(MONEY Magazine) – THIS MONTH: --Making sure funds do what they say they do --How funds are faring vs. the indexes

A good cook keeps a mental list of substitute ingredients: If you run out of hamburger for your meatloaf, you can chop up some walnuts, bread crumbs and onions, and most people won't be able to tell where the meat ran out and the other stuff took over. Smart investors need to approach mutual funds the same way: You should know how to come up with a suitable substitute when a fund you like starts to change its stripes or becomes unavailable.

That's truer than ever, given the recent reminders that top fund performance, and ready access to managers who have achieved it, are perishable commodities. In May, Jeff Vinik resigned from the helm of Fidelity Magellan, the world's biggest and best-known fund, after lagging the market in 1995 and early 1996. In June, T. Rowe Price announced that it would no longer allow new investors to buy into its $4.1 billion New Horizons fund, the granddaddy of all small-stock funds. Later that month, renowned value investor Michael Price of the $17 billion no-load Mutual Series funds sold his company to Franklin Resources. Price plans to begin turning over the funds to his lieutenants in about two years (for more on Price's plans, see Money Pro, page 175). To help investors who may now be hesitant to invest with Magellan and Mutual because of the recent changes--and those shut out of New Horizons--this story will offer some reasonable alternatives.

Before getting down to specifics, though, here's some advice that applies to any investor looking for a substitute fund. You should first determine the specialty of the fund for which you're seeking a stand-in: Does it buy big stocks or small? U.S. stocks or foreign? Cheap value stocks or higher-priced fast growers? The type and style columns in the comprehensive mutual fund tables that appear in Money's August and February issues will help you sort this out, as will the style boxes in Morningstar Mutual Funds, available in most public libraries. Set the latest annual or semiannual reports (which you should request along with the prospectus) of the original and the substitute fund side by side to see how many holdings they have in common.

Now let's start with Magellan. Eric Kobren, executive editor of the FundsNet Insight newsletter in Wellesley, Mass., believes Magellan's new manager, Robert Stansky, 41, will remake Magellan into a mainstream growth fund well worth buying. But he notes that as Magellan evolved over the years, it has drawn investors seeking different things. For those who bought Magellan as an all-weather fund with low risk and solid returns, Kobren recommends Neuberger & Berman Guardian. Co-managers Kent Simons and Lawrence Marx, with 60 years of Wall Street experience between them, buy and hold stocks trading at low price/earnings and price/cash-flow ratios. Over the past decade they've nearly matched the market's 13.9% return with 8% less risk than the average equity fund. For investors who looked to Magellan as a swing-for-the-fences fund that could produce market-trouncing returns, Kobren suggests SteinRoe Capital Opportunities, run by Gloria Santella, 38, and Eric Maddix, 31. "This is a very high-octane fund," says Kobren, "but its avoidance of new issues and other highly speculative stocks has helped preserve value in weaker markets."

As substitutes for T. Rowe Price New Horizons, Sheldon Jacobs, editor of the No-Load Fund Investor newsletter in Irvington, N.Y., suggests three funds we rated among the least risky of this year's volatile top performers in last month's cover story, "Which Funds Are Too Hot": Fremont U.S. Micro Cap, run by value-hunting veteran Robert Kern, 60; Montgomery Small Cap Opportunity, managed by Michael Carmen, 34, who also follows a value discipline; and PBHG Core Growth, headed by growth seeker James McCall, 42. Like all small-cap funds, they've taken quite a beating recently--but that may make them a little less vulnerable to steep short-term declines than they were at their peaks in May. "Which one you'd pick depends on how small you want your small-cap stocks to be," says Jacobs. Fremont's typical stock has about $123 million in market value; Montgomery weighs in at about $675 million; and PBHG Core averages about $1.7 billion. By comparison, T. Rowe Price New Horizons' typical holding has about $1.1 billion of stock on the market.

Mutual Series' Price is a tough act to duplicate; he buys oddball foreign companies, rarely seen securities of bankrupt firms and big hunks of sluggish outfits in need of a shake-up (like Chase Manhattan, where he helped precipitate a merger last year). Ken Gregory, editor of the No-Load Fund Analyst in Orinda, Calif., suggests blending two funds: Third Avenue Value, run by Martin Whitman, 71, who also finds opportunities in bankruptcies and other oddities, and SoGen Overseas, managed by Jean-Marie Eveillard, 56, who likes such offbeat investments as Third World bonds, gold-mining stocks and French sugar companies. That doesn't make a perfect replica, but it's about as close as you can get.