Net sales of international and global mutual funds took a dive during July, as investors took $3.5 billion more out of the sector than they put in.

That's a reversal from June, when net flows were a positive $3.5 billion, and July of last year, when investors poured in $3.7 billion more than they took out, according to Financial Research Corp. of Boston.

The outflows coincided with wilting performance by funds that invest abroad. According to Lipper Inc. of Summit, N.J., the cumulative total return of global funds in June was 5.5%. Global funds invest in U.S. securities, as well as those of foreign nations. International funds, which invest exclusively outside the United States, returned 5.2%.

In July global funds' cumulative return dropped to 0.1%, and international funds' to 2.6%.

The troubles of global and international funds occurred during a tough month for the mutual fund industry overall. Assets under management in short- and long-term funds declined 0.7% in July, according to the Investment Company Institute, the Washington-based industry group.

Industry experts blamed both weaker sales and uneven market performance.

Stock mutual funds -- the biggest asset class, with $3.367 trillion under management -- were particularly hard-hit, according to the institute. They suffered a 36% drop in net sales as investors took out $6.8 billion more than they put in. Investors in stock funds redeemed 21.8% of their assets in July, up from 17.8% a year earlier.

Money market fund assets gained 1.8%, but stock, hybrid, taxable bond, and municipal bond funds all lost assets.

It was the third month this year that total industry assets fell; there were just two losing months in 1998.

Other findings from Financial Research Corp.'s report, which was issued last week, include:

Overall net flows of all long-term mutual funds from January through July totaled $110.2 billion, down 44% from a year earlier. Long-term net flows for July were $8.8 billion, compared with $24.2 billion in July 1998.

The popularity of index funds continued. The funds collectively took in $4.2 billion -- almost half the inflows of the entire industry.

Investors put $1.9 billion more into S&P 500 index funds than they cashed out. Broader market index funds, meanwhile, captured $964 million, their largest monthly gain ever, as investors sought to diversify.

Vanguard Group was the top-selling fund group in July, as it has been since December 1996. It had net inflows of $4 billion. The two biggest-selling funds for the month were Vanguard index funds.

Vanguard, Fidelity Investments, and Janus took in $8.9 billion in net new cash in July, more than the $8.8 billion net inflows of the entire industry.

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