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WALL STREET, CALIFORNIA | FUNDamentals / Independent
commentary on individual mutual funds

November 12, 1996

Vanguard Fixed-Income: Short-Term U.S. Treasury

Type: U.S. government bonds Size: $931 million Phone: (800) 662-7447

Sales charge: None Morningstar rating: **** 12-month yield: 5.8%

Total return: YTD: +3.7% 1995: +12.1% 1994: -0.5%

This portfolio keeps on rolling. It continues to provide exceptional performance for its shareholders. Its three-year return is exceeded by only one other short-term Treasury fund. At the same time, this fund's three-year risk score is lower than that of its average short-term peer. The role that expenses have played in this outstanding performance cannot be overemphasized. It is extremely difficult for any manager to continually beat an appropriate benchmark index, and that's especially true in the efficient Treasury market. This fund's low expense ratio (about 0.25% of assets annually) gives it a formidable advantage over most of its peers. In addition, management has frequently used small positions in non-Treasury government debt to boost returns. This fund has yet to disappoint its shareholders, and given its low cost advantage, it is unlikely that it ever will.

--David Harrell for Morningstar, Aug. 30


Capital World Growth & Income

Type: Global stocks Size: $4.6 billion Phone: (800) 421-4120

Sales charge: 5.75% Morningstar rating: ***

Total return: YTD: +15.4% 1995: +21.4% 1994: +1.2%

Things change slowly at this fund, but growth has come quickly. Over the past three years this slow-moving fund, part of the Los Angeles-based American Funds group, has outperformed most others in the world-stock objective, with only a fraction of their volatility. The fund's management team has been able to achieve so much by doing very little. The team does not trade frequently within individual markets: At less than 30% per year, the portfolio's turnover rate is among the lowest in the group. The fund was set up to invest in large blue-chip companies around the world, and there it has stayed and profited. About one-third of the portfolio has been invested in U.S. shares. The fund also has done well by largely ignoring the Japanese market over the past three years. Further, management is hesitant to invest heavily in emerging markets. That reluctance, however, has limited returns this year, as many emerging markets have soared.

--Deborah Weiss for Morningstar, Aug. 30


Warburg Pincus Emerging Growth

Type: Small-company stocks Size: $1.1 billion Phone: (800) 927-2874

Sales charge: None Morningstar rating: ****

Total return: YTD: +6.6% 1995: +46.2% 1994: -1.4%

Over the past five years this fund's choosy appetite for growth stocks has helped its returns outpace the average small-cap growth fund's 17.5% annual return by more than 2 percentage points. Co-managers Beth Dater and Steve Lurito are selective enough about their investments that they insist on visiting a company before deciding whether to buy its stock. Those companies that they believe have effective management, good business plans and a unique product must also have stocks selling at price-to-earnings multiples below their prospective growth rates to make it into the portfolio. Averting potential trouble has been key to the fund's fairly stable relative returns. When the highest-priced technology sectors blew up late in 1995, this fund suffered relatively little damage. The fund has not been so lucky this year, however. Casualties of the midyear correction include some of the fund's health-care and wireless-communications holdings. Even so, this fund is still a savory option.

--Michael Mulvihill for Morningstar, Oct. 11


Star ratings are risk-adjusted performance ratings on a scale of 1 to 5 (5 being the highest), based on at least three years of fund data, with greater weight given to five- or 10-year data if a fund has existed for that long. Funds less than 3 years old aren't rated.


These evaluations are excerpted from Morningstar Mutual Funds. More information about these or other funds can be purchased directly from Morningstar in print or software form. To inquire, call (800) 735-0700. To submit a fund for possible review in this column, write FUNDamentals, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. Fax: (213) 237-7454. E-mail:

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