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Legal Counsel Dear Mr. Berko: After three years, we had to dismiss our legal counsel, though we parted on excellent terms. I know you are familiar with our case because that firm unsuccessfully offered you a retainer and ongoing fee to advise it. We have narrowed …Read more. Merck and Zogenix Dear Mr. Berko: My broker wants me to sell my 600 shares of Merck because he believes that the company will be sued by people who have consumed beef cattle that were fed with Merck's Zilmax. The literature says this drug produces bad side effects on …Read more. Taxes and the Internet Dear Mr. Berko: I have a carefully selected growth portfolio, about 16 percent of which is invested in Internet-related and broadband issues. Please tell me what effect this new tax on Internet and broadband usage will have on their values. I'm …Read more. BlackRock and W.P. Carey Dear Mr. Berko: I have been reading your column for over 20 years and often wonder why you never mention BlackRock. I have 70 shares at a good profit and would consider selling 20 shares and buying 200 shares of W.P. Carey. Please give me your …Read more.
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Annuity vs. Stock

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Dear Mr. Berko: I have a large certificate of deposit coming due next month, which I could renew at less than 1 percent. When I told the banker that I'd like a higher rate of return, I was introduced to a specialist who aggressively tried to sell an equity-indexed annuity. He said that it guarantees 5 percent income and that I could never lose a penny. I am 73 and have Social Security and a fair pension, but an extra 4 percent a year would be very welcome on that $250,000 CD. Please look at this annuity enclosure and tell me what you think. The banker spent a good hour explaining the annuity's advantages. And I don't want to be in the stock market, because I am afraid it will fall. I just have a mutual fund in my retirement account and 476 shares of Johnson & Johnson. I own Johnson & Johnson stock because I worked for the company for 28 years before retiring in 2002. — BT, Syracuse, N.Y.

Dear BT: Don't be a sucker. Before you purchase an annuity that's overripe with fees, please review the following six points, which I doubt the salesman discussed with you. Then consider the suggested investment alternatives, which I'm certain the salesman did not discuss with you. If you still prefer the annuity, then do it and "be happy," as Bobby McFerrin would sing.

1) Do you know that the sales commission on this equity-indexed annuity would be 7.5 percent? This slithering bankster would usurp an $18,750 gross commission. Good Lord, Charlie Ford, last month, a family I know purchased a lovely lakefront home; the commission was 3 percent, and the real estate agent had over six weeks of work involved.

2) Were you told that the yearly costs to maintain the annuity would be 4.1 percent of your principal? That would include mortality charges, insurance costs, selling and administrative expenses, commissions, management fees, fees for investment advisers, plus a plethora of other expenses (mailing, accounting, records). These costs would be necessary to keep your annuity ticking and the confusing quarterly reports and unreadable 580-page prospectuses flowing.

3) Were you told that the 4.1 percent ($10,250) annual cost would be deducted from your principal each year? Assume the value of your equity-indexed annuity were to remain flat for 12 months.

Were you told the insurer would subtract $10,250 from your $250,000 principal, making it worth $239,750?

4) Were you told that in order for the mutual funds in your equity-indexed annuity to net you 5 percent in any one year, the value of the mutual funds would have to gain 9.1 percent (9.1 percent appreciation minus the 4.1 percent fees) that year? There may be thousands of annuities competing for your money, but I don't know of a single one that has earned 9.1 percent annually in each of the past 10 years.

5) Do you know that annuity payouts never increase, that they're etched in stone?

6) Early-surrender penalties would be 11 percent of your principal for the first several years.

Johnson & Johnson (JNJ-$103.61) yields 2.7 percent, has increased its dividends for over 35 consecutive years and may do so for the next 35 years. But there are many good issues like JNJ.

Have you heard of a company that some folks call AT&T (T-$34.60)? T has been in business for a little while, and it yields 5.3 percent. T has a long history of annually rising revenues and dividends, in recessions, lousy markets, bank crises and terrible economic times. Have you heard of Royal Dutch Shell (RDS-B-$84.19), yielding 4.1 percent, the revenues of which are bigger than Exxon Mobil's, or Kinder Morgan (KMI-$40.17), a company with one of the largest pipelines in the world, yielding 4.2 percent, or W.P. Carey (WPC-$68.73), an international real estate investment trust yielding 5.6 percent that has grown its annual dividend year after year, or GlaxoSmithKline (GSK-$48.28), a huge pharmaceutical company yielding 5.3 percent? There are many other excellent, high-quality issues with attractive and growing dividends. And there are many excellent lower-quality issues with modestly safe 8 to 12 percent dividends that you can also consider.

Those banksters and annuity salesmen are financial pimps. Now you know why a trusting, caring money manager can be worth his/her weight in diamonds, sapphires and rubies.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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