Fueled by strong inflows into equity funds during the month of June, mutual funds took in a net $47.2 billion, according to Merrill Lynch. Equity funds attracted $18.7 billion, bond funds $5.4 billion and money market funds $23.2 billion

This is the fourth straight month that equity funds have attracted net inflows, and may portend the market turnaround is for real. Investors split their money evenly between growth and non-growth funds, continuing a trend of the past three months.

The inflow into bond funds seems to be slowing, Merrill said, although investors' interest in corporate and high-yield bonds picked up, with this category taking in $4.8 billion. Institutional investors drove most of the $23 billion inflow to money market funds during the month.

Of all types of sector funds, technology funds took in the greatest amount of assets, reaping $224 million. That was followed by $184 million into financial sector funds and $163 million into utility funds.

Closed Funds Still Charge 12b-1 Fees, S&P Discovers

A number of mutual funds closed to new investors are still charging 12b-1 fees, Standard & Poor's found. One hundred and thirty nine funds, or 25% of the 555 funds now closed to investors, are charging an average 62 basis point 12b-1 fee. Equity funds charge the highest fee, 65 basis points. Money market funds charge an average 52 basis points and fixed-income funds 48 basis points. Seventy-four funds charge the maximum 1% fee.

Based on the number of closed funds still charging these fees, S&P revealed that the top five investment firms engaging in this practice are Idex Mutual Funds, Invesco Funds, ING Investments, Dreyfus Corp. and General Electric Investment Corp.

Designed to cover distribution and shareholder servicing costs, S&P said 12b-1s should not be charged on funds closed to new investments. Fund companies told S&P that 12b-1 fees are necessary for funds that remain open to existing investors, and the Investment Company Institute maintained that because these fees are used to compensate brokers, whether a fund is open or closed should have no bearing.

Nevis Capital Charged With Selective IPO Allocation

The Securities and Exchange Commission has charged Nevis Capital Management, its president, David R. Wilmerding III, and executive vice president, John C. Baker, with inequitably allocating shares of initial public offerings to only two of the firm's 105 clients. The firm only allocated IPOs to the Nevis Fund and Snowden Limited Partnership, although it falsely stated in SEC filings that it would treat all of its clients equally, the SEC said.

Regulators further charged that the Nevis Fund's exceptional cumulative returns of 90.1%, 154.6% and 286.5% as of May 31, 1999, Sept. 30, 1999 and Dec. 31, 1999 would actually have been negative 5%, negative 3.6% and 41% without its IPO holdings. These padded returns netted Nevis Capital $2.6 million in fees, the SEC said. Nonetheless, the firm misrepresented the reason for the fund's returns as its "long-term investment strategy" in its prospectus and advertisements, rather than its IPO holdings, the SEC said.

The SEC plans to hold a hearing to determine whether these allegations are true.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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