Special Program Root Tag

A poll commissioned by Fidelity Investments shows that now that the law has been permanently extended to allow parents to make tax free withdrawals from 529s, more than half of parents said they are likely to open a 529 plan, Reuters reports.

Although Fidelity Investments has a policy to support cumulative-voting procedures—whereby a shareholder can pool all of their votes in director elections—the record shows that Fidelity either frequently abstains from such votes or votes against it, Dow Jones reports.

Particularly in light of the fact that so much time has passed since the Securities and Exchange Commission’s Aug. 21 deadline for comments on the independent chairman rule, Washington insiders are now speculating that the SEC will probably drop the issue, sister publication Securities Industry News reports.

Investors who own mutual funds that contain small company or foreign stocks may want to begin thinking of ways to minimize the tax jolt they may be facing come spring. Two ways are doing some smart timing on new investments, and taking a hard-nosed look at old ones that can be sold at a loss, according to the Centre Daily Times of Pennsylvania.

Deutsche Asset Management has agreed to pay $19.3 million to the Securities and Exchange Commission on charges of directed brokerage and revenue sharing by its Scudder Funds division. The fine includes disgorgement of $14.2 million and interest in the amount of $1.1 million, which will be distributed to Scudder’s funds, and a $3 million civil penalty. The SEC found that between January 2001 and October 2003, Scudder entered into revenue-sharing agreements in which the company promised cash to broker/dealers in exchange for its funds being placed on the companies’ preferred or recommended fund lists. The agreements also afforded Scudder increased access to registered reps, participation in conferences and favorable placement on the broker/dealers’ websites. Then, the SEC said, to offset the cost of these revenue-sharing agreements, Scudder entered into directed-brokerage agreements with 18 of the broker/dealers in which the company sent them trades—paying them more than $17 million in brokerage commissions—in exchange for them either reducing or completely eliminating the revenue-sharing costs. Scudder failed to tell its board that it was using fund brokerage commissions to satisfy its revenue-sharing agreements, the SEC said. This is the latest settlement for Deutsche Asset Management and Scudder. In January, Scudder agreed to pay $134 million to the SEC over market-timing allegations.

Facing weak returns, fast-growing Pirate Capital has closed to new investors and set out to right its course, according to MarketWatch. Growth of the fund, which held $2 million in assets 2002, and today holds $1.7 billion, has recently concerned some investors. News that returns for the Jolly Roger Offshore Fund would be less than 6% this year, compared to 24% in years prior, exacerbated these worries. In a letter to investors last week, founder Thomas Hudson announced the fund would close to new investors and focus on growing the assets it has now. The letter also announced the resignations of fixed-income portfolio manager Carl Klien, analyst Zachary George and analyst David Lorber. Hudson asked two other analysts, David Muccia and Matthew Goldfarb, to resign Wednesday, he said. “Along with growth in assets came growth in personnel,” the letter said. “My time, which was originally spent exclusively on the portfolio, the aspect of the business I love most, eventually was split between the demands of raising capital and overseeing the work of analysts.” The new tem is Hudson, Stephanie Tran, Peter Desloge, Glenn Haberfield and Chadd Kirk. Meanwhile, the Securities and Exchange Commission is prodding Pirate to determine whether it reported stock sales in a timely fashion. SEC Commissioner Christopher Cox has recently and repeatedly voiced his intention to examine hedge fund operations and their effects on the market, despite the nullification by courts of the agency’s registration rule. The attention comes after the steep losses Connecticut-based Amaranth faced last month, when the $9 billion fund lost half of its value, and drew attention of regulators. Perhaps sensitive to the tarnished image of these alternative funds, Hudson assured investors in his letter that his family has more than 90% of their net assets invested in the firm. “No one is more committed to this firm and its continued success as I am,” he wrote. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

The recent sharper-than-average downturn in U.S. Global Investors’ gold shares fund highlights the volatile—and often undisclosed—strategy behind warrants, according to The Wall Street Journal. Because the fund has been the leader in its class for the past five years, many investors were surprised to see the fund affected more dramatically by its peers after the recent drop in commodities prices. What investors didn’t realize is that the reason for the bigger drop is because the fund held as much of 30% of its assets in warrants. Uncommon among mutual funds, warrants are a type of option that allows the holder to buy shares at a set price in the future. They work well if the price of the security rises quickly, but are a bad bet if the price goes the other direction. The volume of warrants traded regularly is relatively low. In the case of U.S. Global Investors, the warrants, although a significant part of the portfolio’s strategy, were not listed in the fund’s prospectus or described in shareholder reports. U.S. Global Investors representatives said the fund “has never attempted to obscure these holdings and believes it has been fully transparent of its holdings as required under the relevant disclosure laws.” The San Antonio-based company said it includes warrants in the catchall “equity securities” category, which, according to the prospectus, comprise about 80% of assets. While this disclosure may adhere to the letter of the law, some suggest it violated the spirit, giving investors an inaccurate depiction of the risk the find undertakes. “The general rule the SEC follows is that anything that’s going to involve 5% or more of fund assets is considered material,” said Julie Allecta, an attorney who focuses on mutual funds for Paul, Hastings, Janofsky & Walker in San Francisco. When returns are either positive or negative, regulators often ask funds to explain the performance drivers in shareholder reports. U.S. Global Investors maintains that the annual reports “discussed the factors that materially affected the Fund’s performance.” Warrants’ low trading volume can be tricky for portfolio managers. If faced with a big withdrawal, and sudden demand for cash, managers might be forced to sell assets they might not otherwise. U.S. Global Investors Chief Investment Officer and Chief Executive Frank Holmes bristled that the warrants exposed investors to greater risk, and said, instead, they help manage risk associated in investing in mining companies. “We’re very sophisticated investors,” he said. Since Aug. 03, the U.S. Global Investors Gold Shares Fund has lost 12.3%. The average gold fund dropped 9%, according to Morningstar data. Despite the SEC’s requirement that the “investment strategies and risks” section of a fund’s prospectus delineate “principal investment strategies,” that section of the Gold Shares prospectus includes no mention of warrants. That is left to a separate filing: the statement of additional information, in a section called “other rights to acquire securities.” In the annual report, the funds’ warrants in Goldcorp, a Canadian mining company, is a footnote to management’s discussion. “This security comprised 23.56% of the total net assets of the Gold Shares Fund as of June 30, 2006,” it said. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

Bill Miller’s outstanding winning streak might be over. Legg Mason’s high-profile money manger has beaten the Standard & Poor’s 500 index with his Value Trust mutual fund every year for the past 15 years. Now, through the third quarter of this year, he is trailing the benchmark by more than 10 percentage points, the widest margin he has ever been behind since the streak began, according to the Baltimore Sun. Miller admits that the record could be broken. Investors pulled an estimated $166 million from the Value Trust fund in the second quarter and $21 million in July, according to Financial Research Corp. Nonetheless, analysts believe investors would be willing to give Miller a pass if he fails. Legg Chairman and CEO Raymond “Chip” Mason has said the flow of investor money into the fund is “relatively strong.” The first quarter net inflows were $306 million. Mason noted in July that the record might end, but that Miller is still referred to as a “guru” by the media. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

New York Attorney General Eliot Spitzer filed a lawsuit against J.W. Seligman and its president, Brian Zino, on Tuesday in New York Supreme Court, charging the company with entering into "rampant" market-timing arrangements.

ORLANDO, Fla.-As mutual fund boards assume greater responsibility-and regulators continue to monitor them more closely-the demands on management are likewise increasing, making reporting procedures more complex.

ORLANDO, Fla.-Amid speculation about whether the potential sale of Putnam Investments and MFS Investments could provide an opportunity for their parent companies, Marsh & McLennan and Sun Life Financial, to shed themselves of struggling underlings, one thing is often overlooked.

CHICAGO-As more banks weigh whether or not to offer separately managed accounts, their key considerations should include pricing, training, compensation and an open architecture platform that includes a mix of proprietary and outside investment products. That was the advice of speakers at Money Management Institute's Fourth Annual Separately Managed Accounts Conference here last week.

The EDGAR system is about to get a makeover. Securities and Exchange Commission Chairman Christopher Cox last week announced a $54 million initiative to take the 1980's-era system into the interactive age. The SEC has contracted with three companies, each to undertake a different segment of the overhaul.

Seven major corporations have been sued in federal courts for allegedly allowing mutual fund firms to charge millions of dollars in excessive 401(k) fees through hidden revenue-sharing agreements. Combined, the companies named in the suits have more than 400,000 participants in their 401(k) plans. They are Bechtel Group, Caterpillar, Exelon, General Dynamics, International Paper, Lockheed Martin and United Technologies. The fund companies, unnamed, allegedly charged higher fees and shared the revenue-sharing portion with 401(k) administrators that determined which funds should be included in the plans.

Morningstar Appoints Four Executives at Ibbotson

Frederick O'Meally, a former senior vice president and top-producing broker with Prudential Securities and then Wachovia Securities after the firms merged their retail brokerage divisions in 2003, has won a $3.8 million NASD arbitration award for having been fired for allowing market timing. The amount is based on a deferred compensation plan and a $1.3 million bonus.

CHICAGO-Banks hold only a 7.8% market share of the separately managed account industry, and as they try and gain assets from the registered independent advisors and wirehouses that dominate the market, they will be faced with challenges of pricing, open architecture, sales and marketing.

U.S. Bancorp's private-client group has started a nonproprietary separately managed account platform in an effort to bolster the options available to its customers.

Although a commissioner with the Securities and Exchange Commission recently said the SEC is trying to streamline its approval process for exchange-traded funds, a number of exchange-traded funds, including leveraged, oil and gold funds, are continuing to debut in Europe and Asia before launching in the U.S., The Wall Street Journal reports.

With fears over interest rates and inflation diminished, investors in the third quarter were able to appreciate strong corporate earnings, and as a result, large-cap mutual funds delivered healthy results, MarketWatch reports.