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: