Q–In 1995 I purchased shares of Twentieth Century Giftrust Fund for my grandsons with the intention of making additional investments. However, the nest eggs planned for college are now cracking because of poor fund performance. Is there anything for an unhappy grandmother to do?
A–Patience is a prerequisite to owning this fund. That’s because money invested in American Century-Twentieth Century Giftrust must remain in it a minimum of 10 years, or until the recipient reaches the age of majority, whichever comes first.
Such an investment can only be given as a gift to someone other than yourself or your spouse. Since the trust is a separate taxable entity receiving special tax considerations, ongoing taxes are paid out of the trust rather than by the initial investor.
The $2.3 billion fund suffered a 5.7 percent loss over the past 12 months and turned in a three-year annualized return of 13.48 percent. Both returns rank in the bottom 10 percent of all small company growth funds.
To see evidence of the fund’s glory days, you must look to its 10-year annualized return of 20.4 percent, which still ranks in the top 5 percent of its peers.
“Because of this fund’s aggressive bent, it tends to have a lot of high-priced technology stocks and can go through some ugly patches with a lot of volatility,” observed Peter DiTeresa, analyst with the Morningstar Mutual Funds investment advisory.
The fund has, however, shown a remarkable ability to rebound after difficult periods, and a slowing economy would likely improve its results as larger multinational companies lose some of their momentum.
American Century-Twentieth Century Giftrust’s heaviest concentrations were recently in electrical/electronic companies, energy services and computer software.
This “no-load” (no initial sales charge) Kansas City, Mo.-based fund requires a minimum initial investment of $500.
Q–I bought stock of Netscape Communications Corp. two years ago after it split. Is there any hope for this company, or should I just kiss the money goodbye?
A–Internet pioneer Netscape has posted wider losses than expected due to its ongoing battle with mighty Microsoft Corp.
As a result, Wall Street has become increasingly bearish on Netscape shares, according to Boston-based First Call Corp. Analysts covering the company have assigned it one “strong buy,” three “buys,” 10 “holds” and one “sell.”
Any positive movements in its stock in recent days has been tied primarily to sporadic rumors about the company being bought by a larger, more financially sound firm at some point. In the meantime, analysts have been adjusting earnings projections downward. Netscape is expected to suffer a 93 percent earnings decline for the current fiscal year, compared to a 19 percent gain for the overall software industry.
On a positive note, its projected five-year median earnings growth of 37 percent compares to 21 percent for its peers. And the company’s Netscape Navigator remains the most popular tool for accessing the World Wide Web, enjoying a 60 percent market share.
But Microsoft’s entry into the business has led Netscape to give up hope of making money from its original product. It followed Microsoft’s lead and is giving away its browser software, along with the source code that could help other programmers enhance the product. Netscape also cut its work force and scaled back part of its investment in Java, the Sun Microsystems technology that gained popularity because it was included in the Netscape browser.
Q–I have used a “buy and hold” approach to investing in stock mutual funds for several years. I’m increasingly agitated at having to pay taxes each year on the distributions made by the fund. It seems as though I’m being penalized for the privilege of holding these funds. Is there any advantage in buying individual stocks instead, at least in terms of paying less tax each year?
A–More tax management is possible with individual stocks because you can sell a stock to offset a gain. In addition, other than ongoing tax on dividend interest, there’s no additional tax if you aren’t selling anything.
But while a portfolio manager may turn over stock holdings more often than you might, it’s unrealistic to think you’d put together a portfolio of a dozen stocks yourself and never sell one of them.
John Markese, president of the American Association of Individual Investors, believes that no stocks can be bought and held forever and that portfolio managers should be thought of as simply diversifying and managing your money for you.
If you’re especially interested in lower distributions in your mutual funds, seek out those funds that historically have exhibited this characteristic, he counseled. For example, stock index funds are noted for their low distributions.
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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.
