Money: Fears for capital cause S&P to drop high-income trust

Save & Prosper has abandoned plans to launch a unit trust paying 10 per cent income, saying the capital was too vulnerable.

It was hoping to emulate the phenomenal success of derivative-based high-income funds from Hypo Foreign & Colonial and Morgan Grenfell. These funds have taken nearly pounds 500m from 70,000 unit-holders since their launch earlier this year.

F&C's fund, introduced in February, has maintained its capital value. The Morgan Grenfell fund was not launched until September.

But S&P felt there was a strong possibility that all its fund's capital would be used up over a 12-year period.

This week, the three investment houses held a meeting to pin down what it was that Hypo Foreign & Colonial and Morgan Grenfell could do that S&P couldn't. Both sides remained unconvinced by the other's argument.

A joint statement from Hypo Foreign & Colonial and Morgan Grenfell said: 'Neither the capital nor the level of income are guaranteed. Investors should remember that these funds are not comparable with building society accounts.'

The investment regulators Imro and SIB are maintaining a watching brief over the two funds on the market, and the other two main regulators, Fimbra and Lautro, have issued guidelines about the marketing of high-income funds this week.