Year-end mutual fund statements bring much useful information

Your Funds

Your Money

January 18, 2004|By CHARLES JAFFE

FOR THE FIRST time in four years, investors may actually be anxious to open the year-end account statements from their mutual funds.

But in their rush to see a statement that shows progress and profits, investors may overlook the key things they can find on that paper.

Getting the most from the document that wraps up your year in a fund involves looking at what the statement tells you, at what it doesn't say and at the suggestions it offers for your future.

"What we hear year after year is that people just want to know they are making money, and that's about it," says Michelle Smith, executive director of the Mutual Fund Education Alliance. "But there's a lot more you can learn from the year-end accounting you get from a fund. The statements themselves may not answer a lot, but if you use the information right you will get answers."

Aside from the obvious how-much-money-did-I-make question, here are the things to look for in your end-of-the-year account statement:

Which were higher, your returns or your expectations?

There's not much of a storyline in gross returns or losses. "Making money" may be the goal in a broad sense, but "averaging 10 percent per year" is something that factors into your financial planning.

The year-end statement doesn't say what you expected the fund to deliver, but you can't decide whether you are pleased with performance until you compare the fund's gains with your own hopes. Obviously, a fund that falls short of expectations is one that you might want to get rid of.

Was the fund an above-average performer?

Your statement does not benchmark the fund against an appropriate index or its average peer. You can wait to see that information in the prospectus, or you can check it out for yourself at a Web site such as or

What's the trend for meeting expectations?

This is where you compare a fund with the performance since you first invested in it. Some fund companies put personalized portfolio data on their statements, most do not. But look at the average cost-basis of your shares compared with the fund's current price.

If you have held the fund long enough, the results may be better than you would expect after the big losses endured during the past few years.

"You look across a lot of funds and their gains over the last 10 years are in the 8 to 10 percent per year range," says Christine Benz, editor of the Morningstar FundInvestor newsletter. "Even though the past few years were terrible, that return is in line with what a lot of people really expected to get from their funds. If someone regained enough this year that their funds are on track over the whole time they have owned them, then they probably should not be disappointed if they did not see an even-bigger bounce-back in 2003."

If your average cost per share in the fund shows you with a loss, consider whether you might want to make a switch. You missed out on capturing the tax benefits of a loss in 2004, but it's never too late to get rid of a fund in which you have lost both money and confidence.

How big were the dividend and capital gains payouts in 2003?

If you hold a fund in a taxable account, the year-end statement will give you a heads-up on your potential tax liability come April. Most funds had losses so big during the bear market that they were able to offset most or all of the gains they accumulated in 2003, but that just makes the few funds with sizable distributions that much more of a surprise.

The wrong time to find out you're facing a big tax bill is when you have to scrape up the cash and beat Uncle Sam's filing deadline.

Are you satisfied with the way the fund has treated you?

The numbers alone don't tell this story. If the fund disappointed you in the down years and has now let you down during the start of the rebound, you should seriously consider what funds might make you more satisfied with your portfolio at the end of 2004.

One thing your statement is not telling you is to throw all your money at the fund that did the best for you last year.

Resist the urge to lavish the new cash on the fund that shot the lights out, because the big winners in 2003 tended to be super-aggressive, concentrated, or small-cap oriented issues. This year is more likely to favor large-caps. Throwing your investment dollars at last year's winners is a good way to buy high and sell low.

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