Convertible Programs

Zazove Convertible Strategy
The Zazove Convertible Strategy creates a diversified portfolio of statistically undervalued convertibles with attractive risk/return characteristics.  The management process is anchored by a proprietary valuation model that continuously screens a worldwide universe of convertibles that exceed $450 billion in market value.  This quantitative evaluation process includes a weighted probability analysis, which identifies those convertibles offering the most appreciation potential with the least amount of risk.  Our buy/sell discipline has been refined and seasoned during 37 years of market experience.  Portfolios are broadly diversified by issuer and industry and are monitored daily to minimize risk.

The Zazove Convertible Strategy is utilized in managing convertible portfolios under the following investment programs:

Investment Grade Program
This investment program seeks to achieve the long-term returns associated with stock portfolios with reduced volatility.  The portfolios in this program consist of assets invested primarily in securities of United States issuers.  The portfolios are subject to restrictions regarding the credit quality of the securities in the portfolios (the portfolios must generally maintain an investment grade average rating).  The portfolios in this program are not leveraged to a significant degree. 
 
Aggressive Growth Program
This investment program seeks to achieve the long-term returns associated with an aggressive stock portfolio with reduced volatility.  The portfolios in this program are generally less diversified (fewer positions) than a portfolio managed under the Total Return Program and generally consist of securities issued by companies with smaller market capitalization and lower credit ratings.  In addition, the portfolios are not subject to any restrictions regarding either the country of the issuer or the credit quality of the securities. The portfolios are leveraged to a significant degree (generally, 2:1). 
 
Global Program
This investment program seeks to achieve the long-term returns associated with an international stock portfolio with reduced volatility.  The portfolios in this program consist of assets invested primarily in securities of non-United States issuers.  The portfolios are not subject to any restrictions regarding the credit quality of the securities in the portfolios.  The portfolios in this program are not leveraged to a significant degree.

Zazove Convertible Arbitrage Strategy
The Zazove Convertible Arbitrage Strategy creates a portfolio of convertible securities while taking short positions in the related common stocks to hedge the stock market risk associated with these securities.  Hedged positions are structured as “neutral”, as opposed to bullish or bearish hedges.  Portfolios are broadly diversified by issuer and industry and are monitored daily to minimize risk.

The Zazove Convertible Arbitrage Strategy is utilized in managing portfolios under the following investment programs:

Income Program
This investment program seeks to achieve current returns of approximately 3% to 4% above those of money market funds and to maintain a high degree of safety.  This objective is pursued by utilizing the Zazove Convertible Arbitrage Strategy to focus primarily on opportunities in the United States.  The portfolios are not leveraged.
 
Enhanced Income Program
This investment program seeks to achieve current income and capital appreciation to generate a total return that is approximately 5% to 6% above prevailing money market rates with relatively low volatility.  The objective is pursued by utilizing the Zazove Convertible Arbitrage Strategy to focus on domestic as well as global convertible arbitrage opportunities.  Portfolios are leveraged through margin borrowing or other borrowing facilities (up to 2 to 1).
 
Leverage Hedged Program
This investment program seeks to achieve current income and capital appreciation to generate a total return that is approximately 7% to 8% above prevailing money market rates with relatively low volatility.  The objective is pursued by utilizing the Zazove Convertible Arbitrage Strategy to focus on domestic as well as  global convertible arbitrage opportunities.  Portfolios are leveraged through margin borrowing or other borrowing facilities (up to 3 to 1).

Zazove High Yield Strategy
This strategy focuses on investment opportunities in high-yield convertible securities.  High yield convertible securities include those convertibles that have a low investment premium (i.e., generally, the convertible is trading within 20% of its estimated value without the conversion feature) and/or a high conversion premium (i.e., generally, the convertible is trading at a price that is at least 50% higher than the value of the shares that would be received upon conversion).  A convertible in this group has typically experienced substantial declines in its underlying stock price resulting in a rapid rise in conversion premium, which greatly reduces the equity sensitivity of the convertible and often calls the credit quality of the issue into question.  The investment strategy is focused on capturing value from the fixed income characteristics of its portfolio as opposed to upward movements in the underlying stocks.  The investment process takes a bottoms-up, buy and hold approach with a strong focus on credit analysis and company valuation.

High Yield Program
This investment program seeks to produce total returns that are significantly higher than that of traditional high yield bonds with comparable volatility and lower correlation to other investments. The objective is pursued by utilizing the Zazove High Yield Strategy and focuses primarily on convertible securities issued by companies with less than investment grade credit ratings.  The portfolios in this program are not leveraged to a significant degree.

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