Bought 100 FBFPRN/ Sold CXW/

1. BOUGHT 100 FBFPRN (see Disclaimer): I am starting to scrap the bottom of the barrel in my bond buys. I am finding almost nothing now that interests me, even a little. I did buy late this afternoon 100 shares of FBFPRN at $16.58, and I had at best minimal interest in that security. This is what I call a Trust Preferred issue, only because that is what other people have labelled it. A more appropriate description would be a junior bond contained in a Trust with a security mislabeled as a preferred stock sold to the public to represent a beneficial interest in the Trust. Maybe Trust Preferred is better since it is shorter. The holder of the underlying security is Fleet Boston Capital Trust IX. This is a Delaware Trust. The Trust then bought junior subordinated debentures due August 1, 2033 from FleetBoston Financial Corporation and sold preferred shares to the public which represent undivided beneficial interests in the Trust. This is described in the prospectus: FINAL PROSPECTUS SUPPLEMENT

This is a typical Trust Preferred issue from a U.S. bank in that interest may be deferred for up to five years. I am not aware of any deferral ever taking place. During a deferral period, the deferred amount earns interest at the 6% coupon rate. There can not be a deferral as long as dividends are being paid on a junior security, which would mean both the common and equity preferred shares. FleetBoston guaranteed payment by this Capital Trust IX. The coupon is 6%, with interest paid quarterly and the next ex date on 7/29: MarketWatch

At my price the yield is a tad over 9%, with another $840 or so at maturity in 25 years for the 100 shares bought today, assuming both Bank of America, as successor to FleetBoston, and I survive until then and I still own the shares of course. I would sell these shares with just one interest payment received and a $100 profit on the shares. Many of the BAC TP issues yield 8.5% to 9% with a maturity date within 3 years of FBFPRN; See, e.g.:

BACPRW-8.97% at $19.5 maturity 2031 MarketWatch.com Quote

BACPRZ-8.54% at $17.57 Maturity 2035 MarketWatch.com Quote

BACPRU-8.46% AT $17.37 Maturity 2033 MarketWatch.com Quote

I did not check the yield calculations provided by MarketWatch. I will trade trust preferred issues from the same firm where there are significant pricing discrepancies, in what I would regard as functionally equivalent securities.

Subsequent to the original issuance of this security, Fleet was acquired by Bank of America in April 2004. So, it is my understanding that Bank of America now owns and controls Fleet Boston Capital Trust. Prior to this year, I owned 10 BAC short term bonds, yielding between 5 to 6%. I have sold all of those bonds this year after deciding to lessen my exposure to BAC overall and to garner more yield with the lower dollar amounts I was willing to invest. I also bought and sold two equity preferred issues, with both sales occurring after BAC made its exchange offer and the securities popped close to 50% in price. I now own common shares, 50 shares of MJH bought at $7.51 (Buy of 50 MJH at $7.51) and the 100 shares of FBFPRN bought today.

Two of the main problems with bank trust preferred issues are their liberal deferral rights and the likelihood of being worthless pieces of paper in the event of an FDIC seizure. Many of the BAC TP issues traded down into single digits when fears were rampant about that bank's solvency.

2. Sold CXW (see Disclaimer): To keep LB from selling the 2 baby Berkshire shares recently purchased, the non-dividend paying 50 shares of Corrections Corporation were sacrificed (sold) for a small profit at $17.5. Those shares were bought at $15.6. ADD of Corrections Corp of America (CXW) with cash flow LB has apparently ingested an extra dose of whatever nefarious substance that turns Stock Studs into cautious, Frank Sinatra listening & bond loving old geezers, and LB is currently engaged in a full time quest for securities that pay good dividends and bonds with decent yields. Since the baby Berkshire shares are in the black by over $300, pay no dividends and currently hog about 6 grand of Headknocker's capital, LB has targeted them for disposal. The reasons are either all of those considerations or LB just trades too much and comes up with myriad explanations to justify the trading that sound profound while being superficial. The disposal of the CXW shares mollified LB a bit, just for today however.