Merrill Lynch prices notes tied to Boomers index, 0% accelerated return notes linked to Dow industrials

By Sheri Kasprzak

New York, Sept. 6 - Merrill Lynch & Co., Inc. grabbed structured product headlines on Wednesday, pricing $42 million in strategic return notes linked to the new Baby Boomer Consumption Index.

"These are the only notes I've seen linked to this index," said one market source when asked about the Baby Boomer Consumption Index. "It wouldn't surprise me if it was created just for this purpose. I don't have any info on these myself or the index, but I've certainly never seen anything like it before."

The notes are due Sept. 6, 2011 and are aimed at investors who want to forgo interest payments in exchange for the ability to participate in changes in the level of the Baby Boomer Consumption Index over the term of the notes. The level of the index will be subject to a 1.5% annual reduction applied by Merrill and the levels of the index used to calculate the payment at maturity will be 7.23% less than the level of the index had the annual reduction not been applied.

Investors may exchange the notes during four periods: Aug. 1 through Aug. 15 of 2007, 2008, 2009 and 2010. For each $10.00 note exchanged, the payment will be $9.90 multiplied by the return on the index through the exchange date, subject to the annual reduction described below.

Payment at maturity for each $10.00 note will be $9.90 multiplied by the return on the index, which will be the average of the index's closing level on each of the five business days ending Sept. 2, 2011.

Merrill's accelerated return notes

Elsewhere at Merrill Lynch, the investment bank priced a substantial offering of $132 million in 0% accelerated return notes.

The notes are due Nov. 20, 2007 and are linked to the Dow Jones Industrial Average.

"The risk, obviously, comes with what the Dow is doing at any given time," said one equity structurer who had seen the notes.

"That's pretty much a given when you link to any index. There are no guarantees with any index - or with any investment at all.

"I do think the Dow is doing all right and that, given several factors, it is more likely to make gains at the latter part of the year. But, again, nothing is for sure."

On the upside, investors can expect to receive a payment per unit equal to $10.00 plus an amount equal to $10.00 multiplied by triple the percentage increase of the DJIA, up to $11.385 per unit.

On the downside, though, the investors can expect to receive a payment per unit based upon the percentage of decrease.

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