Growth Fund Managers Keep Getting Pink Slips

The line of pink-slipped growth managers just got a little longer.

After five subpar years, Howard Moss and Blair Boyer of Jennison Associates were replaced at the helm of the (HAIGX)Harbor International Growth fund Friday. At the same time, it seems former PBHG tech specialist and Nasdaq bubble-wunderkind Frank "Quint" Slattery has left the San Francisco tech boutique he helped start last year. These folks are just the latest of several tech-heavy growth managers to get the hook in their favorite sector's long, dry season.

Moss and Boyer had run the Harbor fund since its 1993 launch, but their concentrated and telecom-heavy style had been backfiring for several years. Barring a miraculous comeback this month, the fund will have trailed the category average in four of the past five years, according to Chicago fund tracker Morningstar. It's averaging an annual 6.2% loss over five years, worse than 98% of its competitors.

The fund is now in the hands of Theodore Tyson, Joseph Jordan and Douglas Allen of Seattle-based Mastholm Asset Management. Tyson and his colleagues are veterans of American Century Investments, which they left in 1997. Tyson, who uses a slightly less concentrated style, had success running the (TWIEX)American Century International Growth fund, topping his average peer in six calendar years from 1991 to 1997.

As for Slattery, you might remember him as the manager who crammed pricey speculative tech stocks into the (PBNOX)PBHG New Opportunities fund and rode them to a stunning 830% gain in the 12 months before the Nasdaq peaked last March. That equates to an $83,000 gain on a $10,000 investment and led all funds at the time. He also ran the (PBHEX)PBHG Select Equity fund, which boasted a 363% one-year gain when tech stocks peaked.

Slattery bolted PBHG in April last year to join some emigres from Credit Suisse First Boston in founding Azure Capital Partners, a San Francisco shop that invests in private and public tech companies for well-heeled investors and institutions. Given the profound drubbing absorbed by similarly tech-happy growth investors such as Garrett Van Wagoner over the past year, it's hard to believe that Slattery has had a bonny time. After all, PBHG's former highflying Select Equity and New Opportunities funds are down 42% and 29%, respectively, over the past 12 months, trailing most of their peers.

After hearing that Azure no longer had Slattery on board, I phoned General Partner Mike Kwatinetz and Slattery to confirm it. Kwatinetz didn't return calls, and Slattery, after a brief, cell-phone-challenged chat on a train, didn't either. But a woman answering the phone at Azure said Slattery was no longer with the firm.

So it seems we can add Slattery to the list of growth pros looking for work. Early last month Jim McCall, a similar tech lover and fellow PBHG veteran, left Merrill Lynch with his (MAFOX)Focus Twenty and (MAPGX)Premier Growth funds down 80% and 67% over the past 12 months, respectively.

In the same week Munder Funds laid off two tech managers among others and made plans to merge its two Net funds. Over the summer American Skandia fired Janus, which had run two of its funds. And earlier this year, RS Investments replaced Ron Elijah on two funds, and Vanguard canned Lincoln Capital Management, which managed the (VWUSX)Vanguard U.S. Growth fund, after two lousy years.

The bottom line is that tech-heavy types weren't as smart as they seemed back in 1999, and they probably aren't as dumb as they seem now. That said, they're probably too aggressive to merit much of your portfolio. They will get jobs running other funds, so don't forget their names.

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A Taxing Letter to Washington

You'll be happy to know the fund biz wants to make your life less taxing.

As you know, when a fund's trades lead to more gains than losses, it's required to pay those gains to shareholders at the end of the year. This creates an odd, annoying situation where, unless you own your fund in a tax-deferred account such as a 401(k) or IRA, you pay capital gains taxes even though you haven't sold a share of the fund. We've noted that the past year's losses should keep distributions modest this year, but they can add up to a sizable bill. For instance, if you owned 1,000 shares of a fund selling at $10 -- a $10,000 investment -- and the fund paid a $1-per-share capital gains distribution, you'd owe Uncle Sam $200 in April if you didn't offset the gain with losses.

In hopes of righting that wrong and spurring more money into funds, executives from more than 70 fund companies have signed a letter urging Rep. William Thomas (R., Calif.), chairman of the House Ways and Means Committee, to allow fund investors to defer paying cap gains taxes until they actually sell their fund shares. The measure is part of an economic stimulus package.

Whether or not these lobbying efforts pay off, you should keep a couple of things in mind at this time of year. First, before you buy a fund in a standard taxable account between now and Dec. 31, make sure it's not going to pay out a capital gain. Buying before this gain is paid out means you'll end up paying taxes on other shareholders' gains. Second, call your fund company or go to their Web site to see if your funds are going to pay out any gains this year and consider selling a loser fund to offset them. Here are links to the cap-gains estimates posted on 10 big fund companies' Web sites:

• Fidelity
• Vanguard
• American Funds
• Franklin-Templeton
• Janus
• T. Rowe Price
• Pimco
• MFS
• AIM Funds
• Oppenheimer Funds

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