And the Lumps of Coal Go to . . .

Dear Santa,

I know how busy you are with shopping mall and holiday party appearances, so I’d imagine that you’re like a lot of investors, struggling to sort winners from whiners. That’s where I can save you time.

I’ve been looking hard at funds for 1996 and have a pretty good idea which funds have been naughty or nice.

With that in mind, here are my choices for awards for behavior, attitude or performance worth nothing more than a lump of coal.

A lump of coal to:

* The people running Quantitative Numeric Fund. After closing their fund to new investors--in order to stay true to a successful investment formula--these guys kept right on charging a 12b-1 fee. This fee is supposed to cover marketing costs, yet Numeric was in effect off the market.

The fee hurt performance, which peeved John Bogle Jr., the fund’s manager, who described it as a big factor in his decision to leave Numeric to start his own funds. In other words, the fee cost investors ‘ money and their star manager.

Quantitative then hired a new manager, with fees lower than Bogle’s. Despite the cost cut, the fund’s expense ratio went up.

* Dick Strong, chairman of the Strong Funds and manager of the Strong Discovery Fund, who proved this year that you can’t succeed as both a coach and general manager in the big leagues.

Strong has built his namesake funds into a major player with more than $16 billion in assets, and deservedly so. He has a keen eye for talent. But in building the business, he may have taken that eye off the ball for the Discovery Fund. Year-to-date, Discovery is in the bottom 10 of all capital appreciation funds tracked by Lipper Analytical Services; Strong’s meager 1% return lags his average peer by about 15 points.

Years ago, Fidelity Investments Chairman Ned Johnson stopped managing money himself, even though he was recognized as one of the best managers in history. Indeed, many giants in the industry have had to choose between managing the business and running the money. Strong may be at that crossroads.

* Anthony Orphanos, manager of Warburg-Pincus Growth & Income Fund, for going heavy into gold, which is neither a growth nor income investment. Orphanos is not the first or only manager to stray from his objective, but his investors paid most dearly in 1996.

Warburg Pincus Growth & Income--which built its terrific five-year track record in part with bets on gold that made Orphanos look like a genius--is off about 1.5% in 1996, dead last among 580 growth-and-income funds tracked by Lipper. By contrast, its average peer is up 21%.

* The folks who pick fund managers at Fidelity Investments.

Fidelity turned over managers this year at a frightening clip, with dozens of funds getting new keepers. Fido loves its stars; hot players get promoted but cold ones get shunted aside.

As an investor, however, that’s galling. If you buy a fund for its manager--which many people do--and the manager hits pay dirt, he or she moves on and you get stuck with a relative greenhorn. Following the manager may generate a tax bill.

If Fidelity wants its “best” managers on key funds, it should simply tell the public which funds get the big guns. That would make choosing a Fidelity fund a whole lot easier.

* To whoever at Fidelity and Marsh & McLennan--parent of Putnam Investments--came up with the idea of having investors pay to insure money market funds.

If money funds invest in bonds that default, the fund company could feel obligated to pony up cash or “break the buck” (let the money fund value drop below $1 a share).

Neither Fidelity, Putnam nor any other large fund operator can afford to let money fund investors lose money. It would ruin their reputation and kill their franchise. These companies could use their deep pockets to bail money funds out of trouble, but they find the thought distasteful; they want protection, paid for by investors. Worse yet, the insurance is no guarantee that a fund won’t break the buck anyway.

Bond defaults remind us that money doesn’t grow on trees; even if it did, this insurance proves we don’t own the orchard.

* The people who picked the new name for the 20th Century and Benham funds.

Two good fund groups merge and search for one name, then decide to keep existing names in place. Funds created after the merger will go by the name American Century Funds. If that is the best they could do, let’s hope that the brains of the operation are managing the money.

Yours in the spirit of the season,

Charles