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Like donut-maker

Krispy Kreme

(KREM)

, a mutual fund can have an initial public offering.

Unfortunately, a fund IPO will never be quite as sweet.

Mutual fund companies occasionally sell shares of a new fund during a subscription period before that portfolio starts investing. Lately, some of these pseudo-IPOs have raised some big money. Prelaunch fund offerings from

Janus

,

Merrill Lynch

and

PaineWebber

have each raised more than $1 billion from investors.

These cash-raising marketing campaigns can be a bonanza for fund companies, but they offer no material benefit to fund investors.

While fund companies are careful to avoid blatantly suggesting that IPO-like riches are in store for subscription-period fund investors, the campaigns are clearly designed to tap into the idea that getting in on the ground floor means something for funds, as it often can for stocks.

But it doesn't.

A newborn fund won't experience the same first-day run-up that makes some stock IPOs so desirable and lucrative. What's worse, the money you invest sits idle until the fund actually goes live.

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Subscription periods are "just another way for a fund company to pound the drums. Other than convenience, there's no market reason to get in before a fund opens," says Jim Benham, an adviser with

Benham & Green Capital Management

in La Jolla, Calif.

A quick review for the uninitiated:

During a two- to six-week stretch before a fund's launch, a firm will offer shares of the new fund to investors for $10, sometimes $20.

With some assistance from online broker

Charles Schwab

, Janus, for example, raised more than $1 billion for its

(JSVAX) - Get Janus Henderson Contrarian T Report

Strategic Value fund during an

offering period that ran the month of February.

That $10 initial price is an artificial number that has no real meaning. A fund can launch with almost any share price. But, hey, a round number looks good.

If you sign up during a subscription period, you aren't really buying shares that day. You're just "reserving" them. The fund company will typically hold your check until the fund goes live, and the manager will only start investing your money on the fund's first day of life.

Yes, by buying early you'll be one of the first shareholders in a new fund. So what? You'll never get the immediate price surge you sometimes see with stock IPOs.

A fund's shares are priced according to the value of the portfolio's holdings. A fund's net asset value, or NAV, is the dollar value of a single share, based on the value of all the fund's holdings divided by the number of shares outstanding. The supply and demand of the market -- which sends stock IPOs into the stratosphere -- has no direct impact on the price of a new fund's shares. Only the price of a fund's underlying securities can change that.

"You aren't going to see a 200% increase on the first day just because it's a subscription," says Karl Schofield, head of marketing at

Stein Roe Mutual Funds

-- a firm that's used these offering periods in the past.

In fact, a fund at launch will probably have most of its assets in cash, so it will have few securities to push that $10 price higher.

Merrill Lynch's new

Internet Strategies

fund -- which raised $1.1 billion in a two-week subscription period that ended March 17 -- has been open since March 22 and has about 80% of its assets invested thus far, according to Merrill spokeswoman Christine Walton. The fund's NAV on Wednesday was at 7.88, down from its initial 10. So much for that initial pop in value.

Also keep in mind that when you purchase shares during a subscription offering, you're buying that fund blindly. You don't know the stocks that it owns because it doesn't own any. Plus, the portfolio has no track record. You're simply investing in the good name of the company and the manager. Good luck.

Merrill says it carefully chooses the words in its marketing materials. "We don't call the subscription periods IPOs until after they're over. Then, it's a phrase used in our marketing and P.R. to tout how well it went if it was successful," says Walton via an email. When telling brokers and clients about a pending launch, "We don't say we have an IPO coming; we describe it as the subscription period or offering period for a new fund."

Janus spokeswoman Jane Ingalls says her firm would never mislead investors about the benefits of buying a fund during a subscription period. The firm uses these offering periods to help spread out the flow of money into a new fund, she says, and give the portfolio manager an idea of how much money the fund will have at its opening, she adds.

There's only one possible advantage to being an early investor in a fund.

A fund might take in so much money during the subscription period that it closes to new investors even before it begins trading. That's what happened to the Merrill Lynch Internet Strategies fund. It remains closed, and company officials have not said when it will reopen.

Despite the lack of benefits for investors, these brief sales crusades are as popular as ever among fund companies.

Typically, fund companies must use their own capital, an amount that can run from $100,000 into the millions of dollars, to seed a fund. But by holding a subscription period, it uses your money instead.

These initial sales offerings tend to work best with a fund that has an easy and obvious sales pitch (like an Internet fund) or strong sales support, like Merrill's legion of 14,000-plus brokers.

These firms conduct heavy marketing campaigns during subscription periods. Schwab -- for a fee -- will provide a fund company with a targeted list of Schwab customers, typically mailing information to 200,000 to 400,000 of its clients, says Jeff Lyons, Schwab's executive vice president of mutual funds. It also will tout the fund's subscription period on its Web site.

Next time you see one of these subscription offers, go ahead and buy shares if you think the fund is worthwhile. Just know that if you buy those shares a day or a week after the launch, you probably haven't missed out on anything.

Boffo Broadband

Merrill Lynch's newest HOLDRs basket started trading this morning. The Broadband HOLDRs

(BDH)

raised over $550 million before the launch. The shares were priced on Wednesday. It was trading Thursday around 95.

Like the seven others HOLDRs, this security represents a basket of 20 stocks in a specific sector. The Broadband HOLDRs portfolio

includes

Lucent Technologies

(LU)

,

Nortel Networks

(NT)

and

Motorola

(MOT)

.

Remember: You can only buy and sell the HOLDRs in 100-share lots.

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.