Subject to Completion
Preliminary Term Sheet dated October 19, 2016
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Filed Pursuant to Rule 424(b)(2)
Registration Statement No. 333-202354 (To Prospectus dated May 1, 2015, Prospectus Supplement dated October 17, 2016 and Product Supplement EQUITY INDICES SUN-1 dated January 22, 2016) |
Units $10 principal amount per unit CUSIP No. |
Pricing Date* Settlement Date* Maturity Date* |
October , 2016 November , 2016 October , 2018 |
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*Subject to change based on the actual date the notes are priced for initial sale to the public (the "pricing date")
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Market-Linked Step Up Notes Linked to the S&P 500® Index
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Maturity of approximately two years
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If the Index is flat or increases up to the Step Up Value, a return of [11% to 17%]
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If the Index increases above the Step Up Value, a return equal to the percentage increase in the Index
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1-to-1 downside exposure to decreases in the Index, with up to 100% of your principal at risk
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All payments occur at maturity and are subject to the credit risk of Bank of America Corporation
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No periodic interest payments
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In addition to the underwriting discount set forth below, the notes include a hedging-related charge of $0.075 per unit. See Structuring the Notes
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Limited secondary market liquidity, with no exchange listing
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Per Unit
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Total
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Public offering price(1)
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$10.00
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$
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Underwriting discount(1)
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$
0.20
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$
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Proceeds, before expenses, to
BAC
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$9.80
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$
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(1)
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For any purchase of 500,000 units or more in a single transaction by an individual investor or in combined transactions with the investor's household in this offering, the public offering price and the underwriting discount will be $9.95 per unit and $0.15 per unit, respectively. See Supplement to the Plan of Distribution; Conflicts of Interest below.
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Are Not FDIC Insured
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Are Not Bank Guaranteed
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May Lose Value
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Market-Linked Step Up Notes
Linked to the S&P 500® Index, due October , 2018 |
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Terms of the Notes
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Redemption Amount Determination
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Issuer:
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Bank of America Corporation (BAC)
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On the maturity date, you will receive a cash payment per unit determined as follows:
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Principal Amount:
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$10.00 per unit
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Term:
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Approximately two years
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Market Measure:
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The S&P 500® Index (Bloomberg symbol: "SPX), a price return index
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Starting Value:
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The closing level of the Market Measure on the pricing date
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Ending Value:
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The closing level of the Market Measure on the scheduled calculation day. The calculation day is subject to postponement in the event of Market Disruption Events, as described beginning on page PS-19 of product supplement EQUITY INDICES SUN-1.
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Step Up Value:
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[111% to 117%] of the Starting Value. The actual Step Up Value will be determined on the pricing date.
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Step Up Payment:
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[$1.10 to $1.70] per unit, which represents a return of [11% to 17%] over the principal amount. The actual Step Up Payment will be determined on the pricing date.
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Threshold Value:
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100% of the Starting Value.
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Calculation Day:
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Approximately the fifth scheduled Market Measure Business Day immediately preceding the maturity date.
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Fees and Charges:
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The underwriting discount of $0.20 per unit listed on the cover page and the hedging related charge of $0.075 per unit described in Structuring the Notes on page TS-11.
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Calculation Agent:
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Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S), a subsidiary of BAC.
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Market-Linked Step Up Notes
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TS-2
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Market-Linked Step Up Notes
Linked to the S&P 500® Index, due October , 2018 |
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■
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Product supplement EQUITY INDICES SUN-1 dated January 22, 2016:
http://www.sec.gov/Archives/edgar/data/70858/000119312516435374/d128816d424b5.htm |
■
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Series L MTN prospectus supplement dated October 17, 2016 and prospectus dated May 1, 2015:
https://www.sec.gov/Archives/edgar/data/70858/000119312516739873/d266214d424b3.htm |
You may wish to consider an investment in the notes if:
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The notes may not be an appropriate investment for you if:
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You anticipate that the Index will increase from the Starting Value to the Ending Value.
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You are willing to risk a loss of principal and return if the Index decreases from the Starting Value to the Ending Value.
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You are willing to forgo the interest payments that are paid on conventional interest bearing debt securities.
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You are willing to forgo dividends or other benefits of owning the stocks included in the Index.
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You are willing to accept a limited or no market for sales prior to maturity, and understand that the market prices for the notes, if any, will be affected by various factors, including our actual and perceived creditworthiness, our internal funding rate and fees and charges on the notes.
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You are willing to assume our credit risk, as issuer of the notes, for all payments under the notes, including the Redemption Amount.
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You believe that the Index will decrease from the Starting Value to the Ending Value.
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You seek principal repayment or preservation of capital.
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You seek interest payments or other current income on your investment.
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You want to receive dividends or other distributions paid on the stocks included in the Index.
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You seek an investment for which there will be a liquid secondary market.
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You are unwilling or are unable to take market risk on the notes or to take our credit risk as issuer of the notes.
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Market-Linked Step Up Notes
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TS-3
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Market-Linked Step Up Notes
Linked to the S&P 500® Index, due October , 2018 |
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Market-Linked Step Up Notes
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This graph reflects the returns on the notes, based on a Threshold Value of 100% of the Starting Value, a Step Up Payment of $1.40 per unit (the midpoint of the Step Up Payment range of [$1.10 to $1.70]) and a Step Up Value of 114% of the Starting Value (the midpoint of the Step Up Value range of [111% to 117%]). The green line reflects the returns on the notes, while the dotted gray line reflects the returns of a direct investment in the stocks included in the Index, excluding dividends.
This graph has been prepared for purposes of illustration only.
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Ending Value
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Percentage Change from the Starting Value to the Ending Value
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Redemption Amount per Unit
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Total Rate of Return on the Notes
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0.00
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-100.00%
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$0.00
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-100.00%
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50.00
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-50.00%
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$5.00
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-50.00%
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80.00
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-20.00%
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$8.00
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-20.00%
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90.00
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-10.00%
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$9.00
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-10.00%
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94.00
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-6.00%
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$9.40
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-6.00%
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97.00
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-3.00%
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$9.70
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-3.00%
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100.00(1)(2)
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0.00%
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$11.40
(3)
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14.00%
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102.00
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2.00%
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$11.40
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14.00%
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105.00
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5.00%
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$11.40
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14.00%
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110.00
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10.00%
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$11.40
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14.00%
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114.00(4)
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14.00%
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$11.40
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14.00%
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120.00
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20.00%
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$12.00
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20.00%
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130.00
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30.00%
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$13.00
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30.00%
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132.00
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32.00%
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$13.20
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32.00%
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140.00
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40.00%
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$14.00
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40.00%
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150.00
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50.00%
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$15.00
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50.00%
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160.00
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60.00%
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$16.00
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60.00%
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(1)
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The hypothetical Starting Value of 100 used in these examples has been chosen for illustrative purposes only, and does not represent a likely actual Starting Value for the Market Measure.
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(2)
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This is the hypothetical Threshold Value.
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(3)
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This amount represents the sum of the principal amount and the hypothetical Step Up Payment of $1.40.
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(4)
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This is the hypothetical Step Up Value.
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Market-Linked Step Up Notes
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TS-4
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Market-Linked Step Up Notes
Linked to the S&P 500® Index, due October , 2018 |
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Example 1
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The Ending Value is 90.00, or 90.00% of the Starting Value:
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Starting Value: 100.00
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Threshold Value: 100.00
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Ending Value: 90.00
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Redemption Amount per unit
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Example 2
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The Ending Value is 110.00, or 110.00% of the Starting Value:
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Starting Value: 100.00
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Step Up Value: 114.00
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Ending Value: 110.00
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Redemption Amount per unit,
the principal amount plus the Step Up Payment, since the Ending Value is equal to or greater than the Starting Value, but less than the Step Up Value.
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Example 3
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The Ending Value is 132.00, or 132.00% of the Starting Value:
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Starting Value: 100.00
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Step Up Value: 114.00
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Ending Value: 132.00
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Redemption Amount per unit
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Market-Linked Step Up Notes
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TS-5
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Market-Linked Step Up Notes
Linked to the S&P 500® Index, due October , 2018 |
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■
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Depending on the performance of the Index as measured shortly before the maturity date, your investment may result in a loss; there is no guaranteed return of principal.
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■
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Your return on the notes may be less than the yield you could earn by owning a conventional fixed or floating rate debt security of comparable maturity.
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■
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Payments on the notes are subject to our credit risk, and actual or perceived changes in our creditworthiness are expected to affect the value of the notes. If we become insolvent or are unable to pay our obligations, you may lose your entire investment.
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■
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Your investment return may be less than a comparable investment directly in the stocks included in the Index.
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The initial estimated value of the notes is an estimate only, determined as of a particular point in time by reference to our and our affiliates’ pricing models. These pricing models consider certain assumptions and variables, including our credit spreads, our internal funding rate on the pricing date, mid-market terms on hedging transactions, expectations on interest rates and volatility, price-sensitivity analysis, and the expected term of the notes. These pricing models rely in part on certain forecasts about future events, which may prove to be incorrect.
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■
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The public offering price you pay for the notes will exceed the initial estimated value. If you attempt to sell the notes prior to maturity, their market value may be lower than the price you paid for them and lower than the initial estimated value. This is due to, among other things, changes in the level of the Index, our internal funding rate, and the inclusion in the public offering price of the underwriting discount and the hedging related charge, all as further described in Structuring the Notes on page TS-11. These factors, together with various credit, market and economic factors over the term of the notes, are expected to reduce the price at which you may be able to sell the notes in any secondary market and will affect the value of the notes in complex and unpredictable ways.
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■
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The initial estimated value does not represent a minimum or maximum price at which we, MLPF&S or any of our affiliates would be willing to purchase your notes in any secondary market (if any exists) at any time. The value of your notes at any time after issuance will vary based on many factors that cannot be predicted with accuracy, including the performance of the Index, our creditworthiness and changes in market conditions.
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■
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A trading market is not expected to develop for the notes. Neither we nor MLPF&S is obligated to make a market for, or to repurchase, the notes. There is no assurance that any party will be willing to purchase your notes at any price in any secondary market.
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■
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Our business activities as a full service financial institution, including our commercial and investment banking activities, our hedging and trading activities (including trades in shares of companies included in the Index) and any hedging and trading activities we engage in for our clients’ accounts, may affect the market value and return of the notes and may create conflicts of interest with you.
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■
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The Index sponsor may adjust the Index in a way that affects its level, and has no obligation to consider your interests.
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■
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You will have no rights of a holder of the securities represented by the Index, and you will not be entitled to receive securities or dividends or other distributions by the issuers of those securities.
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■
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While we or our affiliates may from time to time own securities of companies included in the Index, except to the extent that our common stock is included in the Index, we do not control any company included in the Index, and are not responsible for any disclosure made by any other company.
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■
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There may be potential conflicts of interest involving the calculation agent, which is an affiliate of ours. We have the right to appoint and remove the calculation agent.
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■
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The U.S. federal income tax consequences of the notes are uncertain, and may be adverse to a holder of the notes. See Summary Tax Consequences below and U.S. Federal Income Tax Summary beginning on page PS-26 of product supplement EQUITY INDICES SUN-1.
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Market-Linked Step Up Notes
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TS-6
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Market-Linked Step Up Notes
Linked to the S&P 500® Index, due October , 2018 |
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Market-Linked Step Up Notes
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TS-7
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Market-Linked Step Up Notes
Linked to the S&P 500® Index, due October , 2018 |
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Market-Linked Step Up Notes
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TS-8
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Market-Linked Step Up Notes
Linked to the S&P 500® Index, due October , 2018 |
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Market-Linked Step Up Notes
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TS-9
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Market-Linked Step Up Notes
Linked to the S&P 500® Index, due October , 2018 |
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●
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the investor’s spouse (including a domestic partner), siblings, parents, grandparents, spouse’s parents, children and grandchildren, but excluding accounts held by aunts, uncles, cousins, nieces, nephews or any other family relationship not directly above or below the individual investor;
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●
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a family investment vehicle, including foundations, limited partnerships and personal holding companies, but only if the beneficial owners of the vehicle consist solely of the investor or members of the investor’s household as described above; and
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●
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a trust where the grantors and/or beneficiaries of the trust consist solely of the investor or members of the investor’s household as described above; provided that, purchases of the notes by a trust generally cannot be aggregated together with any purchases made by a trustee’s personal account.
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Market-Linked Step Up Notes
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TS-10
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Market-Linked Step Up Notes
Linked to the S&P 500® Index, due October , 2018 |
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■
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There is no statutory, judicial, or administrative authority directly addressing the characterization of the notes.
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■
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You agree with us (in the absence of an administrative determination, or judicial ruling to the contrary) to characterize and treat the notes for all tax purposes as a single financial contract with respect to the Index.
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■
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Under this characterization and tax treatment of the notes, a U.S. Holder (as defined beginning on page 99 of the prospectus) generally will recognize capital gain or loss upon maturity or upon a sale or exchange of the notes prior to maturity. This capital gain or loss generally will be long-term capital gain or loss if you held the notes for more than one year.
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■
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No assurance can be given that the IRS or any court will agree with this characterization and tax treatment.
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Market-Linked Step Up Notes
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TS-11
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