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Gilliat builds income

The November 2010 issue of Gilliat income builder is a FTSE 100-linked structured product that aims to pay a variable quarterly income of up to 1.8 per cent during the investment term of six year and two weeks. This equates to an annual income up to 7.2 per cent.

The income payments depend on the closing levels of the index on each day during each quarter and are based on the number of days in the quarter that index closes higher than 3,000 points. This works through a series of options that pay a fixed coupon of 0.027 per cent for every day during the term that the value of the index is greater than 3,000 points. This means the maximum income possible during the term is 43.2 per cent.

The capital return is dependent on the index performance on the final day of the term, so what happens to the index during the rest of the term does not affect the capital return. If the index value at the end of the term is less than or equal to 3,000 points, investors will lose 1 per cent for every 1 per cent fall in the index from its initial value.

Gilliat says it has taken 3,000 points as the basis for the calculation of income payments and the repayment of capital because it gives clarity to investors, who can follow the value of the index each day by looking at this data in newspapers. Many structured products are based on an index not falling by a specific percentage, such as 40 or 50 per cent, but Gilliat says it may be difficult for some investors to understand what the percentage relates to.

The maximum income available from income builder is higher than income plans from providers such as Barclays Wealth, Morgan Stanley, Merchant Capital and Investec. However, investors will not necessarily achieve the maximum annual income of 7.2 per cent and its variable nature may not suit all investors. One of the competitor products may be better suited to the needs of some investors.



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