Austin American-Statesman from Austin, Texas • 58

D4 Austin American-Statesman This section is recyclable Sunday, November 20, 1994 York Mutual funds take their place at a New museum By Chet Currier Associated Press iCjvv iunn na new as uiey mflv have sppmpd in the mirlst nf their recent boom, mutual funds are auvauy a museum piece. In fact, they are the featured display right now at the Museum of American Financial History in lower Man hattan, in an exhibit marking the 70th birthday of the nation's first true mutual fund, Investors Trust The books, certificates and other artifacts in the little INTEREST Still, a look back shows that the principles on which the funds operate haven't just recently been invented, but have been shaped by experience in a wide variety of financial and economic conditions over several decades. Mutual funds grew out of older forms of pooled investments that are today known as closed-end, or publicly traded, funds and unit investment trusts. All are designed to collect money from a group of investors and put it to work through a single conduit under professional management taking advantage of the opportunities open to full-time, knowledgeable managers operating on a large scale. What sets mutual funds apart from their relatives is the fund sponsor's continuous readiness to sell new shares to the public and buy back existing ones, always at a price based on the current value of the investments held by the fund-Once closed-end funds are organized, their shares are usually bought and sold only in the secondary market provided by brokers and stock exchanges.

Unit trusts typically represent a fixed selection of assets, rather than the continuously managed portfo-lios of mutual funds. In the Roaring '20s, before there was a Securities and Exchange Commission or the Investment Company Act of 1940 to define how they should operate, investment trusts enjoyed a heady but short-lived vogue that fostered abuses of many kinds. In many cases, ill-informed cus museum at 24 Broadway trace the origins of funds much farther back than MIT's creation in 1924, to the British trusts that pooled their clientele's money to invest iin the "emerging market" of the 19th Century United States, The historical evidence testifies that the funds' rise as a mighty power in modern finance has been as much an evolutionary development as a revolutionary one. It is true that more than half the industry's $2.1 trillion in as--sets have accumulated just since the start of the 1990s, and that the business is 10 times as large now as it was in 1980. On sheer size alone, funds merit the full examination of all their virtues and limitations and the regulatory reappraisal they have been getting of late.

The key factor in all this, of course, is the direction of interest rates. Last February, the Federal Reserve System began boosting short-term interest rates in an effort to put a lid on inflation. The market itself boosted long-term rates at an even faster pace and they now stand at above 8 percent. When interest rates go up, bond prices go down because investors won't pay full price for older bonds that pay less interest than newer bonds issued at higher rates. Thus, as rates have moved up, the value of the bonds owned by bond funds have gone down way down.

The value of a fund's investments generally is referred to as a fund's net asset value per share, or NAV for short. Bond-fund NAVs are likely to iiivesuiieiiis mi jjesi, worst ui times wiui uiuseu-eiiu jjuiiu ituius prompt a cover story in Time magazine, reprints of which were recently recirculated by Massachusetts Investors Trust "Mutual funds," said Time, "have taken the specialized world of Wall Street and put it within reach of every man with enough money to buy a fund share. "In the last decade, the funds have become the fastest-growing, most competitive and most controversial phenomenon of the U.S. financial world." If you changed "man" to "person," in the first of those two sentences, you could write the same words now, 35 years later, and be absolutely timely and topical. So the news about mutual funds in the mid-1990s may be important instructive, even interesting, but it is not really new news.

as of Oct 31. I MFS Government Markets Income Trust (MGF): net asset value $6.90, market price $5.88, discount 14.9 percent, yield 7.4 -a percent. Year-to-date down 6.3 percent MFS" Intermediate Income Trust (MIN): net asset value $7.28. market price $6.13, discount 15.9 no percent yield 7.7 percent Year-to- rtntp rpfiim Hrvum A 3 noropnt 'oO MFS Charter Income Net asset value $9.68. Market price $8.13.

Discount 13.5 percent Yield 7.8 percent Year-to-date re- turn, down 3.5 percent In addi-liJ tion to U.S. and foreign government bonds, this fund holds junk bonds. Clearly, whether it is the best of 'fA times or the worst of times, risk and reward still go hand in market," she said. "It takes some -J time to build that." Oliveira said local stations' own-ership changes and the movement of networks between two of them creates opportunities for his sta- tion thanks to what he calls "a pro-' i gramming war" The war is over syndicated pro-grams, reruns of old, but endur-- ingly popular programs such as MASH, Happy Days, Cheers and The Andy Griffith Show. Being associated with KXAN can help him land some of those popular syndicated programs, Oliveira said, as its owner, Linr Broadcasting, negotiates on behalf of its stations throughout the na- I tion.

Mark Goldberg said he hopes to turn a profit by the second half of 1995. His partner, Oliveira, already -is expanding his broadcasting dreams to other cities: "Hopefully, we'll have more than one station." i vS mi A '-ma tbO lT m3 wO wU J-iA A A ff)A i0 kO -a rfH jtxil Mi HI iuM w3 lifj rV iW sA 4 tomers paid lofty pricesfor trusts that were scarcely more than empty shells, or outright frauds. "Like all binges, the investment trust boom of the 1920s led to a terrible hangover," note Max Rot-tersman and Jason Zweig in the museum's magazine, Friends of Financial History. With the Stock Market Crash of 1929, the Great Depression of the 1930s and World War it took a generation or more before the idea of mutual funds gathered momentum again. But the funds, modernized under the landmark 1940 act began to enjoy a new surge of popularity in the 1950s as the U.S.

economy embarked on a long postwar ex-pansioa By June 1, 1959, mutual funds had created enough excitement to And, second, selling pressure by wary shareholders has sent the market price well below the value of the investments. So where are the bargains? Analyst Robert Young at Dean Witter Reynolds Inc. recommends three funds run by Massachusetts Financial Services Co. that are trading at unusually wide discounts of 13.5 percent to 15.9 percent (Dean Witter makes a market in these securities.) The funds, Young said, contain a mixture of U.S. and foreign bonds with intermediate five- to seven-year maturities.

All are unleveraged. Here are the three funds Young recommended, along with their trading symbols, current market prices, net asset values per share or NAV, and their discounts, as of Nov. 4. Performance numbers are years. The National Association of Broadcasters group reported that advertisers spent $53.3 million in 1993 on television commercials in Austin.

Jane Wallace, station manager of KXAN, estimates that a healthy, growing economy and political advertising this year will boost television ad spending as high as $65 million. Wallace also said that adding a station in a growing market might attract more money from advertisers. "If they used to allocate $100,000 to be spent in Austin over four television stations, now they might allocate $120,000 to be spent over five," Wallace said. "That has been the case in some instances, and certainly what we're hoping will happen here ultimately "Now, that'll take some time because a new television station doesn't come on the air with an automatic ratings position in the station programming to expand into more than weather keep going down until the Fed decides it has raised rates enough to head off inflation. Nobody can be quite sure when that will be.

Moreover, the selling of bond funds for end-of-year tax-loss purposes may accelerate in December. Indeed, this will be the first year in many years to produce negative returns for bonds. That' prospect is reflected in the year- to-date returns for almost every closed-end bond-fund category, according to Lipper Analytical Services Inc. For instance, U.S. government bond funds that are leveraged (use borrowed money to increase the amount they can invest) lost 18.6 percent of their asset value as of Oct.

31. Unleveraged U.S. government bond funds fell 6.6 percent. dent of Wood Co. of Cincinnati.

Wood recently brokered the impending sale of KBVO to Granite Broadcasting Co. of New York. KNVA will not have a news department, Oliveira said. It costs up to $3 million a year to operate a news department in Austin. Startup costs, including a studio and equipment, can add up to $5 million, he said.

"We've got the vision of who we're going to be an entertainment channel," Oliveira said. But the popularity of the weather broadcasts, showing radar sweeps of Central Texas and measurements at dozens of sites throughout the region, got his attention: "This will be the station to turn to at the top of the hour to see weather," Oliveira said. He also plans to run Spanish language programs and programs aimed at black and Asian audiences not at 2 a.m. but in more popular time slots during the day. Steve Beard, one of the current owners and general manager of KBVO, said Oliveira is a top-notch broadcaster but that his talk of some Spanish-language programming, the, use of the untested Warner Bros, network and an unannounced programming General and insured municipal-bond funds that use leverage dropped 10.8 percent while similar unleveraged funds fell 4.6 percent.

The hardest hit were single state muni-bond funds, which lost 10 percent to 15 percent. Because closed-end funds trade like corporate stocks on stock exchanges, each fund has both an NAV, representing the value of the fund's investments per share, and a market price. A fund with a $15 NAV and a market price of $17.50 is trading, at a premium. A fund with a $15 NAV and a $13.50 market price is trading at a discount and these days most bond funds are selling at sizable discounts. Thus, current shareholders have been hit twice.

First the rise in interest rates has reduced the value of their fund's investments. schedule makes it hard to tell just what KNVA will mean to viewers. "He's got a hodgepodge of something that's going to be very confusing to viewers and (he) has really no paramount direction to go," Beard said. Nor is KNVA likely to have any impact on local advertising rates. Ad rates shot up this fall because of intense competition among politicians during the election, said Monica Davis, president of the Davis Group an Austin firm that buys time for advertisers on local stations.

Rates probably will remain high through the Christmas shopping season and then slip in the first quarter of 1995, Davis said. Thus, as Oliveira launches his programming in early January, the rate trend will be downward. Initially, it appears, he won't have leverage to charge much because he won't have what advertisers want an audience. On the other hand, KNVA joins the market at a time when the TV audience is growing. Nielsen Media Research of New York said the Austin-area audience has grown by nearly 25,000 households, to 398,410 in the past two blocks iri Austin.

dt9 by Other downtown buildings, 44 i'4 .4 By Stan Hinden Washington Post Service For investors who own shares in battered closed-end bond funds, these are the worst of times. But for investors who are thinking about investing in closed-end bond funds, these could be the best of times. The reason is that shares of manv of them are very cheap. In fact they are trading at discounts that rarely are seen. That spells what market analysts call a buying opportunity but it comes with a caveat.

Bond-fund shares, some of which are selling for about 85 cents on the dollar, could get even cheaper before they make a comeback. So the buying decision involves some guesswork and, of course, a high degree of risk. Television Continued from D1 owner of KNVO in McAllen, he said. Sources familiar with the operation say the real behind-the-scenes power is Billy Goldberg, Mark's father and a Houston attorney, businessman and former chairman of the Texas Democratic Party. Mark Goldberg said his father, now 79, was active in the early years of the effort to win the FCC permit, but that he is now retired.

The partners won the construction permit for KNVA as part of an FCC drive to boost minority ownership and management in the broadcast industry Austin's market size is 66th out of 207 in the United States according to the latest ranking by the National Association of Broadcasters and the Broadcast Credit Financial Managers' 1994 reDort. iiie survey repuneu mat sia- Liuixs ill luc maiivcia uciwccn uioi and 70th in size reported cash flow of $4.1 million for the year. The figure includes stations affiliated with a major network and independents, such as KNVA. But independents generally are much smaller than their affiliated cousins. The same study showed THE CIRCLE CORP.

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To keep costs down and to draw on the broadcasting expertise of veterans, Oliveira has a "local management agreement" with KXAN. KXAN is providing office space, use of production equipment and technicians and its sales force to bolster the fledging KNVA. However, KVNA has its own antenna in a West Lake Hills area known as "tower farm" because of all the broadcast antennas there. KNVA likely will not have an immediate impact on the Austin television market, several industry experts said. "The existing stations down there are pretty solidly established, and it takes quite a while for a new station in this competitive environment to get itself going and get to a firm financial footing," said Larry Wood, presi "Compare Us To Your Rodger Riney.

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