What are Principal Protected Notes?
Principal Protected Notes give investors exposure to the appreciation
of an underlying asset while providing some degree of principal
protection at maturity, subject to the credit of the issuer. In
order to benefit from any level of principal protection, the notes
must be held until maturity. These structures typically have three-to-five
Typically, an investor’s return is dependent upon the performance
of an underlying asset. In some cases, the return occurs if the
market price or level of the underlying asset increases or decreases.
In other cases, the return is dependent upon whether or not the
market price or level of the underlying asset stays within a predetermined
range. In all cases, principal is protected only up to a predetermined
Accordingly, investors may lose some of their initial principal
investment. Investors in Principal Protected Notes risk receiving
no positive return on their principal investment if the underlying
asset fails to move in a specific manner.
In addition, investors may not receive the same return as if
they had invested directly in the underlying asset. The notes
may be structured as to provide a return to investors if the underlying
asset appreciates, depreciates or remains within a predetermined
Principal Protected Notes may be linked to a variety of underlying
assets including, but not limited to, equity indices, commodities,
foreign currencies or interest rates.
Principal Protected Notes may be an appropriate investment for
investors seeking principal protection while simultaneously gaining
some exposure to an asset class.