Series 7 Section 3

Exchange-Traded Notes (ETNs)

Unsecured debt instruments tied to the performance of an index or equity. Investors share upside, but do not participate in downside losses
—they receive principal back even if the underlying declines.

ETN Credit Quality

Credit quality depends on the issuer (the bank), not the underlying index or asset.

Equity-Linked Notes (ELNs)

Structured notes whose return is derived from the performance of an equity security. Holder has no ownership in the underlying asset.

Regulation of ELNs

These notes are registered under the Investment Company Act of 1940, and returns are subject to rate caps and participation rates.

Current Yield Formula

Current : Yield = Annual : Interest \div Bond : Market : Price

Auto-Callable Yield Notes

Structured product suitable for investors seeking higher yields than comparable debt instruments. They can be called automatically if the note is at or above a preset level at the observation date.

Convertible Bond Volatility

Convertible bonds are more volatile than other debt instruments when interest rates are stable.

Trust Indenture Act of 1939

Corporate bonds over 50 million must be issued with a trust indenture.

Agency Security Interest Taxation (Federal Farm Credit System)

Interest on agency securities (e.g., Federal Farm Credit System) is federally taxable but state tax-free.

Agency Security Interest Taxation (Ginnie Mae)

Interest on Ginnie Mae is taxable at all levels.