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Funds Notebook: No. 1 Frontier Fund Not Exactly a Core Holding

Also: Erin Sullivan's Valentine surprise and Kemper's tax-season special for brokers.

The latest oddball fund to lead the pack this year is


Frontier Equity. It's up 76.2% and is the year's top-returning fund through last Thursday. But it's expensive and looks an awful lot like a one-hit wonder.

The fund sports an ultra-steep 8% sales charge, or load, and annual expenses totaling a staggering 19.7%, according to



James Fay has run the Pewaukee, Wis.-based fund since its April 1992 inception. Since then the fund has built an asset base of just $1 million. That's probably because it didn't finish a single calendar year in the black until last year, when it posted a 48.9% return. It lost nearly 40% in 1997 -- more than 27% in that year's fourth quarter alone.

What's under the hood? That's hard to say. The fund doesn't appear to have a Web site and apparently neither does

Freedom Investors

, the fund's adviser, which Fay has run since 1988. A call to the firm didn't even go through.

The most recent public portfolio information -- nearly a year old -- shows an odd lineup. Most of the fund's 11 holdings were invested in obscure micro-cap tech stocks.

Still, the fund is not as undiversified as the $5 million


American Heritage, another very expensive fund that topped the charts for a period in early January. American Heritage has invested about two-thirds of its assets in just two stocks for years. (See our recent

story on the fund.)

Sullivan's Valentine's Surprise

Apparently Erin Sullivan's Valentine's Day

TheStreet Recommends

resignation as manager of the $17.2 billion

(FDEGX) - Get Fidelity Growth Strategies Fund Report

Fidelity Aggressive Growth fund really was a surprise.

Early the next morning a commercial for the large-cap fund and its 103% 1999 return ran on


. There was

Peter Lynch

, market sage and (some say)

Andy Warhol

look-alike, hawking the fund as part of the firm's "invest responsibly" campaign, while the 29-year-old who cooked up that hot return was probably busy checking out office space for her new hedge fund.

Robert Bertelson, named as her successor on the fund, will be hard-pressed to approach her record, let alone match it. Sullivan took over the portfolio in April 1997, and over the past three years the fund's 52.7% return beats the

S&P 500

index and 97% of the fund's peers, according to



On a side note, since Andrew Kaplan's Wednesday

resignation from Fidelity, where he ran

(FSPTX) - Get Fidelity Select Technology Report

Select Technology and

(FSDCX) - Get Fidelity Select Commun Equipment Report

Select Developing Communications,


has been inundated with emails from investors wanting to know where he works now. Fidelity is characteristically mum on the subject, and even Fido watchers and insiders say they don't know.

So, Andrew, if you have a moment, click on the byline above and drop us an email to end the mystery. And if you've taken a job at Erin's new firm, let us know what the company's called. Readers are chasing her too.

Do Extra Payouts Tempt Brokers?

If your broker is suddenly pitching


funds for your IRA -- and never has before -- ask whether he or she is offering the fund for its quality or for its boosted broker commissions.

From Jan. 1 through April 30 -- coinciding with tax season -- Kemper is paying a higher commission to certain brokers on sales of at least 39 of its 50 funds in IRA accounts, according to paperwork filed with the

Securities and Exchange Commission

. It's a common, but little-known, promotional technique called full dealer

reallowance. To many, the practice represents a conflict of interest, and you probably won't know if your broker is participating unless you ask.

Here's how reallowance works: When you buy a fund with a sales charge, also known as a load, the fund company keeps some of that money, usually 0.5% to 0.75% (0.5% in Kemper's case). The rest goes to the brokerage firm, which uses part of it to pay the broker who sold you the fund.

When a fund shop offers reallowance, it agrees to pay its portion of the load to the brokerage firm for a promotional period, four months in this case. The extra payout gives brokers and brokerage firms an added incentive to sell the funds.

"Most brokers aren't on the take, but an offer like this is aimed at the guys who don't have any particular loyalty to their clients," says Frank Armstrong, a former broker, now a fee-based financial planner in Miami, and a critic of the practice.

Kemper didn't return calls for comment on the promotion or which brokerages are participating.

The practice is typically disclosed only in a fund's statement of additional information, or SAI -- a filing usually only available upon request.

The practice is fairly common among broker-sold fund groups, but regulators don't track how often it's used. An unscientific look at SEC filings shows several notable fund shops have cleared themselves to run the promotions, including



Goldman Sachs


Fidelity Advisor


An extra 0.50% to the broker might not seem like much on a $2,000 investment, but it could add up on a rollover IRA, where an investor might be consolidating a large nest egg into one account. For larger investments, an investor can bypass the load. Typically in those cases, the fund company still pays the brokerage the full higher payout.

Often used to promote new funds in a crowded marketplace, reallowance appears to be offered in this case to snag part of the IRA market, where long-term investments boost fund profits. IRA sales typically get a big boost around tax time as investors use tax-deductible IRA investments to lower their previous year's tax bill by April 15.