Regional Bank Fund
During the 12 months ended October 31, 2009, investors experienced two very
different market environments. Stocks started the period in a free fall, reacting
to a crisis in the fi nancial system, an economy in recession, a slumping housing
market and sharply rising unemployment. Five months later, in March 2009,
the market reversed course and headed up for the rest of the period. Investors
became more convinced that the U.S. government’s numerous stimulus pro-
grams and interest-rate cuts were having their intended effect, while there were
signs the economy was deteriorating less and corporate earnings were better
than expected. After falling 29.30% between October 31, 2008 and March 9,
2009 — the current market bottom — the broad market, as measured by the
Standard & Poor’s 500 Index, wound up gaining enough ground in the second
half of the period to post a 9.80% return for the 12-month period.
The bond market as a whole fared even better. During the turmoil of the fi rst
half, U.S. Treasuries were the safe-haven investment of choice. In the second
half, when investors were willing to take on more risk to potentially fi nd higher
yields, lower-quality, high-yield bonds, bank loans and fl oating rate bonds out-
performed. The Barclays Capital U.S. Aggregate Bond Index, a broad measure of
the bond market, returned 13.79% in the period.
Amid all the high-visibility government moves to stimulate the economy and
bring the fi nancial crisis under control, there was an important step also taken,
far from the limelight, on behalf of mutual fund shareholders. Two identical bills
were introduced in the U.S. Senate and House of Representatives that would
allow mutual fund shareholders to defer capital gain taxes on a fund’s annual
distribution of long-term capital gains until the shareholder’s shares are sold.
Currently, mutual funds have an annual capital gain distribution requirement.
Shareholders are required to pay their share of t