Morgan Stanley prices $12.753 million in currency-linked notes

By Sheri Kasprzak

New York, June 28 - Morgan Stanley led structured products news on Thursday with a $12.753 million offering of zero-coupon capital-protected notes linked to a currency basket.

The three-year notes are linked to a basket that includes the Australian dollar, the British pound, the Canadian dollar, the euro, the Danish krone, the New Zealand dollar and the Norwegian krone, all relative to the U.S. dollar.

The notes pay par plus a supplemental amount, equal to par times the basket performance times the 330% participation rate.

If the basket performance is less than zero, the investors will receive par at maturity.

Initial prices

The initial exchange level for the Australian dollar is 0.8485, for the British pound is 1.9957 and for the Canadian dollar is 1.0673. For the Danish krone, the initial level is 5.54235 and for the Norwegian krone is 5.94175. The initial level for the euro is 1.34285 and for the New Zealand dollar, the initial level is 0.76675.

Deutsche Bank's commodity notes

In other news, Deutsche Bank AG, London Branch priced $8.643 million in double opportunity securities linked to the Deutsche Bank Liquid Commodity Index - Mean Reversion Excess Return.

The non principal-protected notes have a one-year term.

Assuming the index return is positive, the investors will receive at maturity the index return times the participation rate of 200% up to a 30% maximum return.

The composition of the index includes 36.14% crude oil, 15.68% of corn, 15.68% of wheat, 15.3% of heating oil, 9.56% of aluminum and 7.65% of gold.

The securities are not principal protected and if the index falls below the 615.43 initial level, the investors will lose 1% of their investment for every 1% beyond the initial level the index falls.

"I'm not familiar with it [the index] but I would say that commodities in general have gotten more play in the structured products market over the past year or so," said one market insider of the offering Thursday.

Index performance

The index has made steady gains since its inception in the fourth quarter of 1988. The index started at 100 and the initial index level for this offering is 615.43, as of the second quarter of 2007. Last quarter, the index level was around 480.

Another DB index deal

In another index-related offering, Deutsche Bank announced plans earlier this week to price zero-coupon principal-protected notes linked to the Deutsche Bank Balanced Currency Harvest Index.

Those 11/2-year notes pay par plus any basket gain multiplied by the participation rate, expected to be between 100% and 110%. Investors will receive at least par at maturity.

The index allows investors to capitalize on the trend that currencies associated with high interest rates, on average, tend to rise in value relative to currencies associated with relatively low interest rates.

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