A recent study has found that 368 of the 497 largest equity mutual funds lowered their operating expense ratios as their assets grew.

The study, conducted by the Investment Company Institute of Washington, D.C., examines the relationship between fund asset size and operating expense ratios. The funds that reported a decrease in their operating expense ratios account for 71 percent of all equity fund assets, the study reveals. The study results were released Dec. 21.

The funds that reported a decrease had an average decrease of 40 basis points, from 1.30 percent to .90 percent, the study found.

"The results of the study are perfectly in-line with what we have witnessed in the industry," said Jeff Keil, a vice president with the Lipper Group of Summit, N.J. "As a fund grows, it can proportionately spend less on operating expenses."

Twenty-one percent of the equity funds examined reported higher operating expense ratios as of year-end 1998, compared to their first year of operation, the study found. The increase was 18 basis points on average, increasing from .77 percent to .95 percent.

The increase for these funds could be attributed to advisory fee schedules that did not have break points, older funds that needed updated technology and increased costs in procuring portfolio talent, Keil said.

The study also found that large equity funds with more than $5 billion in assets have, on average, 50 percent lower operating expense ratios than equity funds with assets of $250 million or less. Large equity funds had an average operating expense ratio of 70 basis points compared to 139 basis points for smaller equity funds.

Because smaller funds have fewer assets, they have proportionately higher operating expense ratios, said Scott Cooley, a senior analyst with Morningstar of Chicago.

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