Extraordinary returns on some Internet and technology stocks and the Dow Jones Industrial Average are making it increasingly difficult for mutual fund companies to keep investors satisfied with their portfolios, according to mutual fund companies and analysts.

Companies are trying to combat rampant dissatisfaction fed by inflated expectations through letters to shareholders and advertising campaigns. And, they are promoting more energetically than ever, the wisdom of long-term, diversified investing based on solid fundamentals.

The discontent among investors arises from the fact that it is only a small segment of the market that has enjoyed the most spectacular returns recently. As a result, the average mutual fund has not enjoyed anywhere near the gains of the most high-flying stocks.

In the first quarter of this year alone, the Dow Jones Industrial Average soared 7.04 percent and the S&P 500 gained 4.99 percent while U.S. stock funds overall rose 0.93 percent, according to Lipper Analytical Services, the fund tracking firm in New York.

Last year, the S&P 500 rose 28.58 and the Dow Jones Industrial Average was up 18.13 percent while equity funds overall rose 14.56 percent, according to Lipper.

One of the many companies feeling the heat from disheartened investors is Legend Financial Advisors Group, a financial planning and asset management company in Pittsburgh.

Since Legend has traditionally offered only widely-diversified funds, the company decided to introduce its first high-growth, large-cap portfolio of 25 stocks next month - specifically to respond to an insatiable new appetite for high returns from hot stocks, said Diane Pearson, a financial advisor at Legend. Legend has been getting a lot of inquiries from investors wanting to be in growth stocks with 20 percent, 30 percent or even better returns, said Pearson.

SSB Citi Asset Management Group of New York, to combat investor disappointment, is providing more details on the investments in its funds to its 11,000 wholesale sales force.

"We make sure all information refers to the index that each fund is managed against, because we don't want everybody to think it's against the S&P 500" or another booming sector, said Connie Kain, director of public relations.

In May, SSB Citi will introduce a new advertising campaign emphasizing long-term investing and asset allocation.

SSB Citi Asset Management also is "telling people they should not try to time the market," Kain said.

Scudder Kemper Investments of Boston and other companies that offer mostly value funds, have the toughest jobs now since value stocks have been out of favour for a particularly long stretch. In the past 12 months alone, large cap growth funds have outperformed large cap value funds by an average of more than 25 percent, according to Morningstar.

To address investors' concerns, Scudder Kemper is devoting considerable attention to explaining its investment philosophy.

"We are having to take the time to explain the reasons behind the investments in order to calm investors' nerves," said Steven Shapiro, vice president of corporate communications.

"But once they understand why our portfolio managers make the decisions they do, they seem to understand. For example, in our Growth & Income Fund, which takes a value approach, we don't think it is appropriate to be in some of these high-flying technology stocks. If you look at those companies' fundamentals, you will see that many of them don't even have earnings.

"But we do think it is appropriate to invest in a company like Corning, which lays the pipelines for the Internet. It's a safer Internet play. When we explain such strategies to our 800,000 shareholders in our monthly newsletter, we can calm their frustrations."

The Oakmark Fund, a value equity fund managed by Harris Associates of Chicago, has also had to struggle with investors' concerns over returns.

Fund manager Robert Sanborn finally got tired of incessant grumbling he has been hearing for the past several months and issued a letter to shareholders last month. The letter said that today's very narrow market is "purely a cash flow phenomenon" that will continue only as long as all of the excitement over a few stocks continues to attract assets - buoying their price in a "vicious cycle."

"The most overpriced stocks keep doing the best, and the concept of buying an overpriced stock in the hopes of it becoming overvalued does not appeal to me, and I won't do it," wrote Sanborn in his letter.

The appeal has not stemmed the tide of cash outflows for The Oakmark Fund, Sanborn said.

"We've had net cash outflows every day for the past six months," said Sanborn. Oakmark now has $6 billion of assets under management, down from $9 billion a year ago.

Sanborn has received numerous calls and e-mails from investors asking him why his fund is not heavily invested in America Online or another big winning stock.

"Some people even said the fund is a dog," he said, noting it gained only four percent last year.

"It's hard to refute investors' new logic (of chasing performance) even if it is mindless," Sanborn said. "But I wish money wasn't pouring out."

Despite the energetic efforts of these and other companies, financial advisors and consultants are skeptical the messages are having an impact.

"Those educational efforts are falling on deaf ears," said Russ Prince of Prince & Associates, a mutual fund consulting firm in Shelton, Conn. "Expectations are getting out of control, and investors are telling their mutual fund companies, You can tell me anything you want and it doesn't matter because you have a lousy fund and you should be doing better.' "

These messages "have a hollow ring to them, especially when there are a lot of sexy numbers out there," said Burton Greenwald, president of B.J. Greenwald & Associates, a mutual fund consulting firm in Philadelphia.

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