Securities and Exchange Commission

Chairman

Arthur Levitt

has been pounding the table about mutual fund advertisements hyping triple-digit returns.

Levitt's worried the ads aren't saying enough about how those mouthwatering numbers were produced, especially if they were generated by a handful of scorching initial public offerings.

His concerns are both overblown and misdirected. For one, some fund companies aren't even advertising their fiery funds. Second, the SEC should be more concerned about what a firm's phone representatives are saying when people call to ask about the funds in the ads. Some of these phone jockeys can be overzealous when asked about the future potential of a fund or fail to provide any warnings about possible volatility.

Meanwhile, the number of funds producing triple-digit returns continues to mushroom.

At the end of 1999, around 170 funds had delivered one-year returns of more than 100%. But with the continuing explosion of tech and biotech stocks, that number has more than doubled in two months. Through last Thursday, more than 400 funds are up more than 100% for the trailing one-year period, according to

Lipper

.

The allure of advertising these returns is obviously too great to resist for some fund companies. The papers are peppered with ads trumpeting these numbers.

Strong

, for example, ran one in the Feb. 28

Barron's

that singled out the performance of its

(SENTX)

Enterprise fund, which delivered 188% last year. In tiny print, the ad duly notes that the returns were achieved "during favorable conditions in the market, particularly for technology companies."

A Strong spokeswoman says the company doesn't comment on its ads.

Other fund companies aren't advertising their equally impressive gains, in part because they don't need the ads to attract money.

Firsthand Funds

, for example, isn't planning any ads for its scorching tech funds. (Its

(TVFQX)

Technology Value fund has a 310% one-year return.)

"In this business, the numbers speak for themselves," says spokesman Steven Witt. "You don't need to beat people over the head with them. ... We're a lot happier if people read an article about our style and approach."

Many

PBHG Funds

are churning out ad-worthy numbers, but that firm isn't advertising them. (

(PBNOX)

PBHG New Opportunities has a one-year return of 845% though it's closed to new investors.)

"PBHG has no plans to advertise," says Tucker Hewes, a spokesman for the firm. "The important thing is that investors who come in understand that these are long-term funds and they aren't appropriate for chasing returns." (The firm's

Web site, however, does sport what looks like an ad for some 100%-plus funds on its home page.)

PBHG -- a firm known for ultra-aggressive investing -- knows what can happen when its investing style is out of favor.

The money rushes out.

In 1996, the PBHG funds took in $6.1 billion in net assets, according to

Financial Research

. But the market turned against its high-growth approach in 1997 and the firm's fund lost $458 million in net assets that year. In 1998 and 1999 combined, the firm lost $4.7 billion more.

Of course, once these funds started taking off in the middle of last year, the money started coming back. The PBHG funds took in $181 million in net assets in the fourth quarter and $399 million poured in during January alone.

So the firm seems to be doing just fine without the ads.

Frankly, the SEC should be more concerned with what firms are telling potential investors when they call to ask about the grand returns in the advertisements.

My own random sampling of a few firms revealed that some phone representatives don't say much about volatility and downside risk but are more than eager to send you an application to buy one of these fabulous funds.

Some of them can be positively giddy.

Federated

ran an ad in the March 6 issue of

Forbes

that highlighted the returns of five funds under a headline that says, "Our international fund numbers are beautiful. Wish you were here."

I called the listed 800 number to ask about the

(ISCAX) - Get Report

Federated International Small Company fund, which produced a 126% return last year.

First, I asked how I could buy this fund. The rep offered to fax or overnight an application to me. Then I asked if the fund would be able to continue producing this return. The rep did point out that the fund is aggressive, but gushed about how the performance had been phenomenal and how it earns five stars from

Morningstar

.

Phone reps from Strong and

Kinetics

, both of which are running print ads promoting their funds' triple-digit performance, didn't try to predict the future of funds but didn't go very far to caution me about any potential dangers. And they certainly didn't ask any questions to determine my profile or risk tolerance.

"Once you've got a customer on the phone, here's an opportunity to awaken the customer to some of the risk components," says Geoff Bobroff, a mutual fund consultant in East Greenwich, R.I. "They should at least caution you to the volatility and nature of the fund."

These reps could at least say, "This fund should not be your only investment."

Send your questions and comments to

deardagen@thestreet.com, and please include your full name.

Dear Dagen aims to provide general fund information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.