A:

The ““plus’’ meant that Kemper was trading in options on Treasury securities. That raises a fund’s yield if the manager guesses interest rates right. If not (and what else?), you get extra income but lose principal. Kemper also bought bonds for more than face value, which raises current income at the price of principal losses. It’s a Potemkin-village deal: pretty in front, bare behind.

When you bought, the fund was touting higher yields than ordinary government funds. That strategy, however, proved a bust (other ““plus’’ funds stumbled, too). In 1989, Kemper dropped the options and took the Plus word out of the fund’s name. It invests mainly in government-backed mortgages.

While you held the fund, you took monthly dividends in cash. Counting those payments, your actual return was 5.8 percent annually, says Kemper spokesperson Steve Radis. But your total return was still below average, even after options were abandoned in 1989.

Carol Fara, Scottsdale, Ariz.

A:

Will these awful stories ever stop? The insurance you bought from your planner, Kim Butler, of National Financial Design in Phoenix, was presented as a ““private pension plan,’’ with tax-deferred growth and tax-free income. The promotion sheet mentions a death benefit, but only in passing. Nor does it say that the tax-free income may be a life-insurance loan.

Butler says that you knew you were buying life insurance, that she explained it clearly and she’s sorry you misunderstood. The private-pension handout was preapproved by Provident Mutual, she says, ““but now we’re aware of the problems, and I do a much better job upfront of saying it’s life insurance.’’ As Provident Mutual sees it, you signed a life-insurance application. Tough luck.

But it’s not over till it’s over. File a complaint with the Arizona Insurance Commission (602-912-8444), which can try to get the transaction undone. And see a lawyer. Even though you knew that insurance was involved, it may violate consumer-protection statutes to sell a policy under the guise of a ““private pension.’’ This sales technique has been challenged in other states.

Actuary James Hunt of the National Insurance Consumer Organization analyzed your policy. If your investments gross 8 percent over the next six years, he says, you’ll average 2.8 percent after expenses (assuming that you put no value on the life insurance). His advice: take your losses, cash out and buy mutual funds.

K.T.N., Honolulu, Hawaii

A:

I’m so glad you asked. Your broker is wrong. His hunch would have cost you back taxes and interest. It’s true that you’ll get only $50,000 when the bond matures. But you can’t deduct your ““lost’’ $7,000 because it’s not a real loss, says John Ziegelbauer, a tax manager at the accounting firm Grant Thornton. Your bond cost more than face value because it paid a higher rate of interest than other bonds like it. Effectively, you got your $7,000 back in the form of extra tax-exempt payments. (Taxable bonds get the deduction, but that’s another story.) For readers wondering why a Hawaiian would hold Puerto Rican bonds, they are tax-exempt in all states.

S. Tipps, Virginia Beach, Va.

A:

Military people can defer the tax on their home-sale profits for up to four years while waiting to choose another house (ordinary mortals have only two years). But on the day the backhoe arrives, you’ll want your building fund intact. The surest way is to put the money into something guaranteed, even though the interest rate is low. If you reach for extra yield in stocks or bonds, you risk losing some of your capital in a market decline. Long-term investors can wait out any market drop, but a two-year investor can’t. So consider a two-and-a-half-year certificate of deposit. You can earn 5.87 percent at the Metropolitan Bank for Savings, Arlington, Va. (800-638-2265), for a net of 4.2 percent in your 28 federal bracket.

Many financial planners prefer short-term bond mutual funds. They often pay more than bank CDs and in any event don’t tie up your money. Andrew Hudick, of Fee-Only Financial Planning in Roanoke, Va., suggests Vanguard’s Municipal Short Term Portfolio (800-662-7447). Its current tax-exempt yield is 3.7 percent – equal to a taxable 5.14 percent in your bracket. But because interest rates have jumped this year, and bond values have dropped, the total return is just 0.24 percent. Hudick says that, historically, this fund’s principal losses have been small and should be offset by the interest earned. Whether to chance it is your call.

Send questions to Jane Bryant Quinn, Newsweek Focus: on your money, 251 West 57th Street, New York, N.Y. 10019