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Fund Times: Vanguard Plans New Dividend Fund

Plus, currency funds clean up and Vanguard broadens emerging-markets fund's reach.

Morningstar Analysts, 08/28/2006

Vanguard announced Thursday it has filed with the SEC to launch a new dividend-focused fund.

The Vanguard High Dividend Yield Index Fund will be launched in the fourth quarter of 2006 and will be available in traditional investor shares and ETF shares. The fund will track the performance of the FTSE High Dividend Yield Index which is market-cap weighted.

The fund will charge 0.4%, which is more than Vanguard's other large-value index funds and even Vanguard's actively managed divided funds.

In addition, Vanguard said two new index funds are now open. Vanguard Mid-Cap Value Index Fund, which tracks the MSCI US Mid Cap Value Index, and Vanguard Mid-Cap Growth Index Fund, which tracks the MSCI US Mid Cap Growth Index, are also available in Investor and ETF shares.

The Investor Shares of Mid-Cap Value Index and Mid-Cap Growth Index each require a minimum initial investment of $3,000 and have an estimated expense ratio of 0.25%. The ETF shares of the funds are expected to have expense ratios of 0.13% each.

Vanguard Switches to Broader Emerging-Markets Index
Vanguard announced it has adopted a wider-ranging index for its emerging-markets index fund. As a result markets such as Russia and Malaysia will now be included. Vanguard Emerging Markets Stock Index VEIEX adopted the MSCI Emerging Markets Index as its target benchmark. Previously, it tracked MSCI's Select Emerging Markets Index, which was developed exclusively for Vanguard by MSCI to reduce risk by excluding certain countries because of concerns about illiquidity, repatriation of capital, or entry barriers to those markets.

"The Select Index has evolved over time and now essentially reflects the broader MSCI Emerging Markets Index, which comprises more than 850 issues from 25 emerging markets countries," said Vanguard chief investment officer Gus Sauter. Vanguard said the switch is not expected to cause it to distribute capital gains to shareholders.

Falling Dollar Boosts Some Currency Funds
Weakness in the dollar has spurred returns in currency funds designed to either bet against the dollar or diversify away into other currencies.

For the year to date through Aug. 23, Rydex Dynamic Weakening Dollar RYWBX is up 12.77%. Meanwhile, Merk Hard Currency MERKX is up 8.76%, ProFunds Falling U.S. Dollar FDPIX is up 7.53%, and Franklin Templeton Hard Currency ICPHX is up 7.01%.

A slowing economy, continued inflationary pressure, and a pause in Fed rate hikes has undermined the dollar this year.

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