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Biotech / Medical : Biotech Valuation -- Ignore unavailable to you. Want to Upgrade?

To: jayhawk969 who wrote (8381)	5/16/2003 1:20:09 PM
From: Biomaven	Read Replies (1) \| Respond to of 52153

Thanks, JD and others. Anyone have any idea if the biotech-related convertible preferreds pay interest or dividends? If there is sufficient interest I would enjoy participating in a separate board for discussion purposes. I think this is a great idea - I'm sure we'd get enough interest to make it worthwhile. Why don't you go ahead and start one (or I suppose I could if you don't want to do it yourself). The only thing I don't know is if there is an existing thread on SI someplace dealing with this. Peter

To: jayhawk969 who wrote (8381)	5/16/2003 1:22:46 PM
From: tom pope	Read Replies (1) \| Respond to of 52153

Here's something I found while googling. It's from USA today and dated 1/09/03, and asserts that pfds that carry the 85% exclusion will not benefit from any changes in the dividend tax treatment. I have no idea whether this remains true or not, but I have a call into my ML guy and will report back Investors attracted to big dividends paid by preferred stock, expecting a tax-free bonanza from President Bush's proposed revisions, are in for a big, bad surprise. Preferred stock, special shares that pay super-size dividends and give priority to shareholders in case of bankruptcy, have become suddenly popular. They're attracting investors with average dividends of 8% a year, four times the average paid by common stock. But contrary to popular belief, a majority of the so-called preferred dividends would still be taxable under Bush's rules. That's because there are two types of preferred shares — and the most common type wouldn't benefit. Nearly 75% of so-called preferred shares are actually a popular hybrid Wall Street came up with to appease corporations in the 1990s. These shares, called hybrid preferreds, are treated as debt and give companies a tax break. There's no potential tax break for individual investors, though, because payments made by companies on hybrid preferred shares are considered interest, not dividends, and are not included in Bush's plans. Making things worse, the only way investors can tell what kind of preferred stock they have or are buying is by diving into the prospectus. If other dividends are made tax-exempt, tax experts expect investors to be stunned when they find they owe tax on most preferred dividends. "You can see there will be trouble here," says Robert Willens, tax expert at Lehman Bros. Investors need to understand what preferred stock is, and isn't, before buying. Factors to consider: Preferred shares that stand to benefit from Bush's proposal are very rare. Only about 100 companies, mostly banks and utilities, have $24 billion worth of traditional preferred stock outstanding. Those scarce issues are the only ones paying dividends that would qualify for a break, says William Scapell, director at Merrill Lynch. That's dwarfed by the $140 billion worth of hybrid preferred shares that pay interest and wouldn't be eligible. Investors should think twice before trying to snap up the traditional preferred. Most were issued in the 1950s and aren't actively traded. They often don't even have ticker symbols, making them difficult to buy or sell. Also, they usually pay lower yields than hybrids, Scapell says. Preferred stock investors don't profit when a company grows. Preferred shares pay fixed dividends set at the time they are sold to the public and offer a stable return. But investors miss out on stock-price appreciation they can get in common shares, says Peter Stimes, vice president of Flaherty & Crumrine, which manages two mutual funds that invest in preferred shares. Investors should be careful before assuming Bush's proposal would make preferred stock right for them. "Any legislation would provide relatively modest benefits," Scapell says.