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Index-linked bond Allocation

Basic ir Extra

The most important decision for an investor is in which asset classes to invest (e.g. equities, commodities, real estate etc.). When it comes to risk management, it is advisable to diversify investments into several asset classes and thus reduce the portfolio risk. Higher risk diversification is recommended, as you will achieve a similar expected yield level with a lower risk. Index-linked bond Allocation offers investors a new nominal capital protected way to diversify investments into equity, fixed income and commodity markets.

The return depends on the value performance of three different asset classes. When calculating the yield, the largest weight is reserved for the best performing asset class during the investment period. Thus, investors can benefit from an asset class diversification best suited for particular market conditions.

Index-linked bond Allocation has two alternatives: Basic and Extra. At maturity, the yield of the Basic bond suitable for cautious investors is 80% of the rise of the reference index in accordance with the issue terms. Extra suits investors who tolerate limited risk and seek a higher return. The yield on the investment is 135% of the rise of the reference index in accordance with the terms of issue. When the reference index falls or remains unchanged, no return is paid and the investor loses the amount paid above par value (in Extra about 10%). The index-linked bonds are not exposed to exchange rate risk.

In both alternatives the maturity is approximately five years, and the nominal capital is repaid at maturity irrespective of the performance of the reference index. The index-linked bonds involve a risk of the issuer’s repayment ability. The investment can also be sold before maturity, in which case the repurchase price may be above or below the nominal value depending on market performance. The index-linked bond can be bought or sold on the secondary market once a month.

Investavimo laikotarpis maždaug penkeri metai ir nominalus kapitalas grąžinamas suėjus terminui nepaisant indekso pokyčių. Obligacijos nėra apsaugotos nuo išleidėjo nemokumo rizikos. Investicija gali būti parduota ir iki sueinant išpirkimo terminui ir šiuo atveju išpirkimo kaina gali būti žemesnė ar aukštesnė nei nominali priklausomai nuo rinkos tendencijų. Obligacija gali būti perkama ar parduodama antrinėje rinkoje kartą per mėnesį.

Yield calculation

In index-linked bond Allocation the investment yield is calculated by ranking the yields of different asset classes at the end of the investment period. The best performing asset class receives a 50% weight, the second a 30% weight and the third a 20% weight.

Change in asset classes according to the terms of the issue			Return if the investment would have been made with equal weights in the asset classes	Return of the Allocation strategy	Allocation Basic Issue price ca. 100% Participation rate 80%		Allocation Extra Issue price ca. 110% Participation rate 135%
Equity	Fixed income	Commodity			Value at maturity	Return p.a.	Value at maturity	Return p.a.
-30%	15%	-40%	-18,3%	-9,5%	100%	0,0%	100%	-1,9%
-10%	25%	-20%	-1,7%	5,5%	104%	0,9%	107%	-0,5%
10%	30%	-20%	6,7%	14,0%	111%	2,1%	119%	1,6%
30%	15%	15%	20,0%	22,5%	118%	3,4%	130%	3,5%
50%	30%	50%	43,3%	46,0%	137%	6,5%	162%	8,1%
60%	18%	45%	41,0%	47,1%	138%	6,6%	164%	8,3%
75%	20%	55%	50,0%	58,0%	146%	7,9%	178%	10,1%

Asset classes

The asset class Equity includes the following equity indices, each with a quarter´s weight:

USA – S&P 500
The S&P 500 equity index measures the share price development of the 500 biggest US companies measured by market value. With representation of all the important sectors in the index, it describes the economic development in the US by a wide scope. The index is calculated and published by Standard & Poor´s. Further information on the index is available on the Internet at http://www.spglobal.com.

Euro area - Euro Stoxx 50
The index covers the 50 biggest companies in the euro area measured by market value. The index is listed and published by STOXX Ltd, which is a joint venture of Dow Jones & Company and the German and Swiss Stock Exchanges. Further information on the index is available on the Internet at www.stoxx.com.

Japan – Topix
TOPIX (Tokyo Price Index) is a market-value-weighted index, which widely reflects the development of the Japanese equity market as it comprises over 1,500 companies. The index is calculated and published by the Tokyo Stock Exchange (TSE). Further information on the index is available on the Internet at www.tse.or.jp/english.

China – FTSE/Xinhua China 25
FTSE/Xinhua China 25 is a market value weighted index including the 25 biggest and most traded companies in China, which are traded in Hong Kong. The biggest industries in the index are telecommunications, energy and transport. Further information on the index is available on the Internet at www.ftsexinhua.com.

The asset class Fixed Income includes the following rate index:

EONIA
The ECB´s EONIA (Euro Overnight Index Average) is a fixed income index which measures the average interest rate between the euro area banks´ overnight deposits. The chosen major banks in the euro area report these deposit rates daily. The Euribor reference rate is based on them. For further information on the Internet www.ecb.int.

The asset class Commodity includes the following commodity index:

Dow Jones AIG Commodity Index
Dow Jones AIG Commodity Index is a commodity index describing the price development of 19 commodity futures. The commodities included in the index are e.g. industrial metals and value metals, agricultural commodities as well as energy raw materials (e.g. oil). The index consists of different commodity groups. To ensure efficient diversification, the weight of a single commodity group may not be more than 33% and any single commodity less than 2%. The weight of each commodity group, eg energy or metals, in the index is based on its financial importance and on ensuring as wide a diversification as possible. For further information: www.djindexes.com.

Performance of the reference indices (April 2003 – April 2008)
(Starting level indexed at one hundred)

(Source: Bloomberg)
The presented figures describe previous performance or value development and no reliable assumptions on future performance or value development can be formed based on them.

Issue terms in brief

Issuer	Nordea Bank Finland Plc
Issue date	21 April 2008
Maturity date	30 May 2013
Subscription period	21 April – 29 May 2008
Places of subscription	Nordea Bank Finland Plc’s branches and its branches in the baltics.
Subscription price	Basic 4125A: Variable, about 100% Extra 4125B: Variable, about 110 %
Minimum subscription	EUR 1,000
Yield at maturity	Basic 4125A: 80% of the rise of the reference index as provided by the issue terms. Extra 4125B: 135% of the rise of the reference index as provided by the issue terms.
Reference index	Share: ¼ S&P 500 (Bloomberg: SPX Index), ¼ Euro Stoxx50 (SX5E Index), ¼ FTSE/Xinhua China 25 (XIN0I Index) and ¼ Topix (TPX Index) Fixed income: EONIA-indice (EONCAPL7 Index) Commodity: Dow Jones AIG Commodity Index (DJAIG Index)
Starting value	The starting value of the reference index is its official closing value on 3 June 2008.
Closing value	The closing value of the reference index is the average of quarterly closing values beginning on 15 May 2011 and ending on 15 May 2013.
Repayment of principal	The issuer Nordea Bank Finland Plc will pay the nominal principal back in full at maturity regardless of the reference index performance. The index-linked bonds involve a risk of the issuer’s repayment ability.
Early redemption	Early redemption is possible only if a hedging instrument has to be dissolved due to amendments to law or legal praxis.
Security	The index-linked bonds are unsecured.
Structuring cost	The subscription price includes a structuring cost, which is about 0.8% p.a. (see the issue terms). No separate subscription or management fee is charged on the index-linked bonds.
Secondary market	The issuer, Nordea Bank Finland Plc, quotes a monthly repurchase price for the index-linked bonds, which may be lower or higher than the nominal value.
Taxation	Possible index bonus is subject to tax at source on interest income for natural persons and domestic death estates.
Custody	Free of charge with Nordea Bank Finland Plc.
Cancellation of issue	The issuer is entitled to cancel the issue based on changes in economic conditions if the total amount of subscriptions is low or something should occur which the issuer considers might endanger the issue.

An application will be made for the index-linked bonds to be listed on the Helsinki Stock Exchange.

Index-linked bonds 4125A and 4125B under the Medium-Term Note programme (an index-linked bond programme reported to the Finnish Financial Supervision Authority from Sweden in accordance with the Prospectus Directive) of Nordea Bank AB (publ) and Nordea Bank Finland Plc dated 7 June 2007. Bond-specific terms are available at places of subscription.

Nordea Markets is the name of the Markets departments of Nordea Bank Norge ASA, Nordea Bank AB (publ), Nordea Bank Finland Plc and Nordea Bank Danmark A/S.

The information provided herein is intended for background information only and for the sole use of the intended recipient. The views and other information provided herein are the current views of Nordea Markets as of the date of this document and are subject to change without notice. This notice is not an exhaustive description of the described product or the risks related to it, and it should not be relied on as such, nor is it a substitute for the judgement of the recipient.

The information provided herein is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sale of any financial instrument. The information contained herein has no regard to the specific investment objectives, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment or credit decision. It is important to note that past performance is not indicative of future results.

Nordea Markets is not and does not purport to be an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction.

This document may not be reproduced, distributed or published for any purpose without the prior written consent from Nordea Markets.

Market review

Equity market
The asset class Share of index-linked bond Allocation consists of four equity indices S&P 500 (USA), Euro Stoxx 50 (Europe), Topix (Japan) and FTSE/Xinhua China 25 (China), in which each equity index weight is ¼ . As economic areas Europe, the US and Japan provide a stable and diversified means to benefit from the positive performance of equities.

Due to the recent equity market downturn and the weakening of the US economic outlook equity valuations have decreased to an attractive level. Investors who are frightened about the negative sentiment in the US are waiting for the emerging economies to boost global growth. The euro area has benefited from the good demand in the emerging economies. According to the ECB, economic growth is expected to slow down only moderately as the euro area fundamentals are in order. The normalisation of the US economy in the long run will also have a positive effect on equity value performance.

Commodity
The asset class Commodity of index-linked bond Allocation consists of the Dow Jones AIG Commodity index which diversifies widely in commodities. The rise in commodity prices has been based on demand growth in Asia while the economic slow down of industrial countries has been of less significance. In the long term, as the US economy recovers the raw material prices may begin to climb again even though there would be no signs of a particular upward trend.

In the future, an increasing amount of oil will be produced in the Middle East. Many of the oil reserves in the Middle East are regarded as "easy oil", ie oil can be obtained from large reserves with minor costs. International oil companies have only a limited access to these reserves which hampers investments made to satisfy increasing demand. Due to the imbalance between demand and supply and the political uncertainty especially in the Middle East, the price of oil may keep rising in the coming years. The strong economic growth in emerging economies and the recovery of the US economy in 2009 maintain the demand growth of transport fuels in particular. We expect the oil price to stabilise in 2008, but continue to climb later.

Fixed income
The asset class Fixed Income of index-linked bond Allocation consists of the EONIA index, the return of which is strongly tied to the performance of ECB´s key rate. The ECB has kept the key rate intact since June. The ECB has stated that the current key rate level helps to achieve the inflation target and has thus confirmed the central bank´s monetary policy to be neutral. Significant price pressure and the relatively good economic growth so far do not, in our opinion, leave room for an ECB key rate cut this year, whereas next year the ECB may well have to cut key rates if the euro area economic growth slows down more than expected due to the credit crisis and the inflation pressures ease.

Source: Nordea Economic Research