The $224 billion TIAA-CREF pension system has opened six low-cost funds to all comers, challenging Vanguard's position as the low-cost leader in mutual funds. TIAA-CREF previously offered its investment services only to employees of educational and research institutions.

Two of the funds, Money Market and International Equity, have expense ratios of 0.29 percent and 0.49 percent, respectively - at or below Vanguard's offerings in those categories. The four other funds are almost as cheap as Vanguard's.Moreover, says Martin Leibowitz, chief investment officer of TIAA-CREF, fees on all six funds will drop as assets grow. "This is just our opening shot. We're obsessed with low expenses."

TIAA-CREF (1-800-223-1200; has lower initial minimums than Vanguard. It requires just $250 - or a mere $25 if you sign up for an automatic investment plan through your bank. Vanguard requires a minimum initial investment of $3,000 to get into most of its funds.

TIAA-CREF's funds - which also include Bond Plus, Growth Equity, Growth & Income and Man-aged Allocation - are too new to have meaningful track records. But they will be run much like the variable-annuity accounts through which teachers and other clients have invested for decades with TIAA-CREF (short for Teachers Insurance & Annuity Association-College Retirement Equities Fund). The variable annuities have solid long-term records, with performance that is quite close to that of the indexes they track.

While Vanguard emphasizes index funds, TIAA-CREF manages much of its assets using an "enhanced" index strategy. Computer-driven models attempt to pick stocks that will outperform an index while exhibiting less volatility. Leibowitz asserts that enhanced indexing has helped TIAA-CREF's performance.

Growth Equity fund attempts to beat the Russell 3000 Growth index, a broad-based index of growth stocks. Manager Jeffrey Siegel says he "looks for world-class companies with great management teams."

He and Carlton Martin, manager of Growth & Income (which attempts to outperform the S&P 500), assemble their portfolios stock by stock, rather than by identifying stocks that are likely to benefit from investment themes.

Bond Plus invests primarily in high-quality bonds but may invest up to 25 percent of the fund's assets in either high-yielding "junk" bonds or in privately traded bonds.

Managed Allocation is a fund of funds that invests in TIAA-CREF stock, bond and money-market funds, at no extra cost to investors. It holds between 45 percent and 75 percent of its assets in stocks, depending on market conditions.