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Week In Review


New Bill Would Reduce Taxes On Lifetime Annuity Income

The U.S. House of Representatives has introduced the Retirement Security Needs Lifetime Pay Act, designed to encourage Americans to invest lifetime income annuities by giving them tax breaks. The bill, introduced by Reps. Earl Pomeroy (D-N.D.) and Ginny Brown-Waite (R-Fla.), would exclude half the taxes on the income from a non-qualified annuity, up to $10,000 a year. It would also exclude taxes on 25% of income payments from Individual Retirement Accounts and qualified retirement plans other than defined benefit plans.

NAVA applauded the bill, with the organization's President and CEO Cathy Weatherford saying, "This legislation is a huge step in the right direction giving Americans the ability to bolster their retirement security with guaranteed lifetime paychecks. We all know there is a growing problem with Social Security. Now more than ever, Americans need to plan long term and to have the peace of mind that only lifetime payments can deliver."

Capital Group Lays Off 9%

Capital Group will cut 9% of its global workforce of 9,000, or 820 jobs, this month. This will be American Funds' parent company's second round of layoffs, in response to a 29% decline in assets from $1.2 trillion to $850 billion. The company eliminated 500 jobs in January. All job areas, except for portfolio managers and analysts, will be affected, according to a spokesman.

Evergreen Settles With SEC for $40 Million

Wells Fargo, parent of the Evergreen mutual funds, has agreed to pay $40 million to the Securities and Exchange Commission to settle charges it inflated the value of mortgage-backed securities held by one of its mutual funds, the Ultra Short Opportunities Fund. The fine includes $33 million to compensate investors, civil fines of $4 million and $3 million in restitution.

An spokeswoman for Evergreen, which neither admitted to or denied the charges, said the company was happy to resolve the matter and move forward.

The SEC said that even after the company correctly valued the securities, which were inflated 17%, it only informed select shareholders about the reasons for the change, permitting them to cash out of the fund to avoid losses ahead of other shareholders.

"By picking and choosing to disclose negative information to some investors and not others, Evergreen gave certain shareholders an unfair advantage and left others in the dark," said David Bergers, director of the SEC's Boston office. "Evergreen harmed investors and prevented them from making informed decisions by overstating the value of its holdings in mortgage-backed securities."

Managers Ease Out of Cash

Mutual fund managers are moving back into the stock market, finally putting cash they have been holding onto for more than a year back to work, MarketWatch reports.

Although some don't think the economy is yet fully on its way to recovery, they sense that the worst is over and are compelled by cheap prices.

Data on the 50 best-performing equity funds from Morningstar shows that their median cash holding was 15.4% in 2008, and that they have lowered those levels to 9.1%.

"Stocks were down to the lower end of any rational historical valuation­-unless you believed we were going into a depression," said David Ellison, chief investment officer at FBR Funds, who himself moved 60% of his portfolios' assets into cash last year. Today, cash comprises only 10% of their holdings.

Citing lower overnight inter-bank lending rates, an uptick in home sales, improving corporate earnings and restored capital markets, Ellison characterized all of that as "a pile-on of good news."

Affluent Improve Outlook To Only 'Mildly Bearish'

Affluent investors' confidence increased in May for the third consecutive month, according to a survey by Spectrem Group.

The Spectrem Affluent Investor Index, based on interviews with 250 investors in households with $500,000 or more of investable assets, rose nine points, to a "mildly bearish" reading. It was the index's highest level since February 2008.

The Spectrem Millionaire Investor Index, gauging a subset of the 250 investors, rose 17 points. That was the millionaire index's highest level since December 2007.

"Millionaires' investment optimism surged in May, recording the largest monthly increase since we began tracking it in February 2004," said George H. Walper, Jr., Spectrem's president.

In response to an open-ended question about the factor most affecting their investment outlook, affluent investors in May cited: the economy (25%); the political environment (25%); stock market conditions (6%); housing and real estate (3%); and rising oil and gas prices (1%). Twenty-seven percent of the millionaires said the political environment was their chief concern, and 24% cited the economy.

Fidelity, KKR Offer IPOs To Retail Investors, B/Ds

Fidelity Investments and Kohlberg Kravis Roberts reached an agreement whereby the mutual fund company's retail, broker/dealer and RIA customers will have access to initial public offerings and secondary stock sales of KKR portfolio companies.

KKR will serve as the underwriter of all retail securities distributed by Fidelity.