About Principal Protected Notes

General Information on Notes

Limited Offering Periods

Unlike mutual funds which are open-ended, Principal Protected Notes are offered through limited offering periods - typically of only several weeks. In this period of time, Notes issuers must do everything necessary to ensure a Note raises sufficient assets to "close" - this can involve disseminating marketing materials, running sales conference calls and hosting seminars on the Note.

If a Note does not raise sufficient assets, issuers retain the right to not close it. This CAN HAPPEN ON OCCASION, with issuers having to refund money to prospective investors.

Offering Documents

Unlike a simplified prospectus, an information statement is not reviewed by any regulatory authority, however it should contain detailed descriptions of the Notes, their methodology, the risks involved and the associated fees.

Secondary Market

Although many Notes are not traded on an exchange in the fashion of stocks, they can in general be redeemed through a "market" facilitated by the issuing financial institution. Often, the secondary market does not begin until after a certain period, approximately a few months (this period is generally called a "lock-up").

Principal protected notes are designed to be held until maturity - regardless of the length of the term - with their principal repayment taking place on their Maturity Date. Since sales (or redemptions) prior to maturity are based on the Note's current price, which may be lower than the initial purchase price, selling Notes prior to maturity negates the principal guarantee.

Typically, Notes are priced - and redemptions can occur - on a daily or weekly basis. The price is influenced by a variety of factors including the value of the underlying investments, volatility of the underlying investments, current interest rates, time remaining to maturity, the amortization of issue expenses and the credit quality of the issuing financial institution. Notes typically charge early sales charges on redemptions prior to maturity, and these charges tend to follow a declining scale in the fashion of DSC charges on mutual funds.


The quality of a principal protection is correlated with the quality of the issuing financial institution or the Guarantor. PPNs are direct deposit obligations of the issuing institution, which in most cases are Schedule I or Schedule II chartered banks, although several Notes have been issued by government agencies such as the Business Development Bank and provinces like the Province of Manitoba.

Schedule I banks include the major Canadian banks. Schedule II banks are Canadian subsidiaries of foreign institutions that are able to accept deposits and may be eligible for deposit insurance from the Canada Deposit and Insurance Corporation (CDIC), although most principal protected notes do not qualify for coverage under the CDIC. Two French banks have been particularly active in this category, BNP Paribas and Société Générale.


The investment world is continually evolving with new opportunities arising from ever-more advanced management techniques. Principal Protected Notes have entered the mainstream for Canadian investors. With their value proposition of 100% principal protection combined with the potential for equity-like returns, they may hold a place for you.