CHICAGO -- Before there was Uncle Miltie, "The Honeymooners" and "Gunsmoke," there was a mutual fund called the Television Fund.
When what is now the nation's oldest technology mutual fund opened in 1948, it focused on the post-war era's cutting-edge technology.
Fifty-two years later, the fund is known as the Kemper Technology Fund, and its TV-heavy days are long behind it. Cable television and media stocks now represent just 1.2% of the holdings of the $5.3 billion fund, $68 million of which is from institutional investors.
The fund, which primarily invests in large-cap and midcap growth stocks, had its best year ever in 1999, returning 114.3%. It counts among its top holdings "new economy" stocks, such as Brocade Communications Systems Inc., Nortel Networks Corp., and JDS Uniphase Corp. It also includes a couple of holdings that have been around quite a while -- Intel Corp.; Texas Instruments Inc., which has been in the portfolio since 1958; and Motorola Inc., which was among the 15 stocks in the original portfolio in 1948.
This year, despite a rocky technology market, the fund managed a 19% return through Aug. 25. By comparison, the technology-heavy Nasdaq 100 is up just 6% through Aug. 25.
When they launched the fund in 1948, Chester Tripp, president of Television Shares Management Corp., Chicago, along with five associates -- William Pope, Charles James, Russell Matthias, Herbert Taylor and Vernon Forsberg -- sought to take advantage of the blossoming television industry by investing in companies such as Philco Corp., Columbia Broadcasting System, Magnavox Co. and Motorola at a time when there were about 1 million television sets in the United States. Within four years, color television would be introduced.
"It started out like a house afire," said Thomas Williams, who was involved with the fund between 1961 and 1991 as an analyst, portfolio manager and consultant.
The fund posted positive returns in nine of its first 10 years.
In 1950, it broadened into the Television-Electronics Fund, a change that allowed its holdings to expand to include stocks such as Sprague Electric Co. and Westinghouse Electric Corp. That year, it returned 28.9%.
"It was not just TV and electronics," said Mr. Williams. "It was everything that went with it and benefited from it."
In 1958, electronics was an $8 billion industry, but television, radio and phonographs made up only about 20% of the industry. With a portfolio that included stocks such as Champion Spark Plug Co., Addressograph-Multigraph Corp., Dictaphone Corp. and Lockheed Aircraft Corp., the fund posted a 30.1% return. Net assets in the fund climbed to $204 million, a 51% increase from the previous year's total.
Throughout its history, the fund has seen its share of ups and downs. There have been years of double-digit gains followed by double-digit losses. In 1961, for example, it gained 21.6%, then dropped 16.7% the next year. Over the long haul, the fund has averaged a 15.4% annual return since inception through March 31. For the life of the fund, the S&P 500 has posted an annualized return of 14.7% from Jan. 1, 1948, through Dec. 31, 1999.
In 1961, the company changed its name to Supervised Investors Services Inc. and hired a new chief executive officer, John Hawkinson, a former chief investment officer at Central Life Assurance, Des Moines, Iowa. That year, the Television-Electronics Fund returned 25.8%, trailing the S&P 500 return of 28.5%. Net assets in the fund, however, rose from $325 million to $450 million from 1960 to 1961.
In the early 1960s technology didn't mean all that much on the stock market, representing about 5% of the S&P 500, compared with about one-third today.
"Technology wasn't the romantic word it is today," said Mr. Williams.
The 1970s
In 1970, about the time Kemper Corp. purchased SIS and renamed the fund the Technology Fund, technology was changing dramatically.
The advent of semiconductors in the late 1960s was the biggest technological breakthrough in the last half of the 20th century, Mr. Williams said. "Nothing even comes close to it."
James Burkart, current portfolio co-manager of the Kemper Technology Fund agreed. "The microprocessor is what allowed the electronics revolution as we know it to take place," he said.
Mr. Williams had been watching the semiconductor industry since the early 1960s, but the technology was slow to develop. Texas Instruments was one of the semiconductor firms that the fund management team followed for breakthroughs that might transform the industry.
Fairchild Camera & Instrument Corp., which was in the portfolio in 1949, was another firm that Mr. Williams and the portfolio management team kept a close eye on, figuring that the next big technological development might stem from this industry. And the Technology Fund added Intel to its portfolio in 1973 when it went public; 27 years later, it remains a top holding.
Intersil Inc. also wound up in the Technology Fund portfolio. Several others among the seven original Fairchild scientists, in fact, left to start their own ventures.
Not all of Mr. Williams' stock picks were gems. "There were some failures in there, too," he said. "Transitron -- try that one on." (Transitron Electronics Inc., which built transistors for missiles, was a hot stock in the late '50s and early '60s, but with the development of the microchip, transistors slowly became obsolete and Transitron disappeared.)
Slow growth
In 1970, 22 years after the first technology fund was born, there were just three technology-related mutual funds, according to Lipper Inc., Summit, N.J.: the Waddell & Reed Science & Technology Fund, the SIS Technology Fund and the Franklin Custom Dynamics Fund. In 1980, there were still just three. But by 1990, there were 13, and by Aug. 10 of this year, according to Lipper, there were 172 technology funds.
Before 1980, said Mr. Burkart, there weren't many companies that would qualify by today's standards as "pure" technology plays. "The definition was different. You had television, radio, airlines and aerospace defense companies considered technology companies," he said. "What we've seen in the last five years has been a liftoff in technology. That mostly has to do with the fact that people have actually figured out how to deploy computer technology effectively."
Although he was attuned to the pioneering developments in semiconductor industry in the 1960s and '70s, Mr. Williams said, he never envisioned where technology would be today. "We knew it was big, we just didn't know how big," he said.
The technology sector struggled in the mid- to late 1980s only to roar in the 1990s as technology began permeating the average person's daily life.
"The end market for technology products has migrated from the business end markets to the consumer end markets," said Mr. Burkart, who has managed the fund since 1998. Thanks to developments such as personal computers, wireless telecommunications and the Internet, technology has become a mass market.
As a result, technology has become the primary driver of the economy. Just 10 or 15 years ago that wasn't the case, said Deborah Koch, portfolio co-manager for the fund since 1999. "Several years ago, there were a number of growth engines in the economy. It seems like over the last five years, technology has been the one constant."
Mr. Burkart traces the current technology revolution back to the 1970s and the development of the microchip. He doesn't see what he identified as the "electronics technology" revolution ending for at least another 10 years. Beyond that, he ultimately sees a switch from electronic technology to photonic technology, or the use of light to transport data and information.
