Is Vanguard's Primecap Ready to Close?

Of the nation's 45 largest equity funds, Primecap was the only one to beat the 33.36% gain of the Standard & Poor's 500 stock index, according to Lipper Analytical Services. It finished 1997 with a 36% return. Investors have noticed the fund's amazing run; Primecap doubled in size to $8 billion during the year. Weiner says that in December alone, the fund took in $200 million in new net cash compared to Vanguard's Index 500 fund (VFINX), which attracted just $160 million during the same period. PRIMECAP invests primarily in mid-sized companies.

Given that the fund's five-year performance of 24% annually places it atop most five-year charts, Vanguard can expect an even more dramatic onslaught of cash going forward. The last time there was a Primecap feeding frenzy -- back in March 1995 -- Vanguard quickly shut the fund and kept it closed for more than a year-and-a-half. Vanguard reopened the fund in October 1996, when the market cooled to small and mid-capitalization stocks.

If you believe that history repeats itself, says Wiener, it only makes sense that Vanguard is probably gearing up to shutter Primecap again. Right now Windsor (VWNDX) is the only Vanguard fund closed to new investors and Vanguard won't say if it is preparing to follow suit with Primecap. But spokesman John Woerth gives a less than convincing denial: "Vanguard has no immediate plans to close the fund," says Woerth. "That said, we continue to monitor the asset levels and cash flows of all of our funds and will close a fund when we deem it is in the best interest of shareholders."