Filed Pursuant to Rule 424(b)(5)
Registration No. 333-112708
Pricing Supplement No. 398
(To Prospectus dated April 14, 2004
and Prospectus Supplement dated April 15, 2004)
February 20, 2007
$7,200,000
Minimum Return Equity Appreciation Growth LinkEd Securities Basket EAGLESSM, due
February 24, 2012, Linked to a Basket of Energy Stocks
| The notes are our unsecured senior notes. |
| We will not pay interest on the notes. |
| At maturity, you will receive the principal amount of the notes plus a supplemental redemption amount, which will be at least 5.00% of the principal amount of the notes, or $50 per $1,000 principal amount, for a total payment at maturity of at least $1,050. |
| The supplemental redemption amount will be based primarily upon the performance of the common stock of a group, or basket, of 16 selected energy companies, over the term of the notes. We describe how to determine this amount beginning on page PS-4. |
| The notes will mature on February 24, 2012. |
| The notes are issued in minimum denominations of $1,000 and whole multiples of $1,000. |
| The notes will not be listed on any securities exchange. |
Per Note | Total | |||
Public offering price |
100.00% | $7,200,000 | ||
Agents commissions |
3.00% | 216,000 | ||
Proceeds (before expenses) |
97.00% | $6,984,000 |
Our notes are unsecured and are not savings accounts, deposits, or other obligations of a bank. Our notes are not guaranteed by Bank of America, N.A. or any other bank, are not insured by the Federal Deposit Insurance Corporation or any other governmental agency and involve investment risks. Potential purchasers of the notes should consider the information in Risk Factors beginning on page PS-18.
None of the Securities and Exchange Commission (the SEC), any state securities commission, or any other regulatory body has approved or disapproved of these notes or passed upon the adequacy or accuracy of this pricing supplement, the accompanying prospectus supplement, or the accompanying prospectus. Any representation to the contrary is a criminal offense.
We will deliver the notes in book-entry form only through The Depository Trust Company on or about February 23, 2007 against payment in immediately available funds.
Banc of America Securities LLC | Banc of America Investment Services, Inc. | |
Agents |
TABLE OF CONTENTS
Page | ||
PS-3 | ||
PS-18 | ||
PS-26 | ||
PS-27 | ||
PS-37 | ||
PS-38 | ||
PS-54 | ||
PS-54 | ||
PS-55 | ||
PS-61 |
Basket EAGLESSM is our service mark.
None of the energy companies included in the basket participated in the preparation of this pricing supplement, will receive any of the proceeds from this offering, or will have any obligation to make any payments to you.
PS-2
This pricing supplement relates only to our notes and does not relate to the securities of any of the companies comprising the basket described in this pricing supplement. This summary includes questions and answers that highlight selected information from the accompanying prospectus, prospectus supplement, and this pricing supplement to help you understand these notes. You should read carefully the entire prospectus, prospectus supplement, and pricing supplement to understand fully the terms of the notes, as well as the tax and other considerations important to you in making a decision about whether to invest in the notes. In particular, you should review carefully the section in this pricing supplement entitled Risk Factors, which highlights a number of risks, to determine whether an investment in the notes is appropriate for you. If information in this pricing supplement is inconsistent with the prospectus or prospectus supplement, this pricing supplement will supersede those documents.
Certain capitalized terms used and not defined in this pricing supplement have the meanings ascribed to them in the prospectus supplement and prospectus.
In light of the complexity of the transaction described in this pricing supplement, you are urged to consult with your own attorneys and business and tax advisors before making a decision to purchase any of the notes.
The information in this Summary section is qualified in its entirety by the more detailed explanation set forth elsewhere in this pricing supplement and the accompanying prospectus supplement and prospectus. You should rely only on the information contained in this pricing supplement, the accompanying prospectus supplement, and the prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor any of the selling agents is making an offer to sell these notes in any jurisdiction where the offer or sale is not permitted. You should assume that the information in this pricing supplement, the accompanying prospectus supplement, and prospectus is accurate only as of the date on their respective front covers.
What are the notes?
The notes are senior debt securities issued by Bank of America Corporation, and are not secured by collateral. The notes rank equally with all of our other unsecured senior indebtedness from time to time outstanding. The notes will mature on February 24, 2012. We cannot redeem the notes at any earlier date. We will not make any payments on the notes until maturity.
Are the notes equity or debt securities?
The notes are our senior debt securities. However, these notes differ from traditional debt securities in that you will not receive interest payments and they contain a derivative component. Instead, at maturity you will receive (a) your principal amount, plus (b) an additional amount called the Supplemental Redemption Amount, as described below. The notes have been designed for investors who are willing to forgo market rates of interest on their investment, such as fixed interest rates paid on conventional non-callable debt securities.
PS-3
Will you receive your principal at maturity?
Yes. If you hold the notes until maturity, then you will receive your principal amount and a Supplemental Redemption Amount. However, if you sell the notes prior to maturity, you may find that the market value of the notes is less than the principal amount of the notes.
How much will you receive at maturity?
At maturity, you will receive the principal amount of the notes. You also will receive the Supplemental Redemption Amount, which will not be less than 5.00% of the principal amount of the notes at maturity. We call this minimum amount the Minimum Supplemental Redemption Amount. The Supplemental Redemption Amount will be based upon the performance of the common stock of 16 selected energy companies described below over the term of the notes. The Supplemental Redemption Amount will be determined by the calculation agent in the manner described below.
The Basket Stocks are the 16 selected energy companies whose common stocks make up the Basket that is used to determine the Supplemental Redemption Amount. The 16 Basket Stocks are: Anadarko Petroleum Corporation, Apache Corporation, Baker Hughes Incorporated, Chevron Corporation, ConocoPhillips, ENSCO International Incorporated, Exxon Mobil Corporation, Halliburton Company, Marathon Oil Corporation, Nabors Industries Ltd, Noble Corporation, Occidental Petroleum Corporation, Schlumberger Limited, Transocean Inc., Weatherford International Ltd., and XTO Energy Inc.
The Basket Stocks were selected from four segments of the energy industry that were identified using Standard Industrial Classification (SIC) codes: (a) oil and gas field services, (b) drilling oil and gas wells, (c) crude petroleum and natural gas, and (d) petroleum refining. Four of the Basket Stocks were selected from among the United States issuers with the largest market capitalizations in each of the oil and gas field services, the drilling oil and gas wells, the crude petroleum and natural gas, and the petroleum refining segments, based upon information obtained from the Bloomberg Financial® service as of January 1, 2007.
The Basket Stocks were selected without regard for their value, price performance, volatility, or investment merit. In connection with the selection of the Basket Stocks, neither we nor any of our affiliates have performed any investigation of or confirmed any information with respect to the Basket Stocks, including the public filings by the issuers of the Basket Stocks. You and market participants should not conclude that the inclusion of any Basket Stock is any form of investment recommendation by us or any of our affiliates.
We priced the notes on February 20, 2007, or the pricing date. On the pricing date, we created a hypothetical basket of the Basket Stocks with a level of 1,000, based on the closing price (as defined below) of each Basket Stock on the pricing date. Each Basket Stock represented 6.25%, or 62.50, of the Starting Basket Level (as defined below) on the pricing date. The number of shares of each Basket Stock was set by dividing 62.50 by the closing price of that Basket Stock on the pricing date. The result was rounded to the nearest one hundred-thousandth. We call this fixed number of shares of each Basket Stock the Share Ratio. The Share Ratio for each Basket Stock was fixed as of the pricing date and is subject to change only if certain extraordinary corporate events affect the relevant Basket Stock, as described in this pricing supplement. See the section entitled Description of the NotesThe Basket and Adjustments to the Basket.
The term the Basket Level is the hypothetical value of the Basket that is determined at the close of any trading day (as defined below). The Basket Level equals the sum of the products of the closing price and the Share Ratio for each Basket Stock. The Basket Level will be rounded to the nearest one hundredth.
PS-4
The calculation agent will determine the Supplemental Redemption Amount payable to you at maturity by reference to the periodic returns of the Basket Level during the following 20 Reference Periods:
2007/08 |
2008/09 |
2009/10 |
2010/11 |
2011/12 | ||||
02/20/07-05/20/07 |
02/20/08-05/20/08 | 02/20/09-05/20/09 | 02/20/10-05/20/10 | 02/20/11-05/20/11 | ||||
05/20/07-08/20/07 |
05/20/08-08/20/08 | 05/20/09-08/20/09 | 05/20/10-08/20/10 | 05/20/11-08/20/11 | ||||
08/20/07-11/20/07 |
08/20/08-11/20/08 | 08/20/09-11/20/09 | 08/20/10-11/20/10 | 08/20/11-11/20/11 | ||||
11/20/07-02/20/08 |
11/20/08-02/20/09 | 11/20/09-02/20/10 | 11/20/10-02/20/11 | 11/20/11-02/20/12 |
The pricing date is the first day of the first Reference Period. We refer to the last day of each Reference Period as a Reset Date. On each Reset Date, the calculation agent will determine the Periodic Return of the Basket for the Reference Period then ended by applying the following formula:
Ending Basket LevelStarting Basket Level
Starting Basket Level
The result will be rounded to the nearest ten-thousandth of a decimal place and then expressed as a percentage.
The Starting Basket Level for the initial Reference Period is 1,000, and the Starting Basket Level for each subsequent Reference Period is the Ending Basket Level for the immediately preceding Reference Period. The Ending Basket Level for each Reference Period is the Basket Level on the applicable Reset Date, or if that day is not a business day (as defined below), the Basket Level on the next following business day.
Except for the payment of the principal amount and the Minimum Supplemental Redemption Amount at maturity, you will be exposed to unlimited declines in the Periodic Return for any Reference Period. On the pricing date, we set a cap of 7.25%, or the Return Cap, which limits any increases in the Periodic Return of the Basket to that rate. For any Reference Period in which the Periodic Return is greater than the Return Cap, the Periodic Return for that Reference Period will be deemed to be the Return Cap, and for that Reference Period you will receive only the benefit of the increase in value up to the Return Cap.
The Basket Return
After the close of the market on the last Reset Date, the calculation agent will determine the Supplemental Redemption Amount, which will not be less than the Minimum Supplemental Redemption Amount, based on the following formula:
Principal Amount x Basket Return
The Basket Return is the compounded value of the 20 Periodic Returns computed in the following manner:
[The product of (1.00 + the Periodic Return) for each Reference Period] 1.00
The Basket Return will be rounded to the nearest ten-thousandth and then expressed as a percentage.
The Supplemental Redemption Amount will be calculated after the close of the market on the last Reset Date. The period of time between the last Reset Date and the maturity date is
PS-5
not part of a Reference Period, and, therefore, changes in the Basket Level during that period will not affect the Supplemental Redemption Amount payable to you at maturity. If the calculation of the Supplemental Redemption Amount results in an amount that is less than the Minimum Supplemental Redemption Amount, then we will pay you a Supplemental Redemption Amount equal to the Minimum Supplemental Redemption Amount.
The notes provide less opportunity for appreciation than an investment tied directly to the performance of the Basket because the Return Cap limits the appreciation in the Basket Level used to calculate the Periodic Return. Because of the Return Cap, the Basket Return cannot be more than approximately 305.46% (a maximum value that represents an increase of the Basket Level up to the Return Cap for each Reference Period).
You should consider the possibility that an investment in the notes will not result in a gain above the Minimum Supplemental Redemption Amount even if the Basket Level increases during one or more Reference Periods, or even if the Basket Level as of the final scheduled Reset Date is greater than 1,000, the Basket Level on the pricing date.
PS-6
Examples
The Basket Return depends on the Basket Level as of each Reset Date. Because the Basket Level may be subject to significant variations over the term of the notes, it is not possible to present a chart or table illustrating a complete range of possible payments on the maturity date. The examples of hypothetical payment calculations that follow are intended to illustrate the effect of general trends in the Basket Level on the Supplemental Redemption Amount payable at maturity for each $1,000 principal amount of the notes. Because these examples are based on hypothetical assumptions, such as the hypothetical specific Basket Levels as of the indicated Reset Dates, which may not reflect the performance of the Basket during the term of the notes, the returns set forth in the tables may not reflect the actual returns. Each of the hypothetical examples is based upon:
| the initial Starting Basket Level of 1,000; |
| the Return Cap of 7.25%; |
| the Minimum Supplemental Redemption Amount of 5.00% of the principal amount of notes; and |
| Reference Periods ending on the 20th day of the months indicated. |
In each example set forth below, for any Reference Period where the indicated Periodic Return is in excess of 7.25%, the Periodic Return for that Reference Period used in the calculation of the Basket Return shall be the Return Cap of 7.25%. The Basket Levels illustrated in each example have been rounded to the nearest whole number. The pretax annualized rates of return in each example assume that the notes were purchased in the original public offering and are calculated on the basis of a 360-day year of twelve 30-day months, with annual compounding.
PS-7
Example 1: The Basket Level as of the final scheduled Reset Date is greater than the Starting Basket Level of 1,000, and the appreciation of the Basket Level, or the Periodic Return, is 2.00% (an amount less than the Return Cap) during each Reference Period throughout the term of the notes:
2007/08 | 2008/09 | 2009/10 | ||||||||||||||||
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap | ||||||||||
May |
1,020 | 2.00% | 7.25% | 1,104 | 2.00% | 7.25% | 1,195 | 2.00% | 7.25% | |||||||||
August |
1,040 | 2.00% | 7.25% | 1,126 | 2.00% | 7.25% | 1,219 | 2.00% | 7.25% | |||||||||
November |
1,061 | 2.00% | 7.25% | 1,149 | 2.00% | 7.25% | 1,243 | 2.00% | 7.25% | |||||||||
February |
1,082 | 2.00% | 7.25% | 1,172 | 2.00% | 7.25% | 1,268 | 2.00% | 7.25% |
2010/11 | 2011/12 | |||||||||||
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap | |||||||
May |
1,294 | 2.00% | 7.25% | 1,400 | 2.00% | 7.25% | ||||||
August |
1,319 | 2.00% | 7.25% | 1,428 | 2.00% | 7.25% | ||||||
November |
1,346 | 2.00% | 7.25% | 1,457 | 2.00% | 7.25% | ||||||
February |
1,373 | 2.00% | 7.25% | 1,486 | 2.00% | 7.25% |
Basket Return = [(1.00+0.02) x (1.00+0.02) x (1.00+0.02) x (1.00+0.02) x (1.00+0.02) x
(1.00+0.02) x (1.00+0.02) x (1.00+0.02) x (1.00+0.02) x (1.00+0.02) x (1.00+0.02) x
(1.00+0.02) x (1.00+0.02) x (1.00+0.02) x (1.00+0.02) x (1.00+0.02) x (1.00+0.02) x
(1.00+0.02) x (1.00+0.02) x (1.00+0.02)] minus 1.00 = 0.4859 or 48.59%
Supplemental Redemption Amount = $1,000.00 x 0.4859 = $485.90
Total payment at maturity = $1,000.00 + $485.90 = $1,485.90 per note
Pretax annualized rate of return: 8.24%
PS-8
Example 2: The Basket Level as of the final scheduled Reset Date is greater than the Starting Basket Level of 1,000, and the appreciation of the Basket Level, or the Periodic Return, is 7.25% (an amount equal to the Return Cap) during each Reference Period throughout the term of the notes:
2007/08 | 2008/09 | 2009/10 | ||||||||||||||||
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap | ||||||||||
May |
1,073 | 7.25% | 7.25% | 1,419 | 7.25% | 7.25% | 1,877 | 7.25% | 7.25% | |||||||||
August |
1,150 | 7.25% | 7.25% | 1,522 | 7.25% | 7.25% | 2,014 | 7.25% | 7.25% | |||||||||
November |
1,234 | 7.25% | 7.25% | 1,632 | 7.25% | 7.25% | 2,160 | 7.25% | 7.25% | |||||||||
February |
1,323 | 7.25% | 7.25% | 1,751 | 7.25% | 7.25% | 2,316 | 7.25% | 7.25% |
2010/11 | 2011/12 | |||||||||||
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap | |||||||
May |
2,484 | 7.25% | 7.25% | 3,287 | 7.25% | 7.25% | ||||||
August |
2,664 | 7.25% | 7.25% | 3,525 | 7.25% | 7.25% | ||||||
November |
2,857 | 7.25% | 7.25% | 3,780 | 7.25% | 7.25% | ||||||
February |
3,064 | 7.25% | 7.25% | 4,055 | 7.25% | 7.25% |
Basket Return = [(1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x
(1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x
(1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x
(1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x
(1.00+0.0725)] minus 1.00 = 3.0546 or 305.46%
Supplemental Redemption Amount = $1,000.00 x 3.0546 = $3,054.60
Total payment at maturity = $1,000.00 + $3,054.60 = $4,054.60 per note
Pretax annualized rate of return: 32.29%
PS-9
Example 3: In this example, for the Reference Periods where the Periodic Returns are in excess of 7.25%, the Periodic Returns for those Reference Periods used in the calculation of the Basket Return shall be the Return Cap of 7.25%. The Basket Level as of the final scheduled Reset Date is greater than the Starting Basket Level of 1,000, and the appreciation of the Basket Level, or the Periodic Return, is 9.25% (an amount greater than the Return Cap) during each Reference Period throughout the term of the notes:
2007/08 | 2008/09 | 2009/10 | ||||||||||||||||
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap | ||||||||||
May |
1,093 | 9.25% | 7.25% | 1,556 | 9.25% | 7.25% | 2,217 | 9.25% | 7.25% | |||||||||
August |
1,194 | 9.25% | 7.25% | 1,700 | 9.25% | 7.25% | 2,422 | 9.25% | 7.25% | |||||||||
November |
1,304 | 9.25% | 7.25% | 1,858 | 9.25% | 7.25% | 2,646 | 9.25% | 7.25% | |||||||||
February |
1,425 | 9.25% | 7.25% | 2,029 | 9.25% | 7.25% | 2,891 | 9.25% | 7.25% |
2010/11 | 2011/12 | |||||||||||
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap | |||||||
May |
3,158 | 9.25% | 7.25% | 4,500 | 9.25% | 7.25% | ||||||
August |
3,451 | 9.25% | 7.25% | 4,916 | 9.25% | 7.25% | ||||||
November |
3,770 | 9.25% | 7.25% | 5,370 | 9.25% | 7.25% | ||||||
February |
4,119 | 9.25% | 7.25% | 5,867 | 9.25% | 7.25% |
Basket Return = [(1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x
(1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x
(1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x
(1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x
(1.00+0.0725)] minus 1.00 = 3.0546 or 305.46%
Supplemental Redemption Amount = $1,000.00 x 3.0546 = $3,054.60
Total payment at maturity = $1,000.00 + $3,054.60 = $4,054.60 per note
Pretax annualized rate of return: 32.29%
PS-10
Example 4: The Basket Level as of the final scheduled Reset Date is less than the Starting Basket Level of 1,000, and the Periodic Return declined throughout the term of the notes:
2007/08 | 2008/09 | 2009/10 | ||||||||||||||||
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap | ||||||||||
May |
980 | -2.00% | 7.25% | 904 | -2.00% | 7.25% | 834 | -2.00% | 7.25% | |||||||||
August |
960 | -2.00% | 7.25% | 886 | -2.00% | 7.25% | 817 | -2.00% | 7.25% | |||||||||
November |
941 | -2.00% | 7.25% | 868 | -2.00% | 7.25% | 801 | -2.00% | 7.25% | |||||||||
February |
922 | -2.00% | 7.25% | 851 | -2.00% | 7.25% | 785 | -2.00% | 7.25% |
2010/11 | 2011/12 | |||||||||||
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap | |||||||
May |
769 | -2.00% | 7.25% | 709 | -2.00% | 7.25% | ||||||
August |
754 | -2.00% | 7.25% | 695 | -2.00% | 7.25% | ||||||
November |
739 | -2.00% | 7.25% | 681 | -2.00% | 7.25% | ||||||
February |
724 | -2.00% | 7.25% | 668 | -2.00% | 7.25% |
Basket Return = [(1.00+ -0.02) x (1.00+ -0.02) x (1.00+ -0.02) x (1.00+ -0.02) x (1.00+ -0.02) x
(1.00+ -0.02) x (1.00+ -0.02) x (1.00+ -0.02) x (1.00+ -0.02) x (1.00+ -0.02) x (1.00+ -0.02) x
(1.00+ -0.02) x (1.00+ -0.02) x (1.00+ -0.02) x (1.00+ -0.02) x (1.00+ -0.02) x (1.00+ -0.02) x
(1.00+ -0.02) x (1.00+ -0.02) x (1.00+ -0.02)] minus 1.00 = -0.3324 or -33.24%
Supplemental Redemption Amount = $50.00, the Minimum Supplemental Redemption Amount
Total payment at maturity = $1,000.00 + $50.00 = $1,050.00 per note
Pretax annualized rate of return: 0.98%
PS-11
Example 5: The Basket Level as of the final scheduled Reset Date is less than the Starting Basket Level of 1,000, and the Periodic Return increased in one-half of the Reference Periods and decreased in the other one-half of the Reference Periods with the magnitude of the decreases being larger than the magnitude of the increases:
2007/08 | 2008/09 | 2009/10 | ||||||||||||||||
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap | ||||||||||
May |
1,073 | 7.25% | 7.25% | 1,419 | 7.25% | 7.25% | 1,877 | 7.25% | 7.25% | |||||||||
August |
1,150 | 7.25% | 7.25% | 1,522 | 7.25% | 7.25% | 2,014 | 7.25% | 7.25% | |||||||||
November |
1,234 | 7.25% | 7.25% | 1,632 | 7.25% | 7.25% | 1,812 | -10.00% | 7.25% | |||||||||
February |
1,323 | 7.25% | 7.25% | 1,751 | 7.25% | 7.25% | 1,631 | -10.00% | 7.25% |
2010/11 | 2011/12 | |||||||||||
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap | |||||||
May |
1,468 | -10.00% | 7.25% | 963 | -10.00% | 7.25% | ||||||
August |
1,321 | -10.00% | 7.25% | 867 | -10.00% | 7.25% | ||||||
November |
1,189 | -10.00% | 7.25% | 780 | -10.00% | 7.25% | ||||||
February |
1,070 | -10.00% | 7.25% | 702 | -10.00% | 7.25% |
Basket Return = [(1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x
(1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x
(1.00+0.0725) x (1.00+ -0.10) x (1.00+ -0.10) x (1.00+ -0.10) x (1.00+ -0.10) x
(1.00+ -0.10) x (1.00+ -0.10) x (1.00+ -0.10) x (1.00+ -0.10) x (1.00+ -0.10) x
(1.00+ -0.10)] minus 1.00 = -0.2979 or -29.79%
Supplemental Redemption Amount = $50.00, the Minimum Supplemental Redemption Amount
Total payment at maturity = $1,000.00 + $50.00 = $1,050.00 per note
Pretax annualized rate of return: 0.98%
PS-12
Example 6: The Basket Level as of the final scheduled Reset Date is greater than the Starting Basket Level of 1,000, and the Periodic Return fluctuated during the term of the notes, increasing in one-half of the Reference Periods and decreasing in the other one-half of the Reference Periods, with the magnitude of the increases being greater than the magnitude of the decreases:
2007/08 | 2008/09 | 2009/10 | ||||||||||||||||
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap | ||||||||||
May |
1,073 | 7.25% | 7.25% | 1,113 | 7.25% | 7.25% | 1,024 | -5.00% | 7.25% | |||||||||
August |
1,150 | 7.25% | 7.25% | 1,194 | 7.25% | 7.25% | 973 | -5.00% | 7.25% | |||||||||
November |
1,093 | -5.00% | 7.25% | 1,134 | -5.00% | 7.25% | 1,043 | 7.25% | 7.25% | |||||||||
February |
1,038 | -5.00% | 7.25% | 1,078 | -5.00% | 7.25% | 1,119 | 7.25% | 7.25% |
2010/11 | 2011/12 | |||||||||||
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap | |||||||
May |
1,200 | 7.25% | 7.25% | 1,246 | 7.25% | 7.25% | ||||||
August |
1,287 | 7.25% | 7.25% | 1,336 | 7.25% | 7.25% | ||||||
November |
1,222 | -5.00% | 7.25% | 1,269 | -5.00% | 7.25% | ||||||
February |
1,161 | -5.00% | 7.25% | 1,206 | -5.00% | 7.25% |
Basket Return = [(1.00+0.0725) x (1.00+0.0725) x (1.00+ -0.05) x (1.00+ -0.05) x
(1.00+0.0725) x (1.00+0.0725) x (1.00+ -0.05) x (1.00+ -0.05) x (1.00+ -0.05) x
(1.00+ -0.05) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x (1.00+0.0725) x
(1.00+ -0.05) x (1.00+ -0.05) x (1.00+0.0725) x (1.00+0.0725) x (1.00+ -0.05) x
(1.00+ -0.05)] minus 1.00 = 0.2056 or 20.56%
Supplemental Redemption Amount = $1,000.00 x 0.2056 = $205.60
Total payment at maturity = $1,000.00 + $205.60 = $1,205.60 per note
Pretax annualized rate of return: 3.81%
PS-13
Example 7: In this example, for the Reference Periods where the Periodic Returns are in excess of 7.25%, the Periodic Returns for those Reference Periods used in the calculation of the Basket Return shall be the Return Cap of 7.25%. The Basket Level as of the final scheduled Reset Date is greater than the Starting Basket Level of 1,000, and the Periodic Return fluctuated during the term of the notes, increasing in three-fourths of the Reference Periods and decreasing in the other one-fourth, with a wide variance in the magnitude of the increase:
2007/08 | 2008/09 | 2009/10 | ||||||||||||||||
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap | ||||||||||
May |
1,030 | 3.00% | 7.25% | 1,049 | 3.00% | 7.25% | 1,068 | 3.00% | 7.25% | |||||||||
August |
1,061 | 3.00% | 7.25% | 1,080 | 3.00% | 7.25% | 1,100 | 3.00% | 7.25% | |||||||||
November |
849 | -20.00% | 7.25% | 864 | -20.00% | 7.25% | 880 | -20.00% | 7.25% | |||||||||
February |
1,018 | 20.00% | 7.25% | 1,037 | 20.00% | 7.25% | 1,056 | 20.00% | 7.25% |
2010/11 | 2011/12 | |||||||||||
Basket Level |
Periodic Return |
Return Cap |
Basket Level |
Periodic Return |
Return Cap | |||||||
May |
1,088 | 3.00% | 7.25% | 1,108 | 3.00% | 7.25% | ||||||
August |
1,121 | 3.00% | 7.25% | 1,141 | 3.00% | 7.25% | ||||||
November |
897 | -20.00% | 7.25% | 913 | -20.00% | 7.25% | ||||||
February |
1,076 | 20.00% | 7.25% | 1,096 | 20.00% | 7.25% |
Basket Return = [(1.00+0.03) x (1.00+0.03) x (1.00+ -0.20) x (1.00+0.0725) x (1.00+0.03) x
(1.00+0.03) x (1.00+ -0.20) x (1.00+0.0725) x (1.00+0.03) x (1.00+0.03) x (1.00+ -0.20) x
(1.00+0.0725) x (1.00+0.03) x (1.00+0.03) x (1.00+ -0.20) x (1.00+0.0725) x (1.00+0.03) x
(1.00+0.03) x (1.00+ -0.20) x (1.00+0.0725)] minus 1.00 = -0.3751 or -37.51%
Supplemental Redemption Amount = $50.00, the Minimum Supplemental Redemption Amount
Total payment at maturity = $1,000.00 + $50.00 = $1,050.00 per note
Pretax annualized rate of return: 0.98%
PS-14
Who will determine the Supplemental Redemption Amount and the amounts due at maturity?
A calculation agent will make all the calculations associated with determining the Supplemental Redemption Amount and the amounts due at maturity. We have appointed our affiliate, Banc of America Securities LLC, or BAS, to act as calculation agent. See the section entitled Description of the Notes Role of the Calculation Agent.
How have the Basket Stocks performed historically?
There has been significant volatility in the market prices of each of the Basket Stocks. The applicable tables in the section entitled Historical Data on the Basket Stocks show the quarterly performance for each of the Basket Stocks for each quarter since the first calendar quarter of 2004. However, it is not possible to accurately predict how the Basket Stocks or the notes will perform in the future. Past performance of the Basket Stocks is not necessarily indicative of future results for any other period.
Will you have an ownership interest in the Basket Stocks?
No. An investment in the notes does not entitle you to any ownership interest, including any voting rights, dividends paid, or other distributions, in the Basket Stocks.
Who are the selling agents for the notes?
Our affiliates, BAS and Banc of America Investment Services, Inc., or BAI, are acting as our selling agents in connection with this offering and will receive a commission based on the total principal amount of notes sold. In this capacity, neither of the selling agents is your fiduciary or advisor, and you should not rely upon any communication from either selling agent in connection with the notes as investment advice or a recommendation to purchase the notes. You should make your own investment decision regarding the notes after consulting with your legal, tax, and other advisors.
How are the notes being offered?
BAS and BAI are offering the notes, as selling agents, to selected investors on a best efforts basis. We have registered the notes with the SEC in the United States. However, we are not registering the notes for public distribution in any jurisdiction other than the United States. The selling agents may solicit offers to purchase the notes from non-United States investors in reliance on available private placement exemptions. See the section entitled Notices for Certain Non-United States Investors.
Are the notes exchange-traded funds?
No. The notes are not part of an exchange-traded fund. The value of the notes will not rise or fall at the same rate, or in the same manner, as any Basket Stock or the Basket. We do not expect the notes to trade with the same volume or liquidity as certain exchange-traded funds.
How are the notes treated for United States federal income tax purposes?
Although the matter is not free from doubt, for United States federal income tax purposes, the notes should be treated as debt instruments that provide for contingent interest. As a result, the notes are considered to be issued with original issue discount, or OID. See United States Federal Income Tax SummaryTax Characterization of the Notes.
PS-15
You will be required to pay taxes on the notes over their term based upon a comparable yield for the notes, even though you will not receive any payments until maturity. We have determined this comparable yield in accordance with regulations issued by the United States Treasury Department, solely in order for you to determine the amount of taxes that you will owe each year as a result of your ownership of the notes. This comparable yield is neither a prediction nor a guarantee of what the actual Supplemental Redemption Amount will be, or whether the actual Supplemental Redemption Amount will exceed the Minimum Supplemental Redemption Amount. We have determined that the current comparable yield will equal 5.17% per annum, compounded annually.
Additionally, you generally will be required to recognize ordinary income on any gain realized on a sale, upon maturity, or upon another disposition of the notes. See the section entitled United States Federal Income Tax Summary.
If you are a Non-United States Holder, payments on the notes generally will not be subject to United States federal income or withholding tax, as long as you provide us with the required completed tax forms.
Will the notes be listed on an exchange?
No. The notes will not be listed on any securities exchange, and a market for them may never develop.
Can the Reset Dates and the stated maturity date be postponed if a Market Disruption Event occurs?
Yes. If the calculation agent determines that, on any Reset Date, a Market Disruption Event (as defined below) has occurred or is continuing as to one or more Basket Stocks, the determination of the closing price of the applicable Basket Stock or Stocks will be postponed until the first business day on which no Market Disruption Event occurs or is continuing, but the delay will never be more than five business days. If any determination as to a Basket Stock is postponed to the last possible day, but a Market Disruption Event occurs or is continuing on that day, the determination of its closing price will nevertheless be made on that day. If the closing price is not available on that last possible day, either because of a Market Disruption Event or for any other reason, the calculation agent will determine the closing price using the procedures described below. If the determination of the closing price of one or more Basket Stocks is postponed due to a Market Disruption Event on the last scheduled Reset Date, the maturity date for the notes also will be postponed by the same number of business days. See the section entitled Description of the Notes Market Disruption.
Does ERISA impose any limitations on purchases of the notes?
Yes. An employee benefit plan subject to the fiduciary responsibility provisions of the Employee Retirement Income Security Act of 1974 (commonly referred to as ERISA) or a plan that is subject to Section 4975 of the Internal Revenue Code, or the Code, including individual retirement accounts, individual retirement annuities or Keogh plans, or any entity the assets of which are deemed to be plan assets under the ERISA regulations, should not purchase, hold, and dispose of the notes unless that plan or entity has determined that its purchase, holding, and disposition of the notes will not constitute a prohibited transaction under ERISA or Section 4975 of the Code.
Any plan or entity purchasing the notes will be deemed to be representing that it has made such determination, or that a prohibited transaction class exemption (PTCE) exists.
PS-16
Are there any risks associated with my investment?
Yes, an investment in the notes is subject to risk. Please refer to the section entitled Risk Factors in this pricing supplement and page S-3 of the attached prospectus supplement.
PS-17
Your investment in the notes entails significant risks. Your decision to purchase the notes should be made only after carefully considering the risks of an investment in the notes, including those discussed below, with your advisors in light of your particular circumstances. The notes are not an appropriate investment for you if you are not knowledgeable about significant elements of the notes or financial matters in general.
Risks Relating to the Terms of the Notes
Your yield may be less than the yield on a conventional debt security of comparable maturity. There will be no periodic payments of interest on the notes as there would be on a conventional fixed-rate or floating-rate debt security having the same maturity. Instead, the rate of return primarily is based on the future performance of the Basket Stocks. We cannot assure you that the Basket Return will be positive. If the Basket Return is 5.00% or less, the Supplemental Redemption Amount to be paid at maturity will be the Minimum Supplemental Redemption Amount. Under such circumstances, you will receive only the principal amount and the Minimum Supplemental Redemption Amount at maturity. Any yield on your investment above the principal amount of your note may be less than the overall return you would earn if you purchased a conventional debt security with the same maturity date. Your investment may not reflect the full opportunity cost to you when you consider factors that affect the time value of money.
Your investment return is limited and may be less than a comparable investment in the Basket Stocks directly. If the Basket Level declines during any Reference Period during the term of the notes, the Periodic Return for that Reference Period will be less than zero. The Basket Return is based on the compounded value of the Periodic Returns during the 20 Reference Periods. This has a cumulative negative effect as the number of negative Periodic Return values increases prior to the maturity date of the notes. The likelihood that you will receive only the principal amount and the Minimum Supplemental Redemption Amount increases as the number of negative Periodic Return values increases and as the decline in the Basket Level in any Reference Period increases. You may receive only the principal amount and the Minimum Supplemental Redemption Amount even if the Basket Level increases during one or more Reference Periods during the term of the notes or if the Basket Level as of the final scheduled Reset Date exceeds the Starting Basket Level of 1,000. In fact, if the Basket Level declines in any single Reference Period by approximately 72.23% or more, you will receive only the Minimum Supplemental Redemption Amount, regardless of the amount of the increases in the Basket Level in other Reference Periods. In that case, at maturity, you would receive only the principal amount of the notes and the Minimum Supplemental Redemption Amount. See the section entitled Description of the Notes Payment at Maturity; Supplemental Redemption Amount. In addition, due to the Return Cap, the return on your investment in the notes may not fully reflect any increase in the Basket Level. Finally, a direct investment in the Basket Stocks would allow you to receive the full benefit of any appreciation in the price of those shares, as well as in any dividends paid by or distributions made on those shares.
We cannot assure you that a trading market for the notes will ever develop or be maintained. We will not list the notes on any securities exchange. We cannot predict how the notes will trade in the secondary market, or whether that market will be liquid or illiquid. The number of potential buyers of the notes in any secondary market may be limited. BAS currently intends to act as a market-maker for the notes, but it is not required to do so. BAS may discontinue its market-making activities at any time.
To the extent that BAS engages in any market-making activities, it may bid for or offer notes. Any price at which BAS may bid for, offer, purchase, or sell any notes may differ from the values determined by pricing models that may be used by BAS, whether as a result of
PS-18
dealer discounts, mark-ups, or other transaction costs. These bids, offers, or completed transactions may affect the prices, if any, at which the notes might otherwise trade in the market.
In addition, if at any time BAS were to cease acting as a market-maker, it is likely that there would be significantly less liquidity in the secondary market, in which case the price at which the notes could be sold likely would be lower than if an active market existed.
If you attempt to sell the notes prior to maturity, the market value of the notes, if any, may be less than the principal amount of the notes. Unlike savings accounts, certificates of deposit, and other similar investment products, you have no right to redeem the notes prior to maturity. If you wish to liquidate your investment in the notes prior to maturity, your only option would be to sell the notes. At that time, there may be a very illiquid market for the notes or no market at all. Even if you were able to sell your notes, there are many factors outside of our control that may affect the market value of the notes, some of which, but not all, are stated below. Some of these factors are interrelated in complex ways. As a result, the effect of any one factor may be offset or magnified by the effect of another factor. The following paragraphs describe the anticipated impact on the market value of the notes given a change in a specific factor, assuming all other conditions remain constant.
| Basket Stock Prices. Because the total amount payable at maturity is tied to the Basket Levels on each of the Reset Dates, the market value of the notes at any time may be affected by changes in the prices of the Basket Stocks. Trading prices of stocks overall, including those of the Basket Stocks, have been volatile in recent periods and can be subject to significant risks. The Basket Level also will be influenced by complex and interrelated political, economic, financial, and other factors that affect the capital markets generally and the energy sector in particular. The market value of the common stock of energy companies, such as the Basket Stocks, may be particularly sensitive to the risk of armed conflict, terrorism, and political uncertainty in the Middle East and other areas of the world. Trading prices of the Basket Stocks also may be influenced if we, our affiliates, or any other entity issue securities with terms similar to the notes or transfer shares of the Basket Stocks. In addition, the prices of the Basket Stocks could become more volatile and could be depressed by hedging or arbitrage trading activity that may develop involving the notes and the Basket Stocks. See the section entitled The Basket Stocks. It is impossible to predict whether the Basket Level will rise or fall. |
| Earnings Performance and Creditworthiness of the Basket Stocks. General economic conditions, the earnings results and creditworthiness of the Basket Stocks, as well as actual or anticipated changes in those conditions or results, may affect the value of the notes. |
| Impact of the Basket Stocks on the Value of the Notes. We anticipate that the market value of the notes, if any, will depend substantially on the Basket Level as of each Reset Date. Even if the Basket Level increases after the pricing date, if you are able to sell your notes before the maturity date, you may receive substantially less than the amount that would be payable at maturity based on that value because of the anticipation that the market value of the Basket Stocks will continue to fluctuate until the Basket Return is determined. If you choose to sell your notes when the market value of the Basket Stocks is less than, or not sufficiently above, its value as of the pricing date, you may receive less than the principal amount of your notes. Because your return is calculated based upon the Periodic Returns for each Reference Period, an increase in the market value of the Basket Stocks in one or more Reference Periods may be offset by a decrease in its value in one or more other Reference Periods. |
PS-19
| Volatility of the Basket Stocks. Volatility is the term used to describe the size and frequency of market fluctuations. Volatility of the Basket Stocks may affect the market value of the notes. During recent periods, the market value of the Basket Stocks has been highly volatile. Because the Basket Level is dependent upon the performance of selected issuers in one primary sector of the economy, the energy industry, the value of the notes may be subject to greater volatility and be affected more adversely by economic, political, or regulatory developments than an investment that relates to a more broadly diversified group of issuers. The generally unsettled international environment and related uncertainties may result in greater market volatility. This volatility may increase the risk that the Basket Return will be zero or negative, thus negatively affecting the market value of the notes and your yield. |
| Merger and Acquisition Transactions. Some of the Basket Stocks may be affected by mergers and acquisitions, which can contribute to the volatility of the Basket. As a result of a merger or acquisition, one or more Basket Stocks may be replaced with a surviving or acquiring entitys securities, or in some cases, the securities of another entity. The new securities may not have the same characteristics as the securities originally included in the Basket. |
| Economic and Other Conditions Generally. The general economic conditions of the capital markets in the United States, as well as geopolitical conditions and other financial, political, regulatory, and judicial events that affect the stock markets generally, may affect the Basket Level and the value of the notes. |
| Interest Rates. We expect that changes in interest rates will affect the trading value of the notes. In general, if United States interest rates increase, we expect that the trading value of the notes will decrease and, conversely, if United States interest rates decrease, we expect that the trading value of the notes will increase. The level of prevailing interest rates also may affect the United States economy, and, in turn, the value of the Basket Stocks. |
| Dividend Yields. In general, if dividend yields on the Basket Stocks increase, we anticipate that the market value of the notes will decrease and, conversely, if dividend yields on these stocks decrease, we anticipate that the market value of the notes will increase. |
| Time to Maturity. As the time remaining to maturity of the notes decreases, the time premium associated with the notes will decrease. We anticipate that before their maturity, the notes may have a market value above that which would be expected based on the levels of market interest rates and the market values of the Basket Stocks. This difference will reflect a time premium due to expectations concerning the market value of the Basket during the period before the maturity date of the notes. However, as the time remaining to the maturity of the notes decreases, we expect that this time premium will decrease, lowering the trading value of the notes. |
In general, assuming all relevant factors are held constant, we anticipate that the effect on the market value of the notes based on a given change in most of the factors listed above will be less if it occurs later in the term of the notes than if it occurs earlier in the term of the notes.
Changes in our credit ratings are expected to affect the value of the notes. Our credit ratings are an assessment by ratings agencies of our ability to pay our obligations. Consequently, actual or anticipated changes in our credit ratings prior to the maturity date of the notes may affect the notes trading value. However, because your return on the notes
PS-20
depends upon factors in addition to our ability to pay our obligations, such as the percentage increase in the level of the Basket during each of the 20 Reference Periods, an improvement in our credit ratings will not reduce the other investment risks related to the notes.
Hedging activities may affect the Supplemental Redemption Amount and the market value of the notes. Hedging activities that we or one or more of our affiliates, including the selling agents, may engage in may affect the Basket Level. Accordingly, our hedging activities may increase or decrease the market value of the notes prior to maturity and any Supplemental Redemption Amount that you may receive at maturity. In addition, we or one or more of our affiliates, including the selling agents, may purchase or otherwise acquire a long or short position in the notes. We or one of our affiliates, including the selling agents, may hold or resell the notes. Although we have no reason to believe that any of those activities will have a material impact on the Basket Level, we cannot assure you that these activities will not affect that level and the market value of the notes prior to maturity or any Supplemental Redemption Amount payable at maturity.
You have no shareholder rights, no rights to receive any shares of the Basket Stocks, and you are not entitled to dividends or other distributions by the issuers of these stocks. The notes are our debt securities. They are not equity instruments or shares of stock. Investing in the notes will not make you a holder of any of the Basket Stocks. You will not have any voting rights, any rights to receive dividends or other distributions, or any other rights with respect to those stocks. As a result, the return on your notes may not reflect the return you would realize if you actually owned these stocks and received the dividends paid or other distributions made in connection with them. Your notes will be paid in cash and you have no right to receive delivery of any of these stocks.
You have no assurance that you currently have or will continue to receive current information on the Basket Stocks. There can be no assurance that each of the issuers of the Basket Stocks will continue to be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), and will distribute any reports, proxy statements, and other information required to be disclosed to its shareholders. In the event that any of the Basket Stocks ceases to be subject to these reporting requirements and the notes continue to be outstanding, pricing information for the notes may be more difficult to obtain and the value and liquidity of the notes may be adversely affected.
None of the issuers of the Basket Stocks is involved in the offering of the notes. As a result, none of these issuers has any obligation of any sort as to the notes. None of the issuers of the Basket Stocks has any obligation to take your needs into consideration for any reason, including taking any corporate actions that might affect the value of the notes. No issuer of the Basket Stock will receive any of the proceeds from the offering of the notes, and none has participated in the determination of the timing of, prices for, or quantities of the notes to be issued or in the determinations to be made by the calculation agent. None of the issuers of the Basket Stocks is involved with the administration, marketing, or trading of the notes.
We and our affiliates are not affiliated with any of the issuers of the Basket Stocks and are not responsible for any disclosure by any issuer of the Basket Stock. Neither we nor any of our affiliates, including the selling agents, assume any responsibility for the adequacy or accuracy of the information about the Basket Stocks contained in this pricing supplement or in any of their publicly available filings. The material provided in this pricing supplement concerning the Basket Stocks has been derived from publicly available information concerning the issuers of the Basket Stocks. The issuers of the Basket Stocks have not provided or approved this information. We have not made any attempt to confirm this information. Before you invest in the notes, you should make your own investigation into the Basket Stocks and the issuers of the Basket Stocks.
PS-21
The value of the Basket may be reduced if the shares of a Basket Stock are diluted and the number of shares comprising its Share Ratio is not correspondingly adjusted. The composition of the Basket, and, in certain circumstances, the process of determination of the Basket Level, are subject to adjustment for a number of events arising out of stock splits and combinations, stock dividends, and a number of other transactions involving the Basket Stocks, as well as for the liquidation, dissolution, or winding up of an issuer. These adjustments are described in the section Description of the NotesThe Basket and Adjustments to the Basket in this pricing supplement. The composition of the Basket and the process of determination of the Basket Level will not be adjusted for other events that may adversely affect the price of a Basket Stock, such as offerings of common stock for cash or in connection with acquisitions. There can be no assurance that the issuers of the Basket Stocks will not make offerings of common stock or take such other corporate action in the future, nor can there be any estimate as to the amount of these offerings, if any.
Our trading and hedging activities may create conflicts of interest with you. We or one or more of our affiliates, including the selling agents, may engage in trading activities related to the Basket Stocks that are not for your account or on your behalf. We and our affiliates from time to time may buy or sell the Basket Stocks or futures or options contracts on the Basket Stocks for our own accounts, for business reasons, or in connection with hedging our obligations under the notes. We also may issue, or our affiliates may underwrite, other financial instruments with returns based upon the Basket Stocks. These trading and underwriting activities could affect the market values of the Basket Stocks in a manner that would be adverse to your investment in the notes. In addition, we expect to enter into an arrangement or arrangements with one or more of our affiliates to hedge the market risks associated with our obligation to pay the amounts due under the notes. Our affiliates expect to make a profit in connection with this arrangement. We do not intend to seek competitive bids for this arrangement from unaffiliated parties.
We or our affiliates may enter into these transactions on or prior to the pricing date, in order to hedge some or all of our anticipated obligations under the notes. This hedging activity could increase the Basket Level on the pricing date. If this occurs, you would be less likely to receive a Supplemental Redemption Amount that is greater than the Minimum Supplemental Redemption Amount.
In addition, from time to time during the term of the notes and in connection with the determination of the Periodic Return, we or our affiliates may enter into additional hedging transactions or adjust or close out existing hedging transactions. We or our affiliates also may enter into hedging transactions relating to other notes or instruments that we issue, some of which may have returns calculated in a manner related to that of the notes. We or our affiliates will price these hedging transactions with the intent to realize a profit, considering the risks inherent in these hedging activities, whether the value of the notes increases or decreases. However, these hedging activities may result in a profit that is more or less than initially expected, or could result in a loss.
These trading activities may present a conflict of interest between your interest in your notes and the interests we and our affiliates may have in our proprietary accounts, in facilitating transactions, including block trades, for our other customers, and in accounts under our management. These trading activities, if they influence the Basket Level or secondary trading in the notes, could be adverse to your interests as a beneficial owner of the notes.
Our business activities relating to the issuers of the Basket Stocks may create conflicts of interest with you. We and our affiliates, including the agents, at present or in the future, may engage in business with the issuers of the Basket Stocks, including making loans to, equity investments in, or providing investment banking, asset management, or other
PS-22
services to those companies, their affiliates, and their competitors. In connection with these activities, we may receive information about those companies that we will not divulge to you or other third parties. One or more of our affiliates have published, and in the future may publish, research reports on many of the issuers of the Basket Stocks. This research is modified from time to time without notice and may express opinions or provide recommendations that are inconsistent with purchasing or holding the notes. Any of these activities may affect the market value of the notes.
Secondary market prices of the notes may be affected adversely by the inclusion in the original issuance price of the notes of the selling agents commissions and costs of hedging our obligations under the notes. Assuming no change in market conditions or any other relevant factors, the market price, if any, at which a party will be willing to purchase notes in secondary market transactions likely will be lower than the original issue price. This is because the original issue price included, and secondary market prices are likely to exclude, commissions paid for the notes and the potential profit included in the cost of hedging our obligations under the notes. The price of hedging our obligations was determined by our affiliates with the intent to realize a profit. However, because hedging our obligations entails risks and may be influenced by market forces beyond our control or our affiliates control, these hedging activities may result in a profit that is more or less than initially expected, or could result in a loss.
There may be potential conflicts of interest between you and the calculation agent. We have the right to appoint and remove a calculation agent. The determination of the Supplemental Redemption Amount is a complex process involving a large number of related calculations, some of which may require the exercise of judgment. Our subsidiary, BAS, is the calculation agent for the notes and, as such, determines each Starting Basket Level and Ending Basket Level and calculates the Supplemental Redemption Amount. Under some circumstances, these duties could result in a conflict of interest between BASs status as our subsidiary and its responsibilities as calculation agent. These conflicts could occur, for instance, in connection with the calculation agents determination as to whether a Market Disruption Event has occurred, or in connection with adjustments to the Basket that it would be required to make in the event of certain corporate actions of a Basket Stock. See the sections entitled Description of the NotesMarket Disruption Events and The Basket and Adjustments to the Basket.
Bank of America employees who purchase the notes must comply with policies that limit their ability to trade the notes, and that may affect the value of their notes. If you are our employee or an employee of one of our affiliates, including one of the selling agents, you may only acquire the notes for investment purposes, and you must comply with all of our internal policies and procedures. Because these policies and procedures limit the dates and times that you may effect the transactions in the notes, you may not be able to purchase any of the notes from us, and your ability to trade or sell any of the notes in any secondary market for the notes may be limited.
Risks Relating to the Basket Stocks
A variety of factors have had, and may in the future have, a negative effect upon the sales and profitability of companies in the energy industry. Companies in the energy industry, such as the issuers of the Basket Stocks, depend to a significant extent upon the level of activity in oil and gas exploration and production for a substantial portion of their revenues. Negative short-term and long-term trends in oil and gas prices affect the level of this activity. Factors that contribute to the volatility of oil and gas prices include, but are not limited to:
PS-23
| the ability of the Organization of Petroleum Exporting Countries (OPEC) to set and maintain production levels and price levels; |
| the level of production in non-OPEC countries; |
| the demand for oil and gas, which is negatively impacted by natural disasters, economic downturns, and conservation efforts; |
| the availability of alternative energy resources; |
| the policies of various governments regarding energy exploration, and the development of oil and gas reserves; |
| advances in exploration and development technology; and |
| the political environment of oil-producing regions. |
In addition to the levels of oil and gas prices, a variety of factors substantially may impair the ability of the Basket Stocks to operate profitably. These factors include, but are not limited to:
| war and terrorism in the Middle East or elsewhere, as well as natural disasters, which may cause disruptions in the supply and production of oil and gas; |
| intense competition in the energy industry, which may result in limited profit margins for the products and services of the issuers of the Basket Stocks; |
| the issuers of the Basket Stocks may be subject to the hazards inherent in the energy industry, including fire, explosion, blowouts, loss of well control, and oil or chemical spills; |
| expenses and liabilities incurred in complying with, or liabilities incurred as a result of the failure to comply with, federal, state, local, and foreign regulations, which are amended frequently, and which often require a variety of approvals to conduct operations; |
| expenses and liabilities incurred in complying with, or liabilities incurred as a result of the failure to comply with, federal, state, local, and foreign environmental laws; and |
| one or more legislative proposals currently before the United States Congress, which, if adopted, could impose additional taxes on United States oil and gas companies. |
The international operations of the issuers of the Basket Stocks expose them to risks associated with instability and changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and other risks inherent to international business. The issuers of the Basket Stocks have international operations that are essential parts of their businesses. The risks of international business to which these companies are exposed include:
| volatility in general economic, social, and political conditions; |
| political instability, and acts of war, terrorism, or sabotage in the countries in which the issuers of the Basket Stocks operate; |
| currency fluctuations; |
| differing tax rates, tariffs, exchange controls, or other similar restrictions; |
| restrictions upon the ability to repatriate income or capital; |
| changes in, and compliance with, domestic and foreign laws and regulations which impose a range of restrictions on operations, trade practices, foreign trade, and international investment decisions; |
| reduction in the number or capacity of personnel available to conduct operations in international markets; and |
| nationalization or seizure of petroleum assets or operations by foreign governments. |
The issuers of the Basket Stocks may need to raise additional capital in order to fund the continued development and marketing of their products and services or to fund
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strategic acquisitions or investments. The issuers of the Basket Stocks operate in highly capital-dependent industries, which will likely require them to raise additional capital in the future. Their ability to obtain additional financing will depend on a number of factors, including market conditions, operating performance, and investor interest. These factors may make the timing, amount, terms, and conditions of any financing unattractive. If adequate funds are not available or are not available on acceptable terms, the issuers of the Basket Stocks may have to forego strategic acquisitions or investments, reduce or defer their development activities, or delay their introduction of new products and services. Any of these actions may reduce the market value of one or more Basket Stocks.
The Basket Stocks are not necessarily representative of the energy industry as a whole. The Basket Stocks were selected based primarily on four segments of the energy industry and the market capitalization of the companies within those four segments. As of January 1, 2007, based upon information obtained from the Bloomberg Financial® service, they were selected from among the issuers with the largest market capitalizations in these segments. Four were selected from among the United States issuers with the largest market capitalizations in each of the oil and gas field services segment, the drilling oil and gas wells segment, the crude petroleum and natural gas segment, and the petroleum refining segment.
The issuers of the Basket Stocks constitute only 16 companies in the energy industry. These companies were selected from only four segments of the energy industry, and all have large market capitalizations. As a result, the performance of the Basket Stocks may not correlate with the performance of the entire industry, or with the performance of companies in the energy industry with a smaller market capitalization. The Basket Level may decline even if the market value of equity securities of other energy companies increases. Furthermore, it is possible that one or more of the issuers of the Basket Stocks may engage in new lines of business or cease to be involved in the energy industry.
The inclusion of the Basket Stocks in the Basket is not a recommendation to invest in any Basket Stock. The Basket Stocks were selected without regard for their value, price performance, volatility, or investment merit. In connection with the selection of the Basket Stocks, neither we nor any of our affiliates have performed any investigation or review of the issuers of the Basket Stocks, including the public filings by the companies. Investors and market participants should not conclude that the inclusion of a companys common stock as a Basket Stock is any form of investment recommendation by us or any of our affiliates.
Market fluctuations, industry consolidation, and other corporate events may alter the composition of the Basket. As a result of market fluctuations, industry consolidation, and other corporate events affecting the Basket Stocks, the composition of the Basket may be altered. The resulting Basket may include securities of one or more issuers other than the companies identified in this pricing supplement, or may represent a less diversified investment in the energy industry. The energy industry in recent years has undergone considerable consolidation, which may continue before the maturity date of the notes. If a Basket Stock is acquired in a stock-for-stock transaction, the acquiring company will assume that Basket Stocks place in the Basket, even if the acquirer is already in the Basket. As a result, consolidation among the Basket Stocks will result in an increased weighting for the surviving company, which would reduce the investment diversification that the notes represent and increase your exposure to the risks of concentrated investments. The effect on the Basket of consolidation transactions and other reorganization events with respect to the Basket Stocks is described in the section Description of the NotesThe Basket and Adjustments to the Basket.
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We will use the net proceeds we receive from the sale of the notes for the purposes described in the accompanying prospectus under Use of Proceeds. In addition, we expect that we or our affiliates will use a portion of the net proceeds to hedge our obligations under the notes.
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General
The notes are part of a series of medium-term notes entitled Medium-Term Notes, Series K issued under the Senior Indenture, as amended and supplemented from time to time. The Senior Indenture is described more fully in the accompanying prospectus and prospectus supplement. The following description of the notes supplements the description of the general terms and provisions of the notes and debt securities set forth under the headings Description of the Notes in the prospectus supplement and Description of Debt Securities in the prospectus.
The aggregate principal amount of the notes is $7,200,000. The notes are issued in minimum denominations of $1,000 and whole multiples of $1,000. The notes will mature on February 24, 2012, but under limited circumstances, which we describe below, the maturity date may be postponed. See the section entitled Description of the Notes Market Disruption.
We will not pay interest on the notes.
Prior to maturity, the notes are not redeemable by us or repayable at your option. The notes are not subject to any sinking fund. Upon the occurrence of an event of default (as defined in the Senior Indenture), holders of the notes may accelerate the maturity of the notes, as described under Description of Debt Securities Defaults and Rights of Acceleration in the prospectus. Upon an event of default, you will be entitled to receive only your principal amount, and you will not be entitled to payment of any Supplemental Redemption Amount.
The notes will be issued in book-entry form only. The CUSIP number for the notes is 06050 MGV3.
Payment at Maturity; Supplemental Redemption Amount
On the pricing date, we created a hypothetical basket of the Basket Stocks with a level of 1,000, based on the closing price of each Basket Stock on the pricing date. Each Basket Stock represented 6.25%, or 62.50, of the Starting Level of the Basket on the pricing date. The number of shares of each Basket Stock was set by dividing 62.50 by the closing price of that Basket Stock on the pricing date. The result was rounded to the nearest one hundred-thousandth. We call this fixed number of shares of each Basket Stock the Share Ratio. The Basket Level is determined at the close of any trading day. The Basket Level equals the sum of the products of the closing price and the Share Ratio for each Basket Stock. The Basket Level will be rounded to the nearest one hundredth.
At maturity, you will be paid the principal amount of the notes and the Supplemental Redemption Amount, which will not be less than the Minimum Supplemental Redemption Amount.
The calculation agent will determine the Supplemental Redemption Amount by reference to the Periodic Returns of the Basket Stocks during the 20 Reference Periods described in the Summary section above. On each Reset Date, the calculation agent will determine the Periodic Return of the Basket for the Reference Period then ended by applying the following formula:
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Ending Basket Level Starting Basket Level
Starting Basket Level
The result will be rounded to the nearest ten-thousandth of a decimal place and then expressed as a percentage.
The Starting Basket Level for the initial Reference Period is 1,000, and the Starting Basket Level for each subsequent Reference Period is the Ending Basket Level for the immediately preceding Reference Period. The Ending Basket Level for each Reference Period is the Basket Level on the applicable Reset Date, or if that day is not a business day, the Basket Level on the next following business day.
Except for the payment of the principal amount and the Minimum Supplemental Redemption Amount at maturity, you will be exposed to unlimited declines in the Periodic Return for any Reference Period. However, you will benefit from increases in the Periodic Return of the Basket, but only up to the Return Cap of 7.25%. For any Reference Period in which the Periodic Return is greater than the Return Cap, the Periodic Return for that Reference Period will be deemed to be the Return Cap, and for that Reference Period you will receive only the benefit of the increase in value up to the Return Cap.
After the close of the market on the last Reset Date, the calculation agent will determine the Supplemental Redemption Amount, which will not be less than the Minimum Supplemental Redemption Amount, payable to you at maturity based on the following formula:
Principal Amount x Basket Return
The Basket Return is the compounded value of the 20 Periodic Returns computed in the following manner:
[The product of (1.00 + the Periodic Return) for each Reference Period] 1.00
The Basket Return will be rounded to the nearest ten-thousandth and then expressed as a percentage.
The notes are principal protected. You are entitled to receive the Minimum Supplemental Redemption Amount. As a result, if the calculation of the Supplemental Redemption Amount results in an amount that is less than the Minimum Supplemental Redemption Amount, or if it results in a negative number because the Basket Level declines, you will receive only your principal amount and the Minimum Supplemental Redemption Amount at maturity.
When we refer to a business day, we mean a day that is a business day of the kind described in the accompanying prospectus supplement but that is not a day on which the principal securities market (or markets) on which the Basket Stocks are traded is closed.
A trading day means any day, as determined by the calculation agent, on which trading is generally conducted on the New York Stock Exchange, Inc. (NYSE), the American Stock Exchange LLC, The Nasdaq Stock Market, Inc., the Chicago Mercantile Exchange, and the Chicago Board of Options Exchange, and in the over-the-counter market for equity securities in the United States.
The closing price for any security for which a trading price must be determined to calculate the Basket Level on any particular day means the last reported sales price for that security on the relevant exchange at the scheduled weekday closing time of the regular trading
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session of the relevant exchange. If, however, the security is not listed on an exchange or traded on a bulletin board, then the closing price of the security will be determined using the average execution price per share that we or one of our affiliates pays or receives upon the purchase or sale of the security used to hedge our obligations under the notes.
If a Market Disruption Event (as defined below) has occurred with respect to any Basket Stock on a day that is required to be a Reset Day as provided in the last paragraph under Market Disruption, or if on any other trading day the closing price of a security cannot be determined according to the immediately preceding provisions, then the closing price for that day will be the mean, as determined by the calculation agent, of the bid prices for the applicable security obtained from as many recognized dealers in that security, but not exceeding three, as will make those bid prices available to the calculation agent; provided that if no such bids are available, then the closing price for that day will equal the calculation agents good faith estimate of the value of that security as of that day. A bid of BAS, BAI, or any of our other affiliates may be included in the calculation of the mean, but only if that bid is the highest of the bids obtained.
Market Disruption
With respect to any Basket Stock, Market Disruption Event means:
| a suspension, absence, or material limitation of trading of any Basket Stock on the primary market for that Basket Stock for more than two hours of trading or during the one-half hour period preceding the close of the principal trading session in that market; or a breakdown or failure in the price and trade reporting systems of the primary market for any Basket Stock as a result of which the reported trading prices for that Basket Stock during the last one-half hour preceding the close of the principal trading session in that market are materially inaccurate; or the suspension, absence, or material limitation of trading on the primary market for trading in options contracts or futures contracts related to any Basket Stock, if available, during the one-half hour period preceding the close of the principal trading session in the applicable market, or a material disruption in securities settlement, payment, or clearance services in the United States, in each case as determined by the calculation agent in its sole discretion; and |
| a determination by the calculation agent, in its sole discretion, that any event described in the preceding paragraph materially interferes or interfered with the ability of BAS or any of its affiliates to unwind or adjust all or a material portion of any hedge with respect to the notes. |
For purposes of determining whether a Market Disruption Event has occurred:
| a limitation on the number of hours or days of trading will not constitute a Market Disruption Event if it results from an announced change in the regular business hours of the relevant exchange; |
| a decision to permanently discontinue trading in the relevant options contract will not constitute a Market Disruption Event; |
| limitations under any rule or regulation enacted or promulgated by the NYSE, any other self-regulatory organization or the SEC on trading during significant market fluctuations will constitute a suspension, absence, or material limitation of trading; |
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| a suspension of trading in options contracts on a Basket Stock by the primary securities market trading in those options, if available, by reason of (a) a price change exceeding limits set by that securities exchange or market, (b) an imbalance of orders relating to those contracts, or (c) a disparity in bid and ask quotes relating to those contracts will constitute a suspension, absence, or material limitation of trading in options contracts related to that Basket Stock; and |
| a suspension, absence, or material limitation of trading on the primary securities market on which options contracts related to a Basket Stock are traded will not include any time when that securities market is itself closed for trading under ordinary circumstances. |
If a Market Disruption Event occurs or is continuing with respect to one or more Basket Stocks (a Market Disruption Stock) on a day that would otherwise be a Reset Date, then, in order to calculate the Basket Level as of that Reset Date, the calculation agent instead will use the closing price of each Market Disruption Stock on the first business day after that day on which no Market Disruption Event occurs or is continuing as to that Market Disruption Stock. The calculation agent will use the closing price for each Basket Stock that is not a Market Disruption Stock on the applicable Reset Date.
In no event, however, will the determination of the closing price for any Market Disruption Stock be postponed by more than five business days. If any determination as to a Market Disruption Stock is postponed to the last possible day, but a Market Disruption Event occurs or is continuing on that day, that day nevertheless will be the Reset Date as to that Market Disruption Stock. The calculation agent will determine the closing price of the applicable Market Disruption Stock for that day as described in the last paragraph above under the definition of closing price. If any determination of a closing price required to be made on the last scheduled Reset Date is postponed due to a Market Disruption Event, the maturity date for the notes also will be postponed by the same number of business days.
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The Basket and Adjustments to the Basket
The Basket is comprised of the common stocks of the following Basket Stocks, as weighted below based on the closing price of each Basket Stock on February 20, 2007, the pricing date, as determined by the calculation agent, to achieve a Basket Level of 1,000 on that date:
Basket Stock |
Initial Price of Basket Stock |
Weight | Share Ratio | ||||
Anadarko Petroleum Corporation |
40.02 | 6.25 | % | 1.56172 | |||
Apache Corporation |
68.39 | 6.25 | % | 0.91388 | |||
Baker Hughes Incorporated |
63.60 | 6.25 | % | 0.98270 | |||
Chevron Corporation |
70.12 | 6.25 | % | 0.89133 | |||
ConocoPhillips |
65.58 | 6.25 | % | 0.95303 | |||
ENSCO International Incorporated |
49.60 | 6.25 | % | 1.26008 | |||
Exxon Mobil Corporation |
74.87 | 6.25 | % | 0.83478 | |||
Halliburton Company |
30.04 | 6.25 | % | 2.08056 | |||
Marathon Oil Corporation |
90.41 | 6.25 | % | 0.69130 | |||
Nabors Industries Ltd |
30.00 | 6.25 | % | 2.08333 | |||
Noble Corporation |
69.16 | 6.25 | % | 0.90370 | |||
Occidental Petroleum Corporation |
47.15 | 6.25 | % | 1.32556 | |||
Schlumberger Limited |
62.34 | 6.25 | % | 1.00257 | |||
Transocean Inc. |
76.39 | 6.25 | % | 0.81817 | |||
Weatherford International Ltd. |
39.24 | 6.25 | % | 1.59276 | |||
XTO Energy Inc. |
50.83 | 6.25 | % | 1.22959 |
If one of the events described below occurs and the calculation agent determines that the event has a dilutive or concentrative effect on the theoretical value of a particular Basket Stock, the calculation agent will calculate a corresponding adjustment to the Share Ratio of that Basket Stock as the calculation agent, in its sole discretion, determines appropriate to account for that dilutive or concentrative effect. For example, if an adjustment is required because of a two-for-one stock split of a Basket Stock, then the number of shares of that Basket Stock will be adjusted to double the Share Ratio. The calculation agent also will determine the effective date of an adjustment and the substitution in the Basket of those shares, if applicable, in the event of a consolidation or merger of the relevant Basket Stock. Upon making any adjustment, the calculation agent will give notice promptly to us and the trustee under the Senior Indenture, stating the adjustment to the Share Ratio or to the Basket Stocks in the Basket.
If more than one event occurs that requires adjustment to a particular Share Ratio, the calculation agent will adjust the number of those shares in the Basket in the order in which each event occurs, and on a cumulative basis. Thus, after adjusting the number of those shares in the Basket for the first event, the calculation agent then will adjust the number of those shares in the Basket for the second event. The second adjustment will be made to those shares in the Basket after the adjustment is made for the first event, and so on for each event.
For any dilution event described below, other than a consolidation or merger, the calculation agent will not have to adjust the applicable Share Ratio unless the adjustment would result in a change of at least 0.1% to the number of shares that would apply without the adjustment. The Share Ratio resulting from any adjustment will be rounded up or down to the nearest 0.00001, with 0.000005 being rounded upward.
If an event requiring an antidilution adjustment occurs, the calculation agent will make the adjustments with a view to offsetting, to the extent practical, any change in your economic
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position relative to the notes that results solely from that event. The calculation agent, in its sole discretion, may modify the antidilution adjustments in this section as necessary to promote an equitable result.
The calculation agent will make all determinations, in its sole discretion, with respect to antidilution adjustments, including any determination as to whether an event requiring adjustment has occurred or the nature of the adjustment required and how it will be made. In the absence of manifest error, those determinations will be conclusive for all purposes and will be binding on you and us, without any liability on the part of the calculation agent. You will not be entitled to any compensation from us for any loss suffered as a result of any of the above determinations by the calculation agent. The calculation agent will provide information about any adjustments it makes upon your written request.
The following are examples of events that may require an antidilution adjustment:
| a subdivision, consolidation, or reclassification of a Basket Stock or a free distribution or dividend of any shares of a Basket Stock to its existing shareholders by way of bonus, capitalization, or similar event; |
| a distribution or dividend to existing shareholders of a Basket Stock of shares of: |
| the Basket Stock, |
| other share capital or securities granting the right to payment of dividends and/or the proceeds of liquidation of a Basket Stock equally or proportionately with such payments to its shareholders, or |
| any other type of securities, rights, or warrants in any case for payment (in cash or otherwise) at less than the prevailing market price as determined by the calculation agent; |
| the declaration by an issuer of a Basket Stock of an extraordinary or special dividend or other distribution whether in cash or shares of its stock or other assets; |
| a repurchase by an issuer of a Basket Stock of its stock whether out of profits or capital and whether the consideration for that repurchase is cash, securities, or otherwise; |
| any other similar event that may have a dilutive or concentrative effect on the theoretical value of a Basket Stock; or |
| a consolidation of an issuer of a Basket Stock with another company, or a merger of an issuer of a Basket Stock with another company. |
Stock Splits
A stock split is an increase in the number of a corporations outstanding shares of stock without any resulting change in its shareholders equity. Each outstanding share will be worth less as a result of a stock split.
If a Basket Stock is subject to a stock split, then the calculation agent will adjust its Share Ratio to equal the sum of the prior Share Ratioi.e., the number of shares before that adjustmentplus the product of (1) the number of new shares issued in the stock split with respect to one share of the relevant Basket Stock, and (2) the prior Share Ratio.
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Reverse Stock Splits
A reverse stock split is a decrease in the number of a corporations outstanding shares of stock without any resulting change in its shareholders equity. Each outstanding share will be worth more as a result of a reverse stock split.
If a Basket Stock is subject to a reverse stock split, then the calculation agent will adjust its Share Ratio to equal the product of the prior number of shares and the quotient of (1) the number of outstanding shares of the relevant Basket Stock outstanding immediately after the reverse stock split becomes effective, divided by (2) the number of shares of the relevant Basket Stock outstanding immediately before the reverse stock split becomes effective.
Stock Dividends
In a stock dividend, a corporation issues additional shares of its stock to all holders of its outstanding stock in proportion to the shares they own. Each outstanding share will be worth less as a result of a stock dividend.
If a Basket Stock is subject to a stock dividend payable in shares of its stock, then the calculation agent will adjust the Share Ratio of that Basket Stock in the Basket to equal the sum of the prior number of shares plus the product of (1) the number of shares issued in the stock dividend with respect to one share of the relevant Basket Stock, and (2) the prior number of shares.
Other Dividends and Distributions
A Share Ratio will not be adjusted to reflect dividends or other distributions paid with respect to a Basket Stock, other than:
| stock dividends as described above; |
| issuances of transferable rights and warrants as described in Transferable Rights and Warrants below; |
| distributions that are spin-off events as described in Reorganization Events below; and |
| extraordinary dividends as described below. |
A dividend or other distribution with respect to a Basket Stock will be deemed to be an extraordinary dividend if its per share value exceeds that of the immediately preceding non-extraordinary dividend, if any, for that Basket Stock by an amount equal to at least 10% of the closing price of that Basket Stock on the business day before the ex-dividend date. The ex-dividend date for any dividend or other distribution is the first day on which the relevant Basket Stock trades without the right to receive that dividend or distribution.
If an extraordinary dividend occurs, the calculation agent will adjust the relevant Share Ratio of that Basket Stock to equal the product of (1) the prior Share Ratio, and (2) a fraction, the numerator of which is the closing price of the relevant Basket Stock on the business day before the ex-dividend date and the denominator of which is the amount by which that closing price exceeds the extraordinary dividend amount.
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The extraordinary dividend amount of an extraordinary dividend for a particular Basket Stock equals:
| for an extraordinary dividend that is paid in lieu of a regular quarterly dividend, the amount of the extraordinary dividend per share of that Basket Stock, minus the amount per share of the immediately preceding dividend, if any, that was not an extraordinary dividend for that Basket Stock; or |
| for an extraordinary dividend that is not paid in lieu of a regular quarterly dividend, the amount per share of the extraordinary dividend. |
To the extent an extraordinary dividend is not paid in cash, the calculation agent will determine the value of any non-cash component. A distribution on a Basket Stock that is a stock dividend payable in shares of that Basket Stock, an issuance of rights or warrants or a spin-off event and an extraordinary dividend will result in an adjustment to the number of shares only as described in Stock Dividends above, Transferable Rights and Warrants below, or Reorganization Events below, as the case may be, and not as described here.
Transferable Rights and Warrants
If a Basket Stock issues transferable rights or warrants to all shareholders of its Basket Stock to subscribe for or purchase its Basket Stock, then the Share Ratio for that Basket Stock will be adjusted on the business day immediately following the issuance of those rights or warrants so that the new Share Ratio will equal the prior Share Ratio plus the product of (a) the prior Share Ratio and (b) the number of shares of that Basket Stock that can be purchased with the cash value of those warrants or rights distributed on a single share of that Basket Stock. The number of shares that can be purchased will be based on the closing price of that Basket Stock on the date the new Share Ratio is determined. The cash value of those rights or warrants, if the warrants or rights are traded on a national securities exchange, will equal the closing price of those warrants or rights, or, if the warrants or rights are not traded on a national securities exchange, will be determined by the calculation agent and will equal the average (mean) of the bid prices obtained from three dealers at 3:00 p.m., New York City time, on the date the new Share Ratio is determined. However, if only two bid prices are available, then the cash value of those warrants or rights will equal the average (mean) of those bids and if only one bid is available, then the cash value of those warrants or rights will equal that bid. A bid of BAS, BAI, or any of their affiliates may be included in the calculation of the mean, but only if that bid is the highest of the bids obtained. If no such bids are available, then the cash value of those rights or warrants will equal the calculation agents good faith estimate of the value of that security as of that day.
Reorganization Events
Each of the following is a reorganization event for any Basket Stock:
| the issuer of the Basket Stocks capital stock is reclassified or changed; |
| the issuer of the Basket Stock has been subject to a merger, consolidation, or other combination and either is not the surviving entity or is the surviving entity but all of its outstanding Basket Stock is exchanged for or converted into other property; |
| a statutory share exchange involving the outstanding Basket Stock and the securities of another entity occurs, other than as part of an event described above; |
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| the issuer of the Basket Stock sells or otherwise transfers its property and assets as an entirety or substantially as an entirety to another entity; |
| the issuer of the Basket Stock effects a spin-offthat is, issues to its shareholders the equity securities of another issuer, other than as part of an event described above; |
| the issuer of the Basket Stock is liquidated, dissolved, or wound up or is subject to a proceeding under any applicable bankruptcy, insolvency, or other similar law; or |
| another entity completes a tender or exchange offer for all the outstanding common shares of that Basket Stock. |
Adjustments for Reorganization
If a reorganization event occurs with respect to any issuer of the Basket Stock, then the calculation agent will adjust the applicable Share Ratio so as to reflect the amount and type of property or properties whether it be cash, securities, other property, or a combination that a prior holder of that Basket Stock would hold after the reorganization event had occurred. We refer to this new property as the distribution property.
For purposes of making an adjustment required by a reorganization event, the calculation agent, in its sole discretion, will determine the value of each type of distribution property. For any distribution property consisting of a security, the calculation agent will use the closing price of the security on the effective date of the reorganization. The calculation agent may value other types of property in any manner it determines, in its sole discretion, to be appropriate. If a holder of the applicable Basket Stock may elect to receive different types or combinations of types of distribution property in the reorganization event, the distribution property will consist of the types and amounts of each type distributed to a holder that makes no election, as determined by the calculation agent in its sole discretion.
If a reorganization event occurs and the calculation agent adjusts the Share Ratio of that Basket Stock to consist of the distribution property distributed in connection with the reorganization event as described above, the calculation agent then will make any further antidilution adjustments for later events that affect the distribution property, or any component of the distribution property, comprising the new Share Ratio. The calculation agent will do so to the same extent that it would make adjustments if the applicable Basket Stock were outstanding and were affected by the same kinds of events. If a subsequent reorganization event affects only a particular component of the Share Ratio, the required adjustment will be made only for that component.
For example, if the issuer of a Basket Stock merges into another company and each share of the relevant Basket Stock is converted into the right to receive two common shares of the surviving company and a specified amount of cash, the applicable Share Ratio will be adjusted to consist of two common shares of the surviving company and that specified amount of cash. The calculation agent will adjust the common share component of the new number of shares to reflect any later stock split or other event, including any later reorganization event, that affects the common shares of the surviving company, to the extent described in this section as if the common shares of the merged company were the Basket Stock. In that event, the cash component will not be adjusted but will continue to be a component of the Share Ratio (with no interest adjustment) in the Basket.
In the event that any cash component becomes a significant percentage of the Share Ratio of any Basket Stock (the Affected Security), as determined by the Calculation Agent,
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then the Calculation Agent may, at its discretion, make one or more adjustments to the applicable Share Ratio or to the Basket, including to replace the relevant cash component of the Affected Security with either additional shares of the surviving entity, if any, or with one or more substitute securities (each, a Substitute Security). Each Substitute Security will be deemed a Basket Stock, and the substitution and any relevant adjustment to the Basket will be deemed to be effective as of the date selected by the Calculation Agent in its sole discretion. In order to be selected as a Substitute Security, each relevant security must be a security which, in the discretion of the Calculation Agent, (a) is not already a Basket Stock or comprised in the Basket, as the case may be, (b) belongs to a similar economic sector as the Affected Security, and (c) is of a comparable market capitalization, international standing, and exposure as the Affected Security. Upon the making of a substitution as described in this paragraph, the Calculation Agent will notify us as soon as practicable, and we will notify you as to the terms of the substitution.
If a reorganization event occurs, the distribution property distributed in the event will be substituted for the relevant Share Ratio as described above. Consequently, in this pricing supplement, references to a share of a Basket Stock means any distribution property that is distributed in a reorganization event and comprises the adjusted Share Ratio for that stock. Similarly, references to a Basket Stock mean any successor entity in a reorganization event for that Basket Stock.
Role of the Calculation Agent
The calculation agent has the sole discretion to make all determinations regarding the notes, including determinations regarding the Basket Return, the Periodic Return, the Supplemental Redemption Amount, Market Disruption Events, business days, and trading days. Absent manifest error, all determinations of the calculation agent will be final and binding on you and us, without any liability on the part of the calculation agent.
We have initially appointed our affiliate, BAS, as the calculation agent, but we may change the calculation agent at any time without notifying you.
Same-Day Settlement and Payment
The notes will be delivered in book-entry form only through The Depository Trust Company against payment by purchasers of the notes in immediately available funds. We will make payments of the principal amount and the Supplemental Redemption Amount in immediately available funds so long as the notes are maintained in book-entry form.
Listing
The notes will not be listed on any securities exchange.
PS-36
None of the issuers of the Basket Stocks has authorized or sanctioned the notes or participated in the preparation of this pricing supplement. According to publicly available documents, each of these issuers is subject to the informational requirements of the Exchange Act and files reports, proxy statements, and other information with the SEC. To the best of our knowledge, based upon public documents currently available as of the date of this pricing supplement, each of the issuers of the Basket Stocks is eligible to use a Form S-3 or Form F-3 Registration Statement for primary sales of its securities. In addition, the common stock of each Basket Stock is registered under the Exchange Act. Companies with securities registered under the Exchange Act are required to file periodically financial and other information required by the SEC. Information filed with the SEC can be inspected and copied at the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of this material also can be obtained from the Public Reference Section at prescribed rates. In addition, information filed electronically by each of the issuers of the Basket Stocks with the SEC can be reviewed through a web site maintained by the SEC. The address of the SECs web site is http://www.sec.gov.
This pricing supplement relates only to the notes and does not relate to the Basket Stocks. We are not offering or selling securities of any of the issuers of the Basket Stocks. The descriptions of the Basket Stocks in this section, as well as all of the other disclosures contained in this pricing supplement regarding the Basket Stocks, are derived from the publicly available documents described in the preceding paragraph. Neither we, nor any of our affiliates, including the agents, has participated in the preparation of these documents, verified the accuracy or the completeness of the information concerning the Basket Stocks included in the publicly available documents or made any due diligence inquiry with respect to the Basket Stocks. We do not make any representation that the publicly available documents or any other publicly available information about the Basket Stocks are accurate or complete. There can be no assurance that events occurring prior or subsequent to the date of this pricing supplement (including events that would affect the accuracy or completeness of the publicly available documents described in the preceding paragraph) that might affect the trading price of any of the Basket Stocks have been or will be publicly disclosed. Because the payment of the notes at maturity is related to the trading prices of the Basket Stocks, those events, if any, also would affect the trading prices of the notes. We do not intend to furnish to you any additional information about the Basket Stocks. Neither we, nor any of our affiliates, including the agents, make any representation to you as to the future performance of any of the Basket Stocks.
You should make your own investigation into the Basket Stocks.
PS-37
HISTORICAL DATA ON THE BASKET STOCKS
Anadarko Petroleum Corporation
Anadarko Petroleum Corporation is an independent oil and gas exploration and production company with operations in the United States and other countries. The Company operates in Texas, Louisiana, the Mid-Continent and Rocky Mountain regions, Alaska, and the Gulf of Mexico. Anadarko also operates in Canada, Algeria, Tunisia, West Africa, Venezuela, Oman, Qatar, and the North Atlantic.
The following table sets forth the high, low, and period-end closing prices of Anadarko Petroleum Corporation. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, as of September 30, 2006, there were 459,744,548 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol APC.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
26.50 | 24.33 | 25.93 | |||
Second |
29.78 | 25.43 | 29.30 | |||
Third |
33.41 | 27.77 | 33.18 | |||
Fourth |
35.53 | 32.04 | 32.41 | |||
2005 |
||||||
Quarter |
||||||
First |
40.69 | 30.20 | 38.05 | |||
Second |
42.33 | 34.58 | 41.08 | |||
Third |
48.99 | 42.33 | 47.88 | |||
Fourth |
50.38 | 42.30 | 47.38 | |||
2006 |
||||||
Quarter |
||||||
First |
54.52 | 47.15 | 50.51 | |||
Second |
56.71 | 43.62 | 47.69 | |||
Third |
50.24 | 41.66 | 43.83 | |||
Fourth |
50.03 | 41.09 | 43.52 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
43.92 | 40.02 | 40.02 |
PS-38
Apache Corporation
Apache Corporation explores for and produces natural gas, crude oil, and natural gas liquids. The Company has operations in North America, Egypt, Western Australia, Poland, and the Peoples Republic of China.
The following table sets forth the high, low, and period-end closing prices of Apache Corporation. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, as of September 30, 2006, there were 329,413,445 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol APA.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
43.17 | 37.23 | 43.17 | |||
Second |
45.48 | 38.97 | 43.55 | |||
Third |
50.18 | 42.55 | 50.11 | |||
Fourth |
54.06 | 48.37 | 50.57 | |||
2005 |
||||||
Quarter |
||||||
First |
65.69 | 47.73 | 61.23 | |||
Second |
67.96 | 52.80 | 64.60 | |||
Third |
77.26 | 65.91 | 75.22 | |||
Fourth |
75.15 | 60.03 | 68.52 | |||
2006 |
||||||
Quarter |
||||||
First |
75.53 | 63.97 | 65.51 | |||
Second |
75.22 | 57.23 | 68.25 | |||
Third |
71.09 | 60.49 | 63.20 | |||
Fourth |
69.93 | 60.75 | 66.51 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
72.97 | 63.16 | 68.39 |
PS-39
Baker Hughes Incorporated
Baker Hughes Incorporated supplies reservoir-centered products, services, and systems to the worldwide oil and gas industry. The Company provides products and services for oil and gas exploration, drilling, completion, and production. Baker Hughes also manufactures and markets a variety of roller cutter bits and fixed cutter diamond bits.
The following table sets forth the high, low, and period-end closing prices of Baker Hughes Incorporated. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, as of October 23, 2006, there were 320,737,612 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol BHI.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
38.42 | 31.80 | 36.48 | |||
Second |
38.27 | 33.71 | 37.65 | |||
Third |
44.09 | 37.65 | 43.72 | |||
Fourth |
44.89 | 40.28 | 42.67 | |||
2005 |
||||||
Quarter |
||||||
First |
47.70 | 41.20 | 44.49 | |||
Second |
51.95 | 42.51 | 51.16 | |||
Third |
60.79 | 51.54 | 59.68 | |||
Fourth |
62.76 | 51.20 | 60.78 | |||
2006 |
||||||
Quarter |
||||||
First |
77.44 | 63.93 | 68.40 | |||
Second |
88.60 | 67.75 | 81.85 | |||
Third |
83.65 | 62.17 | 68.20 | |||
Fourth |
78.25 | 66.06 | 74.66 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
71.94 | 63.60 | 63.60 |
PS-40
Chevron Corporation
Chevron Corporation is an integrated energy company with operations in countries located around the world. The Company produces and transports crude oil and natural gas. Chevron also refines, markets, and distributes fuels and other energy products.
The following table sets forth the high, low, and period-end closing prices of Chevron Corporation. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, as of September 30, 2006, there were 2,179,982,547 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol CVX.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
45.35 | 42.22 | 43.89 | |||
Second |
47.44 | 43.98 | 47.06 | |||
Third |
54.07 | 46.55 | 53.64 | |||
Fourth |
55.41 | 51.72 | 52.51 | |||
2005 |
||||||
Quarter |
||||||
First |
62.08 | 50.55 | 58.31 | |||
Second |
59.34 | 50.51 | 55.92 | |||
Third |
65.77 | 56.36 | 64.73 | |||
Fourth |
64.45 | 55.75 | 56.77 | |||
2006 |
||||||
Quarter |
||||||
First |
62.21 | 54.08 | 57.97 | |||
Second |
62.88 | 56.78 | 62.06 | |||
Third |
67.85 | 60.88 | 64.86 | |||
Fourth |
75.97 | 62.94 | 73.53 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
74.47 | 68.69 | 70.12 |
PS-41
ConocoPhillips
ConocoPhillips is an international, integrated energy company which operates in several business segments. The Company explores for and produces petroleum, and refines, markets, supplies, and transports petroleum. ConocoPhillips also gathers and processes natural gas, and produces and distributes chemicals and plastics
The following table sets forth the high, low, and period-end closing prices of ConocoPhillips. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, as of September 30, 2006, there were 1,645,769,817 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol COP.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
35.32 | 32.39 | 34.91 | |||
Second |
39.32 | 34.35 | 38.15 | |||
Third |
41.61 | 36.03 | 41.43 | |||
Fourth |
45.50 | 41.00 | 43.42 | |||
2005 |
||||||
Quarter |
||||||
First |
56.16 | 41.78 | 53.92 | |||
Second |
60.68 | 48.39 | 57.49 | |||
Third |
70.91 | 59.10 | 69.91 | |||
Fourth |
68.96 | 57.35 | 58.18 | |||
2006 |
||||||
Quarter |
||||||
First |
65.25 | 58.67 | 63.15 | |||
Second |
72.50 | 57.91 | 65.53 | |||
Third |
69.03 | 57.25 | 59.53 | |||
Fourth |
73.07 | 56.03 | 71.95 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
68.30 | 61.82 | 65.58 |
PS-42
ENSCO International Incorporated
ENSCO International Incorporated is an international offshore contract drilling company. The Company also provides marine transportation services in the Gulf of Mexico.
The following table sets forth the high, low, and period-end closing prices of ENSCO International Incorporated. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, as of October 20, 2006, there were 151,859,636 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol ESV.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
30.53 | 26.40 | 28.17 | |||
Second |
29.10 | 25.08 | 29.10 | |||
Third |
33.04 | 27.00 | 32.67 | |||
Fourth |
33.75 | 28.68 | 31.74 | |||
2005 |
||||||
Quarter |
||||||
First |
40.93 | 30.35 | 37.66 | |||
Second |
38.86 | 29.79 | 35.75 | |||
Third |
47.03 | 35.82 | 46.59 | |||
Fourth |
50.28 | 40.21 | 44.35 | |||
2006 |
||||||
Quarter |
||||||
First |
55.85 | 43.50 | 51.45 | |||
Second |
57.89 | 39.90 | 46.02 | |||
Third |
47.48 | 37.57 | 43.83 | |||
Fourth |
55.28 | 39.72 | 50.06 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
51.45 | 46.50 | 49.60 |
PS-43
Exxon Mobil Corporation
Exxon Mobil Corporation operates petroleum and petrochemicals businesses on a worldwide basis. The Companys operations include exploration and production of oil and gas, electric power generation, and coal and minerals operations. Exxon Mobil also manufactures and markets fuels, lubricants, and chemicals
The following table sets forth the high, low, and period-end closing prices of Exxon Mobil Corporation. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, as of September 30, 2006, there were 5,832,488,445 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol XOM.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
42.78 | 40.10 | 41.59 | |||
Second |
45.46 | 41.52 | 44.41 | |||
Third |
49.49 | 44.36 | 48.33 | |||
Fourth |
51.97 | 48.31 | 51.26 | |||
2005 |
||||||
Quarter |
||||||
First |
63.57 | 49.49 | 59.60 | |||
Second |
60.90 | 53.35 | 57.47 | |||
Third |
64.98 | 57.89 | 63.54 | |||
Fourth |
62.49 | 55.20 | 56.17 | |||
2006 |
||||||
Quarter |
||||||
First |
63.11 | 58.28 | 60.86 | |||
Second |
65.00 | 56.65 | 61.35 | |||
Third |
70.72 | 62.15 | 67.10 | |||
Fourth |
78.73 | 65.41 | 76.63 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
75.67 | 70.98 | 74.87 |
PS-44
Halliburton Company
Halliburton Company provides energy services and engineering and construction services, as well as manufactures products for the energy industry. The Company offers discrete services and products and integrated solutions to customers in the exploration, development, and production of oil and natural gas.
The following table sets forth the high, low, and period-end closing prices of Halliburton Company. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, as of October 24, 2006, there were 1,005,509,113 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol HAL.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
16.26 | 13.02 | 15.20 | |||
Second |
15.84 | 13.97 | 15.13 | |||
Third |
16.87 | 13.65 | 16.85 | |||
Fourth |
20.68 | 16.77 | 19.62 | |||
2005 |
||||||
Quarter |
||||||
First |
22.40 | 18.79 | 21.63 | |||
Second |
24.50 | 20.30 | 23.91 | |||
Third |
34.70 | 23.21 | 34.26 | |||
Fourth |
34.46 | 27.55 | 30.98 | |||
2006 |
||||||
Quarter |
||||||
First |
40.43 | 32.30 | 36.51 | |||
Second |
41.67 | 34.14 | 37.11 | |||
Third |
37.79 | 27.84 | 28.45 | |||
Fourth |
33.74 | 26.57 | 31.05 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
30.70 | 28.27 | 30.04 |
PS-45
Marathon Oil Corporation
Marathon Oil Corporation, through its subsidiary, Marathon Oil Company, is an integrated oil firm with operations worldwide. The Company explores for and produces crude oil and natural gas on a worldwide basis. Marathon also conducts operations in the refining, marketing, and transportation of petroleum products in the United States.
The following table sets forth the high, low, and period-end closing prices of Marathon Oil Corporation. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, as of October 31, 2006, there were 351,520,042 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol MRO.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
36.06 | 30.78 | 33.67 | |||
Second |
37.84 | 32.22 | 37.84 | |||
Third |
41.52 | 33.98 | 41.28 | |||
Fourth |
42.13 | 36.67 | 37.61 | |||
2005 |
||||||
Quarter |
||||||
First |
48.76 | 35.73 | 46.92 | |||
Second |
55.58 | 44.00 | 53.37 | |||
Third |
70.83 | 54.69 | 68.93 | |||
Fourth |
69.21 | 56.28 | 60.97 | |||
2006 |
||||||
Quarter |
||||||
First |
78.15 | 65.24 | 76.17 | |||
Second |
86.04 | 69.83 | 83.30 | |||
Third |
92.19 | 70.73 | 76.90 | |||
Fourth |
97.57 | 71.94 | 92.50 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
92.80 | 83.43 | 90.41 |
PS-46
Nabors Industries Ltd
Nabors Industries Ltd, is a land drilling contractor, and also performs well servicing and workovers. The Company conducts oil, gas, and geothermal land drilling operations. Nabors well-site services include oilfield management, well logging, and other support services.
The following table sets forth the high, low, and period-end closing prices of Nabors Industries Ltd. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, as of October 26, 2006, there were 299,173,034 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol NBR.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
24.25 | 20.56 | 22.88 | |||
Second |
23.52 | 20.15 | 22.61 | |||
Third |
23.75 | 20.95 | 23.68 | |||
Fourth |
26.83 | 23.24 | 25.65 | |||
2005 |
||||||
Quarter |
||||||
First |
29.79 | 23.50 | 29.57 | |||
Second |
30.65 | 25.63 | 30.31 | |||
Third |
36.49 | 30.34 | 35.92 | |||
Fourth |
39.44 | 30.39 | 37.88 | |||
2006 |
||||||
Quarter |
||||||
First |
41.16 | 31.92 | 35.79 | |||
Second |
40.02 | 30.04 | 33.79 | |||
Third |
35.41 | 28.92 | 29.75 | |||
Fourth |
34.57 | 27.69 | 29.78 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
31.55 | 28.05 | 30.00 |
PS-47
Noble Corporation
Noble Corporation provides diversified services for the oil and gas industry. The Company provides contract drilling services with its fleet of offshore drilling units located in markets worldwide. Noble also provides labor contract drilling services, well site and project management services, and engineering services.
The following table sets forth the high, low, and period-end closing prices of Noble Corporation. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, as of October 31, 2006, there were 135,577,720 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol NE.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
42.36 | 35.07 | 38.42 | |||
Second |
39.17 | 33.95 | 37.89 | |||
Third |
46.08 | 35.36 | 44.95 | |||
Fourth |
50.39 | 43.23 | 49.74 | |||
2005 |
||||||
Quarter |
||||||
First |
58.34 | 47.31 | 56.21 | |||
Second |
63.60 | 50.09 | 61.51 | |||
Third |
72.38 | 61.04 | 68.46 | |||
Fourth |
75.53 | 58.40 | 70.54 | |||
2006 |
||||||
Quarter |
||||||
First |
84.30 | 69.99 | 81.10 | |||
Second |
85.25 | 62.77 | 74.42 | |||
Third |
76.59 | 61.81 | 64.18 | |||
Fourth |
81.51 | 59.94 | 76.15 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
75.76 | 68.84 | 69.16 |
PS-48
Occidental Petroleum Corporation
Occidental Petroleum Corporation explores for, develops, produces, and markets crude oil and natural gas. The Company also manufactures and markets a variety of basic chemicals, including chlorine, caustic soda, polyvinyl chloride, vinyl chloride monomer, and ethylene dichloride, as well as specialty chemicals. Occidental also has an interest in petrochemicals.
The following table sets forth the high, low, and period-end closing prices of Occidental Petroleum Corporation. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, as of September 30, 2006, there were 841,083,197 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol OXY.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
23.29 | 21.02 | 23.03 | |||
Second |
24.84 | 22.04 | 24.21 | |||
Third |
28.18 | 23.98 | 27.97 | |||
Fourth |
30.16 | 27.38 | 29.18 | |||
2005 |
||||||
Quarter |
||||||
First |
37.01 | 27.81 | 35.59 | |||
Second |
40.34 | 32.75 | 38.47 | |||
Third |
44.40 | 39.09 | 42.72 | |||
Fourth |
42.70 | 34.97 | 39.94 | |||
2006 |
||||||
Quarter |
||||||
First |
48.86 | 42.00 | 46.33 | |||
Second |
53.57 | 46.05 | 51.28 | |||
Third |
53.89 | 44.05 | 48.11 | |||
Fourth |
51.92 | 44.66 | 48.83 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
48.10 | 43.08 | 47.15 |
PS-49
Schlumberger Limited
Schlumberger Limited is an oil services company. The Company, through its subsidiaries, provides a wide range of services, including technology, project management and information solutions to the international petroleum industry as well as advanced acquisition and data processing surveys.
The following table sets forth the high, low, and period-end closing prices of Schlumberger Limited. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, as of September 30, 2006, there were 1,178,215,304 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol SLB.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
33.24 | 26.35 | 31.93 | |||
Second |
32.08 | 27.73 | 31.76 | |||
Third |
33.83 | 29.46 | 33.66 | |||
Fourth |
34.63 | 30.61 | 33.48 | |||
2005 |
||||||
Quarter |
||||||
First |
39.00 | 31.74 | 35.24 | |||
Second |
39.09 | 32.58 | 37.97 | |||
Third |
43.62 | 37.91 | 42.19 | |||
Fourth |
51.44 | 39.24 | 48.58 | |||
2006 |
||||||
Quarter |
||||||
First |
65.33 | 51.68 | 63.29 | |||
Second |
73.37 | 54.51 | 65.11 | |||
Third |
68.07 | 54.73 | 62.03 | |||
Fourth |
68.92 | 57.46 | 63.16 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
65.12 | 56.52 | 62.34 |
PS-50
Transocean Inc.
Transocean Inc. is an offshore drilling contractor. The Company owns or operates mobile offshore drilling units, inland drilling barges, and other assets utilized in the support of offshore drilling activities worldwide. Transocean specializes in technically demanding segments of the offshore drilling business, including deepwater and harsh environment drilling services.
The following table sets forth the high, low, and period-end closing prices of Transocean Inc. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, as of October 27, 2006, there were 292,397,727 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol RIG.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
31.50 | 23.94 | 27.89 | |||
Second |
29.12 | 25.47 | 28.94 | |||
Third |
36.19 | 26.21 | 35.78 | |||
Fourth |
42.99 | 34.09 | 42.39 | |||
2005 |
||||||
Quarter |
||||||
First |
51.46 | 39.80 | 51.46 | |||
Second |
57.73 | 44.03 | 53.97 | |||
Third |
62.60 | 54.14 | 61.31 | |||
Fourth |
70.65 | 53.39 | 69.69 | |||
2006 |
||||||
Quarter |
||||||
First |
83.93 | 70.20 | 80.30 | |||
Second |
88.97 | 71.15 | 80.32 | |||
Third |
81.30 | 65.05 | 73.23 | |||
Fourth |
83.70 | 66.85 | 80.89 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
78.42 | 72.75 | 76.39 |
PS-51
Weatherford International Ltd.
Weatherford International Ltd. provides equipment and services used for the drilling, completion, and production of oil and natural gas wells. The Company offers drilling and intervention services, completion systems, artificial lift systems, and compression services. Weatherford conducts operations in substantially all of the oil and natural gas producing regions in the world.
The following table sets forth the high, low, and period-end closing prices of Weatherford International Ltd. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, as of October 27, 2006, there were 339,710,007 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol WFT.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
23.35 | 18.05 | 21.02 | |||
Second |
22.89 | 19.97 | 22.49 | |||
Third |
25.51 | 21.78 | 25.51 | |||
Fourth |
27.38 | 24.93 | 25.65 | |||
2005 |
||||||
Quarter |
||||||
First |
30.55 | 24.54 | 28.97 | |||
Second |
30.20 | 24.25 | 28.99 | |||
Third |
35.51 | 28.86 | 34.33 | |||
Fourth |
37.65 | 28.87 | 36.20 | |||
2006 |
||||||
Quarter |
||||||
First |
45.85 | 38.25 | 45.75 | |||
Second |
58.14 | 44.56 | 49.62 | |||
Third |
51.31 | 38.12 | 41.72 | |||
Fourth |
46.47 | 39.58 | 41.79 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
40.81 | 36.92 | 39.24 |
PS-52
XTO Energy Inc.
XTO Energy Inc. is a natural gas producer that acquires, exploits, and develops long-lived oil and gas properties. The Company has properties are concentrated in Texas, Oklahoma, Kansas, New Mexico, Colorado, Arkansas, Wyoming, Louisiana, and Alaska, all located in the United States.
The following table sets forth the high, low, and period-end closing prices of XTO Energy Inc. We obtained the prices shown below from the Bloomberg Financial® service, without independent verification. According to the companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, as of September 30, 2006, there were 365,926,172 shares of common stock outstanding. The companys common stock trades on the New York Stock Exchange under the symbol XTO.
High Closing Price |
Low Closing Price |
Period-End Closing Price | ||||
2004 |
||||||
Quarter |
||||||
First |
18.39 | 15.01 | 18.20 | |||
Second |
21.99 | 17.85 | 21.48 | |||
Third |
23.66 | 18.60 | 23.42 | |||
Fourth |
26.21 | 22.61 | 25.51 | |||
2005 |
||||||
Quarter |
||||||
First |
32.93 | 23.02 | 31.57 | |||
Second |
33.97 | 26.25 | 32.68 | |||
Third |
44.10 | 33.72 | 43.57 | |||
Fourth |
45.16 | 37.23 | 42.25 | |||
2006 |
||||||
Quarter |
||||||
First |
47.54 | 38.50 | 41.89 | |||
Second |
46.14 | 36.98 | 44.27 | |||
Third |
48.35 | 39.40 | 42.13 | |||
Fourth |
50.60 | 40.00 | 47.05 | |||
2007 |
||||||
Quarter |
||||||
First (through February 20th) |
50.89 | 44.35 | 50.83 |
PS-53
SUPPLEMENTAL PLAN OF DISTRIBUTION
Our affiliates, BAS and BAI, have been appointed as our selling agents to solicit offers on a best efforts basis to purchase the notes. The selling agents are parties to the Distribution Agreement described in the Supplemental Plan of Distribution on page S-25 of the accompanying prospectus supplement. Each selling agent will receive a commission of 3.00% of the principal amount of each note sold through its efforts. Each initial purchaser of notes must have an account with one of the selling agents.
No agent is acting as your fiduciary or advisor, and you should not rely upon any communication from any agent in connection with the notes as investment advice or a recommendation to purchase notes. You should make your own investment decision regarding the notes after consulting with your legal, tax, and other advisors.
BAS and any of our other affiliates may use this pricing supplement, the accompanying prospectus supplement, and the prospectus in a market-making transaction for any notes after their initial sale.
NOTICES FOR CERTA IN NON-UNITED STATES INVESTORS
Argentina: We have not made, and will not make, any application to obtain an authorization from the Comisión Nacional de Valores (the CNV) for the public offering of the notes in Argentina. The CNV has not approved the notes, the offering, or any document relating to the offering of the notes. The selling agents have not offered or sold, and will not offer or sell, any of the notes in Argentina, except in transactions that will not constitute a public offering of securities within the meaning of Section 16 of the Argentine Public Offering Law N° 17,811. Argentine pension funds and insurance companies may not purchase the notes.
Brazil: The notes have not been registered in Brazil. The Comissão de Valores Mobiliários of Brazil has not approved the notes, the offering, nor any document relating to the offering of the notes, including this pricing supplement. Neither the notes nor the offering have been registered with the Comissão de Valores Mobiliários in Brazil. Persons wishing to offer or acquire the notes within Brazil should consult with their own counsel as to the applicability of registration requirements or any exemption therefrom, and such persons are solely responsible for compliance with the requirements of Brazilian law applicable to the remittance of funds outside Brazil in connection with any such transaction, including any applicable tax and exchange control laws. No action should be taken by such persons that would result in the offering of the notes being deemed a public offering under Brazilian law. In addition, any resale of the notes must be made in a manner that will not constitute a public offering in Brazil. This offering is not being made to any Brazilian financial institution, pension fund, insurance company, or capitalization company.
Chile: The notes have not been registered with the Superintendency of Securities and Insurance of Chile, and the notes may not be publicly offered in Chile, within the meaning of Chilean Law.
Mexico: The notes have not been registered under the Mexican Securities Market Law or recorded in the Mexican National Securities Registry. No action may be taken in Mexico that would render the offering of the notes a public offering in Mexico. No Mexican regulatory authority has approved or disapproved of the notes or passed on our solvency. In addition, any resale of the notes must be made in a manner that will not constitute a public offering in Mexico.
PS-54
Taiwan: The notes may not be issued, sold, or publicly offered in Taiwan. No subscription or other offer to purchase the notes shall be binding on us until received and accepted by us, BAS, or BAI outside of Taiwan (the Place of Acceptance), and the purchase/sale contract arising therefrom shall be deemed a contract entered into in the Place of Acceptance.
Uruguay: The notes have not been registered under the Uruguayan Securities Market Law or recorded in the Uruguayan Central Bank. No action may be taken in Uruguay that would render the offering of the notes a public offering in Uruguay. No Uruguayan regulatory authority has approved the notes or passed on our solvency. In addition, any resale of the notes must be made in a manner that will not constitute a public offering in Uruguay.
Venezuela: The notes have not been registered with the Comisión Nacional de Valores of Venezuela and are not being publicly offered in Venezuela. No document relating to the offering of the notes, including this pricing supplement, shall be deemed to constitute an offer of securities or an offer or the rendering of any investment advice or securities brokerage services in Venezuela. Investors wishing to acquire the notes may use only funds located outside of Venezuela.
UNITED STATES FEDERAL INCOME TAX SUMMARY
The following summary of certain United States federal income tax consequences of the purchase, ownership, and disposition of the notes is based upon laws, regulations, rulings, and decisions now in effect, all of which are subject to change (including changes in effective dates) or possible differing interpretations. It deals only with initial purchasers of the notes who hold notes as capital assets and does not deal with persons in special tax situations, such as financial institutions, insurance companies, regulated investment companies, dealers in securities or currencies, tax-exempt entities, persons holding notes in a tax-deferred or tax-advantaged account, persons holding notes as a hedge, a position in a straddle or as part of a conversion transaction for tax purposes, or persons who are required to mark-to-market for tax purposes. You must consult your own tax advisors concerning the application of United States federal income tax laws to your particular situation as well as any consequences of the purchase, ownership, and disposition of the notes arising under the laws of any other jurisdiction.
As used in this pricing supplement, the term United States Holder means a beneficial owner of a note that is for United States federal income tax purposes (1) an individual who is a citizen or resident of the United States, (2) an entity which is a corporation or a partnership for United States federal income tax purposes created or organized in or under the laws of the United States or of any state of the United States or the District of Columbia (other than a partnership that is not treated as a United States person under any applicable Treasury regulations), (3) an estate the income of which is subject to United States federal income tax regardless of its source, (4) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or (5) any other person whose income or gain with respect to the notes is effectively connected with the conduct of a United States trade or business. Notwithstanding the preceding sentence, to the extent provided in Treasury regulations, certain trusts in existence on August 20, 1996, and treated as United States persons prior to that date, that elect to continue to be treated as United States persons also will be United States Holders. A Non-United States Holder is a holder that is not a United States Holder.
PS-55
Tax Characterization of the Notes
There are no statutory provisions, regulations, published rulings, or judicial decisions addressing the characterization, for United States federal income tax purposes, of the notes or other instruments with terms substantially the same as the notes. However, although the matter is not free from doubt, under current law, each note should be treated as a debt instrument for United States federal income tax purposes. We currently intend to treat the notes as debt instruments for United States federal income tax purposes and, where required, intend to file information returns with the Internal Revenue Service (IRS) in accordance with such treatment, in the absence of any change or clarification in the law, by regulation or otherwise, requiring a different characterization of the notes. You should be aware, however, that the IRS is not bound by our characterization of the notes as indebtedness and the IRS could possibly take a different position as to the proper characterization of the notes for United States federal income tax purposes. If the notes are not in fact treated as debt instruments for United States federal income tax purposes, then the United States federal income tax treatment of the purchase, ownership, and disposition of the notes could differ materially from the treatment discussed below with the result that the timing and character of income, gain, or loss recognized in respect of a note could differ materially from the timing and character of income, gain, or loss recognized in respect of a note had the notes in fact been treated as debt instruments for United States federal income tax purposes.
United States Holders Income Tax Considerations
Interest and Original Issue Discount
The amount payable on the notes at maturity will depend on the performance of the Basket Stocks. Accordingly, the notes will be treated as contingent payment debt instruments for United States federal income tax purposes subject to taxation under the noncontingent bond method. As a result, the notes generally will be subject to the OID provisions of the Code and the Treasury regulations issued under the Code. Under applicable Treasury regulations, a United States Holder will be required to report OID or interest income based on a comparable yield and a projected payment schedule, as described below, established by us for determining interest accruals and adjustments with respect to a note. A United States Holder which does not use the comparable yield and follow the projected payment schedule to calculate its OID and interest income on a note must timely disclose and justify the use of other estimates to the IRS.
A comparable yield with respect to a contingent payment debt instrument generally is the yield at which we could issue a fixed-rate debt instrument with terms similar to those of the contingent payment debt instrument (taking into account for this purpose the level of subordination, term, timing of payments, and general market conditions, but ignoring any adjustments for liquidity or the riskiness of the contingencies with respect to the debt instrument). Notwithstanding the foregoing, a comparable yield must not be less than the applicable United States federal rate based on the overall maturity of the debt instrument.
A projected payment schedule with respect to a contingent payment debt instrument generally is a series of expected payments, the amount and timing of which would produce a yield to maturity on that debt instrument equal to the comparable yield. In the case of the notes, the projected payment schedule consists of a single payment at maturity, which includes the principal amount and a projection for tax purposes of the Supplemental Redemption Amount. We have determined that the projected payment schedule for each $1,000 principal amount of the notes would consist of the payment on the maturity date of the principal amount of $1,000 and a projected Supplemental Redemption Amount of $286.83, for a total of $1,286.83. This payment represents a comparable yield on the notes equal to 5.17% per annum, compounded annually. See Tax Accrual Table. You should be aware that this
PS-56
amount is not calculated or provided for any purposes other than the determination of a United States Holders interest accruals and adjustments with respect to the notes for United States federal income tax purposes. We make no representations regarding the actual amounts of payments on the notes, except with respect to the principal amount and the Minimum Supplemental Redemption Amount.
Based on the comparable yield and the projected payment schedule of the notes, a United States Holder of a note (regardless of accounting method) generally will be required to accrue as OID the sum of the daily portions of interest on the note for each day in the taxable year on which the holder held the note, adjusted upward or downward to reflect the difference, if any, between the actual and projected amount of any contingent payments on the note, as set forth below. The daily portions of interest for a note are determined by allocating to each day in an accrual period the ratable portion of interest on the note that accrues in the accrual period. The amount of interest on a note that accrues in an accrual period is the product of the comparable yield on the note (adjusted to reflect the length of the accrual period) and the adjusted issue price of the note at the beginning of the accrual period. The adjusted issue price of a note at the beginning of the first accrual period will equal its issue price and for any subsequent accrual period will be (1) the sum of the issue price of the note and any interest previously accrued on the note by a holder (disregarding any positive or negative adjustments) minus (2) the amount of any projected payments on the note for previous accrual periods. The issue price of each note in an issue of notes is the first price at which a substantial amount of those notes has been sold (including any premium paid for those notes and ignoring sales to bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents, or wholesalers). Because of the application of the OID rules, a United States Holder of a note will be required to include in income OID in excess of actual cash payments received for certain taxable years.
A United States Holder will be required to recognize interest income equal to the amount of any positive adjustment (i.e., the excess of actual payments over the projected contingent payments) for a note for the taxable year in which a contingent payment is paid. A negative adjustment (i.e., the excess of projected contingent payments over actual payments) for a note for the taxable year in which a contingent payment is paid (1) will first reduce the amount of interest for the note that a United States Holder would otherwise be required to include in income in the taxable year and (2) to the extent of any excess, will give rise to an ordinary loss equal to that portion of the excess as does not exceed the excess of (A) the amount of all previous interest inclusions under the note over (B) the total amount of the United States Holders net negative adjustments treated as ordinary loss on the note in prior taxable years. A net negative adjustment is not subject to the 2% floor limitation imposed on miscellaneous deductions under Section 67 of the Code. Any negative adjustment in excess of the amounts described above in (1) and (2) will be carried forward to offset future interest income for the note or to reduce the amount realized on a sale, exchange, or retirement of the note. Where a United States Holder purchases a note at a price other than its issue price, the difference between the purchase price and the issue price generally will be treated as a positive or negative adjustment, as the case may be, and allocated to the daily portions of interest or projected payments for the note. If you purchase a note in a transaction after the initial issuance of the notes, you should consult your tax advisors for additional guidance in making these adjustments.
If a contingent payment becomes fixed more than six months prior to maturity, a positive or negative adjustment, as appropriate, is made to reflect the difference between the present value of the amount that is fixed and the present value of the projected amount. A similar adjustment may be appropriate in some circumstances for the notes. For example, it may be possible to determine, based on the decline of the Basket Level in one or more Reference Periods, that the Supplemental Redemption Amount will be no more than the Minimum Supplemental Redemption Amount, regardless of whether the Basket Level increases
PS-57
in subsequent Reference Periods. In that case, assuming more than six months remain prior to maturity, a negative adjustment would be made to reflect the difference between the present value of the principal amount of the notes and the present value of the projected amounts. Moreover, on any Reset Date it may be possible to determine that the amount payable at maturity will be less than the projected payment amount, even though the amount payable on the notes will not become fixed prior to the last Reset Date. In that circumstance, the IRS may deem it appropriate to adjust (using the methodology described above or another methodology) the amount of interest income a United States Holder would be required to recognize in a particular taxable year for a note. However, until the IRS sets forth rules dealing with that situation, we do not intend to make any of these adjustments.
Tax Accrual Table
The table below sets forth the following information with respect to each $1,000 principal amount of the notes for each of the indicated accrual periods through the maturity date of the notes:
| the adjusted issue price at the beginning of the accrual period; |
| the amount of interest deemed to have accrued during the accrual period; and |
| the total amount of interest deemed to have accrued from the original issue date through the end of the accrual period. |
The table is based upon a projected payment schedule for the notes (and a comparable yield equal to 5.17% per annum (compounded annually)), that we established for the notes. The table reflects the expected issuance of the notes on February 23, 2007 and the scheduled maturity date of February 24, 2012. This information is provided solely for tax purposes, and we make no representations or predictions as to what the actual Supplemental Redemption Amount will be.
Accrual Period | Adjusted Issue Price at Beginning of Accrual Period |
Interest Deemed to (per $1,000 |
Total Interest to Have Accrued as of End of | ||||||
February 23, 2007 through December 31, 2007 |
$ | 1,000.00 | $ | 44.23 | $ | 44.23 | |||
January 1, 2008 through December 31, 2008 |
$ | 1,044.23 | $ | 53.99 | $ | 98.22 | |||
January 1, 2009 through December 31, 2009 |
$ | 1,098.22 | $ | 56.78 | $ | 155.00 | |||
January 1, 2010 through December 31, 2010 |
$ | 1,155.00 | $ | 59.71 | $ | 214.71 | |||
January 1, 2011 through December 31, 2011 |
$ | 1,214.71 | $ | 62.80 | $ | 277.51 | |||
January 1, 2012 through February 24, 2012 |
$ | 1,277.51 | $ | 9.32 | $ | 286.83 |
Final | Adjusted Issue Price = $1,286.83 per $1,000 principal amount of notes. |
(1) |
Represents the adjusted issue price at the beginning of the accrual period multiplied by the comparable yield for the accrual period. |
Sale, Exchange, or Retirement
Upon a sale, exchange, or retirement of a note, a United States Holder generally will recognize taxable gain or loss equal to the difference between the amount realized on the sale,
PS-58
exchange, or retirement and that holders tax basis in the note. A United States Holders tax basis in a note generally will equal the cost of that note, increased by the amount of interest income previously accrued by the holder for that note (disregarding any positive or negative adjustments). A United States Holder generally will treat any gain as interest income, and will treat any loss as ordinary loss to the extent of the excess of previous interest inclusions over the total negative adjustments previously taken into account as ordinary losses, and the balance as long-term or short-term capital loss (depending upon the United States Holders holding period for the note). The deductibility of capital losses by a United States Holder is subject to limitations.
Backup Withholding and Reporting
Generally, payments of principal and interest, and the accrual of OID, with respect to the notes will be subject to information reporting and possibly to backup withholding. Information reporting means that the payment is required to be reported to the holder of the notes and the IRS. Backup withholding means that we are required to collect and deposit a portion of the payment with the IRS as a tax payment on your behalf. Backup withholding will be imposed at a rate of 28%. This rate is scheduled to increase to 31% in 2011.
Payments of principal and interest, and the accrual of OID, with respect to notes held by a United States Holder, other than certain exempt recipients such as corporations, and proceeds from the sale of notes through the United States office of a broker will be subject to backup withholding unless that United States Holder supplies us with a taxpayer identification number and certifies that its taxpayer identification number is correct or otherwise establishes an exemption. In addition, backup withholding will be imposed on any payment of principal and interest, and the accrual of OID, with respect to a note held by a United States Holder that is informed by the United States Secretary of the Treasury that it has not reported all dividend and interest income required to be shown on its United States federal income tax return or that fails to certify that it has not underreported its interest and dividend income.
Payments of the proceeds from the sale of the notes to or through a foreign office of a broker, custodian, nominee, or other foreign agent acting on your behalf will not be subject to information reporting or backup withholding. If, however, that nominee, custodian, agent, or broker is, for United States federal income tax purposes, (1) a United States person, (2) the government of the United States or the government of any State or political subdivision of any State (or any agency or instrumentality of any of these governmental units), (3) a controlled foreign corporation, (4) a foreign partnership that is either engaged in a United States trade or business or whose United States partners in the aggregate hold more than 50% of the income or capital interests in the partnership, (5) a foreign person that derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States, or (6) a United States branch of a foreign bank or foreign insurance company, those payments will be subject to information reporting, unless (a) that custodian, nominee, agent, or broker has documentary evidence in its records that the holder is not a United States person and certain other conditions are met or (b) the holder otherwise establishes an exemption from information reporting.
A United States Holder that does not provide us with its correct taxpayer identification number may be subject to penalties imposed by the IRS. In addition, any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against the holders United States federal income tax liability, provided that certain required information is furnished to the IRS.
Applicable Treasury regulations require taxpayers that participate in reportable transactions to disclose their participation to the IRS by attaching Form 8886 to their tax returns and to retain a copy of all documents and records related to the transaction. In
PS-59
addition, material advisors with respect to such a transaction may be required to file returns and maintain records, including lists identifying investors in the transaction, and to furnish those records to the IRS upon demand. A transaction may be a reportable transaction based on any of several criteria, one or more of which may be present with respect to an investment in the notes. Whether an investment in the notes constitutes a reportable transaction for any investor depends on the investors particular circumstances. Investors should consult their own tax advisors concerning any possible disclosure obligation they may have for their investment in the notes and should be aware that, should any material advisor determine that the return filing or investor list maintenance requirements apply to this transaction, they would be required to comply with these requirements.
Non-United States Holders Income Tax Considerations
United States Federal Income and Withholding Tax
Under present United States federal income tax law, and subject to the discussion below concerning backup withholding, any gain realized on the sale, exchange, or retirement of a note, or the payment by us, or any paying agent, of principal or interest, including OID, on a note owned by a Non-United States Holder is not subject to United States federal income or withholding tax provided that:
1. | the holder does not actually or constructively own 10% or more of the total combined voting power of all classes of our stock that are entitled to vote; |
2. | the holder is not a controlled foreign corporation that is related to us through stock ownership; |
3. | the holder is not a bank receiving interest on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business; |
4. | the payment is not effectively connected with the conduct of a trade or business in the United States; and |
5. | either (A) the holder provides us (or any paying agent) with a statement which sets forth its address, and certifies, under penalties of perjury, that it is not a United States person, citizen, or resident (which certification may be made on an IRS Form W-8BEN (or successor form)) or (B) a financial institution holding the note on behalf of the holder certifies, under penalties of perjury (which certification may be made on an IRS Form W-8IMY (or successor form)), that it has or will provide us (or the paying agent) with a withholding statement. |
For purposes of the above discussion, it is assumed that each Basket Stock is, and will continue to be, actively traded within the meaning of Section 1092(d) of the Code. It is also assumed that none of the Basket Stocks has been or will be a United States real property holding corporation described in Section 897(c)(2) of the Code, of which 5% or more of its common stock has been or will be held by a Non-United States Holder of the notes.
Payments to Non-United States Holders not meeting the requirements set forth above are subject to withholding at a rate of 30% unless (a) the holder is engaged in a trade or business in the United States and the holder provides us with a properly executed IRS Form W-8ECI (or successor form) certifying that the payments are effectively connected with the conduct of a trade or business in the United States, or (b) the holder provides us with a properly executed IRS Form W-8BEN (or successor form) claiming an exemption from, or reduction in the rate of, withholding under the benefit of a tax treaty. To claim benefits under
PS-60
an income tax treaty, a Non-United States Holder must obtain a taxpayer identification number and certify as to its eligibility under the appropriate treatys limitations on benefits article.
Backup Withholding and Reporting
Payments of principal and interest, and the accrual of OID, with respect to the notes and proceeds from the sale of notes held by a Non-United States Holder will not be subject to information reporting and backup withholding so long as the holder has certified that it is not a United States person and we do not have actual knowledge that the certification is false (or you otherwise establish an exemption). However, if a Non-United States Holder has not certified that it is not a United States person or we have actual knowledge that the certification is false (and it has not otherwise established an exemption) the holder will be subject to backup withholding and information reporting in the manner described above in United States Holders Backup Withholding and Reporting.
A fiduciary of a pension plan or other employee benefit plan (including a governmental plan, an individual retirement account, or a Keogh plan) subject to ERISA should consider fiduciary standards under ERISA in the context of the particular circumstances of the plan before authorizing an investment in the notes. A fiduciary also should consider whether the investment is authorized by, and in accordance with, the documents and instruments governing the plan.
In addition, ERISA and the Code prohibit a number of transactions (referred to as prohibited transactions) involving the assets of a plan subject to ERISA or the assets of an individual retirement account, or plan subject to Section 4975 of the Code (referred to as an ERISA plan), on the one hand, and persons who have specified relationships of the plan (parties in interest within the meaning of ERISA or disqualified persons within the meaning of the Code), on the other. If we (or an affiliate) are considered a party in interest or disqualified person for an ERISA plan, then the investment in the notes by that ERISA plan may give rise to a prohibited transaction. There are several ways by which we or our affiliates may be considered a party in interest or a disqualified person for an ERISA plan. For example, if we provide banking or financial advisory services to an ERISA plan, or act as a trustee or in a similar fiduciary role for ERISA plan assets, we may be considered a party in interest or a disqualified person for that ERISA plan.
A violation of the prohibited transaction rules may result in civil penalties or other liabilities under ERISA and an excise tax under Section 4975 of the Code for those persons, unless exemptive relief is available under an applicable statutory, regulatory, or administrative exemption. In addition, a prohibited transaction may require correction of the transaction. Some types of employee benefit plans and arrangements including those that are governmental plans (as defined in Section 3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA) and foreign plans (as described in Section 4(b)(4) of ERISA) (non-ERISA arrangements) are not subject to the requirements of ERISA or Section 4975 of the Code but may be subject to similar provisions under applicable federal, state, local, foreign, or other regulations, rules, or laws (similar laws).
Therefore, an ERISA plan should not invest in the notes unless the plan fiduciary or other person acquiring them on behalf of the ERISA plan determines that neither we nor an affiliate is a party in interest or a disqualified person or, alternatively, that an exemption from the prohibited transaction rules is available. The United States Department of Labor has issued five prohibited transaction class exemptions, or PTCEs, that may provide exemptive relief if required for direct or indirect prohibited transactions that may arise from the purchase or holding of the notes. These exemptions include:
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(1) PTCE 84-14, an exemption for some transactions determined by independent qualified professional asset managers;
(2) PTCE 90-1, an exemption for some types of transactions involving insurance company pooled separate accounts;
(3) PTCE 91-38, an exemption for some types of transactions involving bank collective investment funds;
(4) PTCE 95-60, an exemption for transactions involving some types of insurance company general accounts; and
(5) PTCE 96-23, an exemption for plan asset transactions managed by in-house asset managers.
There also may be other exemptions available depending on the particular circumstances.
Because we may be considered a party in interest or a disqualified person with respect to many plans, the notes may not be purchased, held, or disposed of by any ERISA plan or any person investing plan assets of any ERISA plan, unless the purchase, holding, or disposition is eligible for exemptive relief or that purchase, holding, or disposition is otherwise not prohibited. Therefore, any purchaser, including any fiduciary purchasing on behalf of an ERISA plan, transferee, or holder of the notes will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding, that either (a) it is not an ERISA plan and is not purchasing the notes on behalf of or with plan assets of any ERISA plan, or with any assets of a non-ERISA arrangement, or (b) its purchase, holding, and disposition are eligible for exemptive relief or the purchase, holding, or disposition are not prohibited by ERISA or Section 4975 of the Code (or, in the case of a non-ERISA arrangement, any similar laws).
The sale of the notes to an ERISA plan or non-ERISA arrangement is not a representation by us to you or any other person associated with the sale that those securities meet any legal requirements for investments by those entities generally or any particular entities.
If you are the fiduciary of a pension plan or non-ERISA arrangement, or an insurance company that is providing investment advice or other features to a pension plan or other ERISA plan, and you propose to invest in the notes with the assets of the ERISA plan or a non-ERISA arrangement, you should consult your own legal counsel for further guidance.
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$10,000,000,000
Medium-Term Notes, Series K
We may offer to sell our Bank of America Corporation Medium-Term Notes, Series K, from time to time. The specific terms of any notes that we offer will be determined before each sale and will be described in a separate pricing supplement. Terms may include:
| Priority: senior or subordinated |
| Notes may bear interest at fixed or floating rates or may not bear any interest |
| Base floating rates include: |
¡ | federal funds rate |
¡ | LIBOR |
¡ | prime rate |
¡ | treasury rate |
¡ | any other rate we specify |
| Maturity: nine months or more |
| Indexed notes: principal, premium, or interest payments linked to the price or performance, either directly or indirectly, of one or more securities, currencies, commodities, interest rates, stock indices, or other indices or formulae |
| Payments in U.S. dollars or any other consideration |
Per Note |
Total | |||
Public offering price | 100% | $10,000,000,000 | ||
Agents discounts and commissions | .125% .750% | $12,500,000 $75,000,000 | ||
Proceeds (before expenses) | 99.875% 99.250% | $9,987,500,000 $9,925,000,000 |
We may sell notes to the agents as principal for resale at varying or fixed offering prices or through the agents as agents using their best efforts on our behalf. We also may sell the notes directly to investors.
We may use this prospectus supplement and accompanying prospectus in the initial sale of any note. In addition, Banc of America Securities LLC, or any of our other affiliates, may use this prospectus supplement and accompanying prospectus in a market-making transaction in any note after its initial sale. Unless we or our agent inform the purchaser otherwise in the confirmation of sale, this prospectus supplement and accompanying prospectus are being used in a market-making transaction.
Unless otherwise specified in the pricing supplement, we do not intend to list the notes on any securities exchange.
Our notes are unsecured and are not savings accounts, deposits, or other obligations of a bank. Our notes are not guaranteed by Bank of America, N.A. or any other bank, are not insured by the Federal Deposit Insurance Corporation or any other governmental agency, and may involve investment risks. Potential purchasers of the notes should consider the information set forth in the Risk Factors section beginning on page S-3.
None of the Securities and Exchange Commission, any state securities commission, or any other regulatory body has approved or disapproved of these notes or passed upon the adequacy or accuracy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.
Banc of America Securities LLC | Banc of America Investment Services, Inc. |
Prospectus Supplement to Prospectus dated April 14, 2004
April 15, 2004
Prospectus Supplement | Page | |
About this Prospectus Supplement and any Pricing Supplements |
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Risk Factors | S-3 | |
Bank of America Corporation | S-7 | |
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Description of the Notes | S-9 | |
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Renewable Notes, Floating-Rate Notes, Extendible Notes, Foreign Currency Notes, and Indexed Notes |
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Supplemental Plan of Distribution | S-25 | |
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S-2
ABOUT THIS PROSPECTUS SUPPLEMENT AND ANY PRICING SUPPLEMENTS
We have registered the notes on a registration statement on Form S-3 with the Securities and Exchange Commission under Registration No. 333-112708.
From time to time, we intend to use this prospectus supplement, the accompanying prospectus, and a related pricing supplement to offer the notes. You should read each of these documents before investing in the notes.
This prospectus supplement describes additional terms of the notes and supplements the description of the debt securities contained in the accompanying prospectus. If the information in this prospectus supplement is inconsistent with the prospectus, this prospectus supplement will supersede the information in the prospectus.
Each time we issue notes, we will prepare a pricing supplement which will contain additional terms of the offering and a specific description of the notes being offered. The pricing supplement also may add, update, or change information in this prospectus supplement or the accompanying prospectus, including provisions describing the calculation of interest and the method of making payments under the terms of a note. We will state in the pricing supplement the interest rate or interest rate basis or formula, issue price, any relevant index or indices, the maturity date, interest payment dates, redemption or repayment provisions, if any, and other relevant terms and conditions for each note at the time of issuance. A pricing supplement can be quite detailed and always should be read carefully.
Any term that is used, but not defined, in this prospectus supplement shall have the meaning set forth in the accompanying prospectus.
Your investment in the notes involves significant risks. Your decision to purchase the notes should be made only after carefully considering the risks of an investment in the notes, including those discussed below, with your advisors in light of your particular circumstances. The notes are not an appropriate investment for you if you are not knowledgeable about significant elements of the notes or financial matters in general.
We cannot assure you that a trading market for the notes exists, will develop, or will be maintained if developed.
We do not intend to list the notes on any securities exchange. Even if the notes are listed at a later date, we cannot guarantee that a trading market for the notes ever will develop or be maintained if developed. The agents have advised us that they intend under ordinary market conditions to indicate prices for the notes on request. However, we cannot guarantee that bids for outstanding notes will be made in the future, nor can we predict the price at which those bids will be made.
The amount of interest we may pay on the notes may be limited by state law.
New York law governs the notes. New York usury laws limit the amount of interest that can be charged and paid on loans, including debt securities like the notes. Under present New York law, the maximum permissible rate of interest is 25% per year on a simple interest basis. This limit may not apply to debt securities in which $2,500,000 or more has been invested. While we believe that a state or federal court sitting outside of New York may give effect to New York law, many other states also have laws that regulate the amount of interest that may be charged to and paid by a borrower. We do not intend to claim the benefits of any laws concerning usurious rates of interest.
Redemption of the notes prior to maturity may result in a reduced return on your investment.
If the terms of a note permit or require redemption prior to maturity, that redemption may occur at times when prevailing interest rates are relatively low. As a result, you may not be able to reinvest the redemption proceeds in a comparable replacement security at an effective interest rate as high as the return on your redeemed note.
S-3
The trading value of the notes may be less than the principal amount of the notes.
The trading market for, and trading value of, the notes may be affected by a number of factors. These factors include:
| the time remaining to maturity of the notes; |
| the aggregate amount outstanding of the relevant notes; |
| any redemption features of the notes; and |
| the level, direction, and volatility of market interest rates generally. |
Often, the only way to liquidate your investment in the notes prior to maturity will be to sell the notes. At that time, there may be a very illiquid market for the notes or no market at all.
For indexed notes that have very specific investment objectives or strategies, the applicable trading market may be more limited, and the price may be more volatile, than for other notes. The trading value of indexed notes may be adversely affected by the complexity of the formula and volatility of the applicable reference asset, including any dividend rates or yields of other securities or financial instruments that relate to the indexed notes. Moreover, the trading value of indexed notes could be adversely affected by changes in the amount of outstanding equity or other securities linked to the applicable reference asset or formula applicable to the indexed notes.
Hedging activities may affect your return at maturity and the market value of the notes.
Hedging activities also may affect trading in the notes. At any time, we or our affiliates may engage in hedging activities contemporaneous with an offering of the notes. This hedging activity, in turn, may increase or decrease the value of the notes. In addition, we or our affiliates may acquire a long or short position in the notes from time to time. In the case of indexed notes, we or our affiliates may engage in hedging activity related to the indexed notes or to a component of the index or formula applicable to the indexed notes. All or a portion of these positions may be liquidated at or about the time of the maturity date of the notes. The aggregate amount and the composition of these positions are likely to vary over time. We have no reason to believe that any of our activities will have a material effect on the notes. However, we cannot assure you that our activities or the activities of our affiliates will not affect the prices at which you may sell your notes.
Changes in our credit ratings are expected to affect the value of the notes.
Our credit ratings are an assessment of our ability to pay our obligations. Consequently, real or anticipated changes in our credit ratings may affect the trading value of the notes. However, because your return on the notes depends upon factors in addition to our ability to pay our obligations, an improvement in our credit ratings will not reduce the other investment risks related to the notes.
Holders of notes denominated in a foreign currency are subject to governmental action impacting currency transfer and other exchange rate risks.
If you invest in notes that are not denominated or payable in your home country currency, you will be subject to significant risks not associated with an investment denominated and payable in your home country currency.
| Your return on a foreign currency-denominated note may be affected by exchange rates and controls. Changes in the rates of exchange between your home country currency and the specified currency of your note and the imposition or modification of foreign exchange controls or other conditions by either the United States or non-U.S. governments could significantly lessen the return on your note. These risks generally are influenced by factors over which we have no control, such as economic and political events and the supply of and demand for the relevant currencies in the global markets. |
| Changes in currency exchange rates can be volatile and unpredictable. Fluctuations in rates of exchange have been volatile. This volatility may continue and could spread to other currencies in |
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the future. Fluctuations in currency exchange rates could affect adversely your investment in a foreign currency-denominated note. Depreciation of a foreign currency against your home country currency could result in a decrease in the foreign currency equivalent value of payments on the notes, including the principal payable at maturity. That, in turn, could cause the market value of the notes to fall. Depreciation of a foreign currency against your home currency could result in a loss to you on your home country currency. |
| Government policy can adversely affect currency exchange rates and an investment in the notes. Currency exchange rates either can float or be fixed by sovereign governments. Governments or governmental bodies may intervene in their economies to alter the exchange rates or exchange characteristics of their currencies. For example, a central bank may intervene to devalue or revalue a currency or to replace an existing currency. In addition, a government may impose regulatory controls or taxes to affect the exchange rate of its currency. As a result, the yield or payout of a foreign currency-denominated note could be affected significantly and unpredictably by governmental actions. Changes in exchange rates could affect the value of the notes as participants in the global currency market move to buy or sell foreign currency or your home country currency in reaction to those developments. |
If a governmental authority imposes exchange controls or other conditions, such as taxes on the transfer of a foreign currency, there may be limited availability of that foreign currency for payment on the notes at their maturity or on any other payment date. In addition, the ability of a holder to move currency freely out of the country in which payment in the currency is received or to convert the currency at a freely determined market rate could be limited by governmental actions.
| We will make payments in U.S. dollars if we are unable to obtain the specified currency. Under the terms of the notes, if, at or about the time when a payment on the notes comes due, the specified currency is subject to convertibility, transferability, market disruption, or other conditions affecting its availability because of circumstances beyond our control, we may make the payment in U.S. dollars instead of the specified currency. These circumstances could include the imposition of exchange controls or our inability to obtain the specified currency because of a disruption in the currency markets for the specified currency. The exchange rate used to make the payment in U.S. dollars may be based on limited information and would involve significant discretion on the part of our exchange agent. As a result, the value of the payment in U.S. dollars may be less than the value of the payment you would have received in the specified currency if the specified currency had been available. |
| We will not adjust the notes to compensate for changes in currency exchange rates. We will not make any adjustments in or change to the terms of the notes for changes in the exchange rate for a specified currency, including any devaluation, revaluation, or imposition of exchange, or other regulatory controls or taxes, or for other developments affecting the specified currency or your home country currency. Consequently, you will bear the risk that your investment may be adversely affected by these types of events. |
| In a lawsuit for payment on a note, you may bear currency exchange risk. The notes are governed by New York law. Under Section 27 of the New York Judiciary Law, a state court in the State of New York rendering a judgment on the note denominated in a foreign currency would be required to render the judgment in that foreign currency. In turn, the judgment would be converted into U.S. dollars at the exchange rate prevailing on the date of entry of the judgment. Consequently, in a lawsuit for payment on the notes, you would bear currency exchange risk until judgment is entered, which could be a long time. |
In courts outside of New York, you may not be able to obtain a judgment in a specified currency other than U.S. dollars. For example, a judgment for money in an action based on the notes in other U.S. federal or state courts ordinarily would be enforced in the United States only in U.S. dollars. The date used to determine the rate of conversion of the foreign currency into U.S. dollars will depend upon various factors, including which court renders the judgment.
S-5
Holders of indexed notes are subject to important risks that are not associated with more conventional debt securities.
If you invest in indexed notes, you will be subject to significant risks not associated with conventional fixed-rate or floating-rate debt securities. These risks include the possibility that the particular index or indices may be subject to fluctuations, and the possibility that an investor will receive a lower, or no, amount of principal, premium, or interest, and at different times than expected. In recent years, interest rates and indices have been volatile, and this volatility may be expected in the future. However, past experience is not necessarily indicative of what may occur in the future. We have no control over a number of matters, including economic, financial, and political events, that are important in determining the existence, magnitude, and longevity of these risks and their impact on the value of, or payments made on, the indexed notes. Some of the additional risks that you should consider in connection with an investment in indexed notes are as follows:
| You may lose some or all of your principal. The principal amount of an indexed note may or may not be fully principal protected. This means that the principal amount you will receive at maturity may be less than the original purchase price of the indexed note. It also is possible that principal will not be repaid. |
| Your yield may be less than the yield on a conventional debt security of comparable maturity. Any yield on your investment in an indexed note (whether or not the principal amount is indexed) may be less than the overall return you would earn if you purchased a conventional debt security at the same time and with the same maturity date. |
| The existence of a multiplier or leverage factor may result in the loss of your principal and interest. Some indexed notes may have interest and principal payments that increase or decrease at a rate greater than the rate of a favorable or unfavorable movement in the indexed item. This is referred to as a multiplier or leverage factor. A multiplier or leverage factor in a principal or interest index will increase the risk that no principal or interest will be paid. |
| Payment on the indexed note prior to maturity may result in a reduced return on your investment. The terms of an indexed note may require that the indexed note be paid prior to its scheduled maturity date. That early payment could reduce your anticipated return. In addition, you may not be able to invest the funds you receive in a new investment that yields a similar return. |
| The United States federal income tax consequences of the indexed notes are uncertain. No statutory, judicial, or administrative authority directly addresses the characterization of the indexed notes or securities similar to the indexed notes for United States federal income tax purposes. As a result, significant United States federal income tax consequences of an investment in the indexed notes are not certain. We are not requesting a ruling from the Internal Revenue Service (the IRS) for any of the indexed notes and we give no assurance that the IRS will agree with the statements made in this prospectus supplement or in the pricing supplement applicable to those notes. |
| Your investment return may be less than a comparable direct investment in the stocks included in an index or in a fund that invests in those stocks. A direct investment in the stocks included in an index or in a fund that invests in those stocks would allow you to receive the full benefit of any appreciation in the price of the shares, as well as in any dividends paid by those shares. |
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Bank of America Corporation is a Delaware corporation, a bank holding company, and a financial holding company. Bank of America Corporation was incorporated in 1998 as part of the merger of BankAmerica Corporation with NationsBank Corporation. We provide a diversified range of banking and nonbanking financial services and products in 29 states and the District of Columbia and in selected international markets. We provide services and products through four business segments: (1) Consumer and Small Business, (2) Commercial Banking, (3) Global Corporate and Investment Banking, and (4) Wealth and Investment Management.
On October 27, 2003, we entered into an Agreement and Plan of Merger with FleetBoston Financial Corporation, or FleetBoston, providing for the merger of FleetBoston with and into us (the FleetBoston Merger). The FleetBoston Merger closed on April 1, 2004, and we were the surviving corporation in the transaction. Following the FleetBoston Merger, our principal banking subsidiaries are Bank of America, N.A. and Fleet National Bank.
As part of our operations, we regularly evaluate the potential acquisition of, and hold discussions with, various financial institutions and other businesses of a type eligible for financial holding company ownership or control. In addition, we regularly analyze the values of, and submit bids for, the acquisition of customer-based funds and other liabilities and assets of such financial institutions and other businesses. We also regularly consider the potential disposition of certain of our assets, branches, subsidiaries, or lines of businesses. As a general rule, we publicly announce any material acquisitions or dispositions when a definitive agreement has been reached.
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The following table sets forth: (1) our outstanding long-term debt as of December 31, 2003, (2) the pro forma combined outstanding long-term debt of us and FleetBoston as of December 31, 2003, and (3) the pro forma combined outstanding long-term debt of us and FleetBoston as adjusted for the issuance and maturity of some of our and FleetBostons long-term debt during the period beginning January 1, 2004 through April 15, 2004. The pro forma information assumes that we had been combined with FleetBoston on January 1, 2003, on a purchase accounting basis.
Bank of America Actual |
Unaudited America/ FleetBoston |
Unaudited Pro Forma | |||||||
(Amounts in Millions) | |||||||||
Senior debt |
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Bank of America Corporation |
$ | 36,887 | $ | 41,816 | $ | 45,413 | |||
Subsidiaries (1) |
12,862 | 16,976 | 18,207 | ||||||
Total senior debt |
$ | 49,749 | $ | 58,792 | $ | 63,620 | |||
Subordinated debt |
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Bank of America Corporation |
19,041 | 22,098 | 21,617 | ||||||
Subsidiaries (1) |
308 | 2,508 | 2,508 | ||||||
Total subordinated debt |
$ | 19,349 | $ | 24,606 | $ | 24,125 | |||
Junior subordinated debt |
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Bank of America Corporation |
5,472 | 8,729 | 8,729 | ||||||
Subsidiaries (1) |
773 | 773 | 773 | ||||||
Total junior subordinated debt |
$ | 6,245 | $ | 9,502 | $ | 9,502 | |||
Pro forma adjustments (2) |
$ | | $ | 912 | $ | 912 | |||
Total long-term debt |
$ | 75,343 | $ | 93,812 | $ | 98,159 | |||
(1) | These obligations are direct obligations of our subsidiaries and represent claims against those subsidiaries prior to our equity interest in those subsidiaries. |
(2) | For additional information, see Unaudited Pro Forma Condensed Combined Financial Information included in our Form 8-K/A filed April 14, 2004. |
Also, as of December 31, 2003, there was approximately $2.6 billion of Bank of America Corporation commercial paper and other short-term notes payable outstanding and approximately $759 million of FleetBoston commercial paper and other short-term notes payable outstanding.
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This section describes the general terms and conditions of the notes, which may be senior or subordinated medium-term notes. We will describe the particular terms of the notes we sell in a pricing supplement. The terms and conditions stated in this section will apply to each note unless the note, the pricing supplement, or an amendment or supplement to the registration statement indicates otherwise.
We will issue the notes as part of a series of debt securities under the Indentures, which are exhibits to our registration statement and are contracts between us and The Bank of New York, the trustee. The trustee has two principal functions:
| First, the trustee can enforce your rights against us if we default. However, there are limitations on the extent to which the trustee may act on your behalf. |
| Second, the trustee performs administrative duties for us, including sending you notices. |
The Indentures are subject to, and governed by, the Trust Indenture Act of 1939. We, the agents, and the depository, in the ordinary course of our respective businesses, have conducted and may conduct business with The Bank of New York or its affiliates.
The following summary of the terms of the notes and the Indentures is not complete and is qualified in its entirety by reference to the actual notes and the specific provisions of the applicable Indentures. The following description of notes will apply to each note we offer unless we otherwise specify in the applicable pricing supplement.
The notes are our direct unsecured obligations and are not obligations of our subsidiaries. The notes are being offered on a continuous basis. The total initial public offering price of the Senior and Subordinated Medium-Term Notes, Series K, that may be offered using this prospectus supplement is $10,000,000,000. We may issue other debt securities under the Indentures from time to time in one or more series up to the aggregate initial offering price authorized for the particular series. We also may increase the size of Medium-Term Notes, Series K, without notice to, or the consent of, the registered holders of the notes of that series or other debt securities under the Indentures.
Unless otherwise provided in the pricing supplement, the minimum denomination of the notes will be $1,000 and any larger amount that is a whole multiple of $1,000.
For purposes of calculating the aggregate principal amount of notes issued from time to time:
| the principal amount of original issue discount notes, as described below, and any other notes issued at a discount will be deemed to be the net proceeds that we received for the relevant issue; and |
| the principal amount of indexed notes will be calculated by reference to the original notional amount of the notes. |
We may issue notes that bear interest at a fixed rate described in the pricing supplement, which we refer to as fixed-rate notes. We also may issue fixed-rate notes that combine principal and interest payments in installment payments over the life of the note, which we refer to as amortizing notes.
We may issue notes that will bear interest at a floating rate of interest determined by reference to one or more interest rate bases, or by reference to one or more interest rate formulae, described in the pricing supplement, which we refer to as floating-rate notes. In some cases, the interest rate of a floating-rate note also may be adjusted by adding or subtracting a spread or by multiplying the interest rate by a spread multiplier. A floating-rate note also may be subject to:
| a maximum interest rate limit, or ceiling, on the interest that may accrue during any interest period; |
| a minimum interest rate limit, or floor, on the interest that may accrue during any interest period; or |
| both. |
We may issue notes that provide that the rate of return, including the principal, premium (if any), interest, or other amounts payable (if any), is determined by reference, either directly or indirectly, to the
S-9
price or performance of one or more securities, currencies or composite currencies, commodities, interest rates, stock indices, or other indices or formulae, in each case as specified in the pricing supplement. We refer to these notes as indexed notes.
We may issue notes at a price lower than their principal amount or lower than their minimum guaranteed repayment amount at maturity, which we refer to as original issue discount notes or OID notes. OID notes may be fixed-rate, floating-rate, or indexed notes and may bear no interest (zero coupon notes) or may bear interest at a rate that is below market rates at the time of issuance.
The pricing supplement for each offering of notes will contain additional terms of the offering and a specific description of those notes, including:
| the specific designation of the notes; |
| the issue price; |
| the principal amount; |
| the issue date; |
| the denominations or minimum denominations, if other than $1,000 or its equivalent in other currencies; |
| whether the note is a fixed-rate note, a floating-rate note, or an indexed note; |
| whether the note is senior or subordinated; |
| the method of determining and paying interest, including any applicable interest rate basis or bases, any initial interest rate, any interest reset dates, any payment dates, any index maturity, and any maximum or minimum rate of interest; |
| any spread or spread multiplier applicable to a floating-rate note or an indexed note; |
| the method for the calculation and payment of principal, premium (if any), interest, and other amounts payable (if any); |
| the maturity date; |
| if applicable, the circumstances under which the note may be redeemed at our option or repaid at your option prior to the maturity date set forth on the face of the note, including any repayment date, redemption commencement date, redemption price, and redemption period; |
| if applicable, the circumstances under which the maturity date set forth on the face of the note may be extended at our option or renewed at your option, including the extension or renewal periods and the final maturity date; and |
| any other material terms of the note which are different from those described in this prospectus supplement and the accompanying prospectus. |
Payment of Principal, Interest, and Other Amounts Due
Unless otherwise provided in the pricing supplement, the trustee will act as our sole paying agent, security registrar, and transfer agent with respect to the notes through the trustees office. That office is currently located at 101 Barclay Street, New York, New York 10286. At any time, we may rescind the designation of a paying agent, appoint a successor paying agent, or approve a change in the office through which any successor paying agent acts in accordance with the applicable Indenture. In addition, we may decide to act as our own paying agent with respect to some or all of the notes, and the paying agent may resign.
The trustee also will act as the calculation agent for floating-rate notes, unless otherwise specified in the pricing supplement. We will identify the calculation agent for any indexed notes in the pricing supplement. The calculation agent will be responsible for calculating the interest rate, reference rates, principal, premium (if any), interest, or other amounts payable (if any) applicable to the floating-rate notes or indexed
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notes, as the case may be, and for certain other related matters. The calculation agent, at the request of the holder of any floating-rate note, will provide the interest rate then in effect and, if already determined, the interest rate that is to take effect on the next interest reset date, as described below, for the floating-rate note. At the request of the holder of any floating-rate note that is an indexed note, the calculation agent will provide the reference rate, index, or formula then in effect. We may replace any calculation agent or elect to act as the calculation agent for some or all of the notes, and the calculation agent may resign.
We refer to each date on which interest is payable on a note as an interest payment date. Unless otherwise specified in the pricing supplement, interest payments on the notes will be made on each interest payment date applicable to, and at the maturity date of, the notes. Interest payable at any interest payment date will be paid to the registered holder of the note on the regular record date for that interest payment date, as described below. Unless otherwise specified in the pricing supplement, the regular record date for an interest payment date will be 15 calendar days prior to the interest payment date, whether or not that date is a business day. The principal and interest payable at maturity will be paid to the holder of the note at the close of business on the maturity date.
If any interest payment date or the maturity date of a fixed-rate note falls on a day that is not a business day, the required payment of principal, premium (if any), interest, or other amounts payable (if any) will be made on the next business day, and no additional interest will accrue in respect of the payment made on the next business day. If any interest payment date or the maturity date of a floating-rate note falls on a day that is not a business day, the interest payment date will be postponed to the next business day. However, in the case of a floating-rate note with an interest rate based on the London interbank offered rate, referred to as a LIBOR note and described below, if an interest payment date falls on a date that is not a business day, and the next business day is in the next calendar month, the interest payment date will be the immediately preceding business day.
Each note will mature on a business day nine months or more from the issue date. Unless otherwise specified in the pricing supplement, the term business day means any weekday that is not a legal holiday in New York, New York, Charlotte, North Carolina, or any other place of payment of the note, is not a date on which banking institutions in those cities are authorized or required by law or regulation to be closed, and:
| for LIBOR notes, a London Banking Day. A London Banking Day means any day on which commercial banks are open for business (including dealings in the index currency specified in the pricing supplement) in London, England; |
| for notes denominated in euro, a day on which the TransEuropean Real-Time Gross Settlement Express Transfer, or TARGET, System or any successor is operating; and |
| for notes denominated in a specified currency other than U.S. dollars or euro, a day on which banking institutions generally are authorized or obligated by law, regulation, or executive order to close in the Principal Financial Center of the country of the specified currency. |
The Principal Financial Center is:
| the capital city of the country issuing the specified currency, except for U.S. dollars, Australian dollars, Canadian dollars, South African rand, and Swiss francs, the Principal Financial Center is New York, Sydney and Melbourne, Toronto, Johannesburg, and Zurich, respectively; or |
| the capital city of the country to which the index currency relates, except for U.S. dollars, Australian dollars, Canadian dollars, South African rand, and Swiss francs, the Principal Financial Center is New York, Sydney, Toronto, Johannesburg, and Zurich, respectively. |
The notes are not subject to any sinking fund, which means we will not deposit money on a regular basis into any separate custodial account to repay the notes.
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We will issue each note in book-entry only form. This means that we will not issue actual notes or certificates to each holder. Instead, the notes will be in the form of a global note held in the name of The Depository Trust Company, which is known as DTC, or its nominee. In order to own a beneficial interest in a note, you must be an institution that has an account with DTC or has a direct or an individual account with such an institution that has an account with DTC.
Notes will not be issued in certificated form unless:
| DTC notifies us that it is unwilling or unable to continue as depository or it otherwise ceases to be a qualified clearing agency and we do not appoint a successor depository; or |
| we make a decision to permit notes to be issued in certificated form and notify the trustee of that decision. |
No service charge will be made for any registration of transfer or exchange of notes issued in certificated form, but we may require payment of a sum sufficient to cover any related tax or other governmental charges.
Unless otherwise stated in the pricing supplement, we will pay principal, premium (if any), interest, and other amounts payable (if any) on the notes in book-entry form in accordance with arrangements then in place between the paying agent, DTC, and its nominee, as holder. Unless otherwise stated in the pricing supplement, we will pay any interest on notes in certificated form on each interest payment date other than the maturity date by check mailed to holders of the notes on the applicable record date at the address appearing on our records. Unless otherwise stated in the pricing supplement, we will pay any principal, premium (if any), interest, and other amounts payable (if any) at the maturity date of a note in certificated form by wire transfer of immediately available funds upon surrender of the note at the corporate trust office of the applicable trustee or paying agent.
Senior Notes. The senior notes will be unsecured and will rank equally with all our other unsecured and unsubordinated obligations from time to time outstanding, except obligations, including deposit liabilities, that are subject to any priorities or preferences by law. Under United States law, claims of our subsidiaries creditors, including their depositors, would be entitled to priority over the claims of our unsecured general creditors, including holders of senior notes, in the event of our liquidation or other resolution.
The Indenture and the senior notes do not contain any limitation on the amount of obligations that we may incur in the future.
Subordinated Notes. Our indebtedness evidenced by the subordinated notes, including the principal, premium (if any), interest, and other amounts payable (if any) will be subordinate and junior in right of payment to all of our senior indebtedness from time to time outstanding. Payment of principal of our subordinated indebtedness, including any subordinated notes, may not be accelerated if there is a default in the payment of amounts due under, or a default in any of our other covenants applicable to, our subordinated indebtedness.
The Indenture and the subordinated notes do not contain any limitation on the amount of obligations ranking senior to the subordinated notes, or the amount of obligations ranking equally with the subordinated notes, that we may incur in the future.
Generally. Each fixed-rate note will bear one or more designated rates of interest. Unless otherwise indicated in the pricing supplement, interest on fixed-rate notes will be payable semi-annually in arrears and will be computed and paid on the basis of a 360-day year consisting of twelve 30-day months.
Interest for fixed-rate notes will accrue from the most recent interest payment date to which interest has been paid, or, if no interest has been paid, from the original issue date, to, but excluding, the next interest payment date (or maturity date, as the case may be). However, the initial interest payment on fixed-rate notes issued between a regular record date and the interest payment date immediately following the regular record date will be made on the second interest payment date following the original issue date to the holder of record on the regular record date preceding the second interest payment date.
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The pricing supplement and each fixed-rate note will contain the provisions of that note, including the interest rate, the original issue date, the interest payment dates, the maturity date, and any additional terms.
Amortizing Notes. We may issue amortizing notes, which are fixed-rate notes for which combined principal and interest payments are made in installments over the life of the notes. Payments on amortizing notes are applied first to interest due and then to the reduction of the unpaid principal amount. The pricing supplement for an amortizing note will include a table setting forth repayment information.
Interest Rate Bases. Each floating-rate note will have an interest rate basis or formula, which may be based on:
| the federal funds rate, in which case the note will be a federal funds rate note; |
| the London interbank offered rate, in which case the note will be a LIBOR note; |
| the prime rate, in which case the note will be a prime rate note; |
| the treasury rate, in which case the note will be a treasury rate note; or |
| any other interest rate formula as may be specified in the pricing supplement. |
The specific terms of each floating-rate note, including the initial interest rate in effect until the first interest reset date, will be specified in the pricing supplement and in the floating-rate note. Thereafter, the interest rate will be determined by reference to the specified interest rate basis or formula, plus or minus the spread, if any, or multiplied by the spread multiplier, if any. The spread is the number of basis points we specify on the floating-rate note to be added to or subtracted from the base rate. The spread multiplier is the percentage we specify on the floating-rate note by which the base rate is multiplied in order to calculate the applicable interest rate.
Interest Reset Dates. The interest rate of each floating-rate note may be reset daily, weekly, monthly, quarterly, semi-annually, or annually, as we specify in the pricing supplement. We refer to the period during which an interest rate is effective as an interest reset period and the date in each such period on which the interest is reset as an interest reset date. Unless otherwise specified in the pricing supplement, the interest reset date will be:
| in the case of floating-rate notes that reset daily, each business day; |
| in the case of floating-rate notes, other than treasury rate notes, that reset weekly, the Wednesday of each week; |
| in the case of treasury rate notes that reset weekly, the Tuesday of each week; |
| in the case of floating-rate notes that reset monthly, the third Wednesday of each month; |
| in the case of floating-rate notes that reset quarterly, the third Wednesday of March, June, September, and December of each year; |
| in the case of floating-rate notes that reset semi-annually, the third Wednesday of each of two months of each year, as specified in the pricing supplement; or |
| in the case of floating-rate notes that reset annually, the third Wednesday of the month of each year specified in the pricing supplement. |
However, the interest rate in effect from the issue date to the first interest reset date for a floating-rate note will be the initial interest rate, as specified in the pricing supplement.
If any interest reset date for any floating-rate note would otherwise be a day that is not a business day for the floating-rate note, the interest reset date for the floating-rate note will be postponed to the next day that is a business day for the floating-rate note. However, in the case of a LIBOR note, if the next business day is in the next succeeding calendar month, the interest reset date will be the immediately preceding business day.
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Interest Determination Dates. Unless otherwise specified in the pricing supplement, the interest determination date for an interest reset date will be:
| for a federal funds rate note or a prime rate note, the business day immediately preceding the interest reset date; |
| for a LIBOR note, the second London Banking Day preceding the interest reset date unless the index currency is pounds sterling, in which case the interest determination date will be the interest reset date; and |
| for a treasury rate note, the day of the week in which the interest reset date falls on which Treasury bills, as defined below, of the applicable index maturity would normally be auctioned. |
The index maturity is the period to maturity of the instrument for which the interest rate basis is calculated.
Treasury bills usually are sold at auction on Monday of each week, unless that day is a legal holiday, in which case the auction usually is held on the following Tuesday, except that the auction may be held on the preceding Friday. If, as a result of a legal holiday, an auction is held on the preceding Friday, that preceding Friday will be the interest determination date pertaining to the interest reset date occurring in the next succeeding week. Each base rate will be determined as of that date, and the applicable interest rate will take effect on the applicable interest reset date.
For a floating-rate note for which interest rate is determined by reference to two or more base rates, the interest determination date will be the most recent business day that is at least two business days prior to the applicable interest reset date for the floating-rate note on which each applicable base rate is determinable.
Calculation Date. Unless otherwise specified in the pricing supplement, the calculation date for any interest determination date will be the date by which the calculation agent computes the amount of interest owed on a floating-rate note for the related interest reset period. Unless otherwise specified in the pricing supplement, the calculation date will be the earlier of:
(1) | the tenth calendar day after the related interest determination date or, if that day is not a business day, the next succeeding business day; or |
(2) | the business day immediately preceding the applicable interest payment date, the maturity date, or the date of redemption or prepayment, as the case may be. |
Interest Payments. Except as provided below and unless otherwise provided in the pricing supplement, interest on floating-rate notes will be payable, in the case of floating-rate notes with an interest reset date that resets:
| daily, weekly, or monthly on a business day that occurs in each month; |
| quarterly on a business day that occurs in each third month, as specified in the pricing supplement; |
| semi-annually on a business day that occurs in each of two months of each year, as specified in the pricing supplement; and |
| annually on a business day that occurs in one month of each year, as specified in the pricing supplement. |
Unless otherwise indicated in the pricing supplement, interest payments for floating-rate notes will include interest accrued from the most recent interest payment date to which interest has been paid or, if no interest has been paid, from the original issue date, to, but excluding, the next interest payment date. However, the initial interest payment on a floating-rate note issued between a regular record date and the interest payment date immediately following the regular record date will be made on the second interest payment date following the original issue date to the holder of record on the regular record date preceding the second interest payment date.
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Accrued interest on a floating-rate note is calculated by multiplying the principal amount of a note by an accrued interest factor. This accrued interest factor is the sum of the interest factors calculated for each day in the period for which accrued interest is being calculated. Unless otherwise indicated in the pricing supplement, the accrued interest factor will be computed and interest will be paid (including payments for partial periods) as follows:
| for federal funds rate notes, LIBOR notes, prime rate notes, or any other floating-rate notes other than treasury rate notes, the daily interest factor will be computed by dividing the interest rate in effect on that day by 360; and |
| for treasury rate notes, the daily interest factor will be computed by dividing the interest rate in effect on that day by 365 or 366, as applicable. |
All dollar amounts used in or resulting from any calculation on floating-rate notes will be rounded to the nearest cent, with one-half cent being rounded upward. Unless otherwise specified in the pricing supplement, all percentages resulting from any calculation with respect to a floating-rate note will be rounded, if necessary, to the nearest one hundred-thousandth of a percent, with five one-millionths of a percentage point rounded upwards, e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655).
The calculation agent, upon the request of the holder of any floating-rate note, will provide the interest rate then in effect and, if different, the interest rate that will become effective on the next interest reset date as a result of a determination made on the most recent interest determination date with respect to the floating-rate note.
LIBOR Notes. Each LIBOR note will bear interest at the LIBOR base rate, adjusted by any spread or spread multiplier, as specified in the pricing supplement. The LIBOR base rate will be the London interbank offered rate for deposits in U.S. dollars or any index currency, as specified in the pricing supplement. Except as provided below, LIBOR for each interest reset period will be calculated on the interest determination date for the related interest reset date.
On each interest determination date, the calculation agent will determine LIBOR as follows:
| If LIBOR Telerate is specified in the pricing supplement, LIBOR will be the rate for deposits in the relevant index currency having the index maturity described in the pricing supplement commencing on the related interest reset date, as the rate appears on the designated LIBOR page in the pricing supplement as of 11:00 A.M., London time, on that interest determination date. |
| If LIBOR Reuters is specified in the pricing supplement, LIBOR will be the arithmetic mean of the offered rates for deposits in the relevant index currency having the index maturity described in the pricing supplement commencing on the related interest reset date, as the rates appear on the designated LIBOR page in the pricing supplement as of 11:00 A.M., London time, on that interest determination date, if at least two offered rates appear on the designated LIBOR page, except that, if the designated LIBOR page only provides for a single rate, that single rate will be used. |
If the pricing supplement does not specify LIBOR Telerate or LIBOR Reuters, the LIBOR rate will be LIBOR Telerate.
If LIBOR Telerate applies and the rate described above does not appear on that page, or if LIBOR Reuters applies and fewer than two of the rates described above appears on that page or no rate appears on any page on which only one rate normally appears, then the calculation agent will determine LIBOR as follows:
| The calculation agent will select four major banks in the London interbank market, which may include us, our affiliates, or affiliates of the agents. On the interest determination date, those four banks will be requested to provide their offered quotations for deposits in the relevant index currency having an index maturity specified in the pricing supplement commencing on the interest reset date to prime banks in the London interbank market at approximately 11:00 a.m., London time. |
| If at least two quotations are provided, the calculation agent will determine LIBOR as the arithmetic mean of those quotations. |
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| If fewer than two quotations are provided, the calculation agent will select three major banks in New York City, which may include us, our affiliates, or affiliates of the agents. On the interest determination date, those three banks will be requested to provide their offered quotations for loans in the relevant index currency having an index maturity specified in the pricing supplement commencing on the interest reset date to leading European banks at approximately 11:00 a.m., London time. The calculation agent will determine LIBOR as the arithmetic mean of those quotations. |
| If fewer than three New York City banks selected by the calculation agent are quoting rates, LIBOR for that interest reset period will remain LIBOR then in effect on the interest determination date. |
Treasury Rate Notes. Each treasury rate note will bear interest at the treasury rate plus or minus any spread and multiplied by any spread multiplier described in the pricing supplement. Except as provided below, the treasury rate for each interest reset period will be calculated on the interest determination date for the related interest reset date.
The treasury rate for any interest determination date is the rate set at the auction of direct obligations of the United States (Treasury bills) having the index maturity described in the pricing supplement, as specified under the caption Investment Rate on the display on Moneyline Telerate, or any successor service, on page 56 or any other page as may replace page 56, or page 57 or any other page as may replace page 57.
If the rate cannot be determined as described above, the treasury rate will be determined as follows:
(1) | If the rate is not displayed on Moneyline Telerate by 3:00 P.M., New York City time, on the related calculation date, the treasury rate will be the rate of Treasury bills as published in H.15 Daily Update, or another recognized electronic source used for the purpose of displaying the applicable rate, under the caption U.S. Government Securities/Treasury Bills/Auction High. |
(2) | If the rate referred to in (1) above is not published by 3:00 P.M., New York City time, on the related calculation date, the treasury rate will be the bond equivalent yield, as defined below, of the auction rate of the applicable Treasury bills as announced by the United States Department of the Treasury. |
(3) | If the rate referred to in (2) above is not announced by the United States Department of the Treasury, or if the auction is not held, the treasury rate will be the bond equivalent yield of the rate on the particular interest determination date of the applicable Treasury bills as published in H.15(519) under the caption U.S. Government Securities/Treasury Bills/Secondary Market. |
(4) | If the rate referred to in (3) above is not published by 3:00 P.M., New York City time, on the related calculation date, the treasury rate will be the rate on the particular interest determination date of the applicable Treasury bills as published in H.15 Daily Update, or another recognized electronic source used for the purpose of displaying the applicable rate, under the caption U.S. Government Securities/Treasury Bills/Secondary Market. |
(5) | If the rate referred to in (4) above is not published by 3:00 P.M., New York City time, on the related calculation date, the treasury rate will be the rate on the particular interest determination date calculated by the calculation agent as the bond equivalent yield of the arithmetic mean of the secondary market bid rates, as of approximately 3:30 P.M., New York City time, on that interest determination date, of three primary United States government securities dealers, which may include the agent or its affiliates, selected by the calculation agent, for the issue of Treasury bills with a remaining maturity closest to the particular index maturity. |
(6) | If the dealers selected by the calculation agent are not quoting as mentioned in (5) above, the treasury rate will be the treasury rate in effect on the particular interest determination date. |
The bond equivalent yield will be calculated using the following formula:
Bond equivalent yield = |
D x N 360-(D x M) |
x 100 |
where D refers to the applicable annual rate for Treasury bills quoted on a bank discount basis and expressed as a decimal, N refers to 365 or 366, as the case may be, and M refers to the actual number of days in the applicable interest reset period.
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H.15(519) means the weekly statistical release designated as H.15(519), or any successor publication, published by the Board of Governors of the Federal Reserve System.
H.15 Daily Update means the daily update of H.15(519), available through the website of the Board of Governors of the Federal Reserve System at www.federalreserve.gov/releases/h15/update, or any successor site or publication.
Federal Funds Rate Notes. Each federal funds rate note will bear interest at the federal funds rate plus or minus any spread and multiplied by any spread multiplier described in the pricing supplement. Except as provided below, the federal funds rate for each interest reset period will be calculated on the interest determination date for the related interest reset date.
The federal funds rate for any interest determination date is the rate on that date for federal funds, as published in H.15(519) prior to 3:00 P.M., New York City time, on the calculation date for that interest determination date under the heading Federal Funds (Effective) and displayed on Moneyline Telerate, or any successor service, on page 120 or any other page as may replace the specified page on that service (Telerate Page 120).
The following procedures will be followed if the federal funds rate cannot be determined as described above:
| If the rate is not published in H.15(519) by 3:00 P.M., New York City time, on the calculation date or does not appear on Telerate Page 120, the federal funds rate will be the rate on that interest determination date, as published in H.15 Daily Update, or any other recognized electronic source for the purposes of displaying the applicable rate, under the caption Federal Funds (Effective). |
| If the alternative rate described above is not published in H.15 Daily Update by 3:00 P.M., New York City time, on the calculation date, then the calculation agent will determine the federal funds rate to be the average of the rates for the last transaction in overnight federal funds quoted by three leading brokers of federal funds transactions in New York City, selected by the calculation agent, prior to 9:00 A.M., New York City time, on that interest determination date. |
| If fewer than three brokers selected by the calculation agent are quoting as described above, the federal funds rate will be the federal funds rate then in effect on that interest determination date. |
Prime Rate Notes. Each prime rate note will bear interest at the prime rate plus or minus any spread and multiplied by any spread multiplier described in the pricing supplement. Except as provided below, the prime rate for each interest reset period will be calculated on the interest determination date for the related interest reset date.
The prime rate for any interest determination date is the prime rate or base lending rate on that date, as published in H.15(519) prior to 3:00 P.M., New York City time, on the calculation date for that interest determination date under the heading Bank Prime Loan.
The following procedures will be followed if the prime rate cannot be determined as described above:
| If the rate is not published in H.15(519) by 3:00 P.M., New York City time, on the calculation date, then the prime rate will be the rate as published in H.15 Daily Update, or any other recognized electronic source used for the purpose of displaying the applicable rate, under the caption Bank Prime Loan. |
| If the alternative rate described above is not published in H.15 Daily Update or another recognized electronic source by 3:00 P.M., New York City time, on the calculation date, then the calculation agent will determine the prime rate to be the arithmetic mean of the rates of interest publicly announced by each bank that appears on the Reuters screen US PRIME 1, as defined below, as that banks prime rate or base lending rate as in effect as of 11:00 A.M., New York City time, on that interest determination date. |
| If fewer than four rates appear on the Reuters screen US PRIME 1 for that interest determination date, by 3:00 P.M., New York City time, then the prime rate will be the average of the prime rates or base lending rates furnished in New York City by three substitute banks or trust companies (all |
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organized under the laws of the United States or any of its states and having total equity capital of at least $500,000,000) selected by the calculation agent on the interest determination date. These selected banks or trust companies may include our subsidiaries or affiliates, or affiliates of the agent. |
| If the banks selected by the calculation agent are not quoting as described above, the prime rate will remain the prime rate then in effect on the interest determination date. |
Reuters screen US PRIME 1 means the display designated as page US PRIME 1 on the Reuters Monitor Money Rates Service (or any other page as may replace the US PRIME 1 page on that service for the purpose of displaying prime rates or base lending rates of major United States banks).
We may issue original issue discount notes, including zero coupon notes, which we refer to as OID notes. These notes may be fixed rate, floating rate, or indexed notes that are issued at a price lower than their principal amount or lower than their minimum repayment amount at maturity. OID notes may bear no interest or may bear interest at a rate that is below market rates at the time of issuance. For notes that do not have any periodic interest payments, interest normally accrues during the life of the notes and is paid at the maturity date or upon earlier redemption or prepayment. Upon an acceleration of the maturity of an OID note, the amount of interest payable will be determined in accordance with the terms of the note as described in the pricing supplement. That amount is normally less than the amount payable at the maturity date. Additional information relating to OID notes can be found in the section entitled Certain United States Federal Income Tax Consequences United States Holders Original Issue Discount.
General. We may issue indexed notes, in which the amount of principal, premium (if any), interest, or other amounts payable (if any) is determined by reference, either directly or indirectly, to the price or performance of one or more:
| securities; |
| currencies or composite currencies; |
| commodities; |
| interest rates; |
| stock indices; or |
| other indices or formulae; |
in each case as specified in the pricing supplement.
An example of indexed notes that we may offer is:
| equity linked indexed notes, for which the principal, interest, or other amounts payable is determined by reference to the change in value in equity prices, such as a publicly traded security or an index of publicly traded securities. The final amount payable at maturity, at our option, may be cash or physical delivery of the underlying equity securities. |
Holders of indexed notes may receive a principal amount at maturity that is greater than or less than the face amount of the notes, depending upon the relative value at maturity of the reference asset or underlying obligation.
An indexed note may provide either for cash settlement or for physical settlement by delivery of the indexed security or securities, or other securities of the types listed above. An indexed note also may provide that the form of settlement may be determined at our option or the holders option. Some indexed notes may be exchangeable prior to maturity, at our option or the holders option, for the related securities.
We will set forth in the pricing supplement the method for determining the principal, premium (if any), interest, or other amounts payable (if any) in respect of that tranche of indexed notes, certain historical information with respect to the specified index or indexed items, specific risk factors relating to that particular type of indexed note, and tax considerations associated with an investment in the indexed notes.
Upon the request of the holder of an indexed note, the calculation agent will provide, if applicable, the current index, principal, premium (if any), rate of interest, interest payable, or other amounts payable (if any) in connection with the indexed note.
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Indexed Amortizing Notes. We may offer indexed amortizing notes, the rate of amortization and final maturity of which are subject to periodic adjustment based upon the degree to which an objective base or index rate such as LIBOR, called a reference rate, coincides with a specified target rate. Indexed amortizing notes may provide for adjustment of the amortization rate either on every interest payment date, or only on interest payment dates that occur after a specified lockout date. Each indexed amortizing note will include an amortization table, specifying the rate at which the principal of the note is to be amortized following any applicable interest payment date, based upon the difference between the reference rate and the target rate. The specific terms of, and any additional considerations relating to, indexed amortizing notes will be set forth in the pricing supplement.
We may issue extendible notes, which are notes for which the maturity date may be extended at our option for one or more whole year periods, up to but not beyond the final maturity date stated in the note. The specific terms of and any additional considerations relating to extendible notes will be set forth in the pricing supplement.
We may issue renewable notes, which are notes for which the maturity may be renewed at the option of the holder of the note, for one or more specified periods up to but not beyond the final maturity date stated in the note. The specific terms of the renewal option and any additional considerations relating to renewable notes will be set forth in the pricing supplement.
The pricing supplement will indicate whether we have the option to redeem notes prior to their maturity date. If we may redeem the notes prior to maturity, the pricing supplement will indicate the redemption price and method for redemption.
The pricing supplement will indicate whether the notes can be repaid at the holders option prior to their maturity date. If the notes may be repaid prior to maturity, the applicable supplement will indicate our cost to repay the notes and the procedure for repayment.
We have the ability to reopen, or later increase, the principal amount of a particular note, a tranche of notes, or a series of our notes without notice to the holders of existing notes by selling additional notes having the same terms. However, any new notes of this kind may begin to bear interest on a different date.
Any provisions with respect to the determination of an interest rate basis, the specification of interest rate basis, the calculation of the applicable interest rate, the amounts payable at maturity, interest payment dates, or any other related matters for a particular tranche of notes, may be modified as described in the pricing supplement.
We, or our affiliates, may purchase at any time our notes in the open market at prevailing prices or in private transactions at negotiated prices. If we purchase notes in this manner, we have the discretion to either hold, resell, or cancel any repurchased notes.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income tax consequences relating to your purchase, ownership, and sale of notes. It is based upon the relevant laws and rules that are now in effect and as they are currently interpreted. However, these laws and rules may be changed at any time, possibly with retroactive effect. This discussion deals only with holders that will hold notes as capital assets, and does not address the United States federal income tax consequences applicable to all categories of investors. In particular, the discussion does not deal with those of you who may be in special tax situations, such as dealers in securities, insurance companies, financial institutions, regulated investment companies, or tax-exempt entities. It does not include any description of the tax laws of any state or local governments, or of any foreign government, that may be applicable to the notes or to you as a holder of the notes. This summary also may not apply to all forms of notes that we may issue. If the tax consequences associated with a particular form of note are different than those described below, they will be discussed in the pricing supplement relating to that note.
The United States federal income tax discussion that appears below is included in this prospectus supplement for your general information. Some or all of the discussion may not apply to you depending upon your particular situation. You should consult your tax advisor concerning the tax consequences to you of owning and disposing of the notes, including the tax consequences under state, local, foreign, and other tax laws and the possible effects of changes in federal or other tax laws.
As used in this prospectus supplement, the term United States holder means a beneficial owner of a note that is for United States federal income tax purposes:
| an individual who is a citizen or resident of the United States; |
| an entity which is a corporation or partnership for United States federal income tax purposes created or organized in or under the laws of the United States or of any state or the District of Columbia (other than a partnership that is not treated as a United States person under any applicable Treasury regulations); |
| an estate whose income is subject to United States federal income tax regardless of its source; |
| a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust; or |
| any other persons whose income or gain in respect of the notes is effectively connected with the conduct of a United States trade or business. |
Notwithstanding the preceding paragraph, to the extent provided in Treasury regulations, some trusts in existence on August 20, 1996, and treated as United States persons prior to that date, that elect to continue to be treated as United States persons also will be United States holders.
A Non-United States holder is a holder that is not a United States holder.
Payment of Interest
Interest on a note generally will be taxable to you as ordinary income at the time you accrue or receive the interest in accordance with your accounting method for tax purposes. However, special rules apply to a note that is issued with original issue discount (OID).
Original Issue Discount
Some of your notes may be issued with OID. For tax purposes, OID is the excess of the stated redemption price at maturity of a debt instrument over its issue price unless that excess is less than ¼ of 1% of the debt instruments stated redemption price at maturity multiplied by the number of complete years from its issue date to its maturity or weighted average maturity in the case of notes with more than one principal payment (the OID de minimis amount), in which case, it is not OID. The stated redemption price at maturity of a note is the sum of all payments required to be made on the note other than qualified stated interest payments. The issue price of a note is generally the first offering price to the public at which a substantial amount of the debt instrument is sold. The term qualified stated interest generally means stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer), or that is treated as constructively received, at least annually at a single fixed rate or, under
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certain conditions in connection with the special rules relating to floating-rate notes, at a variable rate. If a note bears interest during any accrual period at a rate below the rate applicable for the remaining term of the note (for example, notes with teaser rates or interest holidays), then some or all of the stated interest may not be treated as qualified stated interest.
You are required to include qualified stated interest payments in income as interest when you accrue or receive those payments (in accordance with your accounting method for tax purposes). If you hold a note with OID with a maturity of more than one year, you may be required to include OID in income before you receive the associated cash payment, regardless of your accounting method for tax purposes. If you are an initial purchaser of an OID note, the amount of the OID you should include in income is the sum of the daily accruals of the OID for the note for each day during the taxable year (or portion of the taxable year) in which you held the OID note. The daily portion is determined by allocating the OID for each day of the accrual period. An accrual period may be of any length and the accrual periods may even vary in length over the term of the OID note, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs either on the first day of an accrual period or on the final day of an accrual period. The amount of OID allocable to an accrual period is equal to the difference between (1) the product of the adjusted issue price of the OID note at the beginning of the accrual period and its yield to maturity (computed generally on a constant yield method and compounded at the end of each accrual period, taking into account the length of the particular accrual period) and (2) the amount of any qualified stated interest allocable to the accrual period. The adjusted issue price of an OID note at the beginning of any accrual period is the sum of the issue price of the OID note plus the amount of OID allocable to all prior accrual periods reduced by any payments you received on the note that were not qualified stated interest. Under these rules, you generally will have to include in income increasingly greater amounts of OID in successive accrual periods.
If you are not an initial purchaser of an OID note and you purchase an OID note for greater than its adjusted issue price as the purchase date and less than or equal to the sum of all amounts payable on the OID note after the purchase date other than payments of qualified stated interest, you will have purchased the OID note at an acquisition premium. Under the acquisition premium rules, the amount of OID which you must include in your gross income for the note for any taxable year (or any portion of a taxable year in which you hold the note) will be reduced (but not below zero) by the portion of the acquisition premium allocated to the period.
Instead of reporting under your normal accounting method, you may elect to include in gross income all interest that accrues on an OID note by using the constant yield method applicable to OID, subject to certain limitations and exceptions. For purposes of this election, interest includes stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount, and unstated interest as adjusted by any amortizable bond premium or acquisition premium.
Short-Term Notes
The rules described above will also generally apply to OID notes with maturities of one year or less, which we refer to as short-term notes, but with some modifications.
First, the OID rules treat none of the interest on a short-term note as qualified stated interest, but treat a short-term note as having OID. Thus, all short-term notes will be OID notes. Except as we note below, if you are a cash-basis holder of a short-term note and you do not identify the short-term note as part of a hedging transaction, you generally will not be required to accrue OID currently, but you will be required to treat any gain realized on a sale, exchange, or retirement of the note as ordinary income to the extent such gain does not exceed the OID accrued with respect to the note during the period you held the note. You may not be allowed to deduct all of the interest paid or accrued on any indebtedness incurred or maintained to purchase or carry a short-term note until the maturity of the note or its earlier disposition in a taxable transaction. Notwithstanding the foregoing, if you are a cash-basis United States holder of a short-term note, you may elect to accrue OID on a current basis. If you make this election, the limitation on the deductibility of interest we describe above will not apply. A United States holder using the accrual method of tax accounting and some cash method holders (including banks, securities dealers, regulated investment
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companies, and certain trust funds) generally will be required to include OID on a short-term note in gross income on a current basis. OID will be treated as accruing for these purposes on a ratable basis or, at the election of the holder, on a constant yield basis based on daily compounding.
Second, regardless of whether you are a cash-basis or accrual-basis holder, if you are the holder of a short-term note you may elect to accrue any acquisition discount with respect to the note on a current basis. Acquisition discount is the excess of the remaining redemption amount of the note at the time of acquisition over the purchase price. Acquisition discount will be treated as accruing ratably or, at the election of the holder, under a constant yield method based on daily compounding. If you elect to accrue acquisition discount, the OID rules will not apply.
Finally, the market discount rules we describe below will not apply to short-term notes.
Premium
If you purchase a note at a cost greater than the notes remaining redemption amount, you will be considered to have purchased the note at a premium, and you may elect to amortize the premium as an offset to interest income, using a constant yield method, over the remaining term of the note. If you make this election, it generally will apply to all debt instruments that you hold at the time of the election, as well as any debt instruments that you subsequently acquire. In addition, you may not revoke the election without the consent of the IRS. If you elect to amortize the premium, you will be required to reduce your tax basis in the note by the amount of the premium amortized during your holding period. OID notes purchased at a premium will not be subject to the OID rules described above. If you do not elect to amortize premium, the amount of premium will be included in your tax basis in the note. Therefore, if you do not elect to amortize premium and you hold the note to maturity, you generally will be required to treat the premium as capital loss when the note matures.
Market Discount
If you purchase a note at a price that is lower than the notes remaining redemption amount (or in the case of an OID note, the notes adjusted issue price), by 0.25% or more of the remaining redemption amount (or adjusted issue price), multiplied by the number of remaining whole years to maturity, the note will be considered to have market discount in your hands. In this case, any gain that you realize on the disposition of the note generally will be treated as ordinary interest income to the extent of the market discount that accrued on the note during your holding period. In addition, you may be required to defer the deduction of a portion of the interest paid on any indebtedness that you incurred or maintained to purchase or carry the note. In general, market discount will be treated as accruing ratably over the term of the note, or, at your election, under a constant yield method.
You may elect to include market discount in gross income currently as it accrues (on either a ratable or constant yield basis), in lieu of treating a portion of any gain realized on a sale of the note as ordinary income. If you elect to include market discount on a current basis, the interest deduction deferral rule described above will not apply. If you do make such an election, it will apply to all market discount debt instruments that you acquire on or after the first day of the first taxable year to which the election applies. The election may not be revoked without the consent of the IRS.
Sale, Exchange, or Retirement of Notes
Upon the sale, exchange, retirement, or other disposition of a note, you will recognize gain or loss equal to the difference between the amount you realize from the disposition and your tax basis in the note, except that any amount realized that is attributable to accrued interest will be included in your gross income as interest income. Your tax basis in a note initially is your cost for the note. This amount is increased by any original issue discount or market discount previously included by you in income with respect to the note and is decreased by the amount of any premium you previously amortized and the amount of any payment (other than a payment of qualified stated interest) you have received in respect of the note.
Except as discussed above with respect to market discount, gain or loss realized by you on the sale, exchange, retirement, or other disposition of a note generally will be capital gain or loss and will be long-term capital gain or loss if the note has been held for more than one year. Net long-term capital gain
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recognized by an individual United States Holder generally will be subject to tax at a maximum rate of 15%. The ability of United States Holders to offset capital losses against ordinary income is limited. The terms market discount, premium, original issue discount, and qualified stated interest are defined above.
If a note provides for contingent payments (as in the case of some indexed notes), special rules may apply to the treatment of the note. Under those rules, any gain you realize when you sell or dispose of a note will be ordinary income if the contingencies relating to the payments are unresolved at the time of disposition and some or all of any loss may be ordinary. Different rules also may apply to the calculation of your tax basis for the note. If a note will provide for contingent payments, these rules will be discussed in greater detail in the pricing supplement.
Reopenings
The IRS has issued regulations regarding whether additional debt instruments issued in a reopening will be considered part of the same issue, with the same issue price and yield to maturity, as the original debt instruments for tax purposes. Except as provided in a pricing supplement, we expect that additional notes issued by us in any reopening will be issued such that they will be considered part of the original issuance to which they relate.
This section discusses the principal United States federal tax consequences applicable to Non-United States Holders of purchasing, owning and selling notes.
Principal (and premium, if any) and interest payments, including any OID, that you receive from us or our agent generally will not be subject to United States federal withholding tax. However, interest, including any OID, may be subject to a 30% withholding tax (or less under an applicable treaty, if any) if (1) you actually or constructively own 10% or more of the total combined voting power of all classes of our stock entitled to vote, (2) you are a controlled foreign corporation for United States tax purposes that is related to us (directly or indirectly) through stock ownership, (3) you are a bank extending credit pursuant to a loan agreement in the ordinary course of your trade or business, or (4) either (A) you do not certify to us or our agent, under penalties of perjury, that you are a Non-United States person and provide your name and address (which certification may be made on an IRS Form W-8BEN, or a successor form), or (B) a securities clearing organization, bank, or other financial institution that holds customer securities in the ordinary course of its trade or business (a financial institution) and holds the note does not certify to us or our agent under penalties of perjury that either it or another financial institution has received the required statement from you certifying that you are a Non-United States person and furnishes us with a copy of the statement.
If you are in a trade or business in the United States and interest, including any OID, on the note is effectively connected with the conduct of your trade or business, you may be subject to United States federal income tax on that interest and any OID in the same manner as if you were a United States person. You should read the material under the heading United States Holders, for a description of the United States tax consequences of purchasing, owning, and selling notes. If you are a foreign corporation, you may also be subject to a branch profits tax equal to 30% of your effectively connected earnings and profits for the taxable year, subject to certain adjustments. Instead of the certification described in the preceding paragraph, if you have effectively connected interest income you must provide the payer with a properly executed IRS Form W-8ECI to claim an exemption from United States federal withholding tax.
You will not be subject to United States federal income tax or withholding taxes on any capital gain or market discount you realize upon retirement or disposition of a note if (1) the gain is not effectively connected with a United States trade or business carried on by you, and (2) you are an individual, and you are not present in the United States for 183 days or more in the taxable year of the retirement or disposition.
Renewable Notes, Floating-Rate Notes, Extendible Notes, Foreign Currency Notes, and Indexed Notes
Special United States federal income tax rules for renewable notes, floating-rate notes, extendible notes, foreign currency notes, or indexed notes will be discussed in the applicable pricing supplement.
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Treasury regulations require taxpayers that participate in reportable transactions to disclose their participation to the IRS by attaching Form 8886 to their tax returns and to retain a copy of all documents and records related to the transaction. In addition, organizers and sellers of this type of a transaction are required to maintain records, including lists identifying investors in the transaction, and must furnish those records to the IRS upon demand. A transaction may be a reportable transaction based on any of several criteria, one or more of which may be present with respect to an investment in the notes. Unless set forth in the applicable pricing supplement, we do not believe that the issuance of the notes constitutes a reportable transaction as defined in the regulations. However, whether an investment in the notes constitutes a reportable transaction for any investor depends on the investors particular circumstances. Investors should consult their own tax advisors concerning any possible disclosure obligation they may have with respect to their investment in the notes and should be aware that, should we (or other participants in the transaction) determine that the investor list maintenance requirement applies to this transaction, we (or they) would comply with that requirement.
Backup Withholding and Information Reporting
In general, payments of principal, premium (if any), interest, and other amounts payment (if any) (including original issue discount, if any) with respect to a note will be subject to reporting and possibly backup withholding. Reporting means that the payment is required to be reported to you and the IRS. Backup withholding means that we (or any paying agent) are required to collect and deposit a portion of the payment with the IRS as a tax payment on your behalf. If applicable, backup withholding will be imposed at a rate of 28%. This rate is scheduled to increase to 31% after 2010.
If you are a United States person (other than a corporation or certain exempt organizations), you may be subject to backup withholding if you do not supply an accurate taxpayer identification number and certify that your taxpayer identification number is correct. You may also be subject to backup withholding if the United States Secretary of the Treasury determines that you have not reported all interest and dividend income required to be shown on your United States federal income tax return or if you do not certify that you have not underreported your interest and dividend income. If you are not a United States person, backup withholding and information reporting will not apply to payments made to you if you have provided the required certification that you are a Non-United States person, as described under the heading Non-United States Holders, or you otherwise establish an exemption, provided that the payor does not have actual knowledge that you are a United States person or that the conditions of any exemption are not satisfied.
In addition, payments of the proceeds from the sale of a note to or through a foreign office of a broker or the foreign office of a custodian, nominee, or other dealer acting on your behalf generally will not be subject to information reporting or backup withholding. However, if the broker, custodian, nominee, or other dealer is a United States person, the government of the United States or the government of any state or political subdivision of any state, or any agency or instrumentality of any of these governmental units, a controlled foreign corporation for United States tax purposes, a foreign partnership that is either engaged in a United States trade or business or whose United States partners in the aggregate hold more than 50% of the income or capital interest in the partnership, a foreign person 50% or more of whose gross income for a certain period is effectively connected with a United States trade or business, or a United States branch of a foreign bank or insurance company, information reporting (but not backup withholding) generally will be required with respect to payments made to you unless the broker, custodian, nominee, or other dealer has documentation of your foreign status and the broker, custodian, nominee, or other dealer has no actual knowledge to the contrary. Alternatively, you may otherwise establish an exemption from information reporting.
Payment of the proceeds from a sale of a note to or through the United States office of a broker is subject to information reporting and backup withholding, unless you certify as to your non-United States status or otherwise establish an exemption from information reporting and backup withholding.
Any amounts withheld from your payment under the backup withholding rules would be refundable or allowable as a credit against your United States federal income tax liability.
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EMPLOYEE RETIREMENT INCOME SECURITY ACT
A fiduciary of a pension plan or other employee benefit plan (including a governmental plan, an individual retirement account, or a Keogh plan) subject to the Employee Retirement Income Security Act of 1974 (commonly referred to as ERISA) should consider fiduciary standards under ERISA in the context of the particular circumstances of that plan before authorizing an investment in the notes. A fiduciary also should consider whether the investment is authorized by, and in accordance with, the documents and instruments governing the plan.
In addition, ERISA and the Internal Revenue Code, or the Code, prohibit a number of transactions (referred to as prohibited transactions) involving the assets of a plan subject to ERISA or the assets of an individual retirement account or plan subject to Section 4975 of the Code (referred to as an ERISA plan), on the one hand, and persons who have specified relationships with the plan (parties in interest within the meaning of ERISA or disqualified persons within the meaning of the Code), on the other. If we (or an affiliate) are considered a party in interest or a disqualified person for an ERISA plan, then the investment in notes by that ERISA plan may give rise to a prohibited transaction unless the notes are acquired under an exemption for transactions effected on behalf of that plan by a qualified professional asset manager or an in-house asset manager, for transactions involving insurance company general accounts, for transactions involving insurance company pooled separate accounts, for transactions involving bank collective trusts, or under another available exemption. There are several ways by which we or our affiliates may be considered a party in interest or a disqualified person for an ERISA plan. For example, if we provide banking or financial advisory services to an ERISA plan, or act as a trustee or in a similar fiduciary role for ERISA plan assets, we may be considered a party in interest or a disqualified person with respect to that ERISA plan.
If an ERISA plan engages in a prohibited transaction, the transaction may require correction and may cause the ERISA plan fiduciary to incur liabilities and the parties in interest or disqualified persons to be subject to excise taxes. Therefore, an ERISA plan should not invest in the notes unless the plan fiduciary or other person acquiring notes on behalf of the ERISA plan determines that neither we nor an affiliate is a party in interest or a disqualified person or, alternatively, that an exemption from the prohibited transaction rules is available. By purchasing and holding the notes, the person making the decision to invest on behalf of an ERISA plan is representing that the purchase and holding of the notes is consistent with the terms of the plan and will not result in a prohibited transaction under ERISA or the Code.
If you are the fiduciary of a pension plan or other ERISA plan, or an insurance company that is providing investment advice or other features to a pension plan or other ERISA plan, and you propose to invest in the notes with the assets of the ERISA plan, you should consult your own legal counsel for further guidance.
SUPPLEMENTAL PLAN OF DISTRIBUTION
We are offering the notes for sale on a continuing basis through the agents. The agents may act either on a principal basis or on an agency basis. We may offer the notes at varying prices relating to prevailing market prices at the time of resale, as determined by the agents, or, if so specified in the applicable pricing supplement, for resale at a fixed public offering price.
If we sell notes on an agency basis, we will pay a commission to the agent to be negotiated at the time of sale. Unless otherwise agreed and specified in the pricing supplement, the commission may range from .125% to .750% of the principal amount of the notes sold, and we may receive from 99.875% to 99.250% of the principal amount of each note so sold. Each agent will use its reasonable best efforts when we request it to solicit purchases of the notes.
Unless otherwise agreed and specified in the pricing supplement, if notes are sold to an agent acting as principal, for its own account, or for resale to one or more investors or other purchasers, including other broker-dealers, then any notes so sold will be purchased by that agent at a price equal to 100% of the
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principal amount of the notes less a percentage of the principal amount that may range from .125% to .750% of the principal amount of those notes, unless otherwise specified in the pricing supplement. Accordingly, we may receive from 99.875% to 99.250% of the principal amount of each note so sold, unless otherwise specified in the pricing supplement. Notes sold in this manner may be resold by the agent to investors and other purchasers from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale, or the notes may be resold to other dealers for resale to investors. The agents may allow any portion of the discount received in connection with the purchase from us to the dealers, but the discount allowed to any dealer will not be in excess of the discount to be received by the agent from us. After the initial public offering of notes, the agent may change the public offering price or the discount allowed to dealers.
We also may sell notes directly to investors, without the involvement of any agent. In this case, we would not be obligated to pay any commission or discount in connection with the sale, and we would receive 100% of the principal amount of the note so sold, unless otherwise specified in the pricing supplement.
We will name any agents or other persons through which we sell any notes, as well as any commissions or discounts payable to those agents or other persons, in the pricing supplement. As of the date of this prospectus supplement, the agents are Banc of America Securities LLC and Banc of America Investment Services, Inc. These agents have entered into a distribution agreement with us. We also may accept offers to purchase notes through additional agents on substantially the same terms and conditions, including commissions, as would apply to purchases through named agents under the distribution agreement.
We have the right to withdraw, cancel, or modify the offer made by this prospectus supplement without notice. We will have the sole right to accept offers to purchase notes, and we, in our absolute discretion, may reject any proposed purchase of notes in whole or in part. Each agent will have the right, in its reasonable discretion, to reject in whole or in part any proposed purchase of notes through that agent.
Any agent participating in the distribution of the notes may be considered to be an underwriter, as that term is defined in the Securities Act. We have agreed to indemnify each agent and certain other persons against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the agents may be required to make. We also have agreed to reimburse the agents for certain expenses.
The notes will not have an established trading market when issued and we do not intend to list the notes on any securities exchange unless otherwise specified in the pricing supplement. Any agent may purchase and sell notes in the secondary market from time to time. However, no agent is obligated to do so, and any agent may discontinue making a market in the notes at any time without notice. There is no assurance that there will be a secondary market for any of the notes.
To facilitate offering the notes by an agent that purchases notes as principal, and in accordance with industry practice, agents may engage in transactions that stabilize, maintain, or otherwise affect the market price of the notes or any other securities. Those transactions may include overallotment, entering stabilizing bids, effecting syndicate-covering transactions, and imposing penalty bids to reclaim selling concessions allowed to a member of the syndicate or to a dealer, as follows:
| An overallotment in connection with an offering creates a short position in the offered securities for the agents own account. |
| An agent may place a stabilizing bid to purchase a note for the purpose of pegging, fixing, or maintaining the price of that note. |
| Agents may engage in syndicate-covering transactions to cover overallotments or to stabilize the price of the notes by bidding for, and purchasing, the notes or any other securities in the open market in order to reduce a short position created in connection with the offering. |
| The agent that serves as syndicate manager may impose a penalty bid on a syndicate member to reclaim a selling concession in connection with an offering when offered securities originally sold by the syndicate member are purchased in syndicate-covering transactions or otherwise. |
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Any of these activities may stabilize or maintain the market price of the securities above independent market levels. The agents are not required to engage in these activities, and may end any of these activities at any time.
Banc of America Securities LLC and Banc of America Investment Services, Inc., each an agent and one of our affiliates, are broker-dealers and members of the National Association of Securities Dealers, Inc. Each initial offering and any remarketing of notes involving any of our broker-dealer affiliates, including Banc of America Securities LLC and Banc of America Investment Services, Inc., will be conducted in compliance with the requirements of Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc. regarding the offer and sale of securities of an affiliate. Following the initial distribution of any notes, our affiliates, including Banc of America Securities LLC, may buy and sell the notes in market-making transactions as part of their business as a broker-dealer. Resales of this kind may occur in the open market or may be privately negotiated at prevailing market prices at the time of sale. Notes may be sold in connection with a remarketing after their purchase by one or more firms. Any of our affiliates may act as principal or agent in these transactions.
This prospectus supplement may be used by one or more of our affiliates in connection with offers and sales related to market-making transactions in the notes, including block positioning and block trades, to the extent permitted by applicable law. Any of our affiliates may act as principal or agent in these transactions. None of Banc of America Securities LLC, Banc of America Investment Services, Inc. or any other member of the National Association of Securities Dealers, Inc. participating in the distribution of the notes will execute a transaction in the notes in a discretionary account without specific prior written approval of the customer.
The aggregate initial offering price specified on the cover of this prospectus supplement relates to the initial offering of the notes as of the date of this prospectus supplement. This amount does not include the notes to be sold in market-making transactions. Notes sold in market-making transactions include notes issued after the date of this prospectus supplement as well as securities previously issued. Information about the trade and settlement dates, as well as the purchase price, for a market-making transaction will be provided to the purchaser in a separate confirmation of sale. Unless we or an agent informs the investor in the confirmation of sale that the note is being purchased in an original offering and sale, the purchaser may assume that the note is being purchased in a market-making transaction.
Banc of America Securities LLC as well as several of the other agents or their affiliates have engaged, and may in the future engage, in investment banking, commercial banking, and financial advisory transactions with us and our affiliates. These transactions are in the ordinary course of business for the agents and us and our respective affiliates. In these transactions, the agents or their affiliates receive customary fees and expenses.
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PROSPECTUS
$30,000,000,000
Debt Securities, Warrants, Units, Preferred Stock,
Depositary Shares, and Common Stock
We may offer to sell up to $30,000,000,000, or the U.S. dollar equivalent, of:
| debt securities; |
| warrants; |
| units, consisting of two or more securities in any combination; |
| preferred stock; |
| depositary shares, represented by fractional shares in preferred stock; and |
| common stock. |
Our securities may be denominated in U.S. dollars or a foreign currency, currency unit, or composite currency. We also may issue common stock upon conversion, exchange, or exercise of any of the other securities listed above.
When we sell a particular series of securities, we will prepare a prospectus supplement describing the offering and terms of that series of securities. You should read this prospectus and that prospectus supplement carefully before you invest.
We may use this prospectus in the initial sale of the securities listed above. In addition, Banc of America Securities LLC, or any of our other affiliates, may use this prospectus in a market-making transaction in any of the securities listed above or similar securities after their initial sale. Unless you are informed otherwise in the confirmation of sale, this prospectus is being used in a market-making transaction.
Our debt securities are unsecured and are not savings accounts, deposits, or other obligations of a bank. Our securities are not guaranteed by Bank of America, N.A. or any other bank, are not insured by the Federal Deposit Insurance Corporation or any other governmental agency, and may involve investment risks.
None of the Securities and Exchange Commission, any state securities commission, or any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
Prospectus dated April 14, 2004
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This summary highlights selected information from this prospectus. To fully understand the securities we may offer, you should read carefully:
| this prospectus, which explains the general terms of the securities we may offer; |
| the attached prospectus supplement and any additional pricing supplement, which explain the specific terms of the particular securities we are offering, and which may change or update the information in this prospectus; and |
| the documents we refer you to in Where You Can Find More Information for information about us. |
You should rely only on the information provided in this prospectus and in any supplement to this prospectus, including the information we incorporate by reference. Neither we, nor any underwriters or agents, have authorized anyone to provide you with different information. We are not offering the securities in any jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus, or any supplement to this prospectus, is accurate at any date other than the date indicated on the cover page of those documents.
Unless otherwise indicated or unless the context requires otherwise, all references in this prospectus to we, us, our, or similar references are to Bank of America Corporation.
Bank of America Corporation
Bank of America Corporation is a Delaware corporation, a bank holding company, and a financial holding company. We provide a diversified range of banking and nonbanking financial services and products both domestically and internationally. Our headquarters is located at Bank of America Corporate Center, 100 North Tryon Street, Charlotte, North Carolina 28255, and our telephone number is (704) 386-5972.
The Securities We May Offer
We may offer the following securities from time to time:
| debt securities; |
| warrants; |
| units, consisting of two or more securities in any combination; |
| preferred stock; |
| depositary shares, represented by fractional shares in preferred stock; and |
| common stock. |
When we use the term securities in this prospectus, we mean any of the securities we may offer with this prospectus, unless we specifically state otherwise. This prospectus, including this summary, describes the general terms of the securities we may offer. Each time we sell securities, we will provide you with a prospectus supplement that will describe the specific terms of those particular securities being offered, and will include a discussion of some of the United States federal income tax consequences and any risk factors or other special considerations applicable to those particular securities. The prospectus supplement also may add, update, or change information in this prospectus. If there is any inconsistency between the information in this prospectus and the prospectus supplement, you should rely on the information in the prospectus supplement. You should read both this prospectus and any prospectus supplement together with additional information described under the heading Where You Can Find More Information before investing in any of the securities we may offer.
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Debt Securities
Our debt securities may be either senior or subordinated obligations, which will be issued under separate indentures, or contracts, that we have with The Bank of New York, as trustee. The particular terms of each series of debt securities will be described in a prospectus supplement.
Warrants
We may offer two types of warrants:
| warrants to purchase our debt securities; and |
| warrants to purchase or sell, or whose cash value is determined by reference to the performance, level, or value of, one or more of the following: |
| securities of one or more issuers, including our common or preferred stock, other securities described in this prospectus, or the debt or equity securities of third parties; |
| one or more currencies, currency units, or composite currencies; |
| one or more commodities; |
| any other financial, economic, or other measure or instrument, including the occurrence or non-occurrence of any event or circumstance; and |
| one or more indices or baskets of the items described above. |
For any warrants we may offer, we will describe in a prospectus supplement the underlying property, the expiration date, the exercise price or the manner of determining the exercise price, the amount and kind, or the manner of determining the amount and kind, of property to be delivered by you or us upon exercise, and any other specific terms of the warrants. We will issue warrants under warrant agreements that we will enter into with one or more warrant agents.
Units
We may offer units consisting of two or more securities. We will describe in a prospectus supplement the particular securities that comprise each unit, whether or not the particular securities will be separable and, if they will be separable, the terms on which they will be separable, a description of the provisions for the payment, settlement, transfer, or exchange of the units, and any other specific terms of the units. We will issue units under unit agreements that we will enter into with one or more unit agents.
Preferred Stock and Depositary Shares
We may offer preferred stock, par value $.01 per share, in one or more series. We will describe in a prospectus supplement the specific designation, the aggregate number of shares offered, the dividend rate, if any, and periods or manner of calculating the dividend rate and periods, the terms on which the preferred stock are convertible into shares of our common stock, preferred stock of another series, or other securities, if any, the redemption terms, if any, and any other specific terms of our preferred stock.
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We also may issue depositary receipts evidencing depositary shares, each of which will represent fractional shares of preferred stock, rather than full shares of preferred stock. We will describe in a prospectus supplement any specific terms of the depositary shares. We will issue the depositary shares under deposit agreements between us and one or more depositories.
Form of Securities
We will issue the securities in book-entry only form through one or more depositories, such as The Depository Trust Company, Euroclear Bank S.A./N.V., or Clearstream Banking, société anonyme, Luxembourg, named in the prospectus supplement. The securities will be represented by a global security rather than a certificate in the name of each individual investor. Unless stated otherwise, each sale of securities will settle in immediately available funds through the specified depository.
A global security may be exchanged for actual notes or certificates registered in the names of the beneficial owners only if:
| the depository notifies us that it is unwilling or unable to continue as depository for the global securities or we become aware that the depository is no longer qualified as a clearing agency, and we fail to appoint a successor to the depository within 60 calendar days; |
| we, in our sole discretion, determine that the global securities will be exchangeable for certificated securities; or |
| an event of default has occurred and is continuing with respect to the securities under the applicable indenture or agreement. |
Payment Currencies
Unless the prospectus supplement states otherwise, all amounts payable in respect of the securities, including the purchase price, will be payable in U.S. dollars.
Listing
We will state in the prospectus supplement whether the particular securities that we will offer will be listed or quoted on a securities exchange or quotation system.
Distribution
We may offer the securities in four ways:
| through underwriters; |
| through dealers; |
| through agents; or |
| directly to purchasers. |
Banc of America Securities LLC, or any of our other affiliates, may be an underwriter, dealer, or agent for us. These securities will be offered in connection with their initial issuance or in market-making transactions by our affiliates after their initial issuance and sale. The aggregate offering price specified on the cover of this prospectus relates only to the securities that we have not yet issued as of the date of this prospectus.
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Bank of America Corporation is a Delaware corporation, a bank holding company, and a financial holding company. Bank of America Corporation was incorporated in 1998 as part of the merger of BankAmerica Corporation with NationsBank Corporation. We provide a diversified range of banking and nonbanking financial services and products in 29 states and the District of Columbia and in selected international markets. We provide services and products through four business segments: (1) Consumer and Small Business, (2) Commercial Banking, (3) Global Corporate and Investment Banking, and (4) Wealth and Investment Management.
On October 27, 2003, we entered into an Agreement and Plan of Merger with FleetBoston Financial Corporation, or FleetBoston, providing for the merger of FleetBoston with and into us (the FleetBoston Merger). The FleetBoston Merger closed on April 1, 2004, and we were the surviving corporation in the transaction. Following the FleetBoston Merger, our principal banking subsidiaries are Bank of America, N.A. and Fleet National Bank (the Banks).
As part of our operations, we regularly evaluate the potential acquisition of, and hold discussions with, various financial institutions and other businesses of a type eligible for financial holding company ownership or control. In addition, we regularly analyze the values of, and submit bids for, the acquisition of customer-based funds and other liabilities and assets of such financial institutions and other businesses. We also regularly consider the potential disposition of certain of our assets, branches, subsidiaries, or lines of businesses. As a general rule, we publicly announce any material acquisitions or dispositions when a definitive agreement has been reached.
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Unless we describe a different use in the applicable prospectus supplement, we will use the net proceeds from the sale of the securities for general corporate purposes. General corporate purposes include:
| our working capital needs; |
| investments in, or extensions of credit to, our banking and nonbanking subsidiaries; |
| the possible acquisitions of other financial institutions or their assets; |
| the possible acquisitions of, or investments in, other businesses of a type we are permitted to acquire under applicable law; |
| the possible reduction of our outstanding indebtedness; and |
| the possible repurchase of our outstanding equity securities. |
Until we designate the use of these net proceeds, we will invest them temporarily. From time to time, we may engage in additional capital financings as we determine appropriate based on our needs and prevailing market conditions. These additional capital financings may include the sale of other securities.
RATIOS OF EARNINGS TO FIXED CHARGES AND
RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The consolidated ratio of earnings to fixed charges and the ratio of earnings to fixed charges and preferred stock dividend requirements for (a) us for each of the years in the five-year period ended December 31, 2003; and (b) us and FleetBoston prepared using unaudited pro forma condensed combined financial information of us and FleetBoston as of December 31, 2003, are as follows:
Year Ended December 31, |
Unaudited Pro Forma Bank of America/ FleetBoston Combined December 31, 2003(1) | |||||||||||
2003 |
2002 |
2001 |
2000 |
1999 |
||||||||
Ratio of Earnings to Fixed Charges: |
||||||||||||
Excluding interest on deposits |
3.8 | 3.1 | 2.1 | 1.8 | 2.2 | 3.9 | ||||||
Including interest on deposits |
2.5 | 2.1 | 1.6 | 1.5 | 1.6 | 2.5 | ||||||
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends Requirements: |
||||||||||||
Excluding interest on deposits |
3.8 | 3.1 | 2.1 | 1.8 | 2.2 | 3.9 | ||||||
Including interest on deposits |
2.5 | 2.1 | 1.5 | 1.5 | 1.6 | 2.5 |
(1) | The pro forma information assumes that we had been combined with FleetBoston on |
January 1, 2003, on a purchase accounting basis. For additional information, see Unaudited Pro Forma Condensed Combined Financial Information included in our Form 8-K/A filed April 14, 2004. |
| The consolidated ratio of earnings to fixed charges is calculated as follows: |
(net income before taxes and fixed charges equity in undistributed earnings of unconsolidated subsidiaries)
fixed charges
| The consolidated ratio of earnings to combined fixed charges and preferred stock dividends is calculated as follows: |
(net income before taxes and fixed charges equity in undistributed earnings of unconsolidated subsidiaries)
(fixed charges + preferred stock dividend requirements)
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Fixed charges consist of:
| interest expense, which we calculate excluding interest on deposits in one case and including that interest in the other; |
| amortization of debt discount and appropriate issuance costs; and |
| one-third (the amount deemed to represent an appropriate interest factor) of net rent expense under lease commitments. |
Preferred stock dividend requirements represent dividend requirements on our outstanding preferred stock adjusted to reflect the pre-tax earnings that would be required to cover those dividend requirements.
The following discussion describes elements of an extensive regulatory framework applicable to bank holding companies, financial holding companies, and banks, as well as specific information about us and our subsidiaries. Federal regulation of banks, bank holding companies, and financial holding companies is intended primarily for the protection of depositors and the Bank Insurance Fund rather than for the protection of securityholders and creditors.
As a registered bank holding company and a financial holding company, we are subject to the supervision of, and to regular inspection by, the Board of Governors of the Federal Reserve System, or the Federal Reserve Board. Our banking subsidiaries are organized predominantly as national banking associations, which are subject to regulation, supervision, and examination by the Office of the Comptroller of the Currency, or the Comptroller, the Federal Deposit Insurance Corporation, or the FDIC, the Federal Reserve Board, and other federal and state regulatory agencies. In addition to banking laws, regulations, and regulatory agencies, we and our subsidiaries and affiliates are subject to the laws and regulations of both the federal government and the states and counties in which they conduct business and supervision and examination by the Securities and Exchange Commission, or the SEC, the New York Stock Exchange, or the NYSE, the National Association of Securities Dealers, Inc., and other regulatory agencies, all of which directly or indirectly affect our operations and management and our ability to make distributions to stockholders.
A financial holding company, and the non-bank companies under its control, are permitted to engage in activities considered financial in nature as defined by the Gramm-Leach-Bliley Act and Federal Reserve Board interpretations (including, without limitation, insurance and securities activities), and therefore may engage in a broader range of activities than permitted for bank holding companies and their subsidiaries. A financial holding company may engage directly or indirectly in activities considered financial in nature, either de novo or by acquisition, provided the financial holding company gives the Federal Reserve Board after-the-fact notice of the new activities. The Gramm-Leach-Bliley Act also permits national banks, such as our banking subsidiaries, to engage in activities considered financial in nature through a financial subsidiary, subject to certain conditions and limitations and with the approval of the Comptroller.
Bank holding companies (including bank holding companies that also are financial holding companies) also are required to obtain the prior approval of the Federal Reserve Board before acquiring more than 5% of any class of voting stock of any bank which is not already majority-owned by the bank holding company. Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, a bank holding company may acquire banks in states other than its home state without regard to the permissibility of such acquisitions under state law, but subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company, after
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the proposed acquisition, controls no more than 10% of the total amount of deposits of insured depository institutions in the United States and no more than 30% or such lesser or greater amount set by state law of such deposits in that state.
Subject to certain restrictions, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 also authorizes banks to merge across state lines to create interstate branches. This act also permits a bank to open new branches in a state in which it does not already have banking operations if such state enacts a law permitting de novo branching.
Proposals to change the laws and regulations governing the banking industry are frequently introduced in Congress, in the state legislatures, and before the various bank regulatory agencies. The likelihood and timing of any proposals or legislation and the impact they might have on us and our subsidiaries cannot be determined at this time.
Capital and Operational Requirements
The Federal Reserve Board, the Comptroller, and the FDIC have issued regulatory capital guidelines for United States banking organizations. Failure to meet the capital requirements can initiate certain mandatory and discretionary actions by regulators that could have a material effect on our financial statements. At December 31, 2003, we, as well as Bank of America, N.A., were classified as well-capitalized under this regulatory framework.
The regulatory capital guidelines measure capital in relation to the credit and market risks of both on- and off-balance sheet items using various risk weights. Under the regulatory capital guidelines, total capital consists of three tiers of capital. Tier 1 capital includes common shareholders equity, trust preferred securities, minority interests, and qualifying preferred stock, less goodwill and other adjustments. Tier 2 capital consists of preferred stock not qualifying as Tier 1 capital, mandatory convertible debt, limited amounts of subordinated debt, other qualifying term debt, the allowance for credit losses up to 1.25% of risk-weighted assets and other adjustments. Tier 3 capital includes subordinated debt that is unsecured, fully paid, has an original maturity of at least two years, is not redeemable before maturity without prior approval by the Federal Reserve Board and includes a lock-in clause precluding payment of either interest or principal if the payment would cause the issuing banks risk-based capital ratio to fall or remain below the required minimum. Tier 3 capital can only be used to satisfy our market risk capital requirement and may not be used to support our credit risk requirement. At December 31, 2003, we had no subordinated debt that qualified as Tier 3 capital.
The capital treatment of trust preferred securities currently is under review by the Federal Reserve Board due to the issuing trust companies being deconsolidated under Financial Accounting Standards Board Interpretation 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (FIN 46). Depending on the capital treatment resolution, trust preferred securities may no longer qualify for Tier 1 capital treatment, but instead would qualify for Tier 2 capital. On July 2, 2003, the Federal Reserve Board issued a Supervision and Regulation Letter requiring that bank holding companies continue to follow the current instructions for reporting trust preferred securities in their regulatory reports. Accordingly, we will continue to report trust preferred securities in Tier 1 capital until further notice from the Federal Reserve Board. On September 2, 2003, the Federal Reserve Board and other regulatory agencies issued the Interim Final Capital Rule for Consolidated Asset-Backed Commercial Paper Program Assets. This interim rule allows companies to exclude from risk-weighted assets the newly consolidated assets of asset-backed commercial paper programs required by FIN 46, when calculating Tier 1 and total risk-based capital ratios through March 31, 2004.
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To meet minimum, adequately capitalized regulatory requirements, an institution must maintain a Tier 1 capital ratio of 4% and a total capital ratio of 8%. A well-capitalized institution must generally maintain capital ratios 100 to 200 basis points higher than the minimum guidelines. The risk-based capital rules have been further supplemented by a leverage ratio, defined as Tier 1 capital divided by quarterly average total assets, after certain adjustments. The leverage ratio guidelines establish a minimum of 100 to 200 basis points above 3%. Banking organizations must maintain a leverage capital ratio of at least 5% to be classified as well-capitalized. As of December 31, 2003, we were classified as well-capitalized for regulatory purposes, the highest classification. As of December 31, 2003, our Tier 1 capital, total risk-based capital, and leverage ratio under these guidelines were 7.85%, 11.87% and 5.73%, respectively.
Net unrealized gains (losses) on available-for-sale debt securities, net unrealized gains on marketable equity securities and net unrealized gains (losses) on derivatives included in shareholders equity at December 31, 2003 are excluded from the calculations of Tier 1 capital, total capital, and leverage ratios.
The Federal Deposit Insurance Corporation Improvement Act of 1991, among other things, identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized) and requires the respective federal regulatory agencies to implement systems for prompt corrective action for insured depository institutions that do not meet minimum capital requirements within such categories. This act imposes progressively more restrictive constraints on operations, management, and capital distributions, depending on the category in which an institution is classified. Failure to meet the capital guidelines could also subject a banking institution to capital raising requirements. An undercapitalized bank must develop a capital restoration plan and its parent holding company must guarantee that banks compliance with the plan. The liability of the parent holding company under any such guarantee is limited to the lesser of (1) 5% of the banks total assets at the time it became undercapitalized or (2) the amount needed to comply with the plan. Furthermore, in the event of the bankruptcy of the parent holding company, such guarantee would take priority over the parents general unsecured creditors. In addition, this act requires the various regulatory agencies to prescribe certain non-capital standards for safety and soundness relating generally to operations and management, asset quality, and executive compensation and permits regulatory action against a financial institution that does not meet such standards.
The various regulatory agencies have adopted substantially similar regulations that define the five capital categories identified by this act, using the total risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the relevant capital measures. Such regulations establish various degrees of corrective action to be taken when an institution is considered undercapitalized. Under the regulations, a well capitalized institution must have (1) a Tier 1 risk-based capital ratio of at least 6%, (2) a total risk-based capital ratio of at least 10%, (3) a leverage ratio of at least 5%, and (4) not be subject to a capital directive order. Under these guidelines, each of our banking subsidiaries is considered well capitalized as of December 31, 2003. In order for us to continue to qualify as a financial holding company, each of our banking subsidiaries must remain well capitalized.
Regulators also must take into consideration (1) concentrations of credit risk; (2) interest rate risk (when the interest rate sensitivity of an institutions assets does not match the sensitivity of its liabilities or its off-balance-sheet position); and (3) risks from non-traditional activities, as well as an institutions ability to manage those risks, when determining the adequacy of an institutions capital. This evaluation will be made as a part of the institutions regular safety and soundness examination. In addition, we and any of our banking subsidiaries with significant trading activity must incorporate a measure for market risk in our regulatory capital calculations.
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Our funds for payment of our indebtedness, including the debt securities, are derived from a variety of sources, including cash and temporary investments. However, the primary source of these funds is dividends received from our banking subsidiaries. Each of our banking subsidiaries is subject to various regulatory policies and requirements relating to the payment of dividends, including requirements to maintain capital above regulatory minimums. The appropriate federal regulatory authority is authorized to determine when, and under what circumstances, to prohibit a bank or bank holding company from paying dividends under its safety and soundness examination.
In addition, the ability of our banking subsidiaries to pay dividends may be affected by the various minimum capital requirements and the capital and non-capital standards established under the Federal Deposit Insurance Corporation Improvement Act of 1991, as described above. Our right, and the right of our stockholders and creditors, to participate in any distribution of the assets or earnings of our subsidiaries is further subject to the prior claims of creditors of the respective subsidiaries.
According to Federal Reserve Board policy, bank holding companies are expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each such subsidiary. This support may be required at times when a bank holding company may not be able to provide such support. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Act, in the event of a loss suffered or anticipated by the FDICeither as a result of default of a banking subsidiary or related to FDIC assistance provided to a subsidiary in danger of defaultthe other banking subsidiaries may be assessed for the FDICs loss, subject to certain exceptions.
DESCRIPTION OF DEBT SECURITIES
We will issue any senior debt securities under an Indenture dated as of January 1, 1995 (as supplemented, the Senior Indenture) between us and The Bank of New York, as successor trustee to U.S. Bank Trust National Association, as successor trustee to BankAmerica National Trust Company. We will issue any subordinated debt securities under an Indenture dated as of January 1, 1995 (as supplemented, the Subordinated Indenture) between us and The Bank of New York, as trustee. We refer to the Senior Indenture and the Subordinated Indenture collectively as the Indentures. The trustee under each of the Indentures has two principal functions:
| First, the trustee can enforce your rights against us if we default. However, there are limitations on the extent to which the trustee may act on your behalf. |
| Second, the trustee performs administrative duties for us, including sending you notices. |
The following summaries of the Indentures are not complete and are qualified in their entirety by the specific provisions of the applicable Indentures, which are exhibits to the registration statement and are incorporated in this prospectus by reference. Whenever defined terms are used, but not defined in this prospectus, the terms have the meanings given to them in the Indentures.
The total amount of securities that we may offer and sell using this prospectus is limited to the aggregate initial offering price of the securities registered under the registration statement. Neither Indenture limits the amount of debt securities that we may issue.
Any debt securities we issue will be our direct unsecured obligations and will not be obligations of our subsidiaries. Each series of our senior debt securities will rank equally with all
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of our other unsecured senior indebtedness that is outstanding from time to time. Each series of our subordinated debt securities will be subordinate and junior in right of payment to all of our senior indebtedness that is outstanding from time to time.
We will issue our debt securities in fully registered form without coupons. Our debt securities may be denominated in U.S. dollars or in another currency or currency unit. Any debt securities that are denominated in U.S. dollars will be issued in denominations of $1,000 or a multiple of $1,000 unless otherwise provided in the prospectus supplement. If any of the debt securities are denominated in a foreign currency, currency unit, or composite currency, or if principal, any premium, interest, or any other amounts payable on any of the debt securities is payable in any foreign currency, currency unit, or composite currency, the authorized denominations, as well as any investment considerations, risk factors, restrictions, tax consequences, specific terms, and other information relating to that issue of debt securities and the particular foreign currency, currency unit, or composite currency will be stated in the prospectus supplement.
We may issue our debt securities in one or more series with the same or different maturities. We may issue our debt securities at a price lower than their stated principal amount or lower than their minimum guaranteed repayment amount at maturity (each, an Original Issue Discount Security). Original Issue Discount Securities may bear no interest or may bear interest at a rate which at the time of issuance is below market rates. Some of our debt securities may be deemed to be issued with original issue discount for United States federal income tax purposes. If we issue debt securities with original issue discount, we will discuss the United States federal income tax implications in the prospectus supplement.
Each prospectus supplement will describe the terms of any debt securities we issue, which may include the following:
| the title and type of the debt securities; |
| the total principal amount of the debt securities; |
| the minimum denominations; |
| the percentage of the stated principal amount at which the debt securities will be sold and, if applicable, the method of determining the price; |
| the person to whom interest is payable, if other than the owner of the debt securities; |
| the maturity date or dates; |
| the interest rate or rates, which may be fixed or variable, and the method used to calculate that interest; |
| any index used to determine the amounts of any payments on the debt securities and the manner in which those amounts will be determined; |
| the interest payment dates, the regular record dates for the interest payment dates, and the date interest will begin to accrue; |
| the place or places where payments on the debt securities may be made and the place or places where the debt securities may be presented for registration of transfer or exchange; |
| any date or dates after which the debt securities may be redeemed, repurchased, or repaid in whole or in part at our option or the option of the holder and the periods, prices, terms, and conditions of that redemption, repurchase, or repayment; |
| if other than the full principal amount, the portion of the principal amount of the debt securities that will be payable if their maturity is accelerated; |
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| the currency of principal, any premium, interest, and any other amounts payable on the debt securities, if other than U.S. dollars; |
| if the debt securities will be issued in other than book-entry form; |
| the identification of or method of selecting any interest rate calculation agents, exchange rate agents, or any other agents for the debt securities; |
| any provisions for the discharge of our obligations relating to the debt securities by the deposit of funds or U.S. government obligations; |
| any provision relating to the extension or renewal of the maturity date of the debt securities; |
| whether the debt securities will be listed on any securities exchange; and |
| any other terms of the debt securities that are permitted under the applicable Indenture. |
As a holding company, we own most of our assets and conduct substantially all of our operations through subsidiaries. Our ability to make payments of principal, any premium, interest, and any other amounts on the debt securities may be affected by the ability of our banking and nonbanking subsidiaries to pay dividends. Their ability, as well as our ability, to pay dividends in the future is and could be influenced by bank regulatory requirements and capital guidelines. See Regulatory Matters.
In addition, claims of holders of debt securities generally will have a junior position to claims of creditors of our subsidiaries including, in the case of our banking subsidiaries, their depositors.
Neither Indenture contains provisions protecting holders against a decline in our credit quality resulting from takeovers, recapitalizations, the incurrence of additional indebtedness, or restructuring. If our credit quality declines as a result of an event of this type, or otherwise, the ratings of any debt securities then outstanding may be withdrawn or downgraded.
Unless stated otherwise in the prospectus supplement, our debt securities will not be entitled to the benefit of any sinking fund. This means that we will not deposit money on a regular basis into any separate custodial account to repay the debt securities.
The prospectus supplement will indicate whether we may redeem the debt securities prior to their maturity date. If we may redeem the debt securities prior to maturity, the prospectus supplement will indicate the redemption price and the method for redemption.
The prospectus supplement will indicate whether the debt securities can be repaid at the holders option prior to their maturity date. If the debt securities may be repaid prior to maturity, the prospectus supplement will indicate our cost to repay the debt securities and the procedure for repayment.
We, or our affiliates, may repurchase debt securities from investors who are willing to sell them from time to time, either in the open market at prevailing prices or in private transactions at negotiated prices. We, or our affiliates, have the discretion to hold or resell any repurchased debt securities. We also have the discretion to cancel any repurchased debt securities.
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We have the ability to reopen a series of our debt securities. This means that we can increase the principal amount of a series of our debt securities by selling additional debt securities with the same terms. We may do so without notice to the existing holders of securities of that series. However, any new securities of this kind may begin to bear interest at a different date.
We may issue debt securities that are convertible, at either our option or the holders option, into our preferred stock, depositary shares, common stock, or other debt securities. The prospectus supplement will describe the terms of any conversion features, including:
| the periods during which conversion may be elected; |
| the conversion price payable and the number of shares or amount of preferred stock, depositary shares, common stock, or other debt securities that may be issued upon conversion, and any adjustment provisions; and |
| the procedures for electing conversion. |
Exchange, Registration, and Transfer
Subject to the terms of the applicable Indenture, debt securities of any series, other than debt securities issued in book-entry form, may be exchanged at the option of the holder for other debt securities of the same series and of an equal aggregate principal amount and type in any authorized denominations.
Debt securities may be presented for registration of transfer at the office of the security registrar or at the office of any transfer agent that we designate and maintain. The prospectus supplement will include the name of the security registrar and the transfer agent. The security registrar or the transfer agent will make the transfer or registration only if it is satisfied with the documents of title and identity of the person making the request. There will not be a service charge for any exchange or registration of transfer of debt securities, but we may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the exchange. We may change the security registrar or the transfer agent or approve a change in the location through which any security registrar or transfer agent acts at any time, except that we will be required to maintain a security registrar and transfer agent in each place of payment for each series of debt securities. At any time, we may designate additional transfer agents for any series of debt securities.
We will not be required to (1) issue, exchange, or register the transfer of any debt security of any series to be redeemed for a period of 15 days before those debt securities were selected for redemption, or (2) exchange or register the transfer of any debt security that was selected, called, or is being called for redemption, except the unredeemed portion of any debt security being redeemed in part.
For a discussion of restrictions on the exchange, registration, and transfer of global securities, see Registration and Settlement.
The principal, any premium, interest, and any other amounts payable on our debt securities will be paid at the offices of the paying agents we designate from time to time. In addition, at our option, payment of any interest may be made by check mailed to the address of the holder as recorded in the security register. On any interest payment date, interest on a debt security generally will be paid to the person in whose name the debt security is registered at the close of business on the regular record date for that payment. For a discussion of payment of principal, any premium, interest, or other payment on global securities, see Registration and Settlement.
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We initially have designated the principal corporate trust offices of the trustees in New York City as the places where the debt securities may be presented for payment. We may change paying agents or the designated payment office at any time. Any other paying agents for our debt securities of each series will be named in the prospectus supplement.
Our subordinated debt securities are subordinated in right of payment to all of our senior indebtedness. The Subordinated Indenture defines senior indebtedness as any indebtedness for money borrowed, including all of our indebtedness for borrowed and purchased money, all of our obligations arising from off-balance sheet guarantees and direct credit substitutes, and our obligations associated with derivative products such as interest and foreign exchange rate contracts and commodity contracts, that were outstanding on the date we executed the Subordinated Indenture, or were created, incurred, or assumed after that date and all deferrals, renewals, extensions, and refundings of that indebtedness or obligations, unless the instrument creating or evidencing the indebtedness provides that the indebtedness is subordinate in right of payment to any of our other indebtedness. Each prospectus supplement for a series of subordinated debt securities will indicate the aggregate amount of our senior indebtedness outstanding at that time and any limitation on the issuance of additional senior indebtedness.
If there is a default or event of default on any senior indebtedness that is not remedied and we and the trustee of the Subordinated Indenture receive notice of this default from the holders of at least 10% in principal amount of any kind or category of any senior indebtedness or if the trustee of the Subordinated Indenture receives this notice from us, we will not be able to make any principal, premium, interest, or other payments on the subordinated debt securities or repurchase our subordinated debt securities.
If we repay any subordinated debt security before the required date or in connection with a distribution of our assets to creditors pursuant to a dissolution, winding up, liquidation, or reorganization, any principal, premium, interest, or other payment will be paid to holders of senior indebtedness before any holders of subordinated indebtedness are paid. In addition, if any amounts previously were paid to the holders of subordinated debt or the trustee of the Subordinated Indenture, the holders of senior debt shall have first rights to the amounts previously paid.
Upon payment in full of all our senior indebtedness, the holders of our subordinated debt securities will be subrogated to the rights of the holders of our senior indebtedness to receive payments or distributions of our assets.
Sale or Issuance of Capital Stock of Banks
The Senior Indenture prohibits the issuance, sale, or other disposition of capital stock, or securities convertible into or options, warrants, or rights to acquire capital stock, of any Principal Subsidiary Bank (as defined below) or of any subsidiary which owns shares of capital stock, or securities convertible into or options, warrants, or rights to acquire capital stock, of any Principal Subsidiary Bank, with the following exceptions:
| sales of directors qualifying shares; |
| sales or other dispositions for fair market value, if, after giving effect to the disposition and to conversion of any shares or securities convertible into capital stock of a Principal Subsidiary Bank, we would own at least 80% of each class of the capital stock of that Principal Subsidiary Bank; |
| sales or other dispositions made in compliance with an order of a court or regulatory authority of competent jurisdiction; |
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| any sale by a Principal Subsidiary Bank of additional shares of its capital stock, securities convertible into shares of its capital stock, or options, warrants, or rights to subscribe for or purchase shares of its capital stock, to its stockholders at any price, so long as before that sale we owned, directly or indirectly, securities of the same class and immediately after the sale, we owned, directly or indirectly, at least as great a percentage of each class of securities of the Principal Subsidiary Bank as we owned before the sale of additional securities; and |
| any issuance of shares of capital stock, or securities convertible into or options, warrants, or rights to subscribe for or purchase shares of capital stock, of a Principal Subsidiary Bank or any subsidiary which owns shares of capital stock, or securities convertible into or options, warrants, or rights to acquire capital stock, of any Principal Subsidiary Bank, to us or our wholly owned subsidiary. |
A Principal Subsidiary Bank is defined in the Senior Indenture as any bank with total assets equal to more than 10% of our total consolidated assets. As of the date of this prospectus, Bank of America, N.A. and Fleet National Bank are our only Principal Subsidiary Banks.
The holders of a majority in principal amount of the debt securities of all affected series then outstanding under the Indenture may waive compliance with some of the covenants or conditions of that Indenture.
Modification of the Indentures
We and the applicable trustee may modify the Indenture with the consent of the holders of at least 66 2/3% of the aggregate principal amount of all series of debt securities under that Indenture affected by the modification. However, no modification may extend the fixed maturity of, reduce the principal amount or redemption premium of, or reduce the rate of or extend the time of payment of interest on, any debt security without the consent of each holder affected by the modification. No modification may reduce the percentage of debt securities which is required to consent to modification without the consent of all holders of the debt securities outstanding.
In addition, we and the trustee may execute supplemental indentures in some circumstances without the consent of any holders of outstanding debt securities.
For purposes of determining the aggregate principal amount of the debt securities outstanding at any time in connection with any request, demand, authorization, direction, notice, consent, or waiver under the applicable Indenture, (1) the principal amount of an Original Issue Discount Security is that amount that would be due and payable at that time upon an event of default, and (2) the principal amount of a debt security denominated in a foreign currency or currency unit is the U.S. dollar equivalent on the date of original issuance of the debt security.
Meetings and Action by Securityholders
The trustee may call a meeting in its discretion, or upon request by us or the holders of at least 10% in principal amount of a series of outstanding debt securities, by giving notice. If a meeting of holders is duly held, any resolution raised or decision taken in accordance with the Indenture will be binding on all holders of debt securities of that series.
Defaults and Rights of Acceleration
The Senior Indenture defines an event of default for a series of senior debt securities as any one of the following events:
| our failure to pay principal or any premium when due on any securities of that series; |
| our failure to pay interest on any securities of that series, within 30 calendar days after the interest becomes due; |
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| our breach of any of our other covenants contained in the senior debt securities of that series or in the Senior Indenture, that is not cured within 90 calendar days after written notice to us by the trustee of the Senior Indenture, or to us and the trustee of the Senior Indenture by the holders of at least 25% in principal amount of all senior debt securities then outstanding under the Senior Indenture and affected by the breach; and |
| specified events involving our bankruptcy, insolvency, or liquidation. |
The Subordinated Indenture defines an event of default only as our bankruptcy under United States federal bankruptcy laws.
If an event of default occurs and is continuing, either the trustee or the holders of 25% in principal amount of the outstanding debt securities of that series may declare the principal amount, or, if the debt securities are Original Issue Discount Securities, a specified portion of the principal amount, of all debt securities of that series to be due and payable immediately. The holders of a majority in principal amount of the debt securities then outstanding or of the series affected, in some circumstances, may annul the declaration of acceleration and waive past defaults.
Payment of principal of the subordinated debt securities may not be accelerated in the case of a default in the payment of principal, any premium, interest, or any other amounts or the performance of any of our other covenants.
If we fail to pay principal of, or any premium on, any debt securities, or if we are over 30 calendar days late on an interest payment on the debt securities, the appropriate trustee can demand that we pay to it, for the benefit of the holders of those debt securities, the amount which is due and payable on those debt securities, including any interest incurred because of our failure to make that payment. If we fail to pay the required amount on demand, the trustee may take appropriate action, including instituting judicial proceedings against us. In addition, a holder also may file suit to enforce our obligation to make payment of principal, any premium, interest, or other amounts due on any debt security regardless of the actions taken by the trustee.
The holders of a majority in principal amount of the debt securities then outstanding under an Indenture may direct the time, method, and place of conducting any proceeding for any remedy available to the trustee under that Indenture, but the trustee will be entitled to receive from the holders a reasonable indemnity against expenses and liabilities.
We are required periodically to file with the trustees a certificate stating that we are not in default under any of the terms of the Indentures.
We will provide the holders with any required notices by first-class mail to the addresses of the holders as they appear in the security register.
We and our subsidiaries have from time to time maintained deposit accounts and conducted other banking transactions with The Bank of New York and its affiliated entities in the ordinary course of business. The Bank of New York also serves as trustee for several series of our outstanding indebtedness under other indentures.
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We may issue warrants that are either debt warrants or universal warrants. We may offer warrants separately or together with any of our other securities, including other warrants and units, consisting of two or more securities in any combination, as described under the heading Description of Units.
We may issue warrants in any amounts or in as many distinct series as we determine. We will issue each series of warrants under a warrant agreement with a warrant agent designated in the prospectus supplement. We will describe in the prospectus supplement the specific terms of the warrants. When we refer to a series of warrants, we mean all warrants issued as part of the same series under the applicable warrant agreement.
Debt warrants are rights for the purchase of debt securities. Debt warrants may be issued independently or together with any of our other securities and may be attached to, or separate from, our other securities. Any debt warrant agreement will be filed as an exhibit to or incorporated by reference in the registration statement.
If debt warrants are offered, the prospectus supplement will describe the terms of the debt warrants and the warrant agreement relating to the debt warrants, including the following:
| the offering price; |
| the designation, aggregate stated principal amount, and terms of the debt securities purchasable upon exercise of the debt warrants; |
| the currency, currency unit, or composite currency in which the price for the debt warrants is payable; |
| if applicable, the designation and terms of the debt securities with which the debt warrants are issued, and the number of debt warrants issued with each security; |
| if applicable, the date on and after which the debt warrants and the related debt securities will be separately transferable; |
| the principal amount of debt securities purchasable upon exercise of a debt warrant and the price at which, and the currency, currency units, or composite currency based on or relating to currencies in which, the principal amount of debt securities may be purchased upon exercise; |
| the dates the right to exercise the debt warrants will commence and expire and, if the debt warrants are not continuously exercisable, any dates on which the debt warrants are not exercisable; |
| any circumstances that will cause the debt warrants to be deemed to be automatically exercised; |
| if applicable, a discussion of some of the United States federal income tax consequences; |
| whether the debt warrants or related securities will be listed on any securities exchange; |
| whether the debt warrants will be issued in global or certificated form; |
| the name of the warrant agent; |
| a description of the terms of any warrant agreement to be entered into between us and a bank or trust company, as warrant agent, governing the debt warrants; and |
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| any other terms of the debt warrants which are permitted under the debt warrant agreement. |
Description of Universal Warrants
Universal warrants are rights for the purchase or sale of, or whose cash value is determined by reference to the performance, level, or value of, one or more of the following:
| securities of one or more issuers, including our common or preferred stock or other securities described in this prospectus or the debt or equity securities of third parties; |
| one or more currencies or currency units; |
| one or more commodities; |
| any other financial, economic, or other measure or instrument, including the occurrence or non-occurrence of any event or circumstance; and |
| one or more indices or baskets of the items described above. |
We refer to each type of property described above as warrant property.
We may satisfy our obligations, if any, and the holder of a universal warrant may satisfy its obligations, if any, with respect to any universal warrants by delivering:
| the warrant property; |
| the cash value of the warrant property; or |
| the cash value of the warrants determined by reference to the performance, level, or value of the warrant property. |
The prospectus supplement will describe what we may deliver to satisfy our obligations, if any, and what the holder of a universal warrant may deliver to satisfy its obligations, if any, with respect to any universal warrants.
Universal warrants may be issued independently or together with other securities offered by any prospectus supplement and may be attached to or separate from the other securities. Any universal warrant agreement will be filed as an exhibit to or incorporated by reference in the registration statement.
If universal warrants are offered, the prospectus supplement will describe the terms of the universal warrants and the warrant agreement, including the following:
| the offering price; |
| the title and aggregate number of the universal warrants; |
| the nature and amount of the warrant property that the universal warrants represent the right to buy or sell; |
| whether the universal warrants are put warrants or call warrants, including in either case whether the warrants may be settled by means of net cash settlement or cashless exercise; |
| the price at which the warrant property may be purchased or sold, the currency, and the procedures and conditions relating to exercise; |
| whether the exercise price of the universal warrant may be paid in cash or by exchange of the warrant property or both, the method of exercising the universal warrants, and whether settlement will occur on a net basis or a gross basis; |
| the dates on which the right to exercise the universal warrants will commence and expire; |
| if applicable, a discussion of some of the United States federal income tax consequences; |
| whether the universal warrants or underlying securities will be listed on any securities exchange; |
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| whether the universal warrants will be issued in global or certificated form; |
| the name of the warrant agent; |
| a description of the terms of any warrant agreement to be entered into between us and a bank or trust company, as warrant agent, governing the universal warrants; and |
| any other terms of the universal warrants which are permitted under the warrant agreement. |
We and the warrant agent may amend the terms of any warrant agreement and the warrants without the consent of the holders of the warrants to cure any ambiguity, to correct any inconsistent provision, or in any other manner we deem necessary or desirable and which will not affect adversely the interests of the holders. In addition, we may amend the warrant agreement and the terms of the warrants with the consent of the holders of a majority of the outstanding unexercised warrants affected. However, any modification to the warrants cannot change the exercise price, reduce the amounts receivable upon exercise, cancellation, or expiration, shorten the time period during which the warrants may be exercised, or otherwise materially and adversely affect the rights of the holders of the warrants or reduce the percentage of outstanding warrants required to modify or amend the warrant agreement or the terms of the warrants, without the consent of the affected holders.
Enforceability of Rights of Warrantholders; Governing Law
The warrant agent will act solely as our agent and will not assume any obligation or relationship of agency or trust with the holders of the warrants. Any record holder or beneficial owner of a warrant, without anyone elses consent, may enforce by appropriate legal action, on his or her own behalf, his or her right to exercise the warrant in accordance with its terms. A holder of a warrant will not be entitled to any of the rights of a holder of the debt securities or other securities or warrant property purchasable upon the exercise of the warrant, including any right to receive payments on those securities or warrant property or to enforce any covenants or rights in the relevant indenture or any other agreement, before exercising the warrant.
No warrant agreement will be qualified as an indenture, and no warrant agent will be required to qualify as a trustee under the Trust Indenture Act of 1939. Therefore, holders of warrants issued under a warrant agreement will not have the protection of the Trust Indenture Act of 1939 with respect to their warrants.
Any warrants we issue will be our unsecured contractual obligations. Claims of holders of our warrants generally will have a junior position to claims of creditors of our subsidiaries including, in the case of our banking subsidiaries, their depositors.
We may issue units consisting of one or more securities. Each unit will be issued so that the holder of the unit is also the holder of each security included in the unit. Thus, the holder of a unit will have the rights and obligations of a holder of each included security. The unit agreement under which a unit is issued may provide that the securities included in the unit may not be held or transferred separately, at any time or at any time before a specified date.
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If units are offered, the prospectus supplement will describe the terms of the units, including the following:
| the designation and terms of the units and of the securities comprising the units, including whether and under what circumstances the securities comprising the units may or may not be held or transferred separately; |
| the name of the unit agent; |
| a description of the terms of any unit agreement to be entered into between us and a bank or trust company, as unit agent, governing the units; |
| whether the units will be listed on any securities exchange; and |
| a description of the provisions for the payment, settlement, transfer, or exchange of the units. |
We and the unit agent may amend the terms of any unit agreement and the units without the consent of the holders to cure any ambiguity, to correct any inconsistent provision, or in any other manner we deem necessary or desirable and which will not affect adversely the interests of the holders. In addition, we may amend the unit agreement and the terms of the units with the consent of the holders of a majority of the outstanding unexpired units affected. However, any modification to the units that materially and adversely affects the rights of the holders of the units, or reduces the percentage of outstanding units required to modify or amend the unit agreement or the terms of the units, requires the consent of the affected holders.
Enforceability of Rights of Unitholders; Governing Law
The unit agent will act solely as our agent and will not assume any obligation or relationship of agency or trust with the holders of the units. Except as described below, any record holder of a unit, without anyone elses consent, may enforce his or her rights as holder under any security included in the unit, in accordance with the terms of the included security and the Indenture, warrant agreement, or unit agreement under which that security is issued. Those terms are described in other sections of this prospectus relating to debt securities and warrants.
Notwithstanding the foregoing, a unit agreement may limit or otherwise affect the ability of a holder of units issued under that agreement to enforce his or her rights, including any right to bring legal action, with respect to those units or any included securities, other than debt securities. Limitations of this kind will be described in the prospectus supplement.
No unit agreement will be qualified as an indenture, and no unit agent will be required to qualify as a trustee under the Trust Indenture Act of 1939. Therefore, holders of units issued under a unit agreement will not have the protection of the Trust Indenture Act of 1939 with respect to their units.
The units are our unsecured contractual obligations. Claims of holders of our units generally will have a junior position to claims of creditors of our subsidiaries including, in the case of our banking subsidiaries, their depositors.
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DESCRIPTION OF PREFERRED STOCK
We have 100,000,000 shares of preferred stock, par value $.01 per share, authorized and may issue the preferred stock in one or more series, each with the preferences, designations, limitations, conversion rights, and other rights as we may determine. We have designated:
(a) 3,000,000 shares of ESOP Convertible Preferred Stock, Series C (the ESOP Preferred Stock), of which 1,231,824 shares were issued and outstanding at April 1, 2004;
(b) 35,045 shares of 7% Cumulative Redeemable Preferred Stock, Series B (the Series B Preferred Stock), of which 7,739 shares were issued and outstanding at April 1, 2004;
(c) 20,000,000 shares of $2.50 Cumulative Convertible Preferred Stock Series BB (the Series BB Preferred Stock), none of which were issued and outstanding at April 1, 2004;
(d) 690,000 shares of 6.75% Perpetual Preferred Stock (the 6.75% Perpetual Preferred Stock), 382,450 of which were issued and outstanding as of April 1, 2004; and
(e) 805,000 shares of Fixed/Adjustable Rate Cumulative Preferred Stock (the Fixed/Adjustable Rate Cumulative Preferred Stock), 700,000 of which were issued and outstanding as of April 1, 2004.
General. Any preferred stock sold under this prospectus will have the general dividend, voting, and liquidation preference rights stated below unless otherwise stated in the prospectus supplement. Each prospectus supplement for preferred stock will describe the specific terms of those shares, including, where applicable:
| the title and stated value of the preferred stock; |
| the aggregate number of shares of preferred stock offered; |
| the offering price or prices of the preferred stock; |
| the dividend rate or rates or method of calculation, the dividend period, and the dates dividends will be payable; |
| whether dividends are cumulative or noncumulative, and, if cumulative, the date the dividends will begin to cumulate; |
| the dividend and liquidation preference rights of the preferred stock relative to any existing or future series of our preferred stock; |
| the dates the preferred stock become subject to redemption at our option, and any redemption terms; |
| any redemption or sinking fund provisions; |
| whether the preferred stock will be issued in other than book-entry form; |
| whether the preferred stock will be listed on any securities exchange; |
| any rights on the part of the stockholder or us to convert the preferred stock into shares of our common stock or any other security; and |