Morgan Stanley launches Gilt-Backed Growth Plan 9

Morgan Stanley has unveiled its FTSE Gilt-Backed Growth Plan 9, offering investors the potential for returns of 7% p.a. with reduced counterparty risk.

The plan is designed for investors with a moderately positive outlook on UK equities but with no firm view on timing.

From year two of the plan and on each subsequent anniversary of the start date of the plan, the level of the FTSE 100 index is recorded. If the index is equal to or above the start level, the kick-out feature is triggered and investors “lock in” a fixed return of 7%.

The first opportunity for investors to leave the plan occurs in year two where, if the kick-out is triggered, investors will receive a fixed return of 14% (2 years times 7% per annum) plus their initial investment. The maximum return of 42% is achieved if the kick-out feature is not triggered until the final year (six years times 7% per annum).

The plan includes a 50% soft protection barrier, observed throughout the plan. If the kick-out feature is not activated throughout the term and the FTSE 100 index remains above 50% of the start level throughout the investment term, then investors’ initial investment will be returned in full at maturity.

Otherwise, if the FTSE 100 index has fallen to or below 50% during the term, and is below its initial level at maturity, investors’ capital will be at risk. They will lose 1% of their initial investment for every 1% that the final index level is below the initial index level.

The bonds purchased to secure the capital protection for the plan are UK government bonds which are rated AAA by Standard & Poor’s. In addition, an investor’s exposure to the credit risk of Morgan Stanley is minimised through the use of collateral arrangements which means that, on a daily basis, Morgan Stanley will post cash or gilts into a segregated account to secure the returns created by the derivative.

The minimum investment for the Morgan Stanley FTSE Gilt-Backed Growth Plan 9 is £3,000 and the plan is open for investment from 6 June 2011 until the 22 July 2011 with an early investment discount equivalent to 0.5% per annum. The deadline for ISA transfers is 15 July 2011. Investors have a number of investment options to choose from to access the plan, including direct investments, through a SIPP or SSAS, or a Stocks & Shares ISA.