US Mutual Funds Multiply, Spawning Many New Hybrids

INTENSE competition from banks, insurance companies, and Wall Street brokers has made the mutual fund industry particularly skilled at introducing unusual products to lure investor dollars.

In recent years, traditional equity and bond funds have been joined by a host of diversified funds, including precious metals, European, Asian, "good works," adjustable-rate mortgages, and corporate bond funds.

As mutual funds proliferate by the hundreds, investors need more and more information to distinguish between funds. The complexity of new funds requires more care, time, and analysis in picking the right one.

Mutual fund companies love to create hybrids - funds that defy easy categorization. They include a "little bit of this and a little bit of that," says Frank Holmes, chairman and chief executive officer of United Services Advisors Inc., which manages a family of 14 mutual funds in San Antonio. A unique new hybrid fund

United Services Funds has just introduced a fund that does not fit ordinary categories. The new fund represents a case study of how mutual fund companies constantly look for "unique" products. Opened to the public this month, the no-load United Services Special Term Government Fund cheerfully combines the higher yield of a bond fund with the security and interest rate sensitivity of a money-market fund. It also has characteristics associated with both ARM and ARP funds - that is, funds based on adjustabl e-rate mortgages or adjustable-rate preferred corporate securities. But the fund holds no mortgage-backed securities.

Mr. Holmes, a Canadian who bought controlling interest in United Services Advisors in the late 1980s, calls the new fund an "alloy." Don Clark, a company spokesman, has a hard time describing it as well, calling it a "super-super short-term government bond fund." John Collins of the Investment Company Institute, a mutual fund industry association in Washington, says the fund resembles a short-term government bond fund. A spokeswoman for IBC/Donoghue, a research organization that monitors mutual funds, sa ys she would need to "study" the fund's characteristics more thoroughly before attempting to define what it is. Allen Parker, the new fund's portfolio manager, insists that the fund is "truly unique." Company's overall record

United Services Funds, according to several rating agencies, has had the top-ranked government money-market fund in the US for the past 28 months, based on total return and yield. The US Government Securities Savings Fund has assets of some $425 million, and a current yield around 3.41 percent.

The company's new hybrid fund, however - the Special Term Government Fund - has a current yield of 4.36 percent. It operates within these limits: 65 percent of invested securities must be adjustable-rate US government instruments with maturity dates of three to five years (the interest rates are reset every seven, 30, or 90 days); the rest of the portfolio are US government securities.

The current weighted average for the maturity dates of all the securities in the portfolio is 1.26 years, longer than a typical money-market fund, but shorter than many bond funds. Holmes says the fund was specifically designed to offer a higher yield than money-market accounts while paying daily dividends.

United Services is one of the smaller families of funds in the US, with total assets of slightly under $1 billion and a staff of around 100 people. Holmes bought the company for $2.2 million, moving his family to San Antonio from Toronto. Holmes likes the city's relatively low corporate costs. His legal department expenses run about $86 an hour, he says, compared with well over $300 an hour in New York City.