Children writing home from camp aren't the only ones filling mailboxes this summer. Mutual fund managers have been sending letters to shareholders in July and August to explain how they have been spending their time -- and shareholders' money -- in the first half of the year.

And just like those letters from the kiddies, the language and tone of each letter can make the folks at home either very happy or very nervous.

The recently released Clipper fund's letter, for example, probably spooked a few people when it said the "tug-of-war between rising profits and rising long-term interest rates" is creating an environment where there is practically nothing left to sell or buy. As a result, the management of the $7 billion fund has chosen to hold close to 35% of its assets in cash.

But Clipper's cash cushion enabled them to return 2.7% in the second quarter vs. 1.7% for the

S&P 500

, causing Clipper's managers to say with pride, "Few things are as morbidly fascinating as watching someone else's catastrophe from a safe distance."

Not all of the summer letters to shareholders are as full of schadenfreude or as well-written as Clipper's, however. It depends on the fund manager's performance and outlook. Here is a sampling of thoughts taken from the summer correspondence of some well-known fund managers.

Apocalypse Now (Or Maybe Next Quarter)

At the Morningstar mutual fund conference in June, Jeremy Grantham, chairman of Grantham, Mayo, & Van Otterloo, which oversees $60 billion in assets, told a packed hotel ballroom that stocks were overpriced in "the highest return to risk that we have ever seen." He finished his remarks like a modern-day Noah, urging investors to run to short-term bond funds and timber stocks before the proverbial rains arrived. (Why timber? A shrinking supply and an insatiable demand for wood, he says.)

Those who missed his end-of-days performance in Chicago could take solace in the fact that they could catch the highlights in his July letter to shareholders. But considering Grantham's sobering predictions, the solace stops there.

"The next two calendar years still look like a black hole, as overpriced markets, dangerous leverage, and a newly gigantic hedge fund business ($2 trillion long plus or minus) collide with the housecleaning phase of the presidential cycle and the contraction phase of what has been a very long interest rate cycle," wrote Grantham.

Grantham told shareholders that the sky won't necessarily fall this year, but the "ice is getting thinner." He considers suitable investment vehicles in this environment to be cash, conservative hedge funds and non-U.S. stocks.

Anybody following PIMCO managing director Bill Gross' monthly commentary since the start of the year will surely not be shocked by the negativity of his summer missives. His July installment focused on the potential "asset bubbles and accelerated inflation" being created by the

Fed's

decision to keep short-term rates too low, too long.

In August, Gross' letter focused on how the growing number of hedge funds, and their over-utilization of leverage, threatens to pop those bubbles.

"America's and increasingly the world's economy is unstably founded on a base of cheap money used as leverage to support certain asset prices of dubious value," Gross wrote.

Like fellow doomsayer Grantham, Gross won't play Nostradamus and predict

when

the markets will meet their market makers. But he does foreshadow a few ideas as to how it might happen.

"If and when the cost of those funds moves sharply higher for any reason -- a dollar crisis, inflation, foreign central bank sales of Treasuries, increasing budget deficits to name a few -- then the flaws of a levered economy will be quickly exposed," wrote Gross, who suggested investors shelter themselves from the coming storm with a healthy dose of TIPS in their portfolio.

The Optimists

It's tough to say the glass is half full when two portfolio managers -- as well-respected as Grantham and Gross -- say the glass is not only half-empty but cracked to boot. Nevertheless, optimistic investors can take heart in the rosy outlook of Bill Miller, longtime fund manager for the

(LMVTX) - Get Report

Legg Mason Value Trust fund. Miller has outperformed the market for the last 13 years, so when he says things aren't so bad, well, maybe there is some water in that glass.

"I am confident about this market. I like it and think it is going up. The

Nasdaq

is making lows and most of the overvaluation in "old tech" shares such as

Intel

(INTC) - Get Report

and

Texas Instruments

(TXN) - Get Report

and

Applied Materials

(AMAT) - Get Report

has been worked off, in my opinion," writes Miller. "They may not be bargains, but at 15x next year's earnings they do not present a lot of risk, either. Companies such as

Citigroup

(C) - Get Report

at 10x, or

Fannie Mae

(FNM)

at 8x are bargains."

Miller also doesn't see interest rates or inflation as an impediment to stocks going forward. Miller says debt levels have peaked, inflation should remain subdued, and profit growth should continue higher. As for the Fed, Miller believes Chairman Greenspan when he says that "measured" means measured when it comes to rates rising.

All in all, Miller expects to continue his market-beating streak and blue skies ahead for the economy.

"The environment for equities looks fine, especially with the market having declined modestly since the beginning of the year. We are fully invested and bullish," he wrote.

Quarterly reports from two other star fund managers offer a bit more tempered optimism than Miller. In the letters of Wally Weitz, founder and president of Weitz Equity Funds, which manages $7 billion, and John and Nick Calamos, the uncle/nephew team at Calamos Investments which runs $32 billion, there is a silver lining in stocks, even as the dark clouds mount. Shareholders just have to trust them to find it.

Weitz wrote that the economic environment seems "mostly positive" and the companies the fund owns are "generally" doing very well. His description might not be the most enthusiastic for the state of the economy, but it's certainly a few steps up from Grantham's "black hole."

But for all that lukewarm optimism, Weitz still questions current valuations, which is causing him to keep a healthy amount of cash on the sidelines -- in the 25%-30% range. His cash stockpile has enabled the Weitz Value Fund to return 4.41% year to date, an impressive 3.95% ahead of the S&P 500. But even though he has kept his shareholders from seeing red, he's not immune to taking Chairman Greenspan to task for "re-exuberating" the masses. And he's far less positive than Miller about returns going forward.

"Investors' expectations seem to be running ahead of reality again and very accommodative fiscal and monetary policies have given people the cash and borrowing power to bid up the prices of stocks and bonds," wrote Weitz. "This does not mean that prices have to go down, but it means that our expectations for investment returns over the next few years are modest."

In their letter, the Calamos clan doesn't see excess in valuations nor do they see a problem with a growing trade deficit that might sink the U.S. dollar. They don't see a problem with rates rising, saying that "it's only natural" that the Fed has to lift rates from their 46-year lows. And they don't see a problem with corporate earnings slowing as long as they remain relatively strong.

In total, the Calamos' seem to think their shareholders should just enjoy their summer vacation and not worry about anything, i.e. anything that can't be solved through "diversification, risk management, and our longtime experience of witnessing numerous markets' climbing walls of worry."

Or, in the words of that other letter in your mailbox this summer, "Send money."