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Retirement Fund Rip-off

Investors beware: Banks, brokers and investment firms are passing investment risk to investors in the form of fixed income products. This investment risk is also being passed on to seniors and those who are on a fixed-income.

Perhaps the most risky fixed income products are investments linked to mortgage obligations. Banks have been passing their non-performing loan exposure to investors by selling Collateralized Mortgage Obligations (notes, certificate of deposits and bonds that are supported by a portfolio or "bundle" of residential mortgages, including sub-prime mortgages). However, an enormous wave of mortgage defaults will cause many of these notes, certificate of deposits (CDs) and bonds to rapidly decline in value or even default, leaving investors holding the bag. Estimates of loan defaults are in the range of an astounding $400 billion and have made headlines because of the havoc they reaped on Wall Street titans such as Merrill Lynch, Bear Stearns, UBS and Wachovia.

Banks, stock brokers and investment firms are selling bonds, CDs and notes to seniors by marketing them as a great way to supplement their fixed income, social security and/or pensions. These products are referred to as structured products and are linked to another underlying asset, such as a bundle of sub-prime loans, equities, and commodities. These bonds, notes and CDs are laden with multiple layers of fees, are illiquid, have a penalty for surrender and are usually risky.

In addition, these notes, CDs or bonds may be linked to equities, an index or a commodity. The products are touted as offering upside or participation in the linked investment with no downside or risk of loss. However, what is not made clear to the investor is the enormous costs of these products, the lack of liquidity, or that there is a penalty for early withdrawal or surrender.

In short, these products are seldom suitable for a retiree or senior on a fixed income and only serve two purposes: to generate fees for the bank, broker or investment firm and to transfer risk from the banks to the investing public.

The following Banks and Firms have structured products: Bear Stearns, Merrill Lynch, Bank of America, Goldman Sachs, JP Morgan, Washington Mutual, Deutsche Bank Morgan Stanley, UBS Financial, Wachovia, Wells Fargo, CS First Boston, AIG and Citigroup and many other financial institutions.

Our law firm is investigating collateralized mortgage and asset-backed securities that are offered by the following financial institutions:

Bank of America

Bank of America offers a series of funds of funds for retirees. These funds of funds hold mutual fund shares in Columbia mutual funds.

Columbia Total Return Bond Fund (NSFAX), according to its most recently posted portfolio, March 31, 2007, holds 41.8% of its portfolio in mortgage-backed securities, collateralized mortgage-backed securities and commercial mortgage-backed securities. Additionally, it holds 13.9% in asset-backed securities.

Bank of America Retirement 2005 fund holds 34.39% in Columbia Total Return Bond Fund; Bank of America Retirement 2010 fund holds 32.63% in Columbia Total Return Bond Fund; Bank of America Retirement 2015 fund holds 27.82% in Columbia Total Return Bond Fund; Bank of America Retirement 2020 fund holds 22.83% in Columbia Total Return Bond Fund; and Bank of America Retirement 2025 fund holds 17.70% in Columbia Total Return Bond Fund.

JPMorgan

JPMorgan Ultra Short Duration Bond Fund (ONUAX) - As of September 30, 2007, the fund holds 55.1% of its portfolio in collateralized mortgage obligations, 16.7% in mortgage pass-through securities, and 15.1% in asset-backed securities. Furthermore, 86.9% of the portfolio is tied to sub-prime mortgages.

JPMorgan Core Bond Fund (PGBOX) - As of September 30, 2007, the fund holds 46.6% of its assets in collateralized mortgage obligations and 10.3% in mortgage pass-through securities. Furthermore, 56.9% of the portfolio is tied to sub-prime mortgages.

JPMorgan Short Term Bond Fund (JSTAX) - As of September 30, 2007, the fund holds 37.4% of its assets in mortgage pass-through securities, 10.7% in asset-backed securities and 5.9% in collateralized mortgage obligations. Furthermore, 54% of the portfolio is tied to sub-prime mortgages.

JPMorgan Core Plus Bond Fund (ONIAX) - As of September 30, 2007, the fund holds 34.6% of its assets in collateralized mortgage obligations and 9.1% in mortgage pass-through securities. Furthermore, 43.7% of the portfolio is tied to sub-prime mortgages.

Fidelity

Fidelity Ultra Short Bond Fund (FUSFX) - As of September 30, 2007, the fund holds 42.4% of its assets in asset-backed securities, 17.5% in collateralized mortgage obligations and 15.2% in commercial mortgage-backed securities. Furthermore, 75.1% of the portfolio is tied to sub-prime mortgages.

Fidelity Short-Term Bond Fund (FSHBX) - As of September 30, 2007, the fund holds 23.1% of its assets in asset-backed securities, 13.5% in collateralized mortgage obligations, and 11.6% in commercial mortgage-backed securities. Furthermore, 48.2% of the portfolio is tied to sub-prime mortgages.

Eaton Vance

Eaton Vance Low Duration A (EALDX) - As of May 30, 2007, this fund holds 79.93% of its assets in mortgage pass-through securities. More than 75% of its holdings are in bonds rated BB and B.

Credit Suisse

Credit Suisse Short Duration A (HSDAX) - As of September 30, 2007, the fund holds 15.43% of its assets in mortgage pass-through securities, 13.86% in collateralized mortgage obligations, and 12.82% in asset-back securities. Furthermore, 42.11% of the portfolio is tied to sub-prime mortgages.

Hartford

Hartford Short Duration A (HSDAX) - As of August 31, 2007, the fund holds 26.72% of its assets in asset-backed securities and 17.83% in collateralized mortgage obligations. Furthermore, 44.6% of the portfolio is tied to sub-prime mortgages. Half of the fund's holdings are in bonds rated below AA.

Principal

Principal Investors Ultra Short Bond A (PULAX) - As of June 20, 2007, the fund holds 40.05% of its assets in collateralized mortgage obligations, 12.54% in mortgage pass-through securities and 17.14% in asset-backed securities. Furthermore, 69.73% of the portfolio is tied to sub-prime mortgages. Almost 40% of the fund's holdings are in bonds rated lower than AA.

Schwab

Schwab YieldPlus Select (SWYSX) - As of August 15, 2007, the fund holds 37.15% of its assets in collateralized mortgage obligations and 10.69% in asset-backed securities. Furthermore, 47.84% of the portfolio is tied to sub-prime mortgages. Slightly more than half of the fund's holdings are in bonds rated below AA.

If these structure products are in your portfolio, please contact the Investors Advocates for a free consultation.
 

Retirement Fund Articles

Retirement Rip-offs: Bad Investments Take Advantage of Good People
The need for Americans to take good care of their own retirement investment strategy has given birth, not surprisingly, to the huge industry financial planning and investment industry—not to mention investment products that promise high returns and low risk.

Retirement Fund Meltdown: Hint of Sub-Prime Mess in 2004
Keeping your money in a mattress does not a good investment make—but it suggests an element of safety and security that is often missing these days from certain retirement funds and products that carry increased investment risk.

Retirement Rip-off: Seniors Taken to the Cleaners
Retirement Rip-off: Seniors Left Holding the Bag—and it's Empty

 

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RETIREMENT FUND LEGAL ARTICLES AND INTERVIEWS

Retirement Rip-offs: Bad Investments Take Advantage of Good People
January 4, 2008
Tampa, FL: The need for Americans to take good care of their own retirement investment strategy has given birth, not surprisingly, to the huge industry financial planning and investment industry—not to mention investment products that promise high returns and low risk.
READ MORE

Retirement Fund Meltdown: Hint of Sub-Prime Mess in 2004
December 20, 2007
Iowa City, IA Keeping your money in a mattress does not a good investment make—but it suggests an element of safety and security that is often missing these days from certain retirement funds and products that carry increased investment risk.
READ MORE

Retirement Rip-off: Seniors Taken to the Cleaners
November 26, 2007
New York, NY Change is a constant. But this oxymoron is more a truism than a cliché: just as we have had to get used to the change of not spending an entire career in one job and paying into one good company pension (that will keep us well into our old age) there is an equal need for diligence in knowing and determining the hidden investment risks inherent with our retirement portfolios.
READ MORE

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