Letter from the President and Letter from the Portfolio Manager

The president

Typically, the first item you'll find in a mutual fund shareholder report is a letter from the president of the company that advises or manages your fund. The best letters will contain straightforward, useful discussions of the economic trends that have affected the markets during the past six or 12 months and provide some context for evaluating your fund. Poor letters, in contrast, will discuss anything but the current financial climate and the performance of the fund family's offerings.

The portfolio manager

This is a fund-specific examination of the recent performance and therefore much more important to you as a fund shareholder. Well-written shareholder letters discuss individual stocks that the fund owns and the industries in which the fund invested. A good manager letter will also explain what broad market trends might have fueled or hindered your fund's performance. Finally, most managers will give you an indication of what you can expect from the fund in the future, given an unchanged strategy.

Investors should demand a lot from shareholder letters, particularly in times of declining performance. If shareholder reports leave your questions unanswered, let your mutual fund company know. (Note: Many fund companies have begun sending out portfolio-manager letters that are separate from their shareholder reports, rather than bundling them together.)