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Fund Times: Congress Extends Tax Rate and AMT Relief

Plus, news on Hartford, PIMCO, Fidelity Magellan, MFS, Oakmark, and more.

Morningstar Analysts, 05/15/2006

The House and Senate passed legislation last week that would provide for a two-year extension of the 15% tax rate for capital gains distributions and dividends, which are set to expire in late 2008.

Additionally, it would hold the line on the Alternative Minimum Tax. The AMT was originally set up without an income-inflation adjustment, which has meant that it reaches ever-greater numbers of individuals each year. For example, during the 2001 tax year about 1.4 million taxpayers were subject to the AMT, but by the 2005 tax year, this number had grown to 3.6 million individuals.

The proposal passed by Congress would limit the expansion of the AMT for the 2006 tax year but does nothing to permanently solve the longer-term problem of the tax's expanding impact.

Hartford Settles with New York and Connecticut Attorneys General

Hartford Financial Services Group HIG reached a settlement of $20 million with New York's Attorney General Eliot Spitzer and Connecticut's Attorney General Richard Blumenthal over allegations the insurance giant inappropriately paid brokers who sold the firm's annuities to pension groups.

In his complaint before the Supreme Court of New York State, Spitzer wrote: "Throughout the period 1998 through 2004, Hartford paid out millions of dollars of undisclosed payments, causing the plans to pay more in annuity premiums than they should have paid.... Hartford was able to sell over $800 million of [these annuities] during this period and reap millions of dollars in investment profits on the money it invested from sales it might otherwise not have made." These sales were made despite the fact that, as a Hartford executive admitted in documentation within the complaint: "our prices are not competitive in open bidding situations."

Market-Timing Case Moves Toward Trial

A federal judge last week denied motions of summary judgment in the SEC's case against executives of the former PIMCO Advisors Distributors, setting the stage for the case to be settled at trial. If so, it would be the first trial in the market-timing scandal.

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