Pinnacles Notes Series 7

Dear Mr Tan

What are your views about the Pinnacles Notes that has recently been advertised in the newspapers? Is it safe to invest in these Notes? Do they give a good return?

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REPLY:

1. Tranche B (in SGD) pays interest at 5% p.a. for the first 5 1/2 years with a return of the principal on maturity and possible payment of an equity bonus coupon of of 4% p.a. All the payments are subject to conditions.

2. Now, READ THE FINE PRINTS.

The equity bonus coupon is payable if several conditions are fulfilled, including the need for the average closing price of the ordinary share of each "Basket Company", on 3 observation dates to be equal or above 110% of the initial spot price. If any one Basket Company fails, then the bonus is NOT payable. The advertisement did not identify the Basket Companies, but ask you to read the Prospectus for details.

What is the chance of receiving the bonus? I suspect that it is very, very slim.

3. The interest payment of 5% p.a. appears to be attractive. But, the FINE PRINT says:

"The Notes are not principal guaranteed. Payment of interest and repayment of 100% of the principal amount at maturity, may not occur in all circumstances. In particular, upon the occurrence of a Credit Event, a Mandatory Redemption Event, an Event of Default .... you could lose all or substantially or of your investment in the Notes".

What is the chance of any of these events happening? What is the amount that could be lost?

Frankly, I do not know. I am an actuary (and quite knowledgeable about calculations). I know that it is impossible for any investor to calculate the odds.

4. The issuer has the right to exercise the Call option and redeem the Notes. This right can be exercised to the detriment of the investor, if interest rate has dropped. In this case, the Issuer pays back the principal and the investor has to re-invest the money to earn a much lower rate.

5. There is a statement that the Notes are secured by US Dollar demonimated Synthetic CDO rated AA or higher at the time of investment. This type of investment carries credit and currency risks.

6. The advertisement ask the investor to read the Base Prospectus, Applicable Annex, Pricing Statement and supplements. The investor is required to understand all the points that are written in these documents (which comprise many dozens of pages writtenin a confusing manner.)


7. My advice: There are too much uncertainty and risk. This product is too complicated. Do not invest in these Notes.