From the June 2007 issue of Investment Advisor • Subscribe!

What is a structured product?

Federal securities law has no standardized definition of a structured product; so there is no single definition for these products.

The NASD definition is: Structured products are securities derived from or based on a single security, a basket of securities, an index, a commodity, a debt issuance and/or a foreign currency.

In its simplest form, it can be described by what it is not--it's not plain vanilla (although as the complexity of structured products have increased, the early types are often referred to as plain vanilla), and it is not an asset class. Therefore, structured products are simply combinations of long positions, swaps and options that allow investors to express views and hedge risks.

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