LIPPER SENIOR RESEARCH ANALYST DON CASSIDY ON KTLK AM-760

Thursday, January 10

A. Sure. Happy to do that. Right now we see 2 major things happening andone minor one that is soon a done deal.

Q. Maybe we should talk about the easy, quick one first...

A. Right. Very soon, certain types of mutual funds (and closed-end fundstoo, for that matter!) may need to be changing either their names orchanging the way they invest.

Q. Is this that new 80%-rule as they are calling it?

A. Yes, exactly. The SEC's Rule 35-D-1 to be precise. Starting July 31,if a fund uses certain specific words in its name, it must invest at least80% (presently just 65%) of the fund assets that way.

Q. So, what effect does that have on investors?

A. Well, you might find the name of your fund would change (if so, thefund company would certainly notify you), ORthey might propose voting on a change in investment objective, ORthey might feel they need to merge the fund into some other fund, and againthat means a vote.

Q. Any example?

A. Well, even before the currency problems, The Argentina Fund decided itcould not guarantee to be at least 80% in local stocks (since the number ofavailable stocks had decreased due to takeovers). So they merged into abroader Latin America region fund. Some investors might have decided tosell because of the change. Just something to be aware of in case you seeit in your mail.

Q. OK, how about the two things still pending?

A. First, there is a bill proposed by U.S. Rep Jim Saxton (R-NJ) whichwould allow mutual fund investors who reinvest their distributions topostpone paying tax on up to $3,000 of reinvested long-term capital gainsdistributions annually. You'd pay the tax only when you finally sold out,rather than each year.

Q. Is this a reaction to the big 1099s of a winter ago?

A. At least in part. There are also tax-parity and fairness issues forsmaller investors vs larger ones involved. The bill, which I first thoughthad no chance due to the new federal deficit, is now gaining some momentumand may come up for a vote. If our listeners have an opinion either way,they should contact their U.S. (not local) Reps and Senators and let themknow.

Q. And what about the other issue Don?

A. Well, it flows from the Enron mess. One of the sad results of thebankruptcy is that a lot of employees, who were forced to put and leavesome Enron stock in their 401(k) plan assets, have now lost it all. Therewill be hearings in Washington about that, and I would expect either somestrict limits, or a ban, on such requirements in the future.

Q. Yes, those workers were really devastated financially.

A. Right. They were forced to have 2 eggs in one basket: both their jobsand their retirement assets were based on company success. That violatesthe spirit of why ERISA was passed years ago. And even huge companies CANget into difficulty. I would always suggest that people NOT voluntarilyadd to their exposure by owning company stock. Just when layoffs mighthappen is also when the stock will have tanked, so you are at risk for adouble blow. It's like investing everything on one industry.

Q. And how does this affect mutual funds?

A. Well, mutual funds by nature are diversified, much more so than owninga single company's stock. So I happen to think a fund is a better choicein a 401(k) than company shares. People might want to check their planrules and go talk to the folks in the HR department and suggest somethinking about changing the rules so they do not become victims of abankruptcy like Enron's. Even if the law is not changed, companies oughtto look at the risks from an employee's viewpoint. That COULD just savethem some legal costs down the road, and save some people more grief.

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Don Cassidy is a Senior Research Analyst at Lipper specializing in fund flows, exchange-traded funds, (ETFs), closed-end funds, equity fund performance, and author of Trading on Volume (McGraw-HIll).