8. Conversion ratios for all converts are adjusted for stock splits and special situations, such as special dividends or distributions, as specified in the prospectus for each convert. They may also be adjusted for increase of regular dividends beyond a prespecified dividend payment rate per share threshold.

9. A “two-year hard plus one year 130% soft” means that the convert is not redeemable in the first two years from issue date. It is conditionally redeemable in the third year only if the stock price is at least 30% above the conversion price for at least twenty out of thirty consecutive trading days; after the third year, the convert is redeemable unconditionally. Provisional triggers usually range from 120% to 150%.

10. For example, Amazon.com issued a $1.25 billion, 10-year maturity convertible debt with a coupon of 4.75%, and conversion premium of 27%. Amazon.com is a very volatile stock with strong name recognition as a market leader in the internet retail sector. It was able to issue the convert after a one-day marketing and increase the issue size from an initially announced $500 million to a finally executed $1.25 billion based on investor demand. The structure provided no hard call protection. Instead, it had a three-year “150% provisional redemption with investment premium makewhole.” This means that if the 150% trigger condition were satisfied during the first three years, then the issuer may force conversion. However, the issuer would then simultaneously have to pay the investor a cash amount of $212.60 [= $1,000.00 less ($1,000.00 divided by 1.27)] per bond. The net effect upon conversion is as if the investor purchased Amazon.com common stock on the date of issue of the convert. A more common variation currently is the coupon makewhole as distinct from the premium makewhole. In this variation, if redeemed during the makewhole period, the issuer pays the arithmetic dollar difference between the stipulated coupon stream until the noncall date minus coupons already paid prior to the redemption date.

11. The reset structure was developed in Japan during the 1990s when its economic growth was anemic at best. There is an element of the “death spiral” element here. However, with a downward reset limit feature usually included in the structure, say, conversion price declining to no less than 50% of the initial conversion price, a total death spiral is avoided.

12. Liquid Yield Option Note is a service mark of Bank of America Merrill Lynch.