Merrill Lynch plans gold, silver sector note; Bank of America sells $61.5 million index-linked deal

By LLuvia Mares

New York, Sept. 26 - Bread crumbs must have been left on the gold-paved road Tuesday and picked up by Merrill Lynch & Co., which made structured products news Wednesday with the announcement of a planned offering of 0% Accelerated Return Notes expected to mature in December 2008 linked to the PHLX Gold and Silver Sector Index, according to an FWP filing with the Securities and Exchange Commission.

This is the second product this week linked to gold. Tuesday, UBS AG combined currencies and gold in a note due next September.

The index in the Merrill deal is designed to measure the performance of 16 companies involved in the gold and silver mining industry, or companies whose revenues consist of royalty income from gold and silver mining operations.

The notes are expected to price in October and settle in October or November.

"What you're seeing is that gold is attractively priced right now. We will see a good number of these [products] from the more sophisticated structured products desk," said a market source.

"Because the Fed's cut in interest rates have been so dramatic, there is a belief that these interest rate cuts can lead to an enhanced situation of potential inflation," said the source. "As a result of that, gold is a natural hedge against that."

The payout at maturity will be par of $10 plus triple any index gain, subject to a maximum return that is expected to be 28% to 32% and will be determined at pricing. Investors will be fully exposed to any index decline.

The notes are expected to be listed on the American Stock Exchange under the symbol "GZV".

Merrill Lynch & Co. will be the underwriter.

B of A prices $61.5 million basket notes

Perceived as one of the better recent deals by market analysts, Bank of America priced a $61.5 million offering of 0% return-linked notes due March 28, 2013 linked to the Dow Jones Euro Stoxx 50, Nikkei 225 and S&P 500 indexes, according to a 424B5 filing with the Securities and Exchange Commission.

"Right now it's very much routine that you are seeing multiple index notes," said a market analyst. "That seems to be one of the hot areas right now. But it's a fairly plain vanilla structure that is good in non-taxable accounts. I commend Bank of America for selling $60 million-plus."

The payout at maturity will be par plus any gain on the basket. Investors will receive at least par.

Banc of America Securities LLC and Banc of America Investment Services, Inc. are the agents.

Lehman prices $11 million FX note

Lehman Brothers Holdings Inc. priced an $11 million issue of zero-coupon principal-protected foreign exchange notes due Sept. 28, 2009 linked to the best of three baskets of currencies, according to an FWP filing with the Securities and Exchange Commission.

"This is a compelling structure, it chooses the best of and gives you leverage exposure to the best of those three," said a market observer. "Those are always compelling structures, and currencies with volatility in the market right now allows for a very interesting payoff profile, especially when we start talking about Latin American currencies."

The first basket includes the Brazilian real with a 33.34% weight, the Argentine peso with a 33.33% weight and the Mexican peso with a 33.33% weight, all versus the dollar.

The second basket includes equal weights (25%) of the Israeli shekel, Hungarian forint, Turkish lira and the Russian ruble, all versus the dollar.

The third basket includes equal weights (25%) of the Indonesian rupiah, Indian rupee, Malaysian ringgit and the Singapore dollar, all versus the dollar.

At maturity, investors will receive par plus 150% of the greatest of the three basket returns. If none of the baskets appreciates against the dollar, investors will receive par.

Lehman Brothers Inc. will be the underwriter.

Citi prices $25 million tied to euro

Citigroup Funding Inc. priced $25 million of principal-protected notes due Sept. 27, 2009 linked to the euro, according to a 424B2 filing with the Securities and Exchange Commission.

The payout at maturity will be par plus the absolute value of any change in the value of the euro relative to the dollar. Investors will receive at least par.

Citigroup Funding Inc. is the underwriter.

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