Last March the Dreyfus Corporation said it would close its mid-cap value fund as soon as its assets reached $1.4 billion. At the time, the fund had roughly half that amount in its coffers, a little more than $632 million, and executives guessed it would quickly fill to capacity.

They were right. Dreyfus said last week that the fund had attracted the benchmark $1.4 billion, doubling its size in about nine months. It shut its doors to new investors on Jan. 7.

In a year in which most equity funds posted negative flows, a host of funds that invest in mid- to small-cap stocks have attracted so much in assets that they have chosen to close their doors to new money. To name just a few, Boston Partners Asset Management's Small Cap Value II Fund, Artisan Fund's Mid Cap Fund and MPM Capital's BioEquities Fund have all closed to new investors in the past month.

"The industry as a whole has not had a great year in 2001, but you always have to look behind the overall statements to the details that are there," said Don Cassidy, a senior analyst at Lipper. "If you were a small fund shop and you managed a small-cap value fund and a small-cap bond fund, you had a heck of a year."

Between January and November of 2001, mid-cap value funds saw net inflows of about $16.3 billion, while mid-cap growth products posted inflows of only $4.5 billion, according to Financial Research Corp. And last November alone, small-cap value products attracted more than $1.2 billion and mid-cap value funds attracted $486 million.

Analysts say the spate of closures is largely the result of smaller-cap funds' sensitivity to the amount of assets under management. "It's the one area that's performing well and, therefore, getting inflows," said Russ Kinnel, an analyst at Morningstar. "And it's most sensitive to asset size."

Maintaining Maneuverability

So, time and again, when funds close to new money, portfolio managers say they are trying to preserve the fund's ability to maneuver adroitly among mid- to small-cap stocks, easily getting in and out of those equities when the getting is good. In fact, of the 54 funds that closed to new investors in 2001, 11 were value products and 15 were small-cap funds, Cassidy said.

Kurt von Emster, who manages MPM's BioEquities Fund, a small-cap fund that is now closed to new investors, said that until November of last year he had managed a biotech fund for Franklin Templeton. That product grew to $1.7 billion, which proved too unwieldy to invest in stocks with smaller capitalizations. When he took over the MPM product he decided to avoid the problem by closing the fund to new money.

"It was too large to do a lot of that smaller-cap investing, which is something we want to be able to do here at MPM," he said.

Overall, the number of fund closures has risen markedly. Thirteen funds, many of them international products, closed to new investors in 1998. The next year 27 funds closed to new money. There were 78 the year after that. And, in 2001, 51 funds shuttered to those who didn't hold shares.

Slight Slowdown

Analysts say the pace slowed only slightly in 2001 for the same reasons the entire industry slowed: a slumping economy and the terrorist attacks in September. But they point out that not all of the closures were due to a massive influx of assets.

In some cases, funds were re-branded or shut down altogether after mergers or changes in strategy. For example, Mercury Funds, a unit of Merrill Lynch, said it closed some funds to new investors after assets dwindled and executives decided to stop selling the products through third parties. And Zurich Scudder closed more than two dozen funds in December of 2000 after its merger with Kemper, a spokeswoman said.

Kinnel speculates that half of the closures in recent years have been the result of mergers between fund companies. Many other closures, he said, are the result of changes in strategy. "But certainly the real closing was driven by small growth putting up huge numbers and being sensitive to inflows," he said.

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