Filed Pursuant to Rule 433
Registration No. 333-180488
Subject to Completion
Preliminary Term Sheet dated November 30, 2012
The notes are being issued by Bank of America Corporation (“BAC”). There are important differences between the notes and a conventional debt security, including different investment risks and certain additional costs. See “Risk Factors” on page TS-6 of this term sheet and beginning on page S-9 of product supplement FX-STEP UP-3.
The estimated initial value of the notes at the time the terms of the notes are set will be less than the public offering price. See “Summary” on the following page, “Risk Factors” on page TS-6 of this term sheet and “Structuring the Notes” on page TS-11 of this term sheet for additional information. The actual value of your notes at any time will reflect many factors and cannot be predicted with accuracy.
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 (as defined below) is truthful or complete. Any representation to the contrary is a criminal offense.
| Per Unit |
Total |
|||||||||
| Public offering price (1) (2) |
$10.000 | $ | ||||||||
| Underwriting discount (1) (2) |
$0.175 | $ | ||||||||
| Proceeds, before expenses, to BAC |
$9.825 | $ | ||||||||
| (1) | For any purchase of 500,000 units or more in a single transaction by an individual investor, the public offering price and the underwriting discount will be $9.95 per unit and $0.125 per unit, respectively. |
| (2) | For any purchase by certain fee-based trusts and discretionary accounts managed by U.S. Trust operating through Bank of America, N.A., the public offering price and underwriting discount will be $9.825 per unit and $0.00 per unit, respectively. |
The notes:
| Are Not FDIC Insured | Are Not Bank Guaranteed | May Lose Value |
Merrill Lynch & Co.
January , 2013
Units
$10 principal amount per unit
CUSIP No.
Pricing Date* January , 2013
Settlement Date* January , 2013
Maturity Date* January , 2015
*Subject to change based on the actual date the notes are priced for initial sale to the public (the “pricing date”)
Currency-Linked Step Up Notes Linked to the Indian Rupee/U.S. Dollar Exchange Rate Measure
Maturity of approximately two years
Linked to the Indian Rupee/U.S. Dollar Exchange Rate (the “Exchange Rate Measure”), which measures the value of an investment in the Indian Rupee relative to the U.S. dollar
If the Indian Rupee strengthens relative to the U.S. dollar, the Exchange Rate Measure increases, and if the Indian Rupee weakens relative to the U.S. dollar, the Exchange Rate Measure decreases
If the Exchange Rate Measure is flat or increases up to the Step Up Value, a return of [10% to 16%]
If the Exchange Rate Measure increases above the Step Up Value, a return equal to the percentage increase in the Exchange Rate Measure
If the Exchange Rate Measure decreases, payment at maturity will be 1-to-1 downside exposure to decreases in the Exchange Rate Measure, with up to 10% of your principal at risk
All payments occur at maturity and are subject to the credit risk of Bank of America Corporation
No periodic interest payments
Limited secondary market liquidity, with no exchange listing
Market Downside Protection
| Currency-Linked Step Up Notes Linked to the Indian Rupee/U.S. Dollar Exchange Rate Measure, due January , 2015 |
|
Summary
The Currency-Linked Step Up Notes Linked to the Indian Rupee/U.S. Dollar Exchange Rate Measure, due January , 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. Any payments due on the notes, including any repayment of principal, will be subject to the credit risk of BAC.
The notes are linked to the Indian Rupee/U.S. Dollar Exchange Rate Measure (the “Exchange Rate Measure”), which measures the value of an investment in the Indian Rupee relative to the U.S. dollar. If the Indian Rupee strengthens relative to the U.S. dollar, the Exchange Rate Measure increases, and if the Indian Rupee weakens relative to the U.S. dollar, the Exchange Rate Measure decreases.
The notes provide you with a Step Up Payment if the Ending Value (as determined below) of the Exchange Rate Measure is equal to or greater than the Starting Value, but is not greater than the Step Up Value. If the Ending Value is greater than the Step Up Value, you will participate on a 1-for-1 basis in the increase in the level of the Exchange Rate Measure above the Starting Value. If the Ending Value is less than the Starting Value, you may lose up to 10% of the principal amount of your notes. The amount you receive at maturity will be calculated based on the $10 Original Offering Price per unit and the performance of the Exchange Rate Measure. See “Terms of the Notes” below.
Payments on the notes depend on our credit risk and on the performance of the Exchange Rate Measure. The economic terms of the notes (including the Step Up Payment) are based on the rate we would pay to borrow funds through the issuance of market-linked notes and the terms of certain related hedging arrangements. The implied borrowing rate for market-linked notes is typically lower than the rate we would pay when we issue conventional fixed or floating rate debt securities. This difference in borrowing rate, as well as the underwriting discount and the hedging related charge described below, will reduce the economic terms of the notes to you and the estimated initial value of the notes.
Due to these factors, the public offering price you pay to purchase the notes will be greater than the estimated initial value of the notes determined immediately at the time the terms of the notes are set. This estimated initial value is expected to be between $9.65 and $9.70 per unit. The estimated initial value will be calculated shortly before pricing and will be set forth in the final term sheet made available to investors in the notes. For more information about the estimated initial value and the structuring of the notes, see “Structuring the Notes” on page TS-11.
|
Currency-Linked Step Up Notes |
TS-2 |
| Currency-Linked Step Up Notes Linked to the Indian Rupee/U.S. Dollar Exchange Rate Measure, due January , 2015 |
|
The terms and risks of the notes are contained in this term sheet and in the following:
| § | Product supplement FX-STEP UP-3 dated April 3, 2012: |
http://www.sec.gov/Archives/edgar/data/70858/000119312512146679/d327908d424b5.htm
| § | Series L MTN prospectus supplement dated March 30, 2012 and prospectus dated March 30, 2012: |
http://www.sec.gov/Archives/edgar/data/70858/000119312512143855/d323958d424b5.htm
These documents (together, the “Note Prospectus”) have been filed as part of a registration statement with the SEC, which may, without cost, be accessed on the SEC website as indicated above or obtained from MLPF&S by calling 1-866-500-5408. Before you invest, you should read the Note Prospectus, including this term sheet, for information about us and this offering. Any prior or contemporaneous oral statements and any other written materials you may have received are superseded by the Note Prospectus. Capitalized terms used but not defined in this term sheet have the meanings set forth in product supplement FX-STEP UP-3. Unless otherwise indicated or unless the context requires otherwise, all references in this document to “we,” “us,” “our,” or similar references are to BAC.
Investor Considerations
We urge you to consult your investment, legal, tax, accounting, and other advisors before you invest in the notes.
|
Currency-Linked Step Up Notes |
TS-3 |
| Currency-Linked Step Up Notes Linked to the Indian Rupee/U.S. Dollar Exchange Rate Measure, due January , 2015 |
|
Hypothetical Payout Profile and Examples of
Payments at Maturity
The below graph is based on hypothetical numbers and values.
|
This graph reflects the returns on the notes, based on a Step Up Payment of $1.30 (the midpoint of the Step Up Payment range of [$1.00 to $1.60]), a Step Up Value of 113% of the Starting Value (the midpoint of the Step Up Value range of [110% to 116%]), and the Minimum Redemption Amount of $9.00 per unit. The blue line reflects the returns on the notes, while the dotted gray line reflects the returns of a direct investment in the Exchange Rate Measure.
This graph has been prepared for purposes of illustration only. |
The following table and examples are for purposes of illustration only. They illustrate the calculation of the Redemption Amount and total rate of return based on the Starting Value of 100, the Minimum Redemption Amount of $9.00, a hypothetical Step Up Value of 113, a hypothetical Step Up Payment of $1.30 per unit and a range of hypothetical Ending Values. The actual amount you receive and the resulting total rate of return will depend on the actual Ending Value, Step Up Value, Step Up Payment and whether you hold the notes to maturity. The following examples do not take into account any tax consequences from investing in the notes.
| Ending Value |
Percentage Change from Value to the Ending Value |
Redemption |
Total Rate | |||||||||||||||
| 50.00 | -50.00 | % | $9.00 | -10.00 | % | |||||||||||||
| 60.00 | -40.00 | % | $9.00 | -10.00 | % | |||||||||||||
| 70.00 | -30.00 | % | $9.00 | -10.00 | % | |||||||||||||
| 80.00 | -20.00 | % | $9.00 | -10.00 | % | |||||||||||||
| 85.00 | -15.00 | % | $9.00 | -10.00 | % | |||||||||||||
| 90.00 | -10.00 | % | $9.00 | (1) | -10.00 | % | ||||||||||||
| 95.00 | -5.00 | % | $9.50 | -5.00 | % | |||||||||||||
| 97.00 | -3.00 | % | $9.70 | -3.00 | % | |||||||||||||
| 99.00 | -1.00 | % | $9.90 | -1.00 | % | |||||||||||||
| 100.00 | (2) | 0.00 | % | $11.30 | (3) | 13.00 | % | |||||||||||
| 102.00 | 2.00 | % | $11.30 | 13.00 | % | |||||||||||||
| 105.00 | 5.00 | % | $11.30 | 13.00 | % | |||||||||||||
| 110.00 | 10.00 | % | $11.30 | 13.00 | % | |||||||||||||
| 113.00 | (4) | 13.00 | % | $11.30 | 13.00 | % | ||||||||||||
| 115.00 | 15.00 | % | $11.50 | 15.00 | % | |||||||||||||
| 120.00 | 20.00 | % | $12.00 | 20.00 | % | |||||||||||||
| 130.00 | 30.00 | % | $13.00 | 30.00 | % | |||||||||||||
| 150.00 | 50.00 | % | $15.00 | 50.00 | % | |||||||||||||
| 175.00 | 75.00 | % | $17.50 | 75.00 | % | |||||||||||||
| (1) | The Redemption Amount per unit will not be less than the Minimum Redemption Amount. |
| (2) | The Starting Value will be set to 100.00 on the pricing date. |
| (3) | This amount represents the sum of the Original Offering Price and the hypothetical Step Up Payment of $1.30. |
| (4) | This is the hypothetical Step Up Value. |
|
Currency-Linked Step Up Notes |
TS-4 |
| Currency-Linked Step Up Notes Linked to the Indian Rupee/U.S. Dollar Exchange Rate Measure, due January , 2015 |
|
Redemption Amount Calculation Examples
Example 1
The Ending Value is 75.00, or 75.00% of the Starting Value:
| Starting Value: | 100.00 | |||||
| Ending Value: | 75.00 |
| Redemption Amount (per unit) = the greater of (a) $10 + |
[ | $10 × | ( | 75.00 – 100.00 | ) | ] | = $7.50 and (b) $9.00 | |||||||||||
| 100.00 |
Redemption Amount (per unit) = $9.00 (The Redemption Amount cannot be less than the Minimum Redemption Amount.)
Example 2
The Ending Value is 110.00, or 110.00% of the Starting Value:
| Starting Value: | 100.00 | |||||
| Step Up Value: | 113.00 | |||||
| Ending Value: | 110.00 |
| $10.00 + $1.30 = $11.30 | Redemption Amount per unit, the Original Offering Price plus the Step Up Payment, since the Ending Value is equal to or greater than the Starting Value, but less than the Step Up Value. |
Example 3
The Ending Value is 150.00, or 150.00% of the Starting Value:
| Starting Value: | 100.00 | |||||
| Step Up Value: | 113.00 | |||||
| Ending Value: | 150.00 |
| $10 + |
[ | $10 × | ( | 150.00 – 100.00 | ) | ] | = $15.00 | Redemption Amount per unit | ||||||||||
| 100.00 |
|
Currency-Linked Step Up Notes |
TS-5 |
| Currency-Linked Step Up Notes Linked to the Indian Rupee/U.S. Dollar Exchange Rate Measure, due January , 2015 |
|
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-9 of product supplement FX- STEP UP-3, page S-5 of the MTN prospectus supplement, and page 8 of the prospectus identified above under “Summary.” We also urge you to consult your investment, legal, tax, accounting, and other advisors before you invest in the notes.
| § | Depending on the performance of the Exchange Rate Measure as measured shortly before the maturity date, you may not earn a return on your investment and you may lose up to 10% of your principal amount. |
| § | Your return on the notes may be less than the yield you could earn by owning a conventional fixed or floating rate debt security of comparable maturity. |
| § | Payments on the notes are subject to our credit risk, and actual or perceived changes in our creditworthiness are expected to affect the value of the notes. If we become insolvent or are unable to pay our obligations, you may lose your entire investment. |
| § | Your investment return, if any, may be less than a comparable investment directly in the Indian Rupee. |
| § | The public offering price you pay for the notes will exceed their estimated initial value. The estimated initial value of the notes that will be provided in the final term sheet is an estimate only, calculated to reflect the costs and charges included in the notes and the implied borrowing rate at the time the terms of the notes are set, and is provided for informational purposes only. The estimated initial value does not represent a minimum price at which we, MLPF&S or any of our affiliates would be willing to purchase your notes in any secondary market (if any exists) at any time. The value of your notes at any time after issuance will vary based on many factors, including changes in market conditions, and cannot be predicted with accuracy. |
| § | A trading market is not expected to develop for the notes. Neither we nor MLPF&S is obligated to make a market for, or to repurchase, the notes. There is no assurance that any party will be willing to purchase your notes at any price in any secondary market. |
| § | If you attempt to sell the notes prior to maturity, their market value may be lower than the price you paid for them and lower than their estimated initial value. This is due to, among other things, changes in the value of the Exchange Rate Measure, the implied borrowing rate we pay to issue market-linked notes, and the inclusion in the public offering price of the underwriting discount and the hedging related charge, all as further described in “Structuring the Notes” on page TS-11. These factors, together with various credit, market and economic factors over the term of the notes, are expected to reduce the price at which you may be able to sell the notes in any secondary market and will affect the value of the notes in complex and unpredictable ways. |
| § | Our business activities as a full service financial institution, including our commercial and investment banking activities, our hedging and trading activities (including trades in the U.S. dollar and the Indian Rupee) and any hedging and trading activities we engage in for our clients’ accounts, may affect the market value of the notes and their return and 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 return on the notes depends on the Exchange Rate Measure, which is affected by many complex factors outside of our control. |
| § | The Exchange Rate could be affected by the actions of the governments of India and the United States. |
| § | Even though currencies trade around-the-clock, the notes will not trade around-the-clock, and the prevailing market prices for the notes may not reflect the current Exchange Rate. |
| § | Suspensions or disruptions of market trading in the Indian Rupee and the U.S. dollar may adversely affect the value of the notes. |
| § | The notes are payable only in U.S. dollars and you will have no right to receive any payments in Indian Rupees. |
| § | You should consider the tax consequences of investing in the notes. See “Summary Tax Consequences” below and “U.S. Federal Income Tax Summary” beginning on page S-24 of product supplement FX-STEP UP-3. |
|
Currency-Linked Step Up Notes |
TS-6 |
| Currency-Linked Step Up Notes Linked to the Indian Rupee/U.S. Dollar Exchange Rate Measure, due January , 2015 |
|
The Exchange Rate Measure
The notes are designed to allow investors to participate in the movement of the Exchange Rate Measure. If the Exchange Rate Measure increases from its Starting Value to its Ending Value (that is, the Indian Rupee strengthens relative to the U.S. dollar), the notes provide a positive return at maturity.
The Exchange Rate Measure is designed to track the value of an investment in the Indian Rupee relative to the U.S. dollar, based upon the Exchange Rate. The Exchange Rate will be the number of Indian Rupees for which one U.S. dollar can be exchanged. Accordingly, an increase in the Exchange Rate means that the Indian Rupee has weakened relative to the U.S. dollar (and the Exchange Rate Measure will decrease); a decrease in the Exchange Rate means that the Indian Rupee has strengthened relative to the U.S. dollar (and the Exchange Rate Measure will increase).
The Starting Value of the Exchange Rate Measure will be set to 100 on the pricing date.
The Ending Value will equal:
| 100 + |
[ | 100 × | ( | Initial Exchange Rate – Final Exchange Rate | ) | ] | ||||||||||||||||
| Final Exchange Rate |
The Initial Exchange Rate and the Final Exchange Rate will be the Exchange Rate as reported by Reuters Group PLC (“Reuters”) on page RBIB, or any substitute page thereto, under USD, at approximately 12:30 p.m. in Mumbai, India, on the pricing date or calculation day, as applicable, subject to postponement as described below.
If the following events occur (each, a “Non-Publication Event”):
| • | the Exchange Rate is not quoted on the applicable page indicated above on the pricing date (for purposes of determining the Initial Exchange Rate); or |
| • | the calculation agent determines that the scheduled calculation day is not a business day by reason of an extraordinary event, occurrence, declaration, or otherwise, or the Exchange Rate is not quoted on the page indicated above on the scheduled calculation day (for purposes of determining the Final Exchange Rate), |
then the calculation agent will determine the Initial Exchange Rate or the Final Exchange Rate, as applicable, on the next applicable business day on which the Exchange Rate is so quoted.
However, in no event will the determination of the Exchange Rate be postponed to a date (the “final determination date”) that is later than the close of business in New York, New York on the second scheduled business day following the pricing date (for purposes of determining the Initial Exchange Rate) or the close of business in New York, New York on the second scheduled business day prior to the maturity date (for purposes of determining the Final Exchange Rate).
If, following a Non-Publication Event and postponement as described above, the Exchange Rate remains not quoted on the final determination date, the Initial Exchange Rate or the Final Exchange Rate, as applicable, will nevertheless be determined on the final determination date. The calculation agent, in its sole discretion, will determine the Initial Exchange Rate or the Final Exchange Rate on the applicable final determination date in a manner which the calculation agent considers commercially reasonable under the circumstances. In making its determination, the calculation agent may take into account spot quotations for the Exchange Rate and any other information that it deems relevant.
The final term sheet will set forth the Initial Exchange Rate and a brief statement of the facts relating to the determination of the Initial Exchange Rate as a result of a Non-Publication Event on the pricing date, if any.
|
Currency-Linked Step Up Notes |
TS-7 |
| Currency-Linked Step Up Notes Linked to the Indian Rupee/U.S. Dollar Exchange Rate Measure, due January , 2015 |
|
Hypothetical Calculations of the Ending Value
Set forth below are two examples of hypothetical Ending Value calculations (rounded to two decimal places), based on a hypothetical Initial Exchange Rate of 55.1250, based on the Exchange Rate as reported on Bloomberg L.P. on November 21, 2012, and assuming hypothetical Final Exchange Rates as follows.
Example 1:
| Hypothetical Initial Exchange Rate: | 55.1250 | ||||||
| Hypothetical Final Exchange Rate: | 110.2500 |
In this case, the Indian Rupee has weakened relative to the U.S. dollar.
The hypothetical Ending Value would be 50.00, determined as follows:
| Ending Value = 100 + | [ | 100 × | ( | 55.1250 – 110.2500 | ) | ] | = 50.00 | |||||||||||
| 110.2500 |
Example 2:
| Hypothetical Initial Exchange Rate: | 55.1250 | ||||||
| Hypothetical Final Exchange Rate: | 49.6125 |
In this case, the Indian Rupee has strengthened relative to the U.S. dollar.
The hypothetical Ending Value would be 111.11, determined as follows:
| Ending Value = 100 + | [ | 100 × | ( | 55.1250 – 49.6125 | ) | ] | = 111.11 | |||||||||||
| 49.6125 |
|
Currency-Linked Step Up Notes |
TS-8 |
| Currency-Linked Step Up Notes Linked to the Indian Rupee/U.S. Dollar Exchange Rate Measure, due January , 2015 |
|
Historical Data on the Exchange Rates
The following table shows the high and low daily Exchange Rates from the first quarter of 2007 through November 21, 2012. We obtained this historical data from Bloomberg, L.P. As described above, the Exchange Rate is expressed as the number of Indian Rupees for which one U.S. dollar can be exchanged. As a result, the “High” values represent the weakest the Indian Rupee was relative to the U.S. dollar for the given quarter, while the “Low” values represent the strongest the Indian Rupee was relative to the U.S. dollar for the given quarter.
On November 21, 2012, the Exchange Rate was 51.1250 Indian Rupees per U.S. dollar.
| High | Low | |||||||||
| 2007 |
||||||||||
| First Quarter |
44.6575 | 43.0350 | ||||||||
| Second Quarter |
43.1450 | 40.4900 | ||||||||
| Third Quarter |
41.3162 | 39.7035 | ||||||||
| Fourth Quarter |
39.9000 | 39.2775 | ||||||||
| 2008 |
||||||||||
| First Quarter |
40.7300 | 39.2650 | ||||||||
| Second Quarter |
43.0400 | 39.7650 | ||||||||
| Third Quarter |
46.9550 | 42.0637 | ||||||||
| Fourth Quarter |
50.2900 | 46.6100 | ||||||||
| 2009 |
||||||||||
| First Quarter |
51.9700 | 48.2550 | ||||||||
| Second Quarter |
50.5200 | 46.9475 | ||||||||
| Third Quarter |
49.0825 | 47.5175 | ||||||||
| Fourth Quarter |
47.7550 | 46.0912 | ||||||||
| 2010 |
||||||||||
| First Quarter |
46.8112 | 44.9175 | ||||||||
| Second Quarter |
47.6963 | 44.2938 | ||||||||
| Third Quarter |
47.3638 | 44.9450 | ||||||||
| Fourth Quarter |
45.9350 | 44.1050 | ||||||||
| 2011 |
||||||||||
| First Quarter |
45.9050 | 44.5850 | ||||||||
| Second Quarter |
45.3325 | 44.0769 | ||||||||
| Third Quarter |
49.5750 | 44.0756 | ||||||||
| Fourth Quarter |
53.7150 | 48.6950 | ||||||||
| 2012 |
||||||||||
| First Quarter |
53.3075 | 48.6950 | ||||||||
| Second Quarter |
57.1550 | 50.7150 | ||||||||
| Third Quarter |
56.1600 | 52.8600 | ||||||||
| Fourth Quarter (through November 21, 2012) |
55.1750 | 51.7450 | ||||||||
|
Currency-Linked Step Up Notes |
TS-9 |
| Currency-Linked Step Up Notes Linked to the Indian Rupee/U.S. Dollar Exchange Rate Measure, due January , 2015 |
|
The following graph shows the monthly historical values of the Exchange Rate Measure from January 1, 2007 through October 2012, based upon historical Exchange Rates as of the end of each month. For purposes of this graph, the value of the Exchange Rate Measure was set to 100 as of December 31, 2006 and the value of the Exchange Rate Measure as of the end of each month is based upon the Ending Value as of the end of that month, calculated as described in the section “The Exchange Rate Measure” above. We obtained this historical data on the Exchange Rate from Bloomberg L.P. We have not independently verified the accuracy or completeness of the information obtained from Bloomberg L.P.
This historical data on the Exchange Rate Measure is not necessarily indicative of the future performance of the Exchange Rate Measure or what the value of the notes may be. Any historical upward or downward trend in the value of the Exchange Rate Measure during any period set forth above is not an indication that the value of the Exchange Rate Measure is more or less likely to increase or decrease at any time over the term of the notes.
Before investing in the notes, you should consult publicly available sources for the levels and trading pattern of the Exchange Rate Measure.
|
Currency-Linked Step Up Notes |
TS-10 |
| Currency-Linked Step Up Notes Linked to the Indian Rupee/U.S. Dollar Exchange Rate Measure, due January , 2015 |
|
Supplement to the Plan of Distribution; Conflicts of Interest
Under our distribution agreement with MLPF&S, MLPF&S will purchase the notes from us as principal at the public offering price indicated on the cover of this term sheet, less the indicated underwriting discount.
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 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.
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.
The notes will not be listed on any securities exchange. In the original offering of the notes, the notes will be sold in minimum investment amounts of 100 units. 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.
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.
The value of the notes shown on your account statement will be based on MLPF&S’s estimate of the value of the notes if MLPF&S or another of our affiliates were to make a market in the notes, which it is not obligated to do. That estimate will be based upon the price that MLPF&S may pay for the notes in light of then-prevailing market conditions, our creditworthiness and transaction costs. At certain times, this price may be higher than or lower than the estimated initial value of the notes. For a short initial period after the issuance of the notes, at MLPF&S’s discretion, any purchase price paid by MLPF&S in the secondary market may be, in certain circumstances, closer to the amount that you paid for the notes than to their estimated initial value. However, neither we nor any of our affiliates is obligated to purchase your notes at any price, or at a price that exceeds their estimated initial value.
MLPF&S may repurchase and resell the notes, with repurchases and resales being made at prices related to then-prevailing market prices or at negotiated prices, and these will include MLPF&S’s trading commissions and mark-ups. MLPF&S may act as principal or agent in these market-making transactions; however it is not obligated to engage in any such transactions.
Structuring the Notes
The notes are our debt securities, the return on which is linked to the performance of the Exchange Rate Measure. As is the case for all of our debt securities, including our market-linked notes, the economic terms of the notes reflect our actual or perceived creditworthiness at the time of pricing. In addition, because market-linked notes result in increased operational, funding and liability management costs to us, we typically borrow the funds under these notes at a rate that is more favorable to us than the rate that we might pay for a conventional fixed or floating rate debt security and is generally lower by an amount ranging from 0.25% to 0.50% per annum (equivalent to $0.05 to $0.10 per unit) at the time we commence the offering of our market-linked notes. This generally relatively lower implied borrowing rate, which is reflected in the economic terms of the notes, along with the fees and charges associated with market-linked notes, typically result in the estimated initial value of the notes at the time the terms of the notes are set being less than their public offering price.
At maturity, we are required to pay the Redemption Amount to holders of the notes, which will be calculated based on the performance of the Exchange Rate Measure and the $10 per unit Original Offering Price. In order to meet these payment obligations, at the time we issue the notes, we may choose to enter into certain hedging arrangements (which may include call options, put options or other derivatives) with MLPF&S or one of its affiliates. The terms of these hedging arrangements are determined by seeking bids from market participants, including MLPF&S and its affiliates, and take into account a number of factors, including our creditworthiness, interest rate movements, the volatility of the Exchange Rate Measure, the tenor of the note and the tenor of the hedging arrangements. The economic terms of the notes depend in part on the terms of these hedging arrangements.
MLPF&S has advised us that the hedging arrangements will include a hedging related charge of approximately $0.075 per unit, reflecting an estimated profit to be credited to MLPF&S from these transactions. Since hedging entails risk and may be influenced by unpredictable market forces, additional profits and losses from these hedging arrangements may be realized by the hedge providers.
The lower implied borrowing rate, the underwriting discount and the hedging -related costs and charges, reduce the economic terms of the notes to you and result in the estimated initial value for the notes (estimated at the time the terms of the notes are set) being less than the public offering price for the notes. For further information, see “Risk Factors—General Risks Relating to the Notes” beginning on page S-9 and “Use of Proceeds” on page S-17 of product supplement FX-STEP UP-3.
|
Currency-Linked Step Up Notes |
TS-11 |
| Currency-Linked Step Up Notes Linked to the Indian Rupee/U.S. Dollar Exchange Rate Measure, due January , 2015 |
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Summary Tax Consequences
You should consider the U.S. federal income tax consequences of an investment in the notes, including the following:
| • | There is no statutory, judicial, or administrative authority directly addressing the characterization of the notes. |
| • | We intend to take the position that the “denomination currency” (as defined in the applicable Treasury regulations) of the notes is the U.S. dollar and, accordingly, we intend to take the position that the notes will be treated as “contingent payment debt instruments” for U.S. federal income tax purposes, subject to taxation under the “noncontingent bond method.” No assurance can be given that the IRS or any court will agree with this characterization and tax treatment. |
| • | Under this characterization and tax treatment of the notes, a U.S. Holder will be required to report original issue discount (“OID”) or interest income based on a “comparable yield” and a “projected payment schedule” with respect to a note without regard to cash, if any, received on the notes. |
| • | The following table is based upon a hypothetical projected payment schedule (including a hypothetical Redemption Amount) and a hypothetical comparable yield equal to 1.1761% per annum (compounded semi-annually). The hypothetical comparable yield is our current estimate of the comparable yield based upon market conditions as of the date of this term sheet. It has been determined by us for purposes of illustrating the application of the Code and the Treasury regulations to the notes as if the notes had been issued on January 10, 2013 and were scheduled to mature on January 27, 2015. This tax accrual table is based upon a hypothetical projected payment schedule per $10.0000 principal amount of the notes, which would consist of a single payment of $10.2426 at maturity. The following table is for illustrative purposes only, and we make no representations or predictions as to what the actual Redemption Amount will be. The actual “projected payment schedule” will be completed on the pricing date, and included in the final term sheet. |
| Accrual Period |
Interest Deemed to Accrue on the Notes During Accrual Period per Unit |
Total Interest Deemed to Have Accrued on the Notes as of End of Accrual Period per Unit | ||
| January 10, 2013 to December 31, 2013 |
0.1146 | 0.1146 | ||
| January 1, 2014 to December 31, 2014 |
0.1193 | 0.2339 | ||
| January 1, 2015 to January 27, 2015 |
0.0087 | 0.2426 |
Hypothetical Projected Redemption Amount = $10.2426 per unit of the notes.
| • | Upon a sale, exchange, or retirement of a note prior to maturity, a U.S. Holder generally will recognize taxable gain or loss equal to the difference between the amount realized on the sale, exchange, or retirement and the holder’s tax basis in the notes. A U.S. Holder generally will treat any gain as ordinary interest income, and any loss as ordinary up to the amount of previously accrued OID and then as capital loss. At maturity, (i) if the actual Redemption Amount exceeds the projected Redemption Amount, a U.S. Holder must include such excess as interest income, or (ii) if the projected Redemption Amount exceeds the actual Redemption Amount, a U.S. Holder will generally treat such excess first as an offset to previously accrued OID for the taxable year, then as an ordinary loss to the extent of all prior OID inclusions, and thereafter as a capital loss. |
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. You should review carefully the discussion under the section entitled “U.S. Federal Income Tax Summary” beginning on page S-24 of product supplement FX-STEP UP-3.
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Currency-Linked Step Up Notes |
TS-12 |
| Currency-Linked Step Up Notes Linked to the Indian Rupee/U.S. Dollar Exchange Rate Measure, due January , 2015 |
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Where You Can Find More Information
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 Note Prospectus, including this term sheet, and the other documents 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 these documents if you so request by calling MLPF&S toll-free at 1-866-500-5408.
Market-Linked Investments Classification
MLPF&S classifies certain market-linked investments (the “Market-Linked Investments”) into categories, each with different investment characteristics. The following description is meant solely for informational purposes and is not intended to represent any particular Market Downside Protection Market-Linked Investment or guarantee any performance.
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.
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Currency-Linked Step Up Notes |
TS-13 |