REVERSE CONVERTIBLES
A Reverse Convertible Security is a short-term investment tied to one or more underlying stocks. It provides a steady income stream from a coupon rate higher than that of a comparably-rated traditional corporate bond of the same maturity.
In addition to the stated coupon that is paid, at maturity the investor receives either 100% of the initial investment principal in cash, or a pre-specified number of shares of the underlying stock are delivered in lieu of cash; the value of those shares will be less than the amount originally invested.
There are a wide variety of companies that can be represented in these underlying shares, from small-cap firms to Fortune 500 companies. The investor's potential return is limited to the security's high coupon rate. The investor does not share in any appreciation of the underlying stock.