Income Fund

WITH the Dow Jones industrial average standing at 7,873.12, down 35.13 points from New Year's Day and off 386.19 points from its all-time high, but 989.22 points above its level one year ago today, where do you put your money now?"

Baltimore Gas and Electric Co. said Monday that it had launched a new program that allows customers to make a tax-deductible monthly donation to the Maryland Fuel Fund, which helps low-income families with bill assistance and energy conservation. Under the new Dollar Donation Fund, BGE customers can elect a monthly amount - $1, $2, $5 or $10 - to give to the Fuel Fund. The utility will add that amount to the bill and when customers make a full payment, BGE will forward the contribution to the Fuel Fund.

You might be worried if you found out that your equity mutual fund held more than 20 percent of its assets in a single stock. For many investors, that's putting too many eggs in one basket.But investors who seek extra diversification by owning several mutual funds often unknowingly do the same thing.In recent years, the stock market has rewarded fund managers who have selected a relatively few stocks -- notably giant brand-name stocks such as Dell Computer Corp., Merck & Co. and Microsoft Corp.

What gives with my Becton, Dickinson and Co. shares? I thought that its products were always needed. B.R., via the Internet The world's largest manufacturer and distributor of surgical products makes items that are health-care staples. Its surgical products include needles, syringes and disposal units. It also makes diagnostic instruments and systems used to study cells. The firm derives economies of scale from its global manufacturing plants. Net income for its fiscal fourth quarter, ended Sept.

"I am interested in purchasing a very diversified bond mutual fund," a Florida reader writes."I want to find a fund that has some of everything, including intermediate- and long-term bonds, corporate and government, high-grades, as well as some lower-rated, and both foreign and domestic."My stockbroker does not seem to be aware of such a diversified bond fund. Would you know of any like this?"He doesn't explain why he's interested in such a fund, but it's a good guess that he has a couple of reasons:* He wants to be invested in all these sectors of the bond market but doesn't want to bother finding suitable funds concentrated in each sector, deciding how much to invest in each fund to maximize his return, changing the allocations when desirable and doing all the paperwork.

When you invest in a bond mutual fund, you expect to earn income. How much you earn depends largely on the degree of risk that the fund carries: The longer the maturity and the lower the credit quality of the bonds in the fund's portfolio, the higher your income.You generally can't rely on a bond fund for capital appreciation unless we're in a period, such as the current one, in which interest rates fall and bond prices rise. But the beginnings of those periods are unpredictable, and their endings always come too soon.

The global consequences of politics and economics have never been more in focus. As I spoke recently by telephone with Terence Prideaux, London-based manager of Kemper Global Income Fund, he told me he was staring at three computer screens, each featuring a separate story about the Persian Gulf crisis."

As recent violent events in Russia indicate, Americans can't control what happens in the rest of the world. American investors, however, are increasingly willing to accept a greater HTC degree of risk as they desert puny U.S. investment yields for the superior returns of international bond funds.These often-volatile vehicles boast an average return of more than 12 percent this year, 3 percent higher than the U.S. bond market. Declining European rates, a strong Japanese yen and solid returns from emerging markets have been positives.

It's retirement account time.More Americans think about their Individual Retirement Accounts and Keogh plans for the self-employed at tax time than any other time of the year. Whether they contribute new money or not, they ponder whether to shift around their retirement holdings. In many cases, the dollars are substantial.Whatever Congress eventually decides about the future features of IRAs, be sure to diversify retirement holdings and take into account all recent trends in interest rates and financial markets.

Investors in municipal bond mutual funds got a shock if they looked at prices last weekend. Thanks to a large supply of new muni issues, worries about credit insurers and general deterioration in the debt markets, munis plunged the last week in February, culminating in a dive off the cliff on Leap Day, Feb. 29. Such turmoil in securities long regarded as conservative and safe illustrates how unsettled the market is. T. Rowe Price's Tax-Free Income Fund...

Investors in municipal bond mutual funds got a shock if they looked at prices last weekend. Thanks to a large supply of new muni issues, worries about credit insurers and general deterioration in the debt markets, munis plunged the last week in February, culminating in a dive off the cliff on Leap Day, Feb. 29. Such turmoil in securities long regarded as conservative and safe illustrates how unsettled the market is. T. Rowe Price's Tax-Free Income Fund...

File this under: "Everything old is new again." Eaton Vance Corp. released a survey of financial advisers this week that showed that a majority "now view equity income as a distinct asset class." If you have been a fund investor for awhile, you may be scratching your head, because there have been "equity-income" funds and "growth-and-income funds" for years - possibly even in your own portfolio - and you probably thought they already were an asset class. In fact, Lipper Inc. has a category for equity-income funds, and has had it as a separate asset class for years.

I thought Target Corp. was such a great company. Why haven't my shares done better this year? - K.L., via the Internet The nation's second-largest discount retailer is a fine company, renowned for offering merchandise with style and low price. Nonetheless, it can never relax in its competition with industry leader Wal-Mart Stores Inc. Target has more than 1,400 stores; about 140 of them are SuperTarget stores with bigger grocery departments. It intends to add about 100 stores this year but has no plans to go overseas anytime soon.

If your favorite restaurant tomorrow starts offering a new dish, you might be tempted to try it. Whether you order the new menu item would depend on several factors, ranging from your taste for the specific dish, to its cost and more. But if that favorite restaurant is a steak house and the new item is a delicate fish, you might be worried that ordering the special would be a waste of money. The same phenomenon and thought processes exist in mutual funds, and it was proved last week when two big-name fund firms rolled out new offerings that represent a departure from their usual line-up.

I own shares of DaimlerChrysler AG and am concerned about what the future may hold for the company. What's your opinion? - R.L., via the Internet When Daimler-Benz AG and Chrysler Corp. merged in 1998 to create the world's fifth-largest automaker, top boss Juergen Schrempp boldly predicted the company would become the world's most profitable carmaker. Toyota Motor Corp., however, still holds that top spot. Meanwhile, the market value of DaimlerChrysler shares has fallen about 50 percent since the merger, and is down 15 percent this year after a gain of 4 percent last year.

Anticipating a jump in interest rates because of an improving economy, many investors took their money out of bond funds a year ago. This seemed logical because new bonds with higher yields diminish the value of existing lower-yielding bonds. But it was the wrong move. It turned out to be a dandy year for investing in bonds. Federal Reserve Chairman Alan Greenspan took it nice and easy, tightening in small increments to avoid a shock to the system. Because of weak job growth and overall faith in the Fed's ability to effectively control inflation, Treasury yields remained steady, and taxable bond funds averaged a 5 percent total return.

If you do it yourself, do it right.The new year is the perfect time to examine the investments in your self-directed retirement account. Whether it's an individual retirement account, a Keogh plan for the self-employed or a self-directed company 401(k) plan with a variety of options, make necessary adjustments for growth in 1994.There are plenty of ways to go with a typical $40,000 retirement portfolio."The preferred mechanism for a self-directed retirement account is mutual funds, since few investors have the ability to make necessary long-term stock selections and mastermind the changes," advised Eric Miller, chief investment strategist for Donaldson Lufkin & Jenrette.

Yields of money-market funds and CDs are slipping in the United States, but double-digit yields are still being offered on short-term securities in some foreign countries. So, you may be considering a mutual fund invested in such foreign issues.If so, it's probably a short-term world income fund. It is likely to pay more than a money-market fund and to be less volatile than a long-term bond fund.According to Lipper Analytical Services, 43 short-term world income funds were in operation at the end of 1991 -- up from about a half-dozen at the end of 1989.

I currently hold bond mutual funds. If interest rates rise, many of these funds will probably decline in value. This decline in value would offset, if not wipe out, the value I derive from the regular income these funds pay out. Under the assumption that interest rates might rise from today's relatively low levels, what type of fixed-income mutual funds might I consider? - R.B., Allentown, Pa. Only a handful of fixed-income mutual funds perform relatively well when interest rates rise.

INDIVIDUAL INVESTORS own almost a fifth of publicly traded corporate America through their mutual funds, but until last month most had no idea how those stakes were used to influence the companies. Do you own a piece of Verizon Communications through your T. Rowe Price Growth and Income Fund? Are you mad about Verizon's executive-pay bonanza and Ivan G. Seidenberg's hold on both the CEO and chairman jobs? Would you like to know how Baltimore-based Price voted your shares on those issues?