CONVERTIBLE HOLDINGS INC, DEF 14A, 1994-07-26

CONVERTIBLE HOLDINGS INC
DEF 14A, 1994-07-26
INVESTORS, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 1994

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the registrant /X/
Filed by a party other than the registrant / /

Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12

Convertible Holdings, Inc.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

Convertible Holdings, Inc.
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of filing fee (Check the appropriate box):

/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.

(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:1
- - --------------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------

/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.

(1) Amount previously paid:
- - --------------------------------------------------------------------------------

(2) Form, schedule or registration statement no.:
- - --------------------------------------------------------------------------------

(3) Filing party:
- - --------------------------------------------------------------------------------

(4) Date filed:
- - --------------------------------------------------------------------------------
- - ---------------
1Set forth the amount on which the filing fee is calculated and state how it was
determined.
<PAGE> 2

CONVERTIBLE HOLDINGS, INC.
BOX 9011
PRINCETON, NEW JERSEY 08543-9011

------------------------

NOTICE OF 1994 ANNUAL MEETING OF STOCKHOLDERS

SEPTEMBER 9, 1994
------------------------

TO THE STOCKHOLDERS OF CONVERTIBLE HOLDINGS, INC.:

Notice is hereby given that the 1994 Annual Meeting of Stockholders (the
"Meeting") of Convertible Holdings, Inc. (the "Company") will be held at the
offices of Merrill Lynch Asset Management, 800 Scudders Mill Road, Plainsboro,
New Jersey, on Friday, September 9, 1994 at 9:15 A.M. for the following
purposes:

(1) To elect a Board of Directors to serve for the ensuing year;

(2) To consider and act upon a proposal to ratify the selection of
Deloitte & Touche to serve as independent auditors of the Company for its
current fiscal year; and

(3) To transact such other business as may properly come before the
Meeting or any adjournment thereof.

The Board of Directors has fixed the close of business on July 15, 1994 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Meeting or any adjournment thereof.

A complete list of the stockholders of the Company entitled to vote at the
Meeting will be available and open to the examination of any stockholder of the
Company for any purpose germane to the Meeting during ordinary business hours
from and after August 19, 1994, at the office of the Company, 800 Scudders Mill
Road, Plainsboro, New Jersey. You are cordially invited to attend the Meeting.
STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE REQUESTED TO
COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE
ENVELOPE PROVIDED FOR THIS PURPOSE. The enclosed proxy is being solicited on
behalf of the Board of Directors of the Company.

By Order of the Board of Directors

MARK B. GOLDFUS
Secretary
Plainsboro, New Jersey
Dated: July 25, 1994
<PAGE> 3

PROXY STATEMENT
------------------------

CONVERTIBLE HOLDINGS, INC.
BOX 9011
PRINCETON, NEW JERSEY 08543-9011
------------------------

1994 ANNUAL MEETING OF STOCKHOLDERS

SEPTEMBER 9, 1994

INTRODUCTION

This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Convertible Holdings, Inc., a
Maryland corporation (the "Company"), to be voted at the 1994 Annual Meeting of
Stockholders of the Company (the "Meeting"), to be held at the offices of
Merrill Lynch Asset Management ("MLAM"), 800 Scudders Mill Road, Plainsboro, New
Jersey, on Friday, September 9, 1994 at 9:15 A.M. The approximate mailing date
of this Proxy Statement is July 27, 1994.

All properly executed proxies received prior to the Meeting will be voted
at the Meeting in accordance with the instructions marked thereon or otherwise
as provided herein. Unless instructions to the contrary are marked, proxies will
be voted for the election of the Board of Directors to serve for the ensuing
year and for the ratification of the selection of independent auditors to serve
for the Company's current fiscal year. See "Additional Information". Any proxy
may be revoked at any time prior to the exercise thereof by giving written
notice to the Secretary of the Company.

The Board of Directors has fixed the close of business on July 15, 1994 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Meeting and at any adjournment thereof. Stockholders on the
record date will be entitled to one vote for each share held, with no shares
having cumulative voting rights. As of July 15, 1994 the Company had outstanding
11,931,700 Income Shares, par value $.10 per share, and 11,931,700 Capital
Shares, par value $.10 per share. As of that date, to the knowledge of the
Company, no person beneficially owned more than five percent of the outstanding
shares of either class except as set forth in Exhibit B.

The Board of Directors of the Company knows of no business other than that
mentioned in Items 1 and 2 of the Notice of Meeting which will be presented for
consideration at the Meeting. If any other matter is properly presented, it is
the intention of the person named in the enclosed proxy to vote in accordance
with their best judgment.
<PAGE> 4

ITEM 1. ELECTION OF DIRECTORS

At the meeting, each member of the Board of Directors will be elected to
serve until the next Annual Meeting of Stockholders and until his successor is
elected and qualified, until his death, until he resigns or is otherwise removed
under the charter or until December 31 of the year in which he reaches age 72.
It is intended that all properly executed proxies will be voted (unless such
authority has been withheld in the proxy) as follows:

(1) All such proxies representing both Income Shares and Capital
Shares voting together as a single class in favor of the two (2) persons
designated as Directors to be elected by holders of Income Shares and
Capital Shares;

(2) All such proxies representing Capital Shares will be voted in
favor of the two (2) persons designated as Directors to be elected by
holders of Capital Shares; and

(3) All such proxies representing Income Shares will be voted in favor
of the two (2) persons designated as Directors to be elected by holders of
Income Shares.

The Board of Directors of the Company knows of no reason why any of these
nominees will be unable to serve, but in the event of any such unavailability,
the proxies received will be voted for such substitute nominee or nominees as
the Board of Directors may recommend.

Certain information concerning the nominees, including their designated
classes, is set forth as follows:

2
<PAGE> 5

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED AT
JULY 15, 1994
PRINCIPAL OCCUPATIONS -----------------
DURING PAST FIVE YEARS DIRECTOR INCOME CAPITAL
NAME AND ADDRESS OF NOMINEE AND PUBLIC DIRECTORSHIPS(1) AGE SINCE SHARES SHARES
- - --------------------------------- --------------------------------------- --- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Joseph L. May(1)(2).............. Attorney in private practice since 65 1987 0 0
424 Church Street 1984; President, May and Athens Hosiery
Suite 2000 Mills Division, Wayne-Gossard
Nashville, Tennessee 37219 Corporation from 1954 to 1983; Vice
President, Wayne-Gossard Corporation
from 1972 to 1983; Chairman, The May
Corporation (personal holding
company) from 1972 to 1983; Director,
Signal Apparel Co. from 1972 to 1989.
TO BE ELECTED BY THE HOLDERS OF CAPITAL SHARES
Robert R. Martin(1)(2)........... Chairman and Chief Executive Officer, 67 1993 0 0
513 Grand Hill Kinnard Investments, Inc. from 1990
St. Paul, Minnesota 55102 to 1993; Executive Vice President,
Dain Bosworth from 1974 to 1989;
Director, Carnegie Capital Management
from 1977 to 1985 and Chairman
thereof in 1979; Director, Securities
Industry Association from 1981 to
1982 and Public Securities
Association from 1979 to 1980;
Chairman, WTC Industries, Inc. since
1994; Trustee, Northland College
since 1992.
Arthur Zeikel(1)(3).............. President of MLAM since 1977 and Chief 62 1985 0 0
Box 9011 Investment Officer since 1976;
Princeton, New Jersey President and Chief Investment
08543-9011 Officer of Fund Asset Management,
L.P. ("FAM") since 1977; President
and Director of Princeton Services,
Inc. ("Princeton Services") since
1993; Executive Vice President of
Merrill Lynch & Co., Inc. ("ML&Co.")
since 1990; Executive Vice President
of Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch")
since 1990; Senior Vice President of
Merrill Lynch from 1985 to 1990;
Director of Merrill Lynch Funds
Distributor, Inc. ("MLFD").
TO BE ELECTED BY THE HOLDERS OF INCOME SHARES
Terry K. Glenn(1)(3)............. Executive Vice President of MLAM and 53 1985 0 0
Box 9011 FAM since 1983; Executive Vice
Princeton, New Jersey President and Director of Princeton
08543-9011 Services since 1993; President of
MLFD since 1986 and a Director
thereof since 1991; President of
Princeton Administrators, L.P. since
1988.
</TABLE>

3
<PAGE> 6

Kingdomcompany).
- - ---------------

(1) Each of the nominees is a director, trustee or member of an advisory board
of certain other investment companies for which MLAM or its affiliate, FAM,
acts as investment adviser. See "Merrill Lynch Investment Company
Directorships" below.

(2) Member of Audit Committee of Board of Directors.

(3) Interested person, as defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act"), of the Company.

Committees and Board of Directors Meetings. The Board of Directors has a
standing Audit Committee, which consists of the Directors who are not
"interested persons" of the Company within the meaning of the Investment Company
Act. The principal purpose of the Audit Committee is to review the scope of the
annual audit conducted by the Company's independent auditors and the evaluation
by such auditors of the accounting procedures followed by the Company. The Board
of Directors does not have a nominating committee.

During the fiscal year ended December 31, 1993, the Board of Directors held
four meetings and the Audit Committee held four meetings. Each of the Directors
attended at least 75% of the aggregate of the total number of meetings of the
Board of Directors and the total number of meetings held by all committees on
which he served.

Compliance with Section 16(a) of the Securities Exchange Act of
1934. Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers, directors and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with
the Securities and Exchange Commission ("SEC") and the New York Stock Exchange.
Officers, directors and greater than ten percent stockholders are required by
SEC regulations to furnish the Company with copies of all Forms 3, 4 and 5 they
file.

Based solely on the Company's review of the copies of such forms, and
amendments thereto, furnished to it during or with respect to its most recent
fiscal year, and written representations from certain reporting persons that
they were not required to file Form 5 with respect to the most recent fiscal
year, the Company believes that all of its officers, directors, greater than ten
percent beneficial owners and other persons subject to Section 16 of the
Exchange Act because of the requirements of Section 30 of the Investment Company
Act, i.e., any advisory board member, investment adviser or affiliated person of
the Company's investment adviser, have complied with all filing requirements
applicable to them with respect to transactions during the Company's most recent
fiscal year except that (i) Mr. Martin inadvertantly neglected to file a Form 3
to report his election as a Director of the Fund and (ii) Donald C. Burke
inadvertently neglected to file a Form 3 to report his election as Vice
President of the Fund. This information was, however, included in a Form 5 which
was filed by each of them in a timely manner.

4
<PAGE> 7

Interested Persons. The Company considers two Directors, Mr. Zeikel and
Mr. Glenn, to be "interested persons" of the Company within the meaning of
Section 2(a)(19) of the Investment Company Act as a result of the positions they
hold with MLAM and its affiliates. Mr. Zeikel is the President of the Company
and the President of MLAM and of its affiliate, FAM. Mr. Glenn is Executive Vice
President of MLAM and of its affiliate, FAM.

Compensation of Directors. MLAM, the Company's investment adviser, pays
all compensation of all officers of the Company and all Directors of the Company
who are affiliated with ML&Co. or its subsidiaries. The Company pays each
Director not affiliated with the investment adviser a fee of $5,000 per year
plus $500 per meeting attended, together with such Director's actual
out-of-pocket expenses relating to attendance at meetings. The Company also pays
each member of its Audit Committee a fee of $1,000 per year plus $250 per
meeting attended, together with such Director's out-of-pocket expenses relating
to attendance at such meetings. These fees and expenses aggregated $38,418 for
the fiscal year ended December 31, 1993.

Merrill Lynch Investment Company Directorships. MLAM and its affiliate,
FAM, act as the investment adviser for more than 90 other registered investment
companies. Mr. Zeikel is a trustee or director of each of these companies except
for Merrill Lynch Series Fund, Inc., Merrill Lynch Funds for Institutions Series
and Merrill Lynch Institutional Intermediate Fund. Except for Mr. Glenn, each of
the nominees is a trustee or director of Merrill Lynch Balanced Fund for
Investment and Retirement, Merrill Lynch California Municipal Series Trust,
Convertible Holdings Inc., Merrill Lynch Consults International Portfolio,
Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Growth Fund for
Investment and Retirement, Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust, Merrill Lynch World Income Fund, Inc., Merrill Lynch Global
Convertible Fund, Inc., MuniEnhanced Fund, Inc., MuniYield Fund, Inc., MuniYield
Arizona Fund, Inc., MuniYield Arizona Fund II, Inc., MuniYield California Fund,
Inc., MuniYield California Insured Fund, Inc., MuniYield California Insured Fund
II, Inc., MuniYield Florida Fund, MuniYield Michigan Fund, Inc., MuniYield New
Jersey Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New York
Insured Fund II, Inc., MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc. and MuniVest Pennsylvania Insured Fund. Mr. Glenn is a trustee or director
of Merrill Lynch Funds for Institutions Series and Merrill Lynch Series Fund,
Inc.

5
<PAGE> 8

Officers of the Company. The Board of Directors has elected eight officers
of the Company. The following table sets forth information concerning each of
these officers:

<TABLE>
<CAPTION>
OFFICER
NAME AND PRINCIPAL OCCUPATION OFFICE AGE SINCE
-------------------------------------------------- ------------------------- --- -------
<S> <C> <C> <C>
Arthur Zeikel..................................... President 62 1985
President of MLAM since 1977 and Chief
Investment Officer since 1976; President and
Chief Investment Officer of FAM since 1977;
President and Director of Princeton Services
since 1993; Executive Vice President of
ML&Co. since 1990; Executive Vice President
of Merrill Lynch since 1990; Senior Vice
President of Merrill Lynch from 1985 to 1990;
Director of MLFD since 1991.
Terry K. Glenn.................................... Executive Vice President 53 1985
Executive Vice President of MLAM and FAM since
1983; Executive Vice President and Director
of Princeton Services since 1993; President
of MLFD since 1986 and Director since 1991;
President of Princeton Administrators, L.P.
since 1988.
N. John Hewitt.................................... Senior Vice President 60 1993
Senior Vice President of MLAM since 1976;
Manager of the Fixed Income Mutual Fund and
Insurance Portfolio Groups of MLAM; Senior
Vice President of Princeton Services since
1993.
Vincent T. Lathbury, III.......................... Vice President and 53 1985
Vice President and Portfolio Manager of MLAM Portfolio Manager
since 1982.
Barton A. Vogel................................... Vice President 58 1990
Vice President of MLAM since 1990.
Donald C. Burke................................... Vice President 34 1993
Vice President and Director of Taxation of MLAM
since 1990; Employee of Deloitte & Touche
from 1982 to 1990.
Gerald M. Richard................................. Treasurer 45 1985
Senior Vice President and Treasurer of MLAM and
FAM since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993;
Vice President of MLFD since 1981 and
Treasurer since 1984.
Mark B. Goldfus................................... Secretary 47 1985
Vice President of MLAM and FAM since 1985.
</TABLE>

Stock Ownership. At July 15, 1994, the Directors and officers of the
Company as a group (13 persons) owned an aggregate of less than 1/4 of 1% of
either the Capital Shares or the Income Shares outstanding at

6
<PAGE> 9

such date. At such date, Messrs. Zeikel and Glenn, Directors and officers of the
Company, and the other officers of the Company owned an aggregate of less than
1/4 of 1% of the outstanding shares of common stock of ML&Co.

ITEM 2. SELECTION OF INDEPENDENT AUDITORS

The Board of Directors of the Company, including a majority of the
Directors who are not interested persons of the Company, has selected the firm
of Deloitte & Touche ("D&T"), independent auditors, to examine the financial
statements of the Company for the current fiscal year. The Company knows of no
direct or indirect financial interest of D&T in the Company. Such appointment is
subject to ratification or rejection by the stockholders of the Company. Unless
a contrary specification is made, the accompanying proxy will be voted in favor
of ratifying the selection of such auditors.

D&T also acts as independent auditors for ML&Co. and all of its
subsidiaries and for most other investment companies for which FAM or MLAM acts
as investment adviser. The fees received by D&T from these other entities are
substantially greater, in the aggregate, than the total fees received by it from
the Company. The Board of Directors of the Company considered the fact that D&T
has been retained as the independent auditors for ML&Co. and the other entities
described above in its evaluation of the independence of D&T with respect to the
Company.

Representatives of D&T are expected to be present at the Meeting and will
have the opportunity to make a statement if they so desire and to respond to
questions from stockholders.

THE INVESTMENT ADVISORY AGREEMENT

MLAM acts as the investment adviser for the Company and provides the
Company with management services pursuant to an investment advisory agreement
dated July 22, 1985 (the "Investment Advisory Agreement"). The stockholders of
the Company most recently approved the Investment Advisory Agreement on
September 11, 1992. MLAM has acted as the investment adviser for the Company
since the Company commenced operations.

On June 17, 1994, the Board of Directors of the Company, including a
majority of the Directors who are not interested persons of the Company,
approved the continuance of the Investment Advisory Agreement for a period of
one year. On that date, Arthur Zeikel and Terry K. Glenn, Directors of the
Company, owned securities of ML&Co. In their consideration of this matter, the
Board received extensive information relating to, among other things, the
nature, quality and extent of the advisory, administrative and other services
provided to the Company by MLAM and its affiliates (including Merrill Lynch),
comparative data with respect to the advisory and management fees paid by other
dual-purpose funds, the operating expenses and expense ratio of the Company as
compared to such funds and the performance of the Company as compared to the
performance of such other dual-purpose funds. The Board also has received
information as to the costs of MLAM and its affiliates for providing services to
the Company.

INFORMATION CONCERNING MLAM

Effective January 1, 1994, MLAM was reorganized as a Delaware limited
partnership. MLAM (the general partner of which is Princeton Services, a
wholly-owned subsidiary of ML&Co.) is owned and controlled by ML&Co. and is
located at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. ML&Co. is
located at 250 Vesey Street, New York, New York 10281. The reorganization did
not result in a change of management of MLAM, in any of its personnel, or in an
adverse change in its financial condition. Prior to the reorganization, MLAM was
a Delaware corporation which was a wholly-owned subsidiary of ML&Co. MLAM or FAM
acts as the investment adviser for more than 90 other registered investment
companies. In addition, MLAM offers portfolio management and portfolio analysis
services to individuals and institutions.

7
<PAGE> 10

MLAM's audited balance sheet for its most recent fiscal year ended December 31,
1993 is appended to this Proxy Statement as Exhibit A.

Securities held by the Company also may be held by or be appropriate
investments for other funds or clients (collectively referred to as "clients")
for which MLAM or FAM acts as an adviser. Because of different investment
objectives or other factors, a particular security may be bought for one or more
clients when one or more other clients are selling the security. If purchases or
sales of securities for the Company or other clients arise for consideration at
or about the same time, transactions in such securities will be made, insofar as
feasible, for the respective clients in a manner deemed equitable to all by MLAM
or FAM. To the extent that transactions on behalf of more than one client of
MLAM or FAM during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.

The following table sets forth the name, title and principal occupation of
the principal executive officer of MLAM and the directors of Princeton Services,
the general partner of MLAM:

<TABLE>
<CAPTION>
NAME* TITLE PRINCIPAL OCCUPATION
- - --------------------------------- ------------------------------ -----------------------------
<S> <C> <C>
ARTHUR ZEIKEL.................... President and Chief Investment President and Chief
Officer of MLAM and President Investment Officer of MLAM
and Director of Princeton and FAM; Executive Vice
Services President of ML&Co.;
President and Director of
Princeton Services
TERRY K. GLENN................... Executive Vice President of Executive Vice President of
MLAM and Executive Vice MLAM and FAM; Executive Vice
President and Director of President and Director of
Princeton Services Princeton Services
PHILIP L. KIRSTEIN............... Senior Vice President and Senior Vice President,
General Counsel of MLAM and General Counsel and Secretary
Senior Vice President and of MLAM and FAM; Senior Vice
Director of Princeton Services President and Director of
Princeton Services
</TABLE>

- - ---------------
*Messrs. Zeikel and Glenn are both presently Directors of the Company. The
address of Messrs. Zeikel, Glenn and Kirstein is Box 9011, Princeton, New
Jersey 08543-9011, which is also the address of MLAM and FAM.

TERMS OF INVESTMENT ADVISORY AGREEMENT

The Investment Advisory Agreement provides that, subject to the direction
of the Board of Directors of the Company, MLAM is responsible for the actual
management of the Company's portfolio and for the review of the Company's
holdings in light of its own research analysis and analyses from other relevant
sources. The responsibility for making decisions to buy, sell or hold a
particular security rests with MLAM, subject to review by the Board of
Directors. MLAM provides the portfolio managers for the Company, who consider
analyses from various sources (including brokerage firms with which the Company
does business), make the necessary investment decisions and place transactions
accordingly. MLAM also is obligated to perform certain administrative and
management services for the Company and is obligated to provide all the office
space, facilities, equipment and personnel necessary to perform its duties under
the Investment Advisory Agreement.

8
<PAGE> 11

Investment Advisory Fee. The Investment Advisory Agreement provides that
as compensation for its services to the Company, MLAM receives from the Company
at the end of each quarter a fee based upon the average weekly value of the
Company's net assets at the annual rate of 0.60% of the portion of average
weekly net assets. The assets for each weekly period are determined by averaging
the net assets at the end of a week with the net assets at the end of the prior
week. For the fiscal year ended December 31, 1993, the investment advisory fee
paid by the Company to MLAM aggregated $1,789,470 (based upon average net assets
of approximately $299.1 million). At June 30, 1994, the Company had net assets
of approximately $250.6 million. At this asset level the Company's annual
investment advisory fee would aggregate approximately $1.5 million.

The Investment Advisory Agreement further provides that the investment
advisory fee payable to MLAM will be reduced by 25% for any quarter in which the
Company fails to achieve a minimum rate of income return (i.e., dividend,
interest and other income--other than realized gains, stock dividends and other
capital items--before expenses for the prior 12 months divided by average
month-end total net assets for the prior 12 months) equal to 85% of the yield of
the Value Line Convertible Index calculated on the same basis.

Payment of Expenses. The Investment Advisory Agreement obligates MLAM to
provide investment advisory services and to pay all compensation of and furnish
office space for officers and employees of the Company connected with the
investment and economic research, trading and investment management of the
Company, as well as the fees of all Directors of the Company who are affiliated
persons of MLAM or any of its affiliates. The Company pays all other expenses
incurred in the operation of the Company, including, among other things,
expenses for legal and auditing services, taxes, costs of printing proxies,
listing fees, stock certificates and shareholder reports, charges of the
custodian and transfer agent, dividend disbursing agent and registrar fees and
expenses with respect to issuance of preferred stock, Securities and Exchange
Commission fees, fees and expenses of unaffiliated Directors, accounting and
pricing costs, insurance, interest, brokerage costs, litigation and other
extraordinary or non-recurring expenses, mailing and other expenses properly
payable by the Company. Accounting services are provided to the Company by MLAM,
and the Company reimburses MLAM for its costs in connection with such services.
For the fiscal year ended December 31, 1993, the Company reimbursed $45,083 to
MLAM for such accounting services.

Duration and Termination. The Investment Advisory Agreement will continue
in effect from year to year if approved annually (a) by the Board of Directors
of the Company or by a majority of the outstanding shares of capital stock of
the Company, and (b) by a majority of Directors who are not parties to such
agreement or interested persons (as defined in the Investment Company Act) of
any such party. Such agreement terminates upon assignment and may be terminated
without penalty on 60 days' written notice at the option of either party thereto
or by the vote of the stockholders of the Company.

PORTFOLIO TRANSACTIONS

Subject to policies established by the Board of Directors of the Company,
MLAM is primarily responsible for the execution of the Company's portfolio
transactions and the allocation of the brokerage. In executing such
transactions, MLAM seeks to obtain the best results for the Company, taking into
account such factors as price (including the applicable brokerage commission or
dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved and the firm's risk in positioning a block of
securities. While MLAM generally seeks reasonably competitive commission rates,
the Company does not necessarily pay the lowest commission or spread available.

The Company has no obligation to deal with any broker or dealer in the
execution of transactions in portfolio securities. Subject to obtaining the best
price and execution, brokers or dealers who provided

9
<PAGE> 12

supplemental investment research (such as information concerning money market
securities, economic data and market forecasts) to MLAM, including Merrill
Lynch, may receive orders for transactions by the Company. Information so
received will be in addition to and not in lieu of the services required to be
performed by MLAM under the Investment Advisory Agreement and the expenses of
MLAM will not necessarily be reduced as a result of the receipt of such
supplemental information.

A substantial proportion of the securities in which the Company will invest
are traded in the over-the-counter markets, and the Company intends to deal
directly with dealers who make markets in the securities involved, except in
those circumstances where better prices and execution are available elsewhere.
Under the Investment Company Act, except as permitted by exemptive order,
persons affiliated with the Company are prohibited from dealing with the Company
as principal in the purchase and sale of securities. Since transactions in the
over-the-counter market usually involve transactions with dealers acting as
principal for their own account, the Company will not deal with affiliated
persons, including Merrill Lynch and its affiliates, in connection with such
transactions. An affiliated person of the Company may serve as its broker in
over-the-counter transactions conducted on an agency basis. For the fiscal year
ended December 31, 1993, the Company paid total brokerage commissions of
$294,301, of which $178,860, or 60.8% was paid to Merrill Lynch for effecting
57.7% of the aggregate dollar amount of transactions in which the Company paid
brokerage commissions.

The Board of Directors has considered the possibility of recapturing for
the benefit of the Company brokerage commissions, dealer spreads and other
expenses of possible portfolio transactions, such as underwriting commissions,
by conducting portfolio transactions through affiliated entities, including
Merrill Lynch. For example, brokerage commissions received by Merrill Lynch
could be offset against the investment advisory fee paid by the Company to MLAM.
After considerating all factors deemed relevant, the Directors made a
determination not to seek such recapture. The Directors will reconsider this
matter from time to time.

Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of the United States national securities exchanges from
executing transactions for their affiliates and institutional accounts which
they manage unless the member (i) has obtained prior express authorization from
the account to effect such transactions, (ii) at least annually furnishes the
account with a statement of the aggregate compensation received by the member in
effecting such transactions, and (iii) complies with any rules the Commission
has prescribed with respect to the requirements of clauses (i) and (ii). To the
extent Section 11(a) would apply to Merrill Lynch acting as a broker for the
Company in any of its portfolio transactions executed on any such securities
exchange of which it is a member, appropriate consents have been obtained from
the Company and annual statements as to aggregate compensation will be provided
to the Company.

ADDITIONAL INFORMATION

The expenses of preparation, printing and mailing of the enclosed form of
proxy and accompanying Notice and Proxy Statement will be borne by the Company.
The Company will reimburse banks, brokers and others for their reasonable
expenses in forwarding proxy solicitation material to the beneficial owners of
the shares of the Company. The Company also may hire proxy solicitors at the
expense of the Company. In order to obtain the necessary quorum (i.e., a
majority of the shares of each class of the Company's securities entitled to
vote at the Meeting, present in person or by proxy) at the Meeting,
supplementary solicitation may be made by mail, telephone, telegraph or personal
interview by officers of the Company. It is anticipated that the cost of such
supplementary solicitation, if any, will be nominal.

The seven Directors are to be elected by class vote, three Directors being
elected by the holders of Income Shares and Capital Shares, voting together as a
single class, two Directors being elected by the holders

10
<PAGE> 13

of Income Shares and two Directors being elected by the holders of Capital
Shares, each voting separately as a class (Item 1). At the Meeting, assuming
that a quorum is duly constituted, (i) the affirmative vote of a majority of the
votes cast by the holders of Income Shares and Capital Shares, voting together
as a single class, voting in person or by proxy, is required for the election of
the three Directors designated to be elected by the holders of Income Shares and
Capital Shares; (ii) the affirmative vote of a majority of the votes cast by the
holders of Income Shares and Capital Shares, in each case voting separately as a
single class, voting in person or by proxy, is required for the election of the
two persons designated as Directors to be elected by the holders of Income
Shares and the two persons designated as Directors to be elected by the holders
of Capital Shares, respectively; and (iii) the affirmative vote of a majority of
the votes cast by the holders of Income Shares and Capital Shares, voting
together as a single class, voting in person or by proxy, is required to ratify
the selection of the Company's independent auditors (Item 2).

All shares represented by properly executed proxies, unless such proxies
have previously been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated, the shares will be
voted "FOR" the Director nominees and "FOR" the ratification of D&T as
independent auditors.

Broker-dealer firms, including Merrill Lynch, holding Company shares in
"street name" for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares on each
Item before the Meeting. The Company understands that, under the rules of the
New York Stock Exchange, such broker-dealer firms may, without instructions from
their customers and clients, grant authority to the proxies designated to vote
on the election of Directors (Item 1) and ratification of the selection of
independent auditors (Item 2) if no instructions have been received prior to the
date specified in the broker-dealer firm's request for voting instructions.
Merrill Lynch has advised that it intends to exercise discretion over shares
held in its name for which no instructions are received by voting such shares in
the same proportion as it has voted shares for which it has received
instructions. The Company will include shares held of record by broker-dealers
as to which such authority has been granted in its tabulation of the total
number of votes present for purposes of determining whether the necessary quorum
of stockholders exists. Proxies which are returned but which are marked
"abstain" or on which a broker-dealer has declined to vote on any Item ("broker
non-vote"), will be counted as present for the purpose of a quorum. However,
abstentions and broker non-votes will not be counted as votes cast. An
abstention or a broker non-vote will have no effect with respect to the vote on
Item 1 or Item 2.

STOCKHOLDER PROPOSALS

If a stockholder intends to present a proposal at the 1995 Annual Meeting
of Stockholders of the Company, which is anticipated to be held in September
1995, and desires to have the proposal included in the Company's proxy statement
and form of proxy for that meeting, the stockholder must deliver the proposal to
the offices of the Company by March 27, 1995.

By Order of the Board of Directors

MARK B. GOLDFUS
Secretary

Dated: July 25, 1994

11
<PAGE> 14

EXHIBIT A

MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1993 AND INDEPENDENT AUDITORS' REPORT

A-1
<PAGE> 15

INDEPENDENT AUDITORS' REPORT
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.:

We have audited the accompanying consolidated balance sheet of Merrill Lynch
Investment Management, Inc. and its subsidiaries (the "Company") as of December
31, 1993. This consolidated balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
balance sheet based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.

In our opinion, such consolidated balance sheet presents fairly, in all material
respects, the financial position of the Company at December 31, 1993 in
conformity with generally accepted accounting principles.

DELOITTE & TOUCHE
February 28, 1994

A-2
<PAGE> 16

MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
ASSETS
Cash and cash equivalents.................................................... $ 1,664,075
Receivable from affiliated companies:
Lease transactions......................................................... 708,616,571
Sale of leased investment.................................................. 48,312,532
Investments in affiliated limited partnership................................ 62,218,528
Investments in leases:
Leveraged leases........................................................... 57,431,668
Sales-type lease........................................................... 3,362,521
Investments in affiliated investment companies--(market: $26,066,372)........ 24,610,184
Fund management and administrative fees receivable........................... 49,098,914
Fixed assets (net of $11,457,912 accumulated depreciation)................... 10,406,280
Prepaid expenses and other assets............................................ 15,376,412
------------
TOTAL ASSETS................................................................. $981,097,685
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Payable to affiliates........................................................ $759,321,639
Accrued liabilities and other payables....................................... 8,432,888
Deferred income--unearned fees............................................... 7,007,406
Deferred income taxes:
Arising from leveraged leases.............................................. 52,938,886
Arising from sales-type lease.............................................. 1,351,622
Other...................................................................... 43,685,367
------------
Total liabilities............................................................ 872,737,808
------------
STOCKHOLDER'S EQUITY:
Common stock, par value $1.00 per share--authorized 25,000 shares;
outstanding 10,000 shares.................................................. 10,000
Additional paid-in capital................................................... 23,266,792
Accumulated translation adjustment........................................... 642,388
Retained earnings............................................................ 84,440,697
------------
Total stockholder's equity................................................... 108,359,877
------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY................................... $981,097,685
===========
</TABLE>

See notes to consolidated balance sheet.

A-3
<PAGE> 17

MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED BALANCE SHEET, DECEMBER 31, 1993

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Merrill Lynch Investment Management, Inc. and its subsidiaries (the
"Company"), serve as investment adviser to certain registered investment
companies, and provide investment advisory services for individuals and
institutions. Merrill Lynch Investment Management, Inc., a wholly-owned
subsidiary of Merrill Lynch Group, Inc., is an indirect wholly-owned subsidiary
of Merrill Lynch & Co., Inc. ("ML&Co.").

The Company's consolidated balance sheet reflects its 100 percent ownership
of Merrill Lynch Funds Distributor, Inc., a distributor of shares of various
affiliated managed registered investment companies, Fund Asset Management, Inc.,
an investment adviser to various registered investment companies and a lessor
participant in leveraged lease agreements, Merrill Lynch International Asset
Management, Ltd., a Channel Islands based investment adviser and Princeton
Administrators, Inc., an administrator to certain non-affiliated investment
companies, and its 60% ownership of Merrill Lynch International Capital
Management Co., a Japan based investment advisor.

CASH AND CASH EQUIVALENTS

For purposes of the consolidated balance sheet, cash and cash equivalents
include marketable securities with initial maturity dates of less than three
months. The carrying amount approximates fair value because of the short
maturity of those instruments.

FIXED ASSETS

Fixed assets recorded at cost and consist principally of furniture and
equipment. Depreciation is calculated using the straight-line method over a
period ranging from 3 to 10 years.

DEFERRED INCOME--UNEARNED FEES

Investment advisory services are billed at the beginning of the period for
which services are to be rendered. The fee is deferred and credited to income on
a pro rata basis over the period of the contract, which normally does not exceed
one year.

INCOME TAXES

The results of operations of the Company are included in the consolidated
Federal and combined state and local income tax returns filed by ML&Co. It is
the policy of ML&Co. to allocate the tax associated with such operating results
to each respective subsidiary in a manner which approximates the separate
company method. In 1992, ML&Co. adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") which requires an
asset and liability method in recording income taxes on all transactions that
have been recognized in the financial statements. SFAS 109 provides that
deferred taxes be adjusted to reflect tax rates at which future tax liabilities
or assets are expected to be settled or realized.

The Company serves as an independent adviser for certain investment
companies. In addition, the Company, through its 100% owned subsidiary,
Princeton Administrators, Inc., serves as an administrator for

A-4
<PAGE> 18

MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED BALANCE SHEET, DECEMBER 31, 1993--(CONTINUED)

certain non-affiliated investment companies. Management fees earned as adviser
and administrator are based on a percentage of the net assets of each investment
company. Such fees are recognized in the period earned.

The Company maintains investments in certain of these investment companies.
Such investments are carried at the lower of cost or market value. Market value
is determined based upon quoted market prices.

The Company has an arrangement with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), an affiliate which provides that the Company, which
receives revenue as investment adviser to certain investment companies (the
"Funds"), reimburse MLPF&S for certain costs incurred in processing transactions
involving shares of the Funds.

In connection with the formation of certain affiliated investment companies
(the "Investment Companies"), the Company has reimbursed MLPF&S for subscription
expenses incurred in offering the Investment Companies' shares for sale. The
unamortized balance included in prepaid expenses and other assets totalled
$5,276,842 as of December 31, 1993.

The Company has unsecured note agreements with ML&Co. for $700,000,000.
These amounts bear interest at a floating rate approximating ML&Co's. average
borrowing rate, of which $650,000,000 is payable on demand and $50,000,000 is
due August 26, 1994. In addition, the Company has certain other amounts payable
to affiliates.

During 1992, the Company's investments in Merrill Lynch Interfunding, Inc.
and Merlease Leasing Corp. were sold to an affiliate at book value. Receivable
from affiliated companies-lease transactions represents the proceeds from this
transaction.

The Company has a 98 percent limited partnership interest in ML Plainsboro
Limited Partnership ("MLP"), whose general partner is an affiliate. Profits and
losses are allocated to the Company based on its percentage interest.

The "Receivable from affiliated companies" arising from lease transactions
is summarized as follows:

<TABLE>
<S> <C>
Monies advanced to fund lease transactions................ $(103,476,954)
Tax benefits allocated to the Company by ML&Co............ 88,699,254
Proceeds from sale of subsidiaries........................ 684,115,048
Other..................................................... 39,279,223
------------
Total..................................................... $708,616,571
============
</TABLE>

ML&Co. is the holder of the Company's excess cash, which is available on
demand to meet current liabilities. ML&Co. credits the Company for interest at a
floating rate approximating ML&Co.'s average borrowing rate based on the
Company's average daily balance due to/from ML&Co.

A-5
<PAGE> 19

MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED BALANCE SHEET, DECEMBER 31, 1993--(CONTINUED)

INVESTMENTS IN LEASES

The Company is a lessor participant in leveraged lease agreements.
Pertinent information relating to the Company's investments in leveraged leases
is summarized as follows:

<TABLE>
<CAPTION>
ESTIMATED
LENGTH OF RESIDUAL VALUE
LEASE EQUITY OF LEASED
TYPE OF PROPERTY (YEARS) INVESTMENT PROPERTY
----------------------------------- --------- ---------- -----------------
<S> <C> <C> <C>
Generating plant................... 24-25 34.06% 15.0%
</TABLE>

Financing beyond the Company's equity interest in the purchase price of the
properties was furnished by outside parties in the form of long-term debt that
provides for no recourse against the Company and is collateralized by a first
lien on the properties and related rentals. At the end of the respective lease
terms, ownership of the properties remains with the Company.

The Company's net investment in leveraged leases is summarized as follows:

<TABLE>
<S> <C>
Rentals receivable (net of principal and interest on
nonrecourse debt)........................................ $66,075,030
Estimated residual values of leased assets................. 18,964,143
Less:
Unearned and deferred income............................. (26,617,505)
Allowance for uncollectibles............................. (990,000)
-----------
Investment in leveraged leases............................. 57,431,668
Less deferred taxes arising from leveraged leases.......... (52,938,886)
-----------
Net investment in leveraged leases......................... $ 4,492,782
===========
</TABLE>

In 1993, one of the Company's subsidiaries sold its equity interest in a
chemical tanker previously accounted for as a leverage lease. The sale resulted
in an after-tax gain of $112,000.

The Company's investment in the sales-type lease consisted of the following
elements at December 31, 1993:

<TABLE>
<S> <C>
Minimum lease payments receivable.......................... $ 3,672,000
Less:
Unearned income.......................................... (59,479)
Allowance for uncollectibles............................. (250,000)
-----------
Investment in sales-type financing leases.................. $ 3,362,521
===========
</TABLE>

At December 31, 1993, minimum lease payments receivable are $3,672,000 for
1994.

For Federal income tax purposes, the Company receives the investment tax
credit and has the benefit of tax deductions for (i) depreciation on the entire
amount of leased assets and (ii) interest on the outstanding

A-6
<PAGE> 20

MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED BALANCE SHEET, DECEMBER 31, 1993--(CONTINUED)

long-term debt. For state and local tax purposes, the Company also receives the
benefits of tax deductions from (i) and (ii) above. Since, during the early
years of the leases, those deductions exceed the Company's lease rental income,
substantial excess deductions are available to be applied against the Company's
other income and the consolidated income of ML&Co. In the later years of these
leases, rental income will exceed the related deductions and taxes will be
payable (to the extent that net deductions arising from additional leveraged
lease transactions do not offset such lease income). Deferred taxes have been
provided to reflect these temporary differences.

INCOME TAXES

As part of the consolidated group, the Company transfers its current
Federal and state tax liabilities to the Parent. At December 31, 1993, the
Company had a current Federal tax receivable of $1,015,000 and current state tax
payable of $2,900,000 to the Parent.

PENSION PLAN

The Company participates in the ML&Co. Comprehensive Retirement Program
(the "Program"), consisting of the Retirement Accumulation Plan ("RAP") and the
Employee Stock Ownership Plan (the "ESOP"). Both plans become effective January
1, 1989. Under the Program, cash contributions made by the Company and the
ML&Co. stock held by the ESOP are allocated quarterly to participant's accounts.
Allocations are based on years of service, age and eligible compensation.
Actuarial data regarding the Company's Plan participants is not separately
available.

NAME CHANGE

Effective December 28, 1991, the Company, through an amendment of its
certificate of incorporation, changed its name to Merrill Lynch Investment
Management, Inc., ("MLIM"). MLIM does business under the name "Merrill Lynch
Asset Management".

LITIGATION

The Company is a party to certain lawsuits arising from the normal conduct
of its business. While the ultimate result of the lawsuits against the Company
cannot be predicted with certainty, management does not expect that these
matters will have a material adverse effect on the Company's financial position
or the results of its operations.

SUBSEQUENT EVENT

Effective January 1, 1994, the Company contributed certain net investment
advisory assets to Merrill Lynch Asset Management, L.P., a newly formed Delaware
limited partnership, in exchange for a 99% limited partnership interest. The
general partner, Princeton Services, Inc. (a wholly-owned subsidiary of Merrill
Lynch & Co., Inc.) contributed 1% of the value of the net investment advisory
assets in exchange for its 1% general partnership interest. The partnership's
profits and losses are to be allocated in proportion to the capital
contributions of the partners.

A-7
<PAGE> 21

EXHIBIT B

The following information with respect to the only holder which, to the
Company's knowledge, owned more than five percent of the Company's outstanding
shares of either class was derived from a Schedule 13G dated February 10, 1994,
filed with the Securities and Exchange Commission by Bowling Portfolio
Management, Inc.

<TABLE>
<CAPTION>
NUMBER PERCENT
OF OF
NAME AND ADDRESS TITLE SHARES CLASS
- - ----------------------------------------------------- -------- ---------- -------
<S> <C> <C> <C>
Bowling Portfolio Management, Inc.................... Capital 691,426(1) 5.3%
2651 Observation Avenue
Cincinnati, OH 45208-2040
</TABLE>

- - ------------------
(1) Bowling Portfolio Management, Inc. has sole dispositive power with respect
to these shares and as to 47,000 shares has sole voting power.

B-1
<PAGE> 22

BY SIGNING AND PROMPTLY RETURNING THE ENCLOSED PROXY YOU MAY SAVE YOUR FUND THE
EXPENSE OF ADDITIONAL SOLICITATION COSTS.

THE ENCLOSED PROXY CARD HAS BEEN FORWARDED TO YOU BECAUSE YOU WERE A SHAREHOLDER
ON THE RECORD DATE.

IT IS IMPORTANT THAT YOU VOTE AND SIGN THIS PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE AS SOON AS POSSIBLE.
<PAGE> 23

CONVERTIBLE HOLDINGS, INC. - INCOME SHARES
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011

P R O X Y

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and Mark B.
Goldfus as proxies, each with the power to appoint his substitute, and hereby
author-izes them to represent and to vote, as designated on the reverse hereof,
all the Capital Shares of Convertible Holdings, Inc. (the "Company") held of
record by the undersigned on July 15, 1994 at the annual meeting of
stockholders of the Company to be held on September 9, 1994 or any adjournment
thereof.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.

(Continued and to be signed on the reverse side)

1. ELECTION OF DIRECTORS FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the to vote for all
contrary below) [ ] nominees listed
below [ ]

(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
KENNETH S. AXELSON, TERRY K. GLENN, HERBERT I. LONDON, JOSEPH L. MAY,
ANDRE F. PEROLD

2. Proposal to ratify the selection of Deloitte &Touche as the independent
auditors of the Company to serve for the current fiscal year.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

3. In the discretion of such proxies, upon such other business as may properly
come before the meeting or any adjournment thereof.

Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney or as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other
author-ized officer. If a partnership, please sign in partnership name by
authorized persons.

Dated: _____________________________, 1994

X _________________________________________
Signature

X _________________________________________
Signature, if held jointly

PLEASE MARK BOXES [ ] OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 24

CONVERTIBLE HOLDINGS, INC. - CAPITAL SHARES
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011

P R O X Y

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.

(Continued and to be signed on the reverse side)

1. ELECTION OF DIRECTORS FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the to vote for all
contrary below) [ ] nominees listed
below [ ]

(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
KENNETH S. AXELSON, HERBERT I. LONDON, ROBERT R. MARTIN, JOSEPH L. MAY, ARTHUR
ZEIKEL

2. Proposal to ratify the selection of Deloitte &Touche as the independent
auditors of the Company to serve for the current fiscal year.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

3. In the discretion of such proxies, upon such other business as may properly
come before the meeting or any adjournment thereof.

Dated: _____________________________, 1994

X _________________________________________
Signature

X _________________________________________
Signature, if held jointly

PLEASE MARK BOXES [ ] OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.