Product Overview
The CorporateNotesSM program provides the retail investor the opportunity to buy fixed income securities directly from issuers at par. These securities are generally simpler to value as they are not yet subject to accrued interest, price fluctuation, or possible mark-ups or commissions.
- CorporateNotes are generally fixed-rate (some may have step-up rates), unsecured senior and subordinated obligations of one of several issuers.
- Each week, the issuers post a series of rates, maturities, structures and payment frequencies which are generally available until the following week (although the issuers reserve the legal right to cancel or change the offerings without notice). All bonds are available at par in $1,000 increments with no accrued interest.
Features and Benefits
- Simplicity - All CorporateNotes are priced at par with no accrued interest and are available in increments of $1,000.
- Survivor’s Option - CorporateNotes may contain a Survivor’s Option. In the event of death of the holder, the Survivor’s Option permits the holder’s estate, at the option of the estate, to return (or put) notes back to the issuer at par. The Survivor’s Option may help mitigate market risk during estate planning. Investors are urged to read the prospectus for full disclosure of the feature and to verify its presence.
- Callable and Non-callable - CorporateNotes may be callable or non-callable. Non-callable issues help mitigate the reinvestment risk and call risk typically associated with issues which may be called prior to maturity. Callable issues typically offer higher yields to compensate investors for call risk and may provide call protection over a fixed period.
- Rates/Prices Firm - Coupon rates and prices are firm and generally do not change during the open order period, although the issuers reserve the legal right to cancel or change offerings without notice.
- Open Order Period - Once rates are posted, the order book generally remains open for one week.
- Name Recognition - Investors are likely to be familiar with the issuer and/or the products/services offered by the issuer.
- Variety of Interest Payment Frequencies - Each week’s posting contains a variety of payment frequencies: typically monthly, quarterly, and semi-annually, allowing investors to tailor their portfolio to help meet income stream requirements.
Risks
- Interest Rates - As with any fixed income investment, CorporateNotes prices are vulnerable to changes in interest rates. If interest rates rise, the market price of issued CorporateNotes will generally decline.
- Credit and Default Risk - Credit risk is commensurate with the issuers’ ratings. Investors should consider the possibility or risk that a issuer might default on its payments of interest or principal. Purchasing top–rated securities from companies with a stable or good credit history may help reduce credit risk.
- Redemptions under the Survivor’s Option - The issuer retains the right to limit the aggregate amount of notes subject to the Survivor’s Option that may be exercised in any calendar year. In the case of default, rights to put notes back to the issuer under the survivor’s option cease to exist. Additional limitations and restrictions may apply. Customers are urged to read the prospectus for full disclosure of the Survivor’s Option feature and to verify its presence.
- Call Risk - Callable CorporateNotes can be redeemed or paid off at the issuer’s discretion prior to the maturity date. When evaluating CorporateNotes, an investor should know whether call options exist and when they may be exercised. The offerings table on Fidelity.com displays an attribute of CP for those offerings which are call protected, i.e. cannot be called. The Securities Detail for bonds which are not call protected shows a link to a complete call schedule.
- Liquidity - A limited secondary market may exist for these securities in the event an investor wishes to liquidate prior to maturity. CorporateNotes sold prior to maturity may be subject to a gain or loss of principal.
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