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Fabian Investment Resources is pleased to offer its Mutual Fund Flash--a free advisory for building wealth. You'll find Fund Flash every week at Business Financial Network. For more information on Fabian Investment Resources, visit their web site at: http://www.fabian.com/

February 18, 1999

Let's pause for a second and follow the fees. The average diversified equity
fund charges 1.4% in expenses--loads, marketing costs, research, and
service. Therefore, a fund with $100 million under management brings in 1.4
million dollars to the host family, but a a fund with $1 billion registers
14 million in fees for the factory. That's 1.4 versus 14! Obviously, the
larger the asset base of a given fund, the better off the parent
corporation.

So when a fund grows in asset size, is this good or bad for your portfolio?
Unfortunately, total returns can dwindle. Consider American Century 20th
Giftrust, a small-cap growth fund with phenomenonal numbers in the early
90's, yet a Fabian Lemon by 1998. It
went from less than $30 million in 1990
to the billion mark in 1997, and finished last year with $816 million in
assets. Unable to put the new money to work, Giftrust returned -13.09%, -
3.15% and 7.35% over the last one, three and five years compared with its
Lipper small-cap averages of -.22%, 13.13% and 13.04%.

Are small-cap funds the only ones that suffer from swollen bellies? Not
really. Take a look at Neuberger & Berman Partners. This is a large-cap
growth fund with $4 billion in assets that struggled to keep pace with its
peers. Over the last one, three and five years, it offered 6.28%, 20.21% and
18.17% versus the Lipper benchmark percentages of 22.86%, 22.65% and 19.03%.

So why do so many funds lose their edge when their asset size grows? For one
thing, no one fund can control more than 10% of the voting shares of a given
stock. Therefore, managers must find more places to put new cash to work.
Now a fund that may have held 30 highflyers is holding a mixed bag of 130
picks. Standards for stock selection inevitably slip and the effect of any
individual holding on the fund's total return is mimimal.

What do you wind up with? If you're lucky, your overweight investment may
start to smell like an index fund. Then again, that stocky stock vehicle
could find its way to the Fabian Lemon List.

If you're concerned about asset size, consider several alternatives. You
might invest in large-cap funds that go after the biggest blue-chips, since
it is difficult for any fund to reach an acquisition limit of 10%. Another
strategy that I like is looking for relatively undiscovered gems in the
growth and growth-and-income categories--funds that are lean in the way of
assets. Two candidates that come to mind are Janus Equity Income and
Transamerica Premier Equity Investment. They have 200 million and 267
million under management respectively.

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