July 27, 2000
   The insiders' edge for 40 Act industry executives!
an InvestmentWires' Publication
Thursday, July 27, 2000

July 27, 2000

Are ETFs a threat?
From New York Times
So far the threat of exchange-traded funds to mutual funds has been lost in a sea of cash inflows. However, reports from both Strategic Insight and Financial Research Corp/ predict that ETFs will indeed pose a threat to funds. Both reports, according to the paper, are more likely to effect individual stocks than funds. Strategic Insight's Avi Nachmany is quoted as predicting that actively managed versions of the funds will be available in one or two years while FRC forecasts 2002 as a target date with ETF assets reaching $500 billion to $1 trillion by 2007.

How employers cut pensions
From Wall Street Journal
The Journal's Ellen Schultz uses the story of an IBM engineer to explore the ways that companies are cutting traditional pension benefits and turning plans into profit generators. She notes that companies are cutting pension benefits at a time when profits are lush and when most pension funds are fully funded or overfunded. One of the most common ways companies cut pensions, she writes, is by changing one or more of three items (years of service, an average-salary figure and a multiplier) in the formula they use to calculate monthly retirement checks. She also explores other cost reduction strategies such as "wearaway" provisions and employers dropping subsidies for early retirement. She points out that companies often poorly communicate the changes so cuts are seen as increases by employees. One way employers do this is by announcing changes to other retirement plans such as 401(k)'s at the same time as the pension changes, or emphasizing "total" retirement benefits. Last week, the House passed a pension bill containing provisions enabling employers to make further pension reductions, including greater cuts in early-retirement subsidies. The bill would also allow companies with already-overfunded pension plans to put more money in the plans, she writes.

More on Admiral shares
From Wall Street Journal
More coverage of the Vanguard Group's new Admiral shares is provided in the Journal. The paper points out that the expense ratio on the regular share classes may go up 0.01% to 0.03% on some funds (but not the Index 500) to help pay for the program.

Allianz wanted control of banks' fund management
From Wall Street Journal
The failed merger of Commerzbank AG and Dresdner Bank AG provides an example of the complexities of the German fund-management industry. One of the reasons the talks failed was that the two banks could not agree upon a way to restructure their fund-management businesses into a new company. Allianz AG, the company brokering the deal, wanted a 60% stake of the newly formed asset-management company. Commerzbank objected to such a large holding, according to undisclosed sources.

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