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+596 Part V: Index Options and Futures 
+asset value. Eventually, upon maturity, the actual price will be the cash surrender 
+value price; so if you bought the product at a discount, you would benefit, providing 
+you held all the way to maturity. 
+Example: Assume that two years ago, a structured product was issued with an initial 
+offering price of $10 and a strike price of 1,245.27, based upon the S&P 500 index. 
+Since issuance, the S&P 500 index has risen to 1,522.00. That is an increase of 
+22.22% for the S&P 500, so the structured product has a theoretical cash surrender 
+value of 12.22. I say "theoretical" because that value cannot actually be realized, since 
+the structured product is not exercisable at the current time - five years prior to 
+maturity. 
+In the real marketplace, this particular structured product might be trading at 
+a price of 11. 75 or so. That is, it is trading at a discount to its theoretical cash sur­
+render value. This is a fairly common occurrence, both for structured products and 
+for closed-end mutual funds. If the discount were large enough, it should serve to 
+attract buyers, for if they were to hold to maturity, they would make an extra 4 7 cents 
+(the amount of this discount) from their purchase. That's 4% (0.47 divided by 11.75 
+= 4%) over five years, which is nothing great, but it's something. 
+Why does the product trade at a discount? Because of supply and demand. It is 
+free to trade at any price - premium or discount - because there is nothing to keep 
+it fixed at the theoretical cash surrender value. If there is excess demand or supply in 
+the open market, then the price of the structured product will fluctuate to reflect that 
+excess. Eventually, of course, the discount will disappear, but five years prior to 
+maturity, one will often find that the product differs from its theoretical value by 
+somewhat significant amounts. If the discount is large enough, it will attract buyers; 
+alternatively, if there should be a large premium, that should attract sellers. 
+SIS 
+One of the first structured products of this type that came to my attention was one 
+that traded on the AMEX, entitled "Stock Index return Security" or SIS. It also trad­
+ed under the symbol SIS. The product was issued in 1993 and matured in 2000, so 
+we have a complete history of its movements. The terms were as follows: The under­
+lying index was the S&P Midcap 400 index (symbol: $MID). Issued in June 1993, the 
+original issue price was $10, and $MID was trading at 166.10 on the day of issuance, 
+so that was the striking price. Moreover, buyers were entitled to 115% of the appre­
+ciation of $MID above the strike price. Thus, the cash value formula was: