HEROES

Oil and gas exploration and production company BELDEN & BLAKE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BELD)") else Response.Write("(Nasdaq: BELD)") end if %> jumped $5 1/8 to $25 7/8 after private investment firm Texas Pacific Group put forth an offer to buy the company for $27 per share in cash, or about $302 million. That figure represents less than five times discretionary cash flow -- a low number, considering that higher growth energy producers have been trading for more than twice that amount and more. Due to the company's hedging of production, where it sells futures into a strong market, the average prices it has realized have been quite attractive. Still, though, the shrewd Texas Pacific Group, known for its acquisition prowess, might have found some value here, while the rest of Wall Street talks up the large-cap energy producers and oil services firms.

Conglomerate DYNAMICS CORP. OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DYA)") else Response.Write("(NYSE: DYA)") end if %> jumped $5 to $38 1/8 after steel company WHX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WHX)") else Response.Write("(NYSE: WHX)") end if %> launched an unsolicited $40-per-share bid for enough shares to bring its ownership of Dynamics Corp. to just under 20%. At that level, Dynamics Corp.'s poison pill would kick in. WHX's last takeover bid came when it tried to take over Teledyne, a specialty metals, electronics, and consumer products company with an overfunded pension plan. In this merger, it looks more like WHX wants to up its modest stake because it sees value in Dynamics Corp., in which it holds a small minority stake. Dynamics Corp. makes consumer products, electronics components, and industrial equipment. WHX's bid values the company at about 16 times 1996 earnings (minus a one-time gain), which advanced 70% from the previous year.

QUICK TAKES: ENAMELON INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENML)") else Response.Write("(Nasdaq: ENML)") end if %>, the wonder toothpaste that is supposed to be able to reverse tooth decay, gained $3 to $24 1/4 after the company last week announced that it has begun shipping product... Luxury hotel and business travelers hotel company WYNDHAM HOTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WYN)") else Response.Write("(NYSE: WYN)") end if %> added $1 3/4 to $29 1/2 after the Wall Street Journal said hotel REIT PATRIOT AMERICAN HOSPITALITY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PAH)") else Response.Write("(NYSE: PAH)") end if %> will make a $640 million offer for the company, according to someone "familiar with the deal," whatever that means... PAXSON COMMUNICATIONS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: PXN)") else Response.Write("(AMEX: PXN)") end if %> gained $1 3/4 to $10 3/4 after the Supreme Court ruled that cable operators must carry local content, which will greatly enhance the reach of Paxon, a broadcast television operation.

GOATS

ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> descended $11 1/4 to $40 3/4 after the company announced last night that it will merge with CASCADE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCC)") else Response.Write("(Nasdaq: CSCC)") end if %> in a stock swap valuing Cascade at 0.7 shares of Ascend. Scaring off analysts and investors is Cascade's pre-announcement of Q1 results, for which it will report revenues of $90 million, down from $110 million last quarter. Cascade's CEO says that order lumpiness at the Baby Bells has accounted for the slowdown, but many analysts are perplexed as to why the company has said until a few weeks ago that it felt comfortable with estimates. At the low end of the company's guidance today, new Ascend investors are paying 28 times 1997 estimates for 44% 1997 earnings growth and 39% 1998 growth.

Remote access networking equipment vendor SHIVA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHVA)") else Response.Write("(Nasdaq: SHVA)") end if %> took another pummelling today, dropping $3 1/8 to $8 3/4 after announcing that it will report a loss for the quarter. After having its head handed to it in early January when it pre-announced earnings per share of five to seven cents, partly due to softness in orders from its channel partners, the company experienced the same problem this quarter, shipping "less product into selected channels in support of... reduc[ing] channel inventories." Price competition played a part in the lower sales result. Customers were also confused by the standards battle over 56 Kbps modems. Revenues for the quarter will decline by as much as 25% from last quarter's $48 million and the company expects to report a loss, compared with EPS of $0.15 a year ago.

Hospital operator COLUMBIA/HCA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COL)") else Response.Write("(NYSE: COL)") end if %> fell $3 7/8 to $33 5/8 after holding a hastily-arranged conference call this morning to update analysts on the investigation of its El Paso operations. The company specifically said it would not comment on a recent New York Times piece, in which the paper said some payments to doctors were coded as Medicare-related but were really made to woo specialists into allying with Columbia. Columbia says it has invested in healthcare information systems that insure proper bookkeeping, but if the New York Times piece is accurate, the FBI investigation is not really looking at the coding practices on the operating level. The contention is that the government is looking into whether it has provided the cash for for what would be classified as investments, the decisions for which are made at the highest levels of the company. Many analysts moved their ratings to neutral today, meaning they're not willing to go out on a limb today and give Columbia unqualified support.

QUICK CUTS: APPLIED MICROSYSTEMS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APMC)") else Response.Write("(Nasdaq: APMC)") end if %> plummeted $5 5/8 to $6 1/8 after the embedded systems company said it expects to report break-even Q1 earnings, at best, which would fall well below the mean estimate of $0.15 per share... Color printing systems company ACCENT COLOR SCIENCES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACLR)") else Response.Write("(Nasdaq: ACLR)") end if %> slid $3 1/4 to $5 1/8 after XEROX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XRX)") else Response.Write("(NYSE: XRX)") end if %> said it will not distribute one of the company's products... GTS DURATEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DRTK)") else Response.Write("(Nasdaq: DRTK)") end if %> fell $3 1/2 to $5 1/2 after the nuclear waste handler announced it will shut down a melter at a South Carolina facility, which will have an impact on earnings... Engineering software company CONCENTRA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTRA)") else Response.Write("(Nasdaq: CTRA)") end if %> shed $3 1/4 to $5 1/4 after it pre-announced a Q4 loss of $0.80 per share due to customers dragging their feet on purchases... MICROTEST INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTST)") else Response.Write("(Nasdaq: MTST)") end if %> slipped $2 3/4 to $4 1/2 after announcing it will revise its full-year 1996 results downward and that the first quarter will fall short of internal forecasts... Pharmaceutical development company ALKERMES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALKS)") else Response.Write("(Nasdaq: ALKS)") end if %> free-fell $6 1/4 to $14 on announcing that a therapy for patients with brain tumors had failed to reach the primary endpoint in a Phase II trial.... KRONOS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KRON)") else Response.Write("(Nasdaq: KRON)") end if %> was punched out for a $5 1/2 loss to $17 1/2 after the payroll and shop floor management software company said it will miss the mean estimate of $0.35 per share for its second quarter... Impotency drug company VIVUS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VVUS)") else Response.Write("(Nasdaq: VVUS)") end if %> descended $8 1/8 to $40 after announcing a "temporary" slowdown in shipments after FDA inspectors noticed deficiencies in the company's manufacturing facility.

MORE CUTS: Pharmaceutical company LIPOSOME CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LIPO)") else Response.Write("(Nasdaq: LIPO)") end if %> was tripped up for a $2 11/16 loss to $20 3/8 after announcing it will miss Q1 estimates of $0.07 per share... HAMBRECHT & QUIST GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMQ)") else Response.Write("(NYSE: HMQ)") end if %> declined $2 1/2 to $16 3/4 as investors are treating banks and brokerages like they have cooties. Smith Barney parent TRAVELERS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRV)") else Response.Write("(NYSE: TRV)") end if %> lost $2 7/8 to $48 and A.G. EDWARDS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AGE)") else Response.Write("(NYSE: AGE)") end if %> dropped $3 5/8 to $30 3/4... Mortgage originator AAMES FINANCIAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AAM)") else Response.Write("(NYSE: AAM)") end if %> lost $2 1/8 to $20 1/4... READERS DIGEST ASSOCIATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RDA)") else Response.Write("(NYSE: RDA)") end if %> was reduced $4 to $28 3/4 after the company said Q3 results will pull down full-year earnings to between $1.70 and $1.80, below the mean First Call estimate of $2.16... Following the announcement of having discovered a gene related to brain tumors, MYRIAD GENETICS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MYGN)") else Response.Write("(Nasdaq: MYGN)") end if %> plummeted $6 1/4 to $34 1/2... FORE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FORE)") else Response.Write("(Nasdaq: FORE)") end if %> lost $2 5/8 to $15 in reaction to the Cascade - Ascend merger... New York Savings & Loan ASTORIA FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASFC)") else Response.Write("(Nasdaq: ASFC)") end if %> shed $1 7/8 to $36 after announcing an agreement to acquire Queens and Brooklyn thrift GREATER N.Y. SAVINGS BANK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GRTR)") else Response.Write("(Nasdaq: GRTR)") end if %>.  THERMEDICS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TMD)") else Response.Write("(AMEX: TMD)") end if %> fell $1 3/8 to $15 5/8 after the high-technology equipment company announced it will acquire medical device company THERMO CARDIOSYSTEMS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TCA)") else Response.Write("(AMEX: TCA)") end if %> for 3.36 million shares of stock. Both are subsidiaries of THERMO ELECTRON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TMO)") else Response.Write("(NYSE: TMO)") end if %>... COLUMBIA LABORATORIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: COB)") else Response.Write("(AMEX: COB)") end if %> lost $1 to $12 1/4 on turning in a loss of $0.47 per share for 1996.

FOOL ON THE HILL
An Investment Opinion by MF Templar

A Tour de Forbes

A recent article in Forbes warns investors that index funds may be "riskier than you think." The article sought to debunk the conventional wisdom regarding index funds as a reasonable alternative to professionally-managed mutual funds. Unfortunately for readers, Forbes failed to follow this up with a much-needed article entitled, "Financial Reporters: They Know Less Than You Think."

Index funds are pools of money invested in such a way that they mirror an independently-created index. The most famous kind of index fund is an S&P 500 index fund, pioneered by Vanguard in the 1970s. When you buy into an index fund, you are buying partial shares of every company comprising the index -- according to how the index is constructed. If 10% of the index is Microsoft, for instance, Microsoft represents one-tenth of every one share of an index fund that you purchase. What an index fund does is allow individual investors to efficiently purchase a basket of securities without requiring that they have millions of dollars or causing them to rack up thousands in commissions.

Using an index fund to invest your money is known as "passive" management in the investing world. Passive managers are those who depend on indexes to allocate their investment capital, rather than making their own decisions. The reason why many have started to use passive management rather than its opposite, "active" management, in the past few years is quite straightforward. Passively-managed funds routinely beat the majority of actively-managed funds.

Although the numbers can get complicated, the most-quoted figure is that the S&P Index fund beats 70% or more of actively-managed funds, depending on the year. Actively-managed funds include bonds, real estate and sector funds, however, which cannot be reasonably expected to beat an index made up of blue-chip stocks. However, even when you decide to focus on mutual funds that invest in equities but that do not invest in sectors, the results are still pretty dazzling. The year where an index fund does not manage to beat the majority of equity mutual funds is quite rare. Actively-managed fund defenders can harp on the fact that so-called "balanced funds" and the like are never going to beat stocks, but this simply makes long-term investors wonder, "What is the point? If it cannot beat a passively-managed index that has returned an average of 10.5% per year since 1926, who cares?"

So what is so bad about an index fund? The Forbes reporters struggled mightily to find something controversial. Their first inclination was to point out that the S&P Index was composed of large companies. It leaves out all of those small companies responsible for the majority of new jobs in the United States. The point is well-taken -- if an index existed that efficiently captured the creme de la creme of small companies, people would be well-served to invest in it. The problem is that in the real world, small company stocks as a group tend to underperform large company stocks. Looking at the performance figures for the Wilshire Small-Cap Index, for instance, you can see it has had a rough time over the past half-decade. Although a lot of historical data suggests small company stocks outperform large company stocks, the reality is open to debate. Some analysts believe that because bankruptcies among small-companies are expunged from historical databases, the small companies' returns are overstated.

Regardless, even if some small company index were to outperform the S&P 500, it still does not change the fact that the S&P 500 outperforms the majority of equity mutual funds. Forced to choose between the uncertain alternative of a small-cap index and the well-documented alternative of an S&P 500 Index, what is an investor to do?

But, wait a minute! Forbes astutely points out that the S&P 500 Index we all know and love is not equally weighted! Some stocks actually make up more of the index than others, as Standard & Poors decided in 1958 to weight the companies by market capitalization.

Why would Standard & Poors do such a terrible thing? Think for a moment about your own portfolio. If you were to purchase three stocks in equal amounts, what would they look like a year later? Assuming that some investments did better than others, they would not be equally weighted after one year. If one stock doubled while the other two only rose 10%, a disproportionate amount of one stock would be in your portfolio. So it goes with index funds. Instead of forcing funds to rebalance every single day to maintain an equal weighting, Standard and Poors created an index that functions like a portfolio. If one stock does better than the rest, it becomes a larger part of the index.

Forbes unveils this little tidbit as if they have discovered a major scandal. The simple fact is that in order to keep the index equally weighted, passive managers would have to buy and sell stocks each and every day in order to keep everything even. The main advantage of a passively-managed fund is that it is passively-managed. If you were trading stocks every day, racking up commission costs to maintain equal weightings, you would lose much of the benefit of passive management. This gripe with index funds does more to unveil the reporter's ignorance about how funds function rather than any deep flaw in the S&P Index itself. The S&P Index was created so that it would be easily duplicated by money managers with a minimum of trading costs. Although in the ether equal weighting sounds positive, in reality it is a nightmare of trading to maintain.

The article also moans a bit about how stocks with high valuations tend to be added to the index while stocks with low valuations tend to be deleted by the index. "But adding highfliers and deleting the lowly means the investor in the S&P 500 is essentially buying high and selling low." Again, while sounding nice in the abstract, in reality this is somewhat naive. The major misconception is that companies with low valuations are somehow better than those with higher market valuations. The reality is that when a company's business falls apart and it stops being a growth business, one of two things happens. The expected thing is that it starts to lose money and ends up with no P/E ratio. What most people don't realize immediately is that the more common thing for such a company is that it still makes money, but just stops growing. As the market realizes this, it pays less for the earnings, making it a low P/E stock. So, the Forbes criticism that S&P is selling stocks that have low valuations is true, but not necessarily a drawback. Many times large companies with low valuations are low for a reason.

After this point in the article, the writer begins to scrape the bottom of the barrel. Passive funds could have a large tax liability if there were a crash, it says. Why active funds would be better in the same situation is not explained. Will individual investors continue to hold stocks if the market crashes? Well, frankly, this would be bad for all kinds of funds, active and passive, if it were to come to pass. The S&P 500 accounts for 68% of the overall U.S. market today. Well, the same article says it was about 90% of the market back in the 1960s, which means that a general market downturn will actually hurt it less than it would have 30-some years ago.

After the Forbes article warns investors about the perils of a type of fund that routinely outperforms any other basket of stocks, actively-managed or not, it then descends into lunacy in a sidebar. It suggests that if you want to use the S&P 500 "as a way of betting on the direction of the stock market, consider buying -- or selling short -- a Spider, short for Standard & Poor's depository receipts (SPDRs)." Good move, Forbes. Convince America that holding an index fund long-term is somehow a "dangerous placebo, giving many of us the illusion the stock market is a much safer place than it really is," but then encourage those people in the same breath to bet on the direction on the market as they would horses or a sports team. It is this comment that should unveil the cover story for what it is -- a sensationalistic attempt to sell magazines by telling people what they want to hear, and not to make any kind of sense.

CONFERENCE CALLS

CASCADE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCC)") else Response.Write("(Nasdaq: CSCC)") end if %>
ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %>
To discuss merger announcement
(800) 475-6701 (code: 336788)

SHIVA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHVA)") else Response.Write("(Nasdaq: SHVA)") end if %>
Call regarding today's press announcements
(800) 458-7879 code 67437
Replay available until 5:00 PM EST on 4/1

ASTORIA FINANCIAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASFC)") else Response.Write("(Nasdaq: ASFC)") end if %> and
THE GREATER NEW YORK SAVINGS BANK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GRTR)") else Response.Write("(Nasdaq: GRTR)") end if %>
call regarding Astoria's acquisition
(800) 839-3308 -- replay available through 4/2

THIS WEEK'S CONFERENCE CALL SYNOPSES

PAYCHEX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAYX)") else Response.Write("(Nasdaq: PAYX)") end if %> Q3 Conference Call

ANOTHER FOOLISH THING
Rogue In-Depth Insights

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