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Ever wish stocks were more like home appliances, ie, they'd come with some guarantee? Well, they do, via Merrill Lynch's Market Index Target-Term Securities, or MITTS® for short. In plain English, they're index-linked corporate bonds. What are they linked to? Various stock/equity indexes (see table). Eg, the Major 8 European Index consists of the stock indexes of France, Germany, Italy, the Netherlands, Spain, Sweden, Switzerland & the UK.

NAME	MITTS Sym	Index Sym	Exch	Mat Date
Dow, Jones Industrials	DJM	INDU	NYSE	01/14/2003
European MITTS	MEE	MEP	NYSE	06/30/1999
Healthcare/Biotech Pf	MLH	MXH	AMEX	10/31/2001
Major 8 European Index	MEM	EMX	AMEX	08/30/2002
Major 11 Intl Index	EEM	EuX	AMEX	02/28/2006
Merrill Lynch EuroFund	EFM	DFI	AMEX	02/28/2006
Nikkei 225 Index	JEM	NKE	NYSE	06/14/2002
Russell 2000 Index	RUM	RUT	AMEX	09/30/2004
S&P 500 Index	MIX	SPX	NYSE	05/10/2001
S&P 500 Index	MIM	SPX	NYSE	09/16/2002
S&P 500 Index	MLF	SPX	AMEX	07/01/2005
S&P 500 Index	MIJ	SPX	NYSE	08/15/2001
Technology Index	TKM	TXX	NYSE	08/15/2001
Top Ten Yield Index	MTT	XMT	AMEX	08/15/2006

With MITTS, you're guaranteed (assuming Merrill Lynch is still in biz) a minimum return at maturity of $10/unit (original issue price) regardless of what happens to the stocks in the underlying index. So if you buy when first issued, your nominal risk is zero. You'll also get a Supplemental Redemption Amount. The actual SRA depends on how much the index goes up.

Let's run some numbers for the Technology MITTS (NYSE: TKM). The underlying CBOE Tech index includes stocks like Cisco, Intel, & Microsoft. For the sharp-pencil set, here's the actual equation: SRA = $10 x (Ending index value - 189.48/189.48). TKM was issued in August, 1996. At the beginning of '98, it was at $10.625 (see pt A on chart), a gain of just 6.25% in 16 mos. But on November 20, TKM closed at $14.25 (+34%). The underlying CBOE Tech Index rallied from 206.82 to 352.04 in '98, for a gain of +70%—twice as much as the MITTS. So the sleep-at-night guarantee comes with a price (big surprise!).

But had the CBOE Tech Index declined, your original purchase price of $10/unit would be guaranteed. MITTS are safest if bought when first issued or if they decline to or below the issue price. Six weeks after TKM was issued (pt B) it traded as low as $9.125. If you bought then, the worst you could do is gain $0.875/unit over the life of the bond while enjoying an unlimited upside. Is the no- to limited-downside with a more modest upside worth it? That's a decision only you can make. With MITTS, it's a lot safer ballgame than most, but there are no free tickets. (This is #19 in the series, Building Wealth the Harry Schultz Way).