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Back when the market was hopping and even the most mediocre funds were delivering double-digit gains every year, who really cared what went on behind the scenes at a fund company? The returns were decent, and that's all that mattered.

But now the average U.S. stock fund is down 9.8% in the past year. So fund company shenanigans deserve more than just a passing glance. Many firms are struggling to shore up their businesses and hide their failings. And their maneuvering isn't necessarily in your best interest as a fund shareholder.

The following are some disturbing developments in the mutual fund business. Sadly, the trends are not your friend.

Information Evaporation

In the wake of the


catastrophe and a string of other corporate disasters, investors -- from superstar fund managers to unknown retirees -- are demanding better disclosure from companies and financial services firms. But a few fund companies are telling you less and less.

Putnam Investments, for example, recently stopped including the names of individual portfolio managers in its regulatory filings. Instead, each fund is managed by a team. Reader Robert Mills wrote in to ask: "What's up with Putnam's decision not to reveal who its portfolio managers are? I wonder how much in assets has been pulled out of its funds so far this year?"

Putnam might have a good reason for making the change, but it's not to your advantage. Now, at Putnam, you'll have a tough time finding out who is ultimately responsible for the day-to-day stock-picking and decision-making on a fund. And the performance on many of Putnam's funds has been dreadful over the last few years. Its


OTC & Emerging Growth fund, for example, fell more than 45% in both 2000 and 2001.

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"Here a fund company thinks you aren't entitled to know who is running the fund," says Morningstar's Russ Kinnel. "I bet you those teams wouldn't touch a company that wouldn't tell you who the CEO is."

Of course, one portfolio manager isn't necessarily better than five or 10. The stellar American funds have long been managed by teams of people. And the company tells you in each prospectus who the primary managers are and how much experience they have.

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But on the

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Putnam Capital Appreciation fund, for example, you get only the following in the fund's prospectus: "Putnam Management's Small and Mid-Cap Core and U.S. Large-Cap Core Teams have primary responsibility, and their members have joint responsibility, for the day-to-day management of the fund's portfolio." (You can find the names of the team members on Putnam's Web site.)

"If a fund makes a significant portfolio shift next month or next year, you don't know if it's because of a management change," says Kinnel.

Putnam has decided to tell its shareholders less. And in an era when disclosure has become increasingly important to investors, that's unacceptable.

Merger Maniacs

During the mid-'90s, fund companies started merging or selling themselves in order to combat shrinking assets and survive in an increasingly competitive business. Zurich Financial Services, for example, bought Scudder, merged it with its existing Kemper funds and then recently sold that division to Deutsche Bank. That trend continues, and it could accelerate if fund company assets and revenue don't increase soon.

That's not good news for shareholders. For one, a fund company merger can send talent heading for the exits -- although that can take some time. For example, several years after Morgan Stanley bought the MAS funds, gifted managers such as Arden Armstrong hit the road. (Directly after a merger or acquisition, managers will often be asked to sign employment contracts to keep them at the firm for a few years. But after those contracts expire, the managers will leave.)

"One very common theme throughout all these changes: fund holders' interests take a back seat to acquirers' corporate profits," says Morningstar's Kinnel. "It's rare for an acquirer to think about closing funds. And you can see costs go up to pay for an acquisition."

When Franklin Templeton bought the Mutual Series funds during the '90s, the firm slapped loads on all those funds that once were sold without sales charges. If you were already a shareholder at the time, the change didn't make any difference. But if you wanted to buy one of the Mutual Series funds after that acquisition, you had to pay a lot more to do so.

Loaded With Loads

In fact, that's another disturbing trend in the fund business: An increasing number of funds are sporting loads. Case in point: Credit Suisse Asset Management no longer sells its Warburg Pincus funds without a load. Other well-known, no-load fund companies, such as Invesco, are also adding sales charges to their existing funds or adding load funds to their lineups.

A sales charge might be worth it if you're getting great advice from a broker or adviser. But the do-it-yourself investor has fewer fund choices. You can still go to Vanguard, T. Rowe Price and Fidelity, or hunt down a smaller no-load family.

But the pickings are slim and getting thinner.

In keeping with TSC's editorial policy, Dagen McDowell doesn't own or short individual stocks, nor does she invest in hedge funds or other private investment partnerships. Dagen welcomes your questions and comments, and invites you to send them to

Dagen McDowell.