Term sheet No. 1047B To underlying supplement No. 1 dated September 29, 2009, product supplement B dated September 29, 2009, prospectus supplement dated September 29, 2009 and prospectus dated September 29, 2009 | Registration Statement No. 333-162195 Dated December 22, 2010; Rule 433 |
Deutsche Bank AG, London Branch
$• Trigger Performance Securities Linked to the iShares® MSCI Emerging Markets Index Fund due December 28*, 2012
General
| · | The Trigger Performance Securities (the “securities”) are designed for investors who seek a return at maturity linked to the performance of the iShares® MSCI Emerging Markets Index Fund. Investors will not receive coupon or dividend payments during the term of the securities. If the Underlying Return is positive, you will be entitled to receive a return at maturity equal to your initial investment multiplied by the Underlying Return multiplied by the Participation Rate, up to the Maximum Return. If (i) the Underlyi ng Return is zero or negative and (ii) the Final Price is equal to or greater than the Trigger Price, at maturity you will be entitled to receive your initial investment. If the Final Price is less than the Trigger Price, at maturity you will be entitled to receive your initial investment reduced by 1% for every 1% decline in the Final Price as compared to the Initial Price. Any Payment at Maturity is subject to the credit of the Issuer. |
| · | Senior unsecured obligations of Deutsche Bank AG, London Branch due on or about December 28*, 2012. |
| · | Denominations of $1,000 (the “Face Amount”) and minimum initial investments of $1,000. |
| · | The securities are expected to price on or about December 23*, 2010 (the “Trade Date”) and are expected to settle on or about December 29*, 2010 (the “Settlement Date”). |
Key Terms
| Issuer: | Deutsche Bank AG, London Branch |
| Underlying: | The iShares® MSCI Emerging Markets Index Fund (Ticker: EEM UP) |
| Issue Price: | 100% of the Face Amount |
| Participation Rate: | 200% |
| Maximum Return: | 23.8% to 31.0%. The actual Maximum Return will be set on the Trade Date. |
| Trigger Price: | Equal to 70.00% of the Initial Price |
Payment at Maturity: | · If the Underlying Return is positive, you will be entitled to receive a cash payment per $1,000 Face Amount of securities that provides you with a return on your investment equal to the Underlying Return multiplied by the Participation Rate, subject to the Maximum Return. Your payment at maturity per $1,000 Face Amount of securities will be equal to: |
$1,000 + ($1,000 x the lesser of (i) Underlying Return x Participation Rate and (ii) Maximum Return) | |
· If the Underlying Return is zero or negative and the Final Price is equal to or greater than the Trigger Price, you will be entitled to receive a cash payment of $1,000 per $1,000 Face Amount of securities. | |
· If the Final Price is less than the Trigger Price, you will be entitled to receive a cash payment per $1,000 Face Amount of securities equal to: | |
| $1,000 + ($1,000 x Underlying Return) | |
| In this scenario, you will lose 1% of your initial investment for every 1% of negative performance of the Underlying, and you will lose a significant portion or all of your initial investment. | |
| Any payment on the securities is subject to the creditworthiness of the Issuer. | |
| Underlying Return: | The performance of the Underlying from the Initial Price to the Final Price, calculated as follows: |
| Final Price – Initial Price | |
| Initial Price | |
| The Underlying Return may be positive, zero or negative. | |
| Closing Price: | The closing price of one share of the Underlying on the relevant date of calculation, multiplied by the then current Share Adjustment Factor applicable to the Underlying |
| Initial Price: | The Closing Price of the Underlying on the Trade Date |
| Final Price: | The Closing Price of the Underlying on the Final Valuation Date |
| Share Adjustment Factor: | Initially 1.0, subject to adjustment for certain actions affecting the Underlying. See “Description of Securities – Anti-dilution Adjustments for Funds” in the accompanying product supplement. |
| Trade Date: | December 23*, 2010 |
| Settlement Date: | December 29*, 2010 |
| Final Valuation Date: | December 24*, 2012, subject to postponement as described under “Description of Securities—Adjustments to Valuation Dates and Payment Dates” in the accompanying product supplement. |
| Maturity Date: | December 28*, 2012, subject to postponement as described under “Description of Securities—Adjustments to Valuation Dates and Payment Dates” in the accompanying product supplement. |
| Listing: | The securities will not be listed on any securities exchange. |
| CUSIP / ISIN: | 2515A12P5 / US2515A12P50 |
* Expected. In the event that we make any change to the expected Trade Date and Settlement Date, the Final Valuation Date and Maturity Date will be changed so that the stated term of the securities remains the same.
Investing in the securities involves a number of risks. See “Risk Factors” beginning on page 5 of the accompanying product supplement and “Selected Risk Considerations” beginning on page TS-4 of this term sheet for more information.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities or passed upon the accuracy or the adequacy of this term sheet or the accompanying product supplement, underlying supplement, prospectus supplement and prospectus. Any representation to the contrary is a criminal offense.
Price to Public | Discounts, Commissions and Fees(1) | Proceeds to Us | |
| Per Security | $1,000.00 | $2.50 | $997.50 |
| Total | $ | $ | $ |
(1) For more detailed information about discounts and commissions, please see “Supplemental Underwriting Information (Conflicts of Interest)” in this term sheet.
The agent for this offering is our affiliate. For more information see “Supplemental Underwriting Information (Conflicts of Interest)” in this term sheet.
The securities are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency.
| Deutsche Bank Securities |
December 22, 2010
ADDITIONAL TERMS SPECIFIC TO THE SECURITIES
| • | You should read this term sheet together with underlying supplement No. 1 dated September 29, 2009, product supplement B dated September 29, 2009, the prospectus supplement dated September 29, 2009 relating to our Series A global notes of which these securities are a part and the prospectus dated September 29, 2009. You may access these 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): |
Underlying supplement No. 1 dated September 29, 2009:
Product supplement B dated September 29, 2009:
Prospectus supplement dated September 29, 2009:
Prospectus dated September 29, 2009:
| • | Our Central Index Key, or CIK, on the SEC website is 0001159508. As used in this term sheet, “we,” “us” or “our” refers to Deutsche Bank AG, including, as the context requires, acting through one of its branches. |
| • | This term sheet, together with the documents listed above, contains the terms of the securities and supersedes all other prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures, brochures or other educational materials of ours. You should carefully consider, among other things, the matters set forth in “Risk Factors” in the accompanying product supplement, as the securities involve risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisers before deciding to invest in the securities. |
| • | Deutsche Bank AG has filed a registration statement (including a prospectus) with the Securities and Exchange Commission, or 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 Deutsche Bank AG has filed with the SEC for more complete information about Deutsche Bank AG and this offering. You may obtain these documents without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, Deutsche Bank AG, any agent or any dealer participating in this offering will arrange to send you the prospectus, prospectus supplement, product supplement, underlying supplement and this term sheet if you so request by calling toll-free 1-800-311-4409. |
| • | You may revoke your offer to purchase the securities at any time prior to the time at which we accept such offer by notifying the applicable agent. We reserve the right to change the terms of, or reject any offer to purchase, the securities prior to their issuance. We will notify you in the event of any changes to the terms of the securities, and you will be asked to accept such changes in connection with your purchase of any securities. You may also choose to reject such changes, in which case we may reject your offer to purchase the securities. |
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What Is the Payment at Maturity on the Securities Assuming a Range of Performance for the Underlying?
The following table illustrates a range of hypothetical Payments at Maturity on the securities. The table and the examples below assume an Initial Price of 45.00, a Trigger Price of 31.50 (equal to 70.00% of the Initial Price), a Participation Rate of 200% and a Maximum Return of 27.40%. The actual Initial Price, Trigger Price and Maximum Return will be determined on the Trade Date. The results set forth below are for illustrative purposes only and may not be the actual returns applicable to a purchaser of the securities. The numbers appearing in the table and the examples below have been rounded for ease of analysis.
Hypothetical Final Price | Underlying Return (%) | Payment at Maturity ($) | Return on Securities (%) |
| 90.00 | 100.00% | $1,274.00 | 27.40% |
| 85.50 | 90.00% | $1,274.00 | 27.40% |
| 81.00 | 80.00% | $1,274.00 | 27.40% |
| 76.50 | 70.00% | $1,274.00 | 27.40% |
| 72.00 | 60.00% | $1,274.00 | 27.40% |
| 67.50 | 50.00% | $1,274.00 | 27.40% |
| 63.00 | 40.00% | $1,274.00 | 27.40% |
| 58.50 | 30.00% | $1,274.00 | 27.40% |
| 54.00 | 20.00% | $1,274.00 | 27.40% |
| 51.17 | 13.70% | $1,274.00 | 27.40% |
| 49.50 | 10.00% | $1,200.00 | 20.00% |
| 47.25 | 5.00% | $1,100.00 | 10.00% |
| 45.00 | 0.00% | $1,000.00 | 0.00% |
| 42.75 | -5.00% | $1,000.00 | 0.00% |
| 40.50 | -10.00% | $1,000.00 | 0.00% |
| 36.00 | -20.00% | $1,000.00 | 0.00% |
| 31.50 | -30.00% | $1,000.00 | 0.00% |
| 27.00 | -40.00% | $600.00 | -40.00% |
| 22.50 | -50.00% | $500.00 | -50.00% |
| 18.00 | -60.00% | $400.00 | -60.00% |
| 13.50 | -70.00% | $300.00 | -70.00% |
| 9.00 | -80.00% | $200.00 | -80.00% |
| 4.50 | -90.00% | $100.00 | -90.00% |
| 0.00 | -100.00% | $0.00 | -100.00% |
The following examples illustrate how the Payments at Maturity set forth in the table above are calculated.
Example 1: The price of the Underlying increases 10.00% from the Initial Price of 45.00 to a Final Price of 49.50. Because the Underlying Return is 10.00%, you will be entitled to receive a Payment at Maturity of $1,200 per $1,000 Face Amount of securities, calculated as follows:
$1,000.00 + ($1,000.00 x (10.00% x 200%)) = $1,200.00
Example 2: The price of the Underlying increases 30.00% from the Initial Price of 45.00 to a Final Price of 58.50. Because the Underlying Return of 30.00% multiplied by the Participation Rate of 200% is more than the Maximum Return of 27.40%, you will be entitled to receive the Maximum Return of 27.40%, resulting in a Payment at Maturity of $1,274.00 per $1,000 Face Amount of securities.
Example 3: The price of the Underlying decreases 10.00% from the Initial Price of 45.00 to a Final Price of 40.50. Because the Underlying Return is negative and the Final Price is greater than the Trigger Price, you will be entitled to receive a Payment at Maturity of $1,000 per $1,000 Face Amount of securities.
Example 4: The price of the Underlying decreases 50.00% from the Initial Price of 45.00 to a Final Price of 22.50. Because the Final Price is less than the Trigger Price, you will lose 1.00% of your initial investment for every 1.00% of negative Underlying Return, and you will be entitled to receive a Payment at Maturity of $500.00 per $1,000 Face Amount of securities, calculated as follows:
$1,000.00 + ($1,000.00 x -50.00%) = $500.00
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Selected Purchase Considerations
| • | APPRECIATION POTENTIAL —The securities provide the opportunity to participate in any appreciation of the Underlying at maturity, up to the Maximum Return of 23.8% to 31.0% (to be determined on the Trade Date). If the Underlying Return is zero or negative, and the Final Price is greater than the Trigger Price, you will be entitled to receive a Payment at Maturity of $1,000 per $1,000 Face Amount of securities. If the Final Price is less than the Trigger Price, you will be entitled to receive at maturity a return on the securities equal to the negative Underlying Return. Under these circumstances, you will lose a significant portion, and possibly all, of your initial investment. Because the securities are our senior unsecured obligations, payment of any amount at maturity is subject to our ability to pay our obligations as they become due. |
| • | RETURN LINKED TO THE PERFORMANCE OF THE ISHARES® MSCI EMERGING MARKETS INDEX FUND — The return on the securities, which may be positive, zero, or negative, is linked to the performance of the iShares® MSCI Emerging Markets Index Fund. |
The iShares® MSCI Emerging Markets Index Fund |
The iShares® MSCI Emerging Markets Index Fund is an exchange-traded fund managed by iShares® Trust, a registered investment company. The iShares® Trust consists of numerous separate investment portfolios, including the iShares® MSCI Emerging Markets Index Fund. The iShares® MSCI Emerging Markets Index Fund seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets Index (the “Index”). The MSCI Emerging Markets Index is designed to measure equity market performance in the global emerging markets. The iShares® MSCI Emerging Markets Index Fund trades on the NYSE under the ticker symbol “EEM UP.” It is possible that this fund may not fully replicate or may in certain circumstances diverge significantly from the performance of the MSCI Emerging Markets Index due to the temporary unavailability of certain securities in the secondary markets, the performance of any derivative instruments contained in this fund, the fees and expenses of the fund or due to other circumstances. This section is a summary only of the iShares® MSCI Emerging Markets Index Fun d. For more information on the iShares® MSCI Emerging Markets Index Fund, including information concerning calculation methodology and adjustment policy, please see the section entitled “iShares® MSCI Emerging Markets Index Fund” in the accompanying underlying supplement No. 1 dated September 29, 2009. |
| • | TAX CONSEQUENCES — You should review carefully the section of the accompanying product supplement entitled “U.S. Federal Income Tax Consequences.” Although the tax consequences of an investment in the securities are uncertain, we believe it is reasonable to treat the securities as prepaid financial contracts for U.S. federal income tax purposes. Under this treatment, you should not recognize taxable income or loss prior to the maturity of your securities, other than pursuant to a sale or exchange. Subject to the potential application of the “constructive ownership” regime discussed below, your gain or loss on the securities should be capital gain or loss and should be long-term capital gain or loss if you have held the securities for more than one year. If, however, the Internal Revenue Service (the “IRS”) were successful in asserting an alternative treatment for the securities, the tax consequences of ownership and disposition of the securities might be affected materially and adversely. We do not plan to request a ruling from the IRS, and the IRS or a court might not agree with the tax treatment described in this term sheet and the accompanying product supplement. |
| Even if the treatment of the securities as prepaid financial contracts is respected, the securities could be treated as “constructive ownership transactions” within the meaning of Section 1260 of the Internal Revenue Code. In that case, all or a portion of any long-term capital gain you would otherwise recognize on a sale, exchange or retirement of the securities would be recharacterized as ordinary income to the extent such gain exceeded the “net underlying long-term capital gain” (which, although the matter is unclear, may equal the amount of long-term capital gain you would have recognized if on the issue date you had invested the Face Amount of your securities in shares of the Underlying and sold those shares for their fair market value on the date your securities are sold, exchanged, or retired). Any long-term capital gain recharacterized as ordinary income would be treated as accruing at a const ant rate over the period you held the securities, and you would be subject to an interest charge in respect of the deemed tax liability on the income treated as accruing in prior tax years. |
| In 2007, Treasury and the IRS released a notice requesting comments on various issues regarding the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments, such as the securities. The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; the relevance of factors such as the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non- |
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U.S. persons should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” regime discussed above. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect.
| Recently enacted legislation requires certain individuals who hold “debt or equity interests” in any “foreign financial institution” that are not “regularly traded on an established securities market” to report information about such holdings on their U.S. federal income tax returns, generally for tax years beginning in 2011, unless a regulatory exemption is provided. Individuals who purchase the securities should consult their tax advisers regarding this legislation. |
| Under current law, the United Kingdom will not impose withholding tax on payments made with respect to the securities. |
| For a discussion of certain German tax considerations relating to the securities, you should refer to the section in the accompanying prospectus supplement entitled “Taxation by Germany of Non-Resident Holders.” |
| We do not provide any advice on tax matters. Prospective investors should consult their tax advisers regarding the U.S. federal tax consequences of an investment in the securities (including possible alternative treatments, the potential application of the “constructive ownership” regime, and the issues presented by the 2007 notice), as well as tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction. |
Selected Risk Considerations
An investment in the securities involves significant risks. Investing in the securities is not equivalent to investing directly in the Underlying or any of the component stocks held by the Underlying. These risks are explained in more detail in the “Risk Factors” section of the accompanying product supplement.
| • | YOUR INVESTMENT IN THE SECURITIES MAY RESULT IN A LOSS — The securities do not guarantee any return of your investment. The return on the securities at maturity is linked to the performance of the Underlying and will depend on whether, and the extent to which, the Underlying Return is positive or negative and whether or not the Final Price is less than the Trigger Price. If the Final Price is less than the Trigger Price, your investment will be fully exposed to any decline in the Final Price as compared to the Initial Price, and you will lose a significant portion, and could lose all, of your investment in the securities. Any Payment at Maturity is subject to our ability to satisfy our obligations as they become due. |
| • | THE RETURN ON YOUR SECURITIES IS LIMITED BY THE MAXIMUM RETURN — If the Underlying Return is positive, you will be entitled to receive at maturity your initial investment plus an amount equal to your initial investment multiplied by the Underlying Return multiplied by the Participation Rate, subject to the Maximum Return. Your return on the securities will not exceed the Maximum Return which will be between 23.8% and 31.0% (to be set on the Trade Date), regardless of any increase in the price of the Underlying, which may be significant. Accordingly, the maximum Payment at Maturity will be between $1,238.00 and $1,310.00 per $1,000 Face Amount of securities (to be set on the Trade Date). Any Payment at Maturity is subject to our ability to pay our obligations as they become due. |
| • | CREDIT OF THE ISSUER — The securities are senior unsecured obligations of the Issuer, Deutsche Bank AG, and are not, either directly or indirectly, an obligation of any third party. Any payment to be made on the securities, including any Payment at Maturity, depends on the ability of Deutsche Bank AG to satisfy its obligations as they come due. As a result, the actual and perceived creditworthiness of Deutsche Bank AG will affect the value of the securities and in the event Deutsche Bank AG were to default on its obligations you may not receive the Payment at Maturity owed to you under the terms of the securities. |
| • | TRADING AND OTHER TRANSACTIONS BY US OR OUR AFFILIATES IN THE EQUITY AND EQUITY DERIVATIVE MARKETS MAY IMPAIR THE VALUE OF THE SECURITIES — We or one or more of our affiliates may hedge our exposure from the securities by entering into equity and equity derivative transactions, such as over-the-counter options or exchange-traded instruments. Such trading and hedging activities may affect the Underlying and make it less likely that you will receive a return on your investment in the securities. It is possible that we or our affiliates could receive substantial returns from these hedging activities while the value of the securities declines. We or our affiliates may also engage in trading in instruments linked to the Underlying on a regular basis as part of our general broker-dealer and other businesses, for proprietary accounts, for other accounts under management or to facilitate transactions for customers, including block transactions. We or our affiliates may also issue or underwrite other securities or financial or derivative instruments with returns linked or related to the Underlying. By introducing competing products into the marketplace in this manner, we or our affiliates could adversely affect the value of the securities. Any of the foregoing activities described in this |
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paragraph may reflect trading strategies that differ from, or are in direct opposition to, the trading strategy of investors in the securities.
| • | ASSUMING NO CHANGES IN MARKET CONDITIONS OR ANY OTHER RELEVANT FACTORS, THE VALUE OF THE SECURITIES ON THE SETTLEMENT DATE (AS DETERMINED BY DEUTSCHE BANK AG) WILL BE LESS THAN THE ORIGINAL ISSUE PRICE – While the Payment at Maturity described in this term sheet is based on the full Face Amount of your securities, the Issue Price of the securities includes the agents’ commission and the cost of hedging our obligations under the securities through one or more of our affiliates. Our hedging costs include the projected profit that we or our affiliates are expected to realize in consideration for assuming the risks inherent in managing the hedging transactions. Therefore, the value of the securities on the Settlement Date, assuming no changes in market conditions or other relevant factors, will be less than the Issue Price. The inclusion of commissions and hedging costs in the Issue Price will also decrease the price, if any, at which we will be willing to purchase the securities after the Settlement Date, and any sale on the secondary market could result in a substantial loss to you. The securities are not designed to be short-term trading instruments. Accordingly, you should be willing and able to hold your securities to maturity. |
| • | THE SECURITIES WILL NOT BE LISTED AND THERE WILL LIKELY BE LIMITED LIQUIDITY — The securities will not be listed on any securities exchange. Deutsche Bank AG or its affiliates may offer to purchase the securities in the secondary market but are not required to do so and may cease such market-making activities at any time. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the securities easily. Because other dealers are not likely to make a secondary market for the securities, the price at which you may be able to trade your securities is likely to depend on the price, if any, at which Deutsche Bank AG or its affiliates are willing to buy the securities. |
| • | NO COUPON OR DIVIDEND PAYMENTS OR VOTING RIGHTS — As a holder of the securities, you will not receive coupon payments, and you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of the component stocks held by the Underlying would have. |
| • | WE AND OUR AFFILIATES AND AGENTS MAY PUBLISH RESEARCH, EXPRESS OPINIONS OR PROVIDE RECOMMENDATIONS THAT ARE INCONSISTENT WITH INVESTING IN OR HOLDING THE SECURITIES. ANY SUCH RESEARCH, OPINIONS OR RECOMMENDATIONS COULD AFFECT THE PRICE OF THE UNDERLYING TO WHICH THE SECURITIES ARE LINKED OR THE VALUE OF THE SECURITIES — Deutsche Bank AG, its affiliates and agents publish research from time to time on financial markets and other matters that may influence the value of the securities, or express opinions or provide recommendations that are inconsistent with purchasing or holding the securities. Deutsche Bank AG, its affiliates and agents may have published research or other opinions that are inconsistent with the investment view implicit in the securities. Any research, opinions or recommendations expressed by Deutsche Bank AG, its affiliates or agents may not be co nsistent with each other and may be modified from time to time without notice. Investors should make their own independent investigation of the merits of investing in the securities and the Underlying to which the securities are linked. |
| • | OUR ACTIONS AS CALCULATION AGENT AND OUR HEDGING ACTIVITY MAY ADVERSELY AFFECT THE VALUE OF THE SECURITIES — We and our affiliates play a variety of roles in connection with the issuance of the securities, including acting as calculation agent and hedging our obligations under the securities. In performing these duties, the economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor in the securities. |
| • | MANY ECONOMIC AND MARKET FACTORS WILL AFFECT THE VALUE OF THE SECURITIES — In addition to the Closing Price of the Underlying, the value of the securities will be affected by a number of complex and interrelated economic and market factors that may either offset or magnify each other, including: |
| • | the expected volatility of the Underlying; |
| • | the time remaining to maturity of the securities; |
| • | the dividend rate on the stocks held by the Underlying (while not paid to holders of the securities, dividend payments on the stocks held by the Underlying may influence the market price of the shares of the Underlying and the market value of options on exchange traded fund shares and, therefore, affect the value of the securities); |
| • | the occurrence of certain events affecting the Underlying that may or may not require an anti-dilution adjustment; |
| • | the market price of the component stocks held by the Underlying; |
| • | interest and yield rates in the market generally and in the markets of the component stocks held by the Underlying; |
| • | a variety of economic, financial, political, regulatory or judicial events; |
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| • | the composition of the Underlying and any changes to the component stocks held by it; |
| • | supply and demand for the securities; and |
| • | our creditworthiness, including actual or anticipated downgrades in our credit ratings. |
| • | THE ANTI-DILUTION PROTECTION IS LIMITED — The calculation agent will make adjustments to the Share Adjustment Factor, which will initially be set at 1.0, for certain events affecting the shares of the Underlying. See “Description of Securities – Anti-Dilution Adjustments for Funds” in the accompanying product supplement. The calculation agent is not required, however, to make such adjustments in response to all events that could affect the shares of the Underlying. If an event occurs that does not require the calculation agent to make an adjustment, the value of the securities may be materially and adversely affected. |
| • | ADJUSTMENTS TO THE UNDERLYING OR TO THE INDEX COULD ADVERSELY AFFECT THE VALUE OF THE SECURITIES — Blackrock Fund Advisors (“BFA”) is the investment advisor to the Underlying, which seek investment results that correspond generally to the level and yield performance, before fees and expenses, of the Index. The stocks included in the Index are selected by MSCI Inc. (“MSCI”). The Index is calculated and published by MSCI. MSCI can add, delete or substitute the stocks underlying the Index, which could change the value of the Index. Pursuant to its investment strategy or otherwise, BFA may add, delete, or substitute the stocks composing the Underlying. Any of these actions could cause or contribute to large movements in the prices of the component securities held by the Underlying, which could cause the price of Underlying shares to close below the Trigger Price, in which case for every 1.00% decline from the Initial Price to the Final Price, you will lose an amount equal to 1.00% of the Face Amount of your securities. |
| • | THE UNDERLYING AND THE INDEX ARE DIFFERENT — The performance of the Underlying may not exactly replicate the performance of the Index because the Underlying will reflect transaction costs and fees that are not included in the calculation of the Index. It is also possible that the Underlying may not fully replicate or may in certain circumstances diverge significantly from the performance of the Index due to the temporary unavailability of certain securities in the secondary market, the performance of any derivative instruments contained in this fund or due to other circumstances. BFA may invest up to 10% of the Underlying’s assets in futures contracts, options on futures contracts, other types of options, and swaps related to the Index as well as cash and cash equivalents, including shares of money market funds advised by BFA or its affiliates. The Underlyin g may use options and futures contracts, convertible securities and structured notes in seeking performance that corresponds to the Index and in managing cash flows. |
| • | THERE IS NO AFFILIATION BETWEEN THE UNDERLYING AND US, AND WE ARE NOT RESPONSIBLE FOR ANY DISCLOSURE BY THE UNDERLYING — We are not affiliated with the Underlying or the issuers of the component securities held by the Underlying or underlying the Index replicated by the Underlying. However, we and our affiliates may currently or from time to time in the future engage in business with many of the issuers of the component securities held by the Underlying or underlying the Index. Nevertheless, neither we nor our affiliates assume any responsibility for the accuracy or the completeness of any information about the component securities held by the Underlying or the component stocks underlying the Index or any of the issuers of the component securities held by the Underlying or underlying the Index. You, as an investor in the securities, should make your own investigat ion into the component securities held by the Underlying or underlying the Index and the issuers of the component securities held by the Underlying or underlying the Index. Neither the Underlying nor any of the issuers of the component securities held by the Underlying or underlying the Index are involved in this offering of your securities in any way and none of them has any obligation of any sort with respect to your securities. Neither the Underlying nor any of the issuers of the component securities held by the Underlying or underlying the Index has any obligation to take your interests into consideration for any reason, including when taking any corporate actions that might affect the value of your securities. |
| • | CURRENCY EXCHANGE RISK — Because the Underlying invests in stocks denominated in foreign currencies, changes in currency exchange rates may negatively returns. The values of the foreign currencies may be subject to a high degree of fluctuation due to changes in interest rates, the effects of monetary policies issued by the United States, foreign governments, central banks or supranational entities, the imposition of currency controls or other national or global political or economic developments. Therefore, exposure to exchange rate risk may result in reduced returns to the Underlying and have an adverse impact on the value of your securities. |
| • | NON-U.S. SECURITIES MARKETS RISKS — Because foreign companies or foreign equity securities held by the Underlying may be publicly traded in the applicable foreign countries and are denominated in currencies other than U.S. dollars, investments in the securities involve particular risks. For example, the foreign securities markets may be more volatile than the U.S. securities markets, and market developments may affect these markets differently from the United States or other securities markets. Direct or indirect government intervention to stabilize the securities markets outside the United States, as well as cross-shareholdings in certain companies, may affect trading prices and trading volumes in those markets. Also, the public availability of information concerning the |
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foreign issuers may vary depending on their home jurisdiction and the reporting requirements imposed by their respective regulators. In addition, the foreign issuers may be subject to accounting, auditing and financial reporting standards and requirements that differ from those applicable to United States reporting companies.
| • | EMERGING MARKETS COUNTRIES OFTEN SUFFER FROM POLITICAL AND ECONOMIC INSTABILITY — The value of the securities is subject to the political and economic risks of emerging market countries by linking to the performance of the Underlying. The stocks held by the Underlying include companies that are located in emerging market countries and whose securities trade on the exchanges of emerging market countries. In recent years, some emerging markets have undergone significant political, economic and social upheaval. Such far-reaching changes have resulted in constitutional and social tensions and, in some cases, instability and reaction against market reforms has occurred. With respect to any emerging market nation, there is the possibility of nationalization, expropriation or confiscation, political changes, government regulation and social instability. There can be no assurance that future political changes will not adversely affect the economic conditions of an emerging market nation. Political or economic instability could have an adverse effect on the value and the Payment at Maturity of your securities. |
| • | PAST PERFORMANCE OF THE UNDERLYING, THE INDEX OR OF THE COMPONENT SECURITIES HELD BY THE UNDERLYING IS NO GUIDE TO FUTURE PERFORMANCE – The actual performance of the Underlying, the Index or of the component securities held by the Underlying over the life of the securities may bear little relation to the historical levels of the Underlying or of the component securities held by the Underlying, and may bear little relation to the hypothetical return examples set forth elsewhere in this term sheet. We cannot predict the future performance of the Underlying, of the Index or of the component securities held by the Underlying. |
| • | THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE SECURITIES ARE UNCLEAR — There is no direct legal authority regarding the proper U.S. federal income tax treatment of the securities, and we do not plan to request a ruling from the IRS. Consequently, significant aspects of the tax treatment of the securities are uncertain, and the IRS or a court might not agree with the treatment of the securities as prepaid financial contracts. If the IRS were successful in asserting an alternative treatment for the securities, the tax consequences of ownership and disposition of the securities might be affected materially and adversely. |
Even if the treatment of the securities as prepaid financial contracts is respected, the securities could be treated as “constructive ownership transactions.” In that case, all or a portion of any long-term capital gain you would otherwise recognize on a sale, exchange or retirement of the securities would be recharacterized as ordinary income to the extent such gain exceeded the “net underlying long-term capital gain,” and an interest charge would apply with respect to the deemed tax liability that would have been incurred if such income had accrued at a constant rate over the period you held the securities.
As described above under “Tax Consequences,” in 2007 Treasury and the IRS released a notice requesting comments on various issues regarding the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments, such as the securities. Any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. Prospective investors should review carefully the section of the accompanying product supplement entitled “U.S. Federal Income Tax Consequences,” and consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities (including possible alternative treatments, the potential application of the “constructive ownership” regime, and the issues presented by the 2007 no tice), as well as tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction. |
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Historical Information
The following graph sets forth the historical performance of the iShares® MSCI Emerging Markets Index Fund based on the daily Closing Prices of the Underlying from December 20, 2005 through December 20, 2010. The Closing Price of the Underlying on December 20, 2010 was 46.19. We obtained the Closing Prices of the Underlying below from Bloomberg, and we have not participated in the preparation of, or verified, such information. The historical prices of the Underlying should not be taken as an indication of future performance, and no assurance can be given as to the Closing Price of the Underlying on the Final Valuation Date. ;We cannot give you assurance that the performance of the Underlying will result in the return of any of your initial investment.
Supplemental Underwriting Information (Conflicts of Interest)
Deutsche Bank Securities Inc. (“DBSI”), acting as agent for Deutsche Bank AG, will receive a selling concession in connection with the sale of the securities of up to 0.25% or $2.50 per $1,000 Face Amount of securities. DBSI may pay custodial fees to other broker-dealers of up to 0.25% or $2.50 per $1,000 Face Amount of securities. See “Underwriting (Conflicts of Interest)” in the accompanying product supplement. Deutsche Bank AG will reimburse DBSI for such fees. See “Underwriting (Conflicts of Interest)” in the accompanying product supplement.
DBSI, the agent for this offering, is our affiliate. In accordance with Rule 5121 of the Financial Industry Regulatory Authority Inc. (FINRA), DBSI may not make sales in this offering to any of its discretionary accounts without the prior written approval of the customer.
Settlement
We expect to deliver the securities against payment for the securities on the Settlement Date indicated above, which may be a date that is greater than three business days following the Trade Date. Under Rule 15c6-1 of the Securities Exchange Act of 1934, as amended, trades in the secondary market generally are required to settle in three business days, unless the parties to a trade expressly agree otherwise. Accordingly, if the Settlement Date is more than three business days after the Trade Date, purchasers who wish to transact in the securities more than three business days prior to the Settlement Date will be required to specify alternative settlement arrangements to prevent a failed settlement.
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