Although the cost of upgrading computers for the year 2000 is proving to be substantial, it should have a limited impact on the profitability of publicly-traded mutual fund companies.

Nine money management firms which advise mutual funds expect to incur expenses of approximately $119 million to $129 million to upgrade their computer systems for the transition to the year 2000, according to filings the companies made in November with the Securities and Exchange Commission. Another three companies did not state cost estimates for their expenses, but said their so-called Y2K costs do not appear to be significant enough to hurt their businesses.

Among those companies that did give figures, estimated expenses, which in most instances are being incurred over at least two years, ranged from a high of approximately $45 million to as little as $800,000, according to the companies' quarterly reports filed on Form 10-Q with the SEC. There should be more information on fund company expenses soon because today is the deadline for investment advisers to file special reports with the SEC on their preparations for Y2K and the estimated cost of these preparations. Although a wide range of costs have been reported so far, the industry consensus seems to be that the costs are tolerable.

"I hate the connotation that this is a big negative, that this is a big drain on earnings for this business, because I don't think it is," said Joseph Carrier, director of compliance for T. Rowe Price Associates.

T. Rowe, which estimates it will incur expenses of more than $44 million, has used re-programming for the turn of the century as an opportunity to upgrade its computer technology and expand its capacity. Other money management firms which estimated Y2K expenses in November SEC filings include: Alliance Capital Management - $40 to $45 million; NVEST - $10 to $15 million; Federated Investors - $10 million or more; Phoenix Investment Partners - $5.5 million; Waddell & Reed Financial - $4.2 million; the Pioneer Group - $2.5 million; United Asset Management - $1.7 million; and Affiliated Managers Group (AMG) - less than $800,000. Because of the firm's financial structure, AMG said the $800,000 figure did not include all costs which its affiliates will incur for Y2K issues. The companies said they believed the costs would not be excessive.

Another three companies - Liberty Financial Companies, the John Nuveen Co. and PIMCO Advisors Holdings - described their costs as not significant but did not disclose figures for their Y2K estimated expenses in their discussions of their Y2K efforts.

Robert Plaze, associate director of the SEC, said last week that the agency hopes that by the end of December, it will place the Y2K reports for all investment advisers on the SEC's website for public review. Plaze said costs could vary widely. Some firms may have modernized their computer systems in recent years and therefore may need to do relatively little to prepare for Y2K, Plaze said. Some other companies may have lower costs because they use outside companies to do transfer agency work and other tasks, he said.

Pioneer of Boston, for example, has relatively low Y2K costs for a mutual fund company with diverse businesses. The company has used outside vendors to provide most of its technology-based operations, according to the firm's Form 10-Q, filed Nov. 16. Richard Hendrickson, chief information officer, said that in addition to out-sourcing, Pioneer in recent years has been upgrading its internal computer systems, a move which has reduced the need for substantial re-programming and new purchases now. Nevertheless, the company is devoting resources to monitoring the Y2K preparedness of the vendors it uses.

Industry officials and lawyers said it was difficult to generalize about the costs of Y2K for mutual fund companies. Some expenses are embedded in charges which vendors pass along to funds and cannot easily be broken out, fund officials and lawyers who advise mutual fund directors said. In SEC filings, companies also noted that it was difficult to isolate salary expenses for staff working on Y2K and other costs.

Mutual fund companies are "all over the lot" with respect to the costs of becoming Y2K ready, said Bruce McConnel, chairman of the investment company group at Drinker Biddle & Reath, a Philadelphia law firm. "I think it's very hard to generalize." \

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