The new equity mutual fund classification system unveiled last week by Lipper Inc. appears to be gaining approval from banks' mutual fund arms.

The new system, which will not become official for another six months, replaces broad categories such as growth and income or capital appreciation with more specific ones based on the size of the companies a fund invests in.

The new categories are large-cap, mid-cap, small-cap, and micro-cap, as well as flex-cap-for those funds that do not have at least 75% of their holdings in any of the other categories.

Lipper also plans to classify funds according to five levels of aggressiveness, making it clearer how much risk a given fund involves. These ratings will be: aggressive, growth, general, value, or income.

Fund managers said the system will let investors and brokers make more accurate comparisons among competing funds.

"Now throughout the fund industry you will be able to compare apples to apples," said Glen Martin, a New York-based product manager at Fleet Financial Group's Galaxy family of funds.

The new system will also be more accurate because it will assess portfolios based on their actual content instead of what their prospectuses say they will hold, he said.

"It's certainly a better classification system than what they had, which was much more nebulous," said Richard Weiss, chief investment officer at Sanwa Bank California in Los Angeles.

Under the old system, one of Sanwa's proprietary funds, the Eureka Equity Fund, was in Lipper's growth and income category because some language in its prospectus suggested the fund could use such an investing style.

In fact, Eureka Equity operated as more of a large-cap value fund, which is its classification under the new system.

"No classification system is going to be perfect," Mr. Weiss said. "But this one seems to be cleaner and have more logic to it than the old system."

Likewise, a Galaxy value fund that is now miscategorized as a growth and income fund will be grouped with large-cap value funds under the new system, Mr. Martin said.

Fund executives said it should not be hard to meet Lipper's criterion of having 75% of a fund's holdings in a given capitalization range. Lipper has been using a 50% rule.

But Mr. Weiss said letting a fund have 25% of its holdings outside a capitalization range is too liberal. Such a rule could let a fund manager invest in riskier stocks to improve returns, for instance.

"You can do a lot of funky things with the remaining 25%," he said.

Steve Lipper, senior vice president of the company, told a press conference last week that raising the requirement higher than 75% might make fund managers "sell their winners." In other words, managers might be forced to sell stocks of companies that once fit within the small-cap category but have been so successful that they have grown into mid-caps, for example.

Lipper's effort is a response to the demand for "better and better tools for individuals and investors," said Geoffrey Bobroff, a consultant in East Greenwich, R.I. And it also responds, he said, to demands from those who use 401(k) plans or asset allocation programs for more effective measurement of funds' consistency.

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