Q–Should my son continue to put his annual individual retirement account contribution into Class A shares of AIM Value Fund? What’s the long-term outlook for this fund?
S.K., Chicago
A–Not a traditional value fund in the sense that finding bargain-priced stocks is its top priority, AIM Value is changing its name to AIM Premier Equity in July.
This fund is somewhat aggressive in that it looks for value primarily among growth stocks. Except for a couple of great years in the late 1990s, it has turned in mediocre results and is more volatile than would be expected from a pure value fund.
For example, it has been hurt this year by its commitment to growth-oriented stocks such as Cox Communications, AOL Time Warner and Tyco International. Concentrating on well-known companies, it has the ability to focus on a few sectors, and that can skew results.
The $8 billion AIM Value A is down 14 percent this year and had a three-year annualized decline of 6 percent. Both results rank in the lowest quarter of all large growth and income funds.
“I know that AIM is trying to position this as a core holding, but if I was going to own only one fund, this isn’t it because it just isn’t consistent enough,” Bridget Hughes, of the Morningstar research firm, said. “Evan Harrel is the lead manager for AIM Value and I think he’s a smart fellow, but whatever he’s trying to do here isn’t working.”
Better choices within the AIM family of funds would be AIM Basic Value, which has a strong track record, or AIM Charter, which has a new manager with a core-oriented approach, Hughes said.
Q–As a policyholder, I received shares of stock when Prudential Insurance Co. went public. Since the stock would be considered zero cost basis if sold, I put the shares in my Roth individual retirement account so the original value and any appreciation would be tax-free coming out. Since this was a distribution and not a dividend, does it count toward my contribution to my Roth IRA this year, or can I still contribute my maximum plus these shares?
B.T., Morton Grove.
A–The Prudential Financial IPO was one of the largest ever in the insurance industry. Unfortunately, your strategy for handling the stock received is flawed.
First, you can only make cash contributions to an IRA and not existing shares of stock unless it’s a rollover from another qualified retirement plan.
“In addition, any money or stock moved from another qualified plan into a Roth IRA will always be taxed upfront,” said Steve Pierson, partner with BDO Seidman in Chicago. “Only a rollover into a traditional IRA can be accomplished without that transaction being taxed.”
This means you’ve made a mistake that should be corrected, concluded Pierson, who recommends you consult a tax accountant as soon as possible.
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Andrew Leckey answers questions Sunday in Business and Tuesday in Your Money. Address inquiries to Andrew Leckey, P.M.B. 184, 369-B Third St., San Rafael, Calif., 94901-3581, or by e-mail at andrewinv@aol.com.
