Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, January 9, 1995                   TAG: 9501090006
SECTION: BUSINESS                    PAGE: 6   EDITION: METRO 
SOURCE: MAG POFF
DATELINE:                                 LENGTH: Medium

INVESTOR MORE LIKELY TO GET ANSWERS BY PHONE THAN MAIL

Can you provide a reasonably brief, understandable explanation of how the tax cost/share vis-a-vis the price/share of a typical mutual fund is determined?

A: Mary Anne McElmurray, a certified public accountant with the Roanoke firm of Brown, Edwards & Co., said you should contact your fund again, this time using the customer service telephone line. Although she has never had a client who invested in Elfun, McElmurray said most funds respond quickly to their investors who phone for information.

If you are looking for printed information, the Internal Revenue Service has a publication about handling taxes on mutual funds. You can order forms and publications sent to your home by calling the Internal Revenue Service toll-free number: (800)829-FORM (3676). McElmurray said you should ask for Publication 564.

The publication deals with treatment of distributions by the fund and with sales, exchanges and redemptions.

As a general proposition, McElmurray said, there are four ways of dealing with redemptions.

One method is to identify the shares you are selling by informing the fund at the time of the sale. You should state the number of shares and the date on which you purchased them.

The second method, called FIFO - first in, first out - means you are selling the first shares you ever purchased. McElmurray said the IRS will assume this method unless you specify otherwise.

The third and fourth alternatives involve calculating an average cost for all the shares you own as the tax basis. This procedure, once adopted, must be followed thereafter.

If you have a gain in the fund over the years, she said, following the FIFO method will benefit the IRS, but not you, because you will owe more taxes. That's because you would be selling the earliest and cheapest shares, resulting in the largest capital gain.

Most people, she said, sell specific shares, usually the last purchased, resulting in the smallest gain.

People who invest in mutual funds should keep all of their records until they are completely out of the fund. These records are especially important for people who want to identify the shares they are selling.

No guarantees in bond market

Q: A broker for a large investment firm encouraged me to buy shares in a mutual fund. I have lost about $5,000. Can you give me the name of a law firm that specializes in this kind of situation?

A: Mutual funds can go down as well as up, and markets have declined in recent months. Over the long haul, however, equities have outperformed every other type of investment. If you cannot live with the risk and volatility, on the other hand, you should not be in a mutual fund.

A broker, even if he or she recommends an investment, cannot, and should not, make guarantees about its success. The risk is yours to take. People lose money in mutual funds and in the stock and bond markets every day, while others earn money on their investments. Most brokerage contracts, furthermore, provide for arbitration of disputes rather than court procedures. Arbitration is a less costly and less complex procedure than a lawsuit. Consider that, if you go to court, you could well spend $5,000 trying to win your case.

If you believe your broker was guilty of fraud, you can complain to the State Corporation Commission which has the power to discipline him or her. Write to the Securities Division, State Corporation Commission, P.O. Box 1197, Richmond 23209. Set forth the situation in detail in your letter.

You can write to the manager of the brokerage office and demand an arbitration procedure.

The National Association of Securities Dealers operates an arbitration service for people who believe they have been wronged by their brokers. You do not need a lawyer, although you are free to hire one.

Write to the National Association of Securities Dealers Financial Center, 33 Whitehall St., New York, N.Y. 10004, or call (212)480-4881. Ask for a form to request a hearing at which you would ask for return of your money.