Morgan Stanley to sell PLUS linked to commodities, ETFs; Merrill offers gold-linked notes

By Sheri Kasprzak

New York, June 24 - A new offering coming out from Morgan Stanley will allow investors access to commodities, commodity indexes or a commodity exchange-traded fund - a marketplace that may have otherwise been inaccessible before, a market insider said Wednesday.

"It's certainly an interesting product," the source said.

"Investors in this market are always looking for ways to tap into securities that were inaccessible before. The range of possibilities here is pretty astounding."

The Performance Leveraged Upside Securities being offered by Morgan Stanley will allow investors access to single commodities, a commodity index or a commodity exchange-traded fund.

Investors exposed to losses

Assuming the final value of the securities is greater than the initial value at maturity, investors can expect to receive the principal amount plus the leveraged upside payment, which will be determined at each pricing, subject to a maximum payment.

If the final value is less than or equal to the initial value, the payout will depend upon the securities included in the basket.

If the PLUS are linked to a single commodity, the investors receive the principal amount times the commodity performance factor. If the securities are linked to a commodities index, investors receive the principal amount times the index performance factor. Assuming the PLUS are linked to a commodity ETF, investors receive the principal amount times the share performance factor, and assuming the PLUS are linked to a basket of commodities, the investors will receive the principal amount times the basket performance factor.

Morgan Stanley prices $5.135 million

Among the new PLUS, Morgan Stanley priced $5.135 million in senior fixed-rate notes linked to a commodities basket of nine commodities.

The commodities include gasoline, palm oil, soybean meal - Chicago Board of Trade, soybeans - CBOT, copper, sugar #11 - New York Board of Trade, corn - CBOT, gold and cotton No. 2, NYBOT.

The 18-month zero-coupon notes pay par plus the 130% leveraged upside payment, subject to a maximum total payment of 139% of the principal amount, assuming the basket performance is positive.

If the basket depreciates or does not appreciate, investors will receive par times the basket performance.

Gasoline carries a 15% weight, palm oil a 12.5% weight, soymeal a 12.5% weight, soybeans a 12.5% weight, copper a 12.5% weight, sugar a 12.5% weight, corn a 10% weight, gold a 7.5% weight and cotton a 5% weight.

Merrill's gold notes

In other commodities news Wednesday, Merrill Lynch & Co. announced plans through a free-writing prospectus with the Securities and Exchange Commission to price Accelerated Return Notes linked to the gold spot price for AB Svensk Exportkredit.

The one-year notes pay triple upside exposure, subject to a cap of 22% to 26%, to be determined at pricing. Investors can expect to lose 1% of their investment for every 1% decline.

Pricing is expected in July.

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