Convertible Holdings, Inc.
FUND LOGO
Annual Report
December 31, 1993
Convertible Holdings, Inc.
Officers and Directors
Arthur Zeikel--President and Director
Terry K. Glenn--Executive Vice President
and Director
Kenneth S. Axelson--Director
Herbert I. London--Director
Joseph L. May--Director
Andre F. Perold--Director
N. John Hewitt--Senior Vice President
Vincent T. Lathbury III--Vice President and
Portfolio Manager
Donald C. Burke--Vice President
Barton A. Vogel--Vice President
Gerald M. Richard--Treasurer
Mark B. Goldfus--Secretary
Custodian
National Westminster Bank NJ
10 Exchange Place
Jersey City, New Jersey 07302
Transfer Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(617) 328-5000
This report, including the financial information herein, is transmitted
to the shareholders of Convertible Holdings, Inc. for their information.
It is not a prospectus, circular or representation intended for use in
the purchase of shares of the Company or any securities mentioned in the
report. Past performance results shown in this report should not be con-
sidered a representation of future performance.
<PAGE>
Convertible Holdings, Inc.
Box 9011
Princeton, NJ 08543-9011
Dear Shareholders:
For the six-month period ended December 31, 1993, Convertible Holdings, Inc.
Capital Shares had a total investment return of +6.41%, based on a change
in per share net asset value from $13.78 to $13.21, and assuming reinvestment
of $1.168 per share short-term capital gains. During the same period, total
investment return on Income Shares was +6.77%, based on a change in per share
net asset value from $9.56 to $9.30, and assuming reinvestment of $0.886 per
share income dividends.
For the year ended December 31, 1993, per share net asset value for
Convertible Holdings, Inc. Capital Shares increased from $12.87 to $13.21.
Total investment return was +13.93%, assuming reinvestment of $1.168 per
share short-term capital gains. During the same period, total return for
Income Shares was +13.50%, based on an unchanged per share net asset value
of $9.30, and assuming reinvestment of $1.206 per share income dividends.
The Environment
The investment environment in 1993 was very favorable. In the first quarter
of the year, there was a brief run of bad inflation numbers as measured by
the consumer price index. But as the year progressed, it became apparent
that the economy was growing slowly, inflation was subdued, and interest
rates were heading downward. This presented the best of all worlds for
financial assets.
Although sales growth remains below average compared to recoveries from
previous recessions, corporate profits have improved primarily as a result
of downsizing and restructuring.
Diminished concern over credit quality (the result of an improving economy)
has caused low-quality stocks to significantly outperform high-quality
stocks. Small stocks appreciated faster than large-capitalization stocks
almost across the board as big companies saw their pricing power disappear,
causing them to become wholly dependent on unit volume gains for earnings
growth. For 1993 the Dow Jones Industrial Average and the NASDAQ Composite
Index increased 13.7% and 14.8%, respectively, while the Standard & Poor's
500 Index showed a more modest gain of 7.1%.
Despite the generally strong performance of most stocks, groups with severe
competition and no pricing power, such as pharmaceuticals, biotechnology,
tobacco, and pollution control, had significant declines for the year. The
strongest-performing sectors were communications, lodging, heavy machinery,
auto manufacturers, precious metals, entertainment, casinos, coal, and semi-
conductors. In addition, healthcare providers, such as hospitals and nursing
homes, also performed well.
<PAGE>
In addition to the favorable interest rate environment characterizing most
of the year and the strong performance of underlying stocks, the convertible
market has been helped by a significant supply/demand imbalance, as a
growing number of untraditional convertible buyers have increasingly turned
to the convertible market. Within the convertible universe, convertible
preferreds were very strong performers, 144 A convertible issues (which
can only be purchased by qualified institutional buyers) substantially
outperformed publicly registered securities, and speculative-grade
convertibles outperformed investment-grade convertible securities by
a wide margin.
In response to the steep yield curve and the relative lack of supply in
the last two years, convertible premiums expanded even as stocks moved
higher. The flip side of excellent performance, however, is an expensive
secondary market. Late in 1993, the average convertible security was
trading at a current yield of 5.51% with a 30.94% premium and a break-
even of 5.5 years, while call protection was only 2.4 years. (See
glossary on page 15 of this report to shareholders.)
Investment Activities
We remain concerned about a market that is liquidity driven with investors
scrambling to find alternatives to low-yielding investments. Investors are
overlooking earning revisions that are continually revised downward in an
economy that is growing very slowly. In this environment, we have taken
profits in convertible securities that have reached our price targets. We
have redeployed cash reserves by engaging in short sales of common stocks
of issuers whose convertible bonds we own and have made new purchases,
particularly in the new-issue market.
In the December quarter, we purchased several new issues. We purchased
Allied Waste, a non-hazardous solid waste management company; Cross Timbers
Oil, whose strategy is to actively acquire, exploit and develop oil-producing
and gas properties; and Genesis Health Ventures, a provider of a broad
range of basic and specialty healthcare services to meet the medical and
physical needs of the elderly. We also purchased shares of Intelcom, whose
goal is to be the leading provider of competitive access in smaller cities,
and Kumagai Gumi, a general contractor, property developer and investor in
Hong Kong and the People's Republic of China. We also added positions in
Media Vision, a multimedia computing products company that integrates
audio, text, graphics, and animation on still or full motion video with
digital technology to make computers more informative, interactive and
entertaining, and Network Imaging, whose document imaging systems enable
users to access documents which have been scanned and digitally stored on
an optical storage disc storage system within seconds rather than days or
weeks as may be required with large paper storage or microfiche systems.
Finally, we purchased shares of Olympic Financial, Ltd., an independent
alternate source of retail financing to automobile dealers; Philips
Environmental, a fully integrated waste management company whose growth
plan involves strategic acquisitions; Property Trust of America, whose
objective is to be the preeminent real estate operating company focusing
on multifamily properties in its southwestern target market; and U.S.
Home Corp., one of the largest single-family homebuilders in the United
States. Other new purchases included Federated Department Stores, LTX
Corp., Park Communications, and Snyder Oil.
<PAGE>
The net result of our transactions was that we reduced the portfolio's
cash position from 17.2% at the end of the June period to 3.5% at the end
of the year. We thank you for your support of Convertible Holdings, Inc.,
and we look forward to serving your investment needs in the months and
years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent T. Lathbury)
Vincent T. Lathbury III
Vice President and Portfolio Manager
February 3, 1994
Convertible Holdings, Inc.
Ten Largest Holdings
The Western Co. of North America
Systems and Computers
Mediplex Group
Medaphis Corp.
Bristol-Myers Squibb Co.
Savoy Pictures Entertainment
USA Waste Services
Environmental Systems Co.
Trinity Industries Leasing Co.
Orbital Sciences Corp.
<TABLE>
Convertible Holdings, Inc.
Schedule of Investments as of December 31, 1993
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Convertible Debentures Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Advertising-- BBB+ Baa3 $ 500,000 Omnicom Group, Inc., 4.50% due 9/01/2000 $ 500,000 $ 520,000
0.2%
Aerospace--1.9% CCC+ Caa 3,450,000 Orbital Sciences Corp., 6.75% due 3/01/2003** 4,364,500 5,192,250
Automobile BB+ Ba3 4,600,000 Arvin Industries, Inc., 7.50% due 9/30/2014** 4,891,500 5,336,000
Parts--1.9%
<PAGE>
Banking & BBB+ Ba1 3,000,000 Alleghany Corp., 6.50% due 6/15/2014 3,154,687 3,063,750
Finance--4.6% NR NR 1,744,000 First Republic Bancorp, 7.25%
due 12/01/2002** 2,131,395 2,136,400
BB- NR 1,000,000 Mark Twain Bancshares, 7.00% due 6/01/1999 1,129,755 1,536,250
A+ A1 1,500,000 NBD Bancorp, 7.25% due 3/15/2006 1,721,662 1,623,750
NR NR 3,500,000 Pioneer Financial, 8.00% due 7/15/2000 3,516,250 4,200,000
----------- ------------
11,653,749 12,560,150
Biotechnology--1.4% B+ NR 4,000,000 Genzyme Corp., 6.75% due 10/01/2001 3,960,000 3,800,000
Building--3.2% NR NR 2,000,000 Kumagai Gumi, 4.875% due 12/08/1998 2,000,000 2,010,000
B B2 3,520,000 PlyGem Industries, Inc., Delaware,
10.00% due 10/01/2008 3,555,200 4,021,600
B- B2 3,000,000 U.S. Home Corp., 4.875% due 11/01/2005 2,977,500 2,906,250
----------- ------------
8,532,700 8,937,850
Cement--1.4% B- B3 3,209,000 Giant Group, 7.00% due 4/15/2006** 2,798,208 3,012,449
B+ B1 750,000 Medusa Corp., 6.00% due 11/15/2003 750,000 871,875
----------- ------------
3,548,208 3,884,324
Communica- BBB- Ba2 3,000,000 IDB Communications Group, 5.00%
tions--2.1% due 8/15/2003 3,000,000 3,465,000
A- Baa3 2,188,000 Park Communications, 6.875% due 3/15/2011 2,683,100 2,406,800
----------- ------------
5,683,100 5,871,800
Computers--3.6% B B2 2,751,000 Storage Technology Corp., 8.00%
due 5/31/2015 2,752,912 2,981,396
B- B2 4,925,000 Systems and Computers, 6.25%
due 9/01/2003** 5,453,886 6,784,187
----------- ------------
8,206,798 9,765,583
Conglomerates-- BB- Ba3 3,631,000 GenCorp Inc., 8.00% due 8/01/2002** 4,438,897 4,103,030
1.7% NR Caa 596,000 Lynch Corp., 8.00% due 7/15/2006 527,950 602,705
----------- ------------
4,966,847 4,705,735
Disk Drives--1.4% B+ B1 3,845,000 Quantum Corp., 6.375% due 4/01/2002** 3,639,478 3,902,675
Electronics--2.1% BB+ Ba3 1,500,000 Arrow Electronics, Inc., 5.75%
due 10/15/2002 1,500,000 1,974,375
NR NR 1,260,000 Comptronix, 6.75% due 3/01/2002 998,550 973,350
NR B2 2,415,000 Park Electrochemical, 7.25% due 6/15/2006 2,356,042 2,780,269
----------- ------------
4,854,592 5,727,994
<PAGE>
Energy--1.0% B- B3 1,828,000 Box Energy, 8.25% due 12/01/2002** 2,217,792 2,399,250
B B2 500,000 Cross Timbers Oil, 5.25% due 11/01/2003 500,000 456,875
----------- ------------
2,717,792 2,856,125
Entertainment-- B B2 4,600,000 Savoy Pictures Entertainment, 7.00%
3.0% due 7/01/2003** 4,980,345 5,773,000
BB+ Ba3 2,236,000 Time Warner, Inc., 8.75% due 1/10/2015 2,377,772 2,342,210
----------- ------------
7,358,117 8,115,210
</TABLE>
<TABLE>
Convertible Holdings, Inc.
Schedule of Investments as of December 31, 1993(continued)
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Convertible Debentures Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Forest BB+ Ba2 $3,625,000 Pope & Talbot, Inc., 6.00% due 3/01/2012 $ 3,320,125 $ 4,050,937
Products--1.5%
Funeral BBB+ Baa1 1,875,000 Service Corporation International, 6.50% due
Services--1.0% 9/01/2001 2,052,812 2,625,000
Health Care-- B B2 1,100,000 Genesis Health Ventures, 6.00% due 11/30/2003 1,100,000 1,314,500
10.2% B- B3 2,860,000 Hillhaven Corp., 7.75% due 11/01/2002** 3,447,057 3,753,750
B- B2 3,550,000 Integrated Health Services, 6.00%
due 1/01/2003 3,608,230 3,745,250
NR NR 3,500,000 ++IVAX Corporation, 6.50% due 11/15/2001 3,457,500 3,762,500
B- NR 4,830,000 Medaphis Corp., 6.50% due 1/01/2000** 5,180,530 5,892,600
NR NR 6,010,000 Mediplex Group, 6.50% due 8/01/2003** 6,319,015 6,310,500
NR NR 1,816,000 Regency Health Services, 6.50% due 7/15/2003** 1,957,205 2,233,680
B- B3 700,000 Summit Health Ltd., 7.50% due 4/01/2003** 841,750 1,044,750
----------- ------------
25,911,287 28,057,530
Home Building-- NR B3 2,730,000 Continental Homes Holding Corp, 6.875%
2.5% due 3/15/2002 2,668,842 3,016,650
NR NR 3,350,000 ++Engle Homes, Inc., 7.00% due 3/01/2003 3,392,000 3,819,000
----------- ------------
6,060,842 6,835,650
Industrial B+ B2 2,321,000 Willcox & Gibbs, Inc., 7.00% due 8/01/2014** 2,079,725 2,262,975
Equipment--0.8%
Industrial BB- Ba3 3,000,000 Manpower, Inc., 6.25% due 10/01/2002** 3,100,813 3,401,250
Services--1.2%
<PAGE>
Instruments-- NR NR 1,671,000 Quixote Corp., 8.00% due 4/15/2011 1,621,475 1,737,840
1.0% B- B3 918,000 Recognition Equipment, Inc., 7.25%
due 4/15/2011 823,700 991,440
----------- ------------
2,445,175 2,729,280
Insurance--2.0% BB- Ba2 2,500,000 Leucadia National Corp., 5.25% due 2/01/2003 2,500,000 2,481,250
BBB Baa3 2,825,000 Re Capital Corp., 5.50% due 8/01/2000** 2,944,097 2,909,750
----------- ------------
5,444,097 5,391,000
Minerals--0.4% B+ B1 1,000,000 Terra Industries, Inc., 8.50% due 6/01/2012 1,027,500 1,065,000
Oil & Gas AA- Aa3 500,000 Amoco Canada Petroleum Co., 7.375%
Diversified--4.0% due 9/01/2013 494,797 591,250
B NR 1,500,000 ++SEACOR Holdings, 6.00% due 7/15/2003 1,557,500 1,665,000
BB- Ba2 2,000,000 USX-Corp., 7.00% due 6/15/2017 1,955,000 1,850,000
B- B3 6,800,000 The Western Co. of North America, 7.25%
due 1/15/2015** 7,005,069 6,800,000
----------- ------------
11,012,366 10,906,250
Paper--2.1% BB- Ba3 500,000 Albany International Corp., 5.25% due 3/15/2002 467,443 475,000
BBB- Baa2 1,500,000 Champion International Corp., 6.50%
due 4/15/2011 1,486,250 1,601,250
NR NR 1,000,000 Riverwood International Corp., 6.75%
due 9/15/2003 1,000,000 1,145,000
B- B3 2,250,000 ++Stone Container Corp., 8.875% due 7/15/2000** 2,663,438 2,587,500
----------- ------------
5,617,131 5,808,750
Pharma- BB- Ba3 1,200,000 Bindley Western Industries Inc., 6.50%
ceuticals--0.4% due 10/01/2002** 1,109,700 1,146,000
Restaurants-- NR B3 1,475,000 DAKA International, 7.00% due 3/15/2003** 1,581,548 1,626,187
1.1% B- B2 1,500,000 Flagstar Corp., 10.00% due 11/01/2014 1,583,750 1,385,625
----------- ------------
3,165,298 3,011,812
</TABLE>
<PAGE>
<TABLE>
Convertible Holdings, Inc.
Schedule of Investments as of December 31, 1993 (continued)
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Convertible Debentures Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Retail Stores-- NR NR $1,844,000 Ben Franklin Retail Stores, 7.50%
6.8% due 6/01/2003** $ 1,844,020 $ 1,710,310
B B2 3,992,000 Big B Inc., 6.50% due 3/15/2003** 4,325,790 4,670,640
B Ba3 3,600,000 Casey's General Stores Inc., 6.25%
due 5/01/2012** 3,557,750 4,617,000
BB Ba3 1,000,000 Federated Department Stores, 0.00%
due 2/15/2004 923,070 917,500
B+ Ba3 2,873,000 Ingles Markets, 10.00% due 10/15/2008 3,079,765 3,127,979
Kroger Company:
B B3 1,000,000 6.375% due 12/01/1999** 1,200,000 1,255,000
B B3 1,000,000 8.25% due 4/15/2011 1,043,750 1,055,000
BBB+ Baa1 1,250,000 Price Co., 6.75% due 3/01/2001 1,303,125 1,300,000
----------- ------------
17,277,270 18,653,429
Semiconductors-- NR B3 1,875,000 LSI Logic Corp., 6.25% due 4/14/2002** 1,703,500 1,875,000
1.5% CCC B3 1,630,000 LTX Corp., 13.50% due 4/15/2011 1,659,450 1,611,663
CCC Caa 750,000 Western Digital Corp., 9.00% due 6/01/2014 637,500 725,625
----------- ------------
4,000,450 4,212,288
Software--1.4% B- B3 1,000,000 MediaVision, 4.875% due 10/01/2003 1,000,000 1,403,750
B+ B1 2,000,000 Sterling Software, Inc., 5.75% due 2/01/2003** 2,629,500 2,400,000
----------- ------------
3,629,500 3,803,750
Specialty B B1 3,000,000 Pier 1 Imports, 6.875% due 4/01/2002 3,143,375 3,236,250
Retailer--1.2%
Technology-- B B1 2,000,000 Conner Peripherals, Inc., 6.50% due 3/01/2002** 1,791,360 1,800,000
0.7%
Telecommuni- NR NR 1,500,000 ++Intelcom, 7.00% due 10/30/1998 1,500,000 1,598,943
cations--0.6%
Textiles--0.2% B+ Ba3 500,000 Interface Flooring Systems, Inc., 8.00%
due 9/15/2013 501,875 527,500
Transportation-- B+ B2 3,000,000 Varlen Corp., 6.50% due 6/01/2003 3,046,250 3,427,500
1.2%
Waste Manage- B B2 207,000 Environmental Systems Co., 6.75%
ment--2.5% due 5/01/2011 165,600 155,250
NR NR 1,000,000 ++Philips Environmental, 6.00% due 10/15/2000 1,000,000 1,030,000
B B3 5,300,000 USA Waste Services, 8.50% due 10/15/2002** 6,174,878 5,763,750
----------- ------------
7,340,478 6,949,000
<PAGE>
Total Convertible Debentures--73.7% 189,454,810 202,675,790
<CAPTION>
Shares
Held Convertible Preferred Stocks
<S> <S> <S> <C> <S> <C> <C>
Airline--1.3% BB- Ba1 20,000 ++AMR Corp., $3.00 Series A 1,000,000 1,052,500
B1 B1 25,000 Delta Air Lines, Inc., $3.50 Series C 1,250,000 1,337,500
B+ Ba2 10,000 ++UAL Corp., $6.25 Series A** 1,008,750 1,097,500
----------- ------------
3,258,750 3,487,500
Banking & BBB Baa3 40,000 Ahmanson Bank, $3.90 2,000,000 2,040,000
Finance--5.1% BBB+ A1 10,000 National City Corp., $4.00 500,000 685,000
NR NR 40,000 Olympic Financial, Ltd., $2.00 1,000,000 1,180,000
NR NR 138,200 ONBANCorp. Inc., $1.6875 Series B 4,169,800 4,284,200
BB+ Baa3 135,900 Southern National Corp., $1.6875 Series A 3,780,234 4,297,837
BB NR 44,400 Union Planters Corp., $2.00 Series E 1,237,975 1,565,100
------------ ------------
12,688,009 14,052,137
</TABLE>
<TABLE>
Convertible Holdings, Inc.
Schedule of Investments as of December 31, 1993 (continued)
<CAPTION>
S&P Moody's Shares Value
Industry Rating Rating Held Convertible Preferred Stocks Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Cement--1.2% B2 B 55,000 Southdown Inc., $3.75** $ 3,118,390 $ 3,437,500
Environmental-- NR NR 1,500 ++Allied Waste, $3.75 1,500,000 1,738,688
0.6%
Forest Products-- BB- Ba2 50,000 Boise Cascade, $1.79 Series E 1,134,250 1,212,500
0.4%
Machinery--1.4% B+ B3 84,000 AGCO Corp., $1.625 Series 2,119,000 3,864,000
Oil & Gas--2.4% BB+ B2 50,000 ++Gerrity Oil & Gas, $1.50 Series** 1,262,500 1,012,500
B+ B1 70,000 Snyder Oil, $3.75 1,876,695 1,890,000
BB+ Baa3 50,000 Tenneco Inc., Series A 2,093,650 2,093,750
BB- Ba3 23,000 Tosco Corp., $4.375 1,369,880 1,489,250
----------- ------------
6,602,725 6,485,500
Real Estate-- BBB- Baa3 40,000 Merry Land & Investment Services 1,000,000 1,125,000
2.2% BBB Baa3 80,000 Property Trust of America 2,000,000 2,240,000
NR Ba1 100,000 Storage Equities Inc., $2.062 2,518,600 2,687,500
----------- -----------
5,518,600 6,052,500
Software--0.7% NR NR 80,000 Network Imaging 2,000,000 1,970,000
<PAGE>
Transportation-- BBB- Baa2 15,000 Burlington Northern Inc., $3.125 Series A 750,000 1,023,750
0.4%
Waste BBB- Ba2 278,944 Environmental Systems Co., $1.75 Series A 5,278,039 5,578,880
Management--
2.0%
Total Convertible Preferred Stocks--17.8% 43,967,763 48,902,955
<CAPTION>
Common Stocks
<S> <C> <S> <C> <C>
Automobile 30,745 Magna International, Inc. 684,613 1,529,564
Parts--0.6%
Banking--5.1% 105,475 American Bankers, Inc. 1,941,509 2,729,166
155,211 BB&T Financial 3,245,163 5,121,963
59,000 Deposit Guaranty 891,024 1,652,000
96,848 First of America Bank Corp. 2,969,412 3,801,284
15,000 Mellon Bank Corp. 495,270 795,000
----------- ------------
9,542,378 14,099,413
Drugs--2.1% 100,000 Bristol-Myers Squibb Co. 4,985,776 5,812,500
Financial--0.5% 53,761 Washington Mutual Savings Bank 592,119 1,283,544
Food Processing--1.3% 322,855 Hudson Foods, Inc.--Class A 4,880,771 3,591,762
Health Care--0.4% 49,231 Manor Care 1,105,510 1,200,005
Machinery--2.0% 128,479 Trinity Industries Leasing Co. 2,974,237 5,540,657
Medical Supplies--1.2% 140,584 Baxter International, Inc. 2,230,959 3,426,735
Miscellaneous--0.6% 14,500 Minnesota Mining and Manufacturing Co. 1,053,933 1,576,875
Oil & Gas--1.4% 145,506 Noble Affiliates 3,181,682 3,855,909
Oil Services--0.5% 25,000 Schlumberger, Ltd. 995,213 1,478,125
Pharmaceuticals--0.7% 153,715 Bindley Western Industries, Inc. 2,150,910 1,825,365
Software--0.8% 53,692 SunGard Data Systems, Inc. 1,520,418 2,201,372
Total Common Stocks--17.2% 35,898,519 47,421,826
</TABLE>
<PAGE>
<TABLE>
Convertible Holdings, Inc.
Schedule of Investments as of December 31, 1993
<CAPTION>
Face Value
Amount Convertible Debentures Cost (Note 1a)
<C> <S> <C> <C>
Commercial $9,635,000 General Electric Capital Corp., 3.22%
Paper*--3.5% due 1/03/1994 $ 9,632,415 $ 9,632,415
Total Short-Term Securities--3.5% 9,632,415 9,632,415
Total Investments--112.2% $278,953,507 308,632,986
============
Short Sales--(proceeds--$46,222,231) (18.9%)** (52,120,752)
Other Assets Less Liabilities--6.7% 18,487,065
------------
Net Assets--100.0% $274,999,299
============
<FN>
*Commercial Paper is traded on a discount basis and amortized to maturity. The interest rates shown are the discount rates
paid at the time of purchase by the Company.
++Restricted securities as to resale. The value of the Company's
investment in restricted securities was approximately $19,364,000, representing 7.0% of net assets.
Acquisition Value
Issue Date Cost (Note 1a)
Allied Waste, $3.75 9/23/93 $ 1,500,000 $ 1,738,688
AMR Corp.,
$3.00 Series A 1/28/93 1,000,000 1,052,500
Engle Homes, Inc.,
7.00% due 3/01/2003 2/12/93 3,392,000 3,819,000
Gerrity Oil & Gas,
$1.50 Series 5/27/93 1,262,500 1,012,500
Intelcom,
7.00% due 10/30/1998 10/26/93 1,500,000 1,598,943
IVAX Corporation,
6.50% due 11/15/2001 6/23/92 3,457,500 3,762,500
Philips Environmental,
6.00% due 10/15/2000 10/13/93 1,000,000 1,030,000
SEACOR Holdings,
6.00% due 7/15/2003 6/24/93 1,557,500 1,665,000
Stone Container Corp.,
8.875% due 7/15/2000 12/28/93 2,663,438 2,587,500
UAL Corp., $6.25
Series A 2/05/93 1,008,750 1,097,500
Total $18,341,688 $19,364,131
=========== ===========
<PAGE>
<FN>
**Covered Short Sales entered into as of December 31, 1993 are
as follows:
Value
Shares Issue (Note 1a)
36,800 Arvin Industries, Inc. $ (1,177,600)
142,900 Ben Franklin Retail Stores (732,362)
245,000 Big B Inc. (3,068,750)
28,800 Bindley Western Industries Inc. (352,800)
126,300 Box Energy (1,594,537)
29,500 Casey's General Stores Inc. (722,750)
31,700 Conner Peripherals, Inc. (463,613)
85,000 DAKA International (988,125)
96,300 First Republic Bancorp (1,372,275)
148,200 GenCorp Inc. (2,111,850)
45,000 Gerrity Oil & Gas (523,125)
80,500 Giant Group (865,375)
124,720 Hillhaven Corp. (2,354,090)
33,000 Kroger Company (664,125)
37,500 LSI Logic Corp. (600,000)
102,800 Manpower, Inc. (1,811,850)
129,400 Medaphis Corp. (4,270,200)
90,900 Mediplex Group (2,681,550)
208,800 Orbital Sciences Corp. (4,280,400)
116,600 Quantum Corp. (1,676,125)
63,200 Re Capital Corp. (884,800)
102,500 Regency Health Services (1,447,813)
194,000 Savoy Pictures Entertainment (4,074,000)
96,300 Southdown Inc. (2,359,350)
52,800 Sterling Software, Inc. (1,498,200)
164,500 Stone Container Corp. (1,583,312)
40,000 Summit Health, Ltd. (880,000)
156,000 Systems and Computers (2,808,000)
4,900 UAL Corp. (715,400)
135,200 USA Waste Services (1,537,900)
116,600 The Western Co. of North America (1,501,225)
67,000 Willcox & Gibbs, Inc. (519,250)
Total (proceeds--$46,222,231) $(52,120,752)
============
Ratings of issues shown have not been audited
by Deloitte & Touche.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Convertible Holdings, Inc.
Statement of Assets, Liabilities and Capital as of December 31, 1993
<CAPTION>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$278,953,507) (Note 1a) $308,632,986
Cash 746,163
Receivables:
Short sales (Note 1f) $ 45,972,518
Interest 3,546,025
Dividends 201,708 49,720,251
------------
Deposits for securities sold short (Note 1f) 983,551
Deferred organization expenses (Note 1d) 136,735
Prepaid expenses and other assets 32,459
------------
Total assets 360,252,145
------------
Liabilities:
Common stocks sold short, at market value (proceeds--$46,222,231) (Note 1f) 52,120,752
Payables:
Dividends to shareholders 18,221,019
Securities purchased 10,114,133
Income taxes (Note 1b) 3,781,304
Investment adviser (Note 2) 450,265
Capital shares repurchased 375,700
Dividends for short sales 40,233 32,982,654
------------
Accrued expenses and other liabilities 149,440
------------
Total liabilities 85,252,846
------------
Net Assets $274,999,299
============
Capital (Note 5):
Income Shares:
Par value $.10 per share; 15,000,000 shares authorized; 12,216,000 shares issued $ 1,221,600
Liquidation capital in excess of par 112,387,200
------------
113,608,800
Undistributed investment income--net 51,554
------------
Net asset value, equivalent to $9.30 per share based on 12,216,000 shares outstanding
(market value--$10.625) $113,660,354
Capital Shares:
Par value $.10 per share; 15,000,000 shares authorized; 12,216,000 shares issued 1,221,600
Paid-in capital in excess of par 136,314,311
------------
137,535,911
------------
Undistributed realized gain on investments--net* 22,076
Unrealized appreciation on investments--net 23,780,958
------------
23,803,034
------------
Net asset value, equivalent to $13.21 per share based on 12,216,000 shares outstanding
(market value--$10.875) 161,338,945
------------
Net Assets $274,999,299
============
<FN>
*Net of taxes on undistributed net realized long-term capital gains (Note 1b).
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Convertible Holdings Inc.
Statement of Operations for the Year Ended December 31, 1993
<CAPTION>
<S> <C> <C>
Investment Income (Note 1c):
Interest and discount earned $ 13,634,858
Dividends (net of $4,808 foreign withholding tax) 4,058,590
------------
Total income $ 17,693,448
Expenses:
Investment advisory fees (Note 2) 1,789,470
Printing and shareholder reports 113,824
Transfer agent fees 101,818
Interest on securities sold short 97,928
Professional fees 65,186
Dividends on securities sold short 64,329
Custodian fees 49,868
Accounting services (Note 2) 45,083
Directors' fees and expenses 38,418
Amortization of organization expenses (Note 1d) 38,159
Pricing services 28,411
Insurance 7,814
Registration fees 270
Other 54,456
------------
Total expenses 2,495,034
------------
Investment income--net 15,198,414
Realized & Unrealized Gain on Investments--Net (Notes 1c & 3):
Realized gain on investments--net 24,991,231
Income taxes on realized gain on investments (3,781,304)
Change in unrealized appreciation on investments--net (2,746,628)
------------
Net Increase in Net Assets Resulting from Operations $ 33,661,713
============
</TABLE>
<PAGE>
<TABLE>
Convertible Holdings, Inc.
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended December 31,
1993 1992
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net $ 15,198,414 $ 18,159,403
Realized gain on investments--net 24,991,231 2,604,475
Income taxes on realized gain on investments (3,781,304) --
Change in unrealized appreciation on investments--net (2,746,628) 24,506,352
------------ ------------
Net increase in net assets resulting from operations 33,661,713 45,270,230
------------ ------------
Dividends & Distributions to Shareholders (Note 1e & 4):
Investment income--net (15,200,892) (18,183,982)
Realized gain on investments--net (14,276,142) (1,567,536)
------------ ------------
Net decrease in net assets resulting from dividends and distributions to shareholders (29,477,034) (19,751,518)
------------ ------------
Share Transactions (Note 5):
Income shares (7,765,500) (5,155,920)
Capital shares (10,786,117) (6,041,472)
------------ ------------
Net decrease in net assets resulting from treasury stock transactions (18,551,617) (11,197,392)
------------ ------------
Net Assets:
Total increase (decrease) in net assets (14,366,938) 14,321,320
Beginning of year 289,366,237 275,044,917
------------ ------------
End of year* $274,999,299 $289,366,237
<FN> ============ ============
*Undistributed investment income--net $ 51,554 $ 54,032
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Convertible Holdings, Inc.
Financial Highlights
<CAPTION>
For the Year Ended December 31,
1993 1992 1991 1990 1989
The following per share data and ratios have been derived
from information provided in the financial statements.
<S> <C> <C> <C> <C> <C>
Income Shares:
Per Share Operating Performance:
Net asset value, beginning of year $ 9.30 $ 9.31 $ 9.30 $ 9.30 $ 9.32
Investment income--net 1.20 1.35 1.41 1.38 1.39
Dividends of investment income--net (1.20) (1.36) (1.40) (1.38) (1.41)
------- ------- -------- -------- -------
Net asset value, end of year $ 9.30 $ 9.30 $ 9.31 $ 9.30 $ 9.30
======= ======= ======== ======== =======
Market price per share, end of year $10.625 $ 11.25 $ 12.625 $ 10.875 $ 11.50
======= ======= ======== ======== =======
Total Investment Return:*
Based on market price per share 7.20% 2.74% 34.37% 9.23% 15.85%
======= ======= ======== ======== =======
Based on net asset value per share 13.50% 15.17% 15.87% 15.50% 15.60%
======= ======= ======== ======== =======
Capital Shares:
Per Share Operating Performance:
Net asset value, beginning of year $ 12.87 $ 10.91 $ 7.67 $ 10.12 $ 8.69
Realized and unrealized gain (loss) on investments--net 1.43 2.03 3.24 (2.45) 1.43
Distributions of realized gain--net (1.17) (.12) -- -- --
Effect of repurchase of Treasury Stock .08 .05 -- -- --
------- ------- -------- -------- -------
Net asset value, end of year $ 13.21 $ 12.87 $ 10.91 $ 7.67 $ 10.12
======= ======= ======== ======== =======
Market price per share, end of year $10.875 $ 9.375 $ 6.875 $ 4.25 $ 5.50
======= ======= ======== ======== =======
Total Investment Return:*
Based on market price per share 28.77% 38.11% 61.76% (22.73%) 29.41%
======= ======= ======== ======== =======
Based on net asset value per share 13.93% 19.48% 42.24% (24.21%) 16.46%
======= ======= ======== ======== =======
Total Fund:
Ratios to Average Net Assets:
Total expenses** .80% .80% .83% .86% .80%
======= ======= ======== ======== =======
Investment income--net 5.10% 6.34% 7.24% 7.39% 7.15%
======== ======== ======== ======== =======
Supplemental Data:
Net assets, end of year (in thousands) $274,999 $289,366 $275,045 $230,851 $264,339
======== ======== ======== ======== =======
Portfolio turnover 116.03% 76.54% 54.90% 40.28% 50.47%
======== ======== ======== ======== =======
<FN>
*Total investment returns based on market value, which can be significantly greater or lesser than the net asset value,
result in substantially different returns. Total investment returns exclude the effects of sales loads.
**Excluding taxes on undistributed net realized long-term capital gains (Note 1b).
</TABLE>
<PAGE>
Convertible Holdings, Inc.
Notes to Financial Statements
1. Significant Accounting Policies:
Convertible Holdings, Inc. (the "Company") is a diversified, closed-
end, "dual purpose" investment company. The following is a summary of
significant accounting policies followed by the Company.
(a) Valuation of investments--Portfolio securities which are traded only
on stock exchanges are valued at the last sale price as of the close of
business on the day the securities are being valued, or lacking any sales,
at the mean between closing bid and asked prices. Securities traded in the
over-the-counter market are valued at the most recent bid prices as obtained
from one or more dealers that make markets in these securities. Portfolio
securities which are traded both in the over-the-counter markets and on a
stock exchange are valued according to the broadest and most representative
market. Securities and assets for which market quotations are not readily
available and securities subject to restrictions on resale are valued at
fair value as determined in good faith by or under the direction of the
Board of Directors of the Company. Short-term securities are valued at
amortized cost, which approximates market.
(b) Income taxes--It is the Company's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable net investment income and net realized
short-term capital gains. The Company intends to retain net realized long-
term capital gains, if any, and pay taxes on such gains at the Federal tax
rates applicable to corporations.
(c) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis. Realized gains
and losses on security transactions are determined on the identified cost
basis.
(d) Deferred organization expenses--Deferred organization expenses are
charged to expense on a straight-line basis over a twelve-year period
ending on July 31, 1997, the redemption date
for the Income Shares.
(e) Dividends and distributions--Dividends and distributions paid by the
Company are recorded on the ex-dividend dates.
<PAGE>
(f) Short sales--When the Company engages in a short sale, an amount
equal to the proceeds received by the Company is reflected as an asset
and equivalent liability. The amount of the liability is subsequently
marked to market to reflect the market value of the short sale. The
Company maintains a segregated account of securities and cash as
collateral for the short sales. The Company owns convertible bonds or
stock of the same issuer which covers the short sale. The Company is
exposed to market risk based on the amount, if any, that the market
value of the stock exceeds the market value of the securities in the
segregated account. Securities have been borrowed from Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), an affiliate of MLIM, to
execute short sales.
(g) Reclassification--As a result of the taxes paid on capital gains
realized by the Company, approximately $27,800,000 of undistributed long-
term capital gains was reclassified to paid-in capital.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Company has entered into an Investment Advisory Agreement with Merrill
Lynch Asset Management ("MLAM"). MLAM is the name under which Merrill Lynch
Investment Management, Inc. ("MLIM") does business. MLIM is an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc.
MLAM is responsible for the management of the Company's portfolio and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Company. For such services,
the Company pays MLAM a quarterly fee at the annual rate of 0.60% of the
Company's average weekly net assets.
The investment advisory fee is reduced by 25% for any quarter in which the
company fails to meet the Minimum Income Rate Objective ("Objective") at
the close of any fiscal quarter. The Objective is to obtain a minimum
annualized rate of income return equal to 85% of the yield of the Value
Line Convertible Index.Effective January 1, 1994, the investment advisory
business of MLAM reorganized from a corporation to a limited partnership.
The general partner of MLAM is Princeton Services, Inc., an indirect
wholly-owned subsidiary of Merrill Lynch &Co.
Accounting services are provided to the Company by MLAM at cost.
Certain officers and/or directors of the Company are officers and/or
directors of MLIM, MLPF&S and/or Merrill Lynch & Co., Inc.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for
the year ended December 31, 1993, were $320,309,872 and $322,435,505,
respectively.
<PAGE>
Net realized and unrealized gains (losses) as of December 31,
1993 were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $27,548,654 $29,679,479
Short-term investments (498) --
Short sales (2,556,925) (5,898,521)
----------- ----------
Total $24,991,231 $23,780,958
=========== ===========
As of December 31, 1993, net unrealized appreciation for Federal
income tax purposes aggregated $29,673,229, of which $34,190,846
related to appreciated securities and $4,517,617 related to
depreciated securities. The aggregate cost of investments at
December 31, 1993 for Federal income tax purposes was $278,959,757.
4. Distributions:
The Company distributes its net investment income quarterly to
holders of Income Shares. Income Shares are entitled to cumulative
dividends in an amount equivalent to net investment income, with a
minimum annual rate of $1.00 per share. To the extent that any such
cumulative dividend cannot be satisfied from net investment income,
it will be paid from any net realized short-term or long-term capital
gains. Capital Shares will not be entitled to receive distributions from
net investment income until 1997.
To the extent not needed to pay the Income Shares' minimum
cumulative dividends, distributions from net realized short-term
capital gains, if any, may be paid to holders of the Capital
Shares in the succeeding year. The Company will not distribute
net realized long-term capital gains except to the limited extent
described above.
5. Share Transactions:
At December 31, 1993, there were 15,000,000 shares of $.10 par value
authorized for each class.
During the year ended December 31, 1993, the Company repurchased
835,000 Income Shares and 835,000 Capital Shares, all of which
have been retired.
As long as any Income Shares are outstanding, the Company will
not issue any additional Capital Shares or Income Shares.
The Company intends to redeem all Income Shares in 1997 for $9.30
per share plus accumulated and unpaid dividends ("liquidation value").
As a result of this liquidation preference, the per share capital of the
Income Shares is maintained at the liquidation value. The capital of the
Capital Shares reflects a deduction of $1,557,433 for the difference between
the cost of the Income Shares repurchased during the year ended December 31,
1993 and the $9.30 per share liquidation value for Income Shares. After
July 31, 1997, Capital Shares will then be the sole remaining class of
shares of the Company outstanding, and the Board of Directors will decide
whether to liquidate the Company or to submit to the holders of Capital
Shares a proposal to change the Company to an open-end investment company.
<PAGE>
<TABLE>
Convertible Holdings, Inc.
Notes to Financial Statements (concluded)
Quarterly Data (unaudited)
<CAPTION>
Income Shares Capital Shares Total Fund
Net Realized and Net Increase
Net Investment Unrealized Gains (Losses) in Net Assets
Investment Income on Investments* Resulting from Operations
For the Quarter Income Amount Per Share Amount Per Share Amount Per Share**
<S> <C> <C> <C> <C> <C> <C> <C>
Jan. 1, 1992 to March 31, 1992 $5,450,650 $ 4,867,541 $.36 $ 9,532,082 $.70 $14,399,623 $1.06
April 1, 1992 to June 30, 1992 5,510,870 4,927,228 .37 (4,834,060) (.36) 93,168 .01
July 1, 1992 to Sept. 30, 1992 4,657,464 4,077,975 .30 7,828,627 .58 11,906,602 .88
Oct. 1, 1992 to Dec. 31, 1992 4,842,561 4,286,659 .32 14,584,178 1.11 18,870,837 1.43
Jan. 1, 1993 to March 31, 1993 4,735,144 4,147,554 .32 11,466,527 .89 15,614,081 1.21
April 1, 1993 to June 30, 1993 3,914,812 3,305,219 .26 296,973 .02 3,602,192 .28
July 1, 1993 to Sept. 30, 1993 4,251,430 3,657,430 .29 7,628,097 .60 11,285,525 .89
Oct. 1, 1993 to Dec. 31, 1993 4,694,134 4,088,211 .33 (928,296) (.08) 3,159,915 .25
<FN>
*Net of tax on undistributed net realized long-term capital
gains (Note 1b).
**Represents combined net increase in net assets resulting from
operations for one Income and one Capital Share.
</TABLE>
<TABLE>
Convertible Holdings, Inc.
Stockholder Information (unaudited)
Consolidated Transaction Reporting System Prices
<CAPTION> Income Shares Capital Shares
Net Asset Value Market Price* Net Asset Value Market Price*
For the Quarter High Low High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jan. 1, 1992 to March 31, 1992 $9.66 $9.42 $13 $12 3/8 $11.83 $11.01 $7 $ 6 7/8
April 1, 1992 to June 30, 1992 9.70 9.38 12 12 3/8 11.79 11.14 7 1/2 7 5/8
July 1, 1992 to Sept. 30, 1992 9.67 9.32 12 1/2 12 5/8 11.96 11.42 7 1/2 7 7/8
Oct. 1, 1992 to Dec. 31, 1992 9.59 9.28 12 3/8 11 5/8 12.87 11.69 9 3/8 7 7/8
Jan. 1, 1993 to March 31, 1993 9.63 9.34 11 3/4 11 1/4 13.76 12.84 10 7/8 9 3/8
April 1, 1993 to June 30, 1993 9.64 9.34 11 7/8 11 1/2 13.94 13.52 10 5/8 10 1/4
July 1, 1993 to Sept. 30, 1993 9.59 9.33 11 3/4 10 1/2 14.42 13.70 11 10 3/8
Oct. 1, 1993 to Dec. 31, 1993 9.63 9.30 11 1/4 10 5/8 14.69 13.21 11 1/2 10 7/8
<FN>
*As reported in the consolidated transaction reporting system.
</TABLE>
<PAGE>
Convertible Holdings, Inc.
Independent Auditors' Report
The Board of Directors and Shareholders, Convertible Holdings,
Inc.:
We have audited the accompanying statement of assets, liabilities and
capital, including the schedule of investments, of Convertible Holdings,
Inc. as of December 31, 1993, the related statements of operations for
the year then ended and changes in net assets for each of the years in
the two-year period then ended, and the financial highlights for each of
the years in the five-year period then ended. These financial statements
and the financial highlights are the responsibility of the Company's manage-
ment. Our responsibility is to express an opinion on these financial state-
ments and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned at December 1, 1993 by correspondence with the custodian
and brokers or other auditing procedures. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion. In our
opinion, such financial statements and financial highlights present fairly,
in all material respects, the financial position of Convertible Holdings,
Inc. as of December 31, 1993, the results of its operations, the changes
in its net assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
February 4, 1994
Important Tax Information
Of the ordinary income distributions paid quarterly by Convertible
Holdings, Inc. during its taxable year ended December 31, 1993, 13.73%
qualifies for the dividends-received deduction for corporations.
Additionally, capital shareholders of record on December 31, 1993 were
deemed to receive undistributed long-term capital gains of $0.88440 per
share and were allocated Federal income taxes which were paid by the
Company on the shareholders' behalf of $0.30954 per share. The un-
distributed capital gains allocated to you and the Federal income
taxes paid by the Company on your behalf will be reported to you on
Form 2439, Notice to Shareholders of Undistributed Long-Term Capital
Gains, along with information on how to report these amounts on your
Federal Form 1040. In addition, you should increase the cost basis of
your shares by $0.57486 per share, which represents the excess of the
undistributed long-term captial gains over the taxes paid. You should
consult your tax adviser for additional information regarding the
appropriate treatment of undistributed long-term capital gains.
Please retain this information for your records.
<PAGE>
About Convertible Holdings, Inc.
A closed-end "dual purpose" investment company, Convertible Holdings, Inc.
invests primarily in convertible bonds and convertible preferred stock. The
Company has two classes of shares: Capital Shares (NYSE symbol CNV) for those
seeking long-term growth of capital; and Income Shares (NYSE symbol CNV Pr)
for those seeking current and long-term growth of income.
Both classes of shares represent "leveraged" investments. This is be-
cause Capital Share investors initially provided only 42.5% of the Company's
capital at inception in 1985, yet will receive all of the portfolio's
capital appreciation. Income Share investors, on the other hand, initially
provided 57.5% of the Company's capital, but will receive all of the
portfolio's income. In other words, investors in either class of shares have
more assets working for their respective investment goals than they have
contributed.
In 1997, Income Shares will be redeemed at $9.30 per share, plus accumulated
and unpaid dividends. (Should assets be insufficient to redeem the Income
Shares at such amount, total net assets of the Company would be distributed
to Income Shareholders on a pro-rata basis.) After redemption of the Income
Shares, Capital Shareholders will own all remaining assets. Thereafter, the
Company will either liquidate or submit to the Capital Shareholders a
proposal to continue as an open-end investment company (i.e., a mutual fund).
Share Comparison
The following is a brief summary of certain rights of each class of shares
of the Company.
Capital Shares
Entitled to all the portfolio's appreciation.
No distributions from net income received as long as
Income Shares are outstanding.
Bear none of the Company's expenses.
Potential for capital appreciation with potential lower
downside risk than a leveraged common stock portfolio.
NYSE symbol CNV
Income Shares
Entitled to all the portfolio's net income, paid
quarterly.
Minimum cumulative dividend of $1.00 annually.
<PAGE>
Pay all of the Company's expenses.
Potential for growing income stream if portfolio
appreciates over time.
NYSE symbol CNV Pr
Convertible Holdings, Inc.
Glossary
Break-Even Time
This calculation, based on a dollar-for-dollar basis, shows the number
of years over which the dollar conversion premium may be recovered by
the increased dollar income of the convertible over that of the underlying
common stock, assuming no change in the dividend on the underlying stock.
(Also called the premium recovery period.)
Call Protection
Nearly all the convertibles have call provisions which give the issuers
the right to buy back the issue at a premium over the price at which it
was issued. A company may wish to reduce its bond interest expense or
preferred dividend requirements, replacing them with a lower-yielding
common stock. To protect the security-holder, some issues are not subject
to redemption for a stated period of time, thus ensuring their income
requirements during that period. There are no provisional terms under
which a security with hard (absolute) call protection may be called.
Conversion Value
A convertible security is entitled to a fixed number of common shares
upon conversion. For bonds, it is typically the number of shares per
$1,000 principal amount. For preferreds, the number of shares multiplied
by the market value per common share is the preferred's conversion value.
Net Income
Net income includes all dividends, interest and other income (but not
realized or unrealized gains, stock dividends, and other capital items)
earned by the Company on its portfolio holdings, net of the Company's
expenses. For purposes of determining Net Income, expenses do not include
taxes on undistributed net long-term capital gains paid by the Company.
Percent Premium
The percentage over conversion value at which the convertible security
trades. If a convertible bond is selling at 120 and its conversion value
is 105, then the conversion premium is 15 points
($150), or 14.3%.
