London, 11 February 2009 - Morgan Stanley (NYSE:MS) leads the UK market with the launch of the first retail structured product to be both cash collateralised and backed by AAA-rated UK gilts. This is the first time a UK issuer of a structured product has been able to separate the credit risk in this way.
The Morgan Stanley FTSE Defensive Gilt-Backed Growth Plan ("The Plan") offers an attractive pre-defined return of 9% per year, paid as long as the FTSE 100 Index does not fall by more than 10% on each annual anniversary of the plan, for a maximum of three years. The Plan includes a 50% soft protection barrier, observed at maturity only.
A structured product typically consists of a bond, to generate the capital protection, and a derivative, to generate the returns. Morgan Stanley has sought to mitigate the credit risk of these elements in two ways:
1. The Bond: The bonds purchased to secure the capital protection for The Plan are UK Government Bonds. The UK Government has a credit rating of AAA by Standard & Poor's, the highest credit rating achievable.
2. The Derivative: 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 into a segregated account to secure the returns created by the derivative. Any proceeds posted into the segregated account are purely to provide the returns for The Plan and cannot be used for any other purpose.
The development of the Morgan Stanley FTSE Defensive Gilt-Backed Growth Plan is a direct response to feedback from UK financial advisers. A recent Morgan Stanley survey of financial advisers showed that capital protection (32.2%) and credit rating (30.0%) are the most important considerations when recommending structured products to clients, closely followed by participation (26.2%)1.
The Plan is available for direct investment, SIPP/SSAS investors, ISA investments for 2008/2009, transfers of existing ISAs and discretionary investment. The minimum investment is £3,000.
Marc Chamberlain, Morgan Stanley Executive Director, Structured Products, comments:
"The FTSE Defensive Gilt-Backed Growth Plan is responsible innovation at its best. As credit risk concerns become more important, we believe we have developed a product drawn from our experience in the discretionary market, as well as direct feedback gathered from financial advisers, which offers retail investors a high degree of credit risk protection, yet still provides potential for excellent returns. This plan shows our commitment to the financial adviser community as it has been specially created to meet the needs of their clients in this current market."
*1 Source: Morgan Stanley, Morgan Stanley IQ Financial Adviser Survey, results collected between 17 November 2008 and 15 December 2008.