Filed Pursuant to Rule 424(b)(3)
Registration No. 333-132911
The Notes will have the terms specified in this term sheet as supplemented by the documents indicated herein under Additional Terms of the Notes (together the Note Prospectus). Investing in the Notes involves a number of risks. See Risk Factors on page TS-6 of this term sheet and beginning on page PS-4 of product supplement STR-3.
In connection with this offering, each of Merrill Lynch, Pierce, Fenner & Smith Incorporated and its broker-dealer affiliate First Republic Securities Company, LLC is acting in its capacity as a principal.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this Note Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Unit | Total | |||
Public offering price (1) |
$10.00 | $81,900,000 | ||
Underwriting discount (1) |
$.20 | $1,638,000 | ||
Proceeds, before expenses, to Merrill Lynch & Co., Inc. |
$9.80 | $80,262,000 |
(1) | The public offering price and underwriting discount for any purchase of 500,000 or more units in a single transaction by an individual investor will be $9.95 per unit and $.15 per unit, respectively. |
Strategic Accelerated Redemption Securities® is a registered service mark of Merrill Lynch & Co., Inc.
Standard & Poors®, S&P 500® and S&P® are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Merrill Lynch, Pierce, Fenner & Smith Incorporated. Merrill Lynch & Co., Inc. is an authorized sublicensee.
Merrill Lynch & Co.
October 30, 2008
Summary
The Strategic Accelerated Redemption Securities Linked to the S&P 500® Index due November 2, 2010 (the Notes) are senior, unsecured debt securities of Merrill Lynch & Co., Inc. (ML&Co.) that provide for an automatic call of the Notes if the Observation Level of the S&P 500® Index (the Index) on any Observation Date is equal to or greater than the Call Level. If the Notes are called on any Observation Date, you will receive on the Call Settlement Date an amount per unit (the Call Amount) equal to the $10 Original Public Offering Price of the Notes plus the applicable Call Premium. If your Notes are not called, the amount you receive on the maturity date (the Redemption Amount) will not be greater than the Original Public Offering Price per unit and will be based on the direction of and percentage change in the level of the Index from the Starting Value, as determined on October 30, 2008, the date the Notes were priced for initial sale to the public (the Pricing Date), to the Ending Value, as determined on the final Observation Date. Investors must be willing to forego interest payments on the Notes and be willing to accept a repayment that may be less, and potentially significantly less, than the Original Public Offering Price of the Notes. Investors also must be prepared to have their Notes called by us on any Observation Date.
Terms of the Notes | Determining Payment for the Notes | |||
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Automatic Call Provision:
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The Notes will be automatically called on an Observation Date if the Observation Level on such Observation Date is equal to or greater than the applicable Call Level. If the Notes are called, you will receive on the Call Settlement Date the Call Amount per unit applicable to such Observation Date which is equal to the $10 Original Public Offering Price per unit plus the Call Premium.
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Payment at Maturity: | ||||
If the Notes are not called prior to the Maturity Date, the Redemption Amount per unit, denominated in U.S. dollars, will be determined by the Calculation Agent and will be based on the percentage change in the level of the Index from the Starting Value to the Ending Value:
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TS-2
Hypothetical Payments
Set forth below are five hypothetical examples of payment calculations assuming:
1) the Starting Value of 954.09;
2) the Threshold Level of 858.68;
3) the Call Level of 954.09;
4) the term of the Notes from November 10, 2008 to November 2, 2010;
5) the Call Premium of 24.10% of the $10.00 Original Offering Price per unit per annum; and
6) Observation Dates occurring on November 12, 2009, May 12, 2010, and October 26, 2010.
The Notes are Called on one of the Observation Dates
The Notes have not been previously called and the Observation Level on the relevant Observation Date is equal to or greater than the Call Level. Consequently the Notes will be called at the Call Amount per unit equal to $10.00 plus the applicable Call Premium.
Example 1
If the call is related to the Observation Date that falls on November 12, 2009, the Call Amount per Unit will be:
$10.00 plus the Call Premium of $2.410 = $12.410 per Note.
Example 2
If the call is related to the Observation Date that falls on May 12, 2010, the Call Amount per Unit will be:
$10.00 plus the Call Premium of $3.615 = $13.615 per Note.
TS-3
Example 3
If the call is related to the Observation Date that falls on October 26, 2010, the Call Amount per Unit will be:
$10.00 plus the Call Premium of $4.820 = $14.820 per Note.
The Notes are not Called on any of the Observation Dates
Example 4
The Notes are not called on any of the Observation Dates and the hypothetical Ending Value of the Index on the final Observation Date is not less than 858.68, the Threshold Level. The amount received at maturity per Note will therefore be $10.00.
TS-4
Example 5
The Notes are not called on any of the Observation Dates and the hypothetical Ending Value of the Index on the final Observation Date is less than 858.68, the Threshold Level. The amount received at maturity will be less, and possibly significantly less, than the $10 Original Public Offering Price per Note.
If the Ending Value is 810.98, or 85% of the Starting Value, the payment at maturity will be:
$10 + [$10 x (810.98 858.68) / 954.09] = $9.50 per Note
These examples have been prepared for purposes of illustration only. Your actual return will depend on the actual Observation Level on the applicable Observation Date, Ending Value, if applicable, and term of your investment.
Summary of the Hypothetical Examples
Notes are Called on an Observation Date |
Observation Date on November 12, 2009 |
Observation Date on May 12, 2010 |
Observation Date on October 26, 2010 | |||
Starting Value |
954.09 | 954.09 | 954.09 | |||
Call Level |
954.09 | 954.09 | 954.09 | |||
Hypothetical Observation Level on the Observation Date |
1,092.72 | 1,033.76 | 982.04 | |||
Return of the Index (excluding any dividends) |
14.53% | 8.35% | 2.93% | |||
Return of the Notes |
24.10% | 36.15% | 48.20% | |||
Call Amount per Unit |
$12.410 | $13.615 | $14.820 |
Notes are Not Called on any Observation Date |
Ending Value exceeds the Threshold Level |
Ending Value does not exceed the Threshold Level | ||
Starting Value |
954.09 | 954.09 | ||
Hypothetical Ending Value |
877.76 | 810.98 | ||
Threshold Level |
858.68 | 858.68 | ||
Is the hypothetical Ending Value less than the Threshold Level? |
No | Yes | ||
Return of the Index (excluding any dividends) |
-8.00% | -15.00% | ||
Return of the Notes |
0.00% | -5.00% | ||
Redemption Amount per Unit |
$10.000 | $9.500 |
TS-5
An investment in the Notes involves significant risks. The following is a list of certain of the risks involved in investing in the Notes. You should carefully review the more detailed explanation of risks relating to the Notes in the Risk Factors sections included in the product supplement and MTN prospectus supplement identified below under Additional Terms of the Notes. We also urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the Notes.
§ | If your Notes are not called prior to maturity, your investment may result in a loss which could be substantial. |
§ | Your Notes may be called on an Observation Date and, if called, you will receive the Call Amount, and your return will be capped at the Call Premium. |
§ | Your return on the Notes, which could be negative, may be lower than the return on other debt securities of comparable maturity. |
§ | You must rely on your own evaluation of the merits of an investment linked to the Index. |
§ | You will not have the right to receive cash dividends or exercise ownership rights with respect to the stocks included in the Index. |
§ | In seeking to provide investors with what we believe to be commercially reasonable terms for the Notes while providing MLPF&S with compensation for its services, we have considered the costs of developing, hedging and distributing the Notes. If a trading market develops for the Notes (and such a market may not develop), these costs are expected to affect the market price you may receive or be quoted for your Notes on a date prior to the stated maturity date. |
§ | The Index publisher may adjust the Index or any Index Component in a way that affects its level, and the Index publisher has no obligation to consider your interests. |
§ | Many factors affect the trading value of the Notes; these factors interrelate in complex ways and the effect of any one factor may offset or magnify the effect of another factor. |
§ | Purchases and sales by us and our affiliates may affect your return on the Notes. |
§ | Potential conflicts of interest could arise. |
§ | Tax consequences are uncertain (see Certain U.S. Federal Income Taxation Considerations below). |
Recent Developments
On September 15, 2008, we entered into an Agreement and Plan of Merger (the Merger Agreement) with Bank of America Corporation (Bank of America). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, a wholly owned subsidiary of Bank of America will merge with and into ML&Co. with ML&Co. continuing as the surviving corporation and as a wholly owned subsidiary of Bank of America. The merger has been approved by the board of directors of each of ML&Co. and Bank of America and is subject to shareholder votes at both companies.
Upon completion of the merger, each outstanding share of ML&Co. common stock will be converted into the right to receive 0.8595 of a share of Bank of America common stock, and the Bank of America board of directors will be expanded to include three existing directors of ML&Co. The Merger Agreement contains certain termination rights for both ML&Co. and Bank of America. The transaction is expected to close on or after December 31, 2008, subject to shareholder approval and customary closing conditions, including standard regulatory approvals.
TS-6
Investor Considerations
Other Provisions
We may deliver the Notes against payment therefor in New York, New York on a date that is in excess of three business days following the Pricing Date. Under Rule 15c6-1 of the Securities Exchange Act of 1934, trades in the secondary market generally are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, if the initial settlement on the Notes occurs more than three business days from the Pricing Date, purchasers who wish to trade Notes more than three business days prior to the original issue date will be required to specify alternative settlement arrangements to prevent a failed settlement.
If you place an order to purchase these offered securities, you are consenting to each of MLPF&S and its broker-dealer affiliate First Republic Securities Company, LLC acting as a principal in effecting the transaction for your account. MLPF&S is acting as an underwriter and/or selling agent for this offering and will receive underwriting compensation from the issuer of the securities.
Supplement to the Plan of Distribution
MLPF&S and First Republic Securities Company, LLC, each a broker-dealer subsidiary of ML&Co., are members of the Financial Industry Regulatory Authority, Inc. (formerly the National Association of Securities Dealers, Inc. (the NASD)) and will participate in distribution of the Notes. Accordingly, offerings of the Notes will conform to the requirements of NASD Rule 2720.
MLPF&S and First Republic Securities Company, LLC may use this Note Prospectus for offers and sales in secondary market transactions and market-making transactions in the Notes but are not obligated to engage in such secondary market transactions and/or market-making transactions. MLPF&S and First Republic Securities Company, LLC may act as principal or agent in these transactions, and any such sales will be made at prices related to prevailing market prices at the time of the sale.
TS-7
The Index
The S&P 500® Index
The S&P 500 Index is intended to provide an indication of the pattern of common stock price movement in the United States. The calculation of the level of the S&P 500 Index, discussed below in further detail, is based on the relative value of the aggregate market value of the common stocks of 500 companies as of a particular time compared to the aggregate average market value of the common stocks of 500 similar companies during the base period of the years 1941 through 1943. As of September 30, 2008, 420 companies or 84.0% of the market capitalization of the S&P 500 Index traded on the New York Stock Exchange; 79 companies or 16.0% of the market capitalization of the S&P 500 Index traded on The Nasdaq Stock Market; and no companies traded on the American Stock Exchange. As of September 30, 2008, the aggregate market value of the companies included in the S&P 500 Index represented approximately 85% of the aggregate market value of stocks included in the Standard & Poors Stock Guide Database of domestic common stocks traded in the U.S., excluding American depositary receipts, limited partnerships and mutual funds. Standard & Poors chooses companies for inclusion in the S&P 500 Index with the aim of achieving a distribution by broad industry groupings that approximates the distribution of these groupings in the common stock population of the Standard & Poors Stock Guide Database, which Standard & Poors uses as an assumed model for the composition of the total market. Relevant criteria employed by Standard & Poors include the viability of the particular company, the extent to which that company represents the industry group to which it is assigned, the extent to which the market price of that companys common stock is generally responsive to changes in the affairs of the respective industry and the market value and trading activity of the common stock of that company. Ten main groups of companies comprise the S&P 500 Index, with the approximate percentage of the market capitalization of the S&P 500 Index included in each group as of September 30, 2008 indicated in parentheses: Consumer Discretionary (8.5%); Consumer Staples (12.2%); Energy (13.4%); Financials (15.8%); Health Care (13.1%); Industrials (11.1%); Information Technology (16.0%); Materials (3.4%); Telecommunication Services (3.0%) and Utilities (3.6%). Standard & Poors may from time to time, in its sole discretion, add companies to, or delete companies from, the S&P 500 Index to achieve the objectives stated above.
The S&P 500® Index does not reflect the payment of dividends on the stocks included in the S&P 500® Index. Because of this, the calculation of the Ending Value will not reflect the payment of dividends on these stocks that investors would receive if they were to purchase these stocks and hold them for a period equal to the term of the Notes. For more information on the S&P 500® Index, please see the section entitled S&P 500® Index in the index supplement I-1.
The following graph sets forth the monthly historical performance of the Index in the period from January 2003 through September 2008. This historical data on the Index is not necessarily indicative of the future performance of the Index or what the value of the Notes may be. Any historical upward or downward trend in the level of the Index during any period set forth below is not an indication that the Index is more or less likely to increase or decrease at any time over the term of the Notes. On the Pricing Date, the closing level of the Index was 954.09.
TS-8
Certain U.S. Federal Income Taxation Considerations
Set forth below is a summary of certain U.S. federal income tax considerations relating to an investment in the Notes. The following summary is not complete and is qualified in its entirety by the discussion under the section entitled United States Federal Income Taxation in the accompanying product supplement STR-3 and MTN prospectus supplement, which you should carefully review prior to investing in the Notes.
General. There are no statutory provisions, regulations, published rulings or judicial decisions addressing or involving the characterization and treatment, for U.S. federal income tax purposes, of the Notes or securities with terms substantially the same as the Notes. Accordingly, the proper U.S. federal income tax characterization and treatment of the Notes is uncertain. Pursuant to the terms of the Notes, ML&Co. and every holder of a Note agree (in the absence of an administrative determination, judicial ruling or other authoritative guidance to the contrary) to characterize and treat a Note for all tax purposes as a pre-paid cash-settled forward contract linked to the level of the Index. Due to the absence of authorities that directly address instruments that are similar to the Notes, significant aspects of the U.S. federal income tax consequences of an investment in the Notes are not certain, and no assurance can be given that the Internal Revenue Service (the IRS) or the courts will agree with the characterization and tax treatment described above. Accordingly, prospective purchasers are urged to consult their own tax advisors regarding the U.S. federal income tax consequences of an investment in the Notes (including alternative characterizations and tax treatments of the Notes) and with respect to any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.
Payment on the Maturity Date. Assuming that the Notes are properly characterized and treated as pre-paid cash-settled forward contracts linked to the level of the Index, upon the receipt of cash on the maturity date of the Notes, a U.S. Holder (as defined in the accompanying product supplement STR-3) will recognize gain or loss. The amount of such gain or loss will be the extent to which the amount of the cash received differs from the U.S. Holders tax basis in the Note. A U.S. Holders tax basis in a Note generally will equal the amount paid by the U.S. Holder to purchase the Note. It is uncertain whether any such gain or loss would be treated as ordinary income or loss or capital gain or loss. Absent a future clarification in current law (by an administrative determination, judicial ruling or otherwise), where required, ML&Co. intends to report any such gain or loss to the IRS in a manner consistent with the treatment of such gain or loss as capital gain or loss. If such gain or loss is treated as capital gain or loss, then any such gain or loss will be long-term capital gain or loss if the U.S. Holder has held the Note for more than one year as of the maturity date. The deductibility of capital losses is subject to certain limitations.
Sale, Exchange or Redemption of the Notes. Assuming that the Notes are properly characterized and treated as pre-paid cash-settled forward contracts linked to the level of the Index, upon a sale, exchange or redemption of a Note prior to the maturity date of the Notes, a U.S. Holder will generally recognize capital gain or loss in an amount equal to the difference between the amount realized on such sale, exchange or redemption and such U.S. Holders tax basis in the Note so sold, exchanged or redeemed. Any such capital gain or loss will be long-term capital gain or loss if the U.S. Holder has held the Note for more than one year as of the date of such sale, exchange or redemption. The deductibility of capital losses is subject to certain limitations.
Possible Future Tax Law Changes. On December 7, 2007, the IRS released a notice that could possibly affect the taxation of holders of the Notes. According to the notice, the IRS and the U.S. Department of the Treasury (the Treasury Department) are actively considering, among other things, whether the holder of an instrument having terms similar to the Notes should be required to accrue either ordinary income or capital gain on a current basis, and they are seeking comments on the subject. It is not possible to determine what guidance they will ultimately issue, if any. It is possible, however, that under such guidance, holders of instruments having terms similar to the Notes will ultimately be required to accrue income currently and this could be applied on a retroactive basis. The IRS and the Treasury Department are also considering other relevant issues, including whether additional gain or loss from such instruments should be treated as ordinary or capital, whether foreign holders of such instruments should be subject to withholding tax on any deemed income accruals, whether the tax treatment of such instruments should vary depending upon whether or not such instruments are traded on a securities exchange, whether such instruments should be treated as indebtedness, whether the tax treatment of such instruments should vary depending upon the nature of the underlying asset, and whether the special constructive ownership rules contained in Section 1260 of the Internal Revenue Code of 1986, as amended, might be applied to such instruments. Holders are urged to consult their tax advisors concerning the significance, and the potential impact, if any, of the above considerations to their investment in the Notes. ML&Co. intends to continue to treat the Notes for U.S. federal income tax purposes in accordance with the treatment described herein unless and until such time as the Treasury Department and IRS determine that some other treatment is more appropriate.
Prospective purchasers of the Notes should consult their own tax advisors concerning the tax consequences, in light of their particular circumstances, under the laws of the United States and any other taxing jurisdiction, of the purchase, ownership and disposition of the Notes. See the discussion under the section entitled United States Federal Income Taxation in the accompanying product supplement STR-3.
TS-9
Additional Terms of the Notes
You should read this term sheet, together with the documents listed below (collectively, the Note Prospectus), which together contain the terms of the Notes and supersede all prior or contemporaneous oral statements as well as any other written materials. You should carefully consider, among other things, the matters set forth under Risk Factors in the sections indicated on the cover of this term sheet. The Notes involve risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the Notes.
You may access the following documents on the SEC Website at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC Website):
§ | Product supplement STR-3 dated August 28, 2008: |
http://www.sec.gov/Archives/edgar/data/65100/000119312508186909/d424b2.htm
§ | Index supplement I-1 dated June 6, 2007: |
http://www.sec.gov/Archives/edgar/data/65100/000119312507130785/d424b2.htm
§ | MTN prospectus supplement dated March 31, 2006: |
http://www.sec.gov/Archives/edgar/data/65100/000119312506070946/d424b5.htm
§ | General prospectus supplement dated March 31, 2006: |
http://www.sec.gov/Archives/edgar/data/65100/000119312506070973/d424b5.htm
§ | Prospectus dated March 31, 2006: |
http://www.sec.gov/Archives/edgar/data/65100/000119312506070817/ds3asr.htm
Our Central Index Key, or CIK, on the SEC Website is 65100. References in this term sheet to ML&Co., we, us and our are to Merrill Lynch & Co., Inc., and references to MLPF&S are to Merrill Lynch, Pierce, Fenner & Smith Incorporated.
We have filed a registration statement (including a prospectus) with the Securities and Exchange Commission (the SEC) for the offering to which this term sheet relates. Before you invest, you should read the prospectus in that registration statement, and the other documents relating to this offering that we have filed with the SEC for more complete information about us and this offering. You may get these documents without cost by visiting EDGAR on the SEC Website at www.sec.gov. Alternatively, we, any agent or any dealer participating in this offering, will arrange to send you the Notes Prospectus if you so request by calling toll-free 1-866-500-5408.
Structured Investments Classification
ML&Co. classifies certain of its structured investments (the Structured Investments), including the Notes, into four categories, each with different investment characteristics. The description below is intended to briefly describe the four categories of Structured Investments offered: Principal Protection, Enhanced Income, Market Participation and Enhanced Participation. A Structured Investment may, however, combine characteristics that are relevant to one or more of the other categories. As such, a category should not be relied upon as a description of any particular Structured Investment.
Principal Protection: Principal Protected Structured Investments offer full or partial principal protection at maturity, while offering market exposure and the opportunity for a better return than may be available from comparable fixed income securities. Principal protection may not be achieved if the investment is sold prior to maturity.
Enhanced Income: Structured Investments offering enhanced income may offer an enhanced income stream through interim fixed or variable coupon payments. However, in exchange for receiving current income, investors may forfeit upside potential on the underlying asset. These investments generally do not include the principal protection feature.
Market Participation: Market Participation Structured Investments can offer investors exposure to specific market sectors, asset classes and/or strategies that may not be readily available through traditional investment alternatives. Returns obtained from these investments are tied to the performance of the underlying asset. As such, subject to certain fees, the returns will generally reflect any increases or decreases in the value of such assets. These investments are not structured to include the principal protection feature.
Enhanced Participation: Enhanced Participation Structured Investments may offer investors the potential to receive better than market returns on the performance of the underlying asset. Some structures may offer leverage in exchange for a capped or limited upside potential and also in exchange for downside risk. These investments are not structured to include the principal protection feature.
The classification of Structured Investments is meant solely for informational purposes and is not intended to fully describe any particular Structured Investment nor guarantee any particular performance.
TS-10