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Vanguard Files To Offer Exchange-Traded Shares For Five Index Funds
05/12/2000 Dow Jones Business News (Copyright © 2000, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- Mutual-fund giant Vanguard Group is seeking regulatory permission to offfer a new type of share class for five of its nine stock-index funds that would act like exchange-traded funds. Vanguard, which has thrived for years by offering low-cost stock funds, said the share class, called "Viper" shares for Vanguard Index Participation Equity Receipts, will be listed on the American Stock Exchange. The funds which filed to register a Viper class of exchange-traded shares are Vanguard 500 Index Fund, Vanguard Growth Index Fund, Vanguard Total Stock Market Index Fund, Vanguard Value Index Fund and Vanguard Small-Cap Index Fund. Index mutual funds, traditionally the lowest cost provider of mutual fund portfolios, are being challenged by exchange-traded funds, which are mutual-fund-like vehicles that trade over an exchange like a stock. Exchange-traded funds cost less than index funds because the asset-management firms that sponsor them don't deal directly with the individual investor through expensive telephone centers and retail offices. The Viper shares differ from conventional mutual fund shares in that they trade continuously at market prices on the American Stock Exchange rather than the calculated net asset value of the fund determined at the end of the trading day. Given this flexibility, Vipers shares are expected to appeal primarily to short-term investors. Vanguard has yet to determine the expense ratios for the Viper shares. The move by Vanguard, the second largest mutual fund company, comes amid heightened competition in the marketplace for index investors. Barclays Global Investors, a huge presence in the pension-investing world. is preparing over the next four weeks to unveil 28 new index funds that will also trade on the American Stock Exchange. The exchange-traded funds will track everything from the total U.S. stock market to industrial and Internet sectors. The flagship Barclays product, iShares S&P 500 Fund, will mirror the big-company Standard & Poor's 500-stock Index and will have an annual expense ratio of 0.08% to 0.10% of assets, people familiar with the situation told The Wall Street Journal. That's about half the price currently paid by investors in the $105 billion Vanguard 500 Index Fund. (Compiled from Dow Jones Newswires and other sources) Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved. Daily Update -- McGraw-Hill Sues Vanguard Over Planned Vipers Funds 06/08/2000 Dow Jones Business News (Copyright © 2000, Dow Jones & Company, Inc.) Dow Jones Interactive Financial Services Update For June 8, 2000 Today's top stories as of 4 p.m. EDT: - McGraw-Hill Cos., on behalf of its Standard & Poor's Corp. unit, has filed a lawsuit in federal court charging the Vanguard Group Inc. with breach of contract and trademark infringement in connection with the mutual fund company's proposed new Vipers exchange-traded funds, or ETFs. McGraw-Hill's suit alleges Vanguard breached the companies' 1988 license agreement by using Standard & Poor's proprietary indices and trademarks for the Vipers exchange-traded products without permission. Officials from Vanguard, the nation's second largest fund firm, weren't immediately available to comment on the lawsuit. Exchange-traded funds are a hybrid version of index mutual funds that can be bought or sold during the day at market prices instead of at the once-daily 4 p.m. price used by traditional mutual funds. ETFs are single shares of stock that replicate an index such as the Standard & Poor's 500. Standard & Poor's currently has more than 400 license agreements for uses of its indices and trademarks, including agreements related to ETFs, according to McGraw-Hill. McGraw-Hill wants to prevent Vanguard from using S&P's indices and trademarks in connection with Vipers or any other exchange-traded security. The complaint also seeks an order requiring Vanguard to withdraw its Securities and Exchange Commission application for Vipers, and seeks an order declaring Vanguard liable for unspecified damages and attorneys' fees. - Liberty Financial Cos. confirmed it is in talks to acquire Wanger Asset Management L.P., which operates the Acorn mutual funds. The Wall Street Journal reported Thursday that Liberty (L), a Boston-based asset-management company, would pay about $450 million for Wanger, a Chicago investment company that has been on the SELLING block for several months. The Journal said the reported price of the transaction, which equals about 6% of Wanger's $7.3 billion of assets under management, would be considered a healthy one for a mutual-fund company and follows a recent trend of well-priced deals. Pioneer Investment Management was bought last month for $1.2 billion, about 5% of assets, even as the firm's management was being sharply criticized by shareholders and its funds were suffering big withdrawals. The typical price for a fund firm had been about 3% of assets, depending on how the assets were invested. Wanger was considered attractive because most of its assets are in highly profitable stock mutual funds. Liberty, majority owned by Liberty Mutual Insurance Co., has about $67 billion in assets and 95 mutual funds. - Midwest bank National City Corp. will sell about $2 billion in student loans as part of a restructuring of its balance sheet. The company said the sale, expected to close in the second quarter, will result in a pretax gain of about $75 million. In addition to the student loan sale, National City is also evaluating other alternatives. Some would require the recognition of losses, given current market conditions. Cleveland-based National City (NCC) reported a decline in first quarter net income as borrowing costs rose more than loan rates. Last November the bank warned analysts to reduce profit estimates as the spread between its borrowing costs and lending rates shrank. The problem for National City and many banks is the failure of deposit growth to keep pace with loan demand. That forces them to fund loans with money borrowed at higher rates in the capital markets. National City expects its balance sheet reorganization to be complete by the end of the third quarter. - Led by a fall in the typical interest rate on a 30-year fixed mortgage, rates declined in a weekly survey from Freddie Mac. The mortgage buyer (FRE) said the average rate lenders were seeking on a fixed, 30-year mortgage fell to 8.32% for the week that ends Friday. That is down from 8.54% last week. The average rate for a fixed, 15-year mortgage was 8.04%, down from 8.24%. The rate for one-year, adjustable rate mortgages, or ARMs, slipped to 7.24% from last week's 7.25%, which was the highest since April of 1991. The Freddie Mac survey appears to confirm that mortgage rates, which rose to their highest level in five years in May, may have eased a bit. HSH Associates, a Butler, N.J. financial publisher, said the average rate for a 30-year fixed-rate mortgage fell to 8.4%, down from a high of 8.79% for the week ended May 19. "I wouldn't call it a rally, but we are getting some relief," Keith Gumbinger, an analyst at HSH told The Wall Street Journal. Recent economic data - including a Labor Department report last week showing a rise in the unemployment rate - suggest the economy is cooling. That has calmed fears about inflation, sending interest rates for Treasury bonds and mortgage-backed securities - which mortgages follow - lower. --- This newsletter was assembled from Dow Jones Business News in the Newsstand section of Dow Jones Interactive, http://djinteractive.com. Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.
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