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Morgan Stanley bond offers half-way exit

Morgan Stanley&#39s FTSE protected growth plan is a guaranteed equity bond with a six-year term that could mature in year three, depending on the performance of the FTSE 100 index.

The bond guarantees the return of investors&#39 original capital regardless of the performance of the index, providing the investment is held until maturity. Maturity may take place in year three if the FTSE 100 index has risen by at least 25 per cent. Where this happens, investors will get 25 per cent growth on top of their original capital.

To calculate the returns for the full six-year period, the closing value of the FTSE 100 is measured on July 7, 2003. It is measured against the closing value on July 7, 2006 to determine whether early maturity is triggered. If the bond continues until year six, the initial starting level is measured against the average monthly closing value during the last six months of the term.

This bond has only one early release trigger point so it is more likely to run full term compared with the similar Chartwell capital secure plan, which has three early release points over its six-year term. However, investors with the Chartwell bond get a slightly lower return of 20 per cent if the FTSE 100 index rises by at least 20 per cent. This lower growth threshold again makes the Chartwell product more likely to mature earlier than the Morgan Stanley bond.

Although some investors may prefer the simpler structure of the Morgan Stanley product, others may opt for Chartwell&#39s bond if they want to tie their money up for a shorter period. However, the problem both bonds have for investors is the investment term is uncertain and this may discourage some investors from structured products of this type.

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