OVERVIEW
Fixed Rate Callable Corporate Securities are fixed income notes purchased at FISN, a brokerage firm. FISN searches nationwide for Callable Corporate notes with attractive returns and offers suitable securities for investment. Corporate securities pay a higher return than agencies. Corporate securities offered by FISN carry an investment grade credit quality and are liquid. Callable investments offer higher rates than non-callable notes but the issuer has the right to return the funds early. Corporate issuers and brokerage firms team-up to distribute these investments across the nation. FISN has access to a wide inventory from most major Wall Street firms. Investors select corporate securities that meet their needs for safety, yield and return of principal. The security is held in a brokerage account.
PROCESS
Investors start by selecting suitable Fixed Rate Callable Corporate Securities for investment and then open a standard brokerage account at FISN in their name. A brokerage account can hold many corporate securities from any corporate issuer, for instance, to construct a laddered portfolio. The investor wires funds or sends a check to fund this new account. FISN sends new account paperwork and purchase confirmations to the investor. The brokerage forms are completed and the transaction confirmation is verified. Only one account needs to be opened for each ownership category. Paperwork is returned to FISN along with the required identification.
CREDIT QUALITY Issuers of Fixed Rate Callable Corporate Securities offered by FISN carry an Investment Grade. A credit rating is the measurement of the financial strength of a bond issuer. This measurement helps an investor to understand an issuer’s ability to make timely interest payments and repay the investment principal upon maturity. Generally, the higher the credit quality of a bond issuer, the lower the interest rate paid by the issuer because the risk of default is lower. Credit quality ratings are provided by nationally recognized rating agencies. The notes are not bank deposits and are not FDIC insured. Principal is protected at maturity by the issuer.
The following is an explanation of the top credit ratings. The rating for each individual investment should be evaluated based the rating criteria. Credit ratings fluctuate with business conditions. Upgrades and downgrades in credit ratings change the risk profile of issuers and possibility the market prices of their securities.
Long Term Credit Ratings
Investment Grade AAA ratings denote the highest rating assigned. This rating is assigned to the "best" credit risk relative to all other issuers or issues.
AA ratings denote a very strong credit risk relative to other issuers or issues. The credit risk inherent in these financial commitments differs only slightly from the highest rated issuers or issues.
A ratings denote a strong credit risk relative to other issuers or issues. However, changes in circumstances or economic conditions may affect the capacity for timely repayment of these financial commitments to a greater degree than for financial commitments denoted by a higher rated category.
BBB ratings denote an adequate credit risk relative to other issuers or issues. However, changes in circumstances or economic conditions are more likely to affect the capacity for timely repayment of these financial commitments than for financial commitments denoted by a higher rated category.
Below Investment Grade BB ratings denote a fairly weak credit risk relative to other issuers or issues. The payment of the financial commitments is uncertain to some degree and capacity for timely repayment remains more vulnerable to adverse economic change over time.
B ratings denote a significantly weak credit risk relative to other issuers or issues in the country. Financial commitments are currently being met but a limited margin of safety remains and capacity for continued timely payments is contingent upon a sustained, favorable business and economic environment.
See Corporate Bond Ratings chart for a simple description and comparison of credit quality ratings issued by S&P, Moody’s and Fitch.
CALLABLE FEATURES
Callable corporate securities are unsecured and unsubordinated obligations of the corporate issuer. These notes offer alternative investment opportunities to traditional CDs with yields higher than government agency securities. The issuers are major U.S. corporations and are not FDIC insured, like banks. Callable notes have an initial non-callable term and a callable term. They pay interest at a fixed rate over the life of the investment. The interest is paid on a semi-annual or monthly basis into the brokerage account where it can continue to earn interest in a money market fund account. At the end of the non-callable period, the security may be called for the full amount of the investment. When called, the issuer returns the amount to the brokerage account with full interest to date. If not called, it remains callable, usually every 6 months. Only the issuer can make the call decision, not the account holder or the broker. The security will continue to pay interest for the full, possible term if it is never called. Key information is the name of the issuer, the issuer credit quality, the first call date, subsequent call dates and the final stated maturity at the end of the possible term. A new selection of terms and rates from many issuers is offered each week by FISN, sold subject to availability and price. There is no early withdrawal permitted but the investment can be sold in the secondary market. Securities sold prior to maturity are subject to market conditions and could result in a loss.
Interest can be disbursed immediately or periodically via checks or electronic funds transmission straight to your local bank. Available cash also can be withdrawn from the account via checks, automatic teller machines or debit cards. There may be fees for accounts with ATM or debit cards.
ID REQUIREMENTS
Brokerage accounts are opened at FISN’s brokerage division, First Internet Securities Network. Securities in FISN accounts are carried by National Financial Services LLC, Member NYSE/SIPC, a Fidelity Investments company. FISN is required under U.S. government rules to verify ownership of all accounts. Individuals are required to provide a copy of a government-issued photo identification. Business accounts, trusts and other non-individual accounts have special documentation requirements.
FEES
There are no investment fees or commissions paid by the investor. The issuers of the securities pay brokers to distribute their newly issued securities. New issue securities are sold at par or a price of 100.0 to the investor. Par is the face amount of the investment on which interest is earned. Most investments require a minimum purchase amount. Secondary market securities are sold net to the investor without any commissions, and are usually offered at a market price indicating a discount or premium to par.
The above disclosure is typical for this type of issue. Actual disclosures are published for each new issue in most cases. Look for the related disclosure for each deal on the FISN web site or ask your FISN Registered Representative to send it to you. Current disclosures are made available to purchasers for new issues either by mail or online after the trade date or settlement date. Disclosures for secondary issues were publish at the time of the original settlement and may not be available or up-to-date.
UNIQUE RISKS FOR FIXED RATE CALLABLE CORPORATE SECURITIES
These fixed rate corporate securities present unique risks related to the call features. Callable investments pay a fixed interest rate until called. The issuer can choose to make the call decision at any call date after the initial non-call period for any reason. Investors should be aware of the timing of each call date and the other terms of the security. The risk is that the interest rate payable by the security may be above prevailing market rates. If the rate is above the market and the investment is callable, the underlying security becomes subject to Call Risk since the issuer is motivated to replace the issue with less costly funds. Reinvestment Risk arises when investments are called, causing investors to relinquish a high rate and replace it with a lower, current market rate.
MARKET RISK
All investments held in a securities account are subject to market risk. Market risk is always present but has no effect if investments are held to maturity. Most investments are purchased with the intention of holding them to maturity. This risk arises from the valuation that potential buyers in the market put on an investment that could be offered for sale. The potential risk is that the value may fall and transaction cost may be incurred if the item is put up for sale. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. It is possible that the value could rise as well and then it would be a market value gain. Market risk is an overall risk caused many factors such as interest rate movements, transaction cost and availability of purchasers.
INTEREST RATE RISK
All investments that pay interest or dividends are subject to interest rate risk. CD Alternative Investments sold by FISN are included since their primary purpose is to produce income in the form of interest. Interest rate risk is present if interest rates are moving up from their original level but has no effect if investments are held to maturity. Most investments are purchased with the intention of holding them to maturity. The rule is simple: if rates rise, the “market” value will fall. All purchasers in the secondary market demand the yield on previously issued investments be increased to current levels before they buy them. Yields are increased by reducing the price. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. Of course, the value may rise if interest rates fall and then it would be a market value gain if sold.
SECONDARY MARKET AVAILABILITY RISK
All investments are subject to the availability of a secondary market. Income producing investments including CD Alternative Investments sold by FISN are included since they don’t trade such as stocks do on an established “stock market”. The risk is the availability of such an organized and active place to sell your investment. This risk is present if you plan to sell your investment but has no effect if investments are held to maturity. Most investments are purchased with the intention of holding them to maturity. FISN, though not obligated to do so, may maintain a secondary market in these investments after any initial distribution. Simply stated - buyers are needed to sell something. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager.
CALL RISK
Callable investments including callable CD Alternative Investments sold by FISN are subject to call risk. Investors should clearly understand all call provisions. This risk is present even if you plan to hold your investments until maturity. The issuer can “call” or redeem a security on certain call dates prior to maturity. The issuer calls the entire issue regardless of the holder. When called, the issuer returns the full amount with interest up to the call date. Only the issuer can exercise a call, not the account holder or the broker. Issuers usually call a security when rates have fallen and they can replace the funds at a lower rate. The risk is that, even though you get back your full investment, when you go to reinvest your funds, it will earn a lower rate. Calls cannot be predicted even though issuers consider only their own needs and costs. Call risk is difficult to evaluate for monthly statements. It is better estimated by requesting your FISN Investment Manager to seek out potential buyers for the actual investment position.
RE-INVESTMENT RISK
All fixed income investments are subject to re-investment risk. This risk is related to what you do when an investment ends, regardless of the reason. If you plan to continue investing, you have to re-enter the marketplace to find a new, replacement investment. One side of this “risk” is that rates may be lower and/or less product is available. The other side of this “risk” is that rates may be higher and/or more product is available. Strategies to lessen this risk are to time investment maturities close to when you might need the money or to go long when rates appear high and to go short term when rates appear low. Some investors do both by laddering the maturities between long and short terms. Long term maturities capture higher returns paid for longer investments. Shorter maturities keep the remainder of your funds regularly available so rate swings are not missed.
PRINCIPAL RISK
All investments are subject to principal risk. This risk is connected to the issuer. If the financial outlook of issuer declines, the issuer’s credit rating could be downgraded or the issuer could actually default on its debt. With most debt, if the issuer is less creditworthy, the debt will fall in value. And, if the issuer cannot repay the debt at all, the investment may be near worthless. The principal value will diminish in either case.
OVERVIEW
Fixed income securities are less liquid than trading investments such as stocks. Fixed income securities are designed to be held long term, or to maturity, rather than being bought and sold, over and over again. Investors can reclaim their funds by exiting a security through a variety of methods. Although there are no early withdrawal rights, nearly every investment can be sold in an active market and some have a payment at death feature.
EARLY WITHDRAWAL
Fixed income securities held in a brokerage account do not have early withdrawal rights for any reason, like some certificates of deposit.
INVESTMENT SALE
Securities purchased through FISN can be sold in the secondary market for fixed income investments. This market is an “over the counter” market which is actually conducted over the telephone between brokerage firms. There is no mechanism such as the New York Stock Exchange where orders can be entered and a sale is guaranteed. The availability of this secondary market cannot be guaranteed. And, there may not be buyers willing to pay an acceptable price if a security is put up for sale. Also impacting the price is that any investment posted for sale will compete with other fixed income investments being offered at the same time. To start the sale process, the investor has to offer their investment for sale to their broker. The broker will consider whether the brokerage firm wants to hold the security in its own inventory for resale at a later time or to sell it to another brokerage firm on the “street”. The broker will offer a net price to the investor for each security. The FISN broker and other “middle men” will build into their prices a trading incentive to cover their cost and profit objectives. The investor can accept the price or continue to hold the security. There is no assurance how high the “bid” price will be or that this price will be close to estimated prices shown online or printed on recent statements. Prices are simply reflections of the market and business objectives of participating firms.
TRANSFERABILITY
Most securities can be transferred amongst brokerage firms. The receiving firm generally requests the delivering firm to transfer cash and securities between accounts registered in the same ownership capacity. All debits and fees need to be paid prior to a transfer. Every firm has a process including minimums, fees and forms. It is not typical for certificates to be issued and sent to owners of record. Holding certificates outside the brokerage community reduces liquidity, prolongs an ownership transfer and lengthens the time for any sale.
PAYABLE ON DEATH
Some securities have a feature that permits the investment to be paid off following the death of an owner. The standard privileges for refunding apply if the investment is owned by a single person or by a joint account of individuals. Other ownership forms used by individuals may require investigation to determine whether they fit the circumstances necessary for payment on death. Each issuer has its own program of rules and limits since there are no government rules or standards. If applicable, the issuer usually requires a death certificate and a standard form indicating the authority of a living individual to request the payment following death for the deceased person. FISN can assist survivors or estate officials in this process. The return of funds is not immediate and can take several weeks once all the paper work is submitted. The funds are simply returned to the brokerage account. The full amount is returned with interest up to the date of termination.
OVERVIEW
Floating Rate Corporate Securities are variable-rate notes purchased at FISN, a brokerage firm. The interest rate is re-computed, usually monthly, over the life of the investment. FISN searches nationwide for Floating Rate notes with attractive returns and offers suitable securities for investment. Floating Rate notes offer a real return that keeps them up with inflation. Most notes are tied to the change in the CPI. Corporate securities offered by FISN carry an investment-grade credit quality. Corporate issuers and brokerage firms team-up to distribute these investments across the nation. FISN has access to a wide inventory from most major Wall Street firms. Investors select corporate securities that meet their needs for safety, yield and return of principal. The security is held in a brokerage account.
PROCESS
Investors start by selecting suitable Floating Rate Corporate Securities for investment and then open a standard brokerage account at FISN in their name. A brokerage account can hold many corporate securities from any corporate issuer based upon any type of floating rate structure. The investor wires funds or sends a check to fund this new account. FISN sends new account paperwork and purchase confirmations to the investor. The brokerage forms are completed and the transaction confirmation is verified. Only one account needs to be opened for each ownership category. Paperwork is returned to FISN along with the required identification.
CREDIT QUALITY Issuers of Floating Rate Corporate Securities offered by FISN carry an Investment Grade rating. A credit rating is the measurement of the financial strength of a bond issuer. This measurement helps an investor to understand an issuer’s ability to make timely interest payments and repay the investment principal upon maturity. Generally, the higher the credit quality of a bond issuer, the lower the interest rate paid by the issuer because the risk of default is lower. Credit quality ratings are provided by nationally recognized rating agencies. The notes are not bank deposits and are not FDIC insured. Principal is protected at maturity by the issuer.
The following is an explanation of the top credit ratings. The rating for each individual investment should be evaluated based the rating criteria. Credit ratings fluctuate with business conditions. Upgrades and downgrades in credit ratings change the risk profile of issuers and possibility the market prices of their securities.
Long Term Credit Ratings
Investment Grade AAA ratings denote the highest rating assigned. This rating is assigned to the "best" credit risk relative to all other issuers or issues.
AA ratings denote a very strong credit risk relative to other issuers or issues. The credit risk inherent in these financial commitments differs only slightly from the highest rated issuers or issues.
A ratings denote a strong credit risk relative to other issuers or issues. However, changes in circumstances or economic conditions may affect the capacity for timely repayment of these financial commitments to a greater degree than for financial commitments denoted by a higher rated category.
BBB ratings denote an adequate credit risk relative to other issuers or issues. However, changes in circumstances or economic conditions are more likely to affect the capacity for timely repayment of these financial commitments than for financial commitments denoted by a higher rated category.
Below Investment Grade BB ratings denote a fairly weak credit risk relative to other issuers or issues. The payment of the financial commitments is uncertain to some degree and capacity for timely repayment remains more vulnerable to adverse economic change over time.
B ratings denote a significantly weak credit risk relative to other issuers or issues in the country. Financial commitments are currently being met but a limited margin of safety remains and capacity for continued timely payments is contingent upon a sustained, favorable business and economic environment.
See Corporate Bond Ratings chart for a simple description and comparison of credit quality ratings issued by S&P, Moody’s and Fitch.
INVESTMENT FEATURES
Floating Rate Corporate Securities pay interest at a variable rate over the life of the investment. They are unsecured and un-subordinated obligations of the corporate issuer. These notes offer alternative investment opportunities to traditional CDs, with yields higher than floating rate CDs. The issuers are major U. S. corporations and are not FDIC insured, like banks. Interest is paid monthly into the brokerage account where it can continue to earn interest in a money market fund account. These notes usually have a fixed term. Each month the interest rate is recalculated in several possible ways. Some notes pay interest monthly at a Base Rate plus the monthly CPI change that reflects the year-over-year change in the CPI. Or, in another fashion, the interest rate can be calculated with a multiplier times the CPI change. The “change” is typically the inflation over the 12 month period ending three months ago. The Consumer Price Index (CPI) is published monthly by the U.S. Bureau of Labor Statistics. In some structures other indexes are used instead of the CPI to calculate the change. The rate for the initial period is always known prior to investment. In effect, the actual rate "floats" up and down with current inflation on a monthly basis. The adjustment may be positive or negative. In the event of a decrease in the CPI, the combined rate will fall, but not below 0.00%. Key information is the name of the issuer, the issuer credit quality, the specific index with any lag period, frequency of adjustment, the Base Rate or Multiplier and the maturity date. Each deal could be different so it is important to understand the details of each offer.
Interest can be disbursed immediately or periodically via checks or electronic funds transmission straight to your local bank. Available cash also can be withdrawn from the account via checks, automatic teller machines or debit cards. There may be fees for accounts with ATM or debit cards.
ID REQUIREMENTS
Brokerage accounts are opened at FISN’s brokerage division, First Internet Securities Network. Securities in FISN accounts are carried by National Financial Services LLC, Member NYSE/SIPC, a Fidelity Investments company. FISN is required under U.S. government rules to verify ownership of all accounts. Individuals are required to provide a copy of a government-issued photo identification. Business accounts, trusts and other non-individual accounts have special documentation requirements.
FEES
There are no investment fees or commissions paid by the investor. The issuers of the securities pay brokers to distribute their newly issued securities. New issue securities are sold at par or a price of 100.0 to the investor. Par is the face amount of the investment on which interest is earned. Most investments require a minimum purchase amount. Secondary market securities are sold net to the investor without any commissions, and are usually offered at a mark et price indicating a discount or premium to par.
The above disclosures are typical for this type of issue. Actual disclosures are published for each new issue in most cases. Look for the related disclosure for each deal on the FISN web site or ask your FISN Registered Representative to send it to you. Current disclosures are made available to purchasers for new issues either by mail or online after the trade date or settlement date. Disclosures for secondary issues were publish at the time of the original settlement and may not be available or up-to-date.
UNIQUE RISKS FOR FLOATING RATE CORPORATE SECURITIES
These floating rate securities present unique risks related to the rate adjustment features. The adjustment formula is designed to produce a real return. The risk is that the formula does not fully accomplish this mission. The index may understate cost factors or delay the impact. The market will devalue a sub-performing security.
MARKET RISK
All investments held in a securities account are subject to market risk. Market risk is always present but has no effect if investments are held to maturity. Most investments are purchased with the intention of holding them to maturity. This risk arises from the valuation that potential buyers in the market put on an investment that could be offered for sale. The potential risk is that the value may fall and transaction cost may be incurred if the item is put up for sale. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. It is possible that the value could rise as well and then it would be a market value gain. Market risk is an overall risk caused many factors such as interest rate movements, transaction cost and availability of purchasers.
INTEREST RATE RISK
All investments that pay interest or dividends are subject to interest rate risk. CD Alternative Investments sold by FISN are included since their primary purpose is to produce income in the form of interest. Interest rate risk is present if interest rates are moving up from their original level but has no effect if investments are held to maturity. Most investments are purchased with the intention of holding them to maturity. The rule is simple: if rates rise, the “market” value will fall. All purchasers in the secondary market demand the yield on previously issued investments be increased to current levels before they buy them. Yields are increased by reducing the price. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. Of course, the value may rise if interest rates fall and then it would be a market value gain if sold.
SECONDARY MARKET AVAILABILITY RISK
All investments are subject to the availability of a secondary market. Income producing investments including CD Alternative Investments sold by FISN are included since they don’t trade such as stocks do on an established “stock market”. The risk is the availability of such an organized and active place to sell your investment. This risk is present if you plan to sell your investment but has no effect if investments are held to maturity. Most investments are purchased with the intention of holding them to maturity. FISN, though not obligated to do so, may maintain a secondary market in these investments after any initial distribution. Simply stated - buyers are needed to sell something. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager.
CALL RISK
These investments are typically not callable.
RE-INVESTMENT RISK
All fixed income investments are subject to re-investment risk. This risk is related to what you do when an investment ends, regardless of the reason. If you plan to continue investing, you have to re-enter the marketplace to find a new, replacement investment. One side of this “risk” is that rates may be lower and/or less product is available. The other side of this “risk” is that rates may be higher and/or more product is available. Strategies to lessen this risk are to time investment maturities close to when you might need the money or to go long when rates appear high and to go short term when rates appear low. Some investors do both by laddering the maturities between long and short terms. Long term maturities capture higher returns paid for longer investments. Shorter maturities keep the remainder of your funds regularly available so rate swings are not missed.
PRINCIPAL RISK
All investments are subject to principal risk. This risk is connected to the issuer. If the financial outlook of issuer declines, the issuer’s credit rating could be downgraded or the issuer could actually default on its debt. With most debt, if the issuer is less creditworthy, the debt will fall in value. And, if the issuer cannot repay the debt at all, the investment may be near worthless. The principal value will diminish in either case.
OVERVIEW
Fixed income securities are less liquid than trading investments such as stocks. Fixed income securities, including those with rates that adjust with inflation, are designed to be held long term, or to maturity, rather than being bought and sold, over and over again. Investors can reclaim their funds by exiting a security through a variety of methods. Although there are no early withdrawal rights, nearly every investment can be sold in an active market and some have a payment at death feature.
EARLY WITHDRAWAL
Floating rate securities held in a brokerage account do not have early withdrawal rights for any reason, like some certificates of deposit.
INVESTMENT SALE
Securities purchased through FISN can be sold in the secondary market for fixed income investments. This market is an “over the counter” market which is actually conducted over the telephone between brokerage firms. There is no mechanism such as the New York Stock Exchange where orders can be entered and a sale is guaranteed. The availability of this secondary market cannot be guaranteed. And, there may not be buyers willing to pay an acceptable price if a security is put up for sale. Also impacting the price is that any investment posted for sale will compete with other fixed income investments being offered at the same time. To start the sale process, the investor has to offer their investment for sale to their broker. The broker will consider whether the brokerage firm wants to hold the security in its own inventory for resale at a later time or to sell it to another brokerage firm on the “street”. The broker will offer a net price to the investor for each security. The FISN broker and other “middle men” will build into their prices a trading incentive to cover their cost and profit objectives. The investor can accept the price or continue to hold the security. There is no assurance how high the “bid” price will be or that this price will be close to estimated prices shown online or printed on recent statements. Prices are simply reflections of the market and business objectives of participating firms.
TRANSFERABILITY
Most securities can be transferred amongst brokerage firms. The receiving firm generally requests the delivering firm to transfer cash and securities between accounts registered in the same ownership capacity. All debits and fees need to be paid prior to a transfer. Every firm has a process including minimums, fees and forms. It is not typical for certificates to be issued and sent to owners of record. Holding certificates outside the brokerage community reduces liquidity, prolongs an ownership transfer and lengthens the time for any sale.
PAYABLE ON DEATH
Some securities have a feature that permits the investment to be paid off following the death of an owner. The standard privileges for refunding apply if the investment is owned by a single person or by a joint account of individuals. Other ownership forms used by individuals may require investigation to determine whether they fit the circumstances necessary for payment on death. Each issuer has its own program of rules and limits since there are no government rules or standards. If applicable, the issuer usually requires a death certificate and a standard form indicating the authority of a living individual to request the payment following death for the deceased person. FISN can assist survivors or estate officials in this process. The return of funds is not immediate and can take several weeks once all the paper work is submitted. The funds are simply returned to the brokerage account. The full amount is returned with interest up to the date of termination.
Non
Callable
Term
Possible
Term
Floating
Rate
Type
Interest
Rate
Issuer
Credit Rating Disclosure
Minimum
Investment
Buy
Non Callable
15.0 Yrs
Range Accrual Note tied to the S&P 500 Index
Yrs 1-15
Interest will be paid monthly at a rate of 7.50% if the the S&P 500 Index is at or above 850 on the observation date. The date will be 3 business days before the end of the month. If the index closing value is less than 850 on the observation day, no interest is accrued for that entire month. Not FDIC insured. Terms & Conditions
OVERVIEW
Step Up Rate Callable Corporate Securities are fixed income notes purchased at FISN, a brokerage firm. The interest rate steps up periodically over the life of the investment. FISN searches nationwide for Step Up Callable notes with attractive returns and offers suitable securities for investment. Corporate securities pay a higher return than agencies. Corporate securities offered by FISN carry an investment grade credit quality and are liquid. Callable investments with steps offer higher rates than non-callable, fixed rate notes, but the issuer has the right to return the funds early. Corporate issuers and brokerage firms team-up to distribute these investments across the nation. FISN has access to a wide inventory from most major Wall Street firms. Investors select corporate securities that meet their needs for safety, yield and return of principal. The security is held in a brokerage account.
PROCESS
Investors start by selecting suitable Step Up Rate Callable Corporate Securities for investment and then open a standard brokerage account at FISN in their name. A brokerage account can hold many corporate securities from any corporate issuer, for instance, to construct a laddered portfolio. The investor wires funds or sends a check to fund this new account. FISN sends new account paperwork and purchase confirmations to the investor. The brokerage forms are completed and the transaction confirmation is verified. Only one account needs to be opened for each ownership category. Paperwork is returned to FISN along with the required identification.
CREDIT QUALITY Issuers of Step Up Callable Corporate Securities offered by FISN carry an Investment Grade rating. A credit rating is the measurement of the financial strength of a bond issuer. This measurement helps an investor to understand an issuer’s ability to make timely interest payments and repay the investment principal upon maturity. Generally, the higher the credit quality of a bond issuer, the lower the interest rate paid by the issuer because the risk of default is lower. Credit quality ratings are provided by nationally recognized rating agencies. The notes are not bank deposits and are not FDIC insured. Principal is protected at maturity by the issuer.
The following is an explanation of the top credit ratings. The rating for each individual investment should be evaluated based the rating criteria. Credit ratings fluctuate with business conditions. Upgrades and downgrades in credit ratings change the risk profile of issuers and possibility the market prices of their securities.
Long Term Credit Ratings
Investment Grade AAA ratings denote the highest rating assigned. This rating is assigned to the "best" credit risk relative to all other issuers or issues.
AA ratings denote a very strong credit risk relative to other issuers or issues. The credit risk inherent in these financial commitments differs only slightly from the highest rated issuers or issues.
A ratings denote a strong credit risk relative to other issuers or issues. However, changes in circumstances or economic conditions may affect the capacity for timely repayment of these financial commitments to a greater degree than for financial commitments denoted by a higher rated category.
BBB ratings denote an adequate credit risk relative to other issuers or issues. However, changes in circumstances or economic conditions are more likely to affect the capacity for timely repayment of these financial commitments than for financial commitments denoted by a higher rated category.
Below Investment Grade BB ratings denote a fairly weak credit risk relative to other issuers or issues. The payment of the financial commitments is uncertain to some degree and capacity for timely repayment remains more vulnerable to adverse economic change over time.
B ratings denote a significantly weak credit risk relative to other issuers or issues in the country. Financial commitments are currently being met but a limited margin of safety remains and capacity for continued timely payments is contingent upon a sustained, favorable business and economic environment.
See Corporate Bond Ratings chart for a simple description and comparison of credit quality ratings issued by S&P, Moody’s and Fitch.
STEP-UP FEATURES
Step Up corporate notes pay interest at a fixed rate for each period and then step-up to a new, higher rate of interest for the next period. Interest is paid on a semi-annual or monthly basis into the brokerage account. At each step-up point these notes are usually callable. Key information is the interest rate and dates for each step period.
CALLABLE FEATURES
Callable corporate securities are unsecured and un-subordinated obligations of the corporate issuer. These notes offer alternative investment opportunities to traditional CDs with yields higher than government agency securities. The issuers are major U. S. corporations and are not FDIC insured like banks. Callable notes have an initial non-callable term and a callable term. The interest rate is fixed up-front for each step-up period and cannot change until the next step. The interest is paid on a semi-annual or monthly basis into the brokerage account where it can continue to earn interest in a money market fund account. At the end of the non-callable period, the security may be called for the full amount of the investment. When called, the issuer returns the amount to the brokerage account with full interest to date. If not called, it remains callable, usually every 6 months. Only the issuer can make the call decision, not the account holder or the broker. The security will continue to pay interest for the full, possible term if it is never called. Key information is the name of the issuer, the issuer credit quality, the first call date, subsequent call dates and the final stated maturity at the end of the possible term. A new selection of terms and rates from many issuers is offered each week by FISN, subject to availability and price. There is no early withdrawal permitted but the note can be sold in the secondary market or redeemed at par upon the death of the owner or co-owner, if the issuer permits. Securities sold prior to maturity are subject to market conditions and could result in a loss.
Interest can be disbursed immediately or periodically via checks or electronic funds transmission straight to your local bank. Available cash also can be withdrawn from the account via checks, automatic teller machines or debit cards. There may be fees for accounts with ATM or debit cards.
ID REQUIREMENTS
Brokerage accounts are opened at FISN’s brokerage division, First Internet Securities Network. Securities in FISN accounts are carried by National Financial Services LLC, Member NYSE/SIPC, a Fidelity Investments company. FISN is required under U.S. government rules to verify ownership of all accounts. Individuals are required to provide a copy of a government-issued photo identification. Business accounts, trusts and other non-individual accounts have special documentation requirements.
FEES
There are no investment fees or commissions paid by the investor. The issuers of the securities pay brokers to distribute their newly issued securities. New issue securities are sold at par or a price of 100.0 to the investor. Par is the face amount of the investment on which interest is earned. Most investments require a minimum purchase amount. Secondary market securities are sold net to the investor without any commissions, and are usually offered at a market price indicating a discount or premium to par.
The above disclosures are typical for this type of issue. Actual disclosures are published for each new issue in most cases. Look for the related disclosure for each deal on the FISN web site or ask your FISN Registered Representative to send it to you. Current disclosures are made available to purchasers for new issues either by mail or online after the trade date or settlement date. Disclosures for secondary issues were publish at the time of the original settlement and may not be available or up-to-date.
UNIQUE RISKS FOR STEP-UP RATE CALLABLE CORPORATE SECURITIES
These corporate securities present unique risks related to the call features. Callable investments pay interest until called. The issuer can choose to make the call decision at any call date after the initial non-call period for any reason. Investors should be aware of the timing of each call date and the other terms of the security. The risk is that the interest rate payable by the security at any time may be above prevailing market rates. If the rate is above the market and the investment is callable, the underlying security becomes subject to Call Risk since the issuer is motivated to replace the issue with less costly funds. Reinvestment Risk arises when investments are called, causing investors to relinquish a high rate and replace it with a lower, current market rate.
These corporate securities also present unique risks related to the step-up features. Step-up securities will pay an initial rate of interest for a definite period and then “step-up” to a new, higher rate. Step-up investments have multiple rate steps at predetermined intervals. Investors should be aware of the timing and interest rates of all steps. The risk is that the stepped-up rate may be above prevailing market rates. If the rate is above the market and the investment is callable, the underlying security becomes subject to the same Call Risk since the issuer is motivated to replace the issue with less costly funds. The initial rate from the first step is not the yield to maturity (YTM). The YTM on a step-up investment is always higher and will depend upon when the security is redeemed and how many steps are actually utilized.
MARKET RISK
All investments held in a securities account are subject to market risk. Market risk is always present but has no effect if investments are held to maturity. Most investments are purchased with the intention of holding them to maturity. This risk arises from the valuation that potential buyers in the market put on an investment that could be offered for sale. The potential risk is that the value may fall and transaction cost may be incurred if the item is put up for sale. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. It is possible that the value could rise as well and then it would be a market value gain. Market risk is an overall risk caused many factors such as interest rate movements, transaction cost and availability of purchasers.
INTEREST RATE RISK
All investments that pay interest or dividends are subject to interest rate risk. CD Alternative Investments sold by FISN are included since their primary purpose is to produce income in the form of interest. Interest rate risk is present if interest rates are moving up from their original level but has no effect if investments are held to maturity. Most investments are purchased with the intention of holding them to maturity. The rule is simple: if rates rise, the “market” value will fall. All purchasers in the secondary market demand the yield on previously issued investments be increased to current levels before they buy them. Yields are increased by reducing the price. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. Of course, the value may rise if interest rates fall and then it would be a market value gain if sold.
SECONDARY MARKET AVAILABILITY RISK
All investments are subject to the availability of a secondary market. Income producing investments including CD Alternative Investments sold by FISN are included since they don’t trade such as stocks do on an established “stock market”. The risk is the availability of such an organized and active place to sell your investment. This risk is present if you plan to sell your investment but has no effect if investments are held to maturity. Most investments are purchased with the intention of holding them to maturity. FISN, though not obligated to do so, may maintain a secondary market in these investments after any initial distribution. Simply stated - buyers are needed to sell something. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager.
CALL RISK
Callable investments including callable CD Alternative Investments sold by FISN are subject to call risk. Investors should clearly understand all call provisions. This risk is present even if you plan to hold your investments until maturity. The issuer can “call” or redeem a security on certain call dates prior to maturity. The issuer calls the entire issue regardless of the holder. When called, the issuer returns the full amount with interest up to the call date. Only the issuer can exercise a call, not the account holder or the broker. Issuers usually call a security when rates have fallen and they can replace the funds at a lower rate. The risk is that, even though you get back your full investment, when you go to reinvest your funds, it will earn a lower rate. Calls cannot be predicted even though issuers consider only their own needs and costs. Call risk is difficult to evaluate for monthly statements. It is better estimated by requesting your FISN Investment Manager to seek out potential buyers for the actual investment position.
RE-INVESTMENT RISK
All fixed income investments are subject to re-investment risk. This risk is related to what you do when an investment ends, regardless of the reason. If you plan to continue investing, you have to re-enter the marketplace to find a new, replacement investment. One side of this “risk” is that rates may be lower and/or less product is available. The other side of this “risk” is that rates may be higher and/or more product is available. Strategies to lessen this risk are to time investment maturities close to when you might need the money or to go long when rates appear high and to go short term when rates appear low. Some investors do both by laddering the maturities between long and short terms. Long term maturities capture higher returns paid for longer investments. Shorter maturities keep the remainder of your funds regularly available so rate swings are not missed.
PRINCIPAL RISK
All investments are subject to principal risk. This risk is connected to the issuer. If the financial outlook of issuer declines, the issuer’s credit rating could be downgraded or the issuer could actually default on its debt. With most debt, if the issuer is less creditworthy, the debt will fall in value. And, if the issuer cannot repay the debt at all, the investment may be near worthless. The principal value will diminish in either case.
OVERVIEW
Fixed income securities are less liquid than trading investments such as stocks. All fixed income securities, including those with rates that step-up, are designed to be held long term, or to maturity, rather than being bought and sold, over and over again. Investors can reclaim their funds by exiting a security through a variety of methods. Although there are no early withdrawal rights, nearly every investment can be sold in an active market and some have a payment at death feature.
EARLY WITHDRAWAL
Fixed income securities, including those with rates that step-up, held in a brokerage account do not have early withdrawal rights for any reason, like some certificates of deposit.
INVESTMENT SALE
Securities purchased through FISN can be sold in the secondary market for fixed income investments. This market is an “over the counter” market which is actually conducted over the telephone between brokerage firms. There is no mechanism such as the New York Stock Exchange where orders can be entered and a sale is guaranteed. The availability of this secondary market cannot be guaranteed. And, there may not be buyers willing to pay an acceptable price if a security is put up for sale. Also impacting the price is that any investment posted for sale will compete with other fixed income investments being offered at the same time. To start the sale process, the investor has to offer their investment for sale to their broker. The broker will consider whether the brokerage firm wants to hold the security in its own inventory for resale at a later time or to sell it to another brokerage firm on the “street”. The broker will offer a net price to the investor for each security. The FISN broker and other “middle men” will build into their prices a trading incentive to cover their cost and profit objectives. The investor can accept the price or continue to hold the security. There is no assurance how high the “bid” price will be or that this price will be close to estimated prices shown online or printed on recent statements. Prices are simply reflections of the market and business objectives of participating firms.
TRANSFERABILITY
Most securities can be transferred amongst brokerage firms. The receiving firm generally requests the delivering firm to transfer cash and securities between accounts registered in the same ownership capacity. All debits and fees need to be paid prior to a transfer. Every firm has a process including minimums, fees and forms. It is not typical for certificates to be issued and sent to owners of record. Holding certificates outside the brokerage community reduces liquidity, prolongs an ownership transfer and lengthens the time for any sale.
PAYABLE ON DEATH
Some securities have a feature that permits the investment to be paid off following the death of an owner. The standard privileges for refunding apply if the investment is owned by a single person or by a joint account of individuals. Other ownership forms used by individuals may require investigation to determine whether they fit the circumstances necessary for payment on death. Each issuer has its own program of rules and limits since there are no government rules or standards. If applicable, the issuer usually requires a death certificate and a standard form indicating the authority of a living individual to request the payment following death for the deceased person. FISN can assist survivors or estate officials in this process. The return of funds is not immediate and can take several weeks once all the paper work is submitted. The funds are simply returned to the brokerage account. The full amount is returned with interest up to the date of termination.
OVERVIEW
Stock Market Linked Structured Corporate Securities are medium term notes purchased at FISN, a brokerage firm. FISN searches nationwide for attractive notes linked to the performance of world-wide stock market indexes and offers suitable securities for investment. The return paid at maturity is tied to the increase in an index or basket of indexes. Corporate securities offered by FISN carry an investment grade credit quality. These notes are not callable and have no guaranteed interest. The principal may or may not protected. Corporate issuers and brokerage firms team-up to distribute these investments across the nation. FISN has access to a wide inventory from most major Wall Street firms. Investors select corporate securities that meet their needs for safety, yield and return of principal. The security is held in a brokerage account.
PROCESS
Investors start by selecting suitable Stock Market Linked Structured Corporate Securities for investment and then open a standard brokerage account at FISN in their name. A brokerage account can hold many corporate securities from any corporate issuer linked to any single stock market or basket of diversified stock markets. The investor wires funds or sends a check to fund this new account. FISN sends new account paperwork and purchase confirmations to the investor. The brokerage forms are completed and the transaction confirmation is verified. Only one account needs to be opened for each ownership category. Paperwork is returned to FISN along with the required identification.
CREDIT QUALITY Issuers of Stock Market Linked Structured Corporate Securities offered by FISN, usually international banks and investment companies, carry an Investment Grade rating. A credit rating is the measurement of the financial strength of a bond issuer. This measurement helps an investor to understand an issuer’s ability to make timely interest payments and repay the investment principal upon maturity. Generally, the higher the credit quality of a bond issuer, the lower the interest rate paid by the issuer because the risk of default is lower. Credit quality ratings are provided by nationally recognized rating agencies. The notes are not bank deposits and are not FDIC insured. Principal is protected at maturity by the issuer unless indicated.
The following is an explanation of the top credit ratings. The rating for each individual investment should be evaluated based the rating criteria. Credit ratings fluctuate with business conditions. Upgrades and downgrades in credit ratings change the risk profile of issuers and possibility the market prices of their securities.
Long Term Credit Ratings
Investment Grade AAA ratings denote the highest rating assigned. This rating is assigned to the "best" credit risk relative to all other issuers or issues.
AA ratings denote a very strong credit risk relative to other issuers or issues. The credit risk inherent in these financial commitments differs only slightly from the highest rated issuers or issues.
A ratings denote a strong credit risk relative to other issuers or issues. However, changes in circumstances or economic conditions may affect the capacity for timely repayment of these financial commitments to a greater degree than for financial commitments denoted by a higher rated category.
BBB ratings denote an adequate credit risk relative to other issuers or issues. However, changes in circumstances or economic conditions are more likely to affect the capacity for timely repayment of these financial commitments than for financial commitments denoted by a higher rated category.
Below Investment Grade BB ratings denote a fairly weak credit risk relative to other issuers or issues. The payment of the financial commitments is uncertain to some degree and capacity for timely repayment remains more vulnerable to adverse economic change over time.
B ratings denote a significantly weak credit risk relative to other issuers or issues in the country. Financial commitments are currently being met but a limited margin of safety remains and capacity for continued timely payments is contingent upon a sustained, favorable business and economic environment.
See Corporate Bond Ratings chart for a simple description and comparison of credit quality ratings issued by S&P, Moody’s and Fitch.
INVESTMENT FEATURES
Stock Market Linked Structured Corporate securities are unsecured and un-subordinated obligations of the corporate issuer. These notes are issued by large, worldwide banking and investment companies for terms usually of three to seven years. These notes offer an alternative to market-linked CDs, but they are not FDIC insured and usually do not pay any guaranteed amount of interest at maturity, as some CDs do. The issuer has no relationship to the indexes which are used as a reference for the variable investment return. The variable return is based upon the gain in a related stock market index or basket of indexes. At maturity, the index return is calculated. If the index is up, then the gain is multiplied times the participation rate and paid out. If the index is down, just the principal is returned, if principal is protected. If principal is not protected, then less than the original investment is returned at maturity. The interest is paid at maturity into the brokerage account where it can continue to earn interest in a money market fund account.
These notes are linked to a wide variety of domestic and foreign equity indexes. Most commonly used are the U.S. stock indexes - S&P 500, NASDAQ 100 and the Dow Jones Industrial Average. Foreign indexes for stocks in Europe or Asia are often mixed with U.S. indexes to comprise a world-basket investment. The index return is calculated in a variety of ways usually with some type of averaging. The index level on selected dates can be averaged and compared to the initial index to figure the gain. Other structures look at the just the difference between the start date and the final date in a point-to-point structure. Gains can be limited by caps or a maximum return. Each deal is unique with some having a participation rate less than 100% while others apply leverage to the gain with participation levels in excess of 100% with some as high as 300%. Key information is the name of the issuer, issuer credit quality, the actual index or indexes used, the method of calculating the gain with any caps or floors, the participation or leverage rate and whether there is a minimum level of interest earned. There is no early withdrawal permitted but the notes can be sold in the secondary market. Notes sold prior to maturity are subject to market conditions and could result in a loss. They are sold subject to availability and price.
Read each linked Disclosure for a complete explanation of each issue.
ID REQUIREMENTS
Brokerage accounts are opened at FISN’s brokerage division, First Internet Securities Network. Securities in FISN accounts are carried by National Financial Services LLC, Member NYSE/SIPC, a Fidelity Investments company. FISN is required under U.S. government rules to verify ownership of all accounts. Individuals are required to provide a copy of a government issued, photo identification. Business accounts, trusts and other non-individual accounts have special documentation requirements.
FEES
There are no investment fees or commissions paid by the investor. The issuers of the securities pay brokers to distribute their newly issued securities. New issue securities are sold at par or a price of 100.0 to the investor. Par is the face amount of the investment on which interest is earned. Most investments require a minimum purchase amount. Secondary market securities are sold net to the investor without any commissions, and are usually offered at a market price indicating a discount or premium to par.
The above disclosure is typical for this type of issue. Actual disclosures are published for each new issue in most cases. Look for the related disclosure for each deal on the FISN web site or ask your FISN Registered Representative to send it to you. Current disclosures are made available to purchasers for new issues either by mail or online after the trade date or settlement date. Disclosures for secondary issues were publish at the time of the original settlement and may not be available or up-to-date.
UNIQUE RISKS FOR STOCK MARKET LINKED SECURITIES
These market linked securities present unique risks related to the variable rate calculation features and the index(es) utilized. The formula is designed to produce a return reflecting the performance of the applicable equity market. The risk is that the formula does not fully accomplish this mission. Each structure is different in how this is intended to be accomplished. Some types average gains quarterly, semi-annually or even annually. Others look at just the change from the beginning to the end (point-to-point). There is a wide variety of limiting factors such as caps and reduced participation levels, as well as positive factors such as leverage and minimum pay outs. And, of course, the actual index used may not demonstrate the same growth as other equity markets. The market will devalue a security tied to a sub-performing index.
Other unique risks are that no interest might be earned for the full term and that principal may not be protected at maturity. Most issues do have principal protection and stipulate simply the return of principal if the calculation does not produce a gain. This means no interest is earned. While other securities actually are vulnerable to declines in the related index(es). In these cases, if the formula for calculating the gain instead produces a negative figure, than the issuer would return less than the original investment and without any interest. A common protection feature is to impose the loss only if the formula exceeds some limit. Each structure is unique. MARKET RISK
All investments held in a securities account are subject to market risk. Market risk is always present but has no effect if investments are held to maturity. Most investments are purchased with the intention of holding them to maturity. This risk arises from the valuation that potential buyers in the market put on an investment that could be offered for sale. The potential risk is that the value may fall and transaction cost may be incurred if the item is put up for sale. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. It is possible that the value could rise as well and then it would be a market value gain. Market risk is an overall risk caused many factors such as interest rate movements, transaction cost and availability of purchasers. INTEREST RATE RISK
All investments that pay interest or dividends are subject to interest rate risk. CD Alternative Investments sold by FISN are included since their primary purpose is to produce income in the form of interest. Interest rate risk is present if interest rates are moving up from their original level but has no effect if investments are held to maturity. Most investments are purchased with the intention of holding them to maturity. The rule is simple: if rates rise, the “market” value will fall. All purchasers in the secondary market demand the yield on previously issued investments be increased to current levels before they buy them. Yields are increased by reducing the price. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. Of course, the value may rise if interest rates fall and then it would be a market value gain if sold.
SECONDARY MARKET AVAILABILITY RISK
All investments are subject to the availability of a secondary market. Income producing investments including CD Alternative Investments sold by FISN are included since they don’t trade such as stocks do on an established “stock market”. The risk is the availability of such an organized and active place to sell your investment. This risk is present if you plan to sell your investment but has no effect if investments are held to maturity. Most investments are purchased with the intention of holding them to maturity. FISN, though not obligated to do so, may maintain a secondary market in these investments after any initial distribution. Simply stated - buyers are needed to sell something. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager.
CALL RISK
These investments are typically not callable.
RE-INVESTMENT RISK
All fixed income investments are subject to re-investment risk. This risk is related to what you do when an investment ends, regardless of the reason. If you plan to continue investing, you have to re-enter the marketplace to find a new, replacement investment. One side of this “risk” is that rates may be lower and/or less product is available. The other side of this “risk” is that rates may be higher and/or more product is available. Strategies to lessen this risk are to time investment maturities close to when you might need the money or to go long when rates appear high and to go short term when rates appear low. Some investors do both by laddering the maturities between long and short terms. Long term maturities capture higher returns paid for longer investments. Shorter maturities keep the remainder of your funds regularly available so rate swings are not missed.
PRINCIPAL RISK
All investments are subject to principal risk. This risk is connected to the issuer. If the financial outlook of issuer declines, the issuer’s credit rating could be downgraded or the issuer could actually default on its debt. With most debt, if the issuer is less creditworthy, the debt will fall in value. And, if the issuer cannot repay the debt at all, the investment may be near worthless. The principal value will diminish in either case.
OVERVIEW
Fixed income securities are less liquid than trading investments such as stocks. Stock market linked securities are similar to fixed income securities. They are designed to be held long term, or to maturity, rather than being bought and sold, over and over again. Investors can reclaim their funds by exiting a security through a variety of methods. Although there are no early withdrawal rights, nearly every investment can be sold in an active market.
EARLY WITHDRAWAL
Stock market linked securities held in a brokerage account do not have early withdrawal rights for any reason, like some certificates of deposit.
INVESTMENT SALE
Securities purchased through FISN can be sold in the secondary market for fixed income investments. This market is an “over the counter” market which is actually conducted over the telephone between brokerage firms. There is no mechanism such as the New York Stock Exchange where orders can be entered and a sale is guaranteed. The availability of this secondary market cannot be guaranteed. And, there may not be buyers willing to pay an acceptable price if a security is put up for sale. Also impacting the price is that any investment posted for sale will compete with other fixed income investments being offered at the same time. To start the sale process, the investor has to offer their investment for sale to their broker. The broker will consider whether the brokerage firm wants to hold the security in its own inventory for resale at a later time or to sell it to another brokerage firm on the “street”. The broker will offer a net price to the investor for each security. The FISN broker and other “middle men” will build into their prices a trading incentive to cover their cost and profit objectives. The investor can accept the price or continue to hold the security. There is no assurance how high the “bid” price will be or that this price will be close to estimated prices shown online or printed on recent statements. Prices are simply reflections of the market and business objectives of participating firms.
TRANSFERABILITY
Most securities can be transferred amongst brokerage firms. The receiving firm generally requests the delivering firm to transfer cash and securities between accounts registered in the same ownership capacity. All debits and fees need to be paid prior to a transfer. Every firm has a process including minimums, fees and forms. It is not typical for certificates to be issued and sent to owners of record. Holding certificates outside the brokerage community reduces liquidity, prolongs an ownership transfer and lengthens the time for any sale.
PAYABLE ON DEATH
Some securities have a feature that permits the investment to be paid off following the death of an owner. Stock Market Linked Structured Corporate Securities typically don’t have this feature.
Point-to-Point Appreciation with No Upside Cap & Full Downside Protection
Interest is paid at maturity based upon the full, uncapped increase in the S&P 500 Index. The increase is measured from the starting index level to the final index level. There is no cap. If there is a decrease in the index, the principal is protected and the full amount will be returned without any interest. Not FDIC insured. Full principal is returned at maturity subject to the credit risk of Morgan Stanley.
Sum of the Quarterly Index Changes with Principal Protection at Maturity
Index Interest is paid at maturity. Index Interest is based upon the sum of the 12 quarterly percentage changes, up or down, in index value times the deposit amount. Each quarter the change period is reset. The quarterly change is calculated from start of the quarter to end of the quarter in the period and any quarterly increase will be capped at 5.0% to 6.0% with no floor on the downside. In the event the sum of the quarterly percentage changes is down, no Index Interest is paid. Not FDIC insured. Full principal is returned at maturity subject to the credit risk of Morgan Stanley.
