Preliminary Term Sheet
Filed Pursuant to Rule 433
Registration No. 333-158663
Subject to Completion
Preliminary Term Sheet dated June 24, 2010
The LIRNs are being offered by Bank of America Corporation (BAC). The LIRNs will have the terms specified in this term
sheet as supplemented by the documents indicated below under Additional Terms (together, the Note Prospectus). Investing in the LIRNs involves a number of risks. There are important differences between the LIRNs and a
conventional debt security, including different investment risks. See Risk Factors on page TS-5 of this term sheet and beginning on page S-10 of product supplement LIRN-2. LIRNs:
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Are Not FDIC Insured |
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Are Not Bank Guaranteed |
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May Lose Value |
In connection with this offering, each of Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) and its broker-dealer affiliate
First Republic Securities Company, LLC (First Republic) is acting in its capacity as principal for your account.
None of the Securities and
Exchange Commission (the SEC), any state securities commission, or any other regulatory body has approved or disapproved of these securities or determined if this Note Prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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Per Unit |
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Total |
Public offering price (1) |
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$10.00 |
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Underwriting discount (1) |
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$0.20 |
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$ |
Proceeds, before expenses, to Bank of America Corporation |
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$9.80 |
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(1) |
The public offering price and underwriting discount for any purchase of 500,000 units or more in a single transaction by an individual investor will be $9.95 per unit and $0.15
per unit, respectively. |
*Depending on the date the LIRNs are priced for initial sale to the public (the pricing date), which
may be in July or August 2010, the settlement date may occur in July or August 2010, and the maturity date may occur in July or August 2012. Any reference in this term sheet to the month in which the pricing date, the settlement date, or the
maturity date will occur is subject to change as specified above.
Merrill Lynch & Co.
July , 2010
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Units Capped Leveraged Index Return Notes®
Linked to the S&P 500® Index,
due July , 2012
$10 principal amount per unit
Term Sheet No. |
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Expected Pricing Date*
Settlement Date*
Maturity Date*
CUSIP No. |
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July , 2010
August , 2010
July , 2012 |
Capped Leveraged Index Return Notes®
200% leveraged upside exposure to increases in the level of the S&P 500® Index, subject to a cap of 20% to 24%
1-to-1 downside exposure to decreases in the level of the Index in excess of the Threshold Value, with up to 90% of the principal
amount at risk A maturity of approximately two years
Payment of the Redemption Amount at maturity is subject to the credit risk of Bank of America Corporation
No periodic interest payments
Application may be made to list on NYSE Arca under the symbol CDK |
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Summary
The Capped Leveraged Index Return Notes® Linked to the S&P
500® Index, due July , 2012 (the LIRNs) are our senior unsecured debt securities. The LIRNs are not guaranteed or insured by the
Federal Deposit Insurance Corporation (the FDIC) or secured by collateral, and they are not guaranteed under the FDICs Temporary Liquidity Guarantee Program. The LIRNs will rank equally with all of our other unsecured and
unsubordinated debt, and any payments due on the LIRNs, including any repayment of principal, will be subject to the credit risk of BAC. The LIRNs provide a leveraged return for investors, subject to a cap, if the level of the S&P
500® Index (the Index) increases moderately from the Starting Value of the Index, determined on the pricing date, to the Ending Value of the Index, determined
during the Maturity Valuation Period. Investors must be willing to forgo interest payments on the LIRNs and be willing to accept a return that is capped or a repayment that is less, and potentially significantly less, than the Original Offering
Price.
Capitalized terms used but not defined in this term sheet have the meanings set forth in product supplement LIRN-2. Unless otherwise indicated
or unless the context requires otherwise, all references in this document to we, us, our, or similar references are to BAC.
Terms of the LIRNs
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Issuer: |
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Bank of America Corporation (BAC)
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Original Offering
Price: |
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$10 per unit |
Term: |
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Approximately two years
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Market Measure: |
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The S&P 500® Index
(Index symbol: SPX) |
Starting Value: |
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The closing level of the Index on the pricing date. The Starting Value will be determined on the
pricing date and set forth in the final term sheet that will be made available in connection with sales of the LIRNs. |
Ending Value: |
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The average of the closing levels of the Index on each scheduled calculation day during the Maturity
Valuation Period. If it is determined that a scheduled calculation day is not a Market Measure Business Day, or if a Market Disruption Event occurs on a scheduled calculation day, the Ending Value will be determined as more fully described beginning
on page S-24 of product supplement LIRN-2. |
Threshold Value: |
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90% of the Starting Value, rounded to two decimal places
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Capped Value: |
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$12.00 to $12.40 per unit of the LIRNs, which represents a return of 20% to 24% over the Original
Offering Price. The actual Capped Value will be determined on the pricing date and set forth in the final term sheet that will be made available in connection with sales of the LIRNs.
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Participation
Rate: |
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200% |
Downside Leverage Factor:
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100% |
Maturity Valuation Period:
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Five scheduled calculation days shortly before the maturity date, determined on the pricing date and set forth in the final term sheet that will be made available
in connection with sales of the LIRNs. |
Calculation
Agent: |
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MLPF&S, a subsidiary of BAC
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Determining the Redemption Amount for the LIRNs
On the maturity date, you will receive a cash payment per unit (the Redemption Amount) calculated as follows:
TS-2
Hypothetical Payout Profile
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This graph reflects the hypothetical returns on the LIRNs at
maturity, based upon the Participation Rate of 200%, a Threshold Value equal to 90% of the Starting Value, and a hypothetical Capped Value of $12.20 (a 22% return), the midpoint of the Capped Value range of $12.00 to $12.40. The green line
reflects the hypothetical returns on the LIRNs, while the dotted grey line reflects the return of a hypothetical direct investment in the stocks included in the Index, excluding dividends.
This graph has been prepared for purposes of illustration only. Your actual return will depend
on the actual Starting Value, Ending Value, Capped Value, Threshold Value, and the term of your investment. |
Hypothetical Redemption Amounts
Examples
Set forth below are four examples of Redemption Amount calculations (rounded to two decimal places) payable at maturity, based upon the
Participation Rate of 200%, the Downside Leverage Factor of 100%, a hypothetical Starting Value of 1,115.23 (the closing level of the Index on June 15, 2010), a hypothetical Threshold Value of 1,003.71, and a hypothetical
Capped Value of $12.20 per unit, the midpoint of the Capped Value range of $12.00 to $12.40.
Example 1 The hypothetical
Ending Value is 70% of the hypothetical Starting Value and is less than the hypothetical Threshold Value:
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Hypothetical Starting Value: |
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1,115.23 |
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Hypothetical Ending Value: |
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780.66 |
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Hypothetical Threshold Value: |
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1,003.71 |
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$10 |
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$10 × |
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1,003.71 - 780.66 |
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× 100% |
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= $8.00 |
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1,115.23 |
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Redemption Amount (per unit) = $8.00
Example 2 The hypothetical Ending Value is 95% of the hypothetical Starting Value and is greater than the hypothetical
Threshold Value:
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Hypothetical Starting Value: |
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1,115.23 |
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Hypothetical Ending Value: |
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1,059.47 |
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Hypothetical Threshold Value: |
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1,003.71 |
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Redemption Amount (per unit) = $10.00
If the Ending Value is less than or equal to the Starting Value but is greater than or equal to the Threshold Value, the Redemption Amount will equal the Original
Offering Price.
Example 3 The hypothetical Ending Value is 104% of the hypothetical Starting Value:
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Hypothetical Starting Value: |
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1,115.23 |
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Hypothetical Ending Value: |
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1,159.84 |
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$10 + |
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$10 × 200% × |
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1,159.84 - 1,115.23 |
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= $10.80 |
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1,115.23 |
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Redemption Amount (per unit) = $10.80
Example 4 The hypothetical Ending Value is 150% of the hypothetical Starting Value:
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Hypothetical Starting Value: |
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1,115.23 |
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Hypothetical Ending Value: |
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1,672.85 |
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$10 + |
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$10 × 200% × |
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1,672.85 - 1,115.23 |
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= $20.00 |
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1,115.23 |
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Redemption Amount (per unit) = $12.20 (The Redemption Amount cannot be greater than the Capped
Value.)
TS-3
The following table illustrates, for a hypothetical Starting Value of 1,115.23 (the closing level of the
Index on June 15, 2010), a Threshold Value of 90% of the hypothetical Starting Value (rounded to two decimal places), and a range of hypothetical Ending Values of the Index:
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the percentage change from the hypothetical Starting Value to the hypothetical Ending Value; |
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the hypothetical Redemption Amount per unit of the LIRNs (rounded to two decimal places); and |
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the total rate of return to holders of the LIRNs. |
The table below is based on the Participation Rate of 200%, the Downside Leverage Factor of 100%, and a hypothetical Capped Value of $12.20 (per unit), the
midpoint of the Capped Value range of $12.00 to $12.40.
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Hypothetical Ending Value(1) |
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Percentage Change from the Hypothetical
Starting Value to the Hypothetical Ending Value |
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Hypothetical Redemption Amount per Unit |
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Total Rate of Return on the LIRNs |
557.62 |
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-50.00% |
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6.00 |
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-40.00% |
669.14 |
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-40.00% |
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7.00 |
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-30.00% |
780.66 |
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-30.00% |
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8.00 |
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-20.00% |
892.18 |
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-20.00% |
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9.00 |
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-10.00% |
1,003.71(2) |
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-10.00% |
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10.00 |
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0.00% |
1,070.62 |
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-4.00% |
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10.00 |
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0.00% |
1,092.93 |
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-2.00% |
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10.00 |
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0.00% |
1,115.23(3) |
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0.00% |
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10.00 |
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0.00% |
1,137.53 |
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2.00% |
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10.40 |
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4.00% |
1,159.84 |
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4.00% |
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10.80 |
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8.00% |
1,226.75 |
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10.00% |
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12.00 |
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20.00% |
1,338.28 |
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20.00% |
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12.20(4) |
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22.00% |
1,449.80 |
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30.00% |
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12.20 |
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22.00% |
1,561.32 |
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40.00% |
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12.20 |
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22.00% |
1,672.85 |
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50.00% |
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12.20 |
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22.00% |
(1) |
The Index is a price return index. Accordingly, the Ending Value will not include any income generated by dividends paid on the stocks included in the Index, which you would
otherwise be entitled to receive if you invested in those stocks directly. |
(2) |
This is the hypothetical Threshold Value. The actual Threshold Value will be determined on the pricing date and will be set forth in the final term sheet that will be made
available in connection with sales of the LIRNs. |
(3) |
This is the hypothetical Starting Value, which was the closing level of the Index on June 15, 2010. The actual Starting Value will be determined on the pricing date and
will be set forth in the final term sheet that will be made available in connection with sales of the LIRNs. |
(4) |
The Redemption Amount per unit of the LIRNs cannot exceed the hypothetical Capped Value of $12.20 (the midpoint of the Capped Value range of $12.00 to $12.40). The actual
Capped Value will be determined on the pricing date and will be set forth in the final term sheet that will be made available in connection with sales of the LIRNs. |
The above figures are for purposes of illustration only. The actual amount you receive and the resulting total rate of return will depend on the actual Starting
Value, Ending Value, Capped Value, Threshold Value, and the term of your investment.
TS-4
Risk Factors
There are important differences between the LIRNs and a conventional debt security. An investment in the LIRNs involves significant risks, including those listed
below. You should carefully review the more detailed explanation of risks relating to the LIRNs in the Risk Factors sections beginning on page S-10 of product supplement LIRN-2 and page S-4 of the MTN prospectus supplement identified
below under Additional Terms. We also urge you to consult your investment, legal, tax, accounting, and other advisors before you invest in the LIRNs.
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Your investment may result in a loss; there is no guaranteed return of principal. |
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Your yield may be less than the yield on a conventional debt security of comparable maturity. |
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Your investment return, if any, is limited to the return represented by the Capped Value. |
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Your investment return, if any, may be less than a comparable investment directly in the stocks included in the Index. |
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You must rely on your own evaluation of the merits of an investment linked to the Index. |
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In seeking to provide you with what we believe to be commercially reasonable terms for the LIRNs while providing the selling agents with compensation for their
services, we have considered the costs of developing, hedging, and distributing the LIRNs. |
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We cannot assure you that a trading market for the LIRNs will ever develop or be maintained. |
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The Redemption Amount will not be affected by all developments relating to the Index. |
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Standard & Poors Financial Services LLC (S&P) may adjust the Index in a way that affects its level, and S&P has no obligation
to consider your interests. |
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You will have no rights of a holder of the securities represented by the Index, and you will not be entitled to receive securities or dividends or other
distributions of the issuers of those securities. |
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While we or our affiliates may from time to time own shares of companies included in the Index, except to the extent that our common stock is included in the
Index, we do not control any company included in the Index, and are not responsible for any disclosure made by any other company. |
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If you attempt to sell the LIRNs prior to maturity, their market value, if any, will be affected by various factors that interrelate in complex ways, and their
market value may be less than their Original Offering Price. |
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Payments on the LIRNs are subject to our credit risk, and changes in our credit ratings are expected to affect the value of the LIRNs.
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Purchases and sales by us and our affiliates of shares of companies included in the Index may affect your return. |
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Our trading and hedging activities may create conflicts of interest with you. |
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Our hedging activities may affect your return on the LIRNs and their market value. |
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Our business activities relating to the companies represented by the Index may create conflicts of interest with you. |
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There may be potential conflicts of interest involving the calculation agent. We have the right to appoint and remove the calculation agent.
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The U.S. federal income tax consequences of the LIRNs are uncertain, and may be adverse to a holder of the LIRNs. See Summary Tax Consequences and
Certain U.S. Federal Income Taxation Considerations below and U.S. Federal Income Tax Summary beginning on page S-35 of product supplement LIRN-2. |
Investor Considerations
You may wish to consider an investment in the LIRNs if:
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You anticipate that the level of the Index will increase moderately from the Starting Value to the Ending Value. |
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You accept that your investment will result in a loss, which could be significant, if the level of the Index decreases from the Starting Value to an Ending Value
that is less than the Threshold Value. |
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You accept that the return on the LIRNs will not exceed the return represented by the Capped Value. |
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You are willing to forgo interest payments on the LIRNs, such as fixed or floating rate interest paid on traditional interest bearing debt securities.
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You seek exposure to the Index with no expectation of dividends or other benefits of owning the stocks included in the Index. |
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You are willing to accept that there is no assurance that the LIRNs will be listed or remain listed on NYSE Arca. You understand that any listing does not ensure
that a trading market will develop for the LIRNs or that there will be liquidity in any trading market. You understand that secondary market prices for the LIRNs, if any, will be affected by various factors, including our actual and perceived
creditworthiness. |
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You are willing to make an investment, the payments on which depend on our creditworthiness, as the issuer of the LIRNs.
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The LIRNs may not be an appropriate investment for you if:
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You anticipate that the level of the Index will decrease from the Starting Value to the Ending Value or that the level of the Index will not increase
sufficiently over the term of the LIRNs to provide you with your desired return. |
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You seek 100% principal protection or preservation of capital. |
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You seek a return on your investment that will not be capped at a percentage that will be between 20% and 24% over the Original Offering Price.
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You seek interest payments or other current income on your investment. |
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You want to receive dividends or other distributions paid on the stocks included in the Index. |
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You seek assurances that there will be a liquid market if and when you want to sell the LIRNs prior to maturity. |
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You are unwilling or are unable to assume the credit risk associated with us, as the issuer of the LIRNs.
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TS-5
Other Provisions
We may deliver the LIRNs against payment therefor in New York, New York on a date that is greater than three business days following the pricing date. Under Rule
15c6-1 of the Securities Exchange Act of 1934, trades in the secondary market generally are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, if the initial settlement of the
LIRNs occurs more than three business days from the pricing date, purchasers who wish to trade the LIRNs more than three business days prior to the original issue date will be required to specify alternative settlement arrangements to prevent a
failed settlement.
If you place an order to purchase the LIRNs, you are consenting to each of MLPF&S and its broker-dealer affiliate First Republic
acting as a principal in effecting the transaction for your account.
Supplement to the Plan of Distribution
MLPF&S and First Republic, each a broker-dealer subsidiary of BAC, are members of the Financial Industry Regulatory Authority, Inc. (formerly the National
Association of Securities Dealers, Inc. (the NASD)) and will participate as selling agents in the distribution of the LIRNs. Accordingly, offerings of the LIRNs will conform to the requirements of NASD Rule 2720. Under our distribution
agreement with the selling agents, MLPF&S will purchase the LIRNs from us on the issue date as principal at the purchase price indicated on the cover of this term sheet, less the indicated underwriting discount. In the original offering of the
LIRNs, the LIRNs will be sold in minimum investment amounts of 100 units.
MLPF&S and First Republic may use this Note Prospectus for offers and
sales in secondary market transactions and market-making transactions in the LIRNs but are not obligated to engage in such secondary market transactions and/or market-making transactions. MLPF&S and First Republic may act as principal or agent
in these transactions, and any such sales will be made at prices related to prevailing market prices at the time of the sale.
TS-6
The Index
All disclosures contained in this term sheet regarding the Index, including, without limitation, its make up, method of calculation, and changes in its components,
have been derived from publicly available sources. The information reflects the policies of, and is subject to change by, S&P. S&P, which owns the copyright and all other rights to the Index, has no obligation to continue to publish, and may
discontinue publication of, the Index. The consequences of S&P discontinuing publication of the Index are discussed in the section on page S-30 of product supplement LIRN-2 entitled Description of LIRNsDiscontinuance of a Market
Measure. None of us, the calculation agent, or any selling agent accepts any responsibility for the calculation, maintenance, or publication of the Index or any successor index.
Standard & Poors®,
Standard & Poors 500TM, S&P 500®, and
S&P® are trademarks of S&P and have been licensed for use in this offering by MLPF&S. The LIRNs are not issued, endorsed, sold, or promoted by
S&P, and S&P makes no warranties and bears no liability with respect to the LIRNs.
The Index is intended to provide an indication of the
pattern of common stock price movement. The calculation of the level of the Index is based on the relative value of the aggregate market value of the common stocks of 500 companies as of a particular time compared to the aggregate average market
value of the common stocks of 500 similar companies during the base period of the years 1941 through 1943. As of June 1, 2010, 404 companies included in the Index traded on the New York Stock Exchange, and 96 companies included
in the Index traded on The NASDAQ Stock Market. On June 1, 2010, the average market capitalization of the companies included in the Index was $19.36 billion. As of that date, the largest component of the Index had a market capitalization
of $279.74 billion, and the smallest component of the Index had a market capitalization of $1.02 billion.
S&P chooses companies for inclusion in
the Index with the aim of achieving a distribution by broad industry groupings that approximates the distribution of these groupings in the common stock population of its Stock Guide Database of over 10,000 companies, which S&P uses as an
assumed model for the composition of the total market. Relevant criteria employed by S&P include the viability of the particular company, the extent to which that company represents the industry group to which it is assigned, the extent to which
the market price of that companys common stock generally is responsive to changes in the affairs of the respective industry, and the market value and trading activity of the common stock of that company. Ten main groups of companies constitute
the Index, with the approximate percentage of the market capitalization of the Index included in each group as of June 1, 2010 indicated in parentheses: Consumer Discretionary (10.62%); Consumer Staples (11.49%); Energy (10.46%); Financials
(16.22%); Health Care (11.78%); Industrials (10.53%); Information Technology (19.04%); Materials (3.45%); Telecommunication Services (2.88%); and Utilities (3.54%). S&P from time to time, in its sole discretion, may add companies to, or delete
companies from, the Index to achieve the objectives stated above.
S&P calculates the Index by reference to the prices of the constituent stocks of
the Index without taking account of the value of dividends paid on those stocks. As a result, the return on the LIRNs will not reflect the return you would realize if you actually owned the Index constituent stocks and received the dividends paid on
those stocks.
Computation of the Index
While
S&P currently employs the following methodology to calculate the Index, no assurance can be given that S&P will not modify or change this methodology in a manner that may affect the Redemption Amount.
Historically, the market value of any component stock of the Index was calculated as the product of the market price per share and the number of then outstanding
shares of such component stock. In March 2005, S&P began shifting the Index halfway from a market capitalization weighted formula to a float-adjusted formula, before moving the Index to full float adjustment on September 16, 2005.
S&Ps criteria for selecting stocks for the Index did not change with the shift to float adjustment. However, the adjustment affects each companys weight in the Index.
Under float adjustment, the share counts used in calculating the Index reflect only those shares that are available to investors, not all of a companys
outstanding shares. S&P defines three groups of shareholders whose holdings are subject to float adjustment:
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holdings by other publicly traded corporations, venture capital firms, private equity firms, strategic partners, or leveraged buyout groups;
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holdings by government entities, including all levels of government in the U.S. or foreign countries; and |
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holdings by current or former officers and directors of the company, founders of the company, or family trusts of officers, directors, or founders, as well as
holdings of trusts, foundations, pension funds, employee stock ownership plans, or other investment vehicles associated with and controlled by the company. |
However, treasury stock, stock options, restricted shares, equity participation units, warrants, preferred stock, convertible stock, and rights are not part of the
float. In cases where holdings in a group exceed 10% of the outstanding shares of a company, the holdings of that group are excluded from the float-adjusted count of shares to be used in the index calculation. Mutual funds, investment advisory
firms, pension funds, or foundations not associated with the company and investment funds in insurance companies, shares of a U.S. company traded in Canada as exchangeable shares, shares that trust beneficiaries may buy or sell without
difficulty or significant additional expense beyond typical brokerage fees, and, if a company has multiple classes of stock outstanding, shares in an unlisted or non-traded class if such shares are convertible by shareholders without undue delay and
cost, are also part of the float.
TS-7
For each stock, an investable weight factor (IWF) is calculated by dividing the available float
shares, defined as the total shares outstanding less shares held in one or more of the three groups listed above where the group holdings exceed 10% of the outstanding shares, by the total shares outstanding. The float-adjusted index is then
calculated by multiplying, for each stock in the Index, the IWF, the price, and total number of shares outstanding, adding together the resulting amounts, and then dividing that sum by the index divisor. For companies with multiple classes of stock,
S&P calculates the weighted average IWF for each stock using the proportion of the total company market capitalization of each share class as weights.
The Index is calculated using a base-weighted aggregate methodology. The level of the Index reflects the total market value of all 500 component stocks relative to
the base period of the years 1941 through 1943. An indexed number is used to represent the results of this calculation in order to make the level easier to work with and track over time. The actual total market value of the component stocks during
the base period of the years 1941 through 1943 has been set to an indexed level of 10. This is often indicated by the notation 1941-43 = 10. In practice, the daily calculation of the Index is computed by dividing the total market value of the
component stocks by the index divisor. By itself, the index divisor is an arbitrary number. However, in the context of the calculation of the Index, it serves as a link to the original base period level of the Index. The index divisor
keeps the Index comparable over time and is the manipulation point for all adjustments to the Index, which is index maintenance.
Index Maintenance
Index maintenance includes monitoring and completing the adjustments for company additions and deletions, share changes, stock splits, stock
dividends, and stock price adjustments due to company restructuring or spinoffs. Some corporate actions, such as stock splits and stock dividends, require changes in the common shares outstanding and the stock prices of the companies in the Index,
and do not require index divisor adjustments.
To prevent the level of the Index from changing due to corporate actions, corporate actions which affect
the total market value of the Index require an index divisor adjustment. By adjusting the index divisor for the change in market value, the level of the Index remains constant and does not reflect the corporate actions of individual companies in the
Index. Index divisor adjustments are made after the close of trading and after the calculation of the Index closing level.
Changes in a companys
shares outstanding of 5.00% or more due to mergers, acquisitions, public offerings, tender offers, Dutch auctions, or exchange offers are made as soon as reasonably possible. All other changes of 5.00% or more (due to, for example, company stock
repurchases, private placements, redemptions, exercise of options, warrants, conversion of preferred stock, notes, debt, equity participation units, at the market offerings, or other recapitalizations) are made weekly and are announced on Wednesdays
for implementation after the close of trading on the following Wednesday. Changes of less than 5.00% due to a companys acquisition of another company in the Index are made as soon as reasonably possible. All other changes of less than 5.00%
are accumulated and made quarterly on the third Friday of March, June, September, and December, and are usually announced two to five days prior.
Changes in IWFs of more than ten percentage points caused by corporate actions (such as merger and acquisition activity, restructurings, or spinoffs) will be made
as soon as reasonably possible. Other changes in IWFs will be made annually when IWFs are reviewed.
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The following graph sets forth the monthly historical performance of the Index in the period from January
2005 through May 2010. This historical data on the Index is not necessarily indicative of the future performance of the Index or what the value of the LIRNs may be. Any historical upward or downward trend in the level of the Index during any period
set forth below is not an indication that the level of the Index is more or less likely to increase or decrease at any time over the term of the LIRNs. On June 15, 2010, the closing level of the Index was 1,115.23.
Before investing in the LIRNs, you should consult publicly available sources for the levels and trading pattern of the Index. The
generally unsettled international environment and related uncertainties, including the risk of terrorism, may result in the Index and financial markets generally exhibiting greater volatility than in earlier periods.
License Agreement
S&P does not guarantee the accuracy
and/or the completeness of the Index or any data included in the Index. S&P shall have no liability for any errors, omissions, or interruptions in the Index. S&P makes no warranty, express or implied, as to results to be obtained by
MLPF&S, us, holders of the LIRNs or any other person or entity from the use of the Index or any data included in the Index in connection with the rights licensed under the license agreement described in this term sheet or for any other use.
S&P makes no express or implied warranties, and hereby expressly disclaims all warranties of merchantability or fitness for a particular purpose with respect to the Index or any data included in the Index. Without limiting any of the above
information, in no event shall S&P have any liability for any special, punitive, indirect, or consequential damages, including lost profits, even if notified of the possibility of these damages.
S&P and MLPF&S have entered into a non-exclusive license agreement providing for the license to MLPF&S, in exchange for a fee, of the right to use the
Index in connection with this offering. The license agreement provides that the following language must be stated in this term sheet:
The LIRNs are not sponsored, endorsed, sold, or promoted by S&P. S&P makes no representation or warranty, express or implied, to the holders
of the LIRNs or any member of the public regarding the advisability of investing in securities generally or in the LIRNs particularly or the ability of the Index to track general stock market performance. S&Ps only relationship to
MLPF&S and to us (other than transactions entered into in the ordinary course of business) is the licensing of certain trademarks and trade names of S&P and of the Index which is determined, composed, and calculated by S&P without regard
to MLPF&S, us, or the LIRNs. S&P has no obligation to take the needs of MLPF&S, our needs, or the needs of the holders of the LIRNs into consideration in determining, composing, or calculating the Index. S&P is not responsible for
and has not participated in the determination of the timing of the sale of the LIRNs, prices at which the LIRNs are to initially be sold, or quantities of the LIRNs to be issued or in the determination or calculation of the equation by which the
LIRNs are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing, or trading of the LIRNs.
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Summary Tax Consequences
You should consider the U.S. federal income tax consequences of an investment in the LIRNs, including the following:
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You agree with us (in the absence of an administrative determination, or judicial ruling to the contrary) to characterize and treat the LIRNs for all tax
purposes as a single financial contract with respect to the Index that requires you to pay us at inception an amount equal to the purchase price of the LIRNs and that entitles you to receive at maturity an amount in cash based upon the performance
of the Index. |
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Under this characterization and tax treatment of the LIRNs, upon receipt of a cash payment at maturity or upon a sale or exchange of the LIRNs prior to maturity,
you generally will recognize capital gain or loss. This capital gain or loss generally will be long-term capital gain or loss if you held the LIRNs for more than one year. |
Certain U.S. Federal Income Taxation Considerations
Set forth below is a summary of certain U.S. federal income tax considerations relating to an investment in the LIRNs. The following summary is not complete and is
qualified in its entirety by the discussion under the section entitled U.S. Federal Income Tax Summary beginning on page S-35 of product supplement LIRN-2, which you should carefully review prior to investing in the LIRNs.
General. Although there is no statutory, judicial, or administrative authority directly addressing the characterization of the LIRNs, we intend to treat the
LIRNs for all tax purposes as a single financial contract with respect to the Index that requires the investor to pay us at inception an amount equal to the purchase price of the LIRNs and that entitles the investor to receive at maturity an amount
in cash based upon the performance of the Index. Under the terms of the LIRNs, we and every investor in the LIRNs agree, in the absence of an administrative determination or judicial ruling to the contrary, to treat the LIRNs as described in the
preceding sentence. This discussion assumes that the LIRNs constitute a single financial contract with respect to the Index for U.S. federal income tax purposes. If the LIRNs did not constitute a single financial contract, the tax consequences
described below would be materially different. The discussion in this section also assumes that there is a significant possibility of a significant loss of principal on an investment in the LIRNs.
This characterization of the LIRNs is not binding on the Internal Revenue Service (IRS) or the courts. No statutory, judicial, or administrative
authority directly addresses the characterization of the LIRNs or any similar instruments for U.S. federal income tax purposes, and no ruling is being requested from the IRS with respect to their proper characterization and treatment. Due to the
absence of authorities on point, significant aspects of the U.S. federal income tax consequences of an investment in the LIRNs are not certain, and no assurance can be given that the IRS or any court will agree with the characterization and tax
treatment described in product supplement LIRN-2. Accordingly, you are urged to consult your tax advisor regarding all aspects of the U.S. federal income tax consequences of an investment in the LIRNs, including possible alternative
characterizations.
Settlement At Maturity or Sale or Exchange Prior to Maturity. Assuming that the LIRNs are properly characterized and treated
as single financial contracts with respect to the Index for U.S. federal income tax purposes, upon receipt of a cash payment at maturity or upon a sale or exchange of the LIRNs prior to maturity, a U.S. Holder (as defined in product supplement
LIRN-2) generally will recognize capital gain or loss equal to the difference between the amount realized and the U.S. Holders basis in the LIRNs. This capital gain or loss generally will be long-term capital gain or loss if the U.S. Holder
held the LIRNs for more than one year. The deductibility of capital losses is subject to limitations.
Possible Future Tax Law Changes. From time
to time, there may be legislative proposals or interpretive guidance addressing the tax treatment of financial instruments such as the LIRNs. We cannot predict the likelihood of any such legislation or guidance being adopted, or the ultimate impact
on the LIRNs. For example, on December 7, 2007, the IRS released Notice 2008-2 (Notice) seeking comments from the public on the taxation of financial instruments currently taxed as prepaid forward contracts. This Notice
addresses instruments such as the LIRNs. According to the Notice, the IRS and Treasury are considering whether a holder of an instrument such as the LIRNs should be required to accrue ordinary income on a current basis, regardless of whether any
payments are made prior to maturity. It is not possible to determine what guidance the IRS and Treasury will ultimately issue, if any. Any such future guidance may affect the amount, timing, and character of income, gain, or loss in respect of the
LIRNs, possibly with retroactive effect. The IRS and Treasury are also considering additional issues, including whether additional gain or loss from such instruments should be treated as ordinary or capital, whether foreign holders of such
instruments should be subject to withholding tax on any deemed income accruals, whether Section 1260 of the Internal Revenue Code of 1986, as amended, concerning certain constructive ownership transactions, generally applies or
should generally apply to such instruments, and whether any of these determinations depend on the nature of the underlying asset. We urge you to consult your own tax advisors concerning the impact and the significance of the above considerations. We
intend to continue treating the LIRNs for U.S. federal income tax purposes in the manner described herein unless and until such time as we determine, or the IRS or Treasury determines, that some other treatment is more appropriate.
You should consult your own tax advisor concerning the U.S. federal income tax consequences to you of acquiring, owning, and disposing of the LIRNs, as well as
any tax consequences arising under the laws of any state, local, foreign, or other tax jurisdiction and the possible effects of changes in U.S. federal or other tax laws. See the discussion under the section entitled U.S. Federal Income Tax
Summary beginning on page S-35 of product supplement LIRN-2.
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Additional Terms
You should read this term sheet, together with the documents listed below, which together contain the terms of the LIRNs and supersede all prior or contemporaneous
oral statements as well as any other written materials. You should carefully consider, among other things, the matters set forth under Risk Factors in the sections indicated on the cover of this term sheet. The LIRNs involve risks not
associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting, and other advisors before you invest in the LIRNs.
You may access the following documents on the SEC Website at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date
on the SEC Website):
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Product supplement LIRN-2 dated April 21, 2009: |
http://www.sec.gov/Archives/edgar/data/70858/000095014409003415/g18702p2e424b5.htm
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Series L MTN prospectus supplement dated April 21, 2009 and prospectus dated April 20, 2009: |
http://www.sec.gov/Archives/edgar/data/70858/000095014409003387/g18667b5e424b5.htm
Our Central Index Key, or CIK, on the SEC Website is 70858.
We have filed a registration statement (including a product supplement, a prospectus supplement, and a prospectus) with the SEC for the offering to which this
term sheet relates. Before you invest, you should read the product supplement, the prospectus supplement, and the prospectus in that registration statement, and the other documents relating to this offering that we have filed with the SEC for more
complete information about us and this offering. You may get these documents without cost by visiting EDGAR on the SEC Website at www.sec.gov. Alternatively, we, any agent, or any dealer participating in this offering will arrange to send you the
Note Prospectus if you so request by calling MLPF&S toll-free at 1-866-500-5408.
Structured Investments Classification
MLPF&S classifies certain structured investments (the Structured Investments), including the LIRNs, into four categories, each with
different investment characteristics. The description below is intended to briefly describe the four categories of Structured Investments offered: Principal Protection, Enhanced Income, Market Participation, and Enhanced Participation. A Structured
Investment may, however, combine characteristics that are relevant to one or more of the other categories. As such, a category should not be relied upon as a description of any particular Structured Investment.
Principal Protection: Principal Protected Structured Investments offer full or partial principal protection against decreases in the value of
the underlying market measure (or increases in the value of an underlying market measure for bearish Structured Investments), while offering market exposure and the opportunity for a better return than may be available from comparable fixed income
securities. Principal protection may not be achieved if the investment is sold prior to maturity.
Enhanced Income: Structured Investments
offering enhanced income may offer an enhanced income stream through interim fixed or variable coupon payments. However, in exchange for receiving current income, investors may forfeit upside potential on the underlying asset. These investments
generally do not include the principal protection feature.
Market Participation: Market Participation Structured Investments can offer
investors exposure to specific market sectors, asset classes, and/or strategies that may not be readily available through traditional investment alternatives. Returns obtained from these investments are tied to the performance of the underlying
asset. As such, subject to certain fees, the returns will generally reflect any increases or decreases in the value of such assets. These investments generally do not include the principal protection feature.
Enhanced Participation: Enhanced Participation Structured Investments may offer investors the potential to receive better than market returns on the
performance of the underlying asset. Some structures may offer leverage in exchange for a capped or limited upside potential and also in exchange for downside risk. These investments generally do not include the principal protection feature.
The classification of Structured Investments is meant solely for informational purposes and is not intended to fully describe any particular Structured
Investment nor guarantee any particular performance.
Leveraged Index Return
Notes® and LIRNs® are our registered service marks.
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