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SEC SLAPS VAN KAMPEN WITH $100,000 FINE

Imagine if you could earn nearly 62 percent in a mutual fund -- in a single year!

That's no fantasy; investors in the Van Kampen Growth fund actually did that in 1996, nearly tripling the return on the Standard & Poor's 500.

As you'd expect, that lured droves of new investors who hoped the fund could duplicate its phenomenal record.

Sadly for them, it did not. In fact, as a practical matter, it could not -- because the early results arose from unique opportunities that Van Kampen didn't bother to mention to prospective investors.

The skyrocketing year was largely attributable to winning investments in 31 initial public offerings -- newly issued stocks that soared as trading began. That was in the fund's first year, when it was in an "incubator" phase. It was not open to the general public, and it had only $200,000 to $380,000 in assets, making it easy to put a large portion of its money into promising IPOs.

The fund was opened to the public on Feb. 3, 1997, and attracted $109 million in new investments in six weeks as the number of shareholders grew from 14 to 14,483. Van Kampen lured them by bragging about its fantastic 1996 results.

That was playing dirty, according to the Securities and Exchange Commission. Failing to tell prospective investors about the unique nature of the 1996 results was a "willful" violation of securities law requirements that investors be told important facts that bear on the decision to buy fund shares, the SEC found.

Van Kampen has neither admitted nor denied the accusations, but did agree this month to pay a $100,000 civil penalty and promised not to do it again. Its former chief investment officer paid a $25,000 fine.

Check mutual fund distributions
Here we are, moving into the tail end of the year -- time for the usual warning about tax bills that could lurk in year-end mutual fund purchases.

The problem has to do with the annual capital gains distributions that funds are legally required to send investors. These represent net profits on assets the fund sold during the year.

When the profits are distributed, the fund's assets decline, so the share price drops. A $10-per-share fund will fall to $9.50 the day it makes a 50-cent distribution. The shareholder, thus, doesn't realize any net gain in wealth from the distribution. And that 50-cent payment is taxable, even if you bought the fund only recently.

So before investing, investigate the fund's distribution history. You should be able to get that by calling the fund's 800-number, and they're reported in documents you should read anyway, such as the annual report and prospectus.

Mutual fund fees slipping
The cost of investing in stock mutual funds dropped by 5.6 percent in 1998 to an average of 1.35 percent of assets, due to the growth of low-cost index funds and to increased competition, the Investment Company Institute says.

Bond fund fees declined 3.5 percent to an average of 1.09 percent of assets and money market funds fees slipped 2.3 percent to 0.42 percent.

Since 1980, fees for stock funds on a sales-weighted basis has dropped 40 percent, the ICI said.

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