FWP 1 dfwp.htm PRELIMINARY TERM SHEET Preliminary Term Sheet

Filed Pursuant to Rule 433

Registration No. 333-158663

Subject to Completion

Preliminary Term Sheet dated April 28, 2011

LOGO

The notes are being offered by Bank of America Corporation (“BAC”). The notes 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 notes involves a number of risks. There are important differences between the notes 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-8 of product supplement SUN-1. The notes:

 

 

Are Not FDIC Insured

 

 

 

Are Not Bank Guaranteed

 

 

 

May Lose Value

 

In connection with this offering, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) 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.

 

    

Per Unit

      

Total

          

Public offering price (1)

   $ 10.00         $             

Underwriting discount (1)

   $ 0.25         $             

Proceeds, before expenses, to Bank of America Corporation

   $ 9.75         $             

 

  (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 $0.20 per unit, respectively. The public offering price and underwriting discount for any purchase by certain fee-based trusts and fee-based discretionary accounts managed by U.S. Trust operating through Bank of America, N.A. will be $9.75 per unit and $0.00 per unit, respectively.

* Depending on the date the notes are priced for initial sale to the public (the “pricing date”), 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.

 

 

Merrill Lynch & Co.

 

     LOGO    
 

May     , 2011

  

 

Units Pricing Date* May     , 2011

Market-Linked Step Up Notes Settlement Date* June     , 2011

Linked to the EURO STOXX 50® Index Maturity Date* May     , 2015

due May     , 2015 CUSIP No.

$10 principal amount per unit

Term Sheet No.

Market-Linked Step Up Notes

Step Up Payment of 32% to 38% over the Original Offering Price at maturity if the level of the EURO STOXX 50® Index (the “Index”) is unchanged or increases from the Starting Value, but does not increase above the Step Up Value

100% participation in any increase in the level of the Index if it increases above the Step Up Value of 132% to 138% of the Starting Value

1-to-1 downside exposure to decreases in the level of the Index in excess of the Threshold Value, with up to 85% of the principal amount at risk

A maturity of approximately four years

Payment of the Redemption Amount at maturity is subject to the credit risk of Bank of America Corporation

No periodic interest payments

No listing on any securities exchange

Market Downside Protection

Enhanced Return

Market Access

Enhanced Income


LOGO

 

Summary

The Market-Linked Step Up Notes Linked to the EURO STOXX 50® Index, due May     , 2015 (the “notes”) are our senior unsecured debt securities. The notes are not guaranteed or insured by the Federal Deposit Insurance Corporation or secured by collateral. The notes will rank equally with all of our other unsecured and unsubordinated debt, and any payments due on the notes, including any repayment of principal, will be subject to the credit risk of BAC.

The notes provide investors with a Step Up Payment if the level of the EURO STOXX 50® Index (the “Index”) is unchanged or increases from the Starting Value, determined on the pricing date, to the Ending Value, determined on a calculation day shortly before the maturity date, but does not increase above the Step Up Value. If the level of the Index increases from the Starting Value to an Ending Value that is above the Step Up Value, investors will participate on a 1-for-1 basis in the increase above the Starting Value. Investors should be of the view that the level of the Index will increase over the term of the notes. Investors must be willing to forgo interest payments on the notes and be willing to accept a repayment that will be less, and potentially significantly less, than the Original Offering Price if the Ending Value is less than the Threshold Value.

Capitalized terms used but not defined in this term sheet have the meanings set forth in product supplement SUN-1. 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 Notes

 

Issuer:  

Bank of America Corporation (“BAC”)

 

Original Offering  Price:  

$10.00 per unit

 

Term:  

Approximately four years

 

Market Measure:  

EURO STOXX 50® Index (Bloomberg symbol: “SX5E”)

 

Starting Value:  

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 notes.

 

Ending Value:  

The closing level of the Index on the calculation day. If it is determined that the scheduled calculation day is not a Market Measure Business Day, or if a Market Disruption Event occurs on the scheduled calculation day, the Ending Value will be determined as more fully described beginning on page S-20 of product supplement SUN-1.

 

Step Up Value:  

The Step Up Value will be between 132% and 138% of the Starting Value. The actual Step Up 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 notes.

 

Step Up Payment:  

The Step Up Payment will be between $3.20 and $3.80 per unit at maturity (representing a return of between 32% and 38% over the Original Offering Price). The actual Step Up Payment 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 notes.

 

Threshold Value:  

85% of the Starting Value, rounded to two decimal places.

 

Calculation Day:  

The fifth scheduled Market Measure Business Day immediately prior to 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 notes.

 

Calculation Agent:  

MLPF&S, a subsidiary of BAC

 

Determining the Redemption

Amount for the Notes

On the maturity date, you will receive a cash payment per unit of the notes (the “Redemption Amount”) calculated as follows:

LOGO

In this case, you will receive a Redemption Amount that is less, and possibly significantly less, than the Original Offering Price per unit of the notes.

 

 

 

Market-Linked Step Up Notes

 

 

TS-2


LOGO

 

Hypothetical Payout Profile

 

LOGO

  

This graph reflects the hypothetical returns on the notes at maturity, based on a hypothetical Step Up Payment of $3.50 (the midpoint of the Step Up Payment range of $3.20 to $3.80), a hypothetical Step Up Value of 135% of the Starting Value (the midpoint of the Step Up Value range of 132% to 138%), and the Threshold Value of 85% of the Starting Value. The green line reflects the hypothetical returns on the notes while the grey dotted line reflects the hypothetical returns of a 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, Threshold Value, Step Up Payment, Step Up Value, Ending Value, and the term of your investment.

Hypothetical Redemption Amounts

Examples

Set forth below are four examples of hypothetical Redemption Amount calculations (rounded to two decimal places) payable at maturity, based upon a hypothetical Starting Value of 2,936.30 (the closing level of the Index on April 21, 2011), a hypothetical Threshold Value of 2,495.86, a hypothetical Step Up Payment of $3.50 (the midpoint of the Step Up Payment range of $3.20 to $3.80), and a hypothetical Step Up Value of 135% of the Starting Value (the midpoint of the Step Up Value range of 132% to 138%):

Example 1 — The hypothetical Ending Value is 80% of the hypothetical Starting Value and is less than the hypothetical Threshold Value:

 

Hypothetical Starting Value:

     2,936.30      

Hypothetical Threshold Value:

     2,495.86      

Hypothetical Ending Value:

     2,349.04      

 

Hypothetical Redemption Amount (per unit) =  

$10 –

  [   $10 ×   (   2,495.86 –  2,349.04   )   ]   = $9.50  
          2,936.30        

Example 2 — The hypothetical Ending Value is 95% of the hypothetical Starting Value and is greater than the hypothetical Threshold Value:

 

Hypothetical Starting Value:

     2,936.30      

Hypothetical Threshold Value:

     2,495.86      

Hypothetical Ending Value:

     2,789.49      

Hypothetical Redemption Amount (per unit) = $10.00

If the Ending Value is less than 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 115% of the hypothetical Starting Value but is less than the hypothetical Step Up Value:

 

Hypothetical Starting Value:

     2,936.30      

Hypothetical Step Up Value:

     3,964.01      

Hypothetical Ending Value:

     3,376.75      

Hypothetical Redemption Amount (per unit) = $10.00 + $3.50 = $13.50

In this case, because the hypothetical Ending Value is greater than or equal to the hypothetical Starting Value but less than or equal to the hypothetical Step Up Value, the hypothetical Redemption Amount (per unit) will equal $13.50, which is the sum of the Original Offering Price and the hypothetical Step Up Payment of $3.50.

Example 4 — The hypothetical Ending Value is 150% of the hypothetical Starting Value and is greater than the hypothetical Step Up Value:

 

Hypothetical Starting Value:

     2,936.30      

Hypothetical Step Up Value:

     3,964.01      

Hypothetical Ending Value:

     4,404.45      

 

Hypothetical Redemption Amount (per unit) =  

$10 +

  [   $10 ×   (     4,404.45 –  2,936.30      )   ]   = $15.00  
            2,936.30           

 

 

Market-Linked Step Up Notes

 

 

TS-3


LOGO

 

The following table illustrates, for the hypothetical Starting Value of 2,936.30 (the closing level of the Index on April 21, 2011), a hypothetical Threshold Value of 85% of the hypothetical Starting Value (rounded to two decimal places), and a range of hypothetical Ending Values:

 

  §  

the percentage change from the hypothetical Starting Value to the hypothetical Ending Value;

 

  §  

the hypothetical Redemption Amount per unit of the notes (rounded to two decimal places); and

 

  §  

the hypothetical total rate of return to holders of the notes.

The table below is based on a hypothetical Step Up Payment of $3.50 (the midpoint of the Step Up Payment range of $3.20 to $3.80) and a hypothetical Step Up Value of 135% of the Starting Value (the midpoint of the Step Up Value range of 132% to 138%).

 

Hypothetical

Ending  Value(1)

 

Percentage Change from

the Hypothetical Starting

Value to the Hypothetical

Ending Value

 

Hypothetical

Redemption

Amount per Unit

 

Hypothetical

Total Rate

of Return on
the Notes

    1,468.15         -50.00 %       $6.50         -35.00 %
    1,761.78         -40.00 %       $7.50         -25.00 %
    2,055.41         -30.00 %       $8.50         -15.00 %
    2,349.04         -20.00 %       $9.50         -5.00 %
    2,495.86 (2)       -15.00 %       $10.00         0.00 %
    2,642.67         -10.00 %       $10.00         0.00 %
    2,789.49         -5.00 %       $10.00         0.00 %
    2,877.57         -2.00 %       $10.00         0.00 %
    2,936.30 (3)       0.00 %       $13.50 (4)       35.00 %
    2,995.03         2.00 %       $13.50         35.00 %
    3,083.12         5.00 %       $13.50         35.00 %
    3,229.93         10.00 %       $13.50         35.00 %
    3,523.56         20.00 %       $13.50         35.00 %
    3,817.19         30.00 %       $13.50         35.00 %
    3,964.01 (5)       35.00 %       $13.50         35.00 %
    4,110.82         40.00 %       $14.00         40.00 %
    4,404.45         50.00 %       $15.00         50.00 %

 

(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 set forth in the final term sheet that will be made available in connection with sales of the notes.

 

(3)

This is the hypothetical Starting Value, which is the closing level of the Index on April 21, 2011. The actual 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 notes.

 

(4) 

This amount represents the sum of the Original Offering Price and the hypothetical Step Up Payment. The actual Step Up Payment will be determined on the pricing date and will be between $3.20 and $3.80.

 

(5) 

This is the hypothetical Step Up Value. The actual Step Up Value will be determined on the pricing date and will be between 132% and 138% of the Starting Value.

The above figures are for purposes of illustration only. The actual Redemption Amount and the resulting total rate of return will depend on the actual Starting Value, Threshold Value, Ending Value, Step Up Value, Step Up Payment, and the term of your investment.

 

 

Market-Linked Step Up Notes

 

 

TS-4


LOGO

 

Risk Factors

There are important differences between the notes and a conventional debt security. An investment in the notes involves significant risks, including those listed below. You should carefully review the more detailed explanation of risks relating to the notes in the “Risk Factors” sections beginning on page S-8 of product supplement SUN-1 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 notes.

 

  §  

Your investment may result in a loss; there is no guaranteed return of principal.

 

  §  

Your yield may be less than the yield on a conventional debt security of comparable maturity.

 

  §  

You must rely on your own evaluation of the merits of an investment linked to the Index.

 

  §  

In seeking to provide you with what we believe to be commercially reasonable terms for the notes while providing MLPF&S with compensation for its services, we have considered the costs of developing, hedging, and distributing the notes.

 

  §  

A trading market is not expected to develop for the notes. MLPF&S is not obligated to make a market for, or to repurchase, the notes.

 

  §  

Payments on the notes are subject to our credit risk, and changes in our credit ratings are expected to affect the value of the notes.

 

  §  

The Redemption Amount will not be affected by all developments relating to the Index.

 

  §  

STOXX Limited (“STOXX”) may adjust the Index in a way that affects its level, and STOXX has no obligation to consider your interests.

 

  §  

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 by the issuers of those securities.

 

  §  

While we or our affiliates may from time to time own shares of companies 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.

 

  §  

Your return on the notes may be affected by factors affecting the international securities markets.

 

  §  

Exchange rate movements may impact the value of the notes.

 

  §  

If you attempt to sell the notes 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.

 

  §  

Purchases and sales by us and our affiliates of shares of companies included in the Index may affect your return.

 

  §  

Our trading and hedging activities may create conflicts of interest with you.

 

  §  

Our hedging activities may affect your return on the notes and their market value.

 

  §  

Our business activities relating to the companies represented by the Index may create conflicts of interest with you.

 

  §  

There may be potential conflicts of interest involving the calculation agent. We have the right to appoint and remove the calculation agent.

 

  §  

The U.S. federal income tax consequences of the notes are uncertain, and may be adverse to a holder of the notes. See “Summary Tax Consequences” and “Certain U.S. Federal Income Taxation Considerations” below and “U.S. Federal Income Tax Summary” beginning on page S-31 of product supplement SUN-1.

Other Terms of the Notes

Market Measure Business Day

The following definition shall supersede and replace the definition of a “Market Measure Business Day” set forth on pages S-6 and S-21 of product supplement SUN-1.

A “Market Measure Business Day” means a day on which:

(A) the Eurex (or any successor) is open for trading; and

(B) the Index or any successor thereto is calculated and published.

 

 

Market-Linked Step Up Notes

 

 

TS-5


LOGO

 

Investor Considerations

 

You may wish to consider an investment in the notes if:

 

§  

You anticipate that the level of the Index will increase from the Starting Value to the Ending Value.

 

§  

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.

 

§  

You are willing to forgo interest payments on the notes, such as fixed or floating rate interest paid on traditional interest bearing debt securities.

 

§  

You seek exposure to the Index with no expectation of dividends or other benefits of owning the stocks included in the Index.

 

§  

You are willing to accept that a trading market is not expected to develop for the notes. You understand that secondary market prices for the notes, if any, will be affected by various factors, including our actual and perceived creditworthiness.

 

§  

You are willing to make an investment, the payment on which depends on our creditworthiness, as the issuer of the notes.

The notes may not be an appropriate investment for you if:

 

§  

You anticipate that the level of the Index will decrease from the Starting Value to the Ending Value.

 

§  

You seek 100% principal protection or preservation of capital.

 

§  

You seek interest payments or other current income on your investment.

 

§  

You want to receive dividends or other distributions paid on the stocks included in the Index.

 

§  

You seek assurances that there will be a liquid market if and when you want to sell the notes prior to maturity.

 

§  

You are unwilling or are unable to assume the credit risk associated with us, as the issuer of the notes.

 

 

Other Provisions

We may deliver the notes 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 notes occurs more than three business days from the pricing date, purchasers who wish to trade the notes 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 notes, you are consenting to MLPF&S acting as a principal in effecting the transaction for your account.

Supplement to the Plan of Distribution; Conflicts of Interest

MLPF&S, a broker-dealer subsidiary of BAC, is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and will participate as selling agent in the distribution of the notes. Accordingly, offerings of the notes will conform to the requirements of FINRA Rule 5121. Under our distribution agreement with MLPF&S, MLPF&S will purchase the notes 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. MLPF&S will not receive an underwriting discount for notes sold to certain fee-based trusts and fee-based discretionary accounts managed by U.S. Trust operating through Bank of America, N.A. In the original offering of the notes, the notes will be sold in minimum investment amounts of 100 units.

MLPF&S may use this Note Prospectus for offers and sales in secondary market transactions and market-making transactions in the notes but is not obligated to engage in such secondary market transactions and/or market-making transactions. MLPF&S 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.

 

 

Market-Linked Step Up Notes

 

 

TS-6


LOGO

 

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, STOXX. STOXX, 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 STOXX discontinuing publication of the Index are discussed in the section beginning on page S-25 of product supplement SUN-1 entitled “Description of the Notes—Discontinuance of a Market Measure.” None of us, the calculation agent, or the selling agent accepts any responsibility for the calculation, maintenance, or publication of the Index or any successor index.

The Index was created by STOXX, a joint venture between Deutsche Börse AG and SIX Group AG. Publication of the Index began in February 1998, based on an initial Index level of 1,000 at December 31, 1991. On March 1, 2010, STOXX announced the removal of the “Dow Jones” prefix from all of its indices, including the Index.

Index Composition and Maintenance

The Index is composed of 50 component stocks of market sector leaders from within the 19 EURO STOXX® Supersector indices, which represent the Eurozone portion of the STOXX Europe 600® Supersector indices. Set forth below are the country weightings and market sector weightings of the securities included in the Index as of March 31, 2011:

 

Country Weightings

   

Industrial Sector Weightings

 

France

     36.0  

Banks

     18.0

Germany

     30.3  

Oil & Gas

     9.6

Spain

     13.5  

Utilities

     9.2

Italy

     9.4  

Insurance

     8.9

Netherlands

     5.6  

Telecommunications

     8.8

Belgium

     1.8  

Chemicals

     7.8

Finland

     1.4  

Industrial Goods & Services

     7.6

Luxembourg

     1.4  

Food & Beverage

     5.7

Ireland

     0.7  

Personal & Household Goods

     4.3
    

Automobiles & Parts

     3.9
    

Technology

     3.8
    

Health Care

     3.4
    

Construction & Materials

     3.3
    

Media

     1.5
    

Basic Resources

     1.4
    

Retail

     1.2
    

Real Estate

     0.9
    

Financial Services

     0.6

The composition of the Index is reviewed annually, based on the closing stock data on the last trading day in August. The component stocks are announced on the first trading day in September. Changes to the component stocks are implemented on the third Friday in September and are effective the following trading day. Changes in the composition of the Index are made to ensure that the Index includes the 50 market sector leaders from within the EURO STOXX® Index.

The free float factors for each component stock used to calculate the Index, as described below, are reviewed, calculated, and implemented on a quarterly basis and are fixed until the next quarterly review.

The Index is also reviewed on an ongoing basis. Corporate actions (including initial public offerings, mergers and takeovers, spin-offs, delistings, and bankruptcy) that affect the Index composition are immediately reviewed. Any changes are announced, implemented, and effective in line with the type of corporate action and the magnitude of the effect.

 

 

Market-Linked Step Up Notes

 

 

TS-7


LOGO

 

Index Calculation

The Index is calculated with the “Laspeyres formula,” which measures the aggregate price changes in the component stocks against a fixed base quantity weight. The formula for calculating the Index value can be expressed as follows:

 

  Index =       

free float market capitalization of the Index

       × 1,000   
     adjusted base date market capitalization of the Index      

The “free float market capitalization of the Index” is equal to the sum of the products of the closing price, market capitalization, and free float factor for each component stock as of the time the Index is being calculated.

The Index is also subject to a divisor, which is adjusted to maintain the continuity of the Index values across changes due to corporate actions, such as the deletion and addition of stocks, the substitution of stocks, stock dividends, and stock splits.

Neither we nor any of our affiliates, including the selling agent, accepts any responsibility for the calculation, maintenance, or publication of, or for any error, omission, or disruption in, the Index or any successor to the Index. STOXX does not guarantee the accuracy or the completeness of the Index or any data included in the Index. STOXX assumes no liability for any errors, omissions, or disruption in the calculation and dissemination of the Index. STOXX disclaims all responsibility for any errors or omissions in the calculation and dissemination of the Index or the manner in which the Index is applied in determining the amount payable on the notes at maturity.

Since its inception, the Index has experienced significant fluctuations. Any historical upward or downward trend in the level of the Index during any period shown below is not an indication that the level of the Index is more or less likely to increase or decrease at any time during the term of the notes. The historical Index levels do not give an indication of future performance of the Index.

The following graph sets forth the monthly historical performance of the Index in the period from January 2006 through March 2011. This historical data on the Index is not necessarily indicative of the future performance of the Index or what the value of the notes 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 notes. On April 21, 2011, the closing level of the Index was 2,936.30.

LOGO

Before investing in the notes, 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.

 

 

Market-Linked Step Up Notes

 

 

TS-8


LOGO

 

License Agreement

We have entered into a non-exclusive license agreement with STOXX providing for the license to us and certain of our affiliated or subsidiary companies, in exchange for a fee, of the right to use indices owned and published by STOXX (including the Index) in connection with certain securities, including the notes.

The license agreement between us and STOXX requires that the following language be stated in this term sheet:

STOXX has no relationship to us, other than the licensing of the Index and the related trademarks for use in connection with the notes. STOXX does not:

 

   

sponsor, endorse, sell, or promote the notes;

 

   

recommend that any person invest in the notes or any other securities;

 

   

have any responsibility or liability for or make any decisions about the timing, amount, or pricing of the notes;

 

   

have any responsibility or liability for the administration, management, or marketing of the notes; or

 

   

consider the needs of the notes or the holders of the notes in determining, composing, or calculating the Index, or have any obligation to do so.

STOXX will not have any liability in connection with the notes. Specifically:

 

   

STOXX does not make any warranty, express or implied, and disclaims any and all warranty concerning:

 

  §  

the results to be obtained by the notes, the holders of the notes or any other person in connection with the use of the Index and the data included in the Index;

 

  §  

the accuracy or completeness of the Index and its data;

 

  §  

the merchantability and the fitness for a particular purpose or use of the Index and its data;

 

   

STOXX will have no liability for any errors, omissions, or interruptions in the Index or its data; and

 

   

Under no circumstances will STOXX be liable for any lost profits or indirect, punitive, special, or consequential damages or losses, even if STOXX knows that they might occur.

The licensing agreement between us and STOXX is solely for their benefit and our benefit, and not for the benefit of the holders of the notes or any other third parties.

 

 

Market-Linked Step Up Notes

 

 

TS-9


LOGO

 

Summary Tax Consequences

You should consider the U.S. federal income tax consequences of an investment in the notes, including the following:

 

   

You agree with us (in the absence of an administrative determination, or judicial ruling to the contrary) to characterize and treat the notes for all tax purposes as single financial contracts linked to the Index that requires you to pay us at inception an amount equal to the purchase price of the notes and that entitles you to receive at maturity an amount in cash linked to the performance of the Index.

 

   

Under this characterization and tax treatment of the notes, upon receipt of a cash payment at maturity or upon a sale or exchange of the notes 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 notes 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 notes. 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-31 of product supplement SUN-1, which you should carefully review prior to investing in the notes.

General. Although there is no statutory, judicial, or administrative authority directly addressing the characterization of the notes, we intend to treat the notes for all tax purposes as single financial contracts linked to the Index that requires the investor to pay us at inception an amount equal to the purchase price of the notes and that entitles the investor to receive at maturity an amount in cash linked to the performance of the Index. Under the terms of the notes, we and every investor in the notes agree, in the absence of an administrative determination or judicial ruling to the contrary, to treat the notes as described in the preceding sentence. This discussion assumes that the notes constitute single financial contracts linked to the Index for U.S. federal income tax purposes. If the notes do not constitute single financial contracts, 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 notes.

This characterization of the notes is not binding on the Internal Revenue Service (“IRS”) or the courts. No statutory, judicial, or administrative authority directly addresses the characterization of the notes 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 notes 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 SUN-1. 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 notes, including possible alternative characterizations.

Settlement at Maturity or Sale or Exchange Prior to Maturity. Assuming that the notes are properly characterized and treated as single financial contracts linked 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 notes prior to maturity, a U.S. Holder (as defined on page S-32 in product supplement SUN-1) generally will recognize capital gain or loss equal to the difference between the amount realized and the U.S. Holder’s basis in the notes. This capital gain or loss generally will be long-term capital gain or loss if the U.S. Holder held the notes 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 notes. We cannot predict the likelihood of any such legislation or guidance being adopted, or the ultimate impact on the notes. 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 notes. According to the Notice, the IRS and Treasury are considering whether a holder of an instrument such as the notes 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 notes, 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 intend to continue treating the notes 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. We urge you to consult your own tax advisors concerning the impact and the significance of the above considerations.

Additional Medicare Tax on Unearned Income. With respect to taxable years beginning after December 31, 2012, certain U.S. Holders, including individuals, estates, and trusts, will be subject to an additional 3.8% Medicare tax on unearned income. For individual U.S. Holders, the additional Medicare tax applies to the lesser of (i) “net investment income,” or (ii) the excess of “modified adjusted gross income” over $200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). “Net investment income” generally equals the taxpayer’s gross investment income reduced by the deductions that are allocable to such income. Investment income generally includes passive income such as interest, dividends, annuities, royalties, rents, and capital gains. U.S. Holders are urged to consult their own tax advisors regarding the implications of the additional Medicare tax resulting from an investment in the notes.

 

 

Market-Linked Step Up Notes

 

 

TS-10


LOGO

 

You should consult your own tax advisor concerning the U.S. federal income tax consequences to you of acquiring, owning, and disposing of the notes, 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-31 of product supplement SUN-1.

 

 

Market-Linked Step Up Notes

 

 

TS-11


LOGO

 

Additional Terms

You should read this term sheet, together with the documents listed below, which together contain the terms of the notes 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 notes 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 notes.

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):

 

  §  

Product supplement SUN-1 dated September 22, 2009:

http://www.sec.gov/Archives/edgar/data/70858/000119312509195916/d424b5.htm

 

  §  

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.

Market-Linked Investments Classification

Market-Linked Investments come in four basic categories, each designed to meet a different set of investor risk profiles, time horizons, income requirements, and market views (bullish, bearish, moderate outlook, etc.). The following descriptions of these categories are meant solely for informational purposes and are not intended to represent any particular Market-Linked Investment or guarantee performance. Certain Market-Linked Investments may have overlapping characteristics.

LOGO

Market Downside Protection Market-Linked Investments combine some of the capital preservation features of traditional bonds with the growth potential of equities and other asset classes. They offer full or partial market downside protection at maturity, while offering market exposure that may provide better returns than comparable fixed-income securities. It is important to note that the market downside protection feature provides investors with protection only at maturity, subject to issuer credit risk. In addition, in exchange for full or partial protection, you forfeit dividends and full exposure to the linked asset’s upside. In some circumstances, this could result in a lower return than with a direct investment in the asset.

LOGO

These short- to medium-term market-linked notes offer you a way to enhance your income stream, either through variable or fixed-interest coupons, an added payout at maturity based on the performance of the linked asset, or both. In exchange for receiving current income, you will generally forfeit upside potential on the linked asset. Even so, the prospect of higher interest payments and/or an additional payout may equate to a higher return potential than you may be able to find through other fixed-income securities. Enhanced Income Market-Linked Investments generally do not include market downside protection. The degree to which your principal is repaid at maturity is generally determined by the performance of the linked asset. Although enhanced income streams may help offset potential declines in the asset, you can still lose part or all of your original investment.

LOGO

Market Access notes may offer exposure to certain market sectors, asset classes, and/or strategies that may not even be available through the other three categories of Market-Linked Investments. Subject to certain fees, the returns on Market Access Market-Linked Investments will generally correspond on a one-to-one basis with any increases or decreases in the value of the linked asset, similar to a direct investment. In some instances, they may also provide interim coupon payments. These investments do not include the market downside protection feature and, therefore, your principal remains at risk.

LOGO

These short- to medium-term investments offer you a way to enhance exposure to a particular market view without taking on a similarly enhanced level of market downside risk. They can be especially effective in a flat to moderately positive market (or, in the case of bearish investments, a flat to moderately negative market). In exchange for the potential to receive better-than market returns on the linked asset, you must generally accept a degree of market downside risk and capped upside potential. As these investments are not market downside protected, and do not assure full repayment of principal at maturity, you need to be prepared for the possibility that you may lose all or part of your investment.

 

 

Market-Linked Step Up Notes

 

 

TS-12