g451252772ea@ucdavis.UUCP (g451252772ea) (01/28/86)
The January "Money" issue discussed foreign investments, and mentioned
a new mutal, "First Australia Fund", a closed-end no-load long-term capital-
appreciation (say it 3 times, fast) fund of Australian stocks. It's managed
by Equitilink (who're they?) and has Prudential-Bache Insurance as US
consultant. PruBache Securities is the Fund's administrator (they've opened
a lot of funds recently, most looking pretty trendy) (what's the diff
between management & admin. here?).
I called PruBache (800 654 5454) for the prospectus (buying is through
them also-- anyone know if that could be ONLY thru them?). Some notes and
questions from the prospectus:
The fund is apparently offering $35,000,000. total, at $10/share (so
says the prosp. cover). Checking Saturday's NYTimes the stock price is indeed
$10, but the Net Asset value is listed at 9.60. (Only the Sat. NYTimes and
the Monday WSJ list publically traded ("closed-end" funds.) And last
Monday's WSJ showed the price at 10 3/8, with a Net Asset of 9.53. Early
December the WSJ had it at valued at 9.09; 9 3/4 asked. ... I'm so-o-o-o
confused. Clarity would be reassuring. And what does the 'authorized
capital stock of the Fund of 20,000,000 shares of common stock, US$.01 par
value' described inside the prospectus have to do with the cover offering
above?
The distribution date of the fund isn't specified (there is a re-
investment plan)-- I suppose PruBache would know when, if I cared to time
buying to after that date? The prospectus only mentions 'at least yearly',
so no hurry. Or is it likely that this fund, newly organized about October,
is still an unknown gem, to be bought fast?
Total fees are about 1.5% for management. Not cheap, but they talk a
lot about currency hedging moves and extra expenses due to the foreign/US
interaction. It 'expects' to keep about 65% assets in stocks. Large
established companies are preferred. Options will be utilized, tho still
new to Australia, they say.
The main weirdity is taxes. They state that their options and futures
transactions will often result in 'straddles' for US Fed. taxes. They also
say 'the consequences of straddle transactions to the Fund are not entirely
clear'! So how is the individual taxee to understand?
Any other comments re/this specifically, or Australian investing
generally are welcome. And on a completely unrelated note, today's (1/27)
WSJ states that SUN Microsystems has filed with the SEC to go public within
the next two months.
ka@hropus.UUCP (Kenneth Almquist) (01/29/86)
> The January "Money" issue discussed foreign investments, and mentioned > a new mutal, "First Australia Fund", a closed-end no-load long-term capital- > appreciation (say it 3 times, fast) fund of Australian stocks. A closed-end fund is like a regular corporation in the way its stock is handled. Buying and selling a closed end fund is just like buying and selling any other company. There is an initial offering of stock to the public when the fund is created, additional shares may be sold by the fund from time to time to raise additional capital. No-load probably means that in the initial offering you could buy shares without paying a sales commission, which is irrelevant if the initial offering is already completed. > PruBache Securities is the Fund's administrator (they've opened > a lot of funds recently, most looking pretty trendy) (what's the diff > between management & admin. here?). Probably the fund management makes the investment decisions and the administrator does the paperwork. Is the reference to "trendy" funds supposed to be a complement? A couple of years ago I went to a talk by a Prudential broker who was touting a fund which supposedly offered the safety of investing only in U. S. Government bonds while providing higher yields. Well, the first page of the prospectus admitted that the fund's policies involved "above average risk." What it did not say was that the writing covered calls (the gimick that made the allegedly higher yields possible) has historically resulted in *lower* total return. This was a trendy idea (I think that Prudential copied the idea rather than inventing it), after all who could resist the prospect of "higher yield" with "no risk"? Since then these funds have been debunked on the pages of Forbes and elsewhere. I wonder if the reason that Prudential has launched a lot of new, trendy funds recently is that investors have become disillusioned with Prudential's older funds. Please understand that I am not arguing that you should stay away from funds with Prudential's name on them; all I'm saying is that you shouldn't buy funds on the basis of Prudential's name either. > The fund is apparently offering $35,000,000. total, at $10/share (so > says the prosp. cover). Checking Saturday's NYTimes the stock price is indeed > $10, but the Net Asset value is listed at 9.60. (Only the Sat. NYTimes and > the Monday WSJ list publically traded ("closed-end" funds.) And last > Monday's WSJ showed the price at 10 3/8, with a Net Asset of 9.53. Early > December the WSJ had it at valued at 9.09; 9 3/4 asked. It sounds as though the initial offering has been completed if the stock was trading in early December. Thus, since this is a closed end fund, the price for the fund is determined by the market. The net asset value, on the other hand, is determined by dividing the assets of the company by the number of shares outstanding. These will normally differ since they are determined in different ways. But the mention of the market price raises a serious question: what market? Ideally, the fund should be listed on a stock exchange. Alternatively, it could be traded in the NASDAQ national market. In either case, you can for up the fund in the appropriate section of your newspaper and get daily price quotes. If its not traded in one of these ways, you should be cautious about buying it, since you might not be able to find a buyer when you want to sell it. I would suggest that you probably don't want a closed end fund anyway. The disadvantage of an open ended fund is that the fund must buy and sell stocks as people buy or redeem shares of the fund. This may cause the fund to spend more on brokerage commissions it would if it were closed ended. Additionally, if the fund deals in thinly traded stocks, it may be forced to buy or sell at times when it is unable to get a good price. As far as I know there is no evidence that closed end funds outperform open ended funds in practice. The advantages are 1) If the fund is no-load, you pay no commissions on sales or redemptions of shares. 2) The share price is identical to the net asset value. Thus if Australia has a bad year people may want to get out of an Australia fund; if you're one of them you may get significantly less than the net asset value per share if you invest in a closed end fund; no one else may want to buy either. > Total fees are about 1.5% for management. Not cheap, but they talk a > lot about currency hedging moves and extra expenses due to the foreign/US > interaction. It 'expects' to keep about 65% assets in stocks. Large > established companies are preferred. Options will be utilized, tho still > new to Australia, they say. Remember that the fund was referred to as "no-load" above? Much of that 1.5% may be used to compensate the salesmen who moved the original issue of stock, and not into investment analysis. What is the purpose of utilizing options? When an option is traded, one of the partners in the trade must loose. In fact, given brokerage commissions, both sides may loose. So the fund should have a pretty good explanation of why they want to use options. Options can be used for hedging, but if this hedging will decrease the total return from the fund over the long term, it hardly seems appropriate for a fund that claims to be "long term". I don't know about currency hedges, but again you should wonder whether these will cost more than they are worth. > The main weirdity is taxes. They state that their options and futures > transactions will often result in 'straddles' for US Fed. taxes. They also > say 'the consequences of straddle transactions to the Fund are not entirely > clear'! So how is the individual taxee to understand? "Straddles" sound like speculation rather than investing to me. And if they are such great things, why haven't they been used for years and had their tax status clarified a long time ago? But the answer to your question is simple. The fund sends you a form saying how much taxable income you have, and all you have to do is to enter this number on your income tax form. The fund is responsible for figuring out how much taxable income they have paid you; you aren't. Kenneth Almquist ihnp4!houxm!hropus!ka (official name) ihnp4!opus!ka (shorter path)
mat@amdahl.UUCP (Mike Taylor) (01/31/86)
In article <233@hropus.UUCP>, ka@hropus.UUCP (Kenneth Almquist) writes: > > The January "Money" issue discussed foreign investments, and mentioned > > a new mutal, "First Australia Fund", a closed-end no-load long-term capital- > > appreciation (say it 3 times, fast) fund of Australian stocks. > > > The main weirdity is taxes. They state that their options and futures > > transactions will often result in 'straddles' for US Fed. taxes. They also > > say 'the consequences of straddle transactions to the Fund are not entirely > > clear'! So how is the individual taxee to understand? > > "Straddles" sound like speculation rather than investing to me. And > if they are such great things, why haven't they been used for years > and had their tax status clarified a long time ago? They have. Straddles across the year end used to be (note tense) a way to manage taxes until the IRS stopped the game. However, when you complicate the situation with an offshore fund doing the transactions, there may be loopholes (or there may not be). I have no idea. -- Mike Taylor ...!{ihnp4,hplabs,amd,sun}!amdahl!mat [ This may not reflect my opinion, let alone anyone else's. ]