Q–I would like to know what you think of the one-third of my savings that’s in BellSouth Corp.
A–This Atlanta-based Baby Bell, which provides telephone service in nine southeastern states, is convinced it’s making the right connections.
Thanks to robust performance of its core telephone operations, BellSouth announced plans to repurchase as much as $1 billion of its common stock through 1998. That, based on a recent stock price, could call for buying as many as 20 million of its common shares.
Wall Street analysts are somewhat less enthusiastic, ranking its prospects in the middle of pack of regional Bells.
The consensus on the stock of BellSouth is currently a “hold,” according to the Boston-based First Call Corp. research firm. That includes four “strong buys,” four “weak buys” and nine “holds.”
BellSouth’s expected five-year annual earnings growth rate is 8 percent, versus 9 percent for the regional telephone industry, based on estimates compiled by First Call.
Net income rose 4 percent in the second quarter after a one-time charge, but profit from operations rose 11 percent on strong demand for new lines, wireless services and features such as caller identification. The company, which first entered the Latin American cellular market in 1989, has remarkably doubled the number of subscribers in that region to 743,000 during the last year.
BellSouth, which is seeking approval to provide long-distance service in South Carolina and Louisiana, also publishes about 500 telephone directories and has ownership interests in foreign telecommunication companies in New Zealand, China, Denmark, Germany, Nicaragua and South America.
Q–I’m 65 with some health problems and my wife is a healthy 70. Our mutual funds include Fundamental Investors Fund. What do you suggest?
A–This giant fund is a good core holding for retirees.
The $9.6 billion Fundamental Investors, a member of the popular American Funds family, is up 38 percent over the past 12 months to rank in the upper half of all large-capitalization growth and income funds. Its three-year annualized return of 24 percent is also in the top half of its peers.
Its three-person portfolio management team consists of Dina Perry, who looks for rebound prospects; James Drasdo, who gauges trends; and Gordon Crawford, who does fundamental research.
“That overall mix has worked pretty well for Fundamental Investors, which is a bit riskier than other familiar American Fund family offerings such as Investment Company of America,” explained Peter DiTeresa, analyst with the Morningstar Mutual Funds investment publication. “It has compensated investors nicely with good returns for assuming more risk.”
Keep in mind that risk is relative, with this fund’s risks less than those associated with a typical Standard & Poor’s 500 index fund, he added. Its largest holdings are in industrial cyclicals, energy and services.
This San Francisco-based fund requires a 5.75 percent “load” (initial sales charge) and $200 minimum initial investment.
Q–I work for a public library and have money invested in a variable annuity through a 403(b) plan. Can these plans be invested in vehicles other than variable annuities? After reading your column about variable annuities, it seems to me my particular investment isn’t a good one.
A–Check out the options available with your employer.
By law, contributions to 403(b) programs for tax-exempt organizations and public schools are limited to annuity contracts, custodial accounts with some mutual fund options, church retirement income accounts or a combination of any of these vehicles.
The most common form of 403(b) investment since the vehicle’s inception in 1954 has been the annuity, which is an insurance firm’s written contract promising to pay either a participant or beneficiary a single payment or multiple payments over a stated length of time.
Annuities can be either fixed, in which the participant’s principal is guaranteed and interest rates are fixed, or variable, in which both contributions and earnings are subject to the investment performance of the annuity contract and its underlying mutual funds.
Custodial accounts, approved for 403(b) accounts by Congress in 1974, must meet the same basic requirements. Assets are held by a bank or approved non-bank trustee and invested exclusively in mutual funds.
“The investment product in a custodial account would be the same as the product used in a conventional 401(k) retirement plan, although its paperwork includes all the various 403(b) rules,” explained David Rhett Baker, an employee benefits attorney in Orlando. “It’s generally the case now that the custodial account is the investment of choice and what the employer most likely will offer workers.”
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Andrew Leckey, an anchor on the CNBC financial cable television network, answers questions only through the column. Address inquiries to Andrew Leckey, “Successful Investing,” Suite 367, 76 N. Maple Ave., Ridgewood, N.J. 07450 or by e-mail at successinv@aol.com.
