Warning: A large diet of initial public offerings may be hazardous to your investment health.

The warnings are not that stark, of course. But some mutual funds are quietly adding to prospectuses and other public documents, information about risks inherent in funds' initial public offering investments. The disclosures generally warn that IPOs may be boosting fund performance to a level that may not be sustainable long term, especially as a fund's assets increase.

"As the fund grows in size, the impact of investments in initial public offerings on the overall performance of the fund's portfolio is likely to decrease," Pioneer Funds of Boston said in an SEC filing Dec. 17 for the $11 million Pioneer Independence Fund.

Pioneer's filing is the most recent of at least five fund groups that have included language in either their prospectuses or statements of additional information in recent weeks warning about the out-sized effect that IPOs can have on the performance of funds. In each case, the disclosure appears to be new for the funds or contained in a new fund's initial filing. In addition to Pioneer, the companies include:

* The Westcore Funds of Denver, Colo. Westcore said in a prospectus filed Dec. 8 that IPOs may have a "magnified impact" on the group's International Frontier, Small-Cap Growth and Select funds because of the funds' small sizes.

"As the Funds' assets grow, it is probable that the effect of the Funds' investments in IPOs on its total returns will decline, which may reduce the Funds' total returns," the prospectus said. Westcore introduced International Frontier on Dec. 15 and Small-Cap Growth and Select on Oct. 1. A spokesperson did not return calls seeking comment.

* The Berger Funds of Denver, Colo. In a Nov. 30 prospectus for 11 funds, Berger included a paragraph describing the risk that the contribution of IPOs to fund performance might decrease as a fund grows in size. A spokesperson was not available for comment.

* Aim Funds of Houston, Texas. The fund group added IPO risk disclosure language in prospectuses and statements of additional information in October. The IPO notice will go in the prospectuses of all funds with assets of $500 million or less and in the statement of additional information for all funds, said John Rohem, an Aim spokesperson.

* The Enterprise Group of Funds of Atlanta, Ga. In a Dec. 7 filing, Enterprise cited the potential magnified impact IPOs can have on small funds.

Enterprise made its disclosure in a move to provide maximum information to investors about the circumstances behind fund performance, said Victor Ugolyn, CEO of Enterprise. Enterprise's new Internet Fund, offered beginning July 1, provides an example of how IPO disclosure can be relevant, Ugolyn said.

IPOs accounted for approximately 40 percent of the 65 percent return the Enterprise Internet Fund had in July, Ugolyn said. The Internet Fund now has about $200 million in assets, diminishing the effect of IPOs, he said. Nevertheless, mindful of its experience with the Internet Fund and aware of the hot IPO market, Enterprise decided to add the IPO disclosure to provide the information to shareholders.

"I really felt it was the prudent thing to do," Ugolyn said.

Some of the added disclosure arises from a lawsuit the SEC filed Sept. 8 against Van Kampen Investment Advisory Corp. of Oakbrook, Ill. In that case, the SEC alleged that Van Kampen engaged in misleading advertising of the performance of the Van Kampen Growth Fund. The fund's performance relied heavily on IPOs at a time when the fund's assets ranged from $200,000 to $380,000. The SEC contended that, because the performance would be difficult to repeat as the Growth Fund grew in size, Van Kampen was obligated to disclose the effect that IPOs had on performance.

Van Kampen and its former chief investment officer agreed to pay fines totaling $125,000 and settled the case without admitting or denying the allegations.

Since the Van Kampen case, it has become increasingly common for funds - particularly small-cap funds where fund advisers close funds to new sales - to add some sort of disclosure about the effect of IPOs, according to mutual fund lawyers. Indeed, both Pioneer and Aim added disclosure to their funds because of the Van Kampen case, according to executives at the firms.

However, the Van Kampen case was not the only reason Aim included the disclosure, said Roehm, the company spokesperson.

"We're in a very hot IPO market and that's another reason why we put it in," Roehm said.

The Van Kampen case has exasperated some mutual fund lawyers who say that fund ads already had to clear a variety of disclosure hurdles prior to the Van Kampen case. Mutual funds invariably warn investors that past performance is not indicative of future performance, lawyers say. And fund advertisements also satisfy NASD Regulation standards for disclosure, they say.

It usually is impossible to know when the cause of strong investment performance - whether it is IPOs or a hot sector such as technology - cannot be repeated, according to lawyers. That has caused some attorneys to suggest that the industry would be well served if the SEC would provide guidance about when additional disclosure is appropriate in advertising, prospectuses or statements of additional information.

"Everybody would like to know when good performance has to be accompanied by disclosure," said Ronald Feiman, a lawyer in the New York office of Mayer, Brown & Platt of Chicago.

The SEC is wary that it will frustrate the mutual fund industry's efforts if the agency lays out detailed standards for advertising, said Gene Gohlke, associate director of the SEC. While there will be gray areas about when additional disclosure is necessary, the general rule is that a fund needs to provide additional disclosure when there is a factor driving performance that is not obvious to the average investor, Gohlke said.

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