Credit Suisse First Boston has established the global titans income or protected growth plan 2, a guaranteed equity bond that is linked to the Dow Jones global titans index for five years.
The bond tracks the index by investing in Andrea IV Investments, a Jersey-based company and offers investors three options. The protected growth option offers up to 55 per cent growth and the return of the original capital at the end of the term.
Alternatively, investors can go for an annual income of 10 per cent a year or quarterly income of 2.25 per cent. Investors opting for income will also get their original capital back, less income payments, whatever happens to the underlying investment.
To calculate the final returns, the 50 stocks that are listed on the Dow Jones global titans index are grouped into five baskets, each containing 10 stocks. For example, Sony and GlaxoSmithKline are in one basket, while Ford Motor Company and Microsoft are in another. Each basket represents 11 per cent of the final return for the growth option, 10 per cent for the annual income option and 9 per cent for the quarterly income option. Where a stock in any basket falls by more than 33 per cent of its initial value during the final year of the term, the value of the other stocks in that basket are wiped out.
The main benefit of the bond is that investors' capital is safe whatever happens. However, it only takes a one stock to fall by more than 33 per cent to wipe out the value of the others. This would reduce the returns even if the other nine stocks in the basket perform exceptionally well.
The Dow Jones global titans index rose from 177.05 points on February 18, 1997 to 227.08 points on February 18, 2002.