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Dear Dagen: Why Can't a Manager Take His Record to a New Fund?

As far as advertising is concerned, regulators have ruled that a record belongs to the fund, not the manager.

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Reading all of the articles about Ryan Jacob and the (WWWFX) - Get Free Report Internet fund made me wonder: If a manager can take his record with him to advertise his new fund -- and he was indeed the person who was responsible for the results -- why can his old fund continue to use those results? Shouldn't only one or the other be able to use it? -- Mike Carroll


When a fund manager leaves for another job, he can take his


mug, his


mousepad and even the crystal paperweight he received when his fund hit $5 billion. But he can't take his performance record and use it in future advertising.

Managers who switch jobs or start their own fund firms are not allowed to advertise their prior records. The

National Association of Securities Dealers

, which reviews all mutual fund advertising, will not allow it.

However, a fund company can continue to advertise the performance of a fund after a manager is long gone, even if that individual was responsible for every percentage point of that fund's return. In fact, if a firm advertises the performance of a fund, the advertisement


include the fund's one-, five- and 10-year returns, if the portfolio has a record that long.

If the fund hasn't been in existence for 10 years, then the ad must include the performance for one year, five years and the life of the fund. Or if it's really young, the ad will just display the record for one year and the life of the fund.

So a manager who has moved on isn't allowed to tout a previous record in ads. The performance record stays with the fund or the investment company itself.

Oh, the irony.

Naturally, the mutual fund industry is opposed to performance portability. It would make it easier and more attractive for a manager to change jobs if he or she knew that an old fund's record could be trumpeted in ads for a new, perhaps eponymous fund.

Besides, in the industry's view, funds are seldom a one-man show.

"A lot of people think that it's inherently misleading that performance was attributable to just one guy," says Pamela Wilson, an attorney with

Hale and Dorr

in Boston. "In fact, it's very seldom true that an individual achieves performance all by himself." Somehow, things like research, support and other resources help an individual achieve that performance.

The issue is somewhat muddled, however, by a conflicting ruling by the

Securities and Exchange Commission


In 1996, the SEC set a precedent by giving manager Elizabeth Bramwell permission to continue using the track record from her seven years on the

(GABGX) - Get Free Report

Gabelli Growth fund in the prospectus of her own


Bramwell Growth fund.

The SEC is the primary regulator for the mutual fund industry, and its Bramwell ruling was not limited to prospectuses, says Kathleen Clarke, attorney at

Seward & Kissel

in Washington.

But the SEC has delegated authority to review advertising to the NASD. So where ads are concerned, the NASD's opinion prevails.

As far as prospectuses are concerned, the SEC requires that a manager citing a record from a prior fund must show that no one else played a significant role in achieving that record. And the new fund would have to be almost exactly like the old one.

After Tom Marsico left


, the prospectus for his own funds,

(MFOCX) - Get Free Report

Marsico Focus and

(MGRIX) - Get Free Report

Marsico Growth & Income, initially carried the performance records of the two funds he ran,


Janus Twenty and

(JAGIX) - Get Free Report

Janus Growth & Income. But only for the first year of his new funds.

"After the first year, our firm had its own strong record," says Barb Japha, president of

Marsico Capital Management


How many people really read the prospectus anyway?

Cut the Zen

Reader Amy Valley writes to say, "I enjoyed

your article about the latest round of finance/get-rich-quick books. ... Please, no more

Suze Orman


Agreed. I've never been a follower of

Deepak Chopra

and his ilk. And now this New Age claptrap has made its way into investment books, with Orman leading the charge.

In general, these books explore the spiritual and psychological forces of money and how investors need to come to terms with these feelings, beliefs and fears as part of investing.

If you want spirituality, try the Old Testament.

You don't need to tune in to your inner child to invest well. You need to start watching


and reading the newspaper every day.

Send your questions and comments, along with your full name, to

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.