LOS ANGELES -- Marking one of the last bond sales she will oversee before leaving office in January, California Treasurer Kathleen Brown last week sold $20.1 million of capital appreciation bonds aimed at small investors.
While the treasurer's office plans to issue four more debt issues before yearend, last week's sale is "likely" to be the final issue administered by Brown that is tailored to individual investors, assistant state treasurer Hal Geiogue said Friday.
Brown is campaigning for governor and will be succeeded in the treasurer's post by either Democrat Phil Angelides or Republican Matt Fong.
The zero coupon bonds were part of a $284.6 million California Public works Board offering priced last Wednesday by a syndicate led by senior manager BA Securities Inc.
The San Francisco-based company sold about $13 million of the zero coupon bonds to roughly 700 investors, with individual orders ranging from $600 to as much as $500,000, which was a trust department order on behalf of individuals, said Scott Gorzeman, a BA Securities assistant vice president. The average sale by the company was $9,285, he said.
Gorzeman said that final figures from other underwriters were not complete on Friday, but he estimated that about 2,000 to 2,500 small retail investors purchased the bonds. At BA Securities, about half the investors opened new accounts. "We think [purchasers] are younger people saving for college," he said.
Anthony J. Taddey, Ba Securities' director of municipal securities, said BA Securities "accounted for the lion's share of the sale." However, bonds also were sold by co-manager Smith Barney Inc., and California savings bond selling group members A.G. Edwards & Sons, Kemper Securities Inc., Merrill Lynch & Co., and Paine Webber Inc.
The majority of the bonds were "small orders at retail," Taddey said. The investors purchased $20.1 million of bonds based on current value, which is the equivalent of $41 million when expressed as a future value, he said.
"We sold 41,000 California savings bonds," each with a $1,000 face value, Geiogue said. The securities do not pay interest until maturity.
Brown has sold bonds aimed at small investors four times since she took office in January 1991. The most recent sale occurred in March 1993, when Brown sold a unit investment trust known as the CalBond Tax-Free Fund. The program was touted as a way to broaden the investor base for the state's bonds, primarily by allowing a minimum purchase of $250.
The small-investor orientation continued in last week's sale, Taddey said. The bonds were "made available to people who normally would have [invested in a certificate of deposit] or something else in a small amount," he said.
The program "broadened the market for California paper, which is important to the treasurer -- and to the state," he said. "And, it made an investment in the state available to the first-time investor."
In addition to the March 1993 CalBond program, Brown's office sold $37 million of capital appreciation bonds in September 1991 and $17 million of the bonds in November 1991.
Last week's sale was criticized by Peter A. Roberts, chairman of College Savings Bank of Princeton, N.J., which markets a certificate of deposit college investment product.
Reached on Friday, Roberts noted that The Bond Buyer reported in April 1993 that about 43% of the applications for the CalBond Tax Free Fund program were in purchase amounts of $1,000 or less.
By contrast, Roberts said, last week's offering "did not reach small savers. After four capricious attempts, the Brown college savings initiative appears to be a failure."
He added, "The public would be better served by the enactment of an IRA-type college savings account such as the one proposed in the California Family College Savings Act of 1994," referring to a state Senate bill that stalled in the legislature earlier this year.
Taddey declined to predict if the next state treasurer would continue a small savers program, but he indicated he thought that was likely.
Brown's predecessor as treasurer, Thomas Hayes, a Republican, also administered a savers bond program, Taddey said. "The evidence is that under the right market conditions, public-sector decision makers have a tendency to utilize" the bonds, he said. "I don't see why that would change in the future."
Under the California savings bond program, individual investors purchase zero coupon bonds in denominations of $1,000 at an initial price substantially lower than their maturity value. The bonds sold last week mature in eight, nine, 10, 12, 14, and 15 years, with yields to maturity ranging from 5.80% to 6.55%.
