The Russell 2000 is due for its annual shakeup June 25, and investors in hundreds of stocks will feel the tremors before and after the changes.
Sponsors of stock indexes periodically change their makeup, deleting stocks that no longer fit the criteria and selecting replacements. Earlier this year, it was big news when the Dow Jones replaced three members of its Dow Jones Industrial Average. When the Russell 2000, an index of smaller stocks, is revamped, 400 or more stocks might be affected.
These changes shake up the markets because some mutual funds and privately managed accounts track the performance of a particular index. Their managers sell some stocks and buy others whenever the target index changes, although they don't typically hold all 2,000 stocks in the Russell 2000. In addition, speculators try to get ahead of the game by trading in stocks they think will be moving in or out of the index.
All this activity affects investors who own the stocks. Several Tampa Bay area companies are likely to be involved in this year's changes in the Russell 2000. Maritrans Inc. of Tampa is a candidate for deletion, while the potential additions include Kforce Inc., Anchor Glass Container Corp. and Quality Distribution, all of Tampa, and First Advantage Corp. of St. Petersburg, according to Ashton Partners, an investor relations consulting firm in Chicago.
"If you are added or subtracted, it has a pretty dramatic impact on your daily trading volume," partner Chris Ashton said. He said companies that are dropped face lower trading volume and share prices unless they attract new investors to replace the indexed accounts.
The Russell indexes are based on market capitalization - the value of a stock's outstanding shares. The Russell 1000 Index is the 1,000 largest stocks. The Russell 2000 is the next 2,000 largest. Closing stock prices June 25 will be used to determine value.
Q. I am the executor for my mother's estate, so I will do the 2004 taxes for the estate as well as for myself. It is so overwhelming that I can't start learning soon enough. Where can I find tax information for estates and inherited property? For example, I will be looking at such things as whether annuities are distributed to the estate before they are inherited and how annuities are treated if not taken in a lump sum by a survivor. I would like to educate myself before I throw my hands up and take it all to a professional.
It is great to learn as much as you can, but I don't recommend going it alone in this situation. Consulting a professional will at least provide reassurance that what you plan to do is correct and may save you time and money. The larger the estate, the more important it is to get competent help.
You might start your quest for knowledge with a couple of free IRS booklets - Publication 17, a general guide to income taxes, and Publication 575, which focuses on pensions and annuities. You can find them on www.irs.gov or order them by calling toll-free 800 829-3676.
There also are books written specifically to help people settles estates, such as Nolo's The Executor's Guide: Settling a Loved One's Estate or Trust by Mary Randolph, and Sphinx Publishing's How to Probate and Settle an Estate in Florida by Gudrun Nickel.
If an annuity has a beneficiary, it is transferred directly to the beneficiary and does not become part of the probate estate. The beneficiary will owe income taxes when money is withdrawn from the annuity just as the original annuity owner would have. In most cases that means withdrawals will be partly taxable and partly tax-free.
Good luck!
Q. I am 78 and have to take a certain amount out of my IRA, which I have been doing. My bank reports the interest the IRA earns as well as the distribution I receive. It seems to me that when I put the interest received on my income tax return, I am being taxed twice. Should I declare the interest? I have been, but it doesn't feel right.
That's because it isn't right. As long as the interest stays in your account, it is not taxed. Only IRA withdrawals are taxed. You can file an amended return to get a refund of the taxes you paid in error.
- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to huntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.
