Dear Mr. Berko: My broker wants me to invest $23,000 of my independent retirement account in the Fidelity Convertible Securities Fund. I've never heard of it and barely know what a convertible bond is. But my broker assures me that this fund has a very good long-term record and believes that if I hold it for at least 10 years (I'm 56 and plan to retire in 10 years) that I will be very pleased with its performance. What is your advice? E.W., Vancouver, Wash.

Dear E.W.: Give your broker a bottle of 20-year-old scotch, a gold star, a gift card for Morton's Steak House and send her husband a dozen golf balls. I think Fidelity's Convertible Bond Fund is a supercalifragilistic no-load fund for a long-term, IRA investment. Fidelity Convertible Securities Fund (FCVSX-$22.01) is a no-load fund with a very impressive record. This year the Dow Jones Industrials and the Standard & Poor's 500 are both in double-digit declines while FCVSX is only down 8.1 percent. And while the Dow and the S&P 500 have 20-year records slightly above 10 percent, FCVSX has an average annual 20-year total return of 12.3 percent. In other words, FCVSX has bested both the Dow and S&P by better than 20 percent. Impressive that, yes?

Convertibles are hybrid securities that incorporate both bond and equity features. Because the investor has the unique option of exchanging these securities for shares of the underlying common stock at a preset price, the value of that option and the convertible itself increases as the stock price climbs. However, if the underlying stock declines in price, the interest rate on the convertible (bonds or preferred stock) acts as a cushion and moderates the loss. I've always liked convertibles because they give investors the best of both worlds: some of the upside potential of its underlying common stock plus some of the income and safety of a corporate bond.

However, it's important to know that the convertible market is rather small. There's about $305 billion of these hybrid issues running around compared to the $5.6 trillion in equity securities outstanding and $7.7 trillion of mortgage-backed securities.

However, there's little research information available to the public on these issues and convertible issues are difficult for investors to follow because few reporting sources publish their daily price changes. So when you ask most brokers for a recommendation, you might not get an answer because he probably thinks a convertible is a Mercedes, a Corvette or a Porsche.

If you want to be knowledgeable on the subject I recommend that you a consider subscription to The Value Line Convertible Survey. It's a swell compendium of hundreds of different issues, updated every two weeks and provides an enormous amount of current and important data along with Value Line's recommendations.

The Fidelity Convertible Fund has been managed during the past three years by Tom Soviero. He's an aggressive manager and favors more equity-sensitive convertibles over the middle-ground issues. His $3.3 billion portfolio is more concentrated, or less diversified, than those of his rivals at Vanguard, Franklin, T. Rowe Price or Van Kampen so he's willing to make large-sector bets. His bet on the energy and materials sectors — 43 percent compared to 10 percent in the index — was responsible for recent gains. But as energy prices began to crash, FCVSX got hammered hard and Soviero had his worst month ever, losing almost 9 percent last July.

Still, I think your broker made a swell choice. I'm keen as mustard on this fund and have owned it since 1995.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@comcast.net. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

COPYRIGHT 2008 CREATORS SYNDICATE, INC.

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