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Barclays product plays catch up

Barclays Wealth has created a structured product that enables investors to catch up on any annual income payments they may miss where the performance of the FTSE 100 does not meet the conditions for the fixed payment.

The UK distribution plan will provide income of 8.25 per cent a year during a six-year term. This will be paid where the index is at or above its starting level on any anniversary. The product also has a feature that enables returns to be carried forward if the index is below its initial value at any anniversary.

For example, if the index is below its initial value at the end of year one, investors will receive 16.5 per cent at the end of year two if the index is at or above its initial value.

Investors will also receive a full capital return at the end of the term provided the index does not fall by more than 50 per cent during the term. If it does, a full capital return will be paid as long as it recovers to at least its initial value by maturity, on January 31, 2011.

A breach of this safety net will result in 1 per cent of capital being lost for each 1 per cent fall in the index from its initial value. This product differs from other FTSE 100-linked income plans in that returns are cumulative due to the memory feature that enables investors to recover missed payments at a later date, assuming the index is at or above its initial value at any anniversary.

This feature is useful but income is variable, so the product would not be appropriate to investors who want or need a regular fixed income each year. Those investors may find the Barclays regular income bond more suitable, as this provides a regular income, but returns are lower at 5.5 per cent a year or 0.45 per cent a month regardless of index performance.

The return of capital is paid on the same basis as UK distribution plan. Gilliat Financial Solutions also has a six-year FTSE 100 linked income plan, but income is variable as it is based on the number of days the index closes above 3,000 or 4,000 points in each quarter during the term, which does not provide the best comparison.

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