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Muriel Siebert & Co.


If you're having a hard time pulling income out the equities market lately, you're not alone. Portfolio managers face that same challenge.

When investors decide it's income that they're looking for, some head for fixed income products like CDs, money market funds and bond funds. Others prefer equities and choose things like equity income funds. Or, funds with portfolios that include a combination of stock and bonds such as growth and income or convertible funds. But whatever the investment vehical, yields just aren't what they used to be.

"What has happened is,10 and 20 years ago, most stocks paid high dividends and now none of them do unless there is some real problem," says Frank Jennings, portfolio manager of the OppenheimerFunds Global Growth & Income Fund, (800-525-7048). "And bonds don't pay anything either. It's all puny. So income is one of the big scarcities---and that's true for everybody."

While it's not hard for seasoned investors to recall when interest rates were high and their CDs were paying double-digit returns, remembering how dividend yields on stocks have changed can be trickier. Look back at recent historical numbers, however, and you'll see that it's been a downhill slide for dividend yields on S & P 500 stocks for the past 20 years.

In 1979, for example, the dividend yield of the S & P 500 was 5.40 percent; in 1989, 3.36 percent; in 1998, it was 1.56 percent; and thus far this year it's running 1.29 percent, according to figures from Ibbotson Associates in Chicago.

"Starting from the peak of rates in 1982, interest rates and dividend yields have come down as stock prices have gone up," says Irene O'Neil, portfolio manager of the Evergreen Growth & Income Fund (800-633-4900).

With providing income is an objective for both of these Evergreen and OppenheimerFunds, their two portfolio managers go about finding it in different ways.

For instance, about 25 percent of the assets in Evergreen's Growth & Income Fund is invested in convertible securities. O'Neil particularly likes convertible bonds because she said they represent a marriage between fixed income and equities. She considers them "defensive" investments.

"In a stormy market where the underlying stock is performing terribly, you know you're going to get interest income from these bonds and your principal back when they mature. Provided, of course, there are no credit problems (with the bond)," she says.

Currently, Jennings is leaning more heavily on dividend paying stocks than bonds for the income component of the OppenheimerFunds Global Growth & Income Fund. "Interest rates are extremely low. Therefore it's hard to make money on a bond," he says.

Jennings also has the luxury of being able to invest any where in the world he chooses because the fund is categorized as global flexible one. Not all that long ago its portfolio contained more bonds than it does today.

Another way to provide income? Sell stock holdings. Portfolio managers do it all the time. So can individuals---if they own them. The catch, of course, for individuals and fund shareholders is paying the capital gains tax that's due as a result of selling those securities for a profit.

"All things being equal, you would probably prefer capital gains over dividend income because dividends are taxed at ordinary income rates. And the capital gains rates are typically less than your ordinary income tax rate," says Clay Singleton, a vice president at Ibbotson Associates.

No matter how you slice it, the market is a different animal than it was five, 10 and 20 years ago. As a result, older investors can't expect things to be as they once were and those entering it for the first time today, can't expect the current market trend to go on indefinitely, either.

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