HOW IT WORKS
How Structured Notes Work
Most bonds offer a fixed rate of interest. But the performance of a Structured Note is derived from the performance of a selected underlying asset, and the interest payment is linked to performance of that asset. Therefore returns can be variable. Underlying assets can include:
| .One or more equity indices .Individual stocks or Exchange Traded Funds .Commodities .Foreign currency |
Forms of Issue: Structured Notes are investment vehicles issued as either registered securities, non-registered securities, or as certificates of deposit. Registered securities are filed with the SEC as medium term notes. Nonregistered securities are exempt from SEC registration and are typically issued by foreign-based banks via their U.S. branch offices using a 3A2 exemption. Certificates of deposit are insured by the Federal Deposit Insurance Corporation, please visit fdic.gov for current deposit insurance limits. Certificates of Deposit are not considered securities.
Who issues: Structured Notes are issued by domestic and foreign banks to help fund their lending programs. These notes are accessed through some of the world's leading investment-derivatives desks, providing an array of opportunities for you and your client to structure a uniquely suitable investment strategy.
How your returns are computed: To determine an investor's gain or loss, three factors enter into the computation: Value Dates, Participation Rate, and Minimum or Maximum Interest.
| Value Dates: There are two definitions of Value Dates to take into consideration when computing gain or loss. The "Initial Value Date" is normally the date when a securitiy is issued. The "Final Value Date" (also called the Determination Date) is typically around three days in advance of the maturity date. |
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| Participation Rate: This is the predetermined percentage up to which the investor will share in the asset gain. While in some cases the Participation Rate will be less than or equal to 100%, often the percentage can be greater than 100%, providing a multiple of the actual underlying asset's performance, a leveraged return that outperforms the underlying asset. |
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| Minimum or Maximum Interest: The minimum or Maximum Interest applies to some Structured Notes and governs the amount the investor is paid at maturity. |
Computation Variations
Point-to-Point: This calculation method compares the increase or decrease of the underlying asset from the Initial Value Date to the final Determination Date. The investor's return will be based upon the total percentage increase or decrease. Point-to-Point calculation is most beneficial in a bull market.
Averaging: This is calculated on the basis of several specified Value Dates throughout the term of the note. The aim is to reflect the value trend of the underlying asset and minimize exposure to fluctuations that can affect the end-point price. While averaging may limit the return in a bull market, it will help protect against a sudden downturn of the underlying assets as they near the final Determination Date.
Minimum Guaranteed Return: The interest computation differs from the standard Point-to-Point structure in that the payment of the interest is not contingent upon the underlying asset being equal to or greater than its Initial Value. The minimum return is guaranteed regardless of the performance of the underlying asset. If the underlying asset price ends up lower than the Initial Value price, the investor still earns the Minimum Guaranteed Return in addition to return of principal.