AXF AB Svensk Ekport

UPDATED CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities To Be Registered		Amount To Be     Registered		Proposed Maximum     Aggregate Price Per Unit		Proposed Maximum     Aggregate Offering Price		Amount of     Registration Fee
Notes offered hereby		$16,725,000		100%		$16,725,000		$933.26 (1)

 

(1)

The registration fee is calculated in accordance with Rule 457(r) under the Securities Act. $7,805.12 of the registration fees paid in respect of the securities covered by the registration statement of which the pricing supplement is a part remain unused. $933.26 of that amount is being offset against the registration fee for this offering and $6,871.86 remains available for future registration fees.

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Filed Pursuant to Rule 424(b)(2)

Registration No. 333-156118

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.

 

Are Not FDIC Insured		Are Not Bank Guaranteed		May Lose Value

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.

 

		Per Unit		Total
Public offering price (1)		$10.00		$16,725,000
Underwriting discount (1)		$.20		$334,500
Proceeds, before expenses, to SEK		$9.80		$16,390,500

 

(1)

The public offering price and underwriting discount for any purchase of 500,000 units or more in a single transaction by an individual investor will be $9.95 per unit and $.15 per unit, respectively.

 

Merrill Lynch & Co.				Banc of America Investment Services, Inc.

August 26, 2009

 

1,672,500 Units Capped Leveraged Index Return Notes® Linked to the S&P 500® Index Due August 26, 2011 $10 principal amount per unit Pricing Supplement/Term Sheet No. 69		Pricing Date Settlement Date Maturity Date CUSIP No.		August 26, 2009 September 4, 2009 August 26, 2011 01019M785
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 25.42% 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 “SOG” The Notes are not guaranteed under the Federal Deposit Insurance Corporation’s Temporary Liquidity Guarantee Program

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Summary

The Capped Leveraged Index Return Notes ^® Linked to the S&P 500 ^® Index Due August 26, 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 SEK’s 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 August 26, 2009, the date the Notes were priced for initial sale to the public (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.

 

 

TS-2

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Hypothetical Payout Profile

 

		This graph reflects the hypothetical returns on the Notes, including the Participation Rate of 200% and the Capped Value of 25.42%. 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 Ending Value and the term of your investment.

Hypothetical Payments at Maturity

Set forth below are four examples of payment at maturity calculations (rounded to three decimal places), including the Starting Value of 1,028.12 and the Capped Value of $12.542.

Example 1  — The hypothetical Ending Value is equal to 70% of the Starting Value and less than the Threshold Value:

 

Starting Value:		1,028.12
Hypothetical Ending Value:		719.68
Threshold Value:		925.31

 

$10 +

[

$10 ×

(

719.68 – 925.31

)

× 100%

]

= $8.000

1,028.12

Payment at maturity (per unit) = $8.000

Example 2  — The hypothetical Ending Value is equal to 95% of the Starting Value and greater than the Threshold Value:

 

Starting Value:		1,028.12
Hypothetical Ending Value:		976.71
Threshold Value:		925.31

Payment at maturity (per unit) = $10.000

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 Starting Value:

 

Starting Value:		1,028.12
Hypothetical Ending Value:		1,069.24

 

$10 +

[

$10 ×

(

1,069.24 – 1,028.12

)

× 200%

]

= $10.800

1,028.12

Payment at maturity (per unit) = $10.800

Example 4  — The hypothetical Ending Value is equal to 150% of the Starting Value:

 

Starting Value:		1,028.12
Hypothetical Ending Value:		1,542.18

 

$10 +

[

$10 ×

(

1,542.18 – 1,028.12

)

× 200%

]

= $20.000

1,028.12

Payment at maturity (per unit) = $12.542 (Payment at maturity (per unit) cannot be greater than the Capped Value)

 

TS-3

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The following table illustrates, for the Starting Value of 1,028.12, the Threshold Value of 925.31 and a range of hypothetical Ending Values of the Index:

 

§

the percentage change from the Starting Value to the hypothetical Ending Value;

§

the total amount payable on the maturity date per unit (rounded to three decimal places);

§

the total rate of return to holders of the Notes;

§

the pretax annualized rate of return to holders of the Notes; and

§

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 2.58% per annum, as more fully described below.

The table below reflects the Participation Rate of 200% and the Capped Value of $12.542.

 

Hypothetical Ending Value		Percentage change from the Starting Value to the hypothetical Ending Value		Total amount payable on the maturity date per unit		Total rate of return on the Notes		Pretax annualized rate of return on the Notes (1)		Pretax annualized rate of return of the stocks included in the Index (1)(2)
514.06		-50.00%		$6.000		-40.00%		-24.23%		-28.78%
616.87		-40.00%		$7.000		-30.00%		-17.25%		-21.12%
719.68		-30.00%		$8.000		-20.00%		-10.97%		-14.32%
822.50		-20.00%		$9.000		-10.00%		-5.26%		-8.18%
925.31 (3)		-10.00%		$10.000		0.00%		0.00%		-2.58%
987.00		-4.00%		$10.000		0.00%		0.00%		0.57%
1,007.56		-2.00%		$10.000		0.00%		0.00%		1.59%
1,028.12 (4)		0.00%		$10.000		0.00%		0.00%		2.59%
1,048.68		2.00%		$10.400		4.00%		1.99%		3.58%
1,069.24		4.00%		$10.800		8.00%		3.93%		4.55%
1,130.93		10.00%		$12.000		20.00%		9.43%		7.39%
1,233.74		20.00%		$12.542 (5)		25.42%		11.79%		11.89%
1,336.56		30.00%		$12.542		25.42%		11.79%		16.13%
1,439.37		40.00%		$12.542		25.42%		11.79%		20.13%
1,542.18		50.00%		$12.542		25.42%		11.79%		23.92%

 

(1)	The annualized rates of return specified in this column are calculated on a semiannual bond equivalent basis and assume an investment term from September 4, 2009 to August 26, 2011, the term of the Notes.

 

(2)	This rate of return assumes:

 

(a)

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 Starting Value to the relevant hypothetical Ending Value;

 

(b)

a constant dividend yield of 2.58% 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 Starting Value to the applicable hypothetical Ending Value; and

 

(c)

no transaction fees or expenses.

 

(3)	This is the Threshold Value.

 

(4)	This is the Starting Value.

 

(5)	The total amount payable on the maturity date per unit cannot exceed the Capped Value of $12.542.

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 Ending Value and term of your investment.

 

TS-4

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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.

 

§

Your investment may result in a loss.

 

§

Your yield may be lower than the yield on other debt securities of comparable maturity.

 

§

Your return is limited and may not reflect the return on a direct investment in the stocks included in the Index.

 

§

You must rely on your own evaluation regarding 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 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.

 

§

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.

 

§

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.

 

§

Payments on the Notes are subject to SEK’s credit risk, and changes to SEK’s credit ratings are expected to affect the value of the Notes.

 

§

Purchases and sales by Merrill Lynch and its affiliates may affect your return.

 

§

Merrill Lynch or its affiliates may do business with underlying companies.

 

§

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.

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 SEK’s 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.

Investor Considerations

 

 

 

TS-5

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Recent Developments

On July 6, 2009, Standard & Poor’s Ratings Services placed our long-term rating on CreditWatch with negative implications, revising it from AA+/Stable to AA+/Watch Neg.

Other Provisions

We will 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, 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.

Supplement to the Plan of Distribution

Subject to certain conditions, we have agreed to sell 938,358 units of Notes to Merrill Lynch and 734,142 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 & Poor’s Financial Services LLC. (“Standard & Poor’s” 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 Poor’s 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 & Poor’s 500 ^® ” and “S&P 500 ^® ” are trademarks of Standard & Poor’s 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 & Poor’s and Standard a& Poor’s 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 July 31, 2009, 411 companies or 80.7% of the market capitalization of the Index traded on the New York Stock Exchange; 89 companies or 19.3% of the market

 

TS-6

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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 July 31, 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 & Poor’s Stock Guide Database of domestic common stocks traded in the U.S., excluding American depositary receipts, limited partnerships and mutual funds.

Standard & Poor’s 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 & Poor’s uses as an assumed model for the composition of the total market. Relevant criteria employed by Standard & Poor’s 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 company’s 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 July 31, 2009 indicated in parentheses: Consumer Discretionary (9.1%); Consumer Staples (11.8%); Energy (12.0%); Financials (13.9%); Health Care (13.7%); Industrials (10.0%); Information Technology (18.7%); Materials (3.4%); Telecommunication Services (3.4%) and Utilities (3.9%). Standard & Poor’s 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 & Poor’s 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 & Poor’s currently employs the following methodology to calculate the Index, no assurance can be given that Standard & Poor’s 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 & Poor’s 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 & Poor’s criteria for selecting stocks for the Index did not change by the shift to float adjustment. However, the adjustment affects each company’s weight in the Index.

Under float adjustment, the share counts used in calculating the Index reflect only those shares that are available to investors, not all of a company’s outstanding shares. Standard and Poor’s defines three groups of shareholders whose holdings are subject to float adjustment:

 

•

holdings by other publicly traded corporations, venture capital firms, private equity firms, strategic partners, or leveraged buyout groups;

 

•

holdings by government entities, including all levels of government in the U.S. or foreign countries; and

 

•

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.

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 & Poor’s 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.

 

TS-7

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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 company’s 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.

The following graph sets forth the monthly historical performance of the Index in the period from January 2004 through July 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 the Pricing Date, the closing level of the Index was 1,028.12.

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.

 

TS-8

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License Agreement

Standard & Poor’s does not guarantee the accuracy and/or the completeness of the Index or any data included in the Index. Standard & Poor’s shall have no liability for any errors, omissions, or interruptions in the Index. Standard & Poor’s 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 & Poor’s 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 & Poor’s have any liability for any special, punitive, indirect or consequential damages; including lost profits, even if notified of the possibility of these damages.

Standard & Poor’s 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 & Poor’s 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&P’s 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.”

Summary Tax Consequences

You should consider the United States federal income tax consequences of an investment in the Notes, including the following:

 

•

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.

 

•

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.

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. holder’s 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. holder’s adjusted tax basis in the

 

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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 legislation’s 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.

Additional Note Terms

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 LIRN-2, dated December 23, 2008:

http://www.sec.gov/Archives/edgar/data/352960/000119312508259305/d424b3.htm

 

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Prospectus and prospectus supplement, each dated December 15, 2008:

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.

 

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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.

 

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