Funds Notebook: No Word Whether H&Q Fund Will Be Chased to Houston

Also, Invesco shares the risk of its paperless funds purchases; new fee as Masters Select; a new Lynch pitches Fidelity and more.
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Now that

Chase Manhattan Bank

(CMB)

is buying investment bank

Hambrecht & Quist

(HQ)

, what will Chase do with H&Q's week-old

IPO and Emerging Company

mutual fund?

Not even H&Q officials know for sure.

There are no plans to change the fund's name or manager, says Dave Krimm, H&Q's top marketer, but he admits the issue has not come up yet.

The fund is a tiny issue in the companies' marriage since mutual funds are not part of either firm's core business. Still, Chase has not handled mutual funds with kid gloves in the past. Last August, Chase moved the management of its $10 billion

Chase Vista Funds

to Chase Bank of Texas in Houston, achieving 100% manager and analyst turnover in the process.

Even so, "I don't think there's cause for concern," H&Q's Krimm says. Although the IPO fund is subadvised by a third party,

Symphony Asset Management

of San Francisco, its appeal is closely tied to H&Q's reputation as Silicon Valley's investment banker. Krimm says he knows of no plans for H&Q's headquarters to move from San Francisco.

"I believe H&Q is going to operate as an independent entity. So, I'd expect that fund to stay with H&Q out there in California," says Raphael Soifer, a brokerage analyst in New York with

Brown Brothers Harriman

.

It should be a few months before the merging banks get around to the issue. So investors in the fund should stay tuned.

Adventures on the Cutting Edge

When

Invesco

announced last month that it would let investors open new accounts over the Internet using electronic signatures, several fund executives thought the company was taking on a lot of business risk.

After all, the legal validity of electronic signatures is

anything but established. If a customer and the company got in a dispute, fund experts reasoned, Invesco wouldn't have a piece of paper with a John Hancock to hide behind.

But Invesco laid the risk back squarely at the feet of its investors. In a supplement to its funds' prospectuses, the company says that if anything goes wrong, it's probably your fault, not theirs.

By opening an account, "you lose certain rights if someone gives fraudulent or unauthorized instructions to Invesco that result in a loss to you," the filing states. "If Invesco follows

its procedures, neither Invesco, its affiliates nor any fund will be liable for any loss ..."

Jon Pauley, Invesco's vice president for electronic commerce, says the disclaimer is pretty standard stuff. "We're confident that our overall procedures are sufficient to make our shareholders comfortable, to make the process secure, and also to meet current regulations," he says.

In other words, buyer beware. Invesco launches its paperless system today.

A Lynch is a Lynch is a Lynch

Since many Gen-X investors were too young to experience

Peter Lynch's

investment prowess firsthand, Fidelity has tapped a younger Lynch to reach that crowd.

Annie Lynch, 20-year-old daughter of the white-haired investment guru and (some say) Andy Warhol-look-alike, has started popping up in print ads and on Fidelity's Web site. In one print ad, Peter Lynch notes how young professionals like his daughter shouldn't rely on one company's retirement plan because they may change jobs seven or eight times during their career. On Fidelity's

Web site, the younger Lynch makes the point herself: "I will not let my retirement growth potential get lost in the excitement of a new job."

That is, when she gets a job. She is a college student.

"I think using his daughter in the ads is an effective way to extend the Lynch brand and reach younger customers. This ad is rather clever being they're using Lynch well, not trying to have him be goofy," says Alan Holliday, an assistant professor of Communication at

Boston University

, who created Fidelity's first print ads 18 years ago.

New Fee, Managers at Masters Select

Masters Select Funds

will start charging a 2% redemption fee on Nov. 1 for investors who hold shares of its

(MSEFX) - Get Report

Equity and

(MSILX) - Get Report

International funds for less than six months.

Masters Select joins a growing movement among fund and brokerage firms to discourage short-term investors with back-door fees. Others with redemption fees include

Oakmark

,

Strong

, Invesco, Fidelity and

Lindner

, as well as online brokers

Charles Schwab

(SCH)

, Fidelity,

E*Trade

(EGRP)

and

Jack White

.

Traditionally, the fees target market-timers who move money in and out of a fund, attempting to profit from a short-term market swing.

"Market-timers create a real expense problem. There's a transaction fee when they buy shares and sell shares and since their holding period is short, it raises expenses for everyone else in the fund," says Burt Greenwald, a Philadelphia fund consultant.

But Charles Seim, a Ft. Lauderdale investment adviser specializing in market timing, says the fees are too strong a penalty. "These redemption fees adversely impact returns. Between the fees and limits on transactions I've seen client returns drop from 29% to 6% in one year, he says.

As is common, money raised by Masters Select's redemption fee goes directly to the fund, not the adviser, to keep fund expenses down.

Separately, Masters Select announced a replacement for Bruce Bee, who managed 10% of the firm's International fund prior to his death this summer. That portion of the fund's assets is now managed by a team of three, led by Ted Tyson, from Seattle-based

Mastholm Asset Management

. Previously, Tyson directed

American Century Funds'

international equity management.

Hourly Pricing -- Except For the Last Few Hours

Fidelity will offer after-hours trading to its brokerage clients in the fourth quarter, but

Fidelity Select

fund investors -- who are accustomed to hourly pricing -- won't know what their fund shares are worth in that nascent market.

Like all fund firms, Fidelity will not price its funds after 4 p.m. ET. That includes its 40 Select sector funds, which have been priced hourly during the trading day since 1986.

Low volume in the extra trading session has led to wide price swings for some stocks, but Fidelity spokesman Vincent Loporchio believes it is too soon to consider pricing funds beyond the traditional market close. "We'll continue to look at this issue, but we don't see a reason to price funds after-hours until the

major stock exchanges get involved."