Speculators' Delight

Francis Fitz Randolph, a 62-year-old Yaleman (Skull and Bones) who collects first editions, likes to go fishing in such far-off places as Iceland and Norway. A lawyer turned investment banker, he is little known outside Wall Street. But there Fisherman Randolph has a prize catch on the end of his line. As boss of Manhattan's Tri-Continental Group, composed of six investment trusts with assets of nearly $200 million, Randolph votes huge blocks of stock in scores of top U.S. companies. His two biggest trusts are Tri-Continental Corp. ($86 million in assets) and Selected Industries ($57.8 million).

These two are among Wall Street's 50-odd closed-end investment trusts (i.e., with fixed amounts of stock on the market), and are favorite stocks for speculators. Since they are "high-leverage" stocks,* they usually outrun the general market both up & down, and speculators give heavy play to both Tri-Continental and Selected whenever the market shows signs of a major move. In the 1950-51 bull market, for example, the common stocks of Tri-Continental and Selected both scooted up about 50%, v. a mere 25% rise in the Dow-Jones industrial average.

Such are the ways of Wall Street that the actual book value of these stocks means little. From 1942 to 1948, Selected common enjoyed a 1,800% rise, from 25-c- to $4.75--though not until this year have any earnings been passed on to the common stockholders. Tri-Continental common's rise has been almost as spectacular: $5,000 invested in 1942 would be worth nearly $75,000 today. But the most fantastic speculation of all is Tri-Continental warrants, which merely entitle their holders to buy 1.27 shares of Tri-Continental common at $17.76. Tri-Continental common has not sold at such a price in 20 years; last week it sold for around $11. But in hopeful Wall Street, Tri-Continental warrants are currently traded at about $3. A 1942 investment of $5,000 in these warrants (when they were sold for about 3-c-) would be worth $480,000 today.

Baited Hook. Most speculators have bought or sold Tri-Continental and Selected stocks "for the move," without bothering to find out just what they were buying, or even wondering what Randolph and his colleagues might be doing in their Broadway headquarters. But two months ago, Randolph did something that sent many a stockholder scurrying to find out what he held. Randolph proposed that Selected Industries be merged with Tri-Continental.

Both were run by virtually the same management, with almost identical investment policies; it was wasteful, said Randolph, to keep two sets of books, hold separate meetings, etc. Randolph had long wanted to merge the two; at last the time seemed ripe. To stockholders went a complicated plan for a stock swap. Part of Randolph's bait was an $8.70 dividend on one class of Selected Industries stock (the convertible) should the merger be approved.

The Catch. Few stockholders knew just what it was all about--but Broker Arthur Wiesenberger thought he did, and he didn't like it. A specialist in investment trusts and a big stockholder in Selected himself Wiesenberger complained that under the merger, Selected common stock-holders would be 1) surrendering $1730 m dividend arrears for a mere $8 70 payoff; 2) swapping 76% voting control for 2% in the merged company; 3) missine out on a fat batch of capital gains that were not reflected by the market price of Selected. Wiesenberger began urging proxy holders to defeat the merger.

Wiesenberger lost his battle. At successive meetings, a majority of both companies voted to approve Randolph's merger. Last week, as Tri-Continental took over Selected's assets, it became the biggest closed-end trust in the U.S. ($144 million in assets) and fifth among all US trusts.* With that big fish in his creel, Francis Randolph this week was planning some other business--a month of salmon fishing in the Pyrenees.

* A common stock has high leverage when it represents a relatively small proportion of a company's capitalization. Since the rest of the capitalization (e.g., bonds, preferred stock) has a fixed claim on earnings, any sum above that claim is available for common stock dividends. Thus when earnings are high, value of the common goes up fast. But when earnings are low the common stock, which gets the last pickings, skitters downward.

** Top four (open-end): Massachusetts Investors Trust, $362 million; Investors Mutual $235 million; Keystone, $222 million; Wellington tuna, $154 million.

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