Tips to Put Your Mind at Ease About Mutual Funds.

WHILE it makes money for you, an ideal strategy for mutual fund investing shouldn't cost you much sleep.

Something's not working right if you hire a bunch of fund managers to tend to your hard-earned savings, then find yourself constantly fretting about them.

Worrying is for traders, speculators and people who like to play individual stocks -- not for a long-term investor in a diversified group of mutual funds.

To help cut down on your a wake-in-the dark hours, here is a short list of bogeymen you can spend less time worrying about:

* Style drift. This circumstance arises when a fund you bought as, say, a "small-company value" investment takes on a "mid-cap growth" character instead. The change occurs because some of your fund's little out-of-favor companies get bigger and grow faster, vindicating the manager's faith in them, and your faith in him or her.

News like this pleases ordinary folk, but not style purists. They're unhappy because the fund isn't staying in its pigeonhole.

Yes, it's true that style drift can mess up your diversification plan, particularly if you don't check up on your funds at regular intervals. But if you insist on style purity in every fund, you run the risk of putting form ahead of results, which is definitely a confused order of priorities.

"Equity specialization has been carried to such extremes that it really does severely limit the manager's ability to make commonsense judgments," says Steve Leuthold, chairman of the Leuthold Group, a Minneapolis investment research firm. "It's detrimental to the client's long-term investment results."

* Index comparisons. An amazing number of people seem to think that the test of an investment's merit is whether it beats the Standard & Poor's 500 Index or some other benchmark.

While this is a common way that professionals judge their performance, index comparisons are never anything more than theoretical. The test of a real-world investment is whether it fulfills the purposes of the investor, which probably calls for taking either greater or less risk than any benchmark represents. Relative performance puts no money in your wallet.

* Portfolio disclosure. Every so often, and now is one of those times, activist investors try to get a movement going to force fund managers to report their holdings more often than the legal minimum of twice a year.

In practice, many funds now publish lists of their Top 10 holdings monthly, or complete portfolios quarterly. Still, some prominent managers resist, arguing that more frequent disclosure would tip their [hand to rival investors. Then those investors could presumably "front-run" ahead of [the manager, leaving the fund facing higher prices for the stocks it [buys and lower prices for its stock sales.

"Our approach is definitely, less is more," says Warren Lammert manager of the $16.2 billion Janus Mercury Fund. "We think it disadvantages current shareholders."

On principle, I'm for as much transparency as we can get. But I'm also skeptical that more frequent reporting would make a big difference in the investment choices most fund investors make.

"I think it's an overblown issue," says Ken Gregory, president of the research and money management firm Litman/Gregory & Co. in Orinda, Calif. "Most people are kidding themselves if they think they are going to add value with that."

In an 1835 story called "The Haunted Mind," Nathaniel Hawthorne catalogued some of the phantoms that may visit a sleeper who awakens in the night: Sorrow, Disappointment, Fatality, Shame, Remorse.

When the clock chimes 2 a.m. here in the year 2000, you can still meet up with all those specters. No sense compounding the problem by worrying about your mutual funds.

Chet Currier is a columnist for Bloomberg News.

Plain Talk Welcomed In New Prospectuses

The results are in. We can score the Great Plain English Initiative of 1998 a bang-up success.

Maybe you were preoccupied with other matters at the time, and didn't notice when the Securities and Exchange Commission adopted the Plain English Rule for mutual fund prospectuses on Oct. 1, 1998

It instructed funds to write key sections of their prospectuses in everyday prose instead of legal boilerplate, and gave "specific guidance on how to make the entire prospectus clear, concise and understandable."

I don't pretend to have made an exhaustive survey since then. But most of the prospectuses that pass through my hands nowadays are, sure enough, clear, concise and understandable. Much better than they used to be,

This is no mere aesthetic issue. Fund prospectuses ain't art, and most likely never will be. What we get is a down-to-earth practical benefit, because, in addition to serving as legal agreements, between fund seller and fund investor, prospectuses also perform the vital function of owner's manual.

Fund prospectuses can be published in useful and understandable form. That sets a revolutionary precedent, suggesting that other things such as insurance policies, wills and credit-care agreements could be rendered comprehensible too.