CREF Stock Fund Expenses Spreadsheet

On the other hand, it's disingenuous for CREF to say that the fund expenses are not directly proportional to the fund assets. There's a grain of truth there, but if you look at the second chart on the page linked below, you'll see that as the stock market (and the assets of the CREF Stock Fund) peaked through the later 1990's, the expenses rose as well. As you can see, they have, somehow, not fallen at the same rate as have the assets!

I should add that this expense spiral did not begin on Herbert Allison's watch. In fact, he earned a reputation at Merrill Lynch as a cost-cutter. Somehow, the name of the previous CREF President was not spoken aloud at the 2003 Annual Meeting.

The bad news is that a participant who had the same number of Accumulation Units in the CREF Stock Fund in 2003 that she had in 1999 paid 60% more for the privilege. This is genuine money, not an obscure mathematical quirk. For all CREF Stock Fund participants in 2003, the difference amounted to about $174 million! That's for 2003 only; The additional costs in 2001 and 2002 were less, but still many millions of dollars.

The preceeding paragraph actually understates the cost increase. If you assume that the particpant had the same dollars in the CREF Stock Fund in both 1999 and 2003, the increase is actually 73%. That's how the "SEC table" in a Prospectus is constructed, by assuming someone has exactly $10,000 in a fund at any given time.

This is an illustration of the mutual fund truism that you can make a lot of money by charging a lot of people what appears to be a few extra pennies. Or as Senator Everett Dirksen is supposed to have said, "A billion here, a billion there, pretty soon you're talking about real money".

Is $174 million a "real" number? Well, it has an upper bound, that I chose not to use here, (0.52% - 0.30%) * $86,442,473,667 = $190 million. That's how much more CREF Stock Fund participants paid in 2003 than they would have paid to invest the same number of dollars in 1999.

Don't overlook that an Expense Ratio is the flip side of the Annual Interest a bank might pay you. Just as a person with more money in the bank earns more interest, a person with more money in a mutual fund pays more expenses. That's precisely why it's useful to express mutual fund expenses as a ratio. And that's also why it's true to say that the expenses of each participant in a fund can increase, even if the total costs charged to the fund have been something like "level".

In the spreadsheet above, the yellow line is the total Expense Ratio, as reported in the Prospectus. To me, that's the most important line in the chart.

The two darker blue lines are "manufactured" statistics, because I don't have access to the two real numbers I want, Average Net Assets for each calendar year, and Total Expenses in dollars for each calendar year. For now, I've approximated them (See Note 2), and using that, multiplied by the actual Expense Ratio, to get Expenses in dollars. To be fair, they are not CREF-reported mutual fund statistics.

In most cases, every (non-dark blue) number in each column comes from the "(SEC Filing)" you can click on in the bottom row. (The letters SAI stand for "Statement of Additional Information", which is usually in the same SEC file.) The only exceptions are cells where I had to get the data from a paper prospectus, printed before the SEC began collecting machine-readable filings.