200712 structured note presentation

8/3/2019 200712 Structured Note Presentation

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The Market for Structured Investments

Source: Structured Products Association

$-

$10

$20

$30

$40

$50

$60

$70

$80$90

$100

2003 2004 2005 2006 2007

U.S. Structured Investments:

New Issuance, 2003-2007

Volume ($Bil.)


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Defining Structured Investments

Structured Investments are instruments whose performance is linked to

that of an underlying asset or assets.

Principal Protected

Non-PrincipalProtected

Bullish

Bearish

Range-Bound/Volatile

Correlation/Dispersion

= Instrument

Performance

TypeUnderlying

Assets+ +

Notes

CDs

Funds

Warrants

Annuities

Structured

Investments

Equities

Commodities Interest Rates

Foreign Exchange

Inflation


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Rationale for Structured Investments: Access

Geographic Markets:

US, Europe, Asia, Latin America

Investment Strategies:

Seasonal, Carry Trades, Long -Short, Industry Strategies

Underlying Assets:

Equities, Currencies, Commodities, Rates, Inflation


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Rationale for Structured Investments: Fine Tuning

AppreciationParticipation

Caps /Averaging

Point toPoint

3xUpside

Maturity

3Months

7Years

PrincipalProtection

0%

100%

Yield

0%

HighYield


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Frequently Issued Structures

Reverse Convertible/Exchangeable Notes Moderately bullish or range bound view on an equity Seeking high monthly income (double-digit yields) Ability to take price depreciation risk (on a contingent basis) Short-term horizon (3 to 12 months)

Enhanced Participation Notes (3x the Upside / 1x Downside)

Moderately bullish or range bound view Leveraged upside in return for a cap Ability to take price depreciation risk Long-term capital gains (Horizon>1yr)

Auto-callable Notes Moderately bullish view (market valuations which have been recently impaired) Flexibility of investment horizon (view that rebound is a question of when not if) Potential for equity-like return Ability to take price depreciation risk

Long-Term capital gains


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Callable LIBOR Range Accrual Notes/CDs View that interest rates will decline (or remain within a range)

Potential for above market yields Seeking principal protection Flexibility regarding early redemption by the issuer Estate feature (in case of death) if structured as a CD

Global Asset Allocation CDs (Best Performing of 3 Diversified Portfolios) Seeking diversification across multiple asset classes (equity, f/i, f/x and commodities) Uncertainty regarding optimal asset allocation weights Long-term investment horizon (typically 5+ years) Seeking principal protection

CD estate feature ( in case of death) Point-to-Point Principal Protected Notes Linked to Global Equity Index Basket

Equity upside on a geographically diversified basis Long-term investment horizon (typically 5+ years) Seeking principal protection


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Commodity Linked Principal Protected Notes

Access to Commodity exposure

Seeking principal protection

Intermediate investment horizon (typically 2 to 4 years)

Currency Linked Principal Protected Notes

Exposure to non-dollar assets Seeking principal protection

Intermediate investment horizon (typically 18 months to 3 years)


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Reverse Convertible Notes

What is Reverse Convertible Note?

Short-dated note that offers a high fixed coupon relative to bonds and a greater degree ofprice protection relative to buying a stock

Initial investment Return

$1,000

Note

Zero

Coupon

Bond

Contingent

PriceDepreciation

below theInitial Stock

Price

Investor

Receives

Investor

Pays

HighMonthlyCoupon


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Definitions

Protection Amount = Amount the stock price can fall before the

contingency is triggered.

Barrier Price = Initial Stock Price Protection Amount

Strike Price = Initial Stock Price

Number of Conversion Shares = Principal Amount / Strike Price


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Reverse Convertible Notes Contingent Price Depreciation

Assumptions

Par Amount: $1,000Initial Stock Price: $100

Conversion Shares: 10

Protection Amount: 25%

Barrier Price: $75

Has stock price closed below $75

on any business day prior to

maturity?

Monthly coupon plus

principal at maturity

Is stock price

below $100 at maturity?

Monthly coupon plus

10 shares (or $700)

per note

Yes No

No,

stock

price is

$110

Yes, stock

price is$70


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Reverse Convertible Notes: Path Dependency


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Why invest in a reverse convertible?

Moderately bullish view on the stock price

High fixed coupon

Short maturities (3 months to 1 year)

Contingent downside protection


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Considerations

Principal at risk if the underlying stock decreases below the barrier price

Return limited to the principal amount plus interest

Intended to be held to maturity


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Example: Reverse Convertible Linked to GM Corp

Underlying: GM common stock

Issuer: JP Morgan (Aa2/AA-)

Maturity: 6 months

Par Amount: $1,000

Strike Price: $34.00 (= Closing stock price on Pricing Date)

Conversion Shares: 29.4118 per note (= $1,000 / $34.00)

Coupon: 16.00% p.a. (paid monthly)

Protection Amount: $13.60 (= 40% of the initial share price)

Barrier Price: $20.40 (= $34.00 13.60)

Investor Receives

Monthly: $13.33 per month per bond

At Maturity: (a) If the stock has closed below $20.40 prior to Maturity and theStock Price is below the $34.00 at Maturity, the Investor

receives 29.4118 shares of GM or the cash value.

(b) Otherwise, the investor receives $1,000

The above terms were from an actual transaction which occurred in the past and may no longer be valid under current market conditions.


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Variation Using Correlation: Least of (Bullish)Dow Jones Industrial Average

Underlying: Least of individual stocks of DJIA

Par: $1,000

Issuer: JP Morgan

Maturity Date: 6 months

Strike Prices: Closing price on Pricing Date for each stock in the DJIA

Coupon: 30.50% p.a. (paid monthly)

Barrier Prices: 60% of the initial share price of each member stock of the DJIA

PhysicalDelivery Amount: Par divided by the Strike Price of each stock in the DJIA

Trigger Event: Any day the closing price of any of the DJIA stocks hasdeclined below its the Barrier Price

Payment

at Maturity: $1,000 unless a trigger event has occurred and the cash

value of the physical delivery amount for the leastperforming is less than $1,000, in which case you willreceive the physical delivery amount or the cash value

The above terms were from an actual transaction which occurred in the past and may no longer be valid under current market conditions.


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Types of Offerings

Reverse inquiries Customized based on investor market view Minimum size requirements

Ability to close during the month Real time pricing competition Opportunity to grow transactions

Calendar offerings

Access to relevant research driven ideas Several weeks to market Scale allows smaller investment size Issuers pre-selected based on monthly axes

Secondary offerings Ability to access attractively priced opportunities for sizes and maturities

which could not be economically created in the new issue market


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The information in this presentation is for general information only, is

subject to change, and is not intended to provide specific legal, tax, or other

advice or recommendations. Please consult your attorney, accountant, tax,

or financial advisor with regard to your specific situation.

Broker Dealer Use Only

200712 structured note presentation

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