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Structured Products

Structured products offer investors the potential to earn returns tied to the performance of an index or basket of securities. Rates of return vary and are generally paid at maturity, along with the face amount of the investment, subject to the credit risk of the issuer.

Reasons to consider structured products

  • Market participation
  • Access to alternative asset classes
  • Intent to hold until maturity

Find new issue structured products

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Structured products from Fidelity

Fidelity currently offers "new issue" structured products that are either:

  • Market-linked (e.g., equity or currency indexes) certificates of deposit, which carry FDIC insurance protection on the invested principal, subject to FDIC coverage limits ($250,000 per account owner per institution); or
  • Senior unsecured obligations of the issuer, which are not FDIC-insured.

As with any new issue offering, prospective investors should read the prospectus which provides greater detail on the offering and its structure. Customers may then submit indications of interest during an order period. At issuance, customers typically receive an allocation amount equal to the indication of interest that was submitted. However, submitting an indication of interest does not guarantee an allocation. If the offering is oversubscribed (more securities were requested than available for purchase), and you did not withdraw your order, you may receive only a portion of the securities you requested, or none at all. Further, if the offering is undersubscribed, the offering can be pulled.

Investments in structured products that are FDIC-insured involve the issuance of an underlying certificate of deposit, which is the sole obligation of the issuing bank. This underlying CD provides the FDIC protection on this investment. Non-FDIC-insured structured products have no CD issuance. With these investments, which are unsecured debt, customers are unsecured creditors of the issuer.

Components of Fidelity’s structured products

The structured products offered through Fidelity.com include the following components:

Payout profile

Fidelity currently offers only a point-to-point payout profile. A payout profile represents how a customer's cumulative return is measured. The return of the structured products available on Fidelity.com is measured based on two points: point A (initial or starting index level, which is typically the closing value of the index on the pricing date) and point B (final index level, which is typically the closing value of the index on a date specified in the offering document). The product will provide its investment return based on the following formula:

(final index level – starting index level)
starting index level

Certain structured products impose limits on return potential in the form of a "cap" or may limit your participation in the upside performance of the linked index or customized basket (see below).

Participation rate

The potential return to the investor depends in part on what is known as the participation rate. If the participation rate of the structured product is less than 100%, the investor will realize a return that is less than the return of the linked index or customized basket. For example, if the participation rate is 80%, the investor will receive only 80% of any positive return on the index or basket, assuming no other limits on return potential. The participation rate will vary by product, and factors such as index type, maturity, and caps affect the rate.

Cap

A cap represents a ceiling above which the investor does not participate in further upside gains of the linked index or basket. In other words, if the linked index or benchmark generates a return greater than the stated cap, investors will not receive any returns in excess of the capped return. For example, if a structured product allows for 100% participation in an index subject to a 50% cap, the investor cannot earn more than 50% on the investment even if the investment appreciates above that.

Costs and fees

Placement fees, structuring, development, and other costs will vary and may impact secondary market prices for structured products. Investors should consider these and any other costs and fees covered in the offering document prior to investing.

Taxes

Structured products may be considered contingent payment debt instruments for federal income tax purposes. This means you'll usually have to pay income taxes each year on imputed annual income even though you may not receive a cash payment until maturity. In addition, any gain realized upon the sale of these products may be treated as ordinary income. Please refer to the offering document for the specific tax treatment of a structured product and consult your tax advisor for more details.

Next steps

Find structured products. See what structured products Fidelity is currently offering and review their prospectuses.

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certificate of deposit (CD)

a debt instrument issued by commercial banks or thrifts to raise funds for business activities or to retire other debt; Fidelity offers a type of certificate of deposit called a brokered CD

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creditor

an entity that extends credit to another entity by providing permission to borrow money; agreement generally includes the terms of the loan, such as interest rate, payment frequency, and date the principal the loan is due. In the context of bonds, an investor in bonds is described as a creditor of the entity that issued the bonds

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creditworthiness

measurement of the risk of default of an individual fixed-income security or the issuer of a fixed-income security; generally measured by one of the major ratings agencies

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debt obligation/principal

an interest-bearing promise, to pay a specified sum of money (the principal amount) on a specific date; bonds are a form of debt obligation; categories of bonds are: corporate, municipal, treasury, agency/GSE

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fixed income

a type of asset class in which the investments provide a return in two possible forms; coupon paying bonds have fixed periodic payments and a return of principal; zero coupon bonds are sold at a discount, do not pay a coupon, and have a return of principal plus all accumulated interest at maturity

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indication of interest

a specific type of order submitted to let Fidelity know that they want to become eligible to receive an allocation of a new issue

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issuer

a government, corporation, municipality, or agency that has issued a security (e.g., a bond) in order to raise capital or to repay other debt; the issuer goes to an underwriter to get their securities sold in the new issue market; for certificates of deposit (CDs), this is the bank that has issued the CD; in the case of fixed income securities, the issuer of the security is the primary determinant of the security's characteristics (e.g., coupon interest rate, maturity, call features, etc.)

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participation rate

the extent to which an investor will participate in the potential appreciation or depreciation of an underlying index or basket of securities; if the participation rate of the structured product is less than 100%, the investor will realize a return that is less than the return of the linked index

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prospectus

a legal document required by the Securities and Exchange Commission (SEC) that discloses an investment's objectives, past performance, and other information to parties considering investing in financial instruments such as stocks, bonds, mutual funds, etc.

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structured product

an investment vehicle derived from a single security, a basket of securities, an index, a commodity, a debt issuance and/or a foreign currency; risks include: issuer default, limited FDIC protection, liquidity risk, market risk, derivatives risk, commodity price risk, currency risk

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maturity, maturity date(s)

the date on which the principal amount of a fixed income security is scheduled to become due and payable, typically along with any final coupon payment. It is also a list of the maturity dates on which individual bonds issued as part of a new issue municipal bond offering will mature

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The Standard and Poor’s 500 Index (S&P 500) is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance.
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