Hard cash, soft cushion


November 01, 1991|By Donald Saltz

Charles Allmon isn't shy -- shareholders of his Growth Stock Outlook Trust were asked recently to rename it after him -- but he is plenty cautious when it comes to investing the trust's money in stocks.

Since the trust went into business a bit more than five years ago, Allmon, long a successful financial adviser, has been reluctant to commit much of the trust's money to stocks. His bearishness on the stock market in general means that the Bethesda-based trust is largely in cash.

Allmon Trust is a closed-end investment company, unlike a mutual fund in that a closed-ender has a set number of shares that trade back and forth, whereas a mutual can issue any number of new shares as new money comes in, or reduce shares as holders sell.

Because of its preponderance of cash, the Allmon shareholder has a much larger than usual safety net. The trust has been selling for about $9.88 to $10 a share. Its asset value on Sept. 30 was $10.74 a share, meaning that if one trades in no more than $10 of his money for a share of Allmon Trust, he gets about $8.20 in a cash investment, with the other $2 or less purchasing $2.50 worth of stocks. The buyer acquires the stocks for 80 cents or less on the dollar.

The fact that the $129 million Allmon Trust sells for less than its asset value is not unusual -- most closed-end investment companies are in the same boat -- but it's the size of the cash at Allmon that makes the difference.

For example, Baltimore-based Adams Express Co., a diversified closed-ender with more than $500 million in year-end assets, recently sold for about 6 percent under the value of its assets. A companion closed-ender, Petroleum & Resources Corp., with more than $300 million in assets at year's end, has been about 10 percent under asset value. Both trusts have about 10 percent of assets in cash, typical perhaps but very much below the Allmon cash percentage.

Investors flock to mutual funds by the millions, failing in most cases to take advantage of the discounts offered by the closed-enders. Why do closed-enders sell for less than asset value? That question was asked of Jesse Whitney, who is vice president and secretary of both Adams and Petroleum & Resources. He said there have been a number of studies on the subject, but no conclusive answers.

Nevertheless, the shareholder of a closed-end trust has a distinct advantage in that he has more working for him because assets of these investment companies are fully invested -- as opposed to a typical corporation's assets which include facilities, inventories and the like. The share purchase price under asset value is the advantage over a mutual fund.

Investors who consider buying mutual funds should look at the available closed-end trusts.

Growth Stock Outlook changed its name to the Charles Allmon Trust, management said, because of a lack of growth stock opportunities, hence elimination of the words "Growth Stock" in its name.

However, the trust's stock holdings include some major winners. Favoring smaller companies, Allmon's investment in St. Jude Medical, the leading maker of heart valves, is worth 10 times its cost and Tootsie Roll Industries is up more than triple, among other big winners.

Adams Express, on the other hand, invests heavily in larger, better-known companies such as PepsiCo, McDonald's and Texaco.

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