To the casual eye, the first half of 2000 in mutual funds hasn't amounted to much.

Stock funds have been stinky since spring arrived, and bond funds haven't made anybody rich either. Money market funds are performing nicely but there's only so much excitement you can squeeze out of an annual return of 6 percent, even if it comes at low risk.

Investors accustomed to bull-market payoffs in the late 1990s are finding the pickings slimmer at the start of the new century. On reflection, though, maybe this isn't such terrible news.

Didn't everybody say the stock market was running too hot for comfort, and the world economy, too? Hasn't Alan Greenspan, chairman of the Federal Reserve Board, been conducting a sustained campaign to cool things down by raising short-term interest rates?

Perhaps the letup lately is just what the good doctor of monetary policy ordered, without too much bitter taste as the medicine goes down.

"I wouldn't want to bet against the Fed's succeeding" in bringing the whole show down to a safer, steadier speed, said fund analyst Eric Kobren in his independent newsletter Fidelity Insight.

From the start of the year through June 23, the Bloomberg average of more than 10,400 stock and bond funds returned 1.2 percent, less than half as much as their money market counterparts. Stock funds have gained 0.8 percent, bond funds 1.9 percent.

Within the stock classification, technology funds, coming off a spectacular 1999, have eked out a 2.7 percent gain. To get that modest benefit, you had to ride out a scary slide that sheared as much as 50 percent off the funds' net asset values from their early March peaks to the bottom in May.

Other than that painful process, though, funds' general showing in the first half hardly qualifies as a debacle. If this is all it takes to accomplish the dirty work of a bear market wringing out excesses of the preceding boom we truly are living in golden times. The official line is that it's way too soon to proclaim an economic or financial "soft landing." And it is. But even if it becomes much more apparent that the campaign has succeeded, Fed officials are unlikely to say so where anybody can hear them. An inflation fighter's work is never done.

Experienced investors don't wait for announcements anyway.

They go on probabilities, prospects, estimates and expectations. After falling from 5049 on March 10 to 3165 on May 23, the Nasdaq Composite Index has since rebounded. The bulls are betting on the Fed.

"In my opinion, the economy isn't likely to land at all," said Edward Yardeni, chief economist at Deutsche Bank Securities Inc. in New York. "It should keep flying, but at a lower speed, one acceptable to the folks at the Fed."

Whatever happens from here, the investment climate has cooled since the ups and downs of early 2000. Some momentum-minded traders have doubtless been driven out of the Internet-computer-telecommunications boom, never to return. In their wake, though, we don't find a complete vacuum.

Growth-conscious investors sold Microsoft Corp. shares in sufficient numbers to drive it down 33 percent since the start of the year. But that brought it to a point where a more traditional "blend" (growth and value) fund such as the $7 billion Pioneer Fund deemed it buyable for the first time.

"It's just the kind of stock where negative feelings have run out of control," said manager John Carey.

In the markets as a whole, both positive and negative feelings threatened to run out of control at times in the first half of 2000. As jolting as those moments were, the net effect as of midyear looks like a remarkably reasonable balance.

That's the kind of outcome long-term investors love. It encourages them to stand their ground whenever the next crisis comes, as it surely will.

Chet Currier is a columnist for Bloomberg News.

Tax Efficiency Boils Down to Matter of Politics

Smack in the middle of the great to-do over mutual fund taxes sits a misconception.

Most parties in the argument seem to have stipulated that funds are "tax inefficient" by their very nature. That's incorrect. There's a problem all right, but it isn't the funds' own doing.

The law creates a headache for investors in their taxable accounts by declaring all fund distributions subject to income taxes in the year they are made even if shareholders have the money automatically reinvested in new fund shares.

Though you shouldn't sit up at night waiting for it to happen, this burden could be lifted with a wave of the legislative hand. The law need only be amended to let investors defer taxes on reinvested capital gains distributions until those investors redeem, or cash in, their investment.

Wham! Gone would be the whole issue of whether and how funds should report some hypothetical figure for after-tax returns, now being weighed at the Securities and Exchange Commission.

Gone, also, would be an equally artificial force nudging investors away from traditional mutual funds to exchange-traded funds or to direct investing on their own in the stock market.

People could still consider those alternatives, of course. They would be free to evaluate them on their natural merits.

The odds that the funds will actually see more lenient tax treatment rank somewhere between minimal and minuscule. The idea is raised every now and then, and never gets far.

Fund managers are perceived as prosperous and successful beyond most ordinary citizens' wildest dreams. Investors have already entrusted $7 trillion to funds and are still pouring in more money so there's no case to make that fund investing needs encouragement.

But it's simply incorrect to view funds as suffering from some innate weakness regarding taxes. Their tax status results from a conscious policy decision by the government.

When people think about fund taxes, truth will be served if they remember that mutual fund "tax inefficiency" is a matter of politics, not a genetic flaw.

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