A few mutual fund companies have come under the scrutiny of the SEC over the last couple of weeks. The purpose of this special edition newsletter is to bring you up-to-date on the identified fund families and how they have been involved in the recent issues raised by New York Attorney General Elliott Spritzer. At this writing, the funds identified were as follows: Alliance, Banc One, Prudential, Putnam, Janus and Strong Funds.

The Industry & Companies The mutual fund industry represents 7 trillion dollars. The primary issues revolve around illegal late trading, market timing and self-dealing. One quarter of the nation's largest brokerage houses helped clients illegally trade after hours. This benefited a select group of individuals at the expense of the vast majority of mutual fund investors. Management fees reaped by these companies were more than $50 billion. Putnam Investments, one of the named companies, was charged with fraud for improper trading. They are the fifth largest mutual fund company in America. Last week Putnam experienced withdrawals of $4 billion by pension clients alone. Rhode Island, Massachusetts, Pennsylvania, Vermont and Iowa have all pulled their state pension accounts from this fund family. Prudential Securities, another of the named firms, had charges filed against five employees for improper market timing trades. The traders engaged in late day trading. Late day trading involves buying or selling at closing prices after 4:00 p.m. These traders had access to prices not available to other investors. According to the Wall Street Journal, a number of top and mid-level managers at Prudential including a former president of the private client division were aware of the trades. The complaint charges that Prudential Securities' officials ignored evidence of these brokers' fraudulent activities. Other companies that have suspended or fired employees are Merrill Lynch and Fred Alger Management. Janus Capital Group also lost pension dollars. The state of Colorado dropped the firm because of the concerns related to their involvement in the mutual fund probe.

No Exposure for CFP Clients Clients with Coastal Financial Planning, Inc., have no exposure to any of these identified mutual fund companies. We never had invested any clients' dollars with any of the identified companies. We are diligent about selecting companies that we feel have the clients' interests first. Some of the mechanisms used in this selection process include a review of fund policies. Some funds will impose short- term redemption fees to discourage investors from moving in and out of them quickly. Fund families that close their funds with regularity are a sign the fund manager does not want to take new money, because he or she feels there are not enough opportunities for new money in their portfolios. Additionally, we look at a fund's long-term performance. Any fund can have one good year, but a five-year historical trend gives greater insight into what is really happening with the company.

We encourage our clients to call and discuss any concerns they may have.

Sincerely,

Angela Thomson, CFP
Coastal Financial Planning, Inc.

Look for other options in 401(k), college savings

Angela Thomson was quoted on the recent Mutual fund scandal in today's Providence Journal Moneyline article by Neil Downing.

In the article, she suggests reputable firms to consider if you have investments with one of the companies in question.