Does Your 529 Plan Make the Grade?

With the dismal performance of 529 plans over the past year, investors should examine their plan's asset allocation to make sure it works for their child's age

By Tara Kalwarski

Total assets in 529 college savings plans fell 21% in 2008, to $88.5 billion, according to Financial Research Corp. But these vehicles, whose name hails from the section of the tax code that allows the savings to grow federally tax-free if redeemed for a qualified higher education expense, remain a popular choice, with 2008 net sales exceeding $3 billion. Since 2004, total assets have swelled by more than 69%.

Still, the widespread losses incurred by the bear market have hurt 529 plans' performance. According to new data from Morningstar, 529 fund offerings that had 80% or more of assets invested in equities were down an average of 38.4% in the one-year period ended Mar. 31. Over the same period, the Standard & Poor's 500-stock index lost a slightly more modest 38.1%.

Even those investment offerings with little to no stock exposure—3% or less—lost 8.5% on average. "A lot of accounts for older children dropped a significantly," says savingforcollege.com founder Joe Hurley.

Oppenheimer Plans Fared Poorly

In Morningstar's (MORN) best and worst of 529 plans published Apr. 23, analyst Greg Brown also points out that some plans suffered big hits due to exposure to bond funds that bombed in 2008. In particular, many OppenheimerFunds-managed 529 investment options held Oppenheimer Core Bond (OPIGX), which lost more than 35% in 2008 due to non-agency mortgage investments. And the worst part? "Oppenheimer portfolios positioned closest to college were the ones holding the largest positions in these bond funds," notes Brown.

If anything, says Hurley, "The losses underscore the need to make sure you have the appropriate asset allocation for the age of your child."

Fortunately, the news isn't all negative. One plus from this mess, says Hurley, is that the market conditions have resulted in investment advisers increasing the number of fund options offered on the conservative end of the scale, including ones that invest in bank certificates of deposit and inflation-protected government bonds.

College Costs Rising Rapidly
With the cost of college continuing to increase at rapid rates, saving is more important than ever. A recent survey from the College Board reports that tuition, room, and board costs at public four-year institutions increased 5.7% in the 2008-09 school year, to $14,333. A year at a private college was more than twice as expensive, at $34,133.

This makes it all the more important to research before you buy into a 529 college savings plan—or to investigate to see if the 529 you currently own makes the grade.

Hurley's savingforcollege,com, which is owned by Bankrate.com (RATE), and collegesavings.com, a site from a nonprofit association representing states that administer 529 plans, are great places to go for quarterly investment performance, as well as information on fees, investment options, and state-specific tax advantages. Morningstar also provides summaries of each plan. (It does not rank them).

See below for my latest views on Champion Income Fund...

http://www.mpbn.net/News/MaineNews/tabid/181/ctl/ViewItem/mid/1858/ItemId/9643/Default.aspx
State's College Savings Fund Suffers Losses
March 10, 2009     Reported By: Irwin Gratz

The state's college savings fund known as NextGen has stopped offering a series of investment portfolios from mutual fund company Oppenheimer.  The Finance Authority of Maine, which runs NextGen, says some of the funds in those portfolios have suffered "unusual" losses and it's asking the Maine Attorney General's office to investigate. 

It's been a bad few months for many stock and bond funds, but for the Oppenheimer Champion Income Fund, it's been a near wipe out, with fund shares losing 80 percent of their value last year.

"It's really tragic because these funds were portrayed as conservative investments," says Andrew Stoltmann, a Chicago attorney who is representing some Oppenheimer clients who've filed arbitration claims against the company. "In reality, the fund was much more similar to that of a hedge fund, than the conservative bond fund that it was portrayed as."

The Champion fund prospectus says it seeks high current income by investing mainly in high-yield, lower-rated fixed income securities, what are often called "junk bonds." It also says it may invest in other debt securities.

But Finance Authority of Maine acting Chief Executive Elizabeth Bordowitz says as Champion Fund's numbers tanked late last fall, FAME reviewed Oppenheimer's investments and was disturbed at what it found. "There's certainly an article in Morningstar that they've put out publicly that suggested these funds had particularly high leverage.  And, so that was, of course, one of the points that we were looking at:  how the fund invested and whether they may or may not be over-leveraged."

According to that article by Eric Jacobson of Morningstar, the securities rating company, some of that leverage was in "derivative" investments that Oppenheimer didn't list on its balance sheet, meaning even the fund's managers may not have been aware how much risk they'd assumed.  

But attorney Stoltman says that only contributed to the basic problem. "Every state has a state securities act that mandates all risks must be fully disclosed and must be detailed to the individual client.  All 50 states have a state securities act and under each act there's a specific misrepresentation and omissions section that would trigger liability if it's violated."

The Finance Authority has asked the Attorney General's office to review the operation of the Champion Fund and two others:  the Core Bond Fund, which fell 35 percent while similar funds posted small gains, and the limited term government fund, which also lost money in a sector where most other funds registered small gains.

People who open NextGen accounts get to choose from a menu of "portfolios" to invest their money.  Acting Chief Executive Elizabeth Bordowitz says FAME has removed the Oppenheimer portfolios from that menu. 

But she says people already with such accounts can, for now, continue hold them and even make new contributions.  "People chose to be in this portfolio and Oppenheimer Funds have performed, really very well for most of the time we have had them in the NextGen portfolios.  And so I think investors need to consider their options.  I think they should take a look at this and they should determine whether they still have an interest in investing in Oppenheimer Funds.  I think it's prudent for investors to review their investments regularly."

One factor for those people to consider is closing an existing Oppenheimer portfolio account would lock-in any losses already suffered.  Attorney Stoltmann is pursuing 10 arbitration cases against Oppenheimer and expects to file another 15 to 25.   Stoltmann also says he's heard rumors that other states attorneys general are considering possible legal action against Oppenheimer.  

The Maine Attorney General's office confirms it has launched an investigation at FAME's request, but because it's an on-going investigation, a spokeswoman had nothing else to say about it.   A spokeswoman for Oppenheimer Funds also said it has no comment on the matter.
 

A class action lawsuit has been brought on behalf of investors who purchased or held shares of the Oppenheimer Champion Income Fund (OCHBX, OPCHX and OCHCX) between January 26, 2007 and December 9, 2008. The suit centers around the fund managers failure to disclose the extent of risk associated with the fund and seeks to recover financial losses suffered by investors.

The Oppenheimer Fund lawsuit was filed on February 13, 2009, in the United States District Court for the Southern District of New York seeking to represent all shareholders as a class.

The Champion Fund shares began to decline in July 2008, as concerns about the financial industry’s poor underlying fundamentals increased. In September 2008, with the collapse of AIG and Lehman Brothers, the funds share prices sunk even further, ending the year with losses of 78%.

According to the Oppenheimer Champion Income Fund class action complaint, the defendants failed to disclose that they were no longer adhering to their stated objective of not taking any undue risk and were actually pursuing riskier investments to achieve greater yields. The plaintiffs also claim that the extent of the Fund’s leverage exposure was misstated and that material facts were omitted about the extent of their liquidity risk and the extent of their exposure to derivatives and other high risk instruments.

Oregon, Illinois investigate college savings plan losses

by Suzanne Pardington and Brent Hunsberger, The Oregonian

Thursday January 15, 2009, 9:48 PM

Illinois is pursuing a potential lawsuit against OppenheimerFunds to try to recoup some of the money lost in the same bond fund that caused the Oregon College Savings Plan to plunge in value last year.

Oregon officials have been in contact with Illinois, but the states are conducting separate investigations.

The Oregon board that oversees $750 million in college savings, which has known about the losses since October, will meet next week to decide what to do about the troubled fund.

The Illinois investigation follows swift action in that state to halt new contributions from the fund in December and redirect them to safer, short-term U.S. Treasuries. Existing investments were left in the fund to avoid locking in losses.

Ben Westlund, who became Oregon's treasurer last week, heads the five-member board that oversees Oregon's plan. He will discuss the state's options when the board meets Thursday, said spokesman James Sinks.

The House Education Committee also plans a hearing in Salem about the college savings plan Jan. 23.

In a letter to legislators Thursday, Westlund pledged to improve the $750 million plan, which lost about 25 percent of its value last year. Even the most conservative plans designed for students who are in college performed poorly.

About 70,000 investors are saving money for college for about 100,000 children, grandchildren and others in Oregon's plan.

Illinois' college savings plan is worth about $1.9 billion, down 17 percent from $2.3 billion at the beginning of last year, invested in 182,000 accounts. About $85 million of Illinois' losses were in the bond fund.

The OppenheimerFunds Core Bond Fund, which held about $89 million of Oregon's college investments as of Sept. 30, has dropped 41 percent in value in the past year. It closed Thursday at $6.02 a share, a 15 percent increase over its November low of $5.23.

The fund was heavily invested in commercial mortgage-backed securities, financial-sector corporate bonds and other securities, according to Morningstar, which evaluates mutual funds.

OppenheimerFunds' most conservative portfolios available to Oregon College Savings Plan investors regained a portion of their value in December. But they have declined so far this year.

Oregon Attorney General John Kroger also is looking into why the fund dropped so quickly and whether the reason violated OppenheimerFunds' contract or securities law, spokesman Tony Green said.

"If we find what we believe is wrongdoing, then we would have litigation," Green said. "But we aren't at the point where we can make that kind of decision yet."

Oregon is not working with Illinois, he said, but "if we feel that it's in the best interest of Oregonians and our investigation, we certainly would not hesitate to do so."

Illinois officials decided to pursue legal options because "we felt that we couldn't afford to wait around," said Scott Burnham, spokesman for Illinois Treasurer Alexi Giannoulias.
"Families need money to pay for tuition now."

OppenheimerFunds also faces legal action from individual investors.

Andrew Stoltmann, a Chicago attorney, said he represents 20 individuals filing legal actions to recover their losses from the Core Bond Fund and another fund. The losses, ranging from $30,000 to $600,000, came from investments made directly into the Core Bond Fund, outside any college savings program, he said.

"It's incredible they could take huge derivative risks and sector bets for what was supposed to be conservative funds," Stoltmann said. "There will be a tsunami of litigation against Oppenheimer for the destruction they brought on to a lot of investors."

Stoltmann called the supposedly conservative fund's investments in credit-default swaps "off-the-charts risky and speculative."

Credit-default swaps are a kind of insurance contract against default on debt, such as a bond, loan or mortgage. They were invented by Wall Street and are largely unregulated, and their market collapsed as homeowners began defaulting on mortgages.

OppenheimerFunds also manages college saving plans in New Mexico and Texas.

Some of New Mexico's investment portfolios had between 50 and 60 percent of their money in the Core Bond Fund. They performed even worse than Oregon's, losing 26 to 35 percent of their value last year. New Mexico's in-school portfolios lost about 19 percent.

January 14, 2009
Ill. wants Bright Start College Savings program's $85M back
Terry Savage

Thousands of Illinois families affected after Bright Start Savings program suffers huge losses amid questions over an investment strategy that could land fund's former chief in legal jam 

The State of Illinois' Bright Start College Savings program has been the victim of a gross mismanagement. That's the charge being made by Illinois state Treasurer Alexi Giannoulias as he prepares to file a lawsuit against Oppenheimer Funds, seeking to recover $85 million of losses in a bond fund that he alleges was imprudently managed. Thousands of Illinois families suffered huge losses as a result.

The charges stem from an incredible 38 percent loss of market value in the Bright Start "Core Plus" bond fund under the watch of then-Senior Vice President of Fixed Income Angelo Manioudakis. The fund was supposed to be invested in "investment grade bonds and U.S. government securities," the most conservative investment strategy -- used by parents who want to limit risk as their child approaches college age.

Similar funds managed by other investment companies showed a positive return of about 5 percent last year, as short term bond prices moved up in response to lower interest rates.

Attempts to reach Manioudakis, who has since left Oppenheimer, for comment were unsuccessful.

Illinois isn't the only state to be victimized. The same Oppenheimer fund is included in 529 college savings plans of Oregon, Texas, Maine, and New Mexico.

But it appears that Illinois will be the first to pursue legal action. Giannoulias is working with Attorney General Lisa Madigan's office to determine the "appropriate legal action," in an attempt to help families recover losses in fund investments as college payments come due.

Morningstar analyst Eric Jacobson has done some digging into this Oppenheimer bond portfolio. In late December, just after Manioudakis left Oppenheimer as a portfolio manager, Jacobson reported that "something just didn't add up."

Even with the fund reporting a 20 percent investment in mortgage-backed securities, the large overall losses couldn't be explained.

Jacobson ties the losses to leverage used by fund managers. The fund had huge exposure to not only mortgage-backed securities, but credit default swaps. In effect, they had investment exposure equivalent to 180 percent of their assets. And when those markets collapsed at the end of September, the bad investment choices were compounded by the leverage, leading to outsized losses.

Morningstar said it couldn't find any disclosures in the funds' legal documents allowing them to use this kind of leverage. And "it was never brought up by the managers in their Morningstar interviews," said Jacobson in his report.

"It comes awfully close to dishonesty by omission," Jacobson said.

Reached Tuesday afternoon, Oppenheimer Funds' chief economist and former head of fixed income, Jerry Webman, said: "The fund was overwhelmingly invested in government bonds and top rated debt securities. In that regard we did just exactly what we were supposed to do. . . . But there was unprecedented volatility in these markets, and the securities we owned did not behave according to any historic precedent."

As to charges that Manioudakis is a "rogue fund manager," Webman responded: "These investment decisions were made by a team of portfolio managers. They took responsible positions, which were damaged by unprecedented market actions.

"It would be highly inaccurate to call Mr. Manioudakis a 'rogue fund manager.' "

But Giannoulias doesn't buy that argument.

He reassured Bright Start investors that his allegations relate to only one fund in the program, and noted that Bright Start Savings has been ranked one of the top 5 college savings programs in the country by Morningstar.

Giannoulias vows to pursue recovery of the losses, saying: "We're taking a proactive approach, fighting for these families that need money to cover college expenses now. . . . We want to hold this fund manager responsible for this reckless investment strategy."

In the end, it appears the courts will decide.

And that's The Savage Truth.

Oppenheimer bond fund losses hit college 529 savings plans
By Sandra Block, USA TODAY

Thousands of parents of college-age children who thought their college savings were sheltered in low-risk portfolios watched their accounts shrink last year after a bond fund offered by at least four state 529 plans lost more than a third of its value.

The Oppenheimer Core Bond fund, (OPIGX) offered by 529 plans in Oregon, Texas, Maine and New Mexico, fell 36% last year, vs. a loss of about 5% for the average intermediate-term bond fund, according to Morningstar, an investment research firm. The losses stemmed from the management team's decision to take big bets on mortgage-backed securities and credit default swaps, Morningstar said.

The Texas College Savings Plan's blended age-based portfolio for children 18 years and older has 50% of its assets in the fund. The portfolio fell 21% in 2008.

Kevin Deiters, director of educational opportunities for the state comptroller's office, says state officials are disappointed in the fund's performance but haven't made any decisions about whether to replace it.

Other examples:

•ScholarsEdge, a 529 plan offered by New Mexico, has 25% of its age-based portfolio for children 18 and older invested in the fund, according to the plan prospectus. That portfolio dropped 17% last year.

•Maine's NextGen College Investing Plan offers a balanced fund portfolio that has 40% of its assets in the fund. Through Nov. 28, the most recent information available, the portfolio was down more than 42%.

•Oregon's College Savings Plan has 20% of its ultra-conservative portfolio — aimed at parents of children who are in college — in the Core Bond fund. That portfolio fell 9% last year.

In August, Cameron Hyde, an architect in Portland, moved about $40,000 to the in-college portfolio to cover expenses for his son, Owen, a freshman at Lane Community College in Eugene. He's lost more than $4,000.

Hyde thought the portfolio was extremely safe. "It's like retiring," he says. "When you need the money, you need to take the risk out of it."

Oregon's College Savings Network has launched an investigation with the state attorney general's office to determine whether Oppenheimer misled investors, says Michael Parker, executive director of the network.

Oppenheimer has installed new leadership for the fund's management team, spokeswoman Jeaneen Pisarra said in an e-mail.

"Virtually every type of investment has felt the effects of extraordinary events in stock and bond markets around the world," Pisarra said. "Core Bond fund was not immune to those conditions."
 

The latest in the Oppenheimer Champion Bond Fund is below.  The article confirms many of the findings in our investigation.  The conduct becomes even more repugnant... 

Oppenheimer Bond Funds Missed the Forest Fire for the Trees
By Eric Jacobson | 12-17-08 | 11:52 AM

What's been going on with Oppenheimer's bond funds has been so unbelievable that, well, we didn't believe it. We'll get back to that in a minute.

The latest news is that fund manager Angelo Manioudakis decided to leave Oppenheimer. The firm announced it Monday, and, according to its director of fixed income, Jerry Webman, the decision was in fact all Angelo's. (Webman is also the firm's chief economist and a senior investment officer.) Oppenheimer has by all appearances stood behind Manioudakis, who came from Morgan Stanley in 2002 and before that the well-respected Miller, Anderson & Sherrerd, which Morgan acquired several years earlier. In fact, Oppenheimer even pumped $150 million of its own money into  Oppenheimer Champion Income (OPCHX OPCHX) (which Manioudakis and team run) during the height of the crisis, and the team appears to have remained steadfast in its determination to see through the strategies and positions that have thus far scalded most of the portfolios for which they're responsible.

It's not hard to imagine why Manioudakis felt like throwing in the towel. For the year to date,  Oppenheimer U.S. Government Trust (OUSGX) was down 5% as of Monday (Dec. 15, 2008), and  Oppenheimer Limited-Term Government (OPGVX was down 7.8%--losses made all the more painful for investors watching competitor portfolios turn in returns north of 3% as Treasury bonds provided one of the market's only bright spots. Those were mere flesh wounds when compared with what happened at  Oppenheimer Core Bond (OPIGX) and Oppenheimer Champion Income (the firm's main high-yield offering). The former is off 38.5% through Monday, and the latter an absolutely nauseating 80.1%. Even with 2008's ugly market, we don't need any benchmarks to know that neither are anywhere near the market averages.

Bad Markets, Bad Returns
At first blush, the cause seems logical enough. Manioudakis and his team tried to keep powder dry in mid-2007, figuring that good opportunities were going to present themselves. By January 2008, the team had begun packing some of that powder, building positions in four key areas that they felt had become exceedingly cheap. That included AAA rated commercial mortgage-backed securities, nonagency prime (jumbo) mortgages, AA and A rated financial-sector corporate bonds, and very short-maturity high-yield corporates. As we all know by now, the market only got worse and became more illiquid through the course of the year. Each of those areas has been pummeled mercilessly.

Something just didn't add up for us, though. In January, Manioudakis told Morningstar that CMBS consumed 10% of the Core Bond Fund's "absolute market value." But as badly as the sector performed--The Barclays (nee Lehman) CMBS Index fell 27.4%--that alone couldn't possibly explain the portfolio's overall loss of nearly 39% as of Monday. Ditto for the other sectors, even though they lost a lot, as well.

Not 10 ... This One Goes to 11
We had some suspicions about the portfolios' exposures, which weren't confirmed for us by Oppenheimer until now. It turns out that when Manioudakis and the crew decided that the four areas they identified were undervalued, they really decided.

By the end of March, the Core portfolio carried around $400 million in securities exceeding its (then) $2.2 billion in net assets via transactions that were effectively akin to margin borrowing. It also had roughly $800 million in long exposure to corporate credit via default swaps--including  American International Group (AIG WB), Washington Mutual, and Bear Stearns--and around $600 million in total return swap exposure to a volatile slice of Barclays' AAA rated CMBS index, all of which by normal reporting convention were not included on the fund's balance sheet and thus not in its net assets. By the end of September, just before the Treasury Department's Troubled Asset Relief Program proposal and right around the time the market sailed off into uncharted mania, Core Bond's credit exposure to those various markets totaled more than 180% of net assets on a dollar basis. In other words, for every dollar of shareholder capital in the fund, it was exposed to the credit-driven movement of more than $1.80 worth of securities.

To be fair, it is a little more involved than that. Some of the fund's swaps, for example, saw their weightings rise as the CMBS market fell because of the way that swaps work and the fact that illiquid markets and stumbling dealers made them nearly impossible to sell or hedge. And although less meaningful in some ways, given that so few sectors traded in sync with the white-hot Treasury bond market in 2008, the fund's swaps (including its total-return swap contracts) provide exposure only to the market's credit-driven movements, not its interest-rate gyrations. The message here isn't that derivatives are bad, though they can obviously be dangerous if not well understood. Rather, there is just no getting around the fact that the extra layers of market exposure were piled high.

I'm Sorry, I Couldn't Hear That. Would You Speak Up?
Left there, things would have been plenty bad enough. But they weren't. Because most of the additional market exposure came from off-balance-sheet derivatives, the funds' portfolios didn't look highly leveraged. And while they may have been only somewhat leveraged in what we might call a conventional accounting sense--by borrowing money against your net assets and investing it--they were heavily leveraged as mutual funds go, in an economic sense. Because of the former, it doesn't appear that the funds violated any regulations or compliance requirements. And because the managers were careful to control interest-rate risk, in part through futures and swaps, and in part by taking on only credit exposure with their off-balance-sheet derivatives, they may not have really thought of their funds as heavily leveraged.

To the degree it existed, that thinking was erroneous, and it's very disappointing that the team didn't internalize just how much risk it was taking. The comparison feels almost unkind, given anecdotes suggesting that ratings agencies assumed no housing losses whatsoever, but there's an analogy between how the agencies assessed subprime loans and what was done here. By using modeling assumptions from observed volatility and loss experience--in the funds' case with CMBS, for example--both failed to model or plan for the possibility of severe downturns and thus for how they could turn the equivalent of a discarded cigarette into a raging inferno.

The only thing worse than levering up a portfolio with 180% market exposure, though, is doing it quietly. I'd like to be wrong about this, but I can't imagine that the average shareholder or advisor with a stake in these funds knew that they were leveraged in any way. The word itself doesn't seem to be linked to any of the funds' strategies anywhere I've searched on Oppenheimer's Web site or in any of the supporting shareholder or marketing materials that we've seen. Terminology aside, none of the portfolio descriptors provides enough information to estimate those market exposures, much less know that they're not typical, 100 cents in, 100 cents invested. There's just no indication whatsoever that anything is unusual about any of the funds that employ this kind of leveraged exposure. And it was never brought up by Oppenheimer managers in any of their recent Morningstar analyst interviews.

Get Out Your Number-Two Pencils, Please
The only clearly identifiable way to figure it out is to examine the funds' SEC filings and meticulously calculate cash bond, swap, futures, and total-return swap exposures (and maybe others depending on the portfolio) for each fund. I say meticulously because some of them offset each other, while others carry cryptic language to describe their payment streams that borders on indecipherable. When I first came up with an approximate market exposure of 186% for Core Bond, I smirked and figured that I needed more sleep. Even then I was reluctant to tell anyone about it; I was sure I had misread a label or screwed up the computation. We engaged a handful of people to look over our work in examining the portfolios, but we still only felt comfortable that our conclusions were accurate after speaking with Oppenheimer.

How is it possible that a shareholder can go to its Web site, see that Core Bond is down nearly 40%, or 80% in the case of Champion Income, and yet find no information to use to figure out why, much less an actual explanation? Both of Oppenheimer's U.S. government funds held significant CMBS exposure in their latest shareholder reports, and the U.S. Government Trust had swaps-based economic leverage, as well. The funds' manager letters mention CMBS, but concrete data about the magnitude of those exposures can only be derived through the arduous process described above.

I'm sorry to be glib, but this strains credulity. Here's a news flash, Oppenheimer: If your funds are going to use instruments that involve this much portfolio complexity, you have a duty to translate and simplify what that means for your shareholders. Not doing so is patently unacceptable and comes awfully close to dishonesty by omission. While most of your competitors haven't taken on anywhere near this much risk, many use similar portfolio techniques and are just as guilty of these omissions. I can think of numerous ways this can all happen without intent, but we're way past the honeymoon period now that these tools have been around for quite a while. It's time for this to stop all around.

They're Not the Usual Suspects
Manioudakis' boss (until this week), fixed-income chief Jerry Webman, makes a thoughtful point when he argues that the team's decisions weren't made recklessly, or without regard to risk. As Webman sees it, it wasn't as though Manioudakis intended to make one huge bet and just let it ride--the proverbial "Dealer, please put it all on red" scenario. Rather, he sought to capitalize on what appeared to be historically unthinkable valuation opportunities that nobody expected to act in any correlated fashion. As Webman puts it, everyone anticipated that the positions would to some extent offset one another's risk profile. And frankly, if you read the funds' shareholder reports, it all sounds so compellingly logical. Like many others on Wall Street, the team had evaluated those exposures, or "stress tested" them, based on what had previously been rare market scenarios but that proved quaint next to the price movements that actually occurred and which represented market fear of true economic calamity.

This story is a tad atypical in that fund blowups often occur at places, and with managers, about whom we've long had a wary view of some magnitude. It's not always possible to see them coming, but they are often not surprising given prior signs of weak stewardship or unimpressive management. But while Oppenheimer as a whole hasn't generally distinguished itself, and not each of Manioudakis' offerings was a winner, Core Bond had actually been stellar under his leadership through 2006, and he had a good reputation in the industry. The fund's remaining managers have said that they hold significant sums of money in their funds today. That should provide some comfort to investors considering riding out this crisis in the hope that the managers' conviction--that these don't all have to be permanent losses--will be vindicated. Meanwhile, our conversation with Webman this week seemed only to confirm our long-held impressions of him as a straight shooter.

In hindsight, it seems that Manioudakis and his crew were overly focused on trees that appeared to be incredible bargains. They backed up all of their trucks and even used a few of their neighbors'. Sadly, it seems that they couldn't see that the forest was on fire.

Mutual Fund Analyst Miriam Sjoblom contributed to this article.