Morningstar Advisor - Spring 2007 - 51

tax-exempt; thus, a similar portion of MuniMae’s dividend is tax-free. We’re enamored with the company’s market-leading tax credit syndication business, which is based on low-income housing tax credits that developers receive from the government to build affordable housing. Because these credits are coveted by corporations facing high tax burdens, the developers sell the credits to MuniMae, which then pools them together for corporate investors. Jeffrey Ptak VA plus the cost of the rider can easily add 2% or more to annual charges. But some contracts reduce costs and reward persistency over time. One of these contracts is American Skandia Advisors Plan III. Its GLWB rider will add 1.85% in annual charges to the fund expenses, but charges drop to 1.25% after eight years, and the plan credits 0.5% to premiums paid after five years. The contract offers 100 investment options, but restrictions apply and the investor has little control over allocation while the rider is in force. Frank O’Connor American Skandia Advisors Plan III The leading edge of the baby-boomer generation turns 65 in 2011, and many retirees will have unrealistic notions about their nest egg’s income potential and the effect of inflation on spending power. Some will also have an aversion to equity investments because of the risk of principal loss. Clients who cannot (or will not) adjust expenses and cannot tolerate risk may be well served by allocating part of their portfolio to a variable annuity with a guaranteed lifetime withdrawal benefit. A GLWB guarantees a fixed withdrawal amount for life, generally 5% of the amount invested. But best of all, the value of the benefit may “step up” at regular intervals, insuring the investor against loss while also providing the potential for gains based on market performance. These benefits can be expensive, to be sure: The variable annuity mortality and expense charges you’re looking for more direct exposure, however, we’d opt for proven management found at Allianz RCM Technology, our lone Analyst Pick in the technology category. Managers Walter Price and Huachen Chen have run money in this style for more than 20 years, and they’ve been very successful at this fund since its 1995 launch. The pair spreads assets across emerging names, established blue chips, and value plays, and they generally keep the fund reasonably well diversified across subsectors and market-cap bands. The fund’s since-inception return vastly exceeds that of its typical peer over the same period. Karen Dolan S Growth MF Allianz RCM Technology DRGTX The Western Union Company WU Aside from bear-market funds, the technology fund category is the worst-performing domestic-stock group for the trailing three- and fiveyear periods. Now seems like a good time to go hunting for bargains. Morningstar’s analysts, for example, are finding plenty of compelling buys among stocks they cover in the sector. In March 2007, there were 64 software and hardware stocks with 4- or 5-star ratings, which means that each was trading well below our analyst’s estimate of fair value. Investors can always benefit from a tech rebound by sticking with high-quality diversified funds that are dipping into the sector. If The newly spun-off Western Union dominates the lucrative money-transfer market. People immigrating to wealthy countries from poorer ones remit several billion dollars to their countries of origin each year. Enjoying attractive growth prospects, the money-transfer market continues to expand as more people move. Consequently, Western Union’s revenue has grown by almost 15% per year since 2001. The firm is also a veritable cash cow. With operating margins exceeding 30% and low reinvestment needs, it generates cash flows beyond the reach of most businesses. Of course, growth and high profits tend to beget competition. However, the firm has a Mutual Funds Harbor Real Return Growth of $10,000 $13K 12 17 11 LB Aggregate 03 04 05 06 S&P 500 14 Allianz RCM Technology Growth of $10,000 $23K Royce Special Equity Inv Growth of $10,000 $18K S&P 500 PIMCO All Asset Growth of $10,000 $15K Dow Jones Moderate 13 03 04 05 06 07 07 03 04 05 06 07 03 04 05 06 07 Income pick: TIPS bonds mitigate inflation risk, and manager John Brynjolfsson knows TIPS. Uses off-key index plays and is far cheaper than similar PIMCO fund. Growth pick: Lone Analyst Pick in technology category. Experienced managers spread fund assets across emerging names, blue chips, and value plays. Value pick: Outflows caused it to reopen. Investors fleeing at exactly wrong time. Manager Charlie Dreifus’ discipline pays off in tough environments. Alternative pick: Robert Arnott’s quantitative model drives asset allocation decisions. Picks from a wide array of investments in PIMCO’s expansive lineup. MorningstarAdvisor.com 51

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Morningstar Advisor - Spring 2007

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