Convertible
Holdings,
Inc.
FUND LOGO
Semi-Annual Report
June 30, 1995
Convertible Holdings, Inc.
Officers and Directors
Arthur Zeikel--President and Director
Terry K. Glenn--Executive Vice President
and Director
Herbert I. London--Director
Robert R. Martin--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
<PAGE>
Custodian
The Chase Manhattan Bank, N.A.
Global Securities Services
Chase MetroTech Center
Brooklyn, New York 11245
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 considered a
representation of future performance.
Convertible Holdings, Inc.
Box 9011
Princeton, NJ 08543-9011
Dear Shareholders:
For the six-month period ended June 30, 1995, Convertible Holdings,
Inc. Capital Shares had a total investment return of +17.88%, based
on a change in per share net asset value from $11.13 to $13.12, and
assuming reinvestment of $0.008 per share short-term capital gains.
During the same period, total investment return on Income Shares was
+6.43%, based on a change in per share net asset value from $9.30 to
$9.61, and assuming reinvestment of $0.280 per share income dividends.
<PAGE>
The Environment
The stock market advanced strongly in the first half of 1995, as
investors were encouraged by an improving economy and strong
corporate earnings reports. In an effort to stave off inflation, the
Federal Reserve Board repeatedly raised interest rates last year.
This had a very negative impact on both the bond and stock
markets.There is an enormous difference in sentiment this year. The
Federal Reserve Board's actions seem to have succeeded in slowing
economic growth to a sustainable rate and greatly reducing
inflationary expectations. However, recent economic data have
indicated a more pronounced slowing of the economy. In this
environment investors initially switched out of the cyclical stocks
and bid up large-capitalization consumer growth names. However, the
market's advance became more widespread as the upsurge gained
momentum, moving beyond technology stocks and blue chips.
The past few years have been unusually strong for corporate
earnings. According to the Institutional Brokerage Estimate Systems,
operating profits for the companies in the Standard & Poor's 500
Index (S&P 500) rose 12.3% in 1992, 16.5% in 1993 and 16.7% in 1994,
far above the 50-year average annual gain of 6%--7%, and
considerably better than during the 1988--1991 period when corporate
profits actually fell. In this environment the S&P 500 rose 18.6% in
the first half of 1995. In the first six months of 1995, the Merrill
Lynch All Convertible Index advanced 12.8%, which was more in line
with the smaller cap indexes such as the Russell 2000, which rose
13.2% and the Value Line Index, which increased 15.1%.
Companies with explosive earnings growth, such as semiconductor and
computer companies, had stock advances far exceeding the averages,
but those tied to the consumer (especially retailers and footwear)
and economically sensitive (trucking, steel and mining) sectors have
had very poor relative performance.
Generally, a convertible security is expected to realize 65%--70% of
its underlying equity's upside, on average, but to experience only
35%--40% of its downside. Convertibles have beaten this benchmark
significantly in the first half of 1995. However, convertible
securities' underlying equities have lagged the major indexes,
probably reflecting the convertible market's overweighting of out-of-
favor cyclical issues, such as autos, and underweighting of the
exceptionally strong technology group.
Investment Activities
Many of our larger purchases in the past six months were of
convertible securities that provided attractive current income,
favorable downside support because they were trading near their
investment value (value as a straight bond), and whose underlying
stock was down sharply from 12-month highs (the average decline was
42%). Our purchases included ICN Pharmaceuticals, Inc., J. Baker,
Inc., Sports & Recreation, Inc., TheraTex Inc., Schuler Homes Inc.,
and Lyondell Petrochemical (an Atlantic Richfield credit). Other
large purchases included EMC Corporation, Kemper Corp., Michaels
Stores, Inc., The Olsten Corporation, Browning-Ferris Industries,
Inc., Southdown, Inc., USX Corp., Cyprus Amax Minerals Co.,
Integrated Health Services, Inc., Merry Land & Investment Co., Inc.,
Pacific Gulf Properties, Inc. and Boise Cascade Corp.
<PAGE>
We recently did a study of 245 New York Stock Exchange listed stocks
that underlie convertible securities. Based on the average of the
three most current consensus estimates for 1995, the estimated
median per share earnings gain for the year is 28% and the average
price/earnings ratio is 14.5 times. Although we expect many of these
estimates to be reduced as the year progresses, it appears that this
growth is likely to substantially exceed that of the stocks that
comprise the major indexes. Therefore, we expect these secondary
securities to outperform the large-capitalization stocks in the next
12 months.
In Conclusion
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 III)
Vincent T. Lathbury III
Vice President and Portfolio Manager
August 4, 1995
<PAGE>
<TABLE>
Convertible Holdings, Inc.
Schedule of Investments as of June 30, 1995
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Convertible Debentures Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Airlines-- BB- Ba2 $ 1,000,000 AMR Corp., 6.125% due 11/01/2024 $ 814,782 $ 1,041,250
1.2% Alaska Air Group Inc.:
B Ba3 500,000 6.50% due 6/15/2005 500,000 502,500
B Ba3 800,000 6.875% due 6/15/2014 664,000 662,000
B+ Ba3 1,000,000 UAL Corp., 6.375% due 2/01/2025++ 897,908 1,007,500
------------ ------------
2,876,690 3,213,250
Automobile BB+ Ba2 2,500,000 Arvin Industries, Inc., 7.50% due 9/30/2014 2,505,215 2,475,000
Parts--0.9%
Banking & BB- NR* 1,000,000 Mark Twain Bancshares, Inc., 7% due
Finance--0.8% 6/01/1999 1,129,755 2,029,590
Broadcasting/ NR* NR* 1,657,500 Intelcom Group Inc., 7% due
Communications-- 10/30/1998 (a)++ 1,638,141 1,111,906
1.7% A+ A1 1,000,000 Telekom Malaysia, 4% due 10/03/2004 1,000,000 960,000
BB+ Ba3 2,236,000 Time Warner, Inc., 8.75% due 1/10/2015 2,377,773 2,328,235
------------ ------------
5,015,914 4,400,141
Building/ BB- Ba1 2,565,000 Hechinger Company, 5.50% due 4/01/2012 1,665,075 1,622,363
Building NR* NR* 3,000,000 Kumagai Gumi Ltd., 4.875% due 12/08/1998++ 2,925,000 2,610,000
Supplies--2.0% NR* NR* 1,500,000 Paul Y-ITC Construction Holdings, Inc.,
5% due 2/03/2001 1,220,000 1,188,750
------------ ------------
5,810,075 5,421,113
Cement--2.8% BB B1 2,000,000 Cemex, S.A., 4.25% due 11/01/1997++ 2,000,000 1,500,000
BBB+ Baa2 3,590,000 Lafarge Corp., 7% due 7/01/2013 3,708,350 3,666,288
B+ B1 2,500,000 Medusa Corp., 6% due 11/15/2003 2,479,375 2,375,000
------------ ------------
8,187,725 7,541,288
<PAGE>
Computer/ B Ba3 3,000,000 EMC Corporation, 4.25% due 1/01/2001 3,162,500 4,020,000
Business B- B2 1,000,000 Storage Technology Corp., 8% due
Equipment--2.7% 5/31/2015*** 1,047,500 975,000
B- B2 1,500,000 Systems and Computer Technology Corp.,
6.25% due 9/01/2003 1,931,000 2,175,000
------------ ------------
6,141,000 7,170,000
Conglomerates-- NR* NR* 2,000,000 Polyphase Corporation, 12% due 7/05/1999++ 2,000,000 1,720,000
0.6%
Drugstores--1.4% B B2 3,052,000 Big B Inc., 6.50% due 3/15/2003*** 3,371,023 3,647,140
Electrical B B2 1,000,000 MagneTek, Inc., 8% due 9/15/2001 1,002,500 980,000
Equipment--0.4%
Electronics-- BBB Baa3 1,500,000 Arrow Electronics, Inc., 5.75% due
2.3% 10/15/2002 1,500,000 2,175,000
A- A3 3,500,000 Avnet, Inc., 6% due 4/15/2012 3,692,500 3,998,750
------------ ------------
5,192,500 6,173,750
Energy--0.5% B B1 1,500,000 California Energy Company, Inc., 5% due
7/31/2000 1,350,000 1,365,000
Environmental-- NR* NR* 1,000,000 Phillips Environmental, Inc., 6% due
0.6% 10/15/2000++ 1,000,000 1,180,000
B B3 510,000 USA Waste Services, Inc., 8.50% due
10/15/2002 533,811 599,250
------------ ------------
1,533,811 1,779,250
Furnishings-- B+ Ba3 3,950,000 Interface Flooring Systems, Inc., 8%
1.4% due 9/15/2013 3,972,750 3,792,000
Gaming--0.8% B- B3 2,000,000 Argosy Gaming Company, 12% due
6/01/2001 2,030,000 2,000,000
</TABLE>
<PAGE>
<TABLE>
Convertible Holdings, Inc.
Schedule of Investments as of June 30, 1995 (continued)
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Convertible Debentures Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Health Care-- B B3 $ 1,849,000 GranCare Inc., 6.50% due 1/15/2003 $ 1,768,051 $ 1,608,630
4.8% B B1 1,000,000 HEALTHSOUTH Rehab, 5% due 4/01/2001 1,062,500 1,085,000
B- B2 3,000,000 Integrated Health Services, Inc., 6% due
1/01/2003 3,180,000 3,180,000
B- NR* 975,000 Pacific Physician Services, Inc., 5.50%
due 12/15/2003 728,813 738,563
B+ B2 1,935,000 Quantum Health Resources Inc., 4.75% due
10/01/2000 1,554,688 1,664,100
NR* NR* 2,000,000 Regency Health Services, Inc., 6.50% due
7/15/2003 2,145,625 2,025,000
B- B3 2,500,000 TheraTex Inc., 8% due 2/01/2002 2,320,000 2,300,000
------------ ------------
12,759,677 12,601,293
Home CCC+ B3 3,730,000 Continental Homes Holding Corp., 6.875%
Building--3.5% due 3/15/2002 3,641,590 3,394,300
NR* NR* 2,000,000 Engle Homes, Inc., 7% due 3/01/2003 1,807,000 1,720,000
B B2 2,678,000 Schuler Homes Inc., 6.50% due 1/15/2003 2,114,371 2,209,350
BB- Ba3 751,000 Toll Brothers Inc., 4.75% due 1/15/2004 627,190 668,390
B- B2 1,500,000 US Home Corp., 4.875% due 11/01/2005 1,316,875 1,260,000
------------ ------------
9,507,026 9,252,040
Industrial BBB Ba2 3,000,000 Olsten Corporation (The), 4.875% due
Services--1.2% 5/15/2003 3,169,380 3,165,000
Insurance--3.0% BB- NR* 3,100,000 Alexander & Alexander Services Inc.,
11% due 4/15/2007 3,170,000 3,162,000
NR* NR* 4,000,000 Pioneer Financial Services Inc., 8% due
7/15/2000 4,028,750 4,800,000
------------ ------------
7,198,750 7,962,000
Machinery--2.9% B+ B1 1,475,000 AGCO Corp., 6.50% due 6/01/2008 1,494,000 4,410,250
B+ B1 3,000,000 Varlen Corp., 6.50% due 6/01/2003 3,046,250 3,150,000
------------ ------------
4,540,250 7,560,250
Medical BB- Ba3 1,200,000 Bindley Western Industries, Inc., 6.50%
Supplies--0.5% due 10/01/2002*** 1,109,700 1,197,000
Oil Services-- B B3 1,350,000 SEACOR Holdings, Inc., 6% due 7/01/2003++ 1,448,975 1,404,000
1.6% BB+ NR* 3,000,000 USX Corp., 7% due 6/15/2017 2,522,500 2,767,500
------------ ------------
3,971,475 4,171,500
Paper--0.8% BB- Ba2 2,000,000 Boise Cascade Corp. (Series E), 7% due
5/01/2016 1,955,488 2,100,000
Pharmaceuticals B- B3 3,000,000 ICN Pharmaceuticals, Inc., 8.50%
- --1.1% due 11/15/1999 2,903,850 2,928,750
<PAGE>
Real Estate NR* NR* 1,500,000 Capstone Capital Trust, Inc., 10.50% due
Investment NR* B 4/01/2002 1,631,250 1,620,000
Trust--1.4% 2,323,000 Pacific Gulf Properties, Inc., 8.375% due
2/15/2001 2,066,523 2,102,315
------------ ------------
3,697,773 3,722,315
Retail Stores-- BB- B2 2,700,000 Baker (J.) Inc., 7% due 6/01/2002 2,680,187 2,457,000
5.2% B- NR* 769,000 Ben Franklin Retail Stores Inc., 7.50%
due 6/01/2003*** 776,671 626,735
B+ Ba3 3,888,000 Ingles Markets, Inc., 10% due 10/15/2008 4,179,046 3,946,320
B+ Ba3 3,700,000 Michaels Stores, Inc., 4.75% due 1/15/2003 3,778,250 3,422,500
B- B2 3,250,000 Sports & Recreation, Inc., 4.25% due
11/01/2000 2,394,000 2,429,375
BB- Ba3 1,000,000 Waban Inc., 6.50% due 7/01/2002 927,500 900,000
------------ ------------
14,735,654 13,781,930
Textiles--0.7% BBB- Ba1 2,000,000 Guilford Mills, Inc., 6% due 9/15/2012 1,755,000 1,940,000
Total Convertible Debentures--46.8% 119,422,981 124,089,600
</TABLE>
<TABLE>
Convertible Holdings, Inc.
Schedule of Investments as of June 30, 1995 (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>
Air Transport-- B+ B1 25,000 Delta Air Lines, Inc., $3.50, Series C $ 1,250,000 $ 1,462,500
0.5%
Automobile BB+ Ba2 25,200 Federal-Mogul Corp., $3.875, Series D 1,428,675 1,370,250
Parts--1.6% BB- B1 200,000 Masco Tech, Inc., $1.20 3,033,875 2,850,000
------------ ------------
4,462,550 4,220,250
Banking & A Aa3 38,400 Banc One Corporation, $3.50, Series C 2,509,287 2,198,400
Finance--7.2% BBB NR* 90,200 Fourth Financial Corporation, $1.75,
Class A 2,491,925 2,739,825
NR* NR* 138,200 ONBANCorp. Inc., $1.6875, Series B 4,169,801 3,610,475
A+ A1 44,000 Republic of NY Corp., $3.375 2,320,640 2,541,000
BBB A2 135,900 Southern National Corp., $1.6875, Series A 3,780,234 4,824,450
BB+ NR* 89,400 Union Planters Corp., $2.00, Series E 2,818,585 3,061,950
------------ ------------
18,090,472 18,976,100
<PAGE>
Cement--1.2% B B2 60,000 Southdown, Inc., 3.75%, Series B 2,460,055 3,090,000
Chemicals--0.8% A A2 80,000 Atlantic Richfield Company (ARCO) 1,988,520 2,080,000
Funeral BBB Baa2 25,000 SCI Finance, $3.125, Series A 1,520,250 1,518,750
Services--0.6%
Healthcare BB NR* 100,000 FHP International Corp.,
Services--0.9% Series A 2,414,500 2,350,000
Insurance--3.0% A+ A1 35,000 American General Delaware, $3.00, Series A 1,750,000 1,815,625
BBB- Ba2 10,000 INTEGON CORPORATION Pfd. $3.875 488,100 521,250
BB- Baa3 80,000 Kemper Corp., Series E 3,843,350 3,980,000
NR* NR* 2,000 Westbridge Capital Corporation++ 2,000,000 1,700,000
------------ ------------
8,081,450 8,016,875
Minerals--2.0% NR* NR* 43,150 Cyprus Amax Minerals Co., $4.00, Series A 2,551,244 2,707,662
BB+ B1 33,000 Magma Copper Company, $2.812, Series D 2,007,605 1,959,375
BB+ Ba2 20,000 Pittston Minerals Group, $3.125++ 1,000,000 620,000
------------ ------------
5,558,849 5,287,037
Real Estate BBB Baa3 80,000 Merry Land & Investment Co., Inc., $2.15,
Investment Series C 2,000,000 2,150,000
Trust--3.0% BBB Baa3 40,000 Merry Land & Investment Services, Inc.,
$1.75, Series A 1,000,000 1,085,000
BBB+ Baa3 80,000 Security Capital Pacific Trust 2,000,000 1,780,000
BBB- Ba1 100,000 Storage Equities Inc., $2.062 2,518,600 2,825,000
------------ ------------
7,518,600 7,840,000
Steel--2.4% B- B2 92,000 AK Steel Holding Corp. 2,528,670 2,645,000
B+ B3 82,500 WHX Corporation, Series A 4,571,485 3,795,000
------------ ------------
7,100,155 6,440,000
Telecommuni- BBB Baa3 31,300 Sprint Corp. Pfd $8.25 1,001,215 1,087,675
cations--0.4%
Tobacco--0.3% NR* Ba3 150,000 RJR Nabisco Holdings, Inc., Series C 975,000 918,750
Transportation/ NR* Baa3 30,000 Burlington Northern Inc., $3.125, Series A 1,665,900 2,025,000
Railroads--0.8%
Waste NR* NR* 15,090 Allied Waste Industries, Inc., $3.75++ 1,509,180 2,206,912
Management-- NR* A1 85,000 Browning-Ferris Industries, Inc. 3,028,125 3,102,500
2.5% B B3 77,400 International Technologies Inc. 1,474,636 1,402,875
------------ ------------
6,011,941 6,712,287
Total Convertible Preferred Stocks--27.2% 70,099,457 72,025,224
</TABLE>
<PAGE>
<TABLE>
Convertible Holdings, Inc.
Schedule of Investments as of June 30, 1995 (concluded)
<CAPTION>
Shares Value
Industry Held Common Stocks Cost (Note 1a)
<S> <C> <S> <C> <C>
Automobile Parts--0.3% 20,445 Magna International Inc., Class A $ 455,258 $ 902,136
Banking & Finance--5.0% 59,000 Deposit Guaranty Corp. 891,024 2,271,500
96,848 First America Bank Corp. 2,969,412 3,595,482
11,000 Mellon Bank Corp. 242,132 457,875
225,055 Southern National Corporation 3,245,163 5,401,320
53,761 Washington Mutual Savings Bank 592,119 1,256,663
------------ ------------
7,939,850 12,982,840
Drugs--2.6% 100,000 Bristol-Myers Squibb Co. 4,985,776 6,812,500
Food Processing--1.9% 371,124 Hudson Foods, Inc., Class A 4,389,831 5,149,345
Hospital Supplies--1.4% 105,584 Baxter International, Inc. 1,675,536 3,840,618
Medical Supplies--0.9% 153,715 Bindley Western Industries, Inc. 2,150,910 2,421,011
Metal Fabricating--1.6% 128,479 Trinity Industries Leasing Co. 2,974,237 4,271,927
Total Common Stocks--13.7% 24,571,398 36,380,377
Face
Amount Short-Term Securities
Commercial Paper**--4.4% $11,757,000 General Electric Capital Corp.,
6.20% due 7/03/1995 11,750,926 11,750,926
US Government Federal National Mortgage Association:
& Agency 16,000,000 5.87% due 7/19/1995 15,950,431 15,950,431
Obligations**-- 7.9% 5,000,000 5.88% due 7/19/1995 4,984,483 4,984,483
------------ ------------
20,934,914 20,934,914
Total Short-Term Securities--12.3% 32,685,840 32,685,840
Total Investments--100.0% $246,779,676 265,181,041
============
Short Sales--(proceeds--$1,950,876) (0.7%)***
(1,930,476)
Other Assets Less Liabilities--0.7% 1,839,082
------------
Net Assets--100.0% $265,089,647
============
<PAGE>
<FN>
(a)Represents a pay-in-kind security.
*Not Rated.
**Commercial Paper and certain US Government & Agency Obligations
are 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.
***Covered Short Sales entered into as of June 30, 1995 are
as follows:
Value
Shares Issue (Notes 1a & 1g)
71,962 Ben Franklin Retail Stores Inc. $(377,800)
52,700 Big B, Inc. (744,388)
24,200 Bindley Western Industries, Inc. (387,200)
17,100 Storage Technology Corp. (421,088)
Total (proceeds--$1,950,876) $(1,930,476)
===========
++Restricted securities as to resale. The value of the Company's investment in
restricted securities was approximately $15,060,000, representing 5.7% of net
assets.
Acquisition Value
Issue Date Cost (Note 1a)
Allied Waste Industries, Inc., $3.75 9/23/1993 $ 1,509,180 $ 2,206,912
Cemex, S.A.., 4.25% due 11/01/1999 9/28/1994 2,000,000 1,500,000
Intelcom Group Inc., 7% due 10/30/1998 10/26/1993 1,638,141 1,111,906
Kumagai Gumi Ltd., 4.875% due
12/08/1998 12/01/1993 2,925,000 2,610,000
Phillips Environmental, Inc., 6%
due 10/15/2000 10/13/1993 1,000,000 1,180,000
Pittston Minerals Group, $3.125 1/11/1994 1,000,000 620,000
Polyphase Corporation, 12% due
7/05/1999 7/05/1994 2,000,000 1,720,000
SEACOR Holdings, Inc., 6% due
7/01/2003 2/03/1994 1,448,975 1,404,000
UAL Corp., 6.375% due 2/01/2025 2/01/1995 897,908 1,007,500
Westbridge Capital Corporation 4/12/1994 2,000,000 1,700,000
Total $16,419,204 $15,060,318
=========== ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Convertible Holdings, Inc.
Statement of Assets, Liabilities and Capital as of June 30, 1995
<S> <C> <C>
Assets:
Investments, at value (identified cost--$246,779,676) (Note 1a) $265,181,041
Cash 35,903
Receivables:
Interest $ 2,357,346
Short sales (Note 1g) 2,335,696
Securities sold 1,659,925
Dividends 462,569 6,815,536
------------
Deposits for securities sold short 688,209
Deferred organization expenses (Note 1e) 98,576
Prepaid expenses and other assets 73,018
------------
Total assets 272,892,283
------------
Liabilities:
Common stocks, sold short, at market value (proceeds--$1,950,876) (Notes 1a & 1g) 1,930,476
Payables:
Securities purchased 5,366,541
Investment adviser (Note 2) 386,195
Dividends for short sales 3,119 5,755,855
------------
Accrued expenses and other liabilities 116,305
------------
Total liabilities 7,802,636
------------
Net Assets $265,089,647
============
Capital (Note 5):
Income Shares:
Par value $.10 per share; 15,000,000 shares authorized; 11,663,100 shares issued $ 1,166,310
Liquidation capital in excess of par 107,300,520
------------
108,466,830
Undistributed investment income--net 3,623,546
------------
Net asset value, equivalent to $9.61 per share based on 11,663,100 shares outstanding
(market value--$10.375) $112,090,376
<PAGE>
Capital Shares:
Par value $.10 per share; 15,000,000 shares authorized; 11,663,100 shares issued 1,166,310
Paid-in capital in excess of par 130,096,846
------------
Total 131,263,156
------------
Undistributed realized gain on investments--net* 3,314,350
Unrealized appreciation on investments--net 18,421,765
------------
Total 21,736,115
------------
Net asset value, equivalent to $13.12 per share based on 11,663,100 shares outstanding
(market value--$11.00) 152,999,271
------------
Net Assets $265,089,647
============
<FN>
*Net of taxes on undistributed net realized long-term capital gains (Note 1c).
See Notes to Financial Statements.
</TABLE>
<TABLE>
Convertible Holdings, Inc.
Statement of Operations for the Six Months Ended June 30, 1995
<S> <C> <C>
Investment Income (Note 1d):
Interest and discount earned $ 5,486,247
Dividends (net of $1,196 foreign withholding tax) 2,400,016
------------
Total income $ 7,886,263
Expenses:
Investment advisory fees (Note 2) 752,505
Transfer agent fees 50,374
Accounting services (Note 2) 45,164
Printing and shareholder reports 41,495
Professional fees 34,552
Amortization of organization expenses (Note 1e) 18,642
Directors' fees and expenses 17,882
Custodian fees 10,922
Dividends on securities sold short 5,711
Insurance 2,445
Pricing services 1,843
Interest on securities sold short 1,334
Listing fees 122
Other 19,216
------------
Total expenses 1,002,207
------------
Investment income--net 6,884,056
------------
<PAGE>
Realized & Unrealized Gain (Loss) on Investments & Foreign Currency Transactions--Net
(Notes 1b, 1d & 3):
Realized gain on investments--net 4,074,789
Change in unrealized appreciation/depreciation on investments--net 19,157,891
------------
Net Increase in Net Assets Resulting from Operations $ 30,116,736
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
For the Six For the
Convertible Holdings, Inc. Months Ended Year Ended
Statements of Changes in Net Assets June 30, 1995 Dec. 31, 1994
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net $ 6,884,056 $ 14,022,417
Realized gain (loss) on investments and foreign currency transactions--net 4,074,789 (687,869)
Change in unrealized appreciation/depreciation on investments and foreign currency
transactions--net 19,157,891 (24,517,084)
------------ ------------
Net increase (decrease) in net assets resulting from operations 30,116,736 (11,182,536)
------------ ------------
Dividends & Distributions to Shareholders (Notes 1f & 4):
Investment income--net (3,267,460) (14,067,021)
Realized gain on investments--net -- (94,645)
------------ ------------
Net decrease in net assets resulting from dividends and distributions to shareholders (3,267,460) (14,161,666)
------------ ------------
Capital Share Transactions (Note 5):
Income shares (105,090) (5,036,880)
Capital shares (120,266) (6,152,490)
------------ ------------
Net decrease in net assets resulting from treasury stock transactions (225,356) (11,189,370)
------------ ------------
Net Assets:
Total increase (decrease) in net assets 26,623,920 (36,533,572)
Beginning of period 238,465,727 274,999,299
------------ ------------
End of period* $265,089,647 $238,465,727
============ ============
<FN>
*Undistributed investment income--net $ 3,623,546 $ 6,950
============ ============
<PAGE>
See Notes to Financial Statements.
</TABLE>
<TABLE>
Convertible Holdings, Inc.
Financial Highlights
<CAPTION>
For the Six
The following per share data and ratios have been derived Months Ended For the Year Ended December 31,
from information provided in the financial statements. June 30, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
Income Shares:
Per Share Operating Performance:
Net asset value, beginning of period $ 9.30 $ 9.30 $ 9.30 $ 9.31 $ 9.30
-------- -------- -------- -------- --------
Investment income--net .59 1.19 1.20 1.35 1.41
Dividends of investment income--net (.28) (1.19) (1.20) (1.36) (1.40)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.61 $ 9.30 $ 9.30 $ 9.30 $ 9.31
-------- -------- -------- -------- --------
Market price per share, end of period $ 10.375 $ 10.00 $ 10.625 $ 11.25 $ 12.625
-------- -------- -------- -------- --------
Total Investment Return:**
Based on market value per share 6.86%+++ 6.61% 7.20% 2.74% 34.37%
-------- -------- -------- -------- --------
Based on net asset value per share 6.43%+++ 13.28% 13.50% 15.17% 15.87%
-------- -------- -------- -------- --------
Capital Shares:
Per Share Operating Performance:
Net asset value, beginning of period $ 11.13 $ 13.21 $ 12.87 $ 10.91 $ 7.67
-------- -------- -------- -------- --------
Realized and unrealized gain (loss) on investments--net 1.99 (2.12) 1.43 2.03 3.24
Distributions of realized gain on investments--net -- (.01) (1.17) (.12) --
Effect of repurchase of Treasury Stock --++ .05 .08 .05 --
-------- -------- -------- -------- --------
Net asset value, end of period $ 13.12 $ 11.13 $ 13.21 $ 12.87 $ 10.91
======== ======== ======== ======== ========
Market value per share, end of period $ 11.00 $ 9.00 $ 10.875 $ 9.375 $ 6.875
======== ======== ======== ======== ========
<PAGE>
Total Investment Return:**
Based on market value per share 22.22%+++ (17.17%) 28.77% 38.11% 61.76%
======== ======== ======== ======== ========
Based on net asset value per share 17.88%+++ (15.68%) 13.94% 19.48% 42.24%
======== ======== ======== ======== ========
Total Fund:
Ratios to Average Net Assets:
Total expenses*** .80%* .87% .80% .80% .83%
======== ======== ======== ======== ========
Investment income--net 5.51%* 5.43% 5.10% 6.34% 7.24%
======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $265,090 $238,466 $274,999 $289,366 $275,045
======== ======== ======== ======== ========
Portfolio turnover 42.45% 69.37% 116.03% 76.54% 54.90%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value,
may 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 1c).
++Amount is less than $.01 per capital share.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
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. These unaudited financial
statements reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal
recurring nature. The following is a summary of significant
accounting policies followed by the Company.
<PAGE>
(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 last available bid price. 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 value.
(b) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) such transactions expressed in foreign currency
into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on
investments.
(c) 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.
(d) 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.
(e) 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.
<PAGE>
(f) Dividends and distributions--Dividends and distributions paid by
the Company are recorded on the ex-dividend dates.
(g) 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 proceeds received.
Securities have been borrowed from Merrill Lynch, Pierce, Fenner &
Smith Inc. ("MLPF&S"), a subsidiary of Merrill Lynch & Co., Inc.
("ML & Co."), to execute short sales.
Convertible Holdings, Inc.
Notes to Financial Statements (continued)
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Company has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of ML & Co., which is the limited partner.
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.
Accounting services are provided to the Company by MLAM at cost.
During the six months ended June 30, 1995, the Company paid Merrill
Lynch Security Pricing Service, an affiliate of MLPF&S, $1,864 for
security price quotations to compute the net asset value of the
Company.
Certain officers and/or directors of the Company are officers and/or
directors of MLAM, PSI, MLPF&S and/or ML & Co.
<PAGE>
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended June 30, 1995 were $98,679,013 and
$91,586,895, respectively.
Net realized and unrealized gains as of June 30, 1995 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 3,853,894 $18,401,365
Short sales 220,895 20,400
----------- -----------
Total $ 4,074,789 $18,421,765
=========== ===========
As of June 30, 1995, net unrealized appreciation for Federal income
tax purposes aggregated $18,401,365, of which $25,450,658 related to
appreciated securities and $7,049,293 related to depreciated
securities. The aggregate cost of investments at June 30, 1995 for
Federal income tax purposes was $246,779,676.
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.
Convertible Holdings, Inc.
Notes to Financial Statements (concluded)
5. Share Transactions:
At June 30, 1995, there were 15,000,000 shares of $.10 par value
authorized for each class. During the six months ended June 30,
1995, the Company repurchased 11,300 Income Shares and 11,300
Capital Shares at an average market price of $10.165 and $9.87,
respectively, all of which have been retired.
<PAGE>
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
plus any unpaid income dividends. The capital of the Capital Shares
reflects a deduction of $9,750 for the difference between the cost
of the Income Shares repurchased during the six months ended June
30, 1995 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.
6. Capital Loss Carryforward:
At December 31, 1994, the Company had a net capital loss
carryforward of approximately $439,000, all of which expires in
2002. This amount will be available to offset like amounts of any
future taxable gains.
7. Subsequent Event:
On July 6, 1995, the Company's Board of Directors declared an
ordinary income dividend to income shareholders in the amount of
$0.310089 per income share, payable on July 28, 1995 to shareholders
on record as of July 18, 1995.
<TABLE>
Quarterly Data
<CAPTION>
Income Shares Capital Shares Total Fund
Net Realized and Net Increase (Decrease)
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>
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
Jan. 1, 1994 to March 31, 1994 4,248,768 3,609,304 .30 (8,363,718) (.69) (4,754,917) (.40)
April 1, 1994 to June 30, 1994 3,945,086 3,375,005 .29 (11,452,246) (.98) (8,076,738) (.68)
July 1, 1994 to Sept. 30, 1994 3,953,484 3,403,083 .29 6,647,525 .63 10,043,155 .86
Oct. 1, 1994 to Dec. 31, 1994 4,114,621 3,635,025 .31 (12,036,514) (1.03) (8,401,489) (.72)
Jan. 1, 1995 to March 31, 1995 3,802,213 3,312,277 .28 10,895,458 .93 14,207,734 1.22
April 1, 1995 to June 30, 1995 4,084,050 3,571,779 .31 12,337,222 1.06 15,909,002 1.36
<FN>
*Net of tax on undistributed net realized long-term capital gains (Note 1c).
</TABLE>
<PAGE>
Convertible Holdings, Inc.
Stockholder Information
<TABLE>
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>
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 9.29 11 1/4 10 5/8 14.69 13.21 11 1/2 10 7/8
Jan. 1, 1994 to March 31, 1994 9.60 9.33 11 3/8 10 5/8 13.63 12.52 10 7/8 9 3/8
April 1, 1994 to June 30, 1994 9.62 9.34 11 1/8 10 5/8 12.57 11.58 10 5/8 9
July 1, 1994 to Sept. 30, 1994 9.61 9.34 11 10 1/8 12.49 11.59 9 5/8 8 7/8
Oct. 1, 1994 to Dec. 31, 1994 9.61 9.30 10 1/2 9 7/8 12.00 10.85 9 5/8 8 7/8
Jan. 1, 1995 to March 31, 1995 9.58 9.32 10 3/8 10 12.06 11.25 10 1/8 9
April 1, 1995 to June 30, 1995 9.61 9.35 10 1/2 9 7/8 13.24 12.13 11 1/8 9 7/8
<FN>
*As reported in the consolidated transaction reporting system.
</TABLE>
Convertible Holdings, Inc.
Ten Largest Holdings
Bristol-Myers Squibb Co.
Southern National Corporation
Hudson Foods, Inc., Class A
Southern National Corp., $1.6875, Series A
Pioneer Financial Services Inc., 8% due 7/15/2000
AGCO Corp., 6.50% due 6/01/2008
Trinity Industries Leasing Co.
EMC Corporation, 4.25% due 1/01/2001
Avnet, Inc., 6% due 4/15/2012
Kemper Corp., Series E
<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
because 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 Income Shares
Entitled to all the port- Entitled to all the port-
folio's appreciation. folio's net income, paid
quarterly.
No distributions from net Minimum cumulative
income received as long dividend of $1.00
as Income Shares are annually.
outstanding.
Bear none of the Com- Pay all of the Company's
pany's expenses. expenses.
Potential for capital Potential for growing
appreciation with poten- income stream if portfolio
tial lower downside risk appreciates over time.
than a leveraged com-
mon stock portfolio.
NYSE symbol CNV NYSE symbol CNV Pr
<PAGE>
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.
<PAGE>
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%.
