Scottish Life International has introduced the select income and growth bonus bond, a stockmarket-linked offshore bond that can be tailored towards individual's attitude to risk.
The bond has a term of three years and two months and is linked to three stockmarket indices the FTSE 100, S&P 500 and Eurostoxx 50. Investors can go for the opportunity option or the cautious option.
Investors who opt for the opportunity option can choose annual income of 11 per cent, quarterly income of 2.65 per cent or growth of 35 per cent at the end of the term. The cautious option provides annual income of 8.65 per cent, quarterly income of 2.1 per cent or growth of 27.5 per cent at the end of the term.
Both options return the original capital to investors providing none of the indices fall by more than 30 per cent between April 3, 2002 and April 29 2005. Even if this condition is not met, investors with the opportunity option will still get their original capital back providing all the indices recover to at least their starting level between May 5 and May 30 2005.
For investors with the cautious option, the safety net offers more protection since the indices need to recover to 85 per cent of the starting level between May 5 and May 30 2005.
Where the safety nets are breached the capital return for growth investors under both options is reduced between 1 per cent and 2.166 per cent for each 1 per cent fall in the index. Capital is reduced by between 1 per cent and 2.1 per cent for each 1 per cent fall in the index for annual income investors. Capital for quarterly income investors will be reduced by between 1 and 2.06 per cent for every 1 per cent fall in the index.
The high level of income offered is likely to be the product's main attraction but it is a complicated product. The cautious option offers more capital protection than the opportunity option but investors still run the risk of losing capital. Also, where the safety nets fail, the rate of capital reduction for the cautious option is the same as for the higher-risk opportunities option.