three worldwide.

But even though it now generates more annual sales from digital than from film photography and other chemical-based businesses, Eastman Kodak lost $298 million in the first quarter of this year and $1.36 billion in 2005. Those results included substantial restructuring charges and other one-time items.

In a surprising announcement, the company said it will try to sell its health care imaging business, which accounted for 20 percent of revenue last year. It if doesn’t sell it all, Eastman Kodak may sell a portion or seek a joint venture, and it has hired Goldman Sachs Group Inc. to consider offers.

Restructuring costs are escalating, there is considerable debt from expensive acquisitions, and the company has lost its investment-grade debt rating. Following last year’s 27 percent decline, shares of Eastman Kodak (EK) are up 4 percent this year.

Total compensation of Antonio Perez, named chief executive in June 2005 and chairman in January, reached $10.4 million last year, including restricted stock and options grants. The former Hewlett-Packard executive arrived at the company in April 2003 to direct its digital strategy.

Because of obvious risks in this corporate makeover, the consensus Wall Street analyst rating of Eastman Kodak shares is between “hold” and “sell,” according to Thomson Financial. That consists of one “strong buy,” three “holds,” two “underperforms” and three “sells.”

It recently entered into a licensing agreement with Fuji Photo Film and Konica Minolta Photo Imaging to adopt the Everplay standard, making it easier for consumers to identify compatible digital products.

Earnings are expected to increase 5 percent this year, the same as is predicted for the photographic equipment and supplies industry. Next year’s projected 13 percent gain trails the industrywide forecast of 31 percent. The five-year annualized return is expected to be 4 percent, compared with 13 percent for its peers.

Q: What do you think of Janus Worldwide Fund for my retirement portfolio?

A: It hasn’t conquered the world quite yet.

Since contrarian investor Jason Yee became portfolio manager nearly two years ago, he has reduced the fund’s emerging market and energy holdings while loading up on media stocks. Those moves have hurt its results.

It is also important to keep in mind that a world fund can invest anywhere, including the U.S., so be sure there’s no significant overlap with your domestic holdings.

Forty-two percent of Janus Worldwide Fund is invested in North America. Among its largest holdings are U.S. companies JPMorgan Chase, IAC/InterActiveCorp, Tyco International, Walt Disney and Dell.

The $4.8 billion Janus Worldwide Fund (JAWWX) is up 17 percent over the past 12 months and has a three-year annualized return of 14 percent.

Both results rank in the lowest 10 percent of world stock funds.

“We think brighter days are ahead for Janus Worldwide Fund and would like to see that showing up in its performance,” said Karen Dolan, analyst with Morningstar Inc. in Chicago.

“Though we’re not pounding the table for it yet, if it is in the middle of a turnaround it could serve as a core fund in an individual’s portfolio.”

Ms. Dolan considers Mr. Yee a promising manager, though inexperienced at running a fund of this size. He is beefing up the analyst team and focusing it on bargain-priced companies of all sizes with impressive franchises, good long-term potential and strong cash flow.

More than one-fourth of Janus Worldwide Fund is invested in financial services, with other significant concentrations in consumer services, consumer goods and industrial materials. Besides the North American component, about a third of the portfolio is invested in Western Europe. Japan, the rest of Asia and a small portion in Latin America comprise the rest.

The two largest stock holdings recently were Britain’s Willis Group Holdings and British Sky Broadcasting Group. Other significant stocks included Millea Holdings of Japan, Koninklijke Philips Electronics of the Netherlands and Syngenta of Switzerland.

This “no-load” (no sales charge) fund requires a $2,500 minimum initial investment. Its annual expense ratio is 0.85 percent.

Q: You often refer to the annual expense ratio of a mutual fund. What exactly is included in that and how is it computed?

A: The annual expense ratio represents the percentage of assets deducted each year for a variety of fund expenses. It is important because it can vary markedly between individual funds and between fund categories.

Paying higher expenses means that less of your money is actually being put to work for you.

Fees are often overlooked in booming markets producing stellar returns for investors, but their impact becomes painfully evident in flat or down periods.

Expenses include 12b-1 fees for distribution and marketing costs, management fees, administrative fees, operating costs and all asset-based costs that the fund incurs.

They do not, however, include portfolio transaction fees or any initial or deferred sales charges.

Theoretically, as a fund grows in asset size, its expense ratio should decrease because of economies of scale. Funds can also decide to waive certain or all expenses in that expense ratio.

• Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, 184, 369-B Third St., San Rafael, Calif. 94901-3581, or by e-mail at [email protected]aol.com.

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