By Meg Richards
The Associated Press

As if finding a safe investment wasn't tricky enough, the widening mutual-fund probe has made it even harder for investors to figure out where to put their money.

Market watchers predict some investors will start limiting their search to firms untarnished by the scandal. Managers of large pension and retirement plans are already steering clear of the troubled firms.

A number of companies still look good, said Russel Kinnel, director of fund analysis at Morningstar. Among those considered more shareholder-friendly are Capital Research & Management's American Funds, Vanguard Group, T. Rowe Price Group and Fidelity Investments.

Firms under scrutiny

Federal and state regulators are examining trading practices at a number of fund firms where they say the needs of customers were sacrificed so a few large investors could make short-term profits. The case has focused on after-hours trading, which is against illegal, and market-timing, which is not illegal but is widely prohibited because it dilutes the returns of long-term investors.

Morningstar has recommended that investors consider selling funds from five firms implicated in the scandal - Bank of America's Nations Funds, Bank One Corp., Janus Capital Group, Strong Capital Management Inc. and Fred Alger & Co - because their problems are serious enough that the risks outweigh potential rewards.

It recommends limiting investments in Putnam Investments and AllianceBernstein from Alliance Capital, also named in the case.

Wall Street is noticing which firms are staying out of the headlines. In a recent research note, financial analyst Guy Moszkowski of Merrill Lynch & Co. upgraded T. Rowe Price from a "neutral" to a "buy," saying the firm offers above-average growth at a reasonable price and seems well-positioned against its troubled peers.

Despite the investigations, investors are enthusiastic about mutual funds. They poured $24.5 billion into stock mutual funds in October, their largest commitment of cash since March 2002, according AMG Data Services.

Losses in billions

Half of that went to the three largest fund companies - American, Vanguard and Fidelity. In contrast, troubled Putnam lost $4 billion, in October. Janus lost $1.6 billion, though that was down from the company's $2.5 billion loss in September.

And while it would be easy to infer that people are pulling their money from one fund and putting it into another, it's virtually impossible to track, said AMG president Robert Adler.

The funds apparently winning business from companies facing regulatory action can't accurately track it, either, although customer representatives at T. Rowe Price say it's happening, said spokesman Steve Norwitz.

"Normally, putting customers first should not be a competitive advantage, but unfortunately it's becoming one in this environment," Norwitz said. "It's not a bad position to be in ... but ultimately, what's bad for the industry is bad for us."