Q. In January 2000 we got an AMEX advisor and set up a portfolio of mutual funds. We suffered loss like everyone else. We got a capital gains 1099 form due to AMEX. We were not part of any gains like others who had been with AMEX for a long time, yet we had to add $2,000 to our income.

Would I be better of with an independent broker? How hard or how much money would it cost for me to move my funds somewhere else?

---D.D., Dallas, TX

A. This is a generic problem, not something that can be blamed on American Express or your American Express broker. It is something that can, and has, happened with thousands of mutual funds available to the public.

It also could be a lot worse.

If you had invested $10,000 in Putnam OTC Emerging Growth in January 2000 you would have received a taxable capital gain distribution of $1,169 capital gain at the end of the year. In spite of that tax liability, your initial investment would now be worth only $3,317.

Most investors have great difficulty understanding that their income and capital gains distributions are not directly related to what has happened to their particular investment in the last year. Distributions are tax events for the portfolio as a whole. If you buy shares in a fund with substantial unrealized capital gains, there is a very good chance that you will eventually pay taxes on those gains even if the fund is a flat-liner after your purchase.

How do you avoid such experiences?

There are two ways.

• First, you can ask about unrealized capital gains in the portfolio before you buy. This information is available on the quarterly statements for the fund. It is also available from services like Morningstar. According to their database, the average domestic equity fund has a capital gains exposure of minus 1 percent of net asset value. But 51 funds had exposures over 50 percent of assets. That's at least a 10 percent tax liability.

• Second, you can look for "tax-managed" funds where it is part of the fund manager's job to minimize taxable events for shareholders. There are now 124 tax-managed funds.

Q. I'm not an investment pro or anything close. Just an average Joe trying to keep my investments on track. I currently have lost over 45 percent of my 401k value (ouch!) and I am looking to stop the bleeding--- or at least minimize the gush. I am 38, married, two kids, a wife, and a house. My 401k profile is set to an aggressive profile (I was 10 years younger when I set it) which is 78.74 percent stock investments (90 percent of which is Putnam New Opportunities Y shares) and 21.26 percent Blended fund (American Funds Balanced)

What should I do? Move all the stock to the blended fund? Move a portion to the blended fund? Move to something else? What about future contributions?

Also, you mentioned value funds in a recent column. What are they?

---J.C., Dallas, by e-mail

A. There are degrees of aggressive. Investing more than 60 percent in equities, for instance, would be considered relatively aggressive and your combined equity commitment was over 90 percent when the equity portion of your balanced fund is included. It is also possible to be an aggressive investor in equities, choosing funds that concentrate on growth companies. That's what Putnam New Opportunities fund does.

As a consequence, the fund had a 70 percent return in 1999 but lost 26 percent in 2000. Over the 12 months ending February, the fund lost nearly 45 percent and performed in the bottom 5 percent of its "large growth" stocks category. American Balanced, a mixture of 60 percent equities and 40 percent fixed income, gained nearly 27 percent during the last 12 months and was in the top 1 percent of domestic balanced funds. It's also considered to be a value buyer--- buying undervalued stocks.

You can protect yourself with greater diversification. Here's how your asset classes would look with different percentages in American Balanced:

Asset Class Diversification with Two Mutual Funds

Percent Am. Bal.	Percent AB Value Equities	Percent Putnam Growth Equities	Percent AB Fixed Income
80 percent	48 percent	20 percent	32 percent
70	42	30	28
60	36	40	24

A portfolio that was 70 percent American Balanced and 30 percent Putnam New Opportunities would be 28 percent fixed income, 42 percent large value stocks (American Balanced equity portion), and 30 percent large growth stocks (Putnam New Opportunities).

Put the equities together and it would be 72 percent equities, which is relatively aggressive. It would be more diversified, however, because both value and growth investing styles would be represented.