A mutual fund report that's well-written and honest can't make you forget a double-digit loss. But it certainly can make you a better, more loyal investor.

A column

last week covered weak excuses fund managers have used in their shareholder letters to explain away terrible returns. Some of their explanations are so lame, they might as well have said, "The dog ate my returns."

But other fund companies know exactly how they should communicate with their shareholders. These companies use simple, straightforward language to explain both good and bad performance. They give details on how a manager is picking stocks. And they deftly manage your expectations about future returns.

In the end, a carefully crafted shareholder report can make you a better, more informed investor who is likely to stick around through good times and bad.

Here are some reader favorites.

T. Rowe Price

Reader Maurice Foushee writes, "I've been a shareholder of the

T. Rowe Price

funds for 10 years, and their reports, while not perfect, are generally insightful."

No one expects perfection. But a report that's intelligent and intelligible, reads as clearly and directly as Hemingway compared with some of the dreck out there.

The December 2001 report from the

(RPMGX) - Get Report

T. Rowe Price Mid-Cap Growth fund is a good example. The shareholder letter sketches the market environment during the year and describes the fund's biggest winners and losers. A sample: "Our largest detractor for the year was

Exodus Communications

, which we discussed in our last letter. We underestimated just how much overcapacity had been built in the Web-hosting industry, and how quickly demand would evaporate. We anticipated -- incorrectly -- that enterprise spending by major corporations would replace much of the lost demand from dot-coms, of which we had long been skeptical. In the end, with too much competition, too much capacity and too high expectations, even this once-promising infrastructure company ended up in the dot-com dustbin."

That's a sufficient

mea culpa.

TheStreet Recommends

The letter also includes what the fund bought and sold during the last half of the year, as well as a detailed outlook and strategy moving into 2002. As a shareholder, you quickly find out what you need to know.


Reader Omar Qureshi, who is a financial adviser, is a fan of the reports from Bob Olstein, who runs the

(OFALX) - Get Report

Olstein Financial Alert fund. "Olstein easily has the best shareholder letters and annual reports," says Qureshi. "He's a straight shooter."

Olstein is candid and opinionated in person and in print. His shareholder update from January, which you can find at

www.olsteinfunds.com, is a must-read. "The rating services have been contacting us with all types of questions and accolades relative to our five-year performance as a value fund," writes Olstein. "How could a value fund perform so well? We continue to believe that if you are not a value fund, then you are an overvalued fund. We pay attention to value whether it is a growth company, cyclical company, large company or small company, and let the philosophers and dreamers categorize investments."

Olstein also tells shareholders what he sees in the years ahead: "The good news is the economy is beginning to turn around. The bad news is stocks in general are not undervalued and need the turnaround to justify current prices. We expect long-term average stock returns to be in the 5% to 7% range over the next three to five years. We do not believe we are going to return to the stock market of the late '90s, or even average returns, until corporate earnings catch up to current valuations." Then he mentions the fund's strategy moving forward and outlines 15 new year's resolutions. One example: "To be responsible for our own conclusions rather than relying on others."

Rather than pointing the finger and blaming the market, the companies and the analysts, Olstein takes responsibility for his fund's performance and his stock picking. Sadly, this attitude is rare.



also deserves some praise, particularly for managing investor expectations about future performance. The

(VGHCX) - Get Report

Vanguard Health Care fund ran up 60.6% in 2000. But in the fund's annual report written the following February, Vanguard Chairman and CEO Jack Brennan told shareholders that they shouldn't expect those kind of gains all the time. "We stress that investors should not expect the fund's future returns to match its past results," he writes. "Though our fund has established a terrific record during its lifetime, there's no guarantee whatsoever that it will continue to outperform broad market measures. And investors should expect that our fund -- like any sector-specific portfolio -- will experience plenty of turbulence."


And of course, no one should overlook the master of shareholder reports: Warren Buffett. "OK, everyone knows that

Berkshire Hathaway

always displays a first-rate shareholder letter. But we might as well emphasize the exemplar of the craft," writes Jonathan Bernstein. "Remember Buffett's classic 1999 annual letter? He said that even Inspector Clouseau could find the culprit: 'Your Chairman.' He went on to grade himself a 'D' for his efforts in capital allocation in 1999. How's that for candor? That's one of the reasons you can believe his good news -- he is perfectly willing to spill the bad news, too."

And that's exactly what investors need to hear.

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.