Americans have $6.5 trillion of their savings in mutual funds, but finding out how that money has been put to work for them isn't easy.

Mutual funds are required to disclose their portfolios only twice a year. The rest of the time, investors have no way of knowing what their fund managers are up to. They can scrutinize these semiannual holdings, but they might wonder: Did the fund managers own those hot stocks for months, or did they buy them at year-end to make themselves look smart?

Industry executives say they can't disclose their investment decisions more often because it would affect their trading costs if other Wall Street players knew their intentions. But the curtain that shields the operations of mutual funds encourages speculation that some fund managers engage in "window dressing" and other tricks to attract more cash and maximize their compensation.

Regulators and some former fund officials concede that window dressing occurs but said it's difficult to stop.

"Window dressing is pretty common, because it impacts how the managers of active funds are compensated . . . although I don't think many portfolio managers would admit to it," said Robert Steele, a vice president of the Rockville-based Rydex Series Trust mutual funds. "It's not new and probably won't go away."

Steele said that because Rydex's funds are index-based--designed to mimic the movements of certain indexes--his managers have no incentive to engage in window dressing.

A new study also suggests that some funds boost their performance at the end of the year by their last-minute investments. David K. Musto, an assistant finance professor at the University of Pennsylvania's Wharton School, said the study concluded that the mutual funds are "marking up their portfolios."

"They bump up their valuations on December 31 by purchasing shares of stock they already own," he said.

Musto said the five-year study, which he conducted with three other finance experts, found that the top-performing funds generally posted their best gains on the last day of the year and had their worst results on the first trading day of the following year.

Furthermore, the hottest stocks held by these funds reached their peak in the last hour of trading on Dec. 31 and dropped back down within the first 30 minutes of the next trading day.

(The same pattern did not exist for the poorly performing funds, probably because a fund ranked fourth from the bottom wouldn't boost its new cash inflows by moving up to 14th from the bottom, Musto said. Thus, there is less incentive for poorly performing funds to try to goose their performance.)

Big mutual funds buy and sell shares worth billions of dollars, and some equity traders say the big price moves by technology stocks last month were caused in part by window dressing and "marking up" of portfolios.

Fund officials deny that they try to push up the prices of stocks to improve performance or engage in window dressing. Privately, a few fund managers said they suspected or heard rumors that some of their competitors engaged in such practices but said they were not widespread.

Brian Mattes, a spokesman for the Vanguard Group, said none of its funds engage in window dressing or other such market maneuvers. He also said he doesn't think the practices pose problems in the industry, because frequent trading can raise funds' costs and create tax problems for investors.

"It's a costly, complicated maneuver . . . really a pointless exercise," Mattes said.

But Donald Luskin, president of, a World Wide Web site for active online investors and former chief executive of Barclays Global Mutual Funds, said the point of window dressing is that many fund managers want to dump losers and buy winners to make themselves look like sharp stock pickers.

In addition, this year there was an interesting "cross current," Luskin said. "Many funds have achieved better than usual performance by betting on technology stocks and Internet stocks--and that may not be something they want widows-and-orphans investors to realize."

Luskin said the fund industry is very secretive. "They only open themselves up every six months," he said. His runs one of the few exceptions, he said, Internet-based OpenFund. It allows investors to check into its Web site to learn what stocks OpenFund has bought and sold each day, the daily fluctuations in portfolio value, and Luskin's current trading strategy.

Barry Barbash, a Washington lawyer and formerly the SEC's top regulator of mutual funds, said the SEC investigates reports of window dressing at the end of each year. But he said it is difficult to prove that a trade was done for fraudulent purposes.

"There are certain kinds of activities that would rise to the level of fraud under the securities laws," he said. But regulators would need to prove "the trade was not done for valid business purposes, but simply to make the performance appear better."

Robert Plaze, associate director of the SEC's division of investment management, agreed that proving fraudulent intent is difficult. For instance, he said, buying a hot stock in December and selling it in January isn't necessarily window dressing. It might have been part of a manager's investing strategy to boost shareholder value, he said.

"That's not to deny there may be window dressing going on. . . . We know that it happens," Plaze said.

Securities lawyers said that during the current bull market there have been few investor demands for more transparency, because so many funds have performed so well. But if the markets were to crash and investors were to lose money because their mutual funds did not contain the types of stocks they expected, lawsuits would probably follow, they said.

In the past, the industry has fought attempts to force more frequent disclosure of stock holdings. A few years ago, the SEC considered pushing for quarterly disclosure of certain limited kinds of mutual funds, but the industry protested that it would be costly and detrimental to shareholders. The SEC dropped the effort.

Indeed, many large funds warn that such a move could hurt, not help, investors. Large fund families hold massive amounts of certain stocks. If traders were to find out that a group such as Vanguard or Fidelity was trying to buy a particular stock, the traders could rush to buy ahead of them, pushing the price up. That would make it more costly for the fund to pursue its strategy or might even force it to drop its investment plan, Mattes of Vanguard said.

"Besides, investors don't need more disclosure. They generally choose funds based on performance," said one fund manager.

To Luskin, looking solely at performance is insufficient. "Performance is all in the past. So investing based on a past performance record is like driving by looking through the rearview mirror. . . . Investors need to understand how that performance was produced," he said.

Some financial experts and regulators are skeptical, however, that quarterly disclosure reports would give investors that much more insight into the thinking of portfolio managers. "Even our trained examiners cannot always just look at a statement" and tell what is going on, Plaze said. "They have to ask questions and get into somebody's soul over why they got into that trade."

Plaze said that with portfolio holdings constantly changing, investors should study a fund's performance record and its investment policy. "One of the things we are very rigorous about is that a fund's behavior be consistent with the investment objectives" set out in the prospectus. He said if a fund had securities in its portfolio that it was not supposed to have, and it tried to remove them before the end of its fiscal year, when it has to report its holdings, the SEC would look into the case to see if there is a violation.

Dave Petersen, a Silver Spring financial adviser, said that in the current market, investors in funds where managers stay true to their mission are often the ones who lose out when the market shifts direction.

He noted that in December the Nasdaq 100, the index of the Nasdaq Stock Market's major stocks, rose 25 percent. "A fund that moved into those stocks at the beginning of December could have beat the S&P for the whole year in just one month," he said.

"You can't ignore that. As a portfolio manager of a mutual fund, if you're paying attention and looking at what is happening day by day, all of a sudden, you're going to say 'I need to be there.' Some fund managers stuck to their guns, but a lot caved," Petersen said.

All of this, along with the surge in online trading and research, will increase the pressure on mutual funds for more transparency, said Andrew Guillette, a consultant at Boston-based Cerulli Associates Inc.

"I think consumers are clearly more interested in data and information," Guillette said. He said investors are increasingly well versed and aggressive about taking control of their finances.

"Technology has created an insatiable demand for information among investors, and if feeding them more and more information will influence fund purchases, I certainly see some firms going down that route," he said.