Filed Pursuant to Rule 433
Registration No. 333-158663
Subject to Completion
Preliminary Term Sheet dated June 2, 2011
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” and “Additional Risk Factors” on page TS-5 of this term sheet and “Risk Factors” 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
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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 |
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| Public offering price (1) |
$10.00 | $ | ||||||||
| Underwriting discount (1) |
$0.20 | $ | ||||||||
| Proceeds, before expenses, to Bank of America Corporation |
$9.80 | $ | ||||||||
| (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. 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 $9.80 per unit and $0.00 per unit, respectively. |
*Depending on the date the LIRNs 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, settlement date, or maturity date will occur is subject to change.
| Merrill Lynch & Co.
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| June , 2011 |
Units Pricing Date* June , 2011
Capped Leveraged Index Return Notes® Settlement Date* July , 2011
Linked to the Silver Spot Price, Maturity Date* July , 2013
due July , 2013 CUSIP No.
$10 principal amount per unit
Term Sheet No.
Capped Leveraged Index Return Notes®
The LIRNs have a maturity of approximately two years
The LIRNs provide 200% leveraged upside exposure to increases in the Silver Spot Price, subject to a cap of 28% to 32%
1-to-1 downside exposure to decreases in the Silver Spot Price below the Threshold Value, with up to 85% of the principal amount at risk
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 Income
Market Access
Enhanced Return
Summary
The Capped Leveraged Index Return Notes® Linked to the Silver Spot Price, due July , 2013 (the “LIRNs”) are our senior unsecured debt securities. The LIRNs are not guaranteed or insured by the Federal Deposit Insurance Corporation or secured by collateral. 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 Silver Spot Price (as defined below) increases moderately from the Starting Value to the Ending Value. 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.
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Capped Leveraged Index Return Notes® |
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 85% of the Starting Value, and a hypothetical Capped Value of $13.00 (a 30% return), the midpoint of the Capped Value range of $12.80 to $13.20. The green line reflects the hypothetical returns on the LIRNs, while the dotted gray line reflects the hypothetical returns of a direct investment in silver, as measured by the Silver Spot Price.
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 hypothetical Redemption Amount calculations (rounded to two decimal places) payable at maturity, based upon the Participation Rate of 200%, a hypothetical Starting Value of 3,769.00 (the Silver Spot Price on May 27, 2011), a hypothetical Threshold Value of 3,203.65, and a hypothetical Capped Value of $13.00 per unit (the midpoint of the Capped Value range of $12.80 to $13.20).
Example 1 — The hypothetical Ending Value is 70% of the hypothetical Starting Value and is less than the hypothetical Threshold Value:
| Hypothetical Starting Value: |
3,769.00 | |||||
| Hypothetical Ending Value: |
2,638.30 | |||||
| Hypothetical Threshold Value: |
3,203.65 |
| $10 – |
[ | $10 × | ( | 3,203.65 – 2,638.30 | ) | ] | = $8.50 | |||||||||||
| 3,769.00 |
Hypothetical Redemption Amount (per unit) = $8.50
Example 2 — The hypothetical Ending Value is 95% of the hypothetical Starting Value and is greater than the hypothetical Threshold Value:
| Hypothetical Starting Value: |
3,769.00 | |||||
| Hypothetical Ending Value: |
3,580.55 | |||||
| Hypothetical Threshold Value: |
3,203.65 |
Hypothetical 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:
| Hypothetical Starting Value: |
3,769.00 | |||||
| Hypothetical Ending Value: |
3,919.76 |
| $10 + |
[ | $10 × 200% × | ( | 3,919.76 – 3,769.00 | ) | ] | = $10.80 | |||||||||||
| 3,769.00 |
Hypothetical Redemption Amount (per unit) = $10.80
Example 4 — The hypothetical Ending Value is 150% of the hypothetical Starting Value:
| Hypothetical Starting Value: |
3,769.00 | |||||
| Hypothetical Ending Value: |
5,653.50 |
| $10 + |
[ | $10 × 200% × | ( | 5,653.50 – 3,769.00 | ) | ] | = $20.00 | |||||||||||
| 3,769.00 |
Hypothetical Redemption Amount (per unit) = $13.00 (The Redemption Amount cannot be greater than the Capped Value.)
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Capped Leveraged Index Return Notes® |
TS-3 |
The following table illustrates, for a hypothetical Starting Value of 3,769.00 (the Silver Spot Price on May 27, 2011), a 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 LIRNs (rounded to two decimal places); and |
| § | the hypothetical total rate of return to holders of the LIRNs. |
The table below is based on the Participation Rate of 200% and a hypothetical Capped Value of $13.00 per unit (the midpoint of the Capped Value range of $12.80 to $13.20).
| Hypothetical Ending Value |
Percentage Change from the Hypothetical Starting Value to the Hypothetical Ending Value |
Hypothetical Redemption Amount per Unit |
Hypothetical Total Rate of Return on the LIRNs | |||||||||||||||
| 1,884.50 | -50.00 | % | $6.50 | -35.00 | % | |||||||||||||
| 2,261.40 | -40.00 | % | $7.50 | -25.00 | % | |||||||||||||
| 2,638.30 | -30.00 | % | $8.50 | -15.00 | % | |||||||||||||
| 3,015.20 | -20.00 | % | $9.50 | -5.00 | % | |||||||||||||
| 3,203.65 | (1) | -15.00 | % | $10.00 | 0.00 | % | ||||||||||||
| 3,392.10 | -10.00 | % | $10.00 | 0.00 | % | |||||||||||||
| 3,618.24 | -4.00 | % | $10.00 | 0.00 | % | |||||||||||||
| 3,693.62 | -2.00 | % | $10.00 | 0.00 | % | |||||||||||||
| 3,769.00 | (2) | 0.00 | % | $10.00 | 0.00 | % | ||||||||||||
| 3,844.38 | 2.00 | % | $10.40 | 4.00 | % | |||||||||||||
| 3,919.76 | 4.00 | % | $10.80 | 8.00 | % | |||||||||||||
| 4,145.90 | 10.00 | % | $12.00 | 20.00 | % | |||||||||||||
| 4,522.80 | 20.00 | % | $13.00 | (3) | 30.00 | % | ||||||||||||
| 4,899.70 | 30.00 | % | $13.00 | 30.00 | % | |||||||||||||
| 5,276.60 | 40.00 | % | $13.00 | 30.00 | % | |||||||||||||
| 5,653.50 | 50.00 | % | $13.00 | 30.00 | % | |||||||||||||
| (1) | This is the hypothetical Threshold Value, which is 85% of the hypothetical Starting Value. The actual Threshold Value will be determined on the pricing date. |
| (2) | This is the hypothetical Starting Value, which was the Silver Spot Price on May 27, 2011. The actual Starting Value will be determined on the pricing date. |
| (3) | The Redemption Amount per unit of the LIRNs cannot exceed the hypothetical Capped Value of $13.00 (the midpoint of the Capped Value range of $12.80 to $13.20). The actual Capped Value will be determined on the pricing date. |
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.
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Capped Leveraged Index Return Notes® |
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.
| § | 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. |
| § | Your investment return, if any, is limited to the return represented by the Capped Value. |
| § | Your investment return, if any, may be less than a comparable investment directly in silver. |
| § | You must rely on your own evaluation of the merits of an investment linked to the Silver Spot Price. |
| § | In seeking to provide you with what we believe to be competitive terms for the LIRNs while providing MLPF&S with compensation for its services, we have considered the costs of developing, hedging, and distributing the LIRNs described on page TS-7. The price at which you may sell the LIRNs in any secondary market may be lower than the public offering price due to, among other things, the inclusion of these costs. |
| § | A trading market is not expected to develop for the LIRNs. MLPF&S is not obligated to make a market for, or to repurchase, the LIRNs. |
| § | The Redemption Amount will not be affected by all developments relating to the Silver Spot Price. |
| § | Ownership of the LIRNs will not entitle you to any rights with respect to silver or any related futures contracts. |
| § | 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 the Original Offering Price. |
| § | 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. |
| § | The Silver Spot Price may change unpredictably, affecting the value of the LIRNs in unforeseeable ways. |
| § | Suspensions or disruptions of market trading in silver and related futures markets may adversely affect the value of the LIRNs. |
| § | The LIRNs will not be regulated by the U.S. Commodity Futures Trading Commission. |
| § | Trading in silver and related futures and options by us and our affiliates 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 LIRNs and their market value. |
| § | 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 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. |
Additional Risk Factors
Silver prices are highly volatile and there is risk associated with investing in silver or silver-linked LIRNs.
Silver prices are subject to highly volatile price movements over short periods of time and are affected by numerous factors. Factors that cause silver prices to be volatile include economic factors, including the structure of and confidence in the global monetary system, expectations of the future rate of inflation, the relative strength of, and confidence in, the U.S. dollar (the currency in which the price of silver is generally quoted), interest rates, and global or regional economic, financial, political, regulatory, judicial, or other events. Silver prices may also be affected by industry factors such as industrial and jewelry demand, sales and purchases of silver by the official sector, including central banks and other governmental agencies and multilateral institutions which hold silver, levels of silver production and production costs in countries where silver is mined, such as Mexico and Peru, short-term changes in supply and demand because of trading activities in the silver market, and investment in financial products associated with silver. It is not possible to predict the aggregate effect of all or any combination of these factors.
The Silver Spot Price is derived from a principals’ market which operates as an over-the-counter (“OTC”) physical commodity market. Certain features of U.S. futures markets are not present in the context of trading on such principals’ markets. For example, there are no daily price limits, which would otherwise restrict the extent of daily fluctuations in the prices of the commodities in such markets. In a declining market, therefore, it is possible that prices would continue to decline without limitation within a trading day or over a period of trading days.
The market value of the LIRNs may be affected by price movements in distant-delivery futures contracts associated with the Silver Spot Price.
The price movements in the Silver Spot Price may not be reflected in the market value of the LIRNs. If you are able to sell your LIRNs, the price you receive could be affected by changes in the values of futures contracts for silver which have more distant delivery dates than the Silver Spot Price. The prices for these distant-delivery futures contracts may not increase to the same extent as the Silver Spot Price, or may decrease to a greater extent, which may adversely affect the value of the LIRNs.
Changes in the methodology used to calculate the Silver Spot Price or changes in laws or regulations may affect the value of the LIRNs.
Members of the London Bullion Market Association (the “LBMA”) set the Silver Spot Price and may adjust the determination of the Silver Spot Price in a way that adversely affects the value of the LIRNs. In setting the Silver Spot Price, these members have no obligation to consider your interests. The LBMA may from time to time change any rule or bylaw or take emergency action under its rules, any of which could affect the Silver Spot Price. Any change of this kind could cause a decrease in the Silver Spot Price, which would adversely affect the value of the LIRNs.
In addition, the price of silver could be adversely affected by the promulgation of new laws or regulations or by the reinterpretation of existing laws or regulations (including, without limitation, those relating to taxes and duties on commodities or commodity components) by one or more governments,
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Capped Leveraged Index Return Notes® |
TS-5 |
governmental agencies or instrumentalities, courts, or other official bodies. Any event of this kind could adversely affect the Silver Spot Price and, as a result, could adversely affect the value of the LIRNs.
Other Terms of the LIRNs
The provisions of this section supersede and replace the definition of “Market Disruption Event” set forth beginning on page S-28 of product supplement LIRN-2.
Market Disruption Event
A “Market Disruption Event” means any of the following events, as determined in good faith by the calculation agent:
| (A) | the suspension of or material limitation on trading in silver, or futures contracts or options related to silver, on the Relevant Market (as defined below); |
| (B) | the failure of trading to commence, or permanent discontinuance of trading, in silver, or futures contracts or options related to silver, on the Relevant Market; |
| (C) | the failure of the LBMA (as defined above) to calculate or publish the official fixing price of silver for that day (or the information necessary for determining the official fixing price); or |
| (D) | any other event, if the calculation agent determines in its sole discretion that the event materially interferes with our ability or the ability of any of our affiliates to unwind all or a material portion of a hedge that we or our affiliates have effected or may effect as to the LIRNs. |
For the purpose of determining whether a Market Disruption Event has occurred:
| (A) | a limitation on the hours in a trading day and/or number of days of trading will not constitute a Market Disruption Event if it results from an announced change in the regular trading hours of the Relevant Market; and |
| (B) | a suspension of or material limitation on trading in the Relevant Market will not include any time when trading is not conducted or prices are not quoted by the LBMA in the Relevant Market under ordinary circumstances. |
Relevant Market
“Relevant Market” means the market in London on which members of the LBMA, or any successor thereto, quote prices for the buying and selling of silver, or if such market is no longer the principal trading market for silver or options or futures contracts for silver, such other exchange or principal trading market for silver as determined in good faith by the calculation agent which serves as the source of prices for silver, and any principal exchanges where options or futures contracts on silver are traded.
Investor Considerations
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Capped Leveraged Index Return Notes® |
TS-6 |
Supplement to the Plan of Distribution; Role of MLPF&S and Conflicts of Interest
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.
The LIRNs will not be listed on any securities exchange. In the original offering, the LIRNs will be sold in minimum investment amounts of 100 units.
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 LIRNs. Accordingly, offerings of the LIRNs will conform to the requirements of Rule 5121 applicable to FINRA members. MLPF&S may not make sales in this offering to any of its discretionary accounts without the prior written approval of the account holder.
Under our distribution agreement with MLPF&S, MLPF&S will purchase the LIRNs from us as principal at the public offering price indicated on the cover of this term sheet, less the indicated underwriting discount. The public offering price includes, in addition to the underwriting discount, a charge of approximately $0.075 per unit. This charge reflects an estimated profit earned by MLPF&S from transactions through which the LIRNs are structured and resulting obligations hedged. The fees charged reduce the economic terms of the notes. Actual profits or losses from these hedging transactions may be more or less than this amount. In entering into the hedging arrangements for the LIRNs, we seek competitive terms and may enter into hedging transactions with a division of MLPF&S or one of our subsidiaries or affiliates. For further information regarding these charges, our trading and hedging activities and other conflicts of interest, see “General Risks Relating to LIRNs,” beginning on page S-10 and “Use of Proceeds” on page S-21 in Product Supplement No. LIRN-2.
MLPF&S will not receive an underwriting discount for LIRNs sold to certain fee-based trusts and fee-based discretionary accounts managed by U.S. Trust operating through Bank of America, N.A.
If you place an order to purchase the LIRNs, you are consenting to MLPF&S acting as a principal in effecting the transaction for your account.
MLPF&S may repurchase and resell the LIRNs, with repurchases and resales being made at prices related to then-prevailing market prices or at negotiated prices. MLPF&S may act as principal or agent in these market-making transactions; however it is not obligated to engage in any such transactions.
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Capped Leveraged Index Return Notes® |
TS-7 |
The Silver Spot Price
The Silver Spot Price is a benchmark price used in the markets where silver is sold. The Silver Spot Price is published by Bloomberg, L.P. (“Bloomberg”) under the symbol SLVRLN <Index>. The Silver Spot Price is the official silver U.S. cents fixing per troy ounce of silver determined by three market-making members of the LBMA. The three current members meet by telephone each London business day at 12:00 P.M. London time to determine the Silver Spot Price. Currently, the three members are The Bank of Nova Scotia — ScotiaMocatta, Deutsche Bank AG, London branch, and HSBC Bank USA, N.A., London branch.
The London bullion market is an OTC market, as opposed to an exchange-traded environment. Members of the London bullion market typically trade with each other and with their clients on a principal-to-principal basis. All risks, including those of credit, are between the two parties to a transaction.
An investment in the LIRNs does not entitle you to any ownership interest, either directly or indirectly, in silver or in any silver transaction traded on the London bullion market.
The LIRNs are not sponsored, endorsed, sold, or promoted by the LBMA. The LBMA takes no responsibility for the accuracy and/or the completeness of information provided in this term sheet, the LIRN-2 product supplement, the MTN prospectus supplement, or the prospectus. In addition, the LBMA 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 the quantities of the LIRNs to be issued or in the determination or calculation of the Redemption Amount. The LBMA has no obligation in connection with the administration, marketing, or trading of the LIRNs.
The following graph sets forth the monthly historical performance of the Silver Spot Price in the period from January 2006 through May 2011. This historical data on the Silver Spot Price is not necessarily indicative of the future performance of the Silver Spot Price or what the value of the LIRNs may be. Any historical upward or downward trend in the Silver Spot Price during any period set forth below is not an indication that the Silver Spot Price is more or less likely to increase or decrease at any time over the term of the LIRNs. On May 27, 2011, the Silver Spot Price was 3,769.00.
Before investing in the LIRNs, you should consult publicly available sources for the levels and trading pattern of the Silver Spot Price. The generally unsettled international environment and related uncertainties, including the risk of terrorism, may result in the Silver Spot Price and financial markets generally exhibiting greater volatility than in earlier periods.
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Capped Leveraged Index Return Notes® |
TS-8 |
Summary Tax Consequences
You should consider the U.S. federal income tax consequences of an investment in the LIRNs, 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 LIRNs for all tax purposes as a single financial contract with respect to the Silver Spot Price 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 Silver Spot Price. |
| • | 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 Silver Spot Price 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 Silver Spot Price. 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 Silver Spot Price 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 Silver Spot Price 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 on page S-36 of product supplement LIRN-2) generally will recognize capital gain or loss equal to the difference between the amount realized and the U.S. Holder’s 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.
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 LIRNs.
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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Capped Leveraged Index Return Notes® |
TS-9 |
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” and “Additional 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):
| § | Product supplement LIRN-2 dated April 21, 2009: |
http://www.sec.gov/Archives/edgar/data/70858/000095014409003415/g18702p2e424b5.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.
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.
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.
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.
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.
“Leveraged Index Return Notes®” and “LIRNs®” are our registered service marks.
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Capped Leveraged Index Return Notes® |
TS-10 |