Mutual Fund

NEW YORK -- MFS Investment Management, creator of the first U.S. mutual fund, and Bank One Corp. have agreed to settle lawsuits alleging they let favored investors reap unfair profits by improperly timing trades. MFS, the mutual fund unit of Canada's Sun Life Financial Inc., and Bank One, now owned by JPMorgan Chase & Co., said in court papers they agreed to resolve claims by investors and pension funds over the practice. Terms were not disclosed in letters to U.S. District Judge J. Frederick Motz in Baltimore.

He got beat - badly. But in breaking his silence yesterday about the end of his vaunted 15-year streak of outperforming the market, Legg Mason money manager Bill Miller was philosophical and, at times, contrite. In a lengthy essay that reveals much about his sometimes contrarian investing philosophy, Miller walked investors through the steps that led his Value Trust mutual fund to a 5.9 percent return in a year when the benchmark S&P 500 gained 15.8 percent, including reinvested dividends.

Ray is a friend of mine whose oldest son graduated from college last year. With the holidays approaching, Ray stopped me the other day to ask if I had a way to make a mutual fund gift that would teach his son about investing. Ray describes himself as a "die-hard mutual fund guy," and he said his son knows nothing about funds; at the same time, Ray doesn't just want to give the kid money and hope that he learns something and doesn't blow it all. "How can I give him a gift of mutual funds?"

By now you've probably been lectured on the perils of cashing out your 401(k) retirement plan when you leave a job. You'll pay income taxes and possibly a 10 percent early-withdrawal penalty (there are a few exceptions). Plus, using the money today means you'll be that much further behind in reaching your retirement goal tomorrow. Once you've pledged not to cash out, however, some important choices have to be made that can substantially affect your retirement options down the road. Leaving the money with a former employer, rolling it into your new company plan or stashing it in an individual retirement account each comes with its own set of pros and cons.

There's a difference between what an investor needs to know before buying a mutual fund, and what he or she wants to know. But if the fund industry is serious in its quest to alter the prospectus - effectively replacing the thick booklet of jargon with a thin "quick-start guide" that it supplements by putting the traditional document online - management should be required to provide consumers with both types of information. Any effort to reform the prospectus - this column discussed last week the move to do just that - should be focused on giving consumers better, more useful decision-making materials.

Mutual fund investors brace yourselves: You might be in your biggest tax bite since 2000. Around this time each year, funds pass on dividends and capital gains earned on the sale of securities to investors. This year's distributions are expected to be exceptionally high, partly due to the volatile stock market. "This will be one of the worst [years] we have seen on record in terms of the tax bill," says Tom Roseen, senior research analyst with Lipper Inc. Roseen estimates that this year's tax tab will be close to that of 2000, when fund investors in taxable accounts paid $33.1 billion in taxes on capital gains and dividends.

International investing carries risks, but some funds find ways to reduce them. The political, economic and currency situations in foreign countries provide alternate periods of exhilaration and worry. The adventure can be rewarding but gut-wrenching. Yet some international funds with solid returns find ways to limit volatility, whether by diversifying among myriad countries, uncovering value-oriented firms or devoting only a portion of their portfolios to less-predictable emerging markets.

Donald F. in Minneapolis is fed up with a mutual fund in his IRA and is ready to make the leap to something better. He just doesn't want to leave anything on the table. "I don't know if the fund will be paying dividends this year," he said in an e-mail. "How can I determine if a fund is going to pay dividends and get an estimate of how much?" It's a question a lot of investors ask at this time of year, but it also shows an alarming lack of understanding about how mutual funds actually work, and it highlights how ignorance of the finer points of funds can be costly.

Five years ago, T. Rowe Price Group Inc. bet that investors were looking for a way to make retirement planning simple - a one-stop fund that would automatically adjust its blend of stocks and bonds to suit an investor's age. The firm's target-date retirement funds have paid it dividends, with investors pouring $2.6 billion into them in the fourth quarter, helping to lead the company to a 27 percent gain in profit for the three months that ended Dec....

JOHN GUTFRIEND, the former chief executive at Salomon Brothers, once described a good trader as someone ready to bite the backside off a bear. While that might make for interesting television, there is no other reason for anyone to want to see what is happening in the trading room of a mutual fund.So when the "first interactive mutual fund" promises unprecedented access to portfolio data management and features a "trader cam" with which investors can play voyeur into the trading room, it's difficult to separate the good from the gimmick.

After a punishing 2008 and a poor first quarter, Maryland-based mutual funds bounced back in the spring as investors saw some good news amid the turbulence. All but one of the 166 Maryland-based stock funds tracked by The Baltimore Sun made money in the three months ended June 30, according to a Sun analysis of data provided by Bloomberg News. The exception was Ellicott City-based Hussman Strategic Growth fund, which lost less than 1 percent in the quarter. For the first half of the year, though, the fund gained 6.2 percent.

City extends application period for tax credits Baltimore residents who lost the chance to get a property tax break because they missed the application deadline now have a second opportunity. If you went to settlement on a new home after Oct. 1, 2004, you can apply for the city's new-construction tax credit through Aug. 28, when the amnesty period ends. Homeowners in properties that were substantially rehabbed after being vacant may also be eligible. The credit reduces a homeowner's property tax bill by half and then phases in the full amount over a five-year period.

Baltimore money manager Legg Mason Inc. is overhauling its mutual fund lineup and planning to introduce two products after losing millions last year in the market turmoil and as investors pulled money out of its funds. The reorganization means the company likely will whittle its current offering of 142 mutual funds, Matthew Schiffman, Legg's head of product and marketing, said yesterday. Legg still expects to introduce two new funds in the spring, said Schiffman, who was appointed to the new position in November to create a product innovation team.

While the average U.S. stock mutual fund plunged nearly 38 percent last year, the Hussman Strategic Growth fund based in Ellicott City limited its annual loss to 9 percent. The fund posted the lowest negative return among 157 Maryland-based stock mutual funds tracked by The Baltimore Sun, according to data provided by Bloomberg News. The Hussman fund, whose holdings included consumer brands such as Nike, Coca-Cola and Best Buy, lost 12.9 percent in the fourth quarter. That no Maryland equity fund was in the black in 2008 reflects a year with the worst stock market performance since the Great Depression.

Brace yourself: Your mutual fund fees will likely rise next year. Management fees are often tied to the amount of assets in a fund. The more money in the fund, the lower the fees. But with the plunge in stock prices and investors pulling cash out of funds, assets have been falling. It's easy these days to forget about fees when your fund might have lost 40 percent or more in the past year. But fees matter over the long run, and you can end up with a lot less money even if you're paying what seems to be only slightly more for a fund.

For more than 25 years, the highly regarded Sequoia Fund was closed to new investors. But this past spring, the mutual fund once again flung open its doors to bring in more assets. Sequoia has plenty of company. As stock prices fall and redemptions rise, many mutual funds that were off-limits for years are suddenly open. A year or so ago, about 200 out of the 7,000 U.S. mutual funds were closed, says Russel Kinnel, director of mutual fund research at Morningstar Inc. Now, it's about 40 or 50. Investment companies close funds to new investors for all sorts of reasons.

CEG credit line is reduced, delayed A $2 billion line of credit that Constellation Energy hoped would shore up its liquidity has been reduced to $1.25 billion at the most and might not be available until Nov. 26, the company said late yesterday. The cash-strapped Baltimore-based energy giant planned to close on the $2 billion deal no later than yesterday with RBS Securities and UBS Loan Finance. Now it says it expects to receive "total commitments from the banks of approximately $1.0 billion to $1.25 billion."

It's the dilemma facing just about anyone who dares peek into their 401(k) statements or other investments these days: Should they sell a mutual fund or all their funds? Just about anything in a 401(k) looks ugly - downright terrifying. So what's a person to do? This is becoming an increasingly complex decision, even for the pros who are starting to realize that current financial conditions aren't modeling the experiences they've had for the past couple of decades. "We've been talking people down from the ledge," said Edina, Minn.

Legg Mason's Bill Miller produced the best-known mutual fund streak, beating the Standard & Poor's 500 index for 15 years in a row until his streak ended in 2006. Now Baltimore's other mutual fund streak is at risk, although this isn't necessarily a terrible thing. T. Rowe Price's Capital Appreciation Fund is the only stock mutual fund that didn't lose money for investors during 2001 or 2002, the worst of the last downturn. Through 2007 it produced positive yearly returns for 17 years in a row. But so far this year, the fund is down 14 percent and will need a brilliant turnaround to avoid a loss.

Stockbroker Bruce Alderman's client returned home from a trip just in time to watch the stock market shed the most points ever in a single day and to hear that his bank, Wachovia, was being acquired by Citigroup. Yesterday morning, the client rang up his broker, telling the receptionist that the call was "urgent." "I want to make sure I'm OK," the man told Alderman, president of Chapin Davis brokerage in North Baltimore. Alderman looked up the man's account, telling him his portfolio was down about 1 percent after the market plunge.