Some fixed income issues have disclosures (Prospectus) that are particular to that issue that can include details of interest calculations, market baskets or an index. Examples of an investment that would have a separate Prospectus include Market -Linked or Floating Rate notes. If there is a separate Prospectus (which could also be known as an Offering or Disclosure Statement) for an issue it will have a "Prospectus" link with the offering. Look for the Prospectus for each deal with a Prospectus through the link on the FISN Division web site or ask your FISN Division Registered Representative to send it to you. Current disclosures (Prospectus) are made available to purchasers for new issues either by mail or online after the trade date or settlement date. Disclosures/Prospectus for secondary issues were publish at the time of the original offering but may be no longer available. FISN will endeavor to supply a Prospectus for secondary market issues but cannot guarantee availability.
OVERVIEW Step-Up Rate Callable Corporate Securities are fixed income notes purchased at the FISN Division of Landolt Securities, Inc. National Financial LLC provides Clearing, Custody and Safekeeping services for Landolt Securities. The interest rate steps up periodically over the life of the investment. Corporate securities offered by the FISN Division of Landolt Securities, Inc. carry an investment grade credit quality and are . 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. The FISN Division of Landolt Securities, Inc. has access to a wide inventory from most major Wall Street firms. Investors can select corporate securities that meet their needs for safety, yield. Even though this security is it a corporate debt security it is a complex instrument; the instrument is far more complicated than the traditional corporate bond with a fixed interest rate and maturity. Investors are urged to read the Prospectus carefully and talk to their FISN representative before selecting an investment. PROCESS Investors open a standard brokerage account at the FISN Division of Landolt Securities, Inc. Accounts are held at National Financial Services LLC., which provides Clearing, Custody and Safekeeping services for Landolt Securities. A brokerage account may hold many different securities. It is not necessary to open a new account for each security purchase. If you already have an FISN brokerage account, you may purchase your income investments immediately. If you have opened a new account you need to fund the account by sending a fed funds wire or a check. Once funds have been received, you may begin purchasing securities. The FISN Division of Landolt Securities, Inc. sends new account paperwork and any additional brokerage forms to the customer or they may be downloaded from our Forms page. Paperwork is returned to the FISN Division of Landolt Securities, Inc. along with the required identification. See ID requirements below. Confirmation of each securities trade and account statements are sent for each account to the investor from National Financial Services LLC on behalf of the FISN division of Landolt Securities. CREDIT QUALITY Issuers of Income Investments offered by the FISN Division of Landolt Securities, Inc. carry an Investment Grade credit rating. Non-Investment grade securities (a rating below BBB) are occasionally offered and are labeled as such. Low rated investments are often termed “junk” for a reason. A credit rating is the measurement of the financial strength of a bond issuer. This measurement helps an investor 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 perceived risk of default is lower. Credit quality ratings are provided by nationally recognized rating agencies. The securities are not bank deposits and are not FDIC insured, even when the issuer is a bank. The FDIC insures bank deposits not bank-issued securities. . The following is an explanation of the top credit ratings. The rating for each individual investment should be evaluated based the rating criteria. Both credit rating of the issuer and the credit rating of any underlying security of the investment (such as Reverse Exchangeable securities) should be considered when making an investment decision. 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 the FISN Division of Landolt Securities, Inc., 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 paid into the brokerage account can be paid out via checks or electronic funds transmission straight to your local bank. You can set up a payment schedule called a "Custom Payment/Earning Plan. The form is available on the Forms page. Available cash also can be withdrawn from the account via checks, automatic teller machines or debit card. There may be fees for accounts with ATM or debit cards. See An Investor’s Guide to Corporate Bonds. ID REQUIREMENTS Income Investments are held in a Brokerage account of the FISN Division of Landolt Securities, Inc. Securities in Landolt Securities accounts are carried by National Financial Services LLC, Member NYSE/SIPC, a Fidelity Investments company which provides Clearing Custody and Safekeeping services. The FISN Division of Landolt Securities, Inc. is required under the Patriot Act to verify the identity of individuals and entities. Individuals are required to provide a copy of a current government issued, photo identification. Business accounts, trusts and other non-individual accounts have special requirements. Ask your FISN Representative what documents will be required to open up a particular type of account. FEES There are no investment fees or commissions paid by the investor for interest income investment. The issuers of the securities pay brokers to distribute their newly issued securities nationwide. New issue securities are sold at par or a price of 100.00 for each $100.00 of the issue bought by 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 bought from or sold net to the investor without an additional commission, and are usually offered at a current market price indicating a discount or premium to par because interest rates have changed-whether up or down-since the security was first issued.
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-the risk that the current market rate for investment has declined since purchase. This will affect the current market price for the security (which could be lower than initially paid) and the price an investor can receive when the investment is sold. Most fixed income investors buy with the intent to hold their investments long-term or to maturity. However, there is the potential risk that the value may fall and that 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 the FISN Division brokerage account statements produced by National Financial LLC, which provides Clearing, Custody and Safekeeping services for Landolt Securities, Inc. Many fixed income securities do not trade frequently so that these prices reflect an estimated current market price rather than an actual price of a security sale. If you wish to get a current market bid for your fixed income security, please speak to your FISN representative. It is possible that the value could rise 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. Fixed income investments sold by the FISN Division of Landolt Securities, Inc. are included since their primary purpose is to produce income in the form of interest payments. Interest rate risk is present if interest rates are moving up from the original rate that you purchased. The amount of interest income you receive relative to the income possible from a current higher rate is the risk you take when committing yourself to a purchase. It is not realistic to assume rates will always remain at the same levels prevailing when you made the purchase-rates go up and they go down over time. The way to remember which way market value moves is simple: if rates rise, the “market” value will fall. You will likely receive less money than you paid for your purchase. When rates fall, the “market” value will rise. You will likely receive more than you paid for your investment. Purchasers in the secondary market demand the yield of previously issued investments be increased to match current levels before they buy them. Since the interest rates or formulas for interest on the investment cannot be changed, these yields are increased by reducing the price. This risk could become a real loss if the holdings are sold. SECONDARY MARKET AVAILABILITY RISK The sale of all investments is subject to the availability of a secondary market. The availability of secondary markets affects Income producing investments because they do not trade like stocks do on an organized and well established “market”. The risk is the lack of such an organized marketplace. Fixed Income trades in an over-the-counter marketplace which consists of sales between brokerage firms via telephone and computer. The FISN Division of Landolt Securities, Inc., though not obligated to do so, may maintain a secondary market in fixed income issues after any initial distribution. Simply stated - buyers are needed in order for the investor to sell any investment. While the FISN Division, the original distributor of the issue or any other brokerage firms active in the over-the-counter market endeavor to make a market in fixed income instruments, there is no guarantee that a buyer will be found for an investment. The risk of selling an investment is that the price a buyer is willing to pay can be greater or less than the original price paid for the investment. This risk could become a real loss if holdings are actually sold CALL RISK All callable investments are subject to call risk. Investors should clearly understand all the call provisions of their investment. This call risk is present even if you plan to hold investments until maturity. The issuer can “call” or redeem an issue on certain call dates prior to maturity. The issuer calls the entire issue regardless of the holder. When called, the issuer returns the full principal amount with interest up to the call date. Only the issuer can exercise a call, not the account holder or the broker. Companies usually call an issue 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 principal, when you go to reinvest these funds, it will earn a current, lower rate. Never rely on a call to receive funds back from an investment early. It is possible that even if rates have fallen that the issuer will not call an issue Calls cannot be predicted since companies consider only their own funding needs and costs. RE-INVESTMENT RISK All fixed income investments are subject to re-investment risk. This risk is related to what you do with the funds 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 fewer products are available. It is possible that rates may be higher and/or more products are available. Strategies to lessen this risk: time investment maturities close to when you might need the money, go long when rates appear high and to go short term when rates appear low. Some investors do both by laddering the maturities of their investments between long and short terms. Longer term investments capture the higher returns of longer instruments. 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. Some issues are termed “Principal Protected”. This does not imply FDIC insurance; the FDIC insures only bank deposits. This protection is furnished by the issuer and the protection is only as good as that company’s ability to pay, so the rating of the issuer is of particular importance when selecting an investment.
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 be bought and sold. A Fixed Income investor can reclaim their funds by liquidating an investment through a variety of methods. Investments can be sold in the over-the-counter market and a few fixed income investments have a payment at death feature or “death put”. EARLY WITHDRAWAL Fixed income securities held in a brokerage account do not have early withdrawal rights for any reason. Fixed Income must be sold on the over-the-counter market or an applicable death put could be exercised. INVESTMENT SALE Fixed Income investments can be sold in the secondary “over the counter” market, which is conducted via the telephone and computer 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 for fixed income investments cannot be guaranteed. There may not be buyers willing to pay an acceptable price if an investment is put up for sale. Market prices may be lower than when the original purchase was made or the current demand for a particular security type is not great. To start the sale process, the investor has to offer their investment for sale through their broker. The broker will consider whether the brokerage firm wants to hold the investment in its own inventory for resale at a later time or to sell it to another brokerage firm on the “street”. The investor can accept the price or continue to hold their investment. There is no assurance how high the “bid” price will be or that this price will be close to any estimated prices shown online or printed on recent statements. Bid prices are simply reflections of the market and business objectives of participating firms. TRANSFERABILITY Most Fixed Income investments held in a brokerage account can be transferred between firms. The receiving firm requests the delivering firm to transfer cash and securities between accounts registered in the same ownership name. 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 possible for certificates to be issued and sent to owners of record. Fixed income securities do not have physical certificates, they are held as “book entry” as items on your brokerage statement. PAYABLE ON DEATH A few fixed income securities have a feature that permits the investment to be paid back following the death of an owner. This is also known as a “death put”. 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 may require investigation to determine whether they fit the circumstances necessary for payment on death The Prospectus (also known as an Offering or Terms sheet) will have the details of any death put option included in your investment. Read the prospectus carefully to insure you understand the terms and limitations of any death put feature of your investment. Remember, do not assume all fixed income investments have a death put feature, they DO NOT. Each fixed income issuer has its own program of rules and limits since there is no requirement that an issuer have any “death put” provisions at all. 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. Many death puts require a minimum ownership period, have limits of how much they will pay back on total death puts for a time period or over the life of the bond. The FISN Division of Landolt Securities, Inc. can assist survivors or estate officials in this process. The return of funds is not immediate and can take weeks or longer once all the paper work is submitted. The funds are simply returned to the brokerage account. The returned funds can be transferred to another brokerage account or a check can be sent.
Morgan Stanley Step-Up Note – 10 Years
|Maturity Date||10 Years|
|Interest Rate||Yrs 1-7: 3.00% - Yrs 8-9: 4.00% - Yr 10: 6.00%|
|Issuer Name||Morgan Stanley - S&P BBB+|
|Non-Callable Period||2 Years|
Goldman Sachs Step-Up Note – 15 Years
|Maturity Date||15 Years|
|Interest Rate||Yrs 1-7: 3.25% - Yrs 8-13: 4.00% - Yrs 14-15: 5.00%|
|Issuer Name||Goldman Sachs - S&P BBB+|
|Non-Callable Period||1 Year|