Dear Mr. Berko:

My wife and I have secure jobs. We each have a good 401(k), matched company savings and excellent benefits. We also have a joint account valued at $186,000 and very little debt. We are in our mid-50s, and both children are married and have jobs. So now we want to speculate a bit with some high-yielding convertible issues that have a decent chance (in your opinion) of recovery in the coming few years. We have $21,000 to speculate with and would like to earn at least 10 percent on this money while we are waiting for the convertibles to recover in price.

H.T., Oklahoma City

Dear H.T.:

If you can afford the risk, here are some “busted” converts that have a slightly better than 50-50 chance of surviving. I call these issues “creme de la crap” and as some readers know, many of these issues have had fairly good results. But as some readers also know, there have been a few “stinkers” too.

In other words, the following issues are quite speculative.

Consider the Ford Motor Co. Capital Trust II, 6.5 percent Cumulative Convertible Trust Preferred Securities (what a mouthful). The symbol is F.S, the current price is $28.61, the $3.25 dividend produces a current 11.4 percent yield and F.S is callable on or after Nov. 15, 2007, at $50 a share. This preferred is convertible anytime into 2.8249 shares of Ford common at an initial conversion price of $17.70. And I think Ford will make it.

Ford is the world’s second-largest automaker, selling vehicles in more than 200 markets with 345,000 employees on six continents. Its auto brands include Aston Martin, Jaguar, Land Rover, Ford, Lincoln, Mazda, Mercury and Volvo. Its auto-related services include Ford Credit, Hertz and Quality Care. The consensus indicates that Ford will earn 50 cents per share this year and 64 cents in 2007. This issue is rated B-minus by Standard & Poor’s and could be upgraded when Ford’s future looks brighter.

Look at Emmis Communications Corp. (EMMS-$15.98). EMMS is an Indianapolis-based media firm. Its principal activities are radio broadcasting, TV broadcasting and magazine publishing, and it owns 23 FM and two AM radio stations serving New York, Los Angeles, Chicago, St. Louis, Phoenix and Austin, Texas. EMMS also owns 16 TV stations in midsize markets (these stations might be sold) and publishes various specialty magazines. Revenues last year were $591 million. According to Thomson Financial, EMMS expects to lose 91 cents a share this year but should earn 17 cents in 2007 and 34 cents in 2008, while Standard and Poor’s expects 2007 earnings to come in at 14 cents and 2008 earnings of 33 cents.

I think those numbers are good enough to recommend the Emmis Communications 6.25 percent Series A Cumulative Convertible Preferred Stock (EMMSP-$45.60). The $3.125 dividend produces a current 6.9 percent yield and the issue is rated CCC-plus by Standard & Poor’s. This issue is redeemable at $50 and is convertible into 1.661 common shares of EMMS at $30.10.

Way out in hyperspace is Dura Automotive Systems Inc. (DRRA-$2.25). DRRA, with $2.3 billion in revenues, is the world’s largest manufacturer of driver control systems for the global automotive market. DRRA also manufactures seating control systems, engineered assemblies, door modules and integrated glass systems. Its customers include every North American, European and Japanese original equipment manufacturer. DRRA’s revenues have been static during the last five years (hovering between $2.3 billion and $2.5 billion), and according to S&P, DRRA made a dime a share in 2005, should lose 18 cents a share this year but expects a profit of 14 cents in 2007 and 75 cents in 2008.

So the Dura Automotive Capital Trust, 7.125 percent Convertible Trust Preferred (DRRAP-$10.45) may have some good karma. The $1.875 dividend on this CCC-rated convertible produces a yield of 17.9 percent, and the issue is redeemable anytime at $25 a share. It’s convertible into 0.5831 shares of common stock at an initial conversion price of (wow) $42.875, and the dividend is taxable at ordinary rates.

If these three issues increase enormously in value, you can thank me. If they go belly-up, I’ll take the blame. I (and many of our clients) may own positions in each of these issues.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.

© Copley News Service