Bank of America prices index-linked notes; Deutsche Bank's commodities notes called diversified

By Sheri Kasprzak

New York, June 29 - Bank of America capped off the week in structured products with its $53 million offering of 2.65% Capital Protected Equity Performance Linked Securities linked to an index basket.

The basket includes the Dow Jones Industrial Average, the S&P MidCap 400, the S&P SmallCap600, the Dow Jones Euro Stoxx 50 and the Nikkei 225 indexes.

"In the U.K, with an offering like this, you'd have two or three [indexes from] other countries," said Tim Mortimer, managing director of Future Value Consultants, a London-based company that analyzes derivatives products. "America is so big that you have three or four in there, right?"

Mortimer said he feels the two foreign indexes were chosen to reduce volatility to help pricing.

"They correlate indexes that work well with each other," he said.

Mortimer also noted that the S&P 500 is conspicuously left out of the basket with the MidCap and the SmallCap indexes in its place, suggesting that there's a lower correlation between the Nikkei and Stoxx than the S&P 500.

"You've got the Euro Stoxx 50 and the Nikkei," Mortimer said. "When banks use baskets, they ask two things - one is the investor point of view. Is it likely to perform well? The other question is what does the volume and the dividend of the basket look like? The two questions are what are good choices and what will price well and often the two things go together."

Note terms

The five-year notes, which have a 13.25% total interest rate, pay par times the average basket return minus the total interest percentage at maturity if the average basket return is greater than the total interest rate - 13.25%.

The investors receive par at maturity if the average basket rate is less than the total interest rate at maturity.

The average basket return is equal to the percentage change between the basket level at pricing and the arithmetic average of the basket level on five valuation dates after pricing.

Deutsche Bank's commodities notes

In other news, Mortimer said Deutsche Bank AG, London Branch's recently announced $8.643 million in double opportunity securities linked to the Deutsche Bank Liquid Commodity Index - Mean Reversion Excess Return is a diversified offering.

"It's trying to give a cross section of commodities," Mortimer said. "You've got two metals, two oils and two agriculture. Normally, you'd have more than six though."

Terms of the notes

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.

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.

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