Calvert Foundation’s mission is to maximize the flow of capital to disadvantaged communities in order to create a more equitable and sustainable society. By creating innovative financial products and services, they’ve made it possible for everyday people, not just institutions, to participate in financial instruments that directly serve communities. Calvert Foundation was incorporated in September 1988 as an independent nonprofit corporation. They currently have nearly $200 million invested in 250 community organizations in all 50 states and over 100 countries. To date, their investors and supporters have helped them build or rehabilitate over 17,000 homes, create 430,000 jobs in the U.S. and in developing countries, and finance over 25,000 cooperatives, social enterprises, and community facilities. They are headquartered in Bethesda, MD. Eligible for both IRA Accounts & 401k Rollover to IRA Accounts.
OVERVIEW OF FIXED RATE BONDS
Fixed rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. FISN searches nationwide for bonds with the highest return and offers these securities for investment. Bonds mostly 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 the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal. The security is held in a brokerage account.
OVERVIEW OF STEP UP RATE BONDS
Step-up rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. The interest rate steps up periodically over the life of the investment. FISN searches nationwide for the step-up bonds with the highest return and offers these securities for investment. Bonds mostly 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. FISN has access to the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal.
PROCESS
Investors start by selecting suitable bonds for investment and then open a standard brokerage account at FISN in their name. A brokerage account can hold many corporate bonds 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 corporate bonds mostly 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 bonds 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. 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 bond 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.
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.
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.
UNIQUE RISKS FOR FIXED RATE CALLABLE BONDS 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.
UNIQUE RISKS FOR STEP-UP RATE CALLABLE BONDS These corporate securities may have additional unique risks related to the step-up features if there are rate step-up provisions. 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. Bond 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 bonds 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 bonds 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 risks. 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 reasons, 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 latter 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, each issuer usually requires an original 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.
For 26 years, Caterpillar Financial Services Corporation, (Cat Financial), a wholly-owned subsidiary of Caterpillar Inc., has been providing a wide range of financing alternatives for Caterpillar machinery and engines, solar gas turbines, as well as other equipment and marine vessels. The company also extends loans to customers and dealers. In 2006, Cat Financial reported revenues of $2.76 billion, up 17 percent compared with 2005. Approximately half of all sales were to customers outside of the United States, maintaining Caterpillar's position as a global supplier and leading U.S. exporter. Cat Financial has offices and subsidiaries located throughout the Americas, Asia, Australia, and Europe, with headquarters in Nashville, Tennessee. Rated S&P A. Eligible for both IRA Accounts & 401k Rollover to IRA Accounts.
OVERVIEW OF FIXED RATE BONDS
Fixed rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. FISN searches nationwide for bonds with the highest return and offers these securities for investment. Bonds mostly 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 the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal. The security is held in a brokerage account.
OVERVIEW OF STEP UP RATE BONDS
Step-up rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. The interest rate steps up periodically over the life of the investment. FISN searches nationwide for the step-up bonds with the highest return and offers these securities for investment. Bonds mostly 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. FISN has access to the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal.
PROCESS
Investors start by selecting suitable bonds for investment and then open a standard brokerage account at FISN in their name. A brokerage account can hold many corporate bonds 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 corporate bonds mostly 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 bonds 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. 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 bond 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.
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.
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.
UNIQUE RISKS FOR FIXED RATE CALLABLE BONDS 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.
UNIQUE RISKS FOR STEP-UP RATE CALLABLE BONDS These corporate securities may have additional unique risks related to the step-up features if there are rate step-up provisions. 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. Bond 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 bonds 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 bonds 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 risks. 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 reasons, 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 latter 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, each issuer usually requires an original 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.
Founded in 1856, Credit Suisse provides companies, institutional clients and high-net-worth private clients worldwide, as well as retail clients in Switzerland, with advisory services, comprehensive solutions, and excellent products. The Credit Suisse brand is an expression of their client focused business approach and their aim to become the world’s most admired bank. Credit Suisse has 405 offices in 55 countries, employs 49,700 and is headquartered in Zurich, Switzerland. Eligible for both IRA Accounts & 401k Rollover to IRA Accounts.
OVERVIEW OF FIXED RATE BONDS
Fixed rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. FISN searches nationwide for bonds with the highest return and offers these securities for investment. Bonds mostly 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 the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal. The security is held in a brokerage account.
OVERVIEW OF STEP UP RATE BONDS
Step-up rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. The interest rate steps up periodically over the life of the investment. FISN searches nationwide for the step-up bonds with the highest return and offers these securities for investment. Bonds mostly 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. FISN has access to the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal.
PROCESS
Investors start by selecting suitable bonds for investment and then open a standard brokerage account at FISN in their name. A brokerage account can hold many corporate bonds 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 corporate bonds mostly 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 bonds 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. 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 bond 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.
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.
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.
UNIQUE RISKS FOR FIXED RATE CALLABLE BONDS 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.
UNIQUE RISKS FOR STEP-UP RATE CALLABLE BONDS These corporate securities may have additional unique risks related to the step-up features if there are rate step-up provisions. 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. Bond 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 bonds 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 bonds 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 risks. 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 reasons, 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 latter 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, each issuer usually requires an original 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.
Founded in 1897, Dow Chemical Company is a leading science and technology company that provides innovative chemical, plastic and agricultural products and services to many essential consumer markets. With annual sales of $58 billion,Dowservescustomersinapproximately160countrieswithover3,100products.CommittedtotheprinciplesofSustainableDevelopment,Dowanditsapproximately46,000employeesseektobalanceeconomic,environmentalandsocialresponsibilities. Dow is headquartered in Midland, Michigan.Rated S&P BBB. Eligible for both IRA Accounts & 401k Rollover to IRA Accounts.
OVERVIEW OF FIXED RATE BONDS
Fixed rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. FISN searches nationwide for bonds with attractive returns and offers suitable securities for investment. Bonds mostly 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 the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal. The security is held in a brokerage account.
OVERVIEW OF STEP UP RATE BONDS
Step-up rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. The interest rate steps up periodically over the life of the investment. FISN searches nationwide for the step-up bonds with attractive returns and offers suitable securities for investment. Bonds mostly 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. FISN has access to the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal.
PROCESS
Investors start by selecting suitable bonds for investment and then open a standard brokerage account at FISN in their name. A brokerage account can hold many corporate bonds 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 corporate bonds mostly 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 bonds 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. 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 bond 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.
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.
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.
UNIQUE RISKS FOR FIXED RATE CALLABLE BONDS 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.
UNIQUE RISKS FOR STEP-UP RATE CALLABLE BONDS These corporate securities may have additional unique risks related to the step-up features if there are rate step-up provisions. 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. Bond 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 bonds 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 bonds 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 Managerto 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 risks. 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 reasons, 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 latter 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, each issuer usually requires an original 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.
The Farm Credit System is a nationwide network of borrower-owned lending institutions and affiliated service entities that lend to agricultural and rural America. The System is the oldest Government-sponsored enterprise created when Congress established authority for certain predecessor entities in 1916. For more than ninety-five years, the mission of the System has been to provide sound and dependable credit for agricultural producers, cooperatives, and certain farm related businesses. This mission is carried out by the approximately 93 financial institutions, which provide a steady and continuous stream of capital for the agricultural sector in all 50 states and Puerto Rico. Today, approximately 39% of the real estate and non-real estate credit needs of U.S. agriculture are met by System institutions. Rated S&P AA+. Eligible for both IRA Accounts & 401k Rollover to IRA Accounts.
OVERVIEW OF FIXED RATE BONDS
Fixed rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. FISN searches nationwide for bonds with the highest return and offers these securities for investment. Bonds mostly 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 the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal. The security is held in a brokerage account.
OVERVIEW OF STEP UP RATE BONDS
Step-up rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. The interest rate steps up periodically over the life of the investment. FISN searches nationwide for the step-up bonds with the highest return and offers these securities for investment. Bonds mostly 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. FISN has access to the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal.
PROCESS
Investors start by selecting suitable bonds for investment and then open a standard brokerage account at FISN in their name. A brokerage account can hold many corporate bonds 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 corporate bonds mostly 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 bonds 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. 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 bond 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.
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.
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.
UNIQUE RISKS FOR FIXED RATE CALLABLE BONDS 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.
UNIQUE RISKS FOR STEP-UP RATE CALLABLE BONDS These corporate securities may have additional unique risks related to the step-up features if there are rate step-up provisions. 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. Bond 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 bonds 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 bonds 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 risks. 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 reasons, 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 latter 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, each issuer usually requires an original 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.
Ford Motor Credit Company is a leading automotive finance company and has provided dealer and customer financing to support the sale of Ford Motor Company products since 1959. In addition to financing, they provide the latest Ford vehicle information, special offers, even pre-approval for the customer’s next Ford purchase or lease. In 2011 Ford Credit reported net income of $1.8 billion. They are headquartered in Dearborn, MI. Rated S&P BB+. Eligible for both IRA Accounts & 401k Rollover to IRA Accounts.
OVERVIEW OF FIXED RATE BONDS
Fixed rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. FISN searches nationwide for bonds with the highest return and offers these securities for investment. Bonds mostly 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 the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal. The security is held in a brokerage account.
OVERVIEW OF STEP UP RATE BONDS
Step-up rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. The interest rate steps up periodically over the life of the investment. FISN searches nationwide for the step-up bonds with the highest return and offers these securities for investment. Bonds mostly 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. FISN has access to the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal.
PROCESS
Investors start by selecting suitable bonds for investment and then open a standard brokerage account at FISN in their name. A brokerage account can hold many corporate bonds 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 corporate bonds mostly 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 bonds 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. 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 bond 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.
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.
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.
UNIQUE RISKS FOR FIXED RATE CALLABLE BONDS 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.
UNIQUE RISKS FOR STEP-UP RATE CALLABLE BONDS These corporate securities may have additional unique risks related to the step-up features if there are rate step-up provisions. 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. Bond 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 bonds 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 bonds 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 lonslmSR 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 risks. 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 reasons, 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 latter 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, each issuer usually requires an original 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.
GE Capital is a wholly-owned subsidiary of General Electric Company, a diversified technology, media and financial services company. With products and services ranging from aircraft engines, power generation, water processing and security technology to medical imaging, business and consumer financing, media content and industrial products, GE serves customers in more than 100 countries and employ more than 320,000 people worldwide. In 2008, GE earned $18 billion, their third highest year in history. In 2009, they were ranked among the top 10 in Fortune magazine’s listing of the 50 Most Admired Companies in the World. They are headquartered in Fairfield, Connecticut. Rated S&P AA+. Eligible for both IRA Accounts & 401k Rollover to IRA Accounts.
OVERVIEW OF FIXED RATE BONDS
Fixed rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. FISN searches nationwide for bonds with attractive returns and offers suitable securities for investment. Bonds mostly 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 the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal. The security is held in a brokerage account.
OVERVIEW OF STEP UP RATE BONDS
Step-up rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. The interest rate steps up periodically over the life of the investment. FISN searches nationwide for the step-up bonds with attractive returns and offers suitable securities for investment. Bonds mostly 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. FISN has access to the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal.
PROCESS
Investors start by selecting suitable bonds for investment and then open a standard brokerage account at FISN in their name. A brokerage account can hold many corporate bonds 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 corporate bonds mostly 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 bonds 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. 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 bond 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.
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.
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.
UNIQUE RISKS FOR FIXED RATE CALLABLE BONDS 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.
UNIQUE RISKS FOR STEP-UP RATE CALLABLE BONDS These corporate securities may have additional unique risks related to the step-up features if there are rate step-up provisions. 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. Bond 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 bonds 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 bonds 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 risks. 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 reasons, 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 latter 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, each issuer usually requires an original 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.
Goldman Sachs Group is a leading global financial services firm providing investment banking, securities and investment management services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. In 2009, Fortune Magazine ranked Goldman Sachs #9 in the 100 Best Companies To Work For. Founded in 1869, the firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world. Rated S&P A-. Eligible for both IRA Accounts & 401k Rollover to IRA Accounts.
OVERVIEW OF FIXED RATE BONDS
Fixed rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. FISN searches nationwide for bonds with attractive returns and offers suitable securities for investment. Bonds mostly 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 the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal. The security is held in a brokerage account.
OVERVIEW OF STEP UP RATE BONDS
Step-up rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. The interest rate steps up periodically over the life of the investment. FISN searches nationwide for the step-up bonds with attractive returns and offers suitable securities for investment. Bonds mostly 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. FISN has access to the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal.
PROCESS
Investors start by selecting suitable bonds for investment and then open a standard brokerage account at FISN in their name. A brokerage account can hold many corporate bonds 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 corporate bonds mostly 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 bonds 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. 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 bond 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.
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.
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.
UNIQUE RISKS FOR FIXED RATE CALLABLE BONDS 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.
UNIQUE RISKS FOR STEP-UP RATE CALLABLE BONDS These corporate securities may have additional unique risks related to the step-up features if there are rate step-up provisions. 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. Bond 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 bonds 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 bonds 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 risks. 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 reasons, 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 latter 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, each issuer usually requires an original 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.
Formed in 1969, the National Rural Utilities Cooperative Finance Corporation (CFC) is a privately-owned, non-governmental organization that provides state-of-the-art financial products to its members. As of May 2008, CFC's consolidated membership was 1,538, which included 898 electric utility systems, 511 telecommunications organizations, 66 statewide and regional service organizations and 66 associates in 49 states, the District of Columbia and two U.S. territories. At the end of the 2008 fiscal year (May), CFC's total gross loans and guarantees were $20.1 billion, and its owners had invested nearly $3.8 billion in CFC securities. The CFC strives to ensure that its lending and investment programs—as well as all related financial and business management services—deliver high quality at a reasonable cost. They are headquartered in Herndon, VA. Rated S&P A. Eligible for both IRA Accounts & 401k Rollover to IRA Accounts.
OVERVIEW OF FIXED RATE BONDS
Fixed rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. FISN searches nationwide for bonds with attractive returns and offers suitable securities for investment. Bonds mostly 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 the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal. The security is held in a brokerage account.
OVERVIEW OF STEP UP RATE BONDS
Step-up rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. The interest rate steps up periodically over the life of the investment. FISN searches nationwide for the step-up bonds with attractive returns and offers suitable securities for investment. Bonds mostly 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. FISN has access to the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal.
PROCESS
Investors start by selecting suitable bonds for investment and then open a standard brokerage account at FISN in their name. A brokerage account can hold many corporate bonds 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 corporate bonds mostly 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 bonds 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. 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 bond 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.
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.
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.
UNIQUE RISKS FOR FIXED RATE CALLABLE BOND 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.
UNIQUE RISKS FOR STEP-UP RATE CALLABLE BONDS These corporate securities may have additional unique risks related to the step-up features if there are rate step-up provisions. 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. Bond 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 bonds 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 bonds 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 risks. 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 reasons, 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 latter 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, each issuer usually requires an original 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.
TVA ElectroNotes are medium-term notes issued by the Tennessee Valley Authority (TVA), tailored for individual investors. Wholly owned by the U.S. government, the TVA is the nation’s largest public power company, servicing the energy needs of 8.8 million people and 650,000 businesses and industries in the southeastern United States. In 2007, the TVA earned revenues of more than $9.24 billion and generated more than 156 billion kilowatt-hours of electricity - more than any other public utility in the nation. Headquartered in Knoxville, Tennessee, the TVA's objective is to deliver value by supplying low-cost, reliable power, supporting a thriving river system, and stimulating economic growth. Notes are backed solely by the net power proceeds of the TVA power system and are neither obligations of, nor guaranteed by, the U.S. government. Eligible for both IRA Accounts & 401k Rollover to IRA Accounts.
OVERVIEW OF FIXED RATE BONDS
Fixed rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. FISN searches nationwide for bonds with attractive returns and offers suitable securities for investment. Bonds mostly 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 the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal. The security is held in a brokerage account.
OVERVIEW OF STEP UP RATE BONDS
Step-up rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. The interest rate steps up periodically over the life of the investment. FISN searches nationwide for the step-up bonds with attractive returns and offers suitable securities for investment. Bonds mostly 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. FISN has access to the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal.
PROCESS
Investors start by selecting suitable bonds for investment and then open a standard brokerage account at FISN in their name. A brokerage account can hold many corporate bonds 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 corporate bonds mostly 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 bonds 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. 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 bond 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.
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.
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.
UNIQUE RISKS FOR FIXED RATE CALLABLE BONDS 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.
UNIQUE RISKS FOR STEP-UP RATE CALLABLE BONDS These corporate securities may have additional unique risks related to the step-up features if there are rate step-up provisions. 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. Bond 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 bonds 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 bonds 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 lonslmSR 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 risks. 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 reasons, 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 latter 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, each issuer usually requires an original 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.
Westpac Banking Corporation was founded in 1817 and was the first bank established in Australia. They have branches and controlled entities throughout Australia, New Zealand and the near Pacific region and maintain offices in key financial centers around the world including London, New York, Hong Kong and Singapore. Westpac has global assets of $618 billion, and reported a net profit of $6,346 million in 2010. They employ approximately 39,000 people in Australia, New Zealand and around the world and is headquarter in Sydney. Rated S&P AA. Eligible for both IRA Accounts & 401k Rollover to IRA Accounts.
OVERVIEW OF FIXED RATE BONDS
Fixed rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. FISN searches nationwide for bonds with the highest return and offers these securities for investment. Bonds mostly 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 the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal. The security is held in a brokerage account.
OVERVIEW OF STEP UP RATE BONDS
Step-up rate callable bonds are fixed income securities purchased at FISN, a brokerage firm. The interest rate steps up periodically over the life of the investment. FISN searches nationwide for the step-up bonds with the highest return and offers these securities for investment. Bonds mostly 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. FISN has access to the widest inventory from major Wall Street firms. Investors select corporate bonds that meet their needs for safety, yield and return of principal.
PROCESS
Investors start by selecting suitable bonds for investment and then open a standard brokerage account at FISN in their name. A brokerage account can hold many corporate bonds 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 corporate bonds mostly 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 bonds 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. 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 bond 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.
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.
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.
UNIQUE RISKS FOR FIXED RATE CALLABLE BONDS 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.
UNIQUE RISKS FOR STEP-UP RATE CALLABLE BONDS These corporate securities may have additional unique risks related to the step-up features if there are rate step-up provisions. 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. Bond 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 bonds 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 bonds 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 risks. 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 reasons, 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 latter 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, each issuer usually requires an original 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.
