These instruments give additional upside performance whilst maintaining a 1:1 relationship on the downside in return for surrendering income streams related to the underlying asset.

Example

Instrument:

Accelerated tracker

Issuer:

ABC Bank

Issue date:

March 2005

Expiry date:

March 2006

Participation:

210%

Underlying Asset:

TOPIX Index

Underlying Price:

1195.45

Instrument Price:

£100, Quanto

In the example above, the two dotted lines represent the pay-out profiles of the plain tracker and at-the-money Call option which form the components. The solid line represents the profit and loss profile of the accelerated tracker.

At maturity

On expiry, the holder of the accelerated tracker has the right to:

1. If the final underlying asset price is greater than or equal to the initial underlying asset price:

Initial price + (initial price x [participation level x change in underlying])

2. Otherwise:

Initial price + (initial price x change in underlying)

This means that should the index have risen 10% in value at maturity, then the investor will receive a 21% profit.

In this case, £121 in cash (100 + (100 x [210% x 10%])).

The investor does not have to worry about the currency risk associated
with the underlying asset being priced in Yen as this product is Quanto and currency risk is hedged out on the investors’ behalf by the issuing bank.

Despite the accelerated upside, the investor faces no additional downside risk (excluding foregoing any income). Should the index have fallen 10% at maturity, the investor will realise a loss of -10%, in this case £9.