Anatomy of a Mutual Fund

A peek at how MDL Capital Management handles its investors' money provides clues to how your mutual fund is run

truly based on performance.” A 401(k) plan is a retirement plan sponsored by a corporation for its employees; a 403(b) is offered by nonprofit organizations; and a 457 is one provided by state and local governments.

To achieve its goal of controlled growth, MDL is working toward having $2 billion in assets under management by March 2000 and $3 billion by December, according to Lay.

Part of the process of properly managing MDL’s growth is getting more exposure for its mutual funds in a crowded marketplace. In 1999, the firm took steps toward improving its public profile.

First, MDL entered into an agreement in January 1999 with Fidelity Investments, adding its two funds to Fidelity Funds Network, the mutual fund supermarket service run by the Boston-based mutual fund giant-a popular way for investors to choose from a host of portfolios.

Next, MDL sought another African American financial services firm as a partner in selling its mutual funds. MDL and Atlanta Life Insurance Co. (No. 2 on the 1999 be insurance companies list) are close to reaching a pact to sell MDL’s funds, an agreement that could be in place by May 2000 (“MDL Capital Management, Atlanta Life in Negotiations to Sell MDL’s Mutual Funds,” black enterprise Online, 1/12/00).

In addition to its target of $3 billion in assets by the end of this year, MDL wants to have its funds available in at least five defined contribution plans by September of this year-a goal which has so far eluded it. Lay and Sanders declined to discuss specific retirement plans they’re targeting.

Before MDL launched the funds more than two years ago, Sanders and Lay had to decide how to market the funds, what fees to charge and what should be the minimum initial investment.

Currently, you can purchase either of MDL’s funds for a minimum of $500-low for a no-load mutual fund, Sanders says.

MDL’s natural customer base, wooed by other firms like Ariel Capital Management in Chicago, would be African American investors who want to support an African American-operated fund complex with a track record of solid performance. In order to win those customers, the funds couldn’t have high minimums or fees and needed to have positive returns, explains Sanders.

“The mutual fund investor today is more savvy than he or she was 10 years ago. They’re looking at the expense ratios. Now we couldn’t be as inexpensive as Vanguard, but we were going to make them as low as we could,” says Sanders.

There are no 12b-1 fees-a charge some funds levy to cover marketing and distribution expenses-to eat into your returns. Like all mutual funds, MDL’s have expense ratios, and those costs will slightly diminish your returns.

The equity fund has an expense ratio of 1.26%, or 126 basis points, compared with 1.5% for the average stock fund. The bond portfolio has a 0.96% expense ratio, or 96 basis points, slightly lower than the industry norm of 1% for a fixed-income fund, says Sanders.

This means that although the MDL Large-Cap Equity

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