Mutual Funds
Vanguard closes fund
May 21, 1998: 3:02 p.m. ET

Mutual fund firm closing Trustees' fund and merging it into another
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NEW YORK (CNNfn) - Investors who are planning to hop aboard the Vanguard/Trustees' Equity Fund-U.S. Portfolio mutual fund had better act fast.
     The bus, as they say, is leaving.
     Vanguard Group said Thursday it will close the $195 million fund to new investors at the end of the business day, part of newly proposed plan to merge it into the larger Vanguard Growth and Income Portfolio.
     Shareholders will vote on the tax-free merger in July.

     Valley Forge, Penn.-based Vanguard also said management of the Trustees' fund will be passed on to Franklin Portfolio Associates from current adviser Geewax, Terker and Co.
     Franklin already serves as investment adviser to Vanguard's $3.6 billion Growth and Income Portfolio.
     "The fundamental investment characteristics [between the two funds] over time have become very similar," said Vanguard spokesman John E. Demming. "The expense ratio [differential] will result in cost savings for shareholders."
     The expense ratio for Vanguard's Growth and Income Portfolio hovers at around 36 points, or 17 basis points below Trustees' U.S. Portfolio expense ratio of 53 points.
     The Vanguard Trustees' fund, which attracted some 6,000 shareholders during its 18-year run, is the latest in a series of mutual funds to go off the market in recent weeks.
     So far, more than 20 United States mutual funds have closed or announced plans to close to new investors this year, according to reports.
     "In Vanguard's case, the reason for closing the fund is pretty straight forward," said Morningstar equity analyst Scott Cooley. "The [Trustees'] fund is similar to its other fund and they are just taking assets from one fund and putting into another."
     The reason prompting Fidelity Investments to close a number of its funds as of late are more complicated, he said.
     "I think there is an increasing recognition at Fidelity that fund size can really harm performance," Cooley said. "If they are too big it can be pretty tough to reposition a portfolio. That is something Fidelity didn't acknowledge a few years ago."
     Funds that get too big, he added, encourage fund managers to make macro-buying decisions that are less adaptable to change, rather than relying on traditional stock picking.
     Fidelity Investments last week closed the door on its two-month-old Fidelity Small Cap Stock Fund to new investors.
     The company last month closed three more of its big mutual funds to new investors, while at the same time opening a new fund.
     The three funds closed were Fidelity Contrafund, Fidelity Low-Priced Stock Fund and the top-selling Fidelity Growth & Income Portfolio.

     "There is no single rule that can be applied in deciding whether or not to limit new purchases in a given fund," Fidelity President Robert Pozen said at the time.
     All three funds had doubled in size since the end of 1995. The Growth & Income Portfolio's assets have increased more than $26 billion since December 1995, from $14.8 billion at that time to $40.9 billion at the end of February 1998.
     Fidelity's flagship Magellan Fund was closed to new investors last September.
     Cooley expects more of the same in the months ahead. Back to top


Where to start with funds? May 13, 1998

Mutual fund madness, March 26, 1998



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