Basically the problem is this: Borrowing short and lending long can reduce your cash flow when interest rates rise. So any assumption that the present yield will never be reduced, or any assumption that the current yield will stay the same and put a floor under the price of the stock, is not a valid assumption.
If you go to chartermac.com and request an annual report, CHC will promptly send you the 10k for the fiscal year ending 12/31/03. Under "We may suffer adverse consequences from changes in interest rates" on Page 11, it reads: "Since a significant portion of our investments represent residual interests in revenue bonds or other securities whose cash flow is first used to pay senior securities with short-term floating interest rates, any increase in short-term interest rates will increase the amount of interest we are required to pay on the senior securities and reduce the cash flow from out residual interests. Any significant increase in short term interest rates could adversely affect the market value of our shares by reducing the amount of cash available for distribution to our shareholders."
This is not the end of the world; but you should be fully aware of the risk you are taking by holding onto the stock. My bet is that the conference call on May 5 will be positive and the shares will move up. If they do move up, it would be a good time, in my opinion, to make up your mind if you want to hold or fold. I'll give more info on this in Part 2. Gotta go.