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Fund Times: Janus Investors Get Little Payback

Plus, news on Masters' replacement of Ariel, a new Calvert fund, and more.

Morningstar Analysts, 06/11/2007

When Janus Capital Group JNS reached a $226 million settlement with state and federal regulators in August 2004 over its involvement in the market-timing scandal that broke the previous year, $100 million was set aside by the firm to pay out to investors injured by the firm's actions. An independent distribution consultant was charged with figuring out how that money should be distributed, and it recently submitted a proposed distribution plan for shareholder restoration to the Securities and Exchange Commission for public comment. At the end of the 30-day comment period, the SEC will accept the plan as is, reject it, or require the firm to make changes.

Ultimately, the consultant found that total losses (combining dilution, incremental portfolio trading and administrative costs, and total foregone appreciation) amounted to roughly $21 million. That is less than the $100 million Janus has set aside, but the full $100 million will be paid out. Even so, the payouts per shareholder will generally be very small, and any payout amounting to less than $10 will be put back in the fund affected rather than going to the shareholder remuneration. That seems like a reasonable cutoff to us, but it's worth noting that roughly two thirds of individual accountholders are entitled to a payout of $10 or less, and thus will not be getting a check. Those who believe they are entitled to direct restoration should contact Janus and file a claim for the amount lost.

Nine months after all the payments are sent, those payouts of less than $10 along with all remaining money (such as uncashed checks) will be allocated to the seven funds affected in proportion to the losses suffered at each fund. Affected funds include: Janus Mercury (now named Janus Research JAMRX), Janus Adviser Worldwide JDWAX, Janus Worldwide JAWWXJanus Enterprise JAENX, Janus High-Yield JAHYX, Janus Adviser International Growth JIGFX and Janus Overseas JAOSX.

Ariel Replaced at Masters' Fund
Masters' Select Funds' advisor, Litman/Gregory Fund Advisors, shuffled subadvisors at Masters' Select Smaller Companies MSSFX, replacing John Rogers of Ariel Capital with Jeff Bronchick and Tom Kerr of Reed Conner & Birdwell. Bronchick and Kerr have run CNI Charter RCB Small Cap Value RCBAX for almost nine years. Bronchick and Kerr also have previous experience working at Neuberger Berman and GE Capital, respectively.

While we're disappointed to see an esteemed investor like Rogers replaced, Litman/Gregory has replaced strong managers in the past. For example, in late October 2003, Sig Segalas of Jennison Associates was replaced at Masters' Select Equity MSEFX with Glen Bickerstaff and Leigh Crawford of TCW Select Equities TGCEX. At that time, Litman/Gregory president Ken Gregory said his firm thought Segalas wasn't at his best while running a concentrated portfolio, despite having added value during his tenure. We're curious to hear what the rationale was for the Rogers' replacement, but we still think the fund is a strong option.PAGEBREAK

Calvert Launches International Smaller Cap Offering
Calvert Asset Management recently launched Calvert International Opportunities, a socially responsible fund that invests primarily in small- and mid-cap companies. The fund will be subadvised by F&C Management Limited of London, with Sophie Horsfall, the firm's director of global equities, leading the group, and comanagers Jeremy Tigue and Terry Coles backing her. The team will look to the Citigroup/S&P World ex-U.S. EMI Index as a benchmark, and for capitalization range constraints, but it will have a lot of flexibility. For instance, the team can invest up to 20% of its assets in emerging-markets-based firms, and it can search out opportunities in any geographic region of the world. (The portfolio will be unhedged.) After a fee waiver, the expense ratio will be 1.66%, about on par with similar front-load offerings.

PIMCO Moves to Using Duration-Band Approach
In a recent regulatory filing, bond giant PIMCO indicated it was altering the interest-rate approach of several fixed-income funds, moving from a range-bound approach to typical duration (a measure of interest-rate risk) management, to one that emphasizes bands around respective fund benchmarks. For example, the flagship PIMCO Total Return Bond PTTDX previously had a mandate to typically maintain its duration within a three- to six-year range; however, now the fund will normally vary duration to "within two years (plus or minus) of the duration of the Lehman Brothers Aggregate Bond Index, which as of March 31 was 4.50 years," according to the filing. We think the change makes sense because while it continues to allow PIMCO to make bold bets, it also acknowledges that the benchmark's duration is a moving target as rates change. Other funds seeing similar changes (albeit with different ranges and benchmarks) are PIMCO Foreign Bond (Unhedged) PFUAXPIMCO Foreign Bond (U.S. Dollar-Hedged) PFOAX, PIMCO Global Bond Fund (Unhedged) PIGLX, and PIMCO Global Bond (U.S. Dollar Hedged) PAIIX, among other offerings.

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