Earn 8% to 12% With Safety and Growth

Those of you who followed me when I bought the McCaw Cellular 12.95% debentures of '99 at 89 in June 1991 are tickled pink; not only are they now trading at 106, but we've earned an impressive yield while we're waiting. I've sold my position, however, because the upside is capped at these levels, since the bonds are callable by McCaw at 106. And they'll almost surely be called, since the company can now refinance at lower rates. If you want to continue holding, that's fine-nothing wrong with getting 12% in this environment - but we originally bought them as a capital gains play. All the bonds that I urged you to purchase have done well-the 12.75% Chrysler notes of '92 have matured, the Maxxam 13.625's of '92 have been called, and the Hycrofts will mature next month showing a yield to maturity of 20% (so aren't worth buying now).

Typical interest rates on "junk" bonds have dropped from 19% to 12% over the last year; it's not a time to go on a quest for speculative yield. It's one thing to take a' flyer on a cheap resource stock and get hurt with a small amount of risk capital. And another to get your nest egg creamed for big money. So don't go chasing junk in hope of picking up a few points.

So there are slim pickings in the quest for yield, except for the selected convertibles you see here every quarter in the Open Positions section-which you should review thoroughly if you have investible cash. I'm adding the following two bonds to that list. As you know, I remain an ardent bull on all communications technologies, particularly cellular.

• 1) McCaw O's of 6/15/08-These were issued in 1988 at a discount (65), and will start accruing interest at 11.5% on June 15, a good return. They convert to the common at $43 (it currently trades at $30). McCaw is a true growth company; operating cash flow went from $3 million in 1988, to $55 in '89, to $158 in '90, to $232 in '91 to an estimated $361 million this year. That's stupendous in a recessionary environment. And I believe their projections of $805 million by '95. What it means is that the stock (and these convertibles) is going a lot higher over the next few years, almost regardless of what the market in general does. Why not collect 11.5% while you're waiting?

  These bonds currently trade at par (100). Try to buy them at a tad less. These are great for your Keogh or pension plan.

• 2) Cellular Inc 6.75's of 7/15/09-1 first recommended these in June 1991 at 68, and have just reacquired a good position in them. The story here, like McCaw's, keeps getting better. Operating cash flow is projected to rise 85% this year, and over 50% in '93. The stock trades at about $15 1/2, but the company has a private market liquidation value of about $33. Furthermore, it has net debt of only $30 million on its 2.5 million pops, spread out over the western U.S. (the largest land mass coverage of any cellular company). These bonds currently trade at about 84, yielding 8%.

With both these bonds it's possible to buy on margin to capture positive cashflow on margin, since your broker will probably lend you money at 7%. For detailed information, call broker Gene Jewett, who specializes in cellular, at 800-488-4485 or (202) 783-8162.