The Bridgeport times and evening farmer., 1920-08-25
By Harold F. Greene, Manager, Bond II Department, Guaranty Trust Com
 pany, of New York.)


 s Convertible bonds are those which \ may be exchanged under stipulated conditions for the stock of the hsSu-s ing corporation They appeal strongly to investors who desire an assured re- turn on their Investment together with a chance to increase the prin- cipal
 { Such bonds are usually debentures, or unsecured promises to pay, but may be secured by mortgages or collateral lien. In any case, their distinguishing feature is the privilege of conversion at a fixed price into stock.
 z Sometimes this privilege may be ex- ercised at any time during the life of the bond; in many cases convertibillty ceases at a named date which may be many years prior to maturity The Atchison has two issues of "coHVert1- ble bonds" due 1855 which are now such in name only, the period for con- version having expired in 1918.
 TO the security of principal and in lterest which characterize all good bonds, convertibility adds an oppor- tunity to share in future prosperity of the issuing corporation by becom7 ing a stoclholder if the stock should rise to figure which would make such an exchange profitable Ine purchase of well chosen convertible 
 to realize considerable profits with no speculative risks
 The speculative risk incidental to stock purchases is eliminated because, however low the stock may faHA the convertible bond will at worstN DC worth no less than if it did not have the conversion privilege. Convert:b1f- fty does not impair it's security or de- durability for straight investment pur- poses: at a time when the price of the stock is too low to make the converu- ble privilesge of value the bond will sell, like other bonds, on it's merits as a promise to pay principal and interest on certain dates. Thus with St. Paul common stock selling at the time o1 writing around 36, the 1-2 per cent Debentures due 1892 which are con yertible into stock at par, are selling at 66. Similarly Wilson & Go. 6s due 1928 are selling at 91, although the stock into which they will become convertible at par next December is quoted around 73.
 While the bonds possess in this fea- ture a safeguard against speculative loss. the profit a holder may reap. in addition to his regular installments of interest, may be called unlimited, as there is theoretically no height to which the stock may not rise. In March, 1901, when Union Pacific com mon was selling around 94, that com panys First Lien As, convertible into common stock at par, sold on their investment merits at 103. Five years later the stock sold up to 160 1-2, and investors in these convertibles were able to realize more than 5o per cent. profit.
 c That: such great profits are the ex- ception rather than the rule must be plain, but the history of strong rail- roads and other corporations shows that the convertible feature of their bonds has often proved of value to the bondholder. Since 1905 the Atch- ison has issued s121 ,655, 900 par value of convertible bonds, of which $102,- 1000 have been converted. Be p tween 1902 and the maturity of the later issue in 1915, $52,946,000 of Pennsylvania debentures were con verted into stock. Perhaps the most striking instance of consistent profits to convertible bondholders is pro- vided by the Norfolk and Western of 55,740,o00 par value of conver- tible bonds sold by this company between 1906 and 1918, the holders had converted by the end of the lat ter year no less than 97 per cent
 While these conversions demon, strate the value of the privilege to the bondholders, it is not necessary tt convert ones bonds in order to prof through rise in the stock. Trader' are always eager to buy securitie: which can be converted into others of higher price, and competition among these dealers raises the pric' of convertible bonds as the stocks fo which they are exchangeable nov up. Thus when in 1906 Union Pacif stock was selling for 102 1-2, tn First Lien Convertibles previousl mentioned sold up to 160 1-4; thi is the story of every such bond whel the stock passes the figure at whicl conversion becomes profitable.
 A word as to the method of calcu lating this figure may prove interess ing The simplest case is where tn conversion is to be par for par"- in other words, $1oo par value c stock for each S100 bond. Unde these conditions conversion plainl becomes profitable when the price c the stock passes that of the bond;
 purchaser of St. Paul 4 12s due 193: for instance, at the present pric around 66. would profit by any rise ( the stock above that price. Whe bond is convertible into stock 2 some figure other than par it is nc cessary to multiply the price of th bond by this conversion figure order to determine when conversio becomes profitable. Thus Chesapeak and Ohio Secured 5s, sellin around 76, are convertible into con
 mon stock at so. or at the rate of 1 shares (par s100 each) of stock fC $500 in bonds; 76 per cent. of so
 approximately 61, so the purchast would profit by a rise of CheSapeal and Ohio common beyond that poin Similarly Delaware x Hudson 5s al convertible into common stock e;
 15o; since the bonds now quote around s2 a purchaser could profit
 the stock rose above 123.
 Plainly, the elimination of speCul;
 tive risk which has been mentiont
 as a feature of well chosen conve
 tible issues. is obtained only by pu
 chasing such bonds around their tr1
 investment level at or near the prfc
 that Is, where security and incon
 make them a desirable purchase evt
 apart from the possibility of specul
 tive profit. Union Pacific First Lit