Closed funds open up questions about investment


You should have Jim Craig's problem.

As portfolio manager of Janus Venture Fund since its inception in 1985, 36-year-old James P. Craig is getting too much money. Or, to be more precise, people are sending him more money than he believes he can profitably invest in small-company stocks that meet his criteria.

By last July 31 -- the end of its fifth fiscal year -- the net assets of Janus Venture had grown to $257 million, primarily because of $195 million in net sales of shares during that year. Many shares had been bought by new investors attracted by the fund's above-average 38.7 percent total return in 1989 or by its No. 2 rank among small-company growth funds for the latest five years, according to Lipper Analytical Services.

But that was only the beginning.

After essentially breaking even in 1990, an off-year for the stock market, Craig has turned in another impressive performance in 1991. Janus has taken first place in its class for the five years that ended June 30. And the inflow of money has turned into a flood of about $450 million in net share sales in the first six months of this year.

With net assets of $475 million -- 30 percent of it in cash equivalents (Treasury bills and commercial paper) -- and more checks arriving daily, Craig decided that couldn't continue. Unable to find enough attractive stocks to put the money to work and unwilling to park more money in cash equivalents, Craig got his management and board to agree to close the fund to new investors after Sept. 30.

It was not an easy decision. For every $1 million invested in the fund, Craig's employer, Janus Capital Corp. (81 percent owned by Kansas City Southern Industries), gets an advisory fee of $6,500 a year. Yet investing in securities yielding less than 6 percent would jeopardize Craig's ability to provide the superior returns his fund's 115,000 shareholders expect. He knows that if they're disappointed, cash could flow out of instead of into the fund.

This is Craig's -- and Janus Capital's -- problem, but it may cause you to think of questions in connection with your own strategy:

1. Is it a good idea to begin to invest in an equity fund when you hear that it will be closed to new investors?

2. Should you stay in a fund that's closed to new investors -- but is not performing as well as you expected -- lest you be unable to get back in if its performance improves?

3. Should you consider getting into a fund that's been closed to new investors when you hear that it's going to reopen?

In all three situations, what matters is whether a fund's investment objective and strategy meet your return expectations and risk tolerance. Also consider whether the portfolio manager is effectively implementing that strategy. Don't rush into an investment that may be wrong for you.

Although Jim Craig has been successful in preserving capital during a down market, Janus Venture, like any small-company growth fund, carries the risks associated with small businesses.

So does Nicholas Limited Edition, whose size was defined at its inception in 1987, when President Albert O. Nicholas limited the shares available for purchase to 10 million. It has 2 million shares to go. Judging by recent sales, Nicholas expects to close the fund this year.

Ironically, it is often success that leads to the decision to close a fund. Unable to find prospects in which they can invest all the money they're attracting, or reluctant to expand research staffs, managers act to protect shareholders.

If you're a shareholder in COM Capital Development, FPA Paramount or Sequoia, which have been closed for years, you're in the hands of "star" managers -- G. Kenneth Heebner, William M. Sams and William J. Ruane, respectively -- whose 10-year records are among the top 10 and who continue to do well. You may properly feel like staying, although Heebner's inclination to be fully invested in stocks -- as opposed to holding cash equivalents -- has caused volatility.

A more difficult dilemma confronts you if you're invested in funds run by "stars" such as Michael F. Price (Mutual Qualified and Mutual Shares) and John B. Neff (Windsor). Their 10-year records have been pulled down a bit by poor results in 1989 and 1990, but they remain near the top. If you share their confidence and are willing to wait, your patience may be rewarded.

If you are tempted when a long-closed fund reopens -- as several have done -- check on the circumstances. Look at the recent performance record and, if it's a good one, confirm that the portfolio manager who made it is still in charge.

But don't hold your breath waiting for funds such as Sequoia to reopen. The $1 billion fund is only 57 percent invested in stocks because Ruane can't find enough undervalued stocks.

Closed funds

Some equity mutual funds that are closed or will be closed to new investors.

Fund types: SG, small company growth; G, growth; GI, growth and income.

.. .. .. .. .. .. .. .. .. .. .. .. .. Total returns for periods

.. .. .. .. .. .. .. .. .. .. .. .. .. ..ended June 30, 1991

.. .. .. .. .. .. .. .. .. .. Closed.. ..5 years 1 year 6 mos.

Fund.. .. .. .. .. .. .Type.. .since.. .. .. Annual rate

Acorn.. .. .. .. .. .. ..SG.. ..1990.. ..9.9% .. ..(1.4%).. .. 23.3%

Calvert-Ariel Growth.. ..SG.. ..1990.. .. ..*.. .. ..0.5.. .. .20.4

CGM Capital Development.. G.. ..1986.. ..13.0.. .. .22.4.. .. .40.7

FPA Paramount.. .. .. .. GI.. **1983.. ..16.7.. .. .14.9.. .. .17.6

IDEX Fund 3.. .. .. .. .. G.. ..1990.. .. ..*.. .. ..8.3.. .. .22.3

Janus Venture.. .. .. .. SG.. .. ***.. ..14.1.. .. .11.9.. .. .20.6

Mutual Qualified.. .. .. GI.. ..1989.. ..10.8.. .. ..4.4.. .. .14.3

Mutual Shares.. .. .. .. GI.. ..1989.. ..10.6.. .. ..4.2.. .. .14.1

Nicholas Limited Edition.SG.. .. ***.. .. ..*.. .. .14.8.. .. .24.7

Sequoia.. .. .. .. .. .. .G.. ..1982.. ..10.9.. .. ..7.4.. .. .17.8

(Vanguard) Windsor.. .. .GI.. **1985.. .. 8.9.. .. ..2.3.. .. .19.1

Standard & Poor's 500.. .--.. .. .--.. ..11.9 .. .. .7.4.. .. .14.2

* Not in operation for all of the period.

** Opened briefly in 1989.

*** To be closed.

SOURCE: Lipper Analytical Services, funds.

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