EFTA01393159.pdf

JUNE 2007 SUPPLEMENT The February 1994 edition of the booklet emitted Char- acteristics and Risks of Standardized Options, as amended (the "booklet"), is further amended as provided below. The changes pertain to the trading of credit default options. Credit default options, including credit default bas- ket options, have characteristics that are different from those of any other options described in the booklet at the date of this Supplement. Accordingly, some of the state- ments and forms in Chapters I and II of the booklet are inapplicable to credit default options. For example, as further described in this booklet. the sentence at the bottom of page 1 and the top of page 2 which notes that the owner of a cash-settled option has "the right to receive a cash payment based on the difference between a determined value of the underlying interest at the time the option is exercised and the fixed exercise price of the option" Is not applicable to credit default options. The description of credit default options in this Supplement supersedes material in the booklet applicable to other standardized options to the extent such materialis incon- sistent with statements in this Supplement. Credit default options are described by amendment to Chapter V of the booklet as follows: The title of Chapter V (on page 29 of the booklet) is changed to "DEBT OPTIONS AND CREDIT DEFAULT OPTIONS". On page 29, the second and third paragraphs are deleted and replaced with the following paragraphs: A third kind of options, called credit default options, are cash-settled options that are related to the creditworthiness of issuers or guarantors of debt securities, and are exercised upon confirmation of a credit event affecting an underlying debt security or securities. The principal risks of holders arid writers of debt options and credit default options are discussed in Chap- ter X. Readers interested In buying or writing debt options or credit default options should not only read this chapter but should also carefully read Chapter X, particularly the discus- sions under the headings "Risks of Option Holders," "Risks of Option Writers.- "Other Risks." "Special Risks of Debt Options" and "Special Risks of Credit Default Options." On page 34, the following is Inserted immediately fol- lowing the last paragraph: 114 CONFIDENTIAL - PURSUANT TOCFEESCIR11O1MS6599 P. 6(e) CONFIDENTIAL SDNY_GM_00244783 EFTA01393159