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• Calamos says Amazon . com illustrates the advantages of busted convertibles.
• Busted convertibles then yielded some 7.2 percentage points more than Treasuries.
• Busted convertibles are riskier bonds with double-digit yields and steep conversion premiums.
• Even though the likelihood that busted convertibles will be converted into stock is remote, it does happen on occasion.
• Indeed, market inefficiency has meant that returns on many busted convertibles have become competitive with returns on stocks, Cox added.
• Because of the sector's pariah status, busted convertibles are now unusually cheap, compared with junk bonds without conversion features.
• "Busted convertibles have been the focus of our research effort, " said Anne Cox, convertible-bond strategist at Merrill Lynch.
• Despite the rewards of busted convertibles, they are not for everyone, specialists agree, because they are difficult to analyze, illiquid and risky.
• While bonds generally benefit from lower rates, because their prices move in the opposite direction from interest rates, prices of busted convertibles normally rise disproportionately.
• "With equity markets in a trading range, it's an excellent time to be in riskier asset classes " like busted convertibles, she said.
• Ravi Malik, managing director of the Froley Revy Investment Co . in Los Angeles, tries to identify busted convertibles that are likely to benefit if the stock price rises.
• As the favorable effects of lower interest rates gradually feed through the economy, one sector of the convertible market that holds particular appeal, experts say, is so-called busted convertibles.
• Nick P . Calamos, research director at Calamos Advisors in Naperville, Ill ., calculates that busted convertibles currently yield about 1.5 points more than traditional junk bonds of comparable quality.
• Maren Lindstrom, co-manager with Christopher Towle of the high-yield Lord Abbett Bond Debenture fund, said that more than 20 percent of the $ 3.7 billion portfolio is invested in busted convertibles.
• A busted convertible generally trades on its value as a bond, responding more to interest rate changes and the creditworthiness of the issuer than to changes in the stock price, because the shares would have to rise sharply to induce conversion.