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EXPENSE-RATIO STUDY
by Paul W. Harvey

SUMMARY: The main part of this study is a list of 55 funds that have had 5 or more consecutive years of epense-ratio declines since 1989. The list is preceded by a description of 4 conditions that were set for inclusion in the list. It is followed by shorter lists that highlight the 5 or 10 funds with the lowest ER's at the beginning (or end) of the study, the families with the greatest number of qualifying funds, etc. etc.

INTRODUCTION: A lot of money has flooded into the mutual fund industry during the 1990s. Some fund managers have used the expanding asset bases of their funds to realize the economies of scale that such expansion makes possible. Such economies of scale make it possible for expense ratios to decline, a situation that is good for both fund manager and shareholder, yet a surprisingly large number of fund managers have chosen not to take advantage of it. This study aims to highlight those funds that have chosen to bring their expense ratios down year after year: 5 or more consecutive years, to be exact.

In addition to the 5-year minimum requirement, I have set 4   broad conditions for inclusion in this study: (1.) Funds had to be listed in the 1998/9 edition of "Morningstar 500," which was published last month. If your favorite fund qualified for the  list but isn't here, it couldn't have been helped. While I recognize that there are decent funds that aren't listed in "M* 500," I am also convinced that the funds that are mentioned are funds that matter. (2.)Funds that had expense ratios of "0" were disqualified on the grounds that the fund family was probably subsidizing them, especially in their early years. (Franklin is notorious for doing this.) A few funds in this category were funds-of-funds, which would have required me to do extra work to track down the ER's of all the funds that make up the FOF. That kind  of extra work I can do without. (3.) The study was limited to the 443 open-end funds listed in "M* 500." The 57 closed-end funds in the book are not subject to the same inflow and outflow of assets as the open-end ones. besides, a lot of closed-ends are single-country funds that have special problems not encountered by U.S. or diversified global/foreign funds. But even with this limitation, the range of asset classes was wide: everything from tax-free bonds to health-care or Asian emerging-markets stocks. (4.) If the sequence of declines stopped before 1996 or 1997 (whichever was the last year for which Morningstar supplied earnings ratios), the fund being considered had to maintain its ER at or near the bottom of its range. Most funds passed this test, but Acorn Fund and Vanguard Energy did not.

THE LIST: 55 FUNDS

...AMERICAN BALANCED (ABALX): 5 declines, 1990-1995: ER declined from .84 to .67. 1996 ER was .67. 1990-1996 decline: 20%
...BABSON ENTERPRISE (BABEX): 5 declines, 1989-1994: ER declined from 1.24 to 1.08. 1996 ER was 1.08. 1989-1996 decline: 13%
...BABSON-STEWART IVORY INTERNATIONAL (BAINX): 6 declines, 1991-1997: ER declined from 1.75 to 1.19. Total decline: 32%
...COLONIAL NEWPORT TIGER (CNTTX): 5 declines, 1989-1994: ER dec. from 3.3 to 1.29. 1996 ER was 1.49. 1989-1996 decline: 55%.
...COLUMBIA GROWTH (CLMBX): 6 declines, 1990-1996: ER declined from .96 to .71. Total decline: 26%
...COLUMBIA SPECIAL (CLSPX): 10 consecutive declines, of which 7 fell within period, 1989-1996: ER declined from 1.35 to .94. Total decline, 1989-1996: 30%
...CRABBE-HUSON EQUITY (CHEYX): 6 declines, 1990-1996: ER declined from 1.93 to 1.37. Total decline: 27%
...CRABBE-HUSON SPECIAL (CHSPX): 6 declines, 1990-1996: ER declined from 2.00 to 1.37. Total decline: 31%
...DAVIS FINANCIAL (RPFGX): 5 declines, 1991-1996: ER declined from 2.49 to 1.15. Total decline: 54%
...DODGE & COX BALANCED (DODBX): 7 declines, 1989-1996: ER declined from .72 to .56. Total decline: 22%
...EUROPACIFIC GROWTH (AEPGX): 6 declines, 1991-1997: ER declined from 1.28 to .90. Total decline: 30%
...FIDELITY ASSET MANAGER (FASMX): 5 declines, 1992-1997: ER dec. from 1.17 to .78. Total decline: 33%
...FIDELITY BLUE CHIP GROWTH (FBGRX): 5 declines, 1992-1997. ER dec. from 1.27 to .78. Total decline: 39%
...FIDELITY EQUITY INCOME II (FEQTX): 6 declines, 1990-1996. ER dec. from 2.5 to .72. Total decline: 71%
...FIDELITY FUND (FFIDX): 6 declines, 1991-1997: ER declined from .68 to .59. Total decline: 13%
...FIDELITY GROWTH & INCOME (FGRIX): 6 declines, 1991-1997: ER dec. from .87 to .71. Total decline: 18%
...FIDELITY REAL ESTATE (FRESX): 6 declines, 1991-1997: ER declined from 1.47 to .90. Total decline: 39%
...FIDELITY MAGELLAN (FMAGX): 6 declines, 1991-1997: ER declined from 1.06 to .64. Total decline: 40%
...FIDELITY OTC (FOCPX): 5 declines, 1990-1995: ER declined from 1.35 to .81. 1997 ER was .84. Total 1990-1997 decline: 38%
...FIDELITY WORLDWIDE (FWWFX): 5 declines, 1990-1995: ER declined from 2.00 to 1.16. 1996 ER was 1.18. Total 1990-1996 decline: 41%
...FPA CAPITAL (FPPTX): 6 declines, 1991-1997: ER declined from 1.21 to .84. Total decline: 31%
...FREMONT GLOBAL (FMAFX): 5 declines, 1991-1996: ERT declined from 1.12 to .87. Total decline: 22%
...GAM INTERNATIONAL (GAMNX): 7 declines, 1989-1996: ER declined from 2.74 to 1.56. Total decline: 43%
...JOHN HANCOCK SPECIAL EQUITIES (JHNSX): 5 declines, 1991-1996. ER dec. from 2.75 to 1.42. Total decline: 48%
...JOHN HANCOCK STRATEGIC INCOME (JHFIX): 6 declines, 1991-1997: ER dec. from 1.75 to 1.00. Total decline: 43%
...HARBOR INTERNATIONAL (HAINX): 6 declines, 1990-1996: ER dec. from 1.40 to .99. Total decline: 26%
...JANUS FUND (JANSX): 6 declines, 1990-1996: ER declined from 1.02 to .85. Total decline: 16%
...KAUFMANN FUND (KAUFX): 5 declines, 1991-1996. ER declined from 3.64 to 1.93. Total decline: 47%
...LINDNER DIVIDEND FUND (LDDVX): 5 declines, 1991-1996: ER dec. from .87 to .60. Total decline: 31%
...LONGLEAF PARTNERS (LLPFX): 8 declines, of which 7 fell within the period 1989-1996: ER declined from 1.35 to .95. Tot. dec.:30%
...MFS EMERGING GROWTH (MEGBX): 7 declines, 1989-1996: ER dec. from 2.81 to 2.00. Total decline: 29%
...MUTUAL QUALIFIED, Z SHARES (MQIFX): 5 declines, 1990-1995: ER dec. from .89 to .72. 1996 ER was .75. Tot. dec. 1990-1996: 16%
...MUTUAL SHARES, Z SHARES (MUTHX): 5 declines, 1990-1995: ER dec. from .85 to .69. 1996 ER was .70. Tot. dec. 1990-1996: 18%
...NICHOLAS INCOME (NCINX): 10 declines, of which 7 fell within the period 1989-1996: ER declined from .81 (1989) to .55 (1996). Total decline, 1989-1996: 32%
...NORTHEAST INVESTORS TRUST (NTHEX): 5 DECLINES, 1991-1996: ER dec. from 1.89 to .66. Total decline: 65%
...OPPENHEIMER BOND FUND FOR GROWTH (RCVGX): 5 declines, 1990-1995: ER declined from 2.92 to 1.57. 1996 ER was 1.58. Tot. dec.:46%
...OPPENHEIMER CHAMPION INCOME (OPCHX): 5 declines, 1991-1996: ER dec. from 1.49 to 1.17. Total decline: 21%
...OPPENHEIMER GLOBAL (OPPAX): 5 declines, 1989-1984: ER declined from 1.90 to 1.15. 1996 ER was 1.17. Total decline, 1989-1996: 38%
...OPPENHEIMER QUEST OPPORTUNITY VALUE (OVOPX): 5 declines, 1991-1996. ER declined from 2.35 to 1.62. Total decline: 31%
...T ROWE PRICE EQUITY INCOME (PRFDX): 6 declines, 1990-1996: ER dec. from 1.13 to .81. Total decline: 28%
...T ROWE PRICE EUROPEAN STOCK (PRESX): 6 declines, 1990-1996: ER dec. from 1.75 to 1.12. Total decline: 36%
...T ROWE PRICE GROWTH STOCK (PRGFX): 5 declines, 1991-1996: ER dec. from .85 to .77. Total decline: 9%
...T ROWE PRICE INTERNATIONAL BOND (RPIBX): 5 declines, 1991-1996: ER declined from 1.24 to .87. Total decline: 30%
...T ROWE PRICE INTERNATIONAL STOCK (PRITX): 5 declines, 1991-1996: ER declined from 1.10 to .88. Total decline: 20%
...T ROWE PRICE NEW INCOME (PRCIX): 6 declines, 1991-1997: ER dec. from .88 to .74. Total decline: 16%
...T ROWE PRICE TAX FREE HIGH YIELD (PRFHX): 8 declines, 1989-1997: ER declined from .92 to .74. Total decline: 19%
...T ROWE PRICE TAX FREE INCOME (PRTAX): 5 declines, 1989-1994: ER declined from .66 to .59. 1997 ER was .57. Total decline, 1989-1997: 13%
...PUTNAM NEW OPPORTUNITIES (PNOPX): 6 declines, 1991-1997: ER dec. from 2.75 to 1.06. Total decline: 61% ...PUTNAM OTC (POEGX): 7 declines, 1989-1996: ER declined from 1.63 to 1.11. Total decline: 32%
...SCUDDER GLOBAL (SCOBX): 7 declines, 1989-1996: ER declined from 1.98 to 1.34. Total decline: 32%
...SOGEN INTERNATIONAL (SGENX): 5 declines, 1992-1997: ER declined from 1.37 to 1.21. Total decline: 12%
...USAA INTERNATIONAL (USIFX): 6 declines, 1989-1995: ER declined from 2.30 to 1.31. 1997 ER was 1.09. Total decline, 1989-1997: 53%
...VANGUARD SPECIALIZED HEALTH CARE (VGHCX): 5 declines, 1989-1994: ER dec. from .62 to .19. 1997 ER was .38. Total decline, 1989-1997: 39%
...VONTOBEL U.S. VALUE (VUSVX): 5 declines, 1991-1996: ER declined from 2.54 to 1.43. Total decline: 44%
...WARBURG PINCUS INTERNATIONAL EQUITY (CUIEX): 5 declines, 1991-1996: ER declined from 1.50 to 1.37. Total decline: 9%

(NOTES: the earnings ratios listed above were actually percentages. Thus, an ER of 1.00 was actually one percent. Also, not all funds supplied Morningstar with ER figures for 1997. In cases where it  did not do so, I used 1996 figures.)

MISCELLANEA

Fund Families with the most qualifying funds:

Fidelity: 9 funds
T. Rowe Price: 8 funds
Oppenheimer: 4 funds

Funds with the lowest ER's at the beginning of the period:

Vanguard Specialized Health Care: .62
T Rowe Price Tax-Free Income: .66
Fidelity Fund: .68
Dodge & Cox Balanced: .72
Nicholas Income: .81

Funds with the lowest ER's at the end of the period:

Vanguard Health Care: .38
Nicholas Income: .55
Dodge & Cox Balanced: .56
T Rowe Price Tax-free Income: .57
Fidelity Fund: .59

Hall of shame: Funds with highest ER's at end of period:

MFS Emerging Growth: 2.00
Kaufmann: 1.93
Oppenheimer Quest Oportunity Value: 1.62
Oppenheimer Bond Fund for Growth: 1.58
GAM International: 1.56

Funds with longest unbroken strings of declines:

Columbia Special: 10 years
Nicholas Income: 10 years
Longleaf Partners: 8 years
T Rowe Price Tax-Free High Yield: 8 years

Largest declines:

71%: Fidelity Equity-income II:
65%: Northeast Investors Trust
61%: Putnam New Opportunities
55%: Colonial Newport Tiger
54%: Davis Financial

Smallest declines:

9%: T Rowe Price Growth Stock
9%: Warburg-Pincus Intl. eq.