By Robert Stock Merrill Lynch Investment Managers (MLIM) is to launch a structured product offeri...
By Robert Stock
Merrill Lynch Investment Managers (MLIM) is to launch a structured product offering investors a choice of income or growth.
Merrill Lynch Defined Returns will have a three-year life and has income shares offering 8.5% gross annual income paid quarterly and zero dividend shares offering returns of up to 27.75% at the end of its three-year life.
The closed-ended fund, constructed by the group's structured products team, has its returns linked to the performance of a basket of 30 global blue chip equities including Lloyds TSB, BP Amoco, General Motors and Procter & Gamble.
The offer period begins on 29 May. Minimum investment is £7,000. Shares in the company are Pep or Isa eligible. The company is structured to give the zeroes a higher level of downside protection than the income shares.
If, when it winds up on 12 July 2004, none of the stocks has fallen by more than 20% from their levels on 11 July 2001, zero investors will receive all target returns and return of original capital.
However, if one or more stocks falls by more than 20%, zero investors' returns will be reduced. The final return on each sterling zero dividend share will be 127.75 pence less, for each stock, 0.05323 pence for every 1% that the price of such stock after three years has dropped below 80% of its closing price on the investment date.
For income shares, the 20% test falls to 10% and at maturity the final return on each sterling income share will be 100 pence less for each stock, 0.03704 pence for every 1% that the price of such stock after three years has dropped below 90% of its closing price on the investment date.
Julian Ide, head of UK retail business at MLIM, said that while the returns are not guaranteed, all 30 stocks would have to fall by 37.4% for the zero dividend shares and 33% for the income shares for investors to receive less than their original investment.
At the same time Merrills is launching a structural product, HSBC is set to announce the launch of a rollover vehicle for its original Dublin-based Pep Plus capital protection bond launched five years ago.
Although the terms available on structured products have changed considerably, the new vehicle is being created to resemble the original as far as possible.
Pep Plus was one of the first Dublin-based capital protection product, raising £67m and offering investors growth in the FTSE 100 plus a bonus of 33% of that growth. It is set to mature on 26 June.
Alison Savage, HSBC's head of marketing and business development, said: "One of the strengths of Pep Plus was its simplicity. We will be offering a competitive product that will probably be broadly similar to the product we had five years ago."
She warned that providers were unable to offer the terms available five years ago due to the rising costs of the underlying derivative instruments.
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First mentioned in Cridland Report