Filed Pursuant to Rule 433
Registration No. 333-156118
Subject to Completion
Preliminary Term Sheet dated July 29, 2009
The terms of the Notes are as specified in this term sheet and in the documents indicated herein under Additional
Note Terms. Investing in the Notes involves a number of risks. There are important differences between the Notes and a conventional debt security, including different investment risks.
See
Risk Factors
on page TS-5 of this term sheet and beginning on page P-4 of product supplement LIRN-2.
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Are Not FDIC Insured
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Are Not Bank Guaranteed
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May Lose Value
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In connection with this offering, each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, and
First Republic Securities Company, LLC, a broker-dealer affiliate of Merrill Lynch, will act as principal in selling the Notes to investors.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this term sheet or the Note Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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Per Unit
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Total
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Public offering price (1)
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$10.00
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$
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Underwriting discount (1)
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$.20
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$
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Proceeds, before expenses, to SEK
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$9.80
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$
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(1)
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The public offering price and underwriting discount for any purchase of 500,000 units or more in a single transaction by an individual investor will be $9.95 per unit and
$.15 per unit, respectively.
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*Depending on the date the Notes are priced for initial sale to the public (the Pricing
Date), which may be in August or September 2009, the settlement date may occur in August or September 2009 and the maturity date may occur in August or September 2011. Any reference in this term sheet to the month in which the Pricing Date,
settlement date or maturity date will occur is subject to change as specified above.
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Merrill Lynch & Co.
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Banc of America Investment Services, Inc.
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August , 2009
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Units
Capped Leveraged Index Return Notes®
Linked to the S&P 500® Index Due September
,
2011
$10 principal amount per unit
Pricing Supplement/Term Sheet No. 69
Aktiebolaget Svensk Exportkredit (Publ) (Swedish
Export Credit Corporation)
Capped Leveraged Index Return
Notes®
200% leveraged upside exposure to increases in
the level of the S&P 500® Index (the
Index),
subject to a cap of between 18% and 22%
A maturity of approximately 24 months
1-to-1 downside exposure to decreases in the
level of the Index in excess of a Threshold Value
with up to 90% of the principal amount at risk
Payment at maturity is subject to the credit risk of
SEK
No periodic interest payments
Application may be made to list on NYSE Arca
under the symbol [ ]
The Notes are not guaranteed under the Federal
Deposit Insurance Corporations Temporary
Liquidity Guarantee Program
STRUCTURED INVESTMENTS
ENHANCED INCOME
PRINCIPAL PROTECTION
MARKET
PARTICIPATION
ENHANCED PARTICIPATION
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Expected Pricing Date*
Settlement Date*
Maturity Date*
CUSIP No.
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August , 2009
September , 2009
September, 2011
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Summary
The Capped Leveraged Index Return Notes
®
Linked to the S&P 500
®
Index Due September , 2011 (the Notes) are senior, unsecured debt securities of Aktiebolaget Svensk Exportkredit (Publ) (Swedish
Export Credit Corporation) and are not guaranteed or insured by the Federal Deposit Insurance Corporation (FDIC) or secured by collateral.
The Notes will rank equally with all of SEKs other unsecured and unsubordinated debt, and
any payments due on the Notes, including any repayment of principal, will be subject to the credit risk of SEK.
The Notes provide a leveraged return for investors, subject to a cap, if the level of the S&P 500
®
Index (the Index) increases moderately from the Starting Value of the Index, determined on the Pricing Date, to the Ending Value of the Index, determined
on the Calculation Days shortly prior to the maturity date of the Notes. Investors must be willing to forego interest payments on the Notes and be willing to accept a return that is capped or a repayment that may be less, and potentially
significantly less, than the Original Offering Price of the Notes.
Capitalized terms used but not defined in this term sheet have the meaning set forth in product
supplement LIRN-2. References in this term sheet to SEK, we, us and our are to Aktiebolaget Svensk Exportkredit (Publ) (Swedish Export Credit Corporation), and references to Merrill Lynch
are to Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Terms of the Notes
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Issuer:
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Aktiebolaget Svensk Exportkredit (Publ) (Swedish Export Credit Corporation)
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Original Offering Price:
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$10 per unit
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Term:
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Approximately 24 months
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Market Measure:
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S&P 500
®
Index (Index symbol SPX)
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Starting Value:
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The closing level of the Index on the Pricing Date. The Starting Value will be determined on the Pricing Date and will be set forth in the final term sheet made
available in connection with sales of the Notes.
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Ending Value:
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The average of the closing levels of the Index on each scheduled Calculation Day during the Calculation Period. If it is determined that a scheduled Calculation
Day is not a Market Measure Business Day, or if a Market Disruption Event occurs on a scheduled Calculation Day, the Ending Value will be determined as more fully described in product supplement LIRN-2.
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Threshold Value:
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90% of the Starting Value, rounded to two decimal places.
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Capped Value:
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Will represent a maximum return of 18% to 22% over the $10 Original Offering Price (or $11.80 to $12.20 per unit). The actual Capped Value of the Notes will be
determined on the Pricing Date and will be set forth in the final term sheet made available in connection with sales of the Notes.
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Calculation Period:
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Five scheduled Calculation Days shortly before the maturity date, determined as of the Pricing Date and set forth in the final term sheet made available in
connection with sales of the Notes.
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Participation Rate:
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200%
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Downside Leverage Factor:
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100%
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Calculation Agent:
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Merrill Lynch, Pierce, Fenner & Smith Incorporated
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Determining Payment at Maturity for the Notes
TS-2
Hypothetical Payout Profile
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This graph reflects
the hypothetical returns on the Notes, including the Participation Rate of 200% and assuming a Capped Value of 20%, the midpoint of the range of 18% and 22%. The green line reflects the hypothetical returns on the Notes, while the gray line reflects
the return of a hypothetical direct investment in the stocks included in the Index, excluding dividends.
This graph has been prepared for purposes of illustration only. Your actual return will depend on the actual Starting Value, Ending Value, Capped Value, Threshold Value and the term of your investment.
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Hypothetical Payments at Maturity
Set forth below are four examples of payment at maturity calculations (rounded to two decimal places), assuming a hypothetical Starting Value of 951.13, the closing level of the Index on July 20, 2009 and a Capped Value of $12.00, the
midpoint of the indicated range of $11.80 and $12.20.
Example 1
The hypothetical Ending Value is equal to 70% of the hypothetical Starting
Value and less than the hypothetical Threshold Value:
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Hypothetical Starting Value:
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951.13
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Hypothetical Ending Value:
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665.79
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Hypothetical Threshold Value:
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856.02
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$10 +
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(
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$10 ×
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(
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665.79 856.02
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)
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× 100%
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)
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= $8.00
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951.13
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Payment at maturity (per unit) = $8.00
Example 2
The hypothetical Ending Value is equal to 95% of the hypothetical Starting Value and greater than the hypothetical Threshold Value:
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Hypothetical Starting Value:
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951.13
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Hypothetical Ending Value:
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903.57
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Hypothetical Threshold Value:
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856.02
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Payment at maturity (per unit) = $10.00
If the Ending Value is less than the Starting Value but is greater than or equal to the Threshold Value, the payment at maturity (per unit) will be equal to the $10 Original Offering Price.
Example 3
The hypothetical Ending Value is equal to 104% of the hypothetical Starting Value:
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Hypothetical Starting Value:
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951.13
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Hypothetical Ending Value:
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989.18
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$10 +
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(
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$10 ×
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(
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989.18 951.13
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× 200%
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)
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= $10.80
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951.13
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Payment at maturity (per unit) = $10.80
TS-3
Example 4
The hypothetical Ending Value is equal to 150% of the hypothetical Starting Value:
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Hypothetical Starting Value:
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951.13
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Hypothetical Ending Value:
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1,426.70
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$10 +
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(
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$10 ×
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(
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1,426.70 951.13
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× 200%
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)
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= $20.00
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951.13
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Payment at maturity (per unit) = $12.00 (Payment at maturity (per unit) cannot
be greater than the Capped Value)
The following table illustrates, for the hypothetical Starting Value of 951.13, a Threshold Value of 90% of the hypothetical
Starting Value and a range of hypothetical Ending Values of the Index:
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the percentage change from the hypothetical Starting Value to the hypothetical Ending Value;
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§
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the total amount payable on the maturity date per unit (rounded to two decimal places);
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§
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the total rate of return to holders of the Notes;
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§
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the pretax annualized rate of return to holders of the Notes; and
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§
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the pretax annualized rate of return of a hypothetical direct investment in the stocks included in the Index, which includes an assumed aggregate dividend yield of
2.84% per annum, as more fully described below.
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The table below reflects the Participation Rate of 200% and assumes a Capped Value of $12.00,
the midpoint of the range of $11.80 and $12.20.
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Hypothetical
Ending Value
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Percentage change
from the hypothetical
Starting Value
to the hypothetical
Ending Value
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Total amount
payable on the
maturity date
per unit
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Total
rate of
return on
the Notes
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Pretax
annualized
rate of
return
on
the Notes (1)
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Pretax annualized rate of
return of the
stocks
included in the Index (1)(2)
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475.57
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-50.00%
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$6.00
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-40.00%
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-23.98%
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-28.11%
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570.68
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-40.00%
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$7.00
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-30.00%
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-17.06%
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-20.55%
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665.79
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-30.00%
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$8.00
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-20.00%
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-10.85%
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-13.84%
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760.90
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-20.00%
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$9.00
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-10.00%
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-5.20%
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-7.78%
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856.02 (3)
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-10.00%
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$10.00
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0.00%
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0.00%
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-2.25%
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913.08
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-4.00%
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$10.00
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0.00%
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0.00%
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0.86%
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932.11
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-2.00%
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$10.00
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0.00%
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0.00%
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1.86%
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951.13 (4)
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0.00%
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$10.00
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0.00%
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0.00%
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2.85%
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970.15
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2.00%
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$10.40
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4.00%
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1.97%
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3.83%
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989.18
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4.00%
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$10.80
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8.00%
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3.89%
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4.79%
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1,046.24
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10.00%
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$12.00 (5)
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20.00%
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9.33%
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7.59%
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1,141.36
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20.00%
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$12.00
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20.00%
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9.33%
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12.03%
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1,236.47
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30.00%
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$12.00
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20.00%
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9.33%
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16.21%
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1,331.58
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40.00%
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$12.00
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20.00%
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9.33%
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20.16%
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1,426.70
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50.00%
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$12.00
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20.00%
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9.33%
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23.90%
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(1)
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The annualized rates of return specified in this column are calculated on a semiannual bond equivalent basis and assume an investment term from July 25, 2009 to July 25, 2011, a
term expected to be similar to that of the Notes.
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(2)
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This rate of return assumes:
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(a)
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a percentage change in the aggregate price of the stocks included in the Index that equals the percentage change in the level of the Index from the hypothetical Starting Value to the relevant
hypothetical Ending Value;
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(b)
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a constant dividend yield of 2.84% per annum, paid quarterly from the date of initial delivery of the Notes, applied to the level of the Index at the end of each quarter assuming this
value increases or decreases linearly from the hypothetical Starting Value to the applicable hypothetical Ending Value; and
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(c)
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no transaction fees or expenses.
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(3)
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This is the hypothetical Threshold Value. The actual Threshold Value will be determined on the Pricing Date and will be set forth in the final term sheet made available in connection with
sales of the Notes.
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TS-4
(4)
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This is the hypothetical Starting Value, the closing level of the Index on July 20, 2009. The actual Starting Value will be determined on the Pricing Date and will be set forth in the
final term sheet made available in connection with sales of the Notes.
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(5)
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The total amount payable on the maturity date per unit cannot exceed the assumed Capped Value of $12.00 (the midpoint of the range of $11.80 and $12.20).
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The above figures are for purposes of illustration only. The actual amount you receive and the resulting total and pretax annualized rates of return will depend on the actual
Starting Value, Ending Value, Capped Value, Threshold Value and term of your investment.
Risk Factors
There are important differences between the Notes and a conventional debt security. An investment in the Notes involves significant risks, including those listed below. You
should carefully review the more detailed explanation of risks relating to the Notes in the Risk Factors section included in the product supplement and the Risks Associated with Foreign Currency Notes and Indexed Notes
section included in the prospectus supplement identified below under Additional Note Terms, as well as the explanation of certain risks related to SEK contained in Item 3 of our Annual Report on Form 20-F for the fiscal year ended
December 31, 2008, which was filed with the SEC on May 20, 2009 and is incorporated by reference herein. We also urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the Notes.
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Your investment may result in a loss.
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Your yield may be lower than the yield on other debt securities of comparable maturity.
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Your return is limited and may not reflect the return on a direct investment in the stocks included in the Index.
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You must rely on your own evaluation regarding the merits of an investment linked to the Index.
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You will not have the right to receive cash dividends or exercise ownership rights with respect to the stocks included in the Index.
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In seeking to provide investors with what we believe to be commercially reasonable terms for the Notes while providing Merrill Lynch 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.
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§
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The publisher of the Index may adjust the Index in a way that affects its level, and such publisher has no obligation to consider your interests.
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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.
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Payments on the Notes are subject to SEKs credit risk, and changes to SEKs credit ratings are expected to affect the value of the Notes.
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Purchases and sales by Merrill Lynch and its affiliates may affect your return.
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Merrill Lynch or its affiliates may do business with underlying companies.
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§
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Tax consequences are uncertain. See Summary Tax Consequences and Certain U.S. Federal Income Taxation Considerations below and Certain U.S.
Federal Income Taxation Considerations in product supplement LIRN-2.
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In addition to these risk factors, it is important to bear in mind that
the Notes are senior debt securities of SEK and are not guaranteed or insured by the FDIC or secured by collateral, nor are they obligations of, or guaranteed by, the Kingdom of Sweden. The Notes will rank equally with all of SEKs unsecured
and unsubordinated debt, and any payments due on the Notes, including any repayment of principal, will be subject to the credit risk of SEK.
TS-5
Investor Considerations
You may wish to consider an investment in the Notes if:
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You anticipate that the Index will appreciate moderately from the Starting Value to the Ending Value.
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You accept that your investment may result in a loss, which could be significant, if the level of the Index decreases from the Starting Value to an Ending Value that is less
than the Threshold Value.
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You accept that the return on the Notes will not exceed the Capped Value.
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You are willing to forego interest payments on the Notes, such as fixed or floating rate interest paid on traditional interest bearing debt securities.
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You want exposure to the Index with no expectation of dividends or other benefits of owning the stocks included in the Index.
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You are willing to accept that there is no assurance that the Notes will be listed or remain listed on NYSE Arca. You understand that any listing does not ensure that a
trading market will develop for the Notes or that there will be liquidity in any trading market. You understand that secondary market prices for the Notes, if any, will be affected by various factors, including the actual and perceived
creditworthiness of SEK.
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You are willing to make an investment, the payments on which depend on the creditworthiness of SEK, as the issuer of the Notes.
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The Notes may not be appropriate investments for you if:
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You anticipate that the Index will depreciate from the Starting Value to the Ending Value or that the Index will not appreciate sufficiently over the term of the Notes to
provide you with your desired return.
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You are seeking 100% principal protection or preservation of capital.
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You seek a return on your investment that will not be capped at a percentage that will be between 18% and 22%.
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You seek interest payments or other current income on your investment.
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You want to receive dividends or other distributions paid on the stocks included in the Index.
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You want assurances that there will be a liquid market if and when you want to sell the Notes prior to maturity.
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You are not willing or are unable to assume the credit risk associated with SEK, as the issuer of the Notes.
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Recent Developments
On July 6, 2009, Standard & Poors Ratings Services placed our long-term rating on CreditWatch with negative implications, revising it from AA+/Stable to AA+/Watch Neg.
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.
In the original offering, the Notes will be sold
in minimum investment amounts of 100 units.
If you place an order to purchase the Notes, you are consenting to each of Merrill Lynch and/or its broker-dealer
affiliate First Republic Securities Company, LLC acting as a principal in effecting the transaction for your account.
Merrill Lynch, First Republic Securities
Company, LLC and Banc of America Investment Services, Inc. may use the 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. The distribution of the Note Prospectus in connection with such offers or sales will be solely for the purpose of providing investors with the description of the terms of the Notes that was made
available to investors in connection with the initial offering of the Notes. Secondary market investors should not, and will not be authorized to, rely on the Note Prospectus for information regarding the issuer or for any purpose other than that
described in the immediately preceding sentence. Each of Merrill Lynch, First Republic Securities Company, LLC and Banc of America Investment Services, Inc. may act as principal or agent in these transactions, and any such sales will be made at
prices related to prevailing market prices.
TS-6
Supplement to the Plan of Distribution
Subject to certain conditions, we have agreed to sell units of Notes to Merrill Lynch and
units of Notes to Banc of America Securities LLC. Merrill Lynch and Banc of America Securities LLC have agreed, severally and not jointly, to purchase such Notes; provided that
none of the Notes will be sold unless all of the Notes are purchased. Each of Merrill Lynch and Banc of America Securities LLC has severally agreed to purchase the specified units of Notes for the purchase price indicated on the cover of this Term
Sheet and have advised us that it will initially offer all or part of the Notes directly to the public on a fixed price basis at the offering prices set forth on the cover of this Term Sheet. Each of Merrill Lynch and Banc of America Securities LLC
may offer the Notes to dealers, including affiliates that are dealers (including First Republic Securities Company, LLC and Banc of America Investment Services, Inc.), at that price less a concession not in excess of the underwriting discount set
forth on the cover of this Term Sheet. After the initial public offering, the public offering price and concession may be changed. In the event of a default by Banc of America Securities LLC, our agreement with Banc of America Securities LLC and
Merrill Lynch provides that Merrill Lynch will assume the obligation to purchase the Notes initially allotted to Banc of America Securities LLC. In the event of a default by Merrill Lynch, our agreement with Banc of America Securities LLC and
Merrill Lynch will terminate and no Notes will be offered or sold.
The Index
All disclosure contained in this term sheet regarding the Index, including, without limitation, its make-up, method of calculation and changes in its components has been derived from publicly available sources. The information
reflects the policies of, and is subject to change by, Standard & Poors Financial Services LLC. (Standard & Poors or S&P). SEK and Merrill Lynch have not independently verified and make no
representation as to the accuracy or completeness of such information. Standard and Poors which owns the copyright and all other rights to the Index, has no obligation to continue to publish, and may discontinue publication of, the Index. None
of SEK, the Calculation Agent and Merrill Lynch accepts any responsibility for the calculation, maintenance or publication of the Index or any successor index.
Standard & Poors 500
®
and S&P 500
®
are trademarks of Standard & Poors Financial Services LLC and have been licensed for use by Merrill Lynch, Pierce, Fenner & Smith Incorporated
and SEK is an authorized sublicensee. The Notes are not sponsored, endorsed, sold or promoted by Standard & Poors and Standard a& Poors makes no representation regarding the advisability of investing in the Notes.
The Index is intended to provide an indication of the pattern of common stock price movement. The calculation of the level of the Index 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 June 30, 2009, 411 companies or 80.8% of the market capitalization of the Index traded on the New York Stock Exchange; 89 companies or 19.2% of the market capitalization of the Index traded on The Nasdaq Stock Market; and no companies traded
on the NYSE Alternext U.S. stock exchange (formerly known as the American Stock Exchange). As of June 30, 2009, the aggregate market value of the companies included in the Index represented approximately 77% 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 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 its Stock Guide Database of over 10,000 companies, 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
generally is 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 Index, with the approximate percentage of the
market capitalization of the Index included in each group as of June 30, 2009 indicated in parentheses: Consumer Discretionary (9.0%); Consumer Staples (12.0%); Energy (12.4%); Financials (13.6%); Health Care (14.0%); Industrials (9.9%);
Information Technology (18.3%); Materials (3.2%); Telecommunication Services (3.5%) and Utilities (4.1%). Standard & Poors may from time to time, in its sole discretion, add companies to, or delete companies from, the Index to
achieve the objectives stated above.
Standard & Poors calculates the Index by reference to the prices of the constituent stocks of the Index without
taking account of the value of dividends paid on those stocks. As a result, the return on the notes will not reflect the return you would realize if you actually owned the Index constituent stocks and received the dividends paid on those stocks.
Computation of the Index
While Standard & Poors currently
employs the following methodology to calculate the Index, no assurance can be given that Standard & Poors will not modify or change this methodology in a manner that may affect the amount an investor receives on the maturity date of
the Notes.
Historically, the market value of any component stock of the Index was calculated as the product of the market price per share and the number of the then
outstanding shares of such component stock. In March 2005, Standard & Poors began shifting the Index half way from a market capitalization weighted formula to a float-adjusted formula, before moving the Index to full float adjustment
on September 16, 2005. Standard & Poors criteria for selecting stocks for the Index did not change by the shift to float adjustment. However, the adjustment affects each companys weight in the Index.
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Under float adjustment, the share counts used in calculating the Index reflect only those shares that are available to
investors, not all of a companys
outstanding shares. Standard and Poors defines three groups of shareholders whose holdings are subject to float
adjustment:
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holdings by other publicly traded corporations, venture capital firms, private equity firms, strategic partners, or leveraged buyout groups;
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holdings by government entities, including all levels of government in the U.S. or foreign countries; and
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holdings by current or former officers and directors of the company, founders of the company, or family trusts of officers, directors, or founders, as well as holdings of
trusts, foundations, pension funds, employee stock ownership plans, or other investment vehicles associated with and controlled by the company.
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However, treasury stock, stock options, restricted shares, equity participation units, warrants, preferred stock, convertible stock, and rights are not part of the float. In cases where holdings in a group exceed 10% of the outstanding
shares of a company, the holdings of that group are excluded from the float-adjusted count of shares to be used in the Index calculation. Mutual funds, investment advisory firms, pension funds, or foundations not associated with the company and
investment funds in insurance companies, shares of a U.S. company traded in Canada as exchangeable shares, shares that trust beneficiaries may buy or sell without difficulty or significant additional expense beyond typical brokerage
fees, and, if a company has multiple classes of stock outstanding, shares in an unlisted or non-traded class if such shares are convertible by shareholders without undue delay and cost, are also part of the float.
For each stock, an investable weight factor (IWF) is calculated by dividing the available float shares, defined as the total shares outstanding less shares held in one
or more of the three groups listed above where the group holdings exceed 10% of the outstanding shares, by the total shares outstanding. The float-adjusted index is then calculated by dividing (w) the sum of the IWF multiplied by both the price
and the total shares outstanding for each stock by the index divisor. For companies with multiple classes of stock, Standard & Poors calculates the weighted average IWF for each stock using the proportion of the total company market
capitalization of each share class as weights.
The Index is calculated using a base-weighted aggregate methodology: the level of the Index reflects the total market
value of all 500 component stocks relative to the base period of the years 1941 through 1943. An indexed number is used to represent the results of this calculation in order to make the value easier to work with and track over time. The actual total
market value of the component stocks during the base period of the years 1941 through 1943 has been set to an indexed value of 10. This is often indicated by the notation 1941-43 = 10. In practice, the daily calculation of the Index is computed by
dividing the total market value of the component stocks by the index divisor. By itself, the index divisor is an arbitrary number. However, in the context of the calculation of the Index, it serves as a link to the original base period
level of the Index. The index divisor keeps the Index comparable over time and is the manipulation point for all adjustments to the Index.
Index Maintenance
Index maintenance includes monitoring and completing the adjustments for company additions and deletions, share changes, stock splits, stock dividends, and stock
price adjustments due to company restructuring or spinoffs. Some corporate actions, such as stock splits and stock dividends, require changes in the common shares outstanding and the stock prices of the companies in the Index, and do not require
index divisor adjustments.
To prevent the value of the Index from changing due to corporate actions, corporate actions which affect the total market value of the
Index require an index divisor adjustment. By adjusting the index divisor for the change in market value, the level of the Index remains constant and does not reflect the corporate actions of individual companies in the Index. Index divisor
adjustments are made after the close of trading and after the calculation of the Index closing level.
Changes in a companys shares outstanding of 5.00% or
more due to mergers, acquisitions, public offerings, private placements, tender offers, Dutch auctions, or exchange offers are made as soon as reasonably possible. All other changes of 5.00% or more (due to, for example, company stock repurchases,
redemptions, exercise of options, warrants, subscription rights, conversion of preferred stock, notes, debt, equity participation units, or other recapitalizations) are made weekly and are announced on Tuesdays for implementation after the close of
trading on Wednesday. Changes of less than 5.00% are accumulated and made quarterly on the third Friday of March, June, September, and December, and are usually announced two days prior.
Changes in IWFs of more than ten percentage points caused by corporate actions (such as merger and acquisition activity, restructurings, or spinoffs) will be made as soon as reasonably possible. Other changes in IWFs will be
made annually, in September, when IWFs are reviewed.
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The following graph sets forth the monthly historical performance of the Index in the period from January 2004 through
June 2009. 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 July 20, 2009, the closing level of the Index was 951.13.
Before investing in the Notes, you should consult publicly available sources for the values and trading pattern of the Index. The
generally unsettled international environment and related uncertainties, including the risk of terrorism, may result in financial markets generally and the Index exhibiting greater volatility than in earlier periods.
License Agreement
Standard & Poors does not guarantee the accuracy and/or
the completeness of the Index or any data included in the Index. Standard & Poors shall have no liability for any errors, omissions, or interruptions in the Index. Standard & Poors makes no warranty, express or implied,
as to results to be obtained by the Calculation Agent, the holders of the Notes or any other person or entity from the use of the Index or any data included in the Index in connection with the rights licensed under the license agreement described in
this term sheet or for any other use. Standard & Poors makes no express or implied warranties, and hereby expressly disclaims all warranties of merchantability or fitness for a particular purpose with respect to the Index or any data
included in the Index. Without limiting any of the above information, in no event shall Standard & Poors have any liability for any special, punitive, indirect or consequential damages; including lost profits, even if notified of the
possibility of these damages.
Standard & Poors and Merrill Lynch have entered into a non-exclusive license agreement providing for the license to
Merrill Lynch, in exchange for a fee, of the right to use the Index in connection with this offering, and SEK is an authorized sublicensee of Merrill Lynch. The license agreement between Standard & Poors and Merrill Lynch provides
that the following language must be stated in this term sheet:
The Notes are not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, express or implied, to the holders of the Notes or any member of the public regarding the advisability of investing in securities generally or in the Notes particularly or the ability of the S&P 500
®
Index to track general stock market performance. S&Ps only relationship to Merrill Lynch (other than transactions entered into in the ordinary course of business)
is the licensing of certain trademarks and trade names of S&P and of the S&P 500
®
Index which is determined, composed and calculated by S&P without regard to
SEK, Merrill Lynch or the Notes. S&P has no obligation to take the needs of SEK, Merrill Lynch or the needs of the holders of the Notes into consideration in determining, composing or calculating the S&P 500
®
Index. S&P is not responsible for and has not participated in the determination of the timing of the sale of the Notes, prices at which the Notes are to initially be
sold, or quantities of the Notes to be issued or in the determination or calculation of the equation by which the Notes are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading
of the Notes.
TS-9
Summary Tax Consequences
You should consider the United States federal income tax consequences of an investment in the Notes, including the following:
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We intend to take the position that the Notes will be treated for U.S. federal income tax purposes as prepaid forward contracts, subject to a floor, to purchase the Index
and, by purchasing a Note, you will be deemed to have agreed to that treatment.
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Under the treatment agreed to above, the gain or loss generally will be capital gain or loss and generally will be long-term capital gain or loss if the U.S. holder held the
Note more than one year immediately before the disposition.
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You should refer to the product supplement related to this offering for
additional information relating to U.S. federal income tax and should consult your own tax advisors to determine tax consequences particular to your situation.
Certain U.S. Federal Income Taxation Considerations
Below is a summary of certain U.S. federal income tax considerations for U.S. investors
(U.S. Holders) that are initial holders of the Notes and that hold the Notes as capital assets. The following summary is not complete and is qualified in its entirety by the discussions under the sections entitled Certain U.S.
Federal Income Taxation Considerations in the accompanying product supplement LIRN-2, which you should carefully review prior to investing in the Notes.
General
. We intend to take the position that the Notes will be treated for U.S. federal income tax purposes as prepaid forward contracts, subject to a floor, to purchase the Index and, by purchasing a Note, you
will be deemed to have agreed to that treatment. The remainder of this discussion assumes that the Notes will be so treated. We also will take the position that at the time of issuance of your Note you deposit irrevocably with us a fixed amount of
cash equal to the purchase price of your Note to assure the fulfillment of your purchase obligation, which deposit will be non-interest bearing and will be unconditionally and irrevocably applied at the maturity date to satisfy that obligation at
the maturity date. Although you will be obligated to treat the purchase price as a deposit for U.S. federal income tax purposes, the cash proceeds that we will receive from the offering will not be segregated by us during the term of your Note, but
instead will be commingled with our other assets.
No statutory, administrative or judicial authority directly addresses the treatment of holders of Notes for U.S.
federal income tax purposes. As a result, no assurance can be given that the IRS or a court will agree with the tax consequences described in this discussion. A differing treatment from that assumed herein could adversely affect the amount, timing
and character of income, gain or loss in respect of an investment in the Notes. Prospective investors are urged to consult their own tax advisors with respect to the U.S. federal income tax consequences of the purchase, ownership and disposition of
the Notes in light of their own particular circumstances, as well as the effect of any state, local or foreign tax laws.
Sale, exchange or other taxable
disposition of Notes.
A U.S. holders initial tax basis in the Notes should be the price at which the U.S. holder purchased the Notes. Upon the sale, exchange or other disposition of Notes in a taxable disposition, a
U.S. holder should generally recognize gain or loss equal to the difference between the proceeds received (including amounts received at maturity) and the U.S. holders adjusted tax basis in the Note. Under the treatment agreed to above, the
gain or loss generally will be capital gain or loss and generally will be long-term capital gain or loss if the U.S. holder held the Note more than one year immediately before the disposition. Long-term capital gains of individuals are eligible for
reduced rates of taxation. The deductibility of capital losses is subject to limitations.
Regulatory and Legislative Developments Related to Taxation of Prepaid
Forward Contracts.
On December 7, 2007, the IRS and U.S. Treasury Department issued a notice requesting public comments on a comprehensive set of tax policy issues raised by prepaid forward contracts, including
several different approaches under which U.S. holders of prepaid forward contracts could be required to recognize ordinary income on a current basis, or could be treated as owning directly the assets subject to the prepaid forward contract. Although
it is currently uncertain what future guidance will result from the notice, the notice leaves open the possibility that such guidance could have retroactive application. In addition, on December 19, 2007, legislation was introduced for
consideration in the United States Congress that, if enacted into law, would require current accrual of interest income on prepaid derivative contracts with a term of more than one year (which would include financial instruments similar to the
Notes) acquired after the date of the legislations enactment. The legislation also would implement special income accrual rules for publicly traded prepaid derivative contracts. The schedule for consideration of this legislation and the
outcome of the legislative process currently is uncertain.
The IRS and U.S. Treasury Department previously issued proposed regulations that would require current
accrual of income with respect to contingent nonperiodic payments made under certain notional principal contracts. The preamble to the proposed regulations states that the wait and see method of tax accounting does not properly reflect
the economic accrual of income on such contracts, and requires current accrual of income with respect to some contracts already in existence at the time the proposed regulations were released. While the proposed regulations do not apply to
derivative financial instruments other than notional principal contracts, the preamble to the proposed regulations expresses the view that similar timing issues exist in the case of prepaid forward contracts. If the IRS published future guidance
requiring current accrual of income with respect to contingent payments on prepaid forward contracts, it is possible that you could be required to accrue income over the term of the Notes.
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 Certain U.S. Federal Income Taxation Considerations in the accompanying product
supplement LIRN-2.
TS-10
Additional Note Terms
You
should read this term sheet, together with the documents listed below, which together contain the terms of the Notes and supersede all prior or contemporaneous oral statements as well as any other written materials. You should carefully consider,
among other things, the matters set forth under Risk Factors in the sections indicated on the cover of this term sheet. The Notes involve risks not associated with conventional debt securities. We urge you to consult your investment,
legal, tax, accounting and other advisers before you invest in the Notes.
The final terms of the Notes will be set forth in a final term sheet, which will be filed
with the SEC as a pricing supplement pursuant to Rule 424 under the Securities Act and made available to purchasers of the Notes. The documents listed below, together with such final term sheet, are collectively referred to herein as the Note
Prospectus.
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):
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Product supplement LIRN-2, dated December 23, 2008:
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http://www.sec.gov/Archives/edgar/data/352960/000119312508259305/d424b3.htm
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Prospectus and prospectus supplement, each dated December 15, 2008:
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http://www.sec.gov/Archives/edgar/data/352960/000110465908076407/a08-30087_1f3asr.htm
Our Central Index Key, or CIK, on the SEC Website is 352960.
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 these documents or the Note
Prospectus if you so request by calling toll-free 1-866-500-5408.
Structured Investments Classification
Merrill Lynch classifies certain of the Structured Investments it offers (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 underlying 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 describe fully any particular Structured Investment, including the Notes, nor guarantee any particular performance.
Leveraged Index
Return Notes
®
and LIRNs
®
are registered service marks of Merrill
Lynch & Co., Inc.
TS-11
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