Funds Notebook: Marsico's a Believer in Microsoft's Case; American Express Launches New Index Funds

Mister Softee's not going down without a fight.

That's what one of the most successful investors of the 1990s says in the wake of a federal court ruling Friday that Microsoft (MSFT) is a monopoly.

"I do not think this case will be settled, and I do not think Microsoft will be broken up," says Tom Marsico, the S&P 500-beating manager who ran the highly successful (JAVLX)Janus Twenty fund from 1988 until 1997. In August, Microsoft was among the top holdings in his $2.3 billion (symbol)Marsico Focus fund, which he now runs at his own Denver firm, Marsico Capital Management.

Marsico told a group of journalists Tuesday in New York that several of U.S. District Judge Thomas Penfield Jackson's past rulings have been overturned by appellate courts and that he sees a good chance of the judge's final decision suffering a similar fate.

"The bottom line is, I don't see any harm to the consumer," Marsico said in an interview. "I believe the market is moving beyond the desktop model."

On Friday, Jackson found that Microsoft leveraged its dominant position in its Windows operating system to stifle innovations in the software industry and deter investments in rival technologies.

In May of 1998, the federal government and 20 states sued Microsoft for allegedly violating the Sherman Antitrust Act. The company withstood often damning testimony during the course of an 11-month trial.

But Marsico said that software and computers are increasingly headed toward an Internet-based platform, an area in which many companies, including Microsoft, are currently scrambling to compete.

When asked how much he thought Microsoft would spend to keep fighting the federal government, Marsico said that the company has already paid the price for its prolonged fight and that a little more lawyering won't make that much of a difference.

"The cost of litigation is very small at this point. I think the larger concern is if they believe their image is being destroyed."

But Marsico apparently doesn't think the company's image has suffered too much damage. Without saying whether he would buy the stock for his funds, he said a significant decline in its price might mark a good opportunity for investors in general.

Microsoft closed at 88 7/8 on Tuesday, down 1 1/16, or 1.2%.

-- Joe Bousquin

American Express Launches New Index Funds

American Express' (AXP) customers have five new index funds on their menus. While they look like a decent deal for online investors, others might want to leave home without them.

On Monday, American Express launched five index funds, each with two share classes: E shares for online investors and D shares for customers investing through off-line brokerage or wrap accounts with an adviser. While E shares' expenses are generally at or below those of their peers, the D shares' expenses are generally above average.

Online Is Cheaper
Index fund	E shares (online) annual expense ratio	D shares (off-line) annual expense ratio	Average expense ratio for category
AXP S&P 500 Index fund	.39%	.64%	.58%
AXP Total Stock Market Index fund	.49	.74	.28
AXP International Equity Index fund	.64	.89	.87
AXP Mid Cap Index fund	.45	.70	.44
AXP Nasdaq 100 Index fund	.54	.79	.94
Source: Morningstar

Online brokers typically offer index funds to lighten their reliance on revenue from competitive trading commissions, says Dan Burke, an online brokerage analyst with Lincoln, Mass.-based Gomez Advisors.

But while offering funds makes good business sense for American Express and other online brokers, these funds might not always be the best choice for investors.

For example, compared with the (VFINX)Vanguard 500 Index fund's 0.18% annual expense ratio, the annual expense on S&P 500 funds from online brokers Charles Schwab (SCH) (at 0.35%), E*Trade (EGRP) (at 0.32%) and American Express (at .39%) are high.

Burke says online brokerage firms without bricks-and-mortar roots might be more competitive in price than firms like American Express and Schwab, which have extensive off-line brokerage operations.

"They're not the cheapest, and they're comfortable with that," he says.

-- Ian McDonald

AIM Shuts Another Door and Sequoia Stays in the Cellar

TSC reported on Nov. 4 that AIM Funds closed its (ASCOX)Small-Cap Opportunities fund when the fund hit its $500 million asset target that day. On Monday, the firm closed its (GTSAX)Small-Cap Growth fund for the same reason. AIM says there is no current plan or asset target to reopen the funds. Of AIM's four small-cap funds, only one, (ACDAX)AIM Capital Development, is open to new investors.

On Oct. 13, TSC pointed out that (SEQUX)Sequoia fund's dependence on financial stocks had hurt its near-term performance, sticking a pin in the gray market for bootleg shares of the closed fund. Despite a deregulation-led rally for financials since then, the fund is still a bottom-dweller. In year-to-date performance as of Nov. 4, the fund ranked 377 out of 378 funds in Lipper's large-cap core fund category. Not surprisingly, the Internet message-board traffic from investors willing to pay a premium for Sequoia shares has dried up.

-- Ian McDonald

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