Mutual Fund

A 46-year-old self-employed reader whose business is doing well and whose wife is employed as a legal secretary writes that he wants to invest $40,000 in a mutual fund to get a higher return than the interest he earns on the money in his bank's money market fund."

T. Rowe Price Associates Inc., the Baltimore-based mutual funds company, is offering a new mutual fund that combines the potential appreciation of common stocks with the income and stability of bonds over the long term.The fund, called the Balanced Fund, received approval from the Securities and Exchange Commission last week.Common stocks are expected to represent about 60 percent of the fund's assets and fixed income securities, including cash reserves, will make up the rest, according to Price.

Legg Mason's Bill Miller produced the best-known mutual fund streak, beating the Standard & Poor's 500 index for 15 years in a row until his streak ended in 2006. Now Baltimore's other mutual fund streak is at risk, although this isn't necessarily a terrible thing. T. Rowe Price's Capital Appreciation Fund is the only stock mutual fund that didn't lose money for investors during 2001 or 2002, the worst of the last downturn. Through 2007 it produced positive yearly returns for 17 years in a row. But so far this year, the fund is down 14 percent and will need a brilliant turnaround to avoid a loss.

THE IDEA BEHIND mutual funds was to make investing simple for people who weren't comfortable picking stocks, but still wanted to be in the market. But choosing the right mutual fund has become like trying to pluck a tiny glass bead from a handful of sand.The number of mutual funds has soared to 7,512 -- six times the number 10 years ago, according to Morningstar Inc., the Chicago-based company that tracks the mutual fund industry.There are funds designed to invest in Internet stocks, mining operations and even sporting goods companies.

The median combined salary and bonus of the heads of mutual fund groups jumped to $1.2 million last year, roughly 30 percent above the $926,000 of 1994.In some cases, stock options, restricted stock and other incentives pushed those figures even higher, according to an annual study on fund executives' compensation by Fund Action, an industry newsletter in New York.The study, conducted in conjunction with Buck Consultants, a management consulting firm, analyzed the pay of top fund executives as reported to the Securities and Exchange Commission by 15 publicly traded large and small fund companies.

The airline business hasn't been too hot lately, so America Airlines is launching a family of mutual funds. Virginia Power Co. is advertising a utility mutual fund with its bills. And banks are hawking funds to keep depositors frustrated with low yields on certificates of deposit.With mutual fund sales setting record highs and profit margins for fund companies growing, everybody wants a piece of the action.But financial advisers say investors should be wary of these new fund marketers. Many have no track record at running mutual funds.

Seeking to discourage inflated or misleading claims by mutual funds and other investment companies, the Securities and Exchange Commission approved guidelines yesterday on how rankings are used in advertising and sales literature.The new rules, which were proposed by the National Association of Securities Dealers, will require "prominent disclosure" in advertisements and sales literature of an investment company's ranking, the number of companies in the category, the name of the category and the period on which the ranking is based.

New York -- You say you know how your investments are doing? You say you check up on your mutual funds after every quarterly per formance report?Sorry, that doesn't give you the answer. These reports show only how the fund itself is doing. Your own investment may not have earned the same amount.Third-quarter mutual-fund results, as reported by Morningstar, showed U.S. stock funds up an average of 5.6 percent. International stock funds did even better, climbing 8.7 percent.To find your return, however, you have to account for other factors, like when you bought your shares and whether you paid a sales load.

Brace yourself: Your mutual fund fees will likely rise next year. Management fees are often tied to the amount of assets in a fund. The more money in the fund, the lower the fees. But with the plunge in stock prices and investors pulling cash out of funds, assets have been falling. It's easy these days to forget about fees when your fund might have lost 40 percent or more in the past year. But fees matter over the long run, and you can end up with a lot less money even if you're paying what seems to be only slightly more for a fund.

The banking industry may not be out of the financial an regulatory woods, but one part of its business is doing quite nicely.After almost a decade of steady if unspectacular growth, the sale of mutual funds through banks has exploded in the last year. The boom is adding billions of dollars to the coffers of mutual fund companies and giving banks a new source of revenue -- from commissions for selling outside funds and income from funds they create and market.Five years ago, assets of funds sold through banks totaled $35 billion; today the figure is about $150 billion, or 10 percent of all mutual fund assets, according to Lipper Analytical Services in New York.