An Innovative Alternative for the Income-Oriented Investor

Fixed-rate capital securities were developed in the early 1990s to meet the needs of income-oriented investors while creating a cost-efficient source of capital for issuers. From the investor’s perspective, fixed-rate capital securities combine features of corporate debt securities and preferred stock to offer the benefits of:

• attractive yields,
• fixed monthly, quarterly or semiannual income,
• investment time frames that are generally predictable (i.e., 20-49 years, although there are some perpetual),
• liquidity and
• investment-grade credit quality (in most cases).

Like corporate debt securities, fixed-rate capital securities generally:

• rank senior to common and preferred shares in the issuer’s capital structure and
• most have a stated maturity date.

Like preferred stock, fixed-rate capital securities generally:

• have a $25 liquidation value (although some are now being issued with a $1,000 liquidation value),
• trade on a major securities exchange (for retail-targeted offerings) and
• are priced at a flat rate that includes accrued income, where applicable.

Unlike preferred stock, however, they offer no tax benefits to corporate investors. Fixed-rate capital securities also carry certain risks, including “call” risk, the possibility of deferred payments and, in some cases, “extension” risk, in addition to other risks commonly associated with fixed-income securities, which are explained in more detail later in this brochure.

Because of their typically attractive yields and investment-grade credit ratings, fixed-rate capital securities can help investors achieve enhanced returns without sacrificing credit quality. As part of a diversified portfolio, they may be suitable for both individual and institutional investors. Prior to investment, however, all investors are advised to understand thoroughly the characteristics of the security they are purchasing and the various factors that may affect its value.