Last week's column "

Four Things I Hate About Mutual Funds" seems to have struck a chord with readers.

Scores of readers responded with the things they hate about funds, expressing anger and disappointment about how their fund firms have let them down. For today's column, I'll turn the floor over to the readers and offer a few follow-up points, as well as some advice.

Donald Adams of Redondo Beach, Calif., writes: I asked a few of my friends and neighbors. What came out tops on our list is mutual fund ads. All of them. Oppenheimer ("the smarter way to invest"). All the ads from other companies about "listening to you" and "helping you reach your dreams" and "helping you achieve your goals." All hype.They are product-sellers. Nothing wrong with that. Now they are selling promises they cannot fulfill. There is something wrong with that. Many of these firms have NOT helped us fulfill our dreams. They have destroyed our dreams. How can they get away with these ads? In the 1950s, some cigarette companies could advertise their cigarettes as "healthful" or "recommended most by doctors." Not much different from mutual fund companies advertising the "stars" they have received. What do me and my neighbors hate most about mutual funds? That they are allowed to advertise. And to mislead us and tens of thousands of other people.

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Donald, several readers have written to complain about mutual fund ads. Now that the market is percolating this year, I find it amusing and sad how little the ads have changed: still the same smiling handsome white-haired folks, looking happy to be rich and retired. They aren't showing these people working part time at the grocery store to supplement their incomes since the bear market ravaged their funds. Perhaps most pernicious is how the latest round of fund ads have focused on the very short-term performance. As Morningstar's Gregg Wolper noted in a recent column,

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placed ads in July touting the

five-month return

of one of its funds.

While there are movements afoot to overhaul mutual fund advertising, don't hang your hopes on reform. Fund ads, like ads for cheeseburgers or antidepressants, will always be about selling dreams. Investors need to consider the question posed by

Money

columnist Jason Zweig at a conference in 1997: "Is your firm a marketing firm or an investment firm?"

Vanguard

founder John Bogle lists Zweig's differences in his "Common Sense on Mutual Funds" -- for instance, marketing firms hype track records of tiny funds even though they know returns will shrink as the funds grow; investment firms do not. But the essential difference is that investment firms aim to build a great business by serving you, the client. Marketing firms aim to make money and "git while the gittin is good." The lesson with fund ads is caveat emptor. Intelligent investors, in fact, can use ads to answer Zweig's question for themselves and invest accordingly.

Brian Greene of Decatur, Ga., writes: My pet peeve is the practice of window-dressing. Window dressing is an extreme violation of trust. The hot names are purchased at the worst possible time, since the price is at its highest, and the only purpose is to intentionally deceive the investor into believing that the fund manager held the stock for the entire quarter.Regulators need to carefully review fund trading, and if evidence of window-dressing is consistently found, that fund should be put out of business and the perpetrators should be charged with fraud and barred from the securities industry. The Investment Company Act mandates that funds are only allowed to operate in investors' best interests. High turnover and window-dressing are violations that need to be defined and prosecuted.

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Window-dressing -- when fund skippers buy and sell securities ahead of public disclosure dates, to show winners in the portfolio and hide the loser bets -- does happen, but it's difficult to detect within individual funds. When

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rose 2,619% in 1999, it soared in December as money managers flocked to get in on the hot stock, despite its ridiculous valuations -- it fell 60% during the first six months of 2000.

Wharton professor David K. Musto has written about window-dressing and its equally unpalatable sibling, "marking the close" -- attempting to influence the closing price of a stock by executing buy or sell orders at the market's close. In marking the close on certain stocks, managers push for higher returns in one quarter or year at the expense of the next. If at year-end,

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last trades at $172.50, Musto writes on Wharton's

Knowledge@Wharton site, "then 1,000 shares will be valued at $172,500, even if IBM soon trades at 172. Portfolio managers can therefore boost their funds' valuations on a given day -- and by implication their total returns over any period ending on that day -- with this strategy." Because returns are given back the next day, why do something so silly? Compensation. Many managers get big performance bonuses pegged to annual performance.

Once again, this is something that reformers would love to amend -- but it is very difficult to track and prove. Investors have two courses of action: First, as I mentioned in the article, trend toward low-turnover funds.

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Dodge & Cox Stock fund, for instance, has an annual turnover of 13% -- meaning the fund takes almost eight years to turn over all its holdings. No shenanigans there. Second, if investors make regularly scheduled investments to funds, don't make them for the last day of the month -- each quarter-end, you might be paying inflated prices thanks to window-dressing and marking the close.

Kim Crooks of East Lansing, Mich., writes: I have learned, through thousands and thousands of dollars of losses from Fidelity and Janus funds, that my overriding notion of mutual funds (i.e., giving my money to incredibly smart "money" people who spend their lives analyzing companies to find great stock buys) was so naive, I suppose, that it actually shocks me in hindsight. These funds are so inept that I realize now that a monkey throwing darts at a board would have performed better, and at a substantially reduced fee.

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That monkey now has a seven-figure annual salary at a major fund firm, with his face gracing glossy full-page ads.

Kim's letter echoes similar sentiments from scores of scorned readers frustrated by their funds' high expenses, poor returns and the like. The lesson here, of course, comes back to thoughtful selection of mutual funds -- either a stable of low-cost index funds or low-cost actively managed funds from reliable firms. I should add that Fidelity and Janus do, indeed, have some worthy selections among their roster, despite the fact that several of Zweig's allusions to "marketing firms" apply to both families.

Peter Xiarhos of Irving, Texas, writes: First, I don't like it when a fund or fund manager won't close a fund when too much money comes pouring in. This increases the income to the fund and its managers, but can lead to difficulty in investing the new money and, ultimately, has a high chance of leading to degradation in performance. I sometimes worry when fund managers, especially the really good ones, take on too much additional work as subadvisers to other companies who seek to capitalize on the success and popularity of such managers. My concern is that the subadvisers get spread too thinly and may not devote as much time to my fund and my interests as a shareholder. I would prefer that the good fund managers not be seduced into a life of subadvising by firms whose only interest and motivation is in collecting outsized fees from unsuspecting fund investors. Finally, it bothers me when funds won't advise that you leave the fund, under any circumstances, even when everything around you is going to hell in a handbasket. The only fund family I know of that does this is Vanguard, as it has been doing recently in advising its shareholders to be extra careful about bonds. I pray for Vanguard every night. Through a freak of history (the way Jack Bogle started Vanguard), Vanguard had become what all mutual funds should be, in my opinion. No one puts the interests of shareholders as high or respects its shareholders as much as Vanguard. If that ever changes, heaven help us.

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Amen, Peter.

Not everyone subscribes to all of Bogle's beliefs. But every individual investor should think long and hard about learning to stop worrying about beating the market and love the index fund, or at least lower-cost funds. Investors of all stripes -- active, passive or a combination -- would be well-served reading the gospel according to Bogle,

Common Sense on Mutual Funds.

For more than 50 years, Bogle has been an impassioned advocate for the individual investor, and while he will surely write more, this book serves as a robust, convincing closing argument. If nothing else, with all the reasons to hate mutual funds, reading the book offers conclusive proof that Bogle has investors' best interests at heart.