FINAL DISCLOSURE SUPPLEMENT Dated May 24, 2011 To the Disclosure Statement dated March 28, 2011 Union Bank, N.A. Market-Linked Certificates of Deposit, due May 26, 2017 (MLCD No. 136) Barrier Return Linked to the Russell 2000 Index Set forth below are the terms and conditions of the above specified Union Bank, N.A. (the Bank ) Barrier Return Market-Linked Certificates of Deposit (the MLCDs ). You should carefully review this Disclosure Supplement (the Supplement ), as well as the attached Disclosure Statement, before deciding if an investment in an MLCD is appropriate for you. In the event of any inconsistency between the Disclosure Statement and the Supplement, the terms of this Supplement will control. In general, the MLCDs are designed for investors who seek return of principal along with participation in the potential appreciation of the Investment Benchmark, subject to a Maximum Barrier Level as described below, and who are prepared to hold the MLCD until the Maturity Date. All capitalized terms used but not defined herein have the meanings set forth in the Disclosure Statement. MLCD Description Each MLCD is a certificate of deposit that offers a potential return based on the performance of the Investment Benchmark (as defined below) if held to maturity, subject to a Maximum Barrier Level as described below. This return is therefore not a fixed coupon and no Periodic Interest Payments will be made on the MLCDs. Return Potential: The Indexed Interest Amount payable to the depositor is the appreciation of the Investment Benchmark over the term of the MLCDs; provided, however, that the Interim Closing Value (as defined below) does not equal or exceed the Maximum Barrier Level (as defined below) throughout the life of the MLCD. If, at any point, any Interim Closing Value equals or exceeds the Maximum Barrier Level, the Indexed Interest Amount will equal the Minimum Interest Amount (as defined below) regardless of the performance of the Investment Benchmark. Investors should be willing to forgo the return potential of the Investment Benchmark above the Maximum Barrier Level in exchange for return of principal and FDIC insurance as described below. Return of Principal: At maturity, you will receive repayment of your Deposit Amount and an amount no less than the Minimum Interest Amount, regardless of the performance of the Investment Benchmark. Investors who redeem all or a portion of their MLCD early may lose a portion of their Deposit Amount. FDIC Insurance: The MLCDs are deposit obligations of the Bank and are therefore eligible for FDIC coverage up to applicable limits set by federal law and regulation. The FDIC insures all deposits maintained by a depositor in the same ownership capacity (i.e., individual or joint) at the same insured depository institution up to an aggregate amount of $250,000. Further, with respect to the MLCDs, the FDIC insurance covers only the Deposit Amount and does not include any Indexed Interest Amount, Minimum Interest Amount or secondary market premium. You are responsible for determining and monitoring the FDIC insurance coverage limit available to you in purchasing any MLCD. The Bank has no obligation to monitor the FDIC insurance coverage that is available to you. IRA Eligible: MLCDs are eligible investments for individual retirement accounts ( IRAs ). Risks and Considerations Purchasing an MLCD involves a number of risks, including risks not typically associated with fixed-rate or floating-rate certificates of deposit or debt instruments. The Bank recommends that prospective investors carefully consider, together with their financial, legal, accounting, tax and other advisors, those risks in determining the suitability of an MLCD in light of their financial circumstances. Please refer to the accompanying Disclosure Statement for a more detailed discussion of these risks which include, but are not limited to: You are not guaranteed the return of the Deposit Amount if your MLCD is not held to maturity. In addition, if you choose to exercise the Early Redemption feature, you are not guaranteed the return of the Deposit Amount. If you hold more in deposits with the Bank than applicable FDIC insurance limits (including the MLCDs you purchase), you will not receive the benefit of FDIC insurance for any balance in excess of that amount. In this instance, the return of principal is subject to the credit risk of the Bank. Neither the Bank nor any Offering Broker is required to, nor does the Bank or any of its affiliates intend to, make a secondary market in the MLCDs. There is no assurance that a secondary market will develop. Funds needed prior to maturity should not be invested in MLCDs. The MLCDs may yield a return that is less than that of a traditional certificate of deposit or debt instrument of a comparable maturity. Interest on the MLCDs will be subject to annual income taxes based upon a comparable yield for the issuance, even though no payments will be made on the MLCDs until the Maturity Date, absent early redemption. You may incur a tax liability without any offsetting income from the MLCDs. See United States Federal Income Tax Considerations herein and in the Disclosure Statement. The Indexed Interest Amount (as defined below) may not reflect the full upside performance of the Investment Benchmark because the Interim Closing Value cannot equal or exceed the Maximum Barrier Level. The Indexed Interest Amount is based on the closing value of the Investment Benchmark on a single day, provided, however, that no Interim Closing Value equals or exceeds the Maximum Barrier Level. Your return could be significantly different if it were determined on a different day, although the Bank cannot predict the direction or magnitude of the changes that would result in the selection of any different date. Although the return on the MLCD is linked to the performance of the Investment Benchmark, you will not have any rights in the shares comprising the Russell 2000 Index, including any beneficial ownership rights such as dividends or voting. Please see Additional Risk Factors in the accompanying Disclosure Statement for a more detailed discussion of the risks involved in purchasing the MLCDs. The MLCDs are made available through UnionBanc Investment Services, LLC ( UBIS ), a subsidiary of the Bank. The MLCDs are time deposit obligations of the Bank, a national banking association, and are not obligations of UnionBanCal Corporation, the Offering Brokers, or any other company affiliated with the Bank. None of UnionBanCal Corporation, UBIS or any other affiliate of the Bank guarantees the financial condition of the Bank. 1 The Russell 2000 Index is a trademark of Russell Investments and have been licensed for use by Union Bank, N.A.. The MLCDs are not
Key Terms Issuer... Investment Benchmark... Currency... Minimum Deposit Amount... Union Bank, N.A. Russell 2000 Index (ticker: RTY). USD. Pricing Date... May 24, 2011. Issue Date (Settlement Date)... May 27, 2011. Maturity Date... May 26, 2017. Payment at Maturity... Index Appreciation Rate... $1,000 principal amount (except that each Offering Broker may, in its discretion, impose a higher minimum deposit amount with respect to MLCD sales to its customers) and multiples of $1,000 principal amount in excess of such amount. The Deposit Amount plus the greater of (i) the Minimum Interest Amount or (ii) the Indexed Interest Amount. The Index Appreciation Rate is: (Final Closing Value Initial Closing Value) Initial Closing Value Benchmark Interest Amount... The outstanding Deposit Amount multiplied by the Index Appreciation Rate. Indexed Interest Amount... The Benchmark Interest Amount provided, however, that if, at any point, any Interim Closing Value is equal to or exceeds the Maximum Barrier Level, the Indexed Interest Amount will equal the Minimum Interest Amount at maturity, and the investor will no longer take part in any potential Investment Benchmark appreciation. Maximum Barrier Level... 1,547.73, which is the Initial Closing Value multiplied by 191%. Initial Closing Value... Interim Closing Value... Final Closing Value... Minimum Interest Rate... Minimum Interest Amount... Annual Percentage Yield (APY)... Periodic Interest Payments.. Call Feature... 810.33, which was the Investment Benchmark Value at the close of trading on the Pricing Date. The Investment Benchmark Value at the close of trading on any Scheduled Trading Day throughout the tenure of the MLCD. The value of the Investment Benchmark as of the close of trading on the Relevant Exchange on May 23, 2017 (the Final Valuation Date ). Changes in the value of the Investment Benchmark from the Final Valuation Date to the Maturity Date will not affect the Indexed Interest Amount or the return on the MLCD. 6.00% multiplied by the outstanding Deposit Amount on the Maturity Date. This equates to a 0.98% APY. The Deposit Amount multiplied by the Minimum Interest Rate. The payment of interest is based on the performance of the Investment Benchmark and therefore the APY may change. If the Minimum Interest Rate is applied, the interest rate on the MLCD is 6.00% (0.98% APY) if the Final Closing Value of the Investment Benchmark does not exceed the Initial Closing Value, so that only the outstanding Deposit Amount is payable on the MLCDs. The Bank uses a daily balance method to calculate interest on the MLCD. The method applies a daily periodic rate to the Deposit Amount each day. APYs assume that the MLCDs were purchased in the original offering and are calculated on the basis of a 365-day year. Interest is not compounded. None. None. 2
Early Redemption Dates... The 15th of each March, June, September, and December, beginning June 15, 2012. The amount you receive upon an early redemption (the Early Redemption Amount ) is described in the section of the Disclosure Statement entitled General Description of the MLCDs - Early Redemption." Upon an Early Redemption, the value of your MLCD may be less than if held to maturity and will be impacted by the factors described under "Risk Factors - Value of the MLCDs Prior to Maturity May Be Substantially Less Than Your Deposit Amount and Fees and Hedging in the Disclosure Statement. Survivor s Option... Upon the death or adjudication of incompetence of the beneficial owner of the MLCD, the estate will be entitled to the return of the full Deposit Amount. The estate will not be entitled to additional payments associated with the performance of the Investment Benchmark or any secondary market premiums that may have been paid. Survivor s Option Payment Dates... The 10 th of each month, beginning July 10, 2011. Calculation Agent... Scheduled Trading Day... CUSIP... Placement Fee... Union Bank, N.A. Any day on which all of the Relevant Exchanges and Related Exchanges are scheduled to be open for trading for each security then included in the Investment Benchmark. 90521AFS2 3.50% of the Deposit Amount of each MLCD. 3
Illustrative Examples The following examples are provided for illustration purposes only and are hypothetical. They are not representative of every possible scenario concerning possible Indexed Interest Amounts that could result from possible changes in the value of the Investment Benchmark over the term of the MLCD. The Bank cannot predict the Interim Closing Values or the Final Closing Value. The assumptions the Bank has made in connection with the illustrations set forth below may not reflect actual events, and the hypothetical Final Closing Value of the You should not take these examples as an indication or assurance of the expected performance of the Investment Benchmark or rate of return on the MLCD. The following scenarios indicate how and whether the Indexed Interest Amount would be calculated and paid with respect to a hypothetical $1,000 Deposit Amount in the MLCDs. These scenarios assume that there is no early redemption, that the MLCDs are held to maturity, and the following: Indexed Interest Amount: Indexed Appreciation Rate: Benchmark Interest Amount: The Benchmark Interest Amount, provided, that if, at any point the Interim Closing Value equals or exceeds the Maximum Barrier Level, the Indexed Interest Amount will equal the Minimum Interest Amount, and the investor will no longer take part in any potential Investment Benchmark appreciation. (Final Closing Value Initial Closing Value) Initial Closing Value The outstanding Deposit Amount Multiplied by the Indexed Appreciation Rate. Maximum Barrier Level: 1,547.73, which is the Initial Closing Value multiplied by 191%. Minimum Interest Rate: 6.00%. Minimum Interest Amount: Payment at Maturity: The Deposit Amount Multiplied by the Minimum Interest Rate. The Deposit Amount plus the greater of (i) the Minimum Interest Amount or (ii) the Indexed Interest Amount. 4
Hypothetical Scenarios The following table shows hypothetical values of the Investment Benchmark for 5 different scenarios over the term of the MLCDs and assumes a Maximum Barrier Level of 1,547.73. Because the value of the Investment Benchmark may be subject to significant fluctuations over the term of the MLCDs, the Bank cannot show the range of all possible interest amounts that would result from given changes in the Investment Benchmark. These hypothetical examples are for purposes of illustration only. The actual payment at maturity will depend on the Interim Closing Values of the Investment Benchmark throughout the life of the MLCD used to calculate the Indexed Interest Amount at maturity or apply the Minimum Interest Rate as applicable. The following table indicates how the Indexed Interest Amount on the MLCD would be calculated with respect to 5 different hypothetical scenarios assuming an Initial Closing Value of 810.33 and Final Closing Values in the range of 769.81 to 1620.66, all of which are subject to the Maximum Barrier Level. The payment at maturity equals the Deposit Amount plus the greater of (i) the Indexed Interest Amount or (ii) the Minimum Interest Amount. Initial Maximum Minimum Interest Amount Final Interest Payable APY Payment at Scenarios Closing Value Barrier Level Applicable?* Closing Value at Maturity Maturity A 810.33 1547.73 Yes 769.81 6.00% 0.98% $ 1,060.00 B 810.33 1547.73 Yes 842.74 6.00% 0.98% $ 1,060.00 C 810.33 1547.73 No 1215.50 50.00% 6.99% $ 1,500.00 D 810.33 1547.73 Yes 1418.08 6.00% 0.98% $ 1,060.00 E 810.33 1547.73 Yes 1620.66 6.00% 0.98% $ 1,060.00 *If any Interim Closing Value is equal to or greater than the Maximum Barrier level the Minimum Interest Amount will be paid at maturity. Hypothetical Scenario #A In this scenario the Maximum Barrier Level was not reached, but since Final Closing Value is less than the Initial Closing Value, the investor will receive the Deposit Amount plus Minimum Interest Amount at maturity, for a total Payment at Maturity of $1,000 + ($1,000 * 6.00%) = $1,060.00 Hypothetical Scenario #B In this scenario, an Interim Closing Value of the Investment Benchmark exceeded the Maximum Barrier Level, and therefore the investor will receive the Deposit Amount plus the Minimum Interest Amount at maturity, for a total Payment at Maturity of $1,000 + ($1,000 * 6.00%) = $1,060.00. Hypothetical Scenario #C In this scenario, the Investment Benchmark increased in value and the Maximum Barrier Level was not reached. As a result, the investor will receive the Deposit Amount plus the Indexed Interest Amount, for a total Payment at Maturity of $1,000 + ($1,000 * 50.00%) = $1,500.00. Hypothetical Scenario #D In this scenario, at least one Interim Closing Value of the Investment Benchmark reached the Maximum Barrier Level. As a result, the investor will receive the Deposit Amount plus the Minimum Interest Amount at maturity, for a total Payment at Maturity of $1,000 + ($1,000 * 6.00%) = $1,060.00 While there was a 75% increase in the Investment Benchmark from the Initial Closing Value to the Final Closing Value for Scenario D, because one or more Interim Closing Values of the Investment Benchmark equaled or exceeded the Maximum Barrier Level, only the Minimum Interest Amount applied. This example illustrates the fact that while the Investment Benchmark may appreciate by less than the Maximum Barrier Level from the Initial Closing Value to the Final Closing Value, the Payment at Maturity could vary significantly if an Interim Closing Value equals or exceeds the Maximum Barrier Level. Hypothetical Scenario #E In this scenario, an Interim Closing Value of the Investment Benchmark exceeded the Maximum Barrier Level. As a result, the investor will receive the Deposit Amount plus the Minimum Interest Amount, for a total Payment at Maturity of $1,000 + ($1,000 * 6.00%) = $1,060.00. As illustrated in the hypothetical scenarios above and in the Description of the MLCDs, the Payment at Maturity on the MLCD is effectively bound between the Minimum Interest Amount (6.00%) and the Maximum Barrier Level of 191% (1,547.73), providing a $1,000 MLCD depositor with a Payment at Maturity between $1,060 and $1,910. 5
Hypothetical Scenarios (Continued) The graph below illustrates the 5 hypothetical scenarios and how changes in the Interim Closing Values may affect the Payment at Maturity. In any scenario where the Minimum Interest Amount does not apply, only the Initial Closing Value on the Pricing Date and the Final Closing Value on May 23, 2017 are used in determining the Indexed Interest Amount. For example, in Scenario A, the Investment Benchmark increases to a high value of 942.90 during the term of the MLCD, which would represent a 16.36% increase from the 810.33 Initial Closing Value; however, since the Payment at Maturity is based on the Final Closing Value of 769.81, a Payment at Maturity of $1,060.00 results, which is the outstanding Deposit Amount plus the Minimum Interest Amount. 1900.00 1700.00 Initial Closing Level 1500.00 Scenario A Scenario B 1300.00 Scenario C Secenario D Scenario E 1100.00 Barrier Level 900.00 700.00 Initial Closing Value... Interim Closing Values... Final Closing Value 6
Investment Benchmark Overview The Bank has obtained all information regarding the Investment Benchmark contained in this Supplement from publiclyavailable information. That information reflects the policies of, and is subject to change by the Frank Russell Company, the Investment Benchmark Sponsor. The Investment Benchmark Sponsor has no obligation to continue to publish, and may discontinue publication of, the Investment Benchmark. The consequences of the Investment Benchmark Sponsor discontinuing publication of the Investment Benchmark are described in the section entitled General Description of the MLCDs Discontinuance or Modification of an Investment Benchmark in the Disclosure Statement. The Bank does not assume any responsibility for the accuracy or completeness of any information relating to the Investment Benchmark. The Russell 2000 Index The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity market. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000 Index is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted on an annual basis to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set. Historical Closing Values of the Russell 2000 Index Since its inception, the Russell 2000 Index has experienced significant fluctuations. Any historical upward or downward trend in the value of the Russell 2000 Index during any period shown below is not an indication that the value of the Russell 2000 Index is more or less likely to increase or decrease at any time during the term of the MLCDs. The historical Russell 2000 Index values do not give an indication of future performance of the Russell 2000 Index. We cannot assure you that the future performance of the Russell 2000 Index or the constituent stocks of the Russell 2000 Index will result in holders of the MLCDs receiving an amount greater than the outstanding face amount of the MLCDs on the maturity date. 1000 900 800 700 600 500 400 300 200 100 10 Year Historical Price Graph (Daily) 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 7
The table below sets forth the quarterly high and low closing values, as well as end-of-quarter closing values, of the Investment Benchmark for each of the quarters from March 2001 to present. The Bank obtained the data in the table from Bloomberg, LP. Historical price values of Investment Benchmark should not be used as an indication of future performance. Quarter Ending Quarterly High Quarterly Low Quarterly Close Mar-01 511.66 432.80 450.53 Jun-01 517.23 425.74 512.80 Sep-01 498.19 378.89 404.87 Dec-01 493.62 397.60 488.50 Mar-02 506.46 458.40 506.46 Jun-02 522.95 452.45 462.65 Sep-02 447.73 356.58 362.27 Dec-02 410.24 327.04 383.09 Mar-03 398.45 345.94 364.54 Jun-03 458.01 368.69 448.37 Sep-03 520.20 449.17 487.68 Dec-03 565.47 500.32 556.91 Mar-04 601.50 557.63 590.31 Jun-04 606.39 535.34 591.52 Sep-04 582.72 517.10 572.94 Dec-04 654.57 564.88 651.57 Mar-05 644.95 604.53 615.07 Jun-05 644.19 575.02 639.66 Sep-05 688.51 643.04 667.80 Dec-05 690.57 621.57 673.22 Mar-06 765.14 684.05 765.14 Jun-06 781.83 672.72 724.67 Sep-06 734.48 671.94 725.59 Dec-06 797.73 718.35 787.66 Mar-07 829.44 760.06 800.71 Jun-07 855.09 803.22 833.70 Sep-07 855.77 751.54 805.45 Dec-07 845.72 735.07 766.03 Mar-08 753.55 643.97 687.97 Jun-08 763.27 686.07 689.66 Sep-08 754.38 657.72 679.58 Dec-08 671.59 385.31 499.45 Mar-09 514.71 343.26 422.75 Jun-09 531.68 429.16 508.28 Sep-09 620.69 479.27 604.28 Dec-09 634.07 562.40 625.39 Mar-10 690.30 586.49 678.64 Jun-10 741.92 609.49 609.49 Sep-10 665.22 590.03 652.51 Dec-10 792.35 647.81 783.65 Mar-11 843.55 773.18 843.55 Mar-01 through Mar-11 855.77 327.04 843.55 8
License Agreement The license agreement between the Bank and Frank Russell Company requires that the following language be stated in this Supplement: "The MLCDs are not sponsored, endorsed, sold or promoted by Frank Russell Company ( Russell ). Russell makes no representation or warranty, express or implied, to the owners of the MLCDs or any member of the public regarding the advisability of investing in securities generally or in the MLCDs particularly or the ability of the Russell 2000 Index to track general stock market performance or a segment of the same. Russell s publication of the Russell 2000 Index in no way suggests or implies an opinion by Russell as to the advisability of investment in any or all of the securities upon which the Russell 2000 Index is based. Russell s only relationship to the Russell 2000 Index is the licensing of certain trademarks and trade names of Russell and of the Russell 2000 Index which is determined, composed and calculated by Russell without regard to the Russell 2000 Index or the MLCDs. Russell is not responsible for and has not reviewed the MLCDs nor any associated literature or publications and Russell makes no representation or warranty express or implied as to their accuracy or completeness, or otherwise. Russell reserves the right, at any time and without notice, to alter, amend, terminate or in any way change the Russell 2000 Index. Russell has no obligation or liability in connection with the administration, marketing or trading of the MLCDs. RUSSELL DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE RUSSELL 2000 INDEX OR ANY DATA INCLUDED THEREIN AND RUSSELL SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. RUSSELL MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY UNION BANK, N.A., INVESTORS, OWNERS OF THE MLCDs, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE RUSSELL 2000 INDEX OR ANY DATA INCULDED THEREIN. RUSSSELL MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RUSSELL 2000 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL RUSSELL HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INDCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. 9
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS To ensure compliance with Treasury Department Circular 230, you are hereby notified that (a) any discussion of United States federal tax issues in this Disclosure Supplement is not intended or written to be relied upon, and cannot be relied upon by you for the purpose of avoiding penalties that may be imposed on you under the Internal Revenue Code of 1986, as amended (the Code ), (b) this discussion is included herein by the Bank in connection with the promotion or marketing (within the meaning of Circular 230) by the Bank, UBIS and the Offering Brokers of the transactions or matters addressed in this Disclosure Supplement, and (c) you should seek advice based on your particular circumstances from an independent tax advisor. The following discussion supplements (and, to the extent inconsistent with, supersedes) and should be read in conjunction with the discussion in the attached Disclosure Statement under United States Federal Income Tax Considerations. For purposes of that discussion, the MLCDs are long-term MLCDs. The table below sets forth the following information with respect to each $1,000 principal amount of the MLCDs for each of the indicated accrual periods through the maturity dates of the MLCDs: the adjusted issue price at the beginning of the accrual period; the amount of interest deemed to have accrued during the accrual period; and the total amount of interest deemed to have accrued from the original issue date through the end of the accrual period. The table is based upon a projected payment schedule (including a comparable yield equal to 3.36% per annum (compounded annually), that the Bank established for the MLCDs. The comparable yield will not be less than the applicable federal rate based on the overall maturity of the MLCD. The table reflects the expected issuance of the MLCDs on May 27, 2011 and the scheduled maturity date of May 26, 2017. The table also assumes that the MLCDs will not be withdrawn prior to maturity under the Survivor s Option or pursuant to an early redemption. The projected payment schedule consists of a single payment at maturity, which includes the principal amount and a projection for tax purposes of the Indexed Interest Amount. The Bank has determined that the projected payment schedule for each $1,000 principal amount of the MLCDs would consist of the payment on the maturity date of the principal amount of $1,000 and a projected Indexed Interest Amount of $219.50, for a total of $1,219.50. This information is provided solely for tax purposes, and the Bank makes no representations or predictions as to what the actual Indexed Interest Amount will be. If a contingent payment becomes fixed more than six months prior to maturity, a positive or negative adjustment, as appropriate, is made to reflect the difference between the present value of the amount that is fixed and the present value of the projected amount. Under Treasury regulations, a contingent payment is treated as fixed if all remaining contingencies, if any, with respect to the payment are remote or incidental. Such an adjustment may be appropriate in some circumstances for the MLCDs. For example, it may be possible that the occurrence of a knock-out event eliminates the Indexed Interest Amount. In that case, assuming more than six months remain prior to maturity, a negative adjustment would be made to reflect the difference between the present value of the principal amount of the MLCDs and the present value of the projected amounts. Accrual Period Adjusted Issue Price at Beginning of Accrual Period 10 Interest Deemed to Accrue on the MLCDs During the Accrual Period (1) Total Interest Deemed to Have Accrued from Original Issue Date as of End of Accrual Period May 27, 2011 to December 31, 2011 1,000.00 19.97 19.97 January 1, 2012 to December 31, 2012 1,019.97 34.27 54.24 January 1, 2013 to December 31, 2013 1,054.24 35.42 89.66 January 1, 2014 to December 31, 2014 1,089.66 36.61 126.27 January 1, 2015 to December 31, 2015 1,126.27 37.84 164.11 January 1, 2016 to December 31, 2016 1,164.11 39.11 203.22 January 1, 2017 to May 26, 2017 1,203.22 16.28 219.50 (1) Represents the adjusted issue price at the beginning of the accrual period multiplied by the hypothetical comparable yield for the accrual period. Final Adjusted Issue Price = $1,219.50 per $1,000 principal amount of MLCDs. Upon payment at maturity, you will be required to adjust the income accrued pursuant to the projected payment schedule, upward or downward, to reflect the difference, if any, between the actual and projected amount of the maturity payment. You generally will treat any such gain as ordinary income and any such loss as ordinary loss to the extent of previous income inclusions. All prospective investors in the MLCDs should consult their own tax advisors concerning the taxation of the MLCDs.