Prospectus dated 27 August 2009 MUNICIPALITY FINANCE PLC (Kuntarahoitus Oyj) (Public limited liability company incorporated in the Republic of Finland) 15,000,000,000 Programme for the Issuance of Debt Instruments Issue of a Series of up to DKK 1,500,000,000 Capital Protected Profit Lock-in Notes due 2014 Linked to EgnsINVEST Aktier, Højt Udbytte, Akk. and EgnsINVEST Obligationer, Pension & Erhverv (the "Notes") Issue Price: 100 per cent. Guaranteed by THE MUNICIPAL GUARANTEE BOARD (Kuntien takauskeskus) (Established as a public law institution under the laws of the Republic of Finland) This document, together with the information incorporated by reference herein, has been approved by the United Kingdom Financial Services Authority (the FSA ), which is the United Kingdom competent authority for the purposes of Directive 2003/71/EC (the Prospectus Directive ) and relevant implementing measures in the United Kingdom, as a prospectus issued in compliance with the Prospectus Directive and relevant implementing measures in the United Kingdom for the purpose of giving information with regard to the issue of debt Notes ( Notes ) issued under the Programme for the Issuance of Debt Instruments (the Programme ) described herein (the "Prospectus"). An application has been made for such Notes to be admitted after the date hereof to trading and official listing on the Nasdaq OMX Copenhagen Exchange (the "Copenhagen Stock Exchange"). The regulated market of the Copenhagen Stock Exchange is a regulated market for the purposes of Directive 2004/39/EC on markets in financial Notes. The Notes have not been, and will not be, registered under the United States Securities Act of 1933 (the "Securities Act") and are subject to United States tax law requirements. The Notes are being offered outside the United States by Nordea Bank Danmark A/S (the "Dealer") in accordance with Regulation S under the Securities Act, and may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY ALL THE INFORMATION SET FORTH IN THIS PROSPECTUS ALONG WITH ALL THE INFORMATION SET FORTH IN THE BASE PROSPECTUS (AS DEFINED BELOW), INCLUDING "RISK FACTORS" BEGINNING AT PAGE 11 OF THE BASE PROSPECTUS. HOLDERS AND PROSPECTIVE PURCHASERS OF THE NOTES SHOULD ENSURE THAT THEY UNDERSTAND THE NATURE OF THE NOTES AND THE EXTENT OF THEIR EXPOSURE TO RISK AND THAT THEY CONSIDER THE SUITABILITY OF THE NOTES AS AN INVESTMENT IN THE LIGHT OF THEIR OWN CIRCUMSTANCES AND FINANCIAL CONDITION. THE PERFORMANCE OF THE INDEX (AS DEFINED BELOW) MAY AFFECT THE NATURE AND VALUE OF THE INVESTMENT RETURN ON THE NOTES. HOLDERS OF THESE NOTES SHOULD UNDERSTAND THAT PAYMENTS IN EXCESS OF THE PRINCIPAL AMOUNT AND ANY PROCEEDS OF THE NOTES DEPEND ON THE INCREASE OR DECREASE IN THE VALUE OF FUND UNITS IN THE REFERENCE FUND EGNSINVEST AKTIER, HØJT UDBYTTE, AKK. (ISIN DK0060012896, BLOOMBERG TICKER EGNAHUD DC), A SUB-FUND OF INVESTERINGSFORENINGEN EGNSINVEST, AUTHORISED AS A - 1 -
UCITS III FUND AND EGNSINVEST OBLIGATIONER, PENSION & ERHVERV (ISIN DK0010282276, BLOOMBERG TICKER EIILOP DC), A SUB FUND OF PLACERINGSFORENINGEN EGNSINVEST, AUTHORISED AS A NON- UCITS FUND, BOTH MANAGED BY EGNSINVEST INVESTERINGSFORENINGSSELSKAB A/S AND REGULATED BY THE FINANCIAL SERVICES AUTHORITY IN DENMARK (FINANSTILYNET)). POTENTIAL INVESTORS SHOULD NOTE THAT THE INVESTMENTS OF THE FUNDS ARE SUBJECT TO MARKET FLUCTUATIONS AND OTHER RISKS INHERENT IN INVESTING IN SECURITIES OF THE KIND AND NATURE IN WHICH THE FUNDS INVEST AND THERE CAN BE NO ASSURANCE THAT ANY APPRECIATION IN VALUE WILL OCCUR. POTENTIAL INVESTORS SHOULD CLOSELY STUDY THE FUNDS FUNCTIONALITY, INVESTMENT STRATEGY AND RISK PROFILE. PLEASE SEE THE PROSPECTUS OF THE FUNDS DATED 25 JUNE 2009 (AVAILABLE AT WWW.EGNSINVEST.DK). GIVEN THE SPECIALISED NATURE OF THESE NOTES, THE ISSUER AND THE DEALER (AS DEFINED BELOW) CONSIDER THAT THEY ARE ONLY SUITABLE FOR INVESTORS CAPABLE OF UNDERSTANDING THE RISK OF AN INVESTMENT OF THIS NATURE. CONSEQUENTLY, IF YOU ARE NOT AN INVESTOR WHO FALLS WITHIN THE DESCRIPTION ABOVE YOU SHOULD NOT CONSIDER PURCHASING THESE NOTES WITHOUT TAKING DETAILED ADVICE FROM A SPECIALISED PROFESSIONAL ADVISER. Any person (an "Investor") intending to acquire or acquiring any securities from any person (an "Offeror") should be aware that, in the context of an offer to the public as defined in section 102B of the Financial Services and Markets Act 2000 (the "FSMA"), the Issuer may be responsible to the Investor for the Prospectus under section 90 of the FSMA, only if the Issuer has authorised that Offeror to make the offer to the Investor. Each Investor should therefore enquire whether the Offeror is so authorised by the Issuer. If the Offeror is not authorised by the Issuer, the Investor should check with the Offeror whether anyone is responsible for the Prospectus for the purposes of section 90 of the FSMA in the context of the offer to the public, and, if so, who that person is. If the Investor is in any doubt about whether it can rely on the Prospectus and/or who is responsible for its contents it should take legal advice. An Investor intending to acquire or acquiring any securities from an Offeror will do so, and offers and sales of the securities to an Investor by an Offeror will be made, in accordance with any terms and other arrangements in place between such Offeror and such Investor including as to price, allocations and settlement arrangements. The Issuer will not be a party to any such arrangements with Investors (other than the Dealer) in connection with the offer or sale of the securities and, accordingly, this Prospectus will not contain such information, an Investor must obtain such information from the Offeror. Such information will be provided at the time of any sub-offers. Dealer Nordea Markets - 2 -
IMPORTANT NOTICES Municipality Finance Plc (the "Issuer") and the Municipal Guarantee Board (the "Guarantor") have confirmed to the Dealer that this Prospectus contains all information regarding the Issuer and the Guarantor and the Notes which is (in the context of the issue of the Notes) material; and that such information is true and accurate in all material respects. The Issuer and the Guarantor accept responsibility for the information contained in this Prospectus. To the best of the knowledge and belief of the Issuer and the Guarantor (which have taken all reasonable care to ensure that such is the case), the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. This paragraph should be read in conjunction with the sixth and seventh paragraphs on the first page of this Prospectus. This Prospectus is to be read in conjunction with all documents which are deemed to be incorporated herein by reference (see "Information incorporated by reference" below). Neither the Issuer nor the Guarantor has authorised the making or provision of any representation or information regarding the Issuer, the Guarantor or the Notes other than as contained in this Prospectus or any documents deemed to be incorporated herein by reference or as approved for such purpose by the Issuer and the Guarantor. Any such representation or information should not be relied upon as having been authorised by the Issuer, the Guarantor or the Dealer. Neither the delivery of this Prospectus or any of the documents deemed to be incorporated herein by reference nor the offering, sale or delivery of any Note shall in any circumstances create any implication that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of the Issuer or the Guarantor since the date of this Prospectus. This Prospectus does not constitute an offer of, or an invitation to subscribe for or purchase, any Notes and should not be considered as a recommendation by the Issuer, the Guarantor, the Dealer or any of them that any recipient of the Prospectus should subscribe for or purchase any Notes. Each recipient of the Prospectus shall be deemed to have made its own investigation and appraisal of the condition (financial or otherwise) of the Issuer and the Guarantor. The distribution of this Prospectus or any of the documents deemed to be incorporated herein and the offering, sale and delivery of Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus or any of the documents deemed to be incorporated herein comes are required by the Issuer, the Guarantor and the Dealer to inform themselves about and to observe any such restrictions. For a description of certain restrictions on offers, sales and deliveries of Notes and on distribution of this Prospectus and other offering material relating to the Notes, see "Plan of Distribution" set out in the Base Prospectus where references to the Base Prospectus shall be read as including references to this Prospectus. In particular, the Notes have not been and will not be registered under the Securities Act and are subject to United States tax law requirements. Subject to certain exceptions, Notes may not be offered, sold or delivered within the United States or to U.S. persons. - 3 -
CONTENTS Clause Page Summary... 5 Risk Factors... 11 Information Incorporated By Reference... 25 Description Of The Underlying... 27 Terms And Conditions Of The Notes... 29 Responsibility... 37 Other Information... 38 Additional Terms And Conditions Of The Notes... 45 Taxation... 57 General Information... 59-4 -
SUMMARY This summary must be read as an introduction to this Prospectus and any decision to invest in the Notes should be based on a consideration of the Prospectus as a whole, including the information incorporated by reference. No civil liability attaches to the Issuer or the Guarantor solely on the basis of the summary, including any translation thereof, unless it is misleading, inaccurate or inconsistent when read together with the other parts of this Prospectus. Where a claim relating to the information contained in this Prospectus is brought before a court in a Member State, the plaintiff may, under the national legislation of the Member State where the claim is brought, be required to bear the costs of translating the Prospectus before the legal proceedings are initiated. Words and expressions defined in the Base Prospectus or elsewhere in this Prospectus have the same meanings in this summary. Issuer: The Guarantor: Description of the Notes: Description of the Risky Reference Fund: Description of the Non-Risky Reference Fund: Dealer: Paying Agent: Calculation Agent: Municipality Finance Plc (Kuntarahoitus Oyj) (the "Issuer"). The Municipal Guarantee Board (Kuntien takauskeskus) (the "Guarantor"). Up to DKK 1,500,000,000 Capital Protected Profit Lock-in Notes due 1 October 2014 Linked to (i) EgnsINVEST Aktier, Højt Udbytte, Akk. and (ii) EgnsINVEST Obligationer, Pension & Erhverv. The Risky Reference Fund means EgnsINVEST Aktier, Højt Udbytte, Akk. (ISIN DK0060012896, Bloomberg ticker EGNAHUD DC) a sub-fund of Investeringsforeningen EgnsINVEST (the "Risky Reference Fund"). The Non-Risky Reference Fund means EgnsINVEST Obligationer, Pension & Erhverv (ISIN DK0010282276, Bloomberg ticker EIILOP DC) a sub-fund of Placeringsforeningen EgnsINVEST (the "Non-Risky Reference Fund"). Nordea Bank Danmark A/S (the "Dealer"). Nordea Bank Danmark A/S. Nordea Bank Danmark A/S. Issue Date: 2 October 2009. All calculations, determinations or adjustments made by the Calculation Agent shall, in the absence of manifest error, be final, conclusive and binding on the holders of the Notes (the "Holders"). Neither the Calculation Agent nor the Issuer shall have responsibility to the Holders for good faith errors or omissions in the Calculation Agent's calculations and determinations as provided in the Terms and Conditions of the Notes. - 5 -
Specified Denomination per Note: DKK 10,000. Calculation Amount: DKK 10,000. Maturity Date: 1 October 2014. Fund Exposure Start Date: Fund Exposure End Date: Interest: Final Redemption Amount: 5 October 2009. 12 September 2014. Non Interest-bearing Notes. The Notes entitle a Holder to receive the Final Redemption Amount from the Issuer on the Maturity Date. The Final Redemption Amount is an amount per Note equal to: (i) (ii) if a Suspension Event has not occurred, the greater of: (i) the Index Value at Fund Exposure End Date; and (ii) the Capital Protection; and if a Suspension Event has occurred, the Capital Protection. Index: Means a hypothetical index (the "Hypothetical Index") which, from time to time from and including the Fund Exposure Start Date up to and including the Fund Exposure End Date or, if earlier, the occurrence of any Suspension Event, consists of the Risky Exposure, the Non-Risky Exposure and the Leverage Amount. Upon the occurrence of a Suspension Event during the term of the Notes, the Hypothetical Index as of the Suspension Event Date shall not be subject to further adjustment. Index Value: For any Valuation Date, if: (i) (ii) a Suspension Event has not occurred, the sum of (i) the Risky Exposure plus (ii) the Non-Risky Exposure less (iii) the sum of (A) the Leverage Amount and (B) the Fee Amount on such Valuation Date; and a Suspension Event has occurred, the Index Value as of the Suspension Event Date shall not be subject to further adjustment. Capital Protection: 100% of the Specified Denomination - 6 -
plus 25% of: (i) (ii) if a Suspension Event has not occurred, the maximum Index Value observed at any Reference Fund Business Day from and including the Fund Exposure Start Date to and including the Fund Exposure End Date, less the Specified Denomination; and if a Suspension Event has occurred, the maximum Index Value observed at any Reference Fund Business Day from and including the Fund Exposure Start Date to and including the Suspension Event Date, less the Specified Denomination. Risky Exposure: Non-Risky Exposure: Rebalancing: Observed Multiplier: Leverage Amount: Fee Amount: Cushion: Suspension Event: Exposure to the Risky Reference Fund expressed as an amount in DKK, subject to adjustment in accordance with the Rebalancing. Exposure to the Non-Risky Reference Fund expressed as an amount in DKK, subject to adjustment in accordance with the Rebalancing. The Calculation Agent will on each Valuation Date monitor the Observed Multiplier. As soon as the Observed Multiplied exceeds or falls below certain specified thresholds, the Calculation Agent will initiate a rebalancing of the Index by means of adjusting the allocation to the Risky Exposure and making corresponding adjustments to the Non-Risky Exposure, provided that if the Calculation Agent determines that the Index Value falls between specified thresholds, the Risky Exposure will be notionally redeemed and the proceeds will be notionally invested in Non-Risky Exposure. Such rebalancing will be performed in accordance with the rebalancing methodology set out in the Conditions and will take into consideration the Leverage Amount and the Fee Amount. The ratio of the Risky Exposure to the Cushion. Amounts required to fund parts of the Risky Exposure in accordance with the Rebalancing. The fee as determined by the Calculation Agent that includes (i) the cost of providing Capital Protection on the Notes and (ii) the external costs. Means, on any Valuation Date, the excess of the Index Value over the Bond Floor. A Suspension Event shall be deemed to have occurred if on any Valuation Date after the Fund Exposure Start Date and prior to the Fund Exposure End Date the Calculation Agent determines that, (i) the Index Value is equal to or lower than a specified - 7 -
threshold; or (ii) after the third anniversary of the Issue Date, the economic assumptions under which the transaction was entered has materially changed. If a Suspension Event has occurred: (i) (ii) (iii) all Risky Exposure and Non-Risky Exposure shall be notionally redeemed and no further allocation to Risky Exposure and Non-Risky Exposure may subsequently be made; the amount of the Capital Protection payable on the Maturity Date will be fixed as of the Suspension Event Date and this amount will not thereafter increase; and the investor will receive such amount per Note on the Maturity Date which is equal to the Capital Protection. Suspension Event Date: Early Redemption Amount: Fund Disruption Event: Reference Fund Business Day: Form of Notes: The date on which a Suspension Event shall be deemed to have occurred. The Notes are subject to redemption at the option of the Issuer at an amount (the "Early Redemption Amount (Tax)") in the Specified Currency per Calculation Amount at any time in the event of certain changes affecting taxation in the Republic of Finland. Means, in respect of any share or unit of a Reference Fund, the occurrence or existence of a Fund Redemption Valuation Disruption, a Fund Valuation Reporting Disruption or a Fund Settlement Disruption, or any other event that would have the effect of preventing the determination of the Index Value or the Final Redemption Amount, in each case as determined by the Calculation Agent on the relevant Valuation Date (each as defined herein). Means any day (other than a Saturday or Sunday) on which commercial banks are open for business in Sweden and Denmark. The Notes will be bearer notes issued in the form of a Permanent Global Note. The Permanent Global Note will be issued on 2 October 2009 and the Notes will be registered as bearer Notes in uncertificated dematerialised book-entry form with the VP Securities A/S ("VP") on that day. Nordea Bank Danmark A/S is acting as Account Holding Bank (Da. "Kontoførende Institut") in relation to VP. The Permanent Global Note will be controlled by Nordea Bank - 8 -
Danmark A/S as Account Holding Institute for and on behalf of VP and the Holders in accordance with the provisions of the Danish Government Regulation No. 527 of 7 June 2006 on the registration of funds assets in a securities centre. The Permanent Global Note can only be held in favour of Nordea Bank Danmark A/S acting in its capacity as Account Holding Institute on behalf of the Holders registered in the VP system. For the avoidance of doubt, Notes registered in VP are negotiable Notes not subject to any restrictions on the free negotiability within the Kingdom of Denmark, under Danish Law. Status of Notes: Governing Law: Listing and Trading: Clearing: Selling Restrictions: Risk Factors: The Notes will be issued on an unsubordinated basis. The Notes, all related contractual documentation (other than the Collateral Agreement which will be governed by and construed in accordance with Finnish law and the registration of the Notes with VP is governed by and construed in accordance with Danish law) and any non-contractual obligations arising out of or in connection with any of them will be governed by English law. An application will be made for the Notes to be admitted to trading and official listing on the Copenhagen Stock Exchange. The Notes have been accepted for clearing through VP. Restrictions apply to offers, sales or transfers of the Notes in various jurisdictions. See "Subscription and Sale" beginning at page 74 of the Base Prospectus incorporated by reference herein. In all jurisdictions offers, sales or transfers may only be effected to the extent lawful in the relevant jurisdiction. There are certain factors that may affect the ability of the Issuer to fulfil its obligations under Notes or the Guarantor s ability to fulfil its obligations under the Guarantee. In addition, there are certain factors which are material for the purpose of assessing the market risks associated with Notes, such as: General Risks Relating to Issuer and the Guarantor Risks Relating to the Notes Risks Relating to the Shares Market Risks Risks Relating to Constant Proportion Portfolio Insurance - 9 -
Other Risk Factors - 10 -
RISK FACTORS Prospective investors should read the entire Prospectus together with the Base Prospectus and the other documents incorporated herein by reference. Investing in the Notes involves certain risks. In addition, the purchase of the Notes may involve substantial risks and be suitable only for investors who have the knowledge and experience in financial and business matters necessary to enable them to evaluate the risks and the merits of an investment in the Notes. Prospective investors should make such inquiries as they deem necessary without relying on the Issuer, the Guarantor or the Dealer and should consult with their financial, tax, legal, accounting and other advisers, prior to deciding to make an investment in the Notes. Potential investors should be prepared to sustain a loss of all or part of their investment (subject to principal protection of the principal amount only upon maturity). The information in this section relates to the principal risks inherent in investing in the Notes but does not purport to be a full or complete description of such risks. The inability of the Issuer or the Guarantor, as applicable, to pay any amounts on or in connection with any Notes may occur for other reasons which may not be considered significant risks by the Issuer and the Guarantor based on information currently available to it or which it may not currently be able to anticipate. There may be other risks that a prospective purchaser of the Notes should consider that are relevant to its own particular circumstances or generally. More than one investment risk may have simultaneous effects with regard to the value of the Notes and the effect of any single investment risk may not be predictable. In addition, more than one investment risk may have a compounding effect and no assurance can be given as to the effect that any combination of investment risks may have on the value of the Notes. Where the risk factors relate to the Index, the attention of prospective investors is also drawn to the Additional Terms and Conditions of the Notes, which describes generally the Index and, in particular, the methodology in respect of the periodic recomposition of the Index. Unless otherwise defined, words and expressions defined in the Base Prospectus or elsewhere in this Prospectus, including definitions contained in the Additional Terms and Conditions of the Notes, have the same meanings in this section and all features of the Notes and the Index described below are summaries only of provisions set out in full elsewhere in this Prospectus. The risks described under this section are set out under the following headings: General Risks Relating to Issuer and the Guarantor Risks Relating to the Notes Risks Relating to the Shares Market Risks Risks Relating to Constant Proportion Portfolio Insurance Other Risk Factors - 11 -
Prospective investors should consider, among other things, the following: General Important Considerations Prospective investors in the Notes should (and by purchasing the Notes will be deemed to have acknowledged the following): (a) (b) (c) (d) (e) (f) (g) (h) be investors capable of understanding the Notes and are willing to take certain risks, can absorb a significant loss of their investment in the Notes (subject to principal protection of the principal amount only upon maturity) and are experienced with respect to transactions involving Notes such as the Notes, in terms of both the risks associated with the economic terms of the Notes and the risks associated with the way in which the issue of the Notes is structured; understand the characterisation of the Notes and any risks and potential consequences associated with an investment in the Notes; understand that the value of the Notes may be affected by actions of the Investment Adviser in respect of the Risky Reference Fund or the Non-Risky Reference Fund, but that the Investment Adviser does not owe any legal duty to act in the interests of the Holders in taking such actions; understand that the Risky Reference Fund or the Non-Risky Reference Fund has been separately established with specific investment guidelines, and that their values will not necessarily move in line with any other fund or investment managed by the Investment Adviser; conduct such independent appraisal of the Issuer, the Guarantor, the Notes, the Risky Reference Fund or the Non-Risky Reference Fund and all other relevant market and economic factors as they think appropriate to evaluate the merits and risks of an investment in the Notes; only reach an investment decision after careful consideration, with their own legal, investment, accounting and tax advisors of the suitability of an investment in the Notes in the light of their own particular financial, fiscal and other circumstances and the information set out in this document; recognise that the Notes may decline in value and should be prepared to sustain a significant loss of their investment in the Notes (subject to principal protection of the principal amount only upon maturity); recognise that the Calculation Agent does not make any representation or warranty whatsoever as to the Index Value, the Risky Reference Fund or the Non-Risky Reference Fund or the allocation as between Risky Exposure and the Non-Risky Exposure as of any time on any day and the Calculation Agent shall not be liable (whether in negligence or otherwise) to any person for any error in the Index and shall not be obliged to notify any person of any error therein; and - 12 -
(i) recognise that if the Notes are redeemed prior to their stated maturity the amount payable to Holders may be less than their initial investment in the Notes. An investment in the Notes should only be made after assessing the direction, timing and magnitude of potential future changes in the value of the Risky Reference Fund or the Non- Risky Reference Fund, as the return of any such investment will be dependent, inter alia, upon such changes. Suitability of the Notes for Investment Prospective investors in the Notes should not rely on any communication (written or oral) of the Issuer as investment advice or as a recommendation to invest in the Notes, it being understood that information and explanations related to the Terms and Conditions of the Notes shall not be considered to be investment advice or a recommendation to invest in the Notes. No communication (written or oral) received from the Issuer shall be deemed to be an assurance or guarantee as to the expected results of the investment in the Notes. Investment in the Notes is only suitable for investors who: (a) (b) are capable of understanding the merits and risks of an investment in the Notes; and are capable of bearing the economic risk of an investment in the Notes for the full term of the Notes. Independent Review and Advice Each prospective purchaser must determine, based on its own independent review and such professional advice as it deems appropriate under the circumstances, that its acquisition of the Notes and consequential exposure to the Risky Reference Fund and the Non-Risk Reference Fund (i) is fully consistent with its (or, if it is acquiring the Notes in a fiduciary capacity, its beneficiary's) financial needs, objectives and condition, (ii) complies and is fully consistent with all investment policies, guidelines and restrictions applicable to it (whether acquiring the Notes as principal or in a fiduciary capacity) and (iii) is a fit, proper and suitable investment for it (or if it is acquiring the Notes in a fiduciary capacity, for its beneficiary), notwithstanding the risks inherent in investing in or holding the Notes. Risks Relating to the Issuer and the Guarantor The information set out on pages 14 to 16 of the Base Prospectus shall be deemed to be incorporated by reference. Risks Relating to the Notes Principal Protection Although the value of the Notes may go up as well as down, the Notes provide for a redemption amount in respect of each Note on the Maturity Date equal to the greater of (a) the IndexFinal (where IndexFinal means the Index Value ("IV") at Fund Exposure End Date) and (b) the Capital Protection ("CP"). If held until maturity, investors will receive an amount which - 13 -
will be at least equal to the Specified Denomination plus any increases in the Capital Protection as described in the Additional Terms and Conditions of the Notes. Prospective purchasers may receive an amount less than their initial investment if (i) the Notes are redeemed prior to the Maturity Date or (ii) investors sell their Notes prior to the Maturity Date. Whilst repayment of principal at maturity is protected under the terms of the Notes, there can be no assurance that a Holder of Notes would receive an amount in excess thereof. Fees In determining the Index Value on any Valuation Date, for so long as part of the Index is allocated to Risky Exposure or Non-Risky Exposure, the Capital Protection Fee will be added to the Leverage Amount on such Valuation Date. As a result the return (if any) on the Index Value is less than would otherwise be the case (without Capital Protection). The shares in the Risky Reference Fund or the Non-Risky Reference Fund are subject to underlying fees as set out in the prospectus of the Risky Reference Fund or the Non-Risky Reference Fund dated 25 June 2009. Such underlying fees are reflected in the net asset value which in turn is reflected in the Shares used in determining the Index Value. The overall effect of underlying fees in relation to the Risky Reference Fund or the Non-Risky Reference Fund may be to cause the Index Value to be lower than would otherwise be the case. The Dealer and/or any affiliate may pay to distributors of the Notes such commissions or fees as such parties may agree (including in the form of a discount to the purchase price of the Notes). In addition, following the Issue Date such parties may pay or receive such fees on an on-going basis. Taxation Potential investors and sellers of the Notes should be aware that they may be required to pay stamp taxes or other documentary charges in accordance with the laws and practices of the country where the Notes are transferred. Potential investors who are in any doubt as to their tax position should consult their own independent tax advisers. In addition, potential investors should be aware that tax regulations and their application by the relevant taxation authorities change from time to time. Accordingly, it is not possible to predict the precise tax treatment which will apply at any given time. Notes are a medium to long-term investment Investment in the Notes may not be suitable for all investors. The value of the Notes may fluctuate. The difference at any one time between the price paid for a Note and the price at which a Note may be sold or otherwise redeemed may therefore fluctuate. Consequently, Holders may not receive their initial investment in the Note if they redeem or sell their Notes prior to the Maturity Date. Holders should therefore have the intention of holding the - 14 -
Notes to the Maturity Date and an investment in the Notes should be viewed as a mediumterm to long-term investment. Investment in the Notes may not be suitable for all investors. Early redemption at the option of the Issuer may result in Holders receiving less than their initial investment The Notes may be redeemed prior to the Maturity Date at the option of the Issuer following a change in tax rules affecting the Issuer which would result in the Issuer having to make additional payments in respect of the Notes. See Condition 7.02 (Early Redemption or Substitution for Taxation Reasons) for further details of this event. In such circumstances Holders will receive an amount in respect of each Note redeemed equal to the Redemption Amount on the date fixed for redemption. It is therefore possible that the amount paid to a Holder in such circumstances will be less than their initial investment. Suspension Event A Suspension Event shall be deemed to have occurred if on any Valuation Date after the Fund Exposure Start Date and prior to the Fund Exposure End Date the Calculation Agent determines that, (i) (ii) the Index Value is equal to or lower than the threshold set out in the Additional Terms and Conditions; or after the third anniversary, the economic assumptions under which the transaction was entered has materially changed. If a Suspension Event has occurred, (i) (ii) (iii) all Risky Exposure and Non-Risky Exposure shall be notionally redeemed and no further allocation to Risky Exposure and Non-Risky Exposure may subsequently be made; the amount of the Capital Protection payable on the Maturity Date will be fixed as of the Suspension Event Date and this amount will not thereafter increase; and the investor will receive such amount per Note on the Maturity Date which is equal to the Capital Protection. Secondary Market of the Notes The Notes are intended for investors who purchase and hold the Notes to maturity. It is unlikely that any secondary market in the Notes will exist. Whilst application has been made to admit the Notes to listing on the Copenhagen Stock Exchange, no assurance can be given as to whether or not, or when, such applications will be granted. The market value of the Notes is expected to fluctuate according to various factors including but not limited to the performance of the Risky Reference Fund and the Non-Risky Reference Fund, option volatility of the Risky Reference Fund and the Non-Risky Reference Fund, interest rates, exchange rates, time remaining to maturity and any potential changes in the credit rating of the Issuer. The price at which a Holder will be able to sell the Notes on the - 15 -
secondary market prior to the maturity of the Notes may be at a discount from the principal amount, which could be substantial, and there is no assurance that such Note holder will realise any return on its investment in the Notes. Nordea Bank Danmark A/S intends to provide discretionary liquidity in respect of the Notes. However, Nordea Bank Danmark A/S is not obliged to purchase Notes, and if it does so purchase Notes, will have total discretion with regards to the terms and price of such purchases. Such price may be less than the principal amount of the Notes. The "buy-and-hold" nature of the Notes will be reflected in the "bid-offer" spread and in additional trading costs are likely to apply. Further and other Issues The Issuer shall be at liberty from time to time without the consent of Holders to create and issue further notes so as to be consolidated with and form a single series with the outstanding Notes. In addition, the Issuer may issue other issues of notes and/or other Notes relating to the Risky Reference Fund or the Non-Risky Reference Fund. Such issues may have an adverse effect on the value of the Notes. Legality of Purchase The Issuer has no responsibility and assumes no responsibility for the lawfulness of the acquisition of the Notes by a prospective purchaser, whether under the laws of the jurisdiction of the purchaser's incorporation or the jurisdiction in which it operates (if different), or for compliance by that prospective purchaser with any law, regulation or regulatory policy applicable to it. In particular, prospective purchasers are referred to the restrictions contained in the section "Subscription and Sale" in the Base Prospectus. Risks Relating to the Shares Shares The Notes are linked to the performance of the Index which comprises, amongst other things, the Shares. The Shares are notional investments in the Risky Reference Fund and the Non- Risky Reference Fund. Prospective purchasers should note that the Shares are speculative investments and that all the risks inherent in investing in the Risky Reference Fund or the Non-Risky Reference Fund directly will be inherent in an investment in the Notes to the extent the Index is allocated to Shares (subject to principal protection of the principal amount only upon maturity). Prospective purchasers should however note that the Notes do not entitle the Holders to any of the rights of holders of shares of the Risky Reference Fund or the Non-Risky Reference Fund. Prospective purchasers should note that Holders shall have no legal or beneficial ownership or interest in the shares of the Risky Reference Fund or the Non-Risky Reference Fund or any other component of the Index and shall have no contractual relationship with any of the Risky Reference Fund or the Non-Risky Reference Fund or the Investment Adviser by reason only of having purchased Notes. - 16 -
The Issuer does not make any representation, warranty or guarantee (express or implied) regarding the condition (financial or otherwise) of the Index, the Risky Reference Fund or the Non-Risky Reference Fund or the performance of the Shares. There will be no linear relation between the value of the Shares and the value of the Notes. Therefore, investors in the Notes will not receive the same return as they would if they invested directly in the Shares. Composition of the Index As set out in the Additional Terms and Conditions of the Notes, the Index comprises the Risky Exposure, the Non-Risky Exposure and the Leverage Amount. The allocation of the Index to Risky Exposure and Non-Risky Exposure may be recomposed on each Valuation Date depending on the net asset value of the Risky Reference Fund or the Non-Risky Reference Fund, the Index Value, the Leverage Amount, the Capital Protection and the Bond Floor on such Valuation Date. Any such recomposition may result in an increase or decrease in the notional number of Shares in the Index. The periodic adjustment of the Index will have the effect of altering the relative composition of the Index based on multiple factors, including but not limited to the performance of the Risky Reference Fund or the Non-Risky Reference Fund, option volatility of the Risky Reference Fund or the Non-Risky Reference Fund, interest rates, exchange rates and time remaining to maturity. Generally, as the relative historical performance of the Risky Reference Fund or the Non-Risky Reference Fund or prevailing interest rates decrease, or the volatility of the Risky Reference Fund or the Non-Risky Reference Fund increases, the portion of the Index allocated to the Shares decreases. As a result, Holders should understand that they may receive less than what they may have received had they invested in the Risky Reference Fund or the Non-Risky Reference Fund directly. Specifically, if the Risky Reference Fund or the Non-Risky Reference Fund experiences a period or periods of volatility, the recomposition procedure will effectively require a reduction in (selling of) notional Shares as they are falling in price, and increases in (purchasing of) notional Shares as they are rising in price. Such notional purchases and sales will negatively affect the Index Value, particularly if prolonged or numerous periods of volatility are experienced. Prospective Holders should note that the allocation of the Index to Shares as at any Valuation Date are dependent upon, amongst other things, the net asset value of the Shares. The net asset value of the Shares as at any Valuation Date is calculated by reference to the last available net asset value as on the relevant Valuation Date. If such net asset value is not published or made available when required for the purposes of determining any recomposition, the net asset value of the Shares shall be the net asset value determined by the Calculation Agent as of the relevant Valuation Date by reference to such source(s) as it may in its sole and absolute discretion consider appropriate. Such net asset value may be different to the net asset value of the Risky Reference Fund or the Non-Risky Reference Fund were such amount published in accordance with the prospectuses of the Risky Reference Fund or the Non-Risky Reference Fund dated 25 June 2009 on such Valuation Date and no subsequent - 17 -
adjustment will be made in respect of any recomposition if such estimated net asset value is subsequently determined to be different from the net asset value on such Valuation Date. There may be a delay between calculation of the net asset value of the Shares for the purposes of adjustments to be made to the Index, execution of notional subscription orders in respect of units in the Risky Reference Fund or the Non-Risky Reference Fund, execution of a notional acquisition or disposal of investment holdings of the Risky Reference Fund or the Non-Risky Reference Fund and the reflection of such executions in the net asset value of the Shares. A redemption of Shares in the Risky Reference Fund or the Non-Risky Reference Fund is also subject to liquidity constraints which can further delay this process. Accordingly, such notional redemptions or notional subscriptions may not be for value until the Investment Adviser has realised the proceeds of a corresponding liquidation in the assets of the Risky Reference Fund or the Non-Risky Reference Fund, which may itself take time depending upon market conditions (including the liquidity of such assets) and settlement practices prevailing in the relevant market at that time. In such cases, the Calculation Agent may make adjustments in accordance with the provisions set out under Fund Disruption Events in the Additional Terms and Conditions of the Notes. Deleverage Prospective Holders should note that a Suspension Event may occur in certain circumstances described in the Additional Terms and Conditions of the Notes. Upon the occurrence of a Suspension Event the allocation to Shares shall be decreased to zero and no further allocation into Shares may subsequently be made. In such circumstances, the Holders will only be entitled to the Capital Protection on the Maturity Date and the Holders will receive no further economic exposure to the Risky Reference Fund or the Non-Risky Reference Fund and they may receive an amount that would be less than what they may have received had they invested in the Risky Reference Fund or the Non-Risky Reference Fund directly. Reallocation The Calculation Agent may adjust the Index methodology to take account of certain fiscal, market, regulatory, juridical or financial circumstances or may adjust the Index in any manner that it may deem necessary or desirable, including (without limitation) to correct any manifest or proven error or cure, correct or supplement any defective provision therein. Any such adjustments may affect the Index Value and thus the amount payable on redemption of the Notes. As such, purchasers of the Notes are dependent upon the exercise of such discretion by the Calculation Agent. Fund Disruption Event Prospective purchasers should note that the determination of the redemption amount on the Final Valuation Date may be postponed for a maximum of five Reference Fund Business Days if a Fund Disruption Event occurs or is subsisting on the Final Valuation Date. Limited Information - 18 -
No representation or warranty, whether implied or otherwise, is given by the Issuer as to the past, present or future performance of the Shares. The Issuer is not a source of advice, information or credit analysis with respect to the Risky Reference Fund or the Non-Risky Reference Fund, the Investment Adviser, the Shares or the underlying assets of the Risky Reference Fund or the Non-Risky Reference Fund. In particular, this Prospectus does not constitute investment advice. The Issuer does not assume any obligation to or relationship of agency or trust with any purchaser or prospective purchaser of the Notes. No Independent Investigation of Investment by Issuer The Issuer has not undertaken any investigation of the Risky Reference Fund or the Non- Risky Reference Fund or the Investment Adviser. In addition, the Issuer has not independently verified or confirmed the prospectuses of the Risky Reference Fund or the Non-Risky Reference Fund dated 25 June 2009. The Issuer does not make any representation or warranty, express or implied, regarding the likely investment performance of the Risky Reference Fund or the Non-Risky Reference Fund or the Notes; the ability of the Investment Adviser to identify and recommend investments that will show positive performance in respect of the Shares over the life of the Notes; the suitability of the Notes for any investor or for the accuracy, completeness or adequacy of the information contained in the prospectuses of the Risky Reference Fund or the Non-Risky Reference Fund dated 25 June 2009 and no liability to any party is accepted by the Issuer in connection with any of the above matters. Tax and Currency Risk The tax status of the Risky Reference Fund or the Non-Risky Reference Fund in those jurisdictions in which it conducts its business and/or any change in taxation rules or treatment in such jurisdictions could affect the value of the Shares in the Risky Reference Fund or the Non-Risky Reference Fund (and consequently the Index Value and the Notes) or affect the ability of the Risky Reference Fund or the Non-Risky Reference Fund to achieve its investment objectives and consequently adversely affect the value of the Notes. In addition, remittance of income and capital gains generated by underlying investments of the Risky Reference Fund or the Non-Risky Reference Fund in certain countries may be dependent on there being liquidity in the relevant local currency and the absence of foreign exchange controls which inhibit or prevent the repatriation of such gains. In any such circumstances the value of the Shares may be adversely affected and as a result the Index Value and the value of the Notes may be adversely affected. The base currency of the Risky Reference Fund or the Non-Risky Reference Fund is DKK. To the extent this fund invests in non-dkk securities, the funds are exposed to currency risk. The Capital Protection is in the base currency of the Notes (DKK) and is therefore not exposed to currency risk. - 19 -
Market Risks Market Risk The market value of the Notes is expected to fluctuate according to various factors including but not limited to the performance of the Risky Reference Fund and the Non-Risky Reference Fund, volatility in the performance of the Risky Reference Fund or the Non-Risky Reference Fund, interest rates, exchange rates, time remaining to maturity and potential changes in the credit rating of the Issuer. Emerging Markets Risks Because of the special risks associated with investing in emerging markets, the Risky Reference Fund and therefore the allocation of the Index to the Shares, should be considered speculative. Prospective purchasers are advised to consider carefully the special risks of investing in emerging market securities. Economies in emerging markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries in which they trade. Investment Risk There can be no assurance that the Risky Reference Fund or the Non-Risky Reference Fund will achieve their investment objectives. Their values may rise or fall as the capital value of the securities in which they invest fluctuate. The investment income of the Risky Reference Fund or the Non-Risky Reference Fund is based on the income earned on the securities it holds, less expenses incurred. Therefore, the Risky Reference Fund or the Non-Risky Reference Fund's investment income may be expected to fluctuate in response to changes in such expenses or income. Volatility The Risky Reference Fund and the Non-Risky Reference Fund may make investments which are subject to legal or other restrictions on transfer or for which no liquid market exists, in which case market prices will tend to be more volatile. If substantial redemption of shares in the Risky Reference Fund or the Non-Risky Reference Fund is required, this may necessitate the rapid liquidation of positions by the Risky Reference Fund or the Non-Risky Reference Fund, which could adversely affect the net asset values of the Risky Reference Fund or the Non-Risky Reference Fund and therefore the amount payable in respect of the Notes. Industry Concentration The Risky Reference Fund or the Non-Risky Reference Fund s investments are spread among a number of industries, however the emerging markets are comprised of significant weightings in the natural resources sectors. This means that the Risky Reference Fund or the Non-Risky - 20 -
Reference Fund s investments may be relatively concentrated in these sectors and the performance of the Risky Reference Fund or the Non-Risky Reference Fund could be sensitive to movements in these sectors. Valuation of the Risky Reference Fund or the Non-Risky Reference Fund Prospective purchasers should be aware that an investment in the Notes involves valuation risk as regards the Risky Reference Fund or the Non-Risky Reference Fund. Prospective purchasers should be experienced with respect to transactions in securities with a value derived from underlying securities and/or other assets and/or indices. The value of the Risky Reference Fund or the Non-Risky Reference Fund may vary over time and may increase or decrease by reference to a variety of factors which may include corporate actions, macro economic factors and speculation. The Risky Reference Fund or the Non- Risky Reference Fund will invest in a portfolio comprised of various assets and fluctuations in the value of any one asset may be offset or intensified by fluctuations in the value of other assets which comprise the portfolios of the Risky Reference Fund or the Non-Risky Reference Fund. The historical performance of the investments made by the Risky Reference Fund or the Non- Risky Reference Fund will not necessarily be an indication of their future performance. Risks Relating to Constant Proportion Portfolio Insurance ("CPPI") The Notes are CPPI-Notes. See "Information Relating to the Constant Proportion Portfolio Insurance" below. Set out below are certain risk factors associated with CPPI-Notes. Principal Protection The CPPI provides for protection of the principal only where the CPPI-instrument is held to its scheduled maturity. In the event that the instrument is sold or redeemed prior to its scheduled maturity, a Holder may receive less than the protected level. In certain circumstances, the exposure to the underlying assets will cease, resulting in the Holder receiving only the protected level at maturity, with the consequence that the Holder would not participate in any future appreciation of the Risky Reference Fund or Non-Risky Reference Fund. Risky Exposure The CPPI-instrument is linked to the performance of an index which comprises, amongst other things, the Risky Exposure and the Non-Risky Exposure. The Risky Exposure and the Non-Risky Exposure are notional investments in the shares of the underlying funds. There will be no linear sensitivity between the value of the Risky Exposure and the Non-Risky Exposure and the value of the CPPI-instrument. Therefore, holders of the instrument will not receive the same return as they would if they invested directly in the Risky Reference Fund or the Non-Risky Reference Fund. - 21 -