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Mutual funds keep investors in the dark

NEW YORK — The stock market crash has left mutual fund investors in the dark as well as in pain.

They get daily readings on the declining value of their fund shares, but they have no idea how the managers of their funds are reacting to the plunge.

Are the fund managers dumping former high-fliers like Oracle Corp., Inc. and Nokia Oyj? Are they holding more money in cash or putting it in U.S. Treasury notes? Are they switching to stocks like Fannie Mae that have declined less precipitously?

This is vital information. How better to assess fund managers — and decide whether you want to keep them working for you — than knowing how they stand up under fire? Sadly, fund shareholders have no way of finding out.

Mutual funds, which benefit from quarterly financial reports and a continual flow of information from most of the companies they invest in, basically report nothing of value themselves.

Funds are required by the U.S. Securities and Exchange Commission to report to their shareholders only every six months. Even then, investors in large part are forced to compare the new report with the previous one to find out which new stocks the fund bought and which positions have been increased or reduced.

Worse still, because of the typical lag between the date of the report and the day it reaches fund owners, the information tends toward the obsolete.

By that time, there was a good chance that the fund's investments had changed markedly.

It's gospel among fund managers that disclosure actually would hurt fund owners. If a fund revealed it was selling $175 million worth of, say, AOL Time Warner Inc. and dividing the money between new investments in Merck & Co. and Unilever NV, it would roil the market in all three stocks.

Fund managers say that if this news got out before they finished trading, every other investor in the world would follow their lead and mess up their strategy. After their performance of the past year, you have to wonder about that.

With the advent of the Internet, funds seem to be edging toward disclosure. It has become popular to list on the management company's Web site a fund's 10 biggest stock investments.

But there are lags here too. Janus Capital Corp. says it updates the top 10 lists for its funds six times a year, but with information that already is 45 days old. The top 10 listings for Janus funds on the Internet yesterday were as of Dec. 31, 82 days earlier.

These 10-biggest lists fall short even when they are more current: They give the names of the 10 securities and how much they constitute of a fund's investments—and that's it.

The Rest?

The Vanguard U.S. Growth Fund, for instance, shows that on Feb. 28, its top 10—General Electric Co. and Sun Microsystems Inc. among them—accounted for 41.9 percent of the fund's total holdings. But it didn't disclose how many shares of each stock the fund owns or whether it had reduced or increased the number in the past month. And there's nothing about the other 47 stocks the fund owns.

Would funds accept so little disclosure from the companies they invest in? "We wouldn't want companies to disclose proprietary information," says Jeff Molitor, a member of the portfolio review group at Vanguard Group.

This isn't to demand that funds keep real-time lists of their investments on the Internet; they may deserve a bit of room to buy or sell ahead of the crowd. But this disclosure gap is enormous.