I am interested in information on SUNS.
SUNS are some sort of financial instrument and I am looking for
information on the nature of this financial instrument. I would also
like to know who the parties involved are (e.g. issuing banks or
insurance corporations). Furthermore I am interested in detailed
information so links to emission prospects (if available at all),
newspaper articles, congressional hearings, specialized publications
or the like would be very helpful.

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Request for Question Clarification by efn-ga on 19 Jan 2005 21:10 PST

Hi sunny2005,

There is more than one possible interpretation for "SUNS" (or "SUNs").
 Are you interested in Stock Upside Notes Securities (probably most
likely), senior unsecured notes, or subordinated unsecured notes?  If
you don't know, some information about the context in which you heard
of SUNS might be helpful.

If you are interested in Stock Upside Notes Securities, this is a
brand name for one issuer's equity-linked notes.  There are similar
products from other issuers.  Are you interested only in SUNS, or in
equity-linked notes in general?

Finally, it may be difficult to come up with much more than an
explanation of what the instrument is and how it works (no newspaper
articles, congressional hearings, or the like).  Would that much of an
answer be acceptable?

--efn

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Clarification of Question by sunny2005-ga on 20 Jan 2005 10:02 PST

Hi EFN
I'm impressed with your initial feedback. I didn't expect that many
possible interpretations of "SUNS". I'll get back to you with a
clarification, but that may take a day or two.
Sunny2005

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Clarification of Question by sunny2005-ga on 20 Jan 2005 15:43 PST

Hi Efn
The instrument I was looking for is Stock Upside Notes Securities.
Whilst I am primarily interested in information on SUNS, general
information on similar equity linked notes from other issuers would
also be very useful (as well as the links to this information). If
there are no newspaper articles, congressional hearings and the like
on SUNS in particular and that sort of instrument in general, there's
nothing you can do about it.... I will thus  consider an explanation
of the instrument, the name of the issuer (and hopefully some general
info on equity linked notes) as sufficient.
Thanks for your quick assistance and best regards
Sunny2005

Unfortunately, information about SUNS proved to be more elusive than I
expected, and even with your graciously lowered expectations, I don't
think I can come up with a good enough answer.  I'll allow several
days, and if no other researcher steps up to the challenge, I'll be
back with some fragmentary information.  Sorry.

--efn

Since no other answer has appeared, I will share some of the
information I found about SUNS.

SUNS are equity-linked notes issued by Lehman Brothers.

http://www.lehman.com/

Units of equity-linked notes are issued with a face value and a
defined term, like bonds. Their value at the end of the term is linked
to the value of some equity security or index, typically an index like
the S & P 500.  During the term, units of the notes can be bought and
sold at fluctuating market prices like shares of stock.  At the end of
the term, the units are redeemable for cash from the issuer.  The
amount of cash depends on what the linked equity has done during the
term.  If it has gone down, a unit is redeemable for its face value;
if the equity has gone up, the unit is redeemable for some amount
greater than its face value, the amount depending on how much the
equity has gone up.  The increase in the value of the notes unit is
not necessarily proportional to the increase in the value of the
equity; part of the definition of the equity-linked notes is a
"participation" rate, which defines how much of the equity increase
the note holder gets.  For example, if the equity goes up 60% and the
participation rate is 50%, a unit is redeemable for 130% of its face
value.

I think there may also be more complicated schemes where the value
changes once a year depending on the linked equity, rather than only
at the end of the term, but I didn't get the details on this.

So the idea is let the investor gain if the stock market goes up,
while protecting him or her from losing if it goes down.

The catch is the opportunity cost of having the investment tied up. 
If the equity goes down, the investor does get his or her money back,
but without any interest, and inflation is likely to have nibbled away
at its value, so he or she is worse off than if he or she had put the
money into a safe interest-bearing investment.

The best explanation of equity-linked notes in general I found was
from Lehman Brothers, by way of the Université Libre de Bruxelles.

http://www.ulb.ac.be/cours/solvay/farber/VUB/10%20Lehman%20Brother%20Equity-Linked%20Notes.pdf

Specific information about SUNS was scarce.  The best-known series
trades on the American Stock Exchange under the symbol SPJ.  A unit
has a face value of $10.  They were issued in February 2002 and mature
in February 2007.  They are linked to the S & P 500 index.  I couldn't
find out what the participation rate is.

http://www.amex.com/amextrader/?href=/amextrader/tdrInfo/data/axNotices/2002/valert2002-14.html

A 2002 column by James K. Glassman considered SUNS a good deal when
they were trading at $8.40.

http://www.nationalreview.com/nrof_glassman/glassman071102.asp

The current price is $9.85.

http://finance.yahoo.com/q?s=spj

I hope this information, though incomplete, is helpful.

--efn

SUNS (while I am unfamiliar with them) sound exactly like other
private issues that are tied usually to indices offered by larger
investment banks.

Merrill Lynch offers a similar product called MITTS. (Market Index
Target-Term Securities)

The investment bank issues a note tied to an index (or stock in a rare
case). The teaser is that there is no downside and that you will get
back 100% of your principal at the end of the investment and you
participate on the upside. It sounds too good to be true and as you
guessed it, it is. While it is true that you receive 100% of your
principal at the end of the investment and you do participate on the
upside, there are two important questions.
First, when am I guaranteed my return? 
Second, how much do I participate on the upside?

The calculation that needs to be calculated for the first question is
the ?cost of money? or interest return. If you invested in this
product and waited for maturity (example 5 years) and it was to stay
the same, go down, or not go up enough, your investment is returned at
it? initial investment. Most finance people would say that you
actually lost money. You might say; ?How, I got back my principal??
The answer is ?cost of money?. Technically you loaned money to the
Investment Bank and did not receive any interest rate return for your
money. Add in the cost of inflation and not interest return on your
investment for 5 years and a good argument could be made that you lost
money. In fact you would have been better off buying a CD. Of course
you might say, but a CD doesn?t have the upside potential like this
product. That leads us to the next question?.

How much do you participate on the upside? The calculation on some of
these products is pretty shrewd and requires some interesting
calculations. Let?s use the MITTS example, since I am familiar with
them.

MIJ is a symbol for such a product. MIJ is the S&P 500 MITTS. Its
initial price is issued at $10 and 100% of principal is guaranteed.
Wow, that sounds great, no downside and I can be long the MIJ which is
similar to a tracking stock of the S&P 500. Now wait?let?s look at the
fine print. The MITTS was issued when the S&P 500 was trading at
1066.09 in the fine print it says that you only participate in returns
above 1.8 % return per year or 13% for the life of the MITTS. In the
case of MIJ it is 7 years (was issued in 1998 and will come due this
year 2005). Now 1.8% per year is 19 points for the first year. So the
MITTS does really perform exactly like a tracking stock, it actually
has a 1.8% per year lag (if you will). At the end of 7 years the S&P
500 has to be above 1205 for you to begin to even realize a profit (a
13% increase and that is not being calculated compounded, I would read
the issuer?s contract to make sure that it is not compounded, which
could even lower expectations further.). This is also not to say that
the MITTS could trade below $10 (or principal amount) before they are
due, this happened with the MIJ. Now of course this would be a
guaranteed profit by expiration, but again calculate the percentage
amount vs. time to expiration. Again, you will see that this ARB is
not worth doing.

Now MIJ is a prefect example, because it comes due this year. Guess
what? SPX is currently 1185 and the MIJ is trading you ask after 7
years? $10.17 (as of today). That is a 1.7% over 7 years. How did
Merrill do? Well, fair value of the MIJ with the SPX at 1185 is
$11.11. So today Merrill has made a $1.04 of profit to your $.17
cents. That?s 10.4% return to your 1.7% return. The beauty of it, you
lent Merrill the money to make them 10.4%.

To simplify everything mentioned above. You are making an interest
free loan to Merrill Lynch (or some other investment bank) and giving
them the first 1.8% return per year (13% return per life of contract)
to the upside. And you are guaranteed back your principal, provided
Merrill doesn?t go out of business.

I think you would be better off trading the ETF or Trust. Like
Spyders, QQQQ, or other trackers.

You might say, ?Hey, but I could lose my money if they go down!?

And I will say to you, No Risk No Reward.

Merrill has the best of both worlds, they borrow money from you
interest free (actually they are making money on the float) and they
get the first 13% return.

Hope this helps.


LionFish42

You can contact any of the large investment banks, Lehman, Merrill,
Goldman, JP Morgan, etc. Ask them to send/email you the prospectus on
there equity-linked notes or index tracking notes. Every firm has
there own name for them.
Make sure to read them carefully before investing.

Another imporant thing to realize is the liquidity risk. These are
very low volume issues. Most of them trade about 1000 contracts a day.
That is $10k a day. So if you have some serious coin, better look else
where.

Good luck...

- LionFish42