Moment is here to get some answers from your fund

Your Funds

Dollars & Sense

August 04, 2002|By CHARLES JAFFE

LET'S ASK now, at a time when funds fear losing frustrated investors and when corporate transparency is at the forefront of the investor psyche.

Fund companies will give in to investors if they hear common concerns over and over again. A few isolated investors - or even newspaper columnists - won't get the job done, but many individuals representing a lot of total money will.

So, whether you are a large or small investor, get your dander up and complain. Here are a few things to ask for:

Manager disclosures. Putnam wasn't the only company hiding this most basic information. What's more, some fund companies (most notably Van Kampen) have positioned themselves so they can avoid notifying investors when managers change. That's just wrong.

But beyond the basic premise of knowing your manager's name is the bigger issue that shareholders have no clue how their manager is compensated.

The size of the manager's paycheck is much less important than what incentives the firm puts in place to allow him or her to maximize bonuses.

Are incentives based on asset growth, pre- or after-tax earnings, short- or long-term performance? Is there a bonus for something like a top star rating? This is information - currently not available anywhere, even in a fund's statement of additional information - that would help investors know if a fund is being run in line with their interest.

If you don't think it's important stuff, consider Putnam: Insiders there note that after its top-flight 1990s performance turned sour in 2000 and 2001, the company changed how it calculated bonuses, de-emphasizing a short-term focus that led to increased volatility and stressing a longer view that values consistency.

When you know what a manager must do to max out his or her paycheck, you have a window into how a fund will behave.

Increased portfolio disclosures. Many funds now give regular lists of their top 10 holdings, in addition to their required six-month write-up of the entire portfolio.

Investors deserve more, like knowing who owned Enron or WorldCom at the wrong time.

Funds have competitive reasons for limiting disclosure, but they should still give regular updates, perhaps listing holdings at the start of every month, with a 60-day lag (so that the Aug. 1 disclosure would show the June 1 portfolio).

The top 10 holdings isn't enough because, for many funds, that's not where the action is.

Proxy votes. When funds vote on corporate issues, they represent you. As a result, you should know from their Web site how they voiced your opinion, whether it concerns the appointment of Arthur Andersen as a corporate auditor or a social or environmental issue on which you feel strongly.

Personalized performance. Some firms now say how the individual investor has done in a fund, rather than just saying how the fund has performed over time. The difference can be significant, with the timing of deposits or withdrawals affecting the real return you are making on your money.

Firms easily can add this to regular statements. When you complain and ask for it, also request the average cost you have paid for your shares, information that is crucial when you sell and must calculate capital gains.

Every fund firm should disclose these personal account details by now.

Of course, when you call for this kind of information - and I hope you will - the fund representatives may think you've gone mad. They may tell you these details aren't available or aren't even your business.

Remind them that you own the fund. Complain to the top brass. Write letters. Individually, you may not get the details you want; collectively, if shareholders can persuade a few firms to make these welcome disclosures, we could start a key trend in the industry.

Chuck Jaffe is mutual funds columnist at The Boston Globe. He can be reached by e-mail at or at The Boston Globe, Box 2378, Boston, Mass. 02107-2378.

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