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Fund Times: TIAA-CREF Pushes Backdoor Fee Hike

Also, news on Legg Mason, Vanguard, Columbia, Morgan Stanley, and more.

Morningstar Analysts, 05/01/2006

TIAA-CREF took steps to engineer a backdoor fee hike for individual investors in its funds. The firm filed a proxy statement April 21 with the SEC asking shareholders to approve a plan that would fold its retail mutual funds into its institutional counterparts, which employ identical or very similar strategies but will charge significantly higher expense ratios next year. A shareholder vote is slated for Aug. 8.

The vote affects shareholders of TIAA-CREF's 10 retail funds--TIAA-CREF Growth Equity TIGEX, TIAA-CREF Growth & Income TIGIX, TIAA-CREF International Equity TIINX, TIAA-CREF Equity Index TCEIX, TIAA-CREF Managed Allocation TIMAX, TIAA-CREF Bond Plus TIPBX, TIAA-CREF High-Yield Bond TCHYX, TIAA-CREF Short-Term Bond TCSTX, TIAA-CREF Tax-Exempt Bond TCTEX, and TIAA-CREF Money Market.

Under the proposal, the assets of the 10 funds would be dumped into the retail share classes of their institutional counterparts. For instance, shareholders of TIAA-CREF Growth Equity would own the retail share class of TIAA-CREF Institutional Growth Equity TIEQX. (Confusingly, the firm's Institutional funds have institutional, retirement, and retail share classes, with the latter being the priciest.)

Typically, institutional funds are cheaper than retail funds. But in most instances, retail shareholders would end up paying much more under TIAA-CREF's proposal, especially after the firm begins implementing 12b-1 marketing fees in April 2007. TIAA-CREF Bond Plus' expense ratio is a modest 0.30% but would rise to 0.39% when merged with TIAA-CREF Institutional Bond Plus II. With a 0.25% 12b-1 fee, total expenses could rise to 0.64% annually, more than double the fund's current costs.

Also, the retail funds closed to new investors on April 28.

Bill Miller's Case Against Commodities

In his latest commentaryLegg Mason Value LMVTX manager Bill Miller argues the rush to get on the commodities bandwagon by journalists and pension funds alike is yet another sign that we're nearing a ceiling for the category's performance.

"Since the (commodities) rally we are experiencing is already bigger and longer lasting than the one that kicked off the 70's, it takes a determined optimist to say that now is time to be putting money in commodities," Miller wrote.

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