The two Pinnacle Notes series were issued on Dec 14, 2007 and sold in Singapore by five brokerages - DMG & Partners Securities, Hong Leong Finance, Kim Eng Securities, OCBC Securities and UOB Kay Hian. The total size of the two notes was $26 million, said MAS, in a statement on Friday night.

The New York-based Morgan Stanley sent out letters earlier this month informing investors that the two structured products could face a mandatory redemption.

On Friday, Morgan Stanley said in notice posted on its website that the Singapore investors will lose their original investment on the two series notes following a downgrade on the rating of its underlying assets.

The Pinnacle notes were tied to synthetic collateralised debt obligation securities and cut to the junk rating of CCC- from the third- highest AA by Standard & Poor's, the notice said.

'Given the current market values of the underlying assets and the credit default swap transaction, we anticipate that investors will lose all of their original principal investment,' Morgan Stanley said in the notice.

The failure of the Pinnacle Notes comes after structured notes tied to failed Lehman Brothers Holdings Inc. soured. Investors have held rallies in Singapore and Hong Kong to demand refunds from banks, prompting regulators in the two cities to conduct investigations into the sale of the products.

MAS said in its statement that it has been informed by Morgan Stanley Asia 'that a number of credit events have occurred in relation to the underlying securities of the notes, triggering an early redemption.'

'MAS understands noteholders would be concerned about their investments,' said the central bank.

'MAS has asked the distributors of the notes to ensure that all affected investors are contacted and informed of the early redemption of these notes immediately.'

It added that it is in close contact with Morgan Stanley 'to ensure that they provide all the necessary information on the early redemption of the notes to interested parties.'

It said Morgan Stanley is in the process of finalising the terms for the appointment of an international accounting firm to assess the early redemption process for the two Pinnacle Series notes.

MAS advised investors who have a genuine claim of misselling or that the product was misrepresented to them to lodge their complaints with the financial institutions (FIs) that sold them the products.

It has set up a three-step process for investors' complaints to be handled and resolved.

MAS reminded F1s to have a rigorous process to look into every complaint and to ensure that legitimate grievances are dealt with expeditiously.

'MAS has stressed to the FIs that they should devote all resources necessary to deal with affected investors and should ensure that their processes are independent, fair and transparent,' said the statement.

'Each FI has set up an internal review panel, chaired by its CEO to review customers' complaints and decide on a course of action.

'This is a serious and impartial process for investors to resolve their complaints. If there is evidence of potential breaches of our laws or regulations, MAS will investigate and take appropriate action.'

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