Products December 6, 2005

Northern Trust Helps Institutions Comply with Sudan Divestment

December 6, 2005 (PLANSPONSOR.com) - Northern Trust Global Investments (NTGI) has announced the creation of seven new institutional index funds to aid US public funds in meeting investment objectives while complying with Sudan divestment mandates.
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“We are pleased to introduce a family of funds that help our current clients and other public and private entities meet a socially-oriented investment objective without undue risk to the long-term goal of funding retirement benefits for public employees,” said Lyle Logan, Senior Vice President and Managing Director of Institutional Sales and Client Servicing for NTGI, in the announcement.

The Northern Trust Special Purpose Collective Trust funds will track the return and risk characteristics of major stock and bond indexes while screening out investments in companies that operate in Sudan.   NTGI said it will rely on an independent research firm to identify companies doing business in Sudan, and has completed extensive due-diligence on the resources of the data sources and methodologies of firms offering this information.

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NTGI will construct portfolios that will minimize the tracking variance caused by the elimination of the divested stocks in “Sudan-free” versions of the following indices:

  • Standard & Poor’s 500 Index
  • Standard & Poor’s Growth Index
  • Standard & Poor’s Midcap 400 Index
  • Dow Jones Wilshire 5000 Index
  • Dow Jones Wilshire 4500 Index
  • MSCI EAFE (Europe Australasia and Far East) Index
  • Lehman Aggregate Bond Index

In addition, Northern Trust will set minimum targets for minority- and women-owned brokerage firms for these funds.

The funds were created to meet the requirements of an Illinois law, passed earlier this year, which orders state public pension funds to divest by July 26, 2007 investment holdings of companies that do business in Sudan (See  Illinois Measure Bars Sudan Investments ).   Similar laws have been passed in New Jersey (See  New Jersey Assembly Bans State Investment in Sudan)and Oregon, and others have been proposed for Indiana, Connecticut, Missouri, New York, Ohio and California, NTGI noted in the announcement.

More information about NTGI is at  www.northerntrust.com .

Administration December 5, 2005

Cisco Proposes New Options Instrument

May 12, 2005 (PLANSPONSOR.com) - Prominent technology company Cisco Systems has thrown a new wrinkle into the ongoing controversy over stock option expensing with a proposal to publicly sell a new options-related security.
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Cisco has proposed to regulators the creation of employee stock option reference securities (ESORS), which it would sell to institutional investors when it issued options to its employees, according to a New York Times report. A key provision in the plan is that Cisco would use the ESORS sales to determine the value of its employee options.

That’s a critical consideration for tech firms such as Cisco because a lower options value would reduce the options’ impact on Cisco’s earnings. In its last fiscal year, Cisco granted 188 million options to employees and disclosed that had if it been forced to take the value of options as an expense, its net income would have fallen by 28%, to $3.2 billion.

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Cisco’s proposal is also important because the company will be one of the first to come under the dictates of the Financial Accounting Standards Board (FASB)’s options expensing rule. That rule goes into effect June 15 for fiscal years beginning after that date; Cisco’s fiscal year begins July 31 (See  SEC Makes it Official: FASB 123 Implementation Date Moved Back Again ).

According to the Times report, buyers of the new instruments would not be able to transfer them and would have options that would vest over five years. Cisco hired the investment bank Morgan Stanley to put together its proposed security, which could be used to set the price of the options of any company wanting to participate.

Under the Cisco plan, securities would be offered to a limited number of institutional investors, so that the company might get a higher price from a smaller market because those investors would have an interest in putting in the time needed to analyze a new and complicated security.  There would also be provisions barring the owners of the derivatives from hedging their positions.

Perhaps the most controversial part of the proposal is that a buyer would not know how many options he would eventually have. That is because the ESORS would mirror the actual experience of employee options, which are canceled when employees leave Cisco, whether voluntarily or not. Last year, Cisco’s annual report states, 52 million options were canceled.

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