New York -- The total cost to shareholders of equity mutual funds has steadily declined over the past eighteen years, according to data recently disclosed by the fund industry's trade organization. The data appears to call into question the belief of many industry observers that there has been an overall jump in fund expenses that are being passed on to shareholders.

On average, each equity fund purchase, expressed as a percentage of an investor's initial investment, costs an investor 1.49 percent in 1997, according to the Investment Company Institute, the industry association. That total cost has dropped from 2.25 percent in 1980. That represents a drop of one-third in the last 18 years. But, the ICI also found that operating expenses, one of the two components of "total shareholder cost" along with distribution expenses, have risen to .88 percent in 1997 from .76 percent in 1980.

Although the ICI has not explored the reasons for the increase in operating expenses, the movement of investors into international and small caps funds which are generally more expensive to run, could be a factor, said John Rea, vice president, research and chief economist at the ICI.

Another conference participant, Jonathan Zeschin, managing director of JZ Partners, consultants of Denver, said that the rising cost of portfolio managers is probably a major factor in increased operating expenses. The average compensation for portfolio managers has risen 15 percent a year for the past four years, he said. He also said that technology costs were probably driving up operating expenses.

Although some industry officials have expressed concerns about fees, Erik Sirri, chief economist for the Securities and Exchange Commission, said there is little evidence that investors actually comparison shop for fees. More often, it is a fund's performance that investors scrutinize, with top rated funds seeing large cash inflows.

The problem, however, may lie more in confusion than apathy, said John Markese, of the American Association of Individual Investors which has 180,000 investor members. The proliferation of fees, share classes and expenses has utterly confused many individuals, he said.

"There's no clear way for individuals to judge how to select one fund over another so they fall back on performance," he said. To further complicate the problem, the impact of loads is not reflected in performance numbers while 12b-1 fees are, said Markese.

The real impact of fees often escapes even sophisticated investors, said Markese.

"Most people even with a master's degree couldn't tell you what's in an expense ratio," he said.

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