A high-yield, low-guilt fund

Answering the mail

May 27, 1992|By Andrew Leckey | Andrew Leckey,1992 Tribune Media Services

Q. I am looking for a mutual fund that qualifies as a "socially conscious" investment, and I've been told that Parnassus Fund in California is such a fund. Can you tell me about it?

A. Here's a "do-gooder" investment whose performance can equal its lofty philosophical goals.

The Parnassus Fund specializes in stock of companies with "enlightened and progressive management" as determined by its portfolio manager, Jerome Dodson.

Corporate policies on factors such as treatment of the environment and employees are carefully screened. Investment aim is long-term growth, emphasizing small- to medium-size companies.

In the first quarter, the Parnassus Fund rose 13 percent by investing in computer and cyclical stocks at a time when the overall stock market was down 2 percent.

Volatility tied to its aggressive investment strategy, however, is a concern.

For example, while Parnassus produced an impressive 53 percent gain last year, it suffered a 21 percent decline in 1990.

"Dodson is attempting to do something about volatility by investing in companies with less debt and by analyzing earnings projections more," said Catherine Voss Sanders, an analyst with the Morningstar Mutual Funds advisory firm. "I don't consider current returns to be enough to justify the risk, so I would keep monitoring this fund to see if the manager has indeed tamed its volatility."

The Parnassus Fund is situated at 244 California St., San Francisco, Calif. 94111.

Q. Help! What is happening to my 325 shares of Pfizer Inc., once the darling of my portfolio? The stock has been sliding this year.

A. The entire pharmaceutical industry, not just Pfizer Inc. (around $70 a share, New York Stock Exchange), has experienced significant price drops, noted Ronald Noordmann, analyst with PaineWebber Inc.

These stocks had enjoyed double-digit growth based on strong fundamentals that remain in place.

Now they're being outperformed by rebounding cyclical stocks.

Pfizer's stock price has also been battered by concerns about the Shiley heart valves formerly sold by the company, Mr. Noordmann noted.

A proposed settlement, if approved in court in June, would cover claims of patients with the valves.

Despite all that, Pfizer remains one of the best research pipelines for blockbuster drugs.

This year it introduced Zoloft for treatment of depression and Zithromax, an antibiotic used for upper-respiratory and skin infections.

"Pfizer's unique feature is a one-dose treatment for the most commonly sexually transmitted disease, chlamydia," said Mr. Noordmann. "This year it also expects Food & Drug Administration approval of Norvasc, a heart drug to treat high blood pressure."

He predicts low double-digit sales growth this year and 18 percent growth in earnings per share, pointing out that "Pfizer stock still has a lot to offer investors."

Q. What should I do about our investment in H.J. Heinz Co.? It doesn't seem to be going anywhere. Should I continue to hold?

A. Price appreciation is still stuck in the bottle.

Hold H.J. Heinz Co. (around $36, NYSE) because the stock price of this maker of ketchup and other food products is too low to make selling worthwhile, said Nomi Ghez, analyst for Goldman Sachs.

Its pet food and frozen food divisions have been suffering, and improvement there would help earnings momentum. Heinz's entire industry is going through a difficult time made more troublesome by increasing competition.

"Companies such as Heinz with name-brand recognition still have to work harder than ever to keep market share," explained Ms. Ghez.

"Hold your shares either to see if the stock price firms up so you can sell at a profitable level, or else to see if it can turn around those two troubled divisions."

Q. My wife and I recently had our first child and we have been told that we can deduct the cost of child care even though we plan in-home care. Is this true?

A. The child and dependent care credit is 30 percent of employment-related expenses incurred by taxpayers with an adjusted gross income of $10,000 or less, said Robert Greisman, tax partner with Grant Thornton.

"Employment-related expenses can include expenses incurred inside or outside your home," explained Mr. Greisman.

"Therefore, if you hire a nanny or even a cook to assist in your dependent care, that expense can qualify."

The percentage decreases by 1 percentage point for each $2,000 of adjusted gross income over $10,000, but not below 20 percent, he said.

Therefore, a taxpayer with adjusted gross income of more than $28,000 is permitted a credit of 20 percent. The maximum amount of employment-related expenses claimed is $2,400 for one dependent and $4,800 for two or more children, said Mr. Greisman.

Q. My wife and I are in our early 70s. We are thinking of buying Long Island Lighting preferred stock with our savings because of the good return and little risk. What do you think?

A. Preferred stock of Long Island Lighting (around $24, NYSE), the electric and gas utility in Long Island, N.Y., is a fine holding for retirement income, advised Sharon Conway, based in Chicago with A.G. Edwards & Sons.

It owns the idled Shoreham nuclear plant and, because of its problems, dividends weren't paid on common and preferred shares.

An agreement was reached with the state and dividends resumed in 1989. Long-term earnings should benefit from higher electric rates and somewhat higher sales.

"The only caveat regarding the preferred is that LilCo has called in several in recent years," concluded Ms. Conway.

"It's important to know the 'call features,' so talk to your broker and try not to buy above the call price."

Andrew Leckey answers questions only through the column.

Address inquiries to Andrew Leckey, Chicago Tribune, 435 N. Michigan Ave., Chicago, Ill. 60611.

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