William Faulkner said, "The past is never dead -- it is not even past." Since one in three U.S. stock funds operates on a fiscal year that ends in either September or October, the past -- as in fourth-quarter 1999 -- may haunt the market, and many once-hot tech stocks in particular, in the next few weeks.

As mutual funds near their fiscal year-end, portfolio managers often dump losers to offset the distribution of taxable capital gains -- incurred due to price appreciation of highflying stocks -- to their shareholders. At the same time, many fund managers also build or expand positions in this year's winners so that they feature prominently in their reports to shareholders -- a practice known as window dressing. With many funds sitting on fat gains from the end of last year as fiscal year-ends loom, housekeeping by managers might be more stark than usual.

The upshot: You might notice some deep downdrafts for sagging stocks such as


(INTC) - Get Intel Corporation (INTC) Report




, and some unusually sharp run-ups for winners.

"There's a lot of market maneuvering by a small number of people that control a lot of dollars," says Scott Bleier, chief investment strategist at

Prime Charter

. "Stocks go up and down a lot faster while mutual fund guys do what they have to do."

The potential market reverberations have their roots in the euphoria of the fourth quarter of 1999. Last year, more than 185 stock funds posted returns of more than 100%, averaging a stunning 146% as a group. Before 1999, there hadn't been a calendar year when the

Century Club had even 10 members. Many of those funds notched their biggest gains the fourth quarter, although a number have

cooled this year.

That means many fund managers with fat gains on their books are scrambling right now to sell losers and reduce their shareholders tax burden. When a fund realizes more gains than losses, it's required to distribute those gains to shareholders, sometimes leaving them with a painful tax bill even if they reinvest those gains in the fund. Of course, investors in tax-deferred retirement accounts are immune.

This last-ditch effort to minimize capital gains distributions is good news for fund shareholders, especially if they bought their shares recently. A big payout leaves them paying taxes on other investors' gains.

Already this year we've seen

early and steep distributions from

Warburg Pincus and

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Legg Mason. Even big shops such as

Vanguard are warning shareholders that larger-than-usual gains are on the way from some funds.

"If you've got a fund with killer returns from last year that's down this year, you'd better hope they're doing some tax-selling. You're probably looking at some big profits from December, January and March, but since then a lot of hot stocks have sold off ferociously, so it makes sense for managers to do some tax-selling to try and reduce that tax hit," says Russell Kinnel, director of fund analysis at



Kinnel says that despite these efforts, plenty of funds "still have the chance to make some big distributions." But the real potential victims of these machinations might be stock investors. Between window dressing and tax-loss selling, some stocks might be unreasonably jerked around between now and the end of the year.

"Year-end tax loss selling tends to take stocks that are already weak and add on further losses. The result of this selling wave is that fundamentally sound companies come under pressure along with weaker names," writes

Salomon Smith Barney

equity strategist Jeff Warantz in a Sept. 21 report.

Of course, in the aftermath, investors could profit from knowing which stocks were being oversold -- sold more for tax reasons than qualitative decision-making. But that's a tough list to figure.

"Window dressing and tax-selling are perennial, but it's hard to know what stocks will get hit. They don't have to be down for the year, just down," since the fund purchased the shares, says

Don Luskin

, manager of the


OpenFund and the

Metamarkets.com IPO & New Era

fund. "Stocks have been so volatile this year that, given the chaos we've seen, any stock could be a winner or a loser."

In his report, however, Salomon Smith Barney's Warantz takes a stab at some potential losers. He screened the market for companies that have a buy rating from Salomon Smith Barney analysts, a market capitalization over $2 billion, a stock price down at least 20% from its 52-week high, and rising earnings projections over a few different time periods. The screen came up with a dozen stocks, all in the tech and Internet sectors.

There's reason to give this list a close look, since many of these potential losers could come back in a hurry once the funds stop their tax-related selling. The firm ran a similar screen last year that turned up 11 stocks that looked vulnerable to tax-related selling near the end of '99. The stocks, collectively, have outperformed the

S&P 500

since the list was drawn up.