Thousand Oaks-based WellPoint Health Networks Inc. has struck a unique partnership with EarthLink to give its estimated 40,000 insurance agents and brokers access to a bundle of Internet services at a discounted price. This new bundle is offered through the AgentOnline program of WellPoint, the parent company of both Blue Cross of California and Unicare. The services include Internet access via Pasadena-based EarthLink, a dial-up e-mail account; Web hosting; a personal StartPage; anti-spam tool; subscription to bLink, a printed magazine; and 24-hour technical support. Along with those services, AgentOnline allows agents and brokers to link to the company’s main Web site to offer customers plan information and rates and services available, says Lisa Mee-Stepheson of WellPoint “Sometimes people don’t have time to talk to their agent face to face or on the phone,” she said. “This way they can find out about all the services Blue Cross offers.” In addition to the news and editorial content, WellPoint agents can choose from some 70 personalized online services including personal finance, online investing, bill payment and a stock tracker. Emerging strategy Kurt Rahn, director of corporate communications for EarthLink, said the StartPage is a portal that members of the Internet service provider see when they first log on. “It’s 90-percent customizable, and we try to offer members different content providers,” he said. “They can choose from news, ESPN, CNN, ABC or something else.” This EarthLink partnership with WellPoint is part of a now-frequent marketing strategy designed to meet a particular challenge while providing services to a large group of users, says Chris Schlueter-Langdon, assistant professor of information systems at USC’s Marshall School of Business. “There are a number of problems in the ISP business.” he says. “Margins are very thin, and you have the major threat of free ISPs. How do you compete with a competitor that is essentially giving away the product for free?” One answer, says the USC professor, is to differentiate yourself and cut costs. “One way to cut cost is on the back end, the network, and the other is to try to reduce customer-acquisition costs. To do this you’ve got to be innovative,” adds Schlueter-Langdon. “Another way is sell to a large organization which then rolls the program out internally.” Broadband deepens market As broadband enters the picture, Schlueter-Langdon sees ISPs looking for even more ways to couple increased margins with additional customer service. According to Rahn, the StarterSite is the entry-level Web site. The WellPoint bundle also includes registration of the domain name, 24-hour telephone support as well as Web site hosting and construction. There are two options for creating the Web site. Click and Build is an online site builder for those who don’t know much about the how-to’s of creating a site or just want to concentrate on their core insurance business activities.

In mutual fund families, the ugly children die. Funds with poor performance and funds suffering from shareholder redemptions are discreetly led out of public view. Then they are merged into similar funds that are more successful. Others are simply liquidated. Most of us don’t notice these disappearances because there are a lot of mutual funds out there. It isn’t surprising, with a total of more than 10,000 funds, that some funds are never noticed and are eventually lost. But you notice if you’re a shareholder. In August, shareholders in four Aetna funds noticed because Aetna High Yield fund, Index Plus Bond fund, Mid Cap fund and Real Estate Securities fund were liquidated, whether you owned A, B, C or I shares. During the same month, Dreyfus liquidated its Premier Market Neutral and Premier Real Estate funds, Heartland liquidated its Government fund, and Merrill Lynch merged its Utility fund shares into its Global Utility fund. Altogether, 111 funds were either liquidated or merged during the month, according to Morningstar. According to Wiesenberger, a Thomson Financial subsidiary that has been tracking mutual fund performance since the ’50s, we are heading for the first year in which more mutual funds will disappear than will be created. Its count shows that 236 new funds were introduced so far this year but 176 were liquidated and 419 were merged. That means the total mutual fund universe has actually decreased by 359 funds. The firm also notes that the fourth quarter is the most active time for liquidating and merging funds. This figure will probably be higher by year-end since there are nearly 4,000 funds that are at least three years old but have less than $50 million in assets under management. So why am I telling you this? Is this yet another bit of investment trivia? Or does it actually have some implications for you and me? Mutual fund liquidations and mergers are not a trivial matter because they are part of a dirty little statistical secret. All the performance figures that are available suffer from what statisticians call “survivor bias.” This means that the apparent performance of mutual funds is nudged upward by the fact that we are always losing the performance of the funds that are liquidated while retaining the performance of the funds that survive. How big is the survivor bias? It depends on whose research you use, but most puts it at a minimum of 1 percent a year. Accounting and statistics expert Burton Malkiel, for instance, puts the figure at 1.5 percent. If the average fund appears to provide a return of 15 percent, then the average investor has probably experienced a return of 1.5 percent less, or 13.5 percent, after we include what happened to all the money in the underperforming funds. Probably the most important message here is that the benefits of index fund investing are, if anything, understated. Managed fund advocates, for instance, are now crowing about how terribly index funds are trailing managed funds. In the 12 months ending Sept. 30, the average domestic equity fund provided a return of 28.21 percent, trouncing the S & P; 500 index by 14.94 percent. Extend your investment horizon to three years or longer, however, and the average performance of all the surviving funds still trails the index by a substantial amount. Over the last 15 years, the average domestic equity fund returned 15.44 percent, trailing the S & P; 500 index by 2.45 percent a year. The difference, over that period, means that a $10,000 investment grew to $86,168 under management instead of $118,074 in the index. If the average managed fund return were reduced by the estimated 1.5 percent-a-year survivorship bias, the average managed fund would have grown even less to only $70,818. The difference, for you and me, is major. It’s also major for the managed mutual fund industry because they make more money on managed funds than on index funds. The five largest managed funds (Fidelity Magellan, Investment Company of America, Janus, Washington Mutual Investors and Fidelity Contrafund) have combined assets of $306.4 billion under management and an average expense ratio of 0.68 percent. That’s a full 0.5 percent more than the major index fund provider and a revenue difference of about $1.5 billion a year. Extend this idea to the average equity fund expense of 1.42 percent a year, and you can see that billions of dollars in investment fees are reinforced by a statistical quirk that is seldom discussed survival bias. Accounts Don’t Measure Up Question: We have assets (several hundred thousand dollars in a taxed account and three times that in tax-deferred accounts) invested in families of mutual funds. Our financial adviser suggests that we hire a group of money managers (one for value and one for growth) to manage our assets for us. The fee would be 2.5 percent of the amount invested per year, part of which goes to the investment house for acting as a liaison and monitoring the money managers. The managers would liquidate all or a part of our mutual fund assets and purchase equities in a diversified portfolio. Over a long period, is there a difference in the returns gained from a money manager investing in specific equities over our investing in a family of good-quality mutual funds such as America Funds, Putnam Funds, etc.? Are there sufficient tax issues (resulting from the need to pay capital gains tax annually on mutual fund gains vs. the deferral of capital gains taxes by holding individual securities) that there is an advantage to one investment design over the other? Are there ways to select a money manager other than using a brokerage firm as the liaison if the investor is naive in how to select and monitor the manager? And is 2.5 percent an appropriate fee? My wife and I are in our mid-50s and are hoping to continue working only another two to three years. L.B., San Antonio Answer: You’ve been offered a “wrap” account. Services are bundled and your money managed for an annual fee based on your assets rather than for fees based on transactions. In theory, this puts the broker on your side of the table because you no longer have the built-in conflict of interest over commissions. Unfortunately, the major brokerage houses accomplish this at the probable expense of future performance the fees are coming straight out of your investment return. They will, of course, protest that they have superior ability to pick money managers and that they will fire money managers who fail to perform. They might also imply that only through a firm as large as theirs could a miserable peasant a person like yourself, for instance have access to the brilliant minds that make gobs of money. Questions about personal finance and investments may be sent to Scott Burns, The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; or by fax: (214) 977-8776; or by e-mail: scott(at) scottburns.com. Check the Web site: www.scottburns.com. Questions of general interest will be answered in future columns.

Just weeks after Gov. Gray Davis signed a bill allowing homeowners to re-file claims from the Northridge earthquake, the smell of carrion is in the air. The law doesn’t go into effect until Jan. 1, but already Los Angeles-area attorneys are running newspaper ads in some cases, full-page displays in a scramble for plaintiffs. Some are even holding seminars they say are designed to “educate” the public about their rights. Insurers say the gatherings are meant to rile up policyholders and incite them to sue. “The moment the law passed and was signed, there was a very well-organized and very well-mobilized contingent ready to go to work,” said Candysse Miller, a spokeswoman for the Insurance Information Network of California, an industry trade group. “There are a lot of lawyers out there who think they can make a buck off this, and they’re out there trolling for clients.” The attorneys, for their part, say there’s no need to shed tears for the insurance industry. The new law wouldn’t have been necessary if the industry had honored its commitments to policyholders, they argue. “There are always opportunities created for lawyers when insurance companies act in bad faith against a whole group of people,” said Howard A. Snyder, an attorney who has 17 class-action lawsuits pending against insurers. SB 1899, recently signed by Gov. Gray Davis, gives thousands of homeowners a one-year window to re-file claims that were rejected for being filed late. Since he started running ads in area newspapers, Snyder said he has had 600 potential clients step forward. About 200 people attended a public forum he hosted in October, and he expects a like number at a forum scheduled for this month. Bill Sirola, a spokesman for State Farm Insurance, wondered why, if homeowners are truly up in arms over the way their quake claims have been handled, attorneys have to advertise to find clients. Sirola insists his company’s own surveys found that customers are satisfied with the way their claims were handled, noting that State Farm paid out $3.5 billion to settle 117,000 claims following the quake. Attorneys happy to advertise Joseph M. Fredrics, an attorney based in the Mid-Wilshire area, sees nothing untoward about advertising for clients. If attorneys weren’t notifying the public about the law, most people would likely never find out about it. That’s because the insurance industry has so far failed to notify policyholders, he said. “When they recall cars, the automakers have to notify you, but in this case it’s totally up to the good will (of the insurers), and they’ve decided not to tell people,” he said. Since Fredrics began running ads in late October, more than a dozen prospective clients have stepped forward. A seminar he hosted attracted another 20 people. Ric Hill, a spokesman for 21st Century Insurance Co., said only 143 policyholders have called to inquire about their cases since the law was passed in late September. That is out of more than 46,000 claims that arose as a result of the quake. “That’s about three-tenths of 1 percent. That would indicate to me people are satisfied with the way their cases were handled,” he said. Snyder and others contend that insurance companies intentionally low-balled damage estimates after the quake to reduce their payouts. In some cases, it took homeowners several years after the temblor to discover the full extent of the damage, but when they approached their insurers, they were told they had missed a one-year deadline for filing claims. Survey conducted A State Department of Insurance survey found that insurers had mishandled 25 percent to 50 percent of a sampling of several hundred files, in many cases underestimating quake damage. Former state Insurance Commissioner Charles Quakenbush used the survey results to collect $19 million from the insurers to advance his own political ambitions, a revelation that led to his resignation in July and provided the political impetus for passage of the law. Several industry observers agreed that homeowners will have a tough time proving damage such as cracks in floors or walls were a result of the Northridge quake. In 21st Century’s case, the Woodland Hills company paid out $1.1 billion to settle 46,421 claims. “We paid out 20 times more (in claims) than we received (in premiums),” said Hill. “It damn near took us out of business, but we did perform on our contracts. To come along now How do you unring that bell?”

There’s an old saying involving cows and free milk that applies nicely to the online music marketplace. The phrase might be unfamiliar to the youngest of Napster’s 38 million users, some of whom might also be unfamiliar with the origins of milk. But many of those millions will be asking themselves something similar in the wake of Napster’s stunning partnership with Bertelsmann AG, owner of one of the world’s largest record labels. The companies say they want to create a fee-based song-swapping system that compensates record labels for the files that users download. Their plan raises many questions, but most vexing will be the one asked by users if the system ever debuts: Why buy the songs when you can copy someone else’s for free? Napster helps Net users find music files on other people’s computers and make copies for themselves. The software is free and so are the songs, allowing people to build a digital music collection without ever visiting a record store. This doesn’t sit well with the record labels, which have filed a lawsuit accusing Napster of widespread copyright violations. A verdict in their favor would be a death warrant for the revenue-starved software company. Imagine the music industry’s surprise, then, when Bertelsmann threw Napster a life preserver. The German media conglomerate agreed to loan the company an undisclosed sum in exchange for a future equity stake and an agreement to develop a service that generates revenue for artists and publishers. The lawsuit is still pending, but company officials said they hoped their plan would convince the other labels to send home their lawyers and come on board. Song swapping What would this system look like? Nobody knows. The companies suggested that Napster might be split into two services, including one with free downloads and another that charges users a monthly fee for access to licensed tracks from BMG and other labels. The challenge lies in stopping users from swapping these commercial songs for free. In its legal defense, Napster has said it’s impossible to stop pirated songs from being traded through its system. The music industry, meanwhile, has been unable to produce a file format that prevents people from making unauthorized copies of songs they might buy online. This seems to leave the company with little choice but to restrict song-swapping privileges to paying customers. Free users would probably be limited to a selection of bonus tracks, artist interviews and other promotional fare from the company’s own servers. This scheme would require Bertelsmann to convince other labels to sign on. This won’t be easy, since they’ve each been making plans for their own subscription services. But if Bertelsmann is forced to go it alone, the industry’s lawsuit will continue to hang over Napster’s head like a foot over an ant unless the company can figure out a way to block unauthorized songs from its file-swapping service. Even if that were possible, the limited selection of licensed songs left to trade would look more like a lame record club than the digital bazaar that Napster users enjoy today. If each of these cards falls into place, Napster would stand a chance of maintaining its dominant position in the online music world. But it would be competing with a familiar foe: pirated music traded among users of some other system. Paying customers If Napster restricts song swapping to paying customers, another program will surely emerge to serve those who demand a free music market. Napster would then be competing against its philosophical offspring, a generational duel for the digital age. Could the new, corporate Napster prevail? It would enjoy at least a 38 million-user head start and the credibility of major label endorsements. If the service was reasonably priced and easy to use, it just might attract a critical mass of customers with a combination of conscience and convenience. But as any Web publisher will tell you, it’s difficult to charge for something the guy next door is giving away for free. And Napster’s current users already have proven willing to go out of their way for free music by downloading the software in the first place. The only sure winner in the deal is Napster itself. The privately held company stands to make a fortune if this long-shot deal pays off. And even if the company ends up losing all its customers, it’ll be making exactly as much money off them as it does today: nothing. To contact syndicated columnist Joe Salkowski, you can e-mail him at [email protected] or write to him c/o Tribune Media Services Inc., 435 N. Michigan Ave., Suite 1400, Chicago, IL, 60611.

The hallowed halls of learning are taking a cue from the world of business. Seeking to attract an increasingly mobile population with more educational options than ever before, San Fernando Valley community colleges are embarking on mass media advertising campaigns to lure students. The radio and television campaigns, which augment traditional brochures detailing classes and schedules, are, in some cases, doubling marketing costs for the colleges, but administrators say the additional expense is worth it. “We used to follow the field-of-dreams school: offer it and they will come,” said Mike Cornner, director of marketing and public relations for Pierce College, which began radio advertising last spring and added a television campaign for the fall 2000 semester. “Then one day they don’t come. We don’t live in the kind of society where one can afford not to market what you’re doing.” Los Angeles Mission College has been running television commercials for the past two years, and, largely because of the success of its efforts and those at Pierce, Los Angeles Valley College plans to add television advertising to its radio media buys this spring. “You get the college name out there, and I think it helps,” said Shannon Stack, director of media services at Valley. Enrollment at all nine Los Angeles Community College District campuses has been on the rise, jumping 6 percent to 108,150 this fall from 100,404 students in fall 1999. But Valley schools have outpaced even that average. Fall 2000 enrollment at Pierce soared 21 percent to 16,352 from 13,512 in the prior year. Enrollment at Valley, which has been running radio ads, jumped nearly 15 percent to 17,955 from 15,682 the year earlier. And Mission enrolled 7,200 students in its fall 2000 semester programs, a 9-percent increase over 6,600 the previous year. This fall, Pierce spent about $25,000 to persuade local residents to stick close to home. The college ran commercials on such cable stations as MTV, VH1 and Lifetime and radio ads on KBIG-FM (104) and KYSR-FM (98.7). Cornner wrote the ads, which were then produced by the radio stations and by Time-Warner. Radio stations reach large areas of the city and, as a result, are expensive. But cable TV advertising can focus on specific areas, making them very affordable, even by community college standards, officials said. “We determined where our students come from and we went after that area,” said Carlos Nava, vice president of student services at Los Angeles Mission College. “We know we have a densely populated area, so we need to market at home first.” Repeating the message Mission this year spent about $115,000 on its advertising campaign, up from less than $50,000 two years ago, Nava said, primarily because of the addition of cable advertising with three companies: Adelphia, Time Warner and Media One Group Inc. “The principal factor (in advertising) is repeating your message’ Nava said. “And the more and varied ways you can reach the target population, the more your message is going to stick.” The cost effectiveness of cable TV advertising also persuaded Valley College to try the medium. “It seemed we would get a better bit of coverage with cable,” said Stack, who has also tried running ads in movie theaters, but stopped because the theaters require that ads run for nearly half the year, well beyond the period when students register for classes. College officials point to a number of reasons for the increases not all having to do with advertising. Pierce went to a shorter, 15-week semester it believes attracts students who want to spend a few extra weeks at summer jobs and moms who may not have child-care alternatives until their own children are in school. Mission has added a number of new tracks, including multi-media, computer-assisted drawing and culinary arts, programs it believes attracts students returning to school for re-training. But while these programs may have helped clinch the deal, the advertising was instrumental in getting the word out to students in the first place, officials believe. “Community college enrollment throughout California is experiencing an increase, partly I believe because more of us are doing marketing, which is kind of a new phenomenon,” said Nava at Los Angeles Mission College. Pierce, which began to see enrollment rise last spring for the first time in 20 years, believes its success is directly related to its advertising efforts. “This summer, when we started advertising for fall, the first day that the ad broke we got 200 applications, and the registrar’s office was running at dizzying heights,” said Cornner, the school’s first-ever director of marketing, who joined the staff in January. “The next day we had about 250 applications, and then we hit 300 and 350.” Typically, Cornner said, the school receives about 20 applications a day in the week before the semester begins. Wider-roaming students Originally designed to serve their local communities, these colleges are now serving a more diverse student population with many more options. High school graduates may choose neighborhood schools, but older students returning to school for additional training to further their career or change jobs are choosing from a wide variety of schools. “We knew there were 50,000 community college students who live in the Los Angeles Community College area, who went to colleges outside our district,” said Cornner. “We have students who will drive to Santa Monica to go to school. We lose some to Glendale and Pasadena. With freeways being what they are, they may live in Woodland Hills, but work in Burbank. They have choices.” Not everyone agrees the additional expense of mass media advertising is worth the cost. Glendale Community College ran television spots several years ago but dropped them. “I think the issue is that we have so many audiences at a community college,” said Ann Ransford, director of communications marketing at Glendale Community. “Advertising to a high school student is very different from advertising to a 24-year-old. Unless you can afford to do a tremendous amount of radio and television advertising, it loses its effectiveness.” Ransford also points out that it is difficult to measure the effectiveness of the advertising, and her counterparts, even those who use radio and television, agree. Although no one has been able to establish a direct correlation between advertising and enrollment increases, proponents believe the marketing efforts have helped bring students through the door. “The major way a student indicates they heard about Mission is word of mouth,” said Nava. “So we’re guessing that part of that word of mouth they got from cable.”

A San Fernando Valley company has been shut down and put into receivership by the Federal Trade Commission, after a year-long investigation of dot-com businesses. Titan Business Solutions, which in June was named one of the 100 fastest growing businesses by Entrepreneur Magazine, late last month turned up on a list of the FTC’s “Top 10 Online Scams.” The Burbank-based company, which sold software and other materials to set up home-based medical billing practices serving private physicians, is one of a growing number of companies using the Internet to engage in what the FTC says are deceptive business practices. For its part, Titan claims it is being declared guilty by association. “I think there is a big push by our present administration, and I’m in favor of that, to eliminate telemarketing fraud,” said Scott Ford, president of Titan. “I believe there are unethical players within the medical billing industry, but we’re not one of them, and I feel we were lumped in. I don’t think (the FTC) did a whole lot of research before targeting our company.” Titan, which has been operating under its current management since last year, sold medical billing services to thousands of people who, in turn, used the Titan software and materials to sell electronic billing services to physicians. In addition to providing software and sales and marketing materials, Titan offered support services ranging from help setting up the system and reading and generating reports to motivating customers. Earlier this month, the FTC closed the company down after a U.S. District Court judge issued an injunction against the business and assigned a receiver to handle the company’s affairs. “Thirty percent of the complaints (received by the FTC) are now Internet-related complaints,” said Marianne Schwanke, a staff attorney with the FTC who coordinated the “Top 10” sting. “About two years ago it was at about 12 percent. Last year it was about 24 percent, so it is increasing each year.” The FTC is charging that Titan duped some 14,000 customers by promising that they could each earn as much as $45,000 annually by using Titan’s billing system, including a listing of physicians that could potentially be sold the services. The agency charges that, while some physicians do use such outside services, it is unlikely that they would engage someone working from home to handle their billing. “On the whole, the average person can’t get a job this way, so they spend their money and get nothing in return,” said Jennifer Larabee, an attorney for the FTC. No relationship with doctors The agency charges that Titan’s marketing materials implied that it had the kinds of pre-existing relationships that would encourage physicians to make use of its customers’ services, when the physician lists were actually culled from Medicare listings. “Consumers were told to send a letter of introduction, and they had to believe they were sending a letter to someone who already knew about Titan when, in reality, all they were doing was cold-calling doctors with letters,” Larabee said. Ford counters that the company clearly qualified the claims it made, explaining that the physician lists merely represented those doctors in the state who were currently processing claims on paper and therefore potential customers for an electronic billing service. “If you owned a retail store for big tall men, and I gave you a list of every man over 6 feet 2 inches tall and 225 pounds, I can’t tell you they’re going to buy clothes from that store, but they’re pre-qualified,” said Ford. “At no time did we represent that we have a pre-existing relationship (with the doctors).” Ford said that the company estimated potential earnings by multiplying the average per-claim processing fee (about $3) by the estimated number of claims a physician files annually (350 to 500 claims), but he added that Titan did not promise customers would achieve those levels. “The consumer is informed that their income is solely determined by their own efforts and ability,” Ford said. “It’s also well-documented within the disclosure statement. We’re not in a position to guarantee anyone any income.” In support of his argument, Ford said he has received numerous letters from satisfied customers, praising the company’s software and its customer support services. He said that the FTC filed written complaints from 18 consumers who did business with Titan, and half of those complainants had previously been issued refunds. The remainder of the complaints were either considered frivolous or were issues that the company had not yet resolved, Ford said. The FTC claims that its charges came after a comprehensive study that included a consumer complaint database used by over 200 law enforcement agencies. The FTC generated a list of categories that showed up most often from that list, and then compiled its “Top 10” companies. One reason that Titan was targeted, the agency said, was that it operated a Web site to conduct its business. “The reason it was part of the Top 10 is because the Web site was an integral part of the way they did business,” said Amy Brothers, another FTC attorney. “That’s why it was chosen to be part of the sweep.” Although the agency investigates deceptive business practices regularly, this is the first time it decided to focus on what it calls “dot-com cons.” Internet fraud on the rise “The Internet is so ubiquitous and there are so many online businesses, this is where our complaints have been increasing,” said Schwanke. “And we feel it’s important to send a message that the same rules apply offline and online.” Before the days of e-commerce, FTC officials said, most con artists were relegated to advertising locally, which limited the scope of the damage they could do. With the Internet, the number of victims, and therefore, the damage done, has increased exponentially. “The Internet makes it easy for scam artists to reach many more consumers than they would (have before), and the nature of the Internet makes it more difficult to find the perpetrators,” Schwanke said. Ford said the company plans to fight the charges, but he added that the damage already done to the business is irreparable. Titan has invested over $1 million in technology and staffing. Its computers and software have been confiscated and will be auctioned off, Ford said, and by the time the issue is resolved, its staff will likely have gone on to other jobs. “You have 100 employees scattered to the wind and, due to the fact that the receiver is not willing to support the current customers, there will be many unsatisfied customers,” said Ford. “The damage to the company will be incredible at that point.”

Skyrocketing rental rates for office and R & D; buildings in the Conejo Valley have driven up sale prices for those properties dramatically. After inching up slowly for several years, buildings this year in the region known as the 101 Technology Corridor on average sold at prices nearly 20 percent higher than 1999, according to data compiled by Cushman Realty Corp. The price hikes were accompanied by increased interest from large, institutional investors, a group that had largely overlooked the area previously. “Typically, the market was dominated by private ownership,” said Jeff Welch, senior associate with Cushman Realty. “The institutional ownership has really taken a hard look at it.” This year, sales of such buildings as the Agoura Hills Business Park, acquired by Lowe Enterprises for $17.8 million, and Westlake Spectrum I and II, also acquired by Lowe for $18.2 million, have bumped the average price per rentable square foot for Conejo office properties to $148.89, according to the Cushman data. That compares with $124.45 per rentable square foot in 1999 and $120.55 per rentable square foot in 1998. The rise in selling prices comes as demand grows and lease rates increase. Conejo Valley vacancy rates for the third quarter of 2000 were slightly more than 6 percent, the lowest levels in the northern Los Angeles region that includes the San Fernando and Santa Clarita valleys. At the same time, lease rates for office space in Conejo have risen from an average of $1.66 per square foot in 1998 to $2.25 to $2.35 currently, according to brokerage reports. “The high rental rates are going to drive higher sale prices,” said Welch. “We only see the (sale price) number going up due to higher quality buildings and higher rental rates.” Shopping Center Sale Pan Pacific Retail Properties Inc. has acquired the Granary Square Shopping Center in Valencia for $18.3 million. The 136,924-square-foot center, which houses a Ralphs, Long’s Drugs and Washington Mutual bank branch, is east of Interstate 5 at McBean Parkway. It is about 90-percent occupied. The sellers, MRES America Fund 88-II, a division of Mitsui, received about 20 offers on the center, according to David Elliott, a broker with Charles Dunn Co. Inc., who represented the buyer and seller in the transaction. Dunn’s David Parker also represented the seller. Pan Pacific owns shopping centers in Nevada, Oregon, Washington and several other regions, in addition to California. The company’s Southern California properties include Canyon Square in Santa Clarita and Palmdale Shopping Center in Palmdale. Sylmar Acquisition ISU Trading Inc., a manufacturer of electronics, has acquired a Sylmar building to relocate its domestic headquarters. ISU purchased the 56,485-square-foot building at 12930 Bradley Ave. for $4.1 million. The company, which has been based in mid-Wilshire, will house manufacturing and distribution as well as offices at the new location. David Young and Chad Gahr at NAI Capital Commercial represented the buyer. Greg Geraci and David Harding at CB Richard Ellis Inc. represented the seller, Charles Sweetman. Calabasas Welcomes Spirent Rapidly expanding Spirent Communications has signed a lease for an 83,000-square-foot build-to-suit facility at Calabasas Lost Hills Business Center. The site, part of a 30-acre parcel developed by the lessor, Cypress Land Co., is one of only two remaining parcels in the 162-acre business park. Other tenants include Cheesecake Factory, Alcatel and Pipp Printing. The 10-year lease is valued at $13.5 million. Telecommunications company Spirent also occupies a 107,169-square-foot facility at 26750 Agoura Road, which the company leased in January 1999. Mike Tingus, John DeGrinis and Mike Fowler at Colliers Seeley International Inc. represented the tenant and Cypress. Valencia Construction Investment Development Services Inc. has begun construction of the third phase of the 50-acre Vista Business Park in Valencia. The $13-million project entails a 206,000-square-foot industrial building in the 28000 block of Williams Avenue. The center’s major tenant is Pharmavite, which has leased 740,000 square feet in the complex. Jim Linn and Nigel Stout, brokers with Grubb & Ellis, are marketing the facility. Studio City Attraction Two new tenants have signed onto a newly renovated office building at 10960 Ventura Blvd. in Studio City, bringing the property to full occupancy. SFX Tollin Robbins Inc., the sports division of SFX Entertainment, signed a lease for 6,250 square feet for offices and production. Media Distributors, an equipment distributor for the entertainment industry, has leased 6,100 square feet in the building. Prior to the renovation, the building had been a dance studio. Building owner Al Radi was represented by Cathy Scullin and Chad Gahr of NAI Capital Commercial. Stacey Vierheilig of Charles Dunn Co. represented SFX. Angie Weber of Daum Commercial Real Estate Services represented Media Distributors. Van Nuys Lease Retailer Mill Oak & Pine Furniture Co. leased a 21,516-square-foot commercial building in Van Nuys for a new store location. The facility, at 7635 Sepulveda Blvd., also includes about 1,000 square feet of office space and a furniture warehouse. The new store opened Nov. 12. Pomona-based Mill Oak was represented by Stu Leibsohn of Delphi Business Properties. Retail Action Calabasas Auto Center has signed two tenants for its 8,000-square-foot facility. Falcon Crest Tire & Service will open a Goodyear Tire and Auto Repair shop in a 4,687-square-foot space. Texaco Xpress will occupy a 3,000-square-foot facility. Joe Lopez, a broker with Westcord Commercial Real Estate Services, represented the Auto Center. Staff reporter Shelly Garcia can be reached at (818) 676-1750, ext. 14 or by e-mail at [email protected].

For three decades, Rem Eyewear has served two generations of its family ownership well. But it didn’t take 20/20 vision to see the writing on the wall. With the growing popularity of Lasik surgery, a procedure that corrects some forms of vision problems, the demand for so-called ophthalmic eyeglass frames (those used for prescription glasses) is sliding. Without a program to diversify, Rem’s business would be stymied. Earlier this year, Rem began adding reading glasses and sunglasses to its product offerings and expanding its children’s offerings. “We’re trying to be proactive and analyze where our business will grow,” said Mike Hundert, the company’s president and chief executive officer. Hundert took the reins of the family-owned company in 1981 and oversaw Rem’s move into designer-name brands, a business that boosted eyewear sales through the 1980s and much of the 1990s. But as quality improved, creating frames that last longer, and as enthusiasm for the newest looks faded, frame sales industry-wide have flattened. Sun Valley-based Rem is not the only company eyeing the potential problems that frame makers face, but it is on the cutting edge of those looking for ways to buffer its business, industry observers said. “If Rem isn’t the first company, it’s certainly in the first tier of companies trying to take a leadership position and diversify from ophthalmic frames,” said Marge Axelrad, senior vice president for editorial content at Jobson Publishing LLC, publisher of the industry’s trade journals, 20/20 and Vision Monday. Lasik, short for laser-assisted in-situ keratomileusis, was approved by the FDA only last year. But already it has grown into a $3 billion-a-year industry. Already this year, about 500,000 people have undergone Lasik surgery. Next year the number is expected to swell to 1.2 million, according to industry estimates. And, as additional procedures to treat a wider variety of vision problems come online, and the price of the surgery goes down from an average of $2,500 per eye currently, that number can rise farther still. That is troubling news to makers of eyeglass frames, who have in recent years, seen sales slow. In 1990, retail sales of frames, lenses and contact lenses combined reached $11.4 billion, according to Jobson Optical Group research. By 1995, that number had grown to $13.8 billion, and in 1999 sales totaled $16 billion. But this year, Axelrad said, sales are projected to bottom out at $16.3 billion. “In the last two to three years, the rate of growth shrunk to about 2 percent a year,” Axelrad said. Rem has put into place a two-part strategy hoping to counteract the market forces at work in the industry. On the one hand, the company is building an international distribution chain it hopes will help attract the most desirable designer names, a strategy to compete against bigger players in the industry. At the same time, Rem is moving to add new product lines: reading glasses, sunglasses and children’s eyewear. So far, Lasik surgery is mostly used to treat nearsightedness. Although other procedures are under development that can treat conditions like farsightedness and astigmatism, Lasik so far is not likely to impact presbyopia, an affliction that drives nearly all middle-aged people to don reading glasses. Opticians have largely steered clear of the over-the-counter reading glasses sold in department stores and by mass merchants. But Rem, through a partnership with a company called MicroVision Optical, has begun marketing a number of novelty reading glasses that are attracting interest in its established chain of distribution as well as chains like Sunglass Hut. “With the aging population not only having expendable income but also being particularly vain, there’s a clear opportunity for more expensive and better-designed reading glasses,” said Hundert. In January, the company introduced its Pen Reader, which are tiny reading glasses that are stored inside a large-sized ballpoint pen, at prices ranging from $59.95 to $99.95, depending on the type of pen. Because of its size, the Pen Reader cannot be used with lenses prescribed by an eye doctor. Another version, Folding Vision, can be folded to fit into a metal case the size of a business-card holder. It can hold customized prescription lenses as well. So far, Rem has sold several million dollars worth of the Pen Reader. The category now accounts for about 10 percent of the company’s business, and Hundert said he could sell more if MicroVision were able to speed its production. Like reading glasses, the market for non-prescription sunglasses is also expected to continue to increase regardless of the inroads made by Lasik. Indeed, some say Lasik will increase the demand for high-end sunglasses because the procedure can make eyes more sensitive to light. Working with brands like Timberland, Lauren Hutton, Converse and Cosmopolitan, Rem is beefing up its offering of sunglasses. Finally, the company has begun to build its collection of children’s eyewear, in large part because Lasik cannot be performed on people under 21. “We created a line under the Converse brand for kids 8 to 12 years old,” Hundert said. “It’s been extremely successful. This spring, we’ve decided to expand that further to 4- to 8-year olds.” Already this year, Rem, which does not release its sales figures, has seen revenues grow by about 25 percent as a result of the changes. And Hundert expects the upward momentum to continue. “What I am convinced of is our customer base will continue to expand and, as that happens, the company will become much more solid,” he said. “With a more solid foundation, we can continue to build more stories.”

Westlake Village-based Intellisys Group, which over the past decade had built itself into one of the nation’s leading servicers of audio-visual equipment, has financially hit the wall and will likely be acquired out of bankruptcy on Nov. 13 by Dayton, Ohio-based MCSi Inc. The turn of events follows an aggressive expansion program undertaken by Intellisys in 1998, under which it acquired seven regional audio-visual companies. The expansion was apparently too much, too fast. After generating $100 million in revenues last year, Intellisys laid off 150 employees in September, filed for Chapter 11 bankruptcy protection in October, and then agreed to be acquired by MCSi. According to its bankruptcy filing, Intellisys has total liabilities of $50 million and total assets of less than $25 million. The acquisition is still subject to approval by a judge at a bankruptcy hearing set for Nov. 13. Neither MCSi nor Intellisys would disclose the price that MCSi has agreed to pay for the acquisition. Intellisys paints a dire picture of its situation in court documents. It claims it is close to running out of money to pay its remaining employees and could have trouble completing work already promised to its 200 customers if the sale is not completed within 30 days of its Oct. 16 bankruptcy filing. The deal with MCSi is expected to preserve most of the remaining sales and technical staff, combining offices in communities where both companies now have branches. Intellisys has 14 offices in Western states and two Eastern states. MCSi has 126 offices nationwide. Both companies install equipment for company meeting rooms that allows people to connect to satellite offices as well as give broadcast and computer presentations. “The bulk of our employees and offices will remain intact,” said Intellisys CEO Mike Gummeson of the planned acquisition. Intellisys has 500 remaining employees who would be affected by the deal. According to Intellisys’ bankruptcy petition, the company expects about 400 of them to keep their jobs when the company is merged with MCSi. Started as a distributor of overhead projectors to schools in the 1970s, Intellisys moved into the high-tech end of the audio-visual equipment world in the early 1990s and began targeting business clients. The company’s client list includes such big names as Microsoft Corp., Nortel Systems, Sun Microsystems and Intel Corp. “We had an A-plus client list and we were very well known,” said Gummeson. That is part of the reason MCSi was attracted to Intellisys in the first place, said MCSi Chief Financial Officer Ira H. Stanley. “Their salespeople know the business and the industry, and they’ve attracted customers like Nortel Systems, Fortune 500 companies, Stanford University and others,” Stanley said. “Their sales department has overseen an internal (annual) growth rate of 30 percent over the last five years.” In 1998, Intellisys began an aggressive acquisition effort that allowed the company to broaden its presence along the West Coast and into Massachusetts and Georgia. That expansion effort is what led to the company’s bankruptcy filing, Gummeson said. The company also spent heavily to revamp and fix its accounting system in 1999. “Those two factors drove our need for additional money,” said Gummeson. “We were growing very quickly.” In August, Intellisys enlisted the help of an investment bank to seek out enough financing to keep the company afloat. Intellisys was unable to secure more money, but did find MCSi, which was interested in buying the company. MCSi has become one of the country’s top audio-visual servicers, with 1999 revenues of $850 million. Over the last year, the company has been on a growth spree of its own, buying up smaller audio-visual players, Stanley said. “(MCSi) has been evolving into a company with significant business in audio-visual systems integration,” Stanley said. Stanley said MCSi decided to acquire Intellisys for two main reasons: its trained sales and technical staff, and its top-of-the-line client roster. “Intellisys has a lot of good people who are dedicated to this business,” Stanley said. “They’re a good fit for us.” Details of the deal are still being worked out, Stanley said.

Business in the San Fernando Valley couldn’t be better, according to a report released by Cal State Northridge. But L.A. County’s top economist said an over-reliance on the entertainment industry and some other nagging problems could cause trouble in the future. “Be ready for the unexpected,” said Jack Kyser, chief economist for the Los Angeles Economic Development Corp., at a daylong Valley economic forecast session sponsored by the Valley Industry & Commerce Association. “Be cautious,” he went on, “but don’t be delusional.” Kyser was among several at the conference who spoke to the need for the Valley to nurture a diversified economy, one made up of more than just the entertainment and retail industries. “We are over-exposed in entertainment,” Kyser said. He predicted that if the entertainment industry is greatly affected by a possible writers’ and actors’ strike in 2001, the rest of the world would characterize L.A. as a one-industry town. “To that, we need to say, ‘Hell no,’ Kyser said.” The motion picture and television production industry employs more than 100,000 workers with an annual payroll of $6.15 billion, accounting for 15.7 percent of the Valley’s workforce and almost 25 percent of its total personal income, according to the “Report on Findings on the San Fernando Valley Economy 2000-2001.” Entertainment-sector employment was up more than 10 percent in 1999 after remaining flat the previous two years, according to the CSUN report. The movie/TV production sector’s total Valley payroll (103,194 workers) was only exceeded by that of the retail sector (113,699 workers). Technology-based manufacturing was the Valley’s third-largest source of employment, providing 51,217 jobs. While the number of days of location filming in all of Los Angeles changed little in the last two years (about 38,000 each year), days of filming in the Valley jumped from 6,907 in 1998-99 to 10,251 in 1999-2000. “You can see the huge footprint the entertainment industry has in the Valley,” said Shirley Svorny, director of the San Fernando Valley Economic Research Center at CSUN. Preparing for strike Much of the recent activity in film and TV production could be attributed to studios and production companies “stocking up” on product in anticipation of expected strikes in 2001. In fact, according to Kyser, even if entertainment industry strikes are averted, the sector won’t have another year like this one for some time. Even if all those scripts, movies and TV shows aren’t used during a strike, they’ll be available anyway meaning today’s hectic production schedule will cool down, no matter what. But there are several reasons for optimism, the report found. -A 3.8-percent increase in private-sector jobs for the Valley in the last year, more than double the countywide increase of 1.8 percent. -Building permits totaling $535 million in the last year. -An office vacancy rate of just over 9 percent, less than half the 22 percent rate in downtown Los Angeles. A few persistent problems, however, could dampen future expansion in the Valley. There’s increased freeway traffic congestion, fueled in great part by the increased employment activity in the Valley. That could slow future expansion. In the last six years, the infamous 101/405 interchange has seen a 12.5-percent increase in north-south traffic on the 405 and 18.5 percent on the east-west 101.) Other constraints Then there’s the lack of access to rail and port facilities, anticipated utility cost hikes and a quickly diminishing inventory of industrial and office space. “We’ve used up most of the available space we have,” said Daniel Blake, a CSUN economics professor and a principal author of the report. In fact, vacancy rates for commercial space are just over 4 percent, down from just over 9 percent in 1996. Blake noted that the Valley has survived the great blows to the economy it suffered in the 1990s and now must again move on. “The recovery is complete,” he said. “We can ask now, ‘What kind of growth do we want to have?'” Almost every speaker at the conference from Mayor Richard Riordan to Kyser and Hollywood Reporter publisher Bob Dowling expressed concern about what they called workforce quality, the ability to deliver qualified employees. “It’s at every level,” Kyser said. While unemployment insurance claims are lower than they’ve been since the Northridge earthquake, Valley businesses still go begging for qualified employees. “That’s going to be our Achilles’ heel,” Kyser said.