Additional Risk Factors
There are uncertainties regarding the
JPNK400
because of its extremely limited performance history
.
The
JPNK400
was first published in January 2014. Accordingly, there is extremely limited trading history available for the
JPNK400
upon which you can evaluate its prior performance, and it may perform in unexpected ways. Because t
he
JPNK400
’s
past historical performance is extremely limited
, your investment in the notes may involve a greater risk than investing in securities linked to one or more indices with an established record of performance. A longer history of actual performance may be helpful in providing more reliable information on which to assess the validity of the methodology that the
JPNK400
uses to select its components, as described below under “The
Basket Components.
” The historical
JPNK400
levels should not be taken as an indication of future performance, and no assurance can be given as to the
JPNK400
closing level on any given date.
There is no assurance that the investment view implicit in the
JPNK400
will be successful.
The
JPNK400
constituents will be selected from time to time during the term of the notes in the manner described in “
The Basket Components—The JPX-Nikkei Index 400—Standards for Listing and Maintenance
.”
The criteria used for selecting the
JPNK400
stocks may not result in stocks that outperform Japanese stocks generally, or the stocks that may be included in other indices that track Japanese securities markets. Although the
JPNK400
stocks may satisfy the quantitative and qualitative criteria of the
JPNK400
at the time they are selected, there can be no assurance that they will continue to do so thereafter, which may reduce the level of the
JPNK400
.
There can be no assurance that the future performance of the
JPNK400
will result in your receiving an amount greater than or equal to the principal amount of your notes
.
The performance of the
JPNK400
may be worse than the performance of the equity markets generally, and worse than the performance of specific sectors of the equity markets (including Japanese equities in particular), or other securities in which you may choose to invest.
Other Terms of the Notes
Market Measure Business Day
The following definition shall supersede and replace the definition of a “Market Measure Business Day” set forth in product supplement
EQUITY INDICES SUN-1
.
A “Market Measure Business Day” means a day on which:
(A) each of the Eurex (as to the EURO STOXX 50
®
Index) and the Tokyo Stock Exchange (as to the JPX-Nikkei Index 400) (or any successor to the foregoing exchanges) are open for trading; and
(B) the Basket Components or any successors thereto are calculated and published.
|
Market-Linked Step Up Notes
|
TS-
7
|
|
Market-Linked Step Up Notes
Linked to a Basket of International Indices, due September , 2018
|
|
The Basket
The Basket is designed to allow investors to participate in the percentage changes in the levels of the Basket Components from the Starting Value to the Ending Value of the Basket. The Basket Components are described in the section “The Basket Components” below. Each Basket Component will be assigned an initial weight on the pricing date, as set forth in the table below.
For more information on the calculation of the value of the Basket, please see the section entitled “Description of the Notes
—
Basket Market Measures
”
beginning on page PS-2
1
of product supplement EQUITY INDICES SUN-1.
If September 8, 2016 were the pricing date
,
for each Basket Component, the Initial Component Weight, the closing level, the hypothetical Component Ratio and the initial contribution to the Basket value would be as follows:
|
Basket Component
|
|
Bloomberg Symbol
|
|
Initial Component Weight
|
|
Closing Level
(1)(2)
|
|
Hypothetical Component Ratio
(1)(3)
|
|
Initial Basket Value Contribution
|
|
EURO STOXX 50
®
Index
|
|
SX5E
|
|
75.00
|
|
3,083.54
|
|
0.02432269
|
|
75.00
|
|
JPX-Nikkei Index 400
|
|
JPNK400
|
|
25.00
|
|
12,070.28
|
|
0.0020712
0
|
|
25.00
|
|
|
|
|
|
|
|
|
|
Starting Value
|
|
100.00
|
|
(1)
|
The actual closing level of each Basket Component and the resulting actual Component Ratios will be determined on the pricing date, subject to adjustment as more fully described in the section entitled “Description of the Notes
—
Basket Market Measures
—
Determination of the Component Ratio for Each Basket Component
”
beginning on page PS-2
2
of product supplement
EQUITY INDICES
SUN-
1
if a Market Disruption Event occurs on the pricing date as to any Basket Component
.
|
|
(2)
|
These were the closing levels of the Basket Components on September 8, 2016.
|
|
(3)
|
Each hypothetical Component Ratio equals the Initial Component Weight of the relevant Basket Component (as a percentage) multiplied by 100, and then divided by the closing level of that Basket Component on September 8, 2016 and rounded to eight decimal places.
|
The calculation agent will calculate the value of the Basket
by summing the products of the closing level for each Basket Component on
the
calculation day and the Component Ratio applicable to such Basket Component. If a Market Disruption Event occurs as to any Basket Component on
the
scheduled calculation day, the closing level of that Basket Component will be determined as more fully described beginning on page PS-2
3
of product supplement EQUITY INDICES SUN-1 in the section “Description of the Notes
—
Basket Market Measures
—
Observation Level or Ending Value of the Basket.
”
|
Market-Linked Step Up Notes
|
TS-
8
|
|
Market-Linked Step Up Notes
Linked to a Basket of International Indices, due September , 2018
|
|
While actual historical
information on the Basket will not exist before the pricing date, the following graph sets forth the hypothetical historical performance of the Basket from
January 6, 2014
through September
8,
2016. The graph is based upon actual
daily
historical levels of the Basket Components, hypothetical Component Ratios
based on the closing levels of the Basket Components
as of
December 31, 2013
, and a Basket value of 100.00 as of that date. This hypothetical historical data on the Basket is not necessarily indicative of the future performance of the Basket or what the value of the notes may be. Any
hypothetical
historical upward or downward trend in the value of the
Basket during any period set forth below is not an indication that the value of the Basket is more or less likely to increase or decrease at any time over the term of the notes.
Hypothetical
Historical Performance of the Basket
|
Market-Linked Step Up Notes
|
TS-
9
|
|
Market-Linked Step Up Notes
Linked to a Basket of International Indices, due September , 2018
|
|
The Basket Components
All disclosures contained in this term sheet regarding the Basket Components, including, without limitation, their make-up, method of calculation, and changes in their components, have been derived from publicly available sources. The information reflects the policies of, and is subject to change by, the index sponsors. The index sponsors, which license the copyright and all other rights to the Basket Components, have no obligation to continue to publish, and may discontinue publication of, the Basket Components. The consequences of the index sponsors discontinuing publication of the Basket Components are discussed in the section
entitled “Description of the Notes — Discontinuance of an Index” on page PS-21 of product supplement EQUITY INDICES SUN-1
.
Neither we nor MLPF&S accept any responsibility for the calculation, maintenance, or publication of the Basket Components or any successor indices.
The EURO STOXX 50
®
Index
The
EURO STOXX 50
®
Index (the “SX5E”)
was created by STOXX
Limited
, a
company owned by
Deutsche Börse AG
.
Publication of the
SX5E
began in February 1998, based on an initial
i
ndex level of 1,000 at December 31, 1991. On March 1, 2010, STOXX announced the removal of the “Dow Jones” prefix from all of its indices, including the
SX5E
.
Index Composition and Maintenance
The
SX5E
components are subject to a capped maximum index weight of 10%, which is applied on a quarterly basis
.
The composition of the
SX5E
is reviewed annually, based on the closing stock data on t
he last trading day in August.
Changes in the composition of the
SX5E
are made to ensure that the
SX5E
includes the 50 market sector leaders from within the EURO STOXX
®
Index.
The free float factors for each component stock used to calculate the
SX5E
, as described below, are reviewed, calculated, and implemented on a quarterly basis and are fixed until the next quarterly review.
The
SX5E
is subject to a “fast exit rule.” The
SX5E
components are monitored for any changes based on the monthly selection list ranking. A stock is deleted from the
SX5E
if: (a) it ranks 75 or below on the monthly selection list and (b) it has been ranked 75 or below for a consecutive period of two months in the monthly selection list. The highest-ranked stock that is not an index component will replace it. Changes will be implemented on the close of the fifth trading day of the month, and are effective the next trading day.
The
SX5E
is also subject to a “fast entry rule.” All stocks on the latest selection lists and initial public offering (IPO) stocks are reviewed for a fast-track addition on a quarterly basis. A stock is added, if (a) it qualifies for the latest STOXX blue-chip selection list generated end of February, May, August or November and (b) it ranks within the “lower buffer” on this selection list.
The
SX5E
is also reviewed on an ongoing basis. Corporate actions (including initial public offerings, mergers and takeovers, spin-offs, delistings, and bankruptcy) that affect the
SX5E
composition are immediately reviewed. Any changes are announced, implemented, and effective in line with the type of corporate action and the magnitude of the effect.
Index Calculation
The
SX5E
is calculated with the “Laspeyres formula,” which measures the aggregate price changes in the component stocks against a fixed base quantity weight. The formula for calculating the
SX5E
value can be expressed as follows:
The “free float market capitalization of the Index” is equal to the sum of the
product of the closing price, number of shares outstanding,
free float factor
, and weighting cap factor,
for each component stock as of the time the
SX5E
is being calculated.
The
SX5E
is also subject to a divisor, which is adjusted to maintain the continuity of the
SX5E
values across changes due to corporate actions, such as the deletion and addition of stocks, the substitution of stocks, stock dividends, and stock splits.
Neither we nor any of our affiliates, including the selling agent, accepts any responsibility for the calculation, maintenance, or publication of, or for any error, omission, or disruption in, the
SX5E
or any successor to the
SX5E
. STOXX does not guarantee the accuracy or the completeness of the
SX5E
or any data included in the
SX5E
. STOXX assumes no liability for any errors, omissions, or disruption in the calculation and dissemination of the
SX5E
. STOXX disclaims all responsibility for any errors or omissions in the calculation and dissemination of the
SX5E
or the manner in which the
SX5E
is applied in determining the amount payable on the notes at maturity.
|
Market-Linked Step Up Notes
|
TS-
10
|
|
Market-Linked Step Up Notes
Linked to a Basket of International Indices, due September , 2018
|
|
The following graph shows the
daily
historical performance of the
SX5E
in the period from January 1, 2008 through September 8, 2016. We obtained this historical data from Bloomberg L.P. We have not independently verified the accuracy or completeness of the information obtained from Bloomberg L.P. On September 8, 2016, the closing level of the
SX5E
was 3,083.54.
Historical Performance of the
SX5E
This historical data on the
SX5E
is not necessarily indicative of the future performance of the
SX5E
or what the value of the notes may be. Any historical upward or downward trend in the level of the
SX5E
during any period set forth above is not an indication that the level of the
SX5E
is more or less likely to increase or decrease at any time over the term of the notes.
Before investing in the
notes
, you should consult publicly available sources for the levels of the
SX5E
.
License Agreement
We have entered into a non-exclusive license agreement with STOXX providing for the license to us and certain of our affiliated or subsidiary companies, in exchange for a fee, of the right to use indices owned and published by STOXX (including the
SX5E
) in connection with certain securities, including the notes.
The license agreement between us and STOXX requires that the following language be stated in this term sheet:
STOXX has no relationship to us, other than the licensing of the
SX5E
and the related trademarks for use in connection with the notes. STOXX does not:
|
■
|
sponsor, endorse, sell, or promote the notes;
|
|
■
|
recommend that any person invest in the notes or any other securities;
|
|
■
|
have any responsibility or liability for or make any decisions about the timing, amount, or pricing of the notes;
|
|
■
|
have any responsibility or liability for the administration, management, or marketing of the notes; or
|
|
■
|
consider the needs of the notes or the holders of the notes in determining, composing, or calculating the
SX5E
, or have any obligation to do so.
|
STOXX will not have any liability in connection with the notes. Specifically:
|
■
|
STOXX does not make any warranty, express or implied, and disclaims any and all warranty concerning:
|
|
■
|
the results to be obtained by the notes, the holders of the notes or any other person in connection with the use of the
SX5E
and the data included in the
SX5E
;
|
|
■
|
the accuracy or completeness of the
SX5E
and its data;
|
|
■
|
the merchantability and the fitness for a particular purpose or use of the
SX5E
and its data;
|
|
■
|
STOXX will have no liability for any errors, omissions, or interruptions in the
SX5E
or its data; and
|
|
■
|
Under no circumstances will STOXX be liable for any lost profits or indirect, punitive, special, or consequential damages or losses, even if STOXX knows that they might occur.
|
The licensing agreement between us and STOXX is solely for their benefit and our benefit, and not for the benefit of the holders of the notes or any other third parties.
|
Market-Linked Step Up Notes
|
TS-
11
|
|
Market-Linked Step Up Notes
Linked to a Basket of International Indices, due September , 2018
|
|
The JPX-Nikkei Index 400
The JPX-Nikkei Index 400
(the “
JPNK400
”)
was developed by Japan Exchange Group, Inc. (“JPX”), Tokyo Stock Exchange, Inc. (“TSE,” and together with JPX, the “JPX Group”) and Nikkei Inc. (the “Nikkei,” and together with the JPX Group, the “JPNK400 sponsor”). The JPNK400 is calculated, maintained and published by the JPNK400 sponsor. We have not independently investigated the accuracy or completeness of this information. The JPNK400 sponsor has no obligation to continue to publish, and may discontinue publication of, the JPNK400.
The JPNK400 is composed of stocks listed on the TSE’s First Section (large companies), Second Section (mid-size companies), Mothers (Market Of The High-growth and EmeRging S
tocks
— for startups) and JASDAQ market. Stocks included in the JPNK400 are selected based on market capitalization, trading value, return on equity, and other factors, as described in more detail below. The JPNK400 was first calculated and published on January 6, 2014.
The inc
eption value of the JPNK400 was 10,000
on August 30, 2013 (
the
calculation base date). The index is calculated every
one second during the trading h
ours of the T
SE
.
Ten main groups of companies constitute the
JPNK400
, with the approximate percentage of the market capitalization of the
JPNK400
included in each group as of
December 30
, 2015
indicated in parentheses:
Electric Appliances & Precision Instruments (15.04%) ; Automobiles & Transportation Equipment (11.07%); IT & Services (10.30%); Banks (8.01%); Raw Materials & Chemicals (7.34%); Machinery (5.93%); Pharmaceutical (5.79%); Financials (excluding banks) (5.55%); Transportation & Logistics (5.54%); and Commercial & Wholesale Trade (4.63%). As of that date, more than 388 of the securities included in the JPNK400 were listed on the TSE’s First Section.
The
JPNK400
is calculated in both price return and total return versions
and is calculated in yen.
The notes are linked to the pr
ice return version of the JPNK400, which means (as noted above) that the Ending Value will not include any income generated by dividends paid on the stocks included in the JPNK400.
Additional information relating to the
composition and calculation of the
JPNK400
is available on the
JPNK400
sponsor’s website:
http://www.jpx.co.jp/english/markets/indices/jpx-nikkei400/
. How
ever, information included in that website shall not be deemed to be included or incorporated by reference in this document.
Standards for Listing and Maintenance
The
JPNK400
components ar
e reviewed annually based on the selection criteria applied as of the final business day of June (the base selection date). The calculation of the JPNK400 using the new constituents will begin
at the end of August. The selection process and criteria are as follows:
(1)
1
,
000 sto
cks are selected based on their tradin
g value
over
the past
three
years and the market value
on the base selection date. Stocks are excluded from selection if they fall under any of the following criteria:
|
●
|
listed for
less than three years;
|
|
●
|
the company’s liabilities are in excess of
its
assets during any of the past three fiscal years
;
|
|
●
|
the company has an operating loss in
each
of the past three fiscal years;
|
|
●
|
the company has a net loss in
each of the past three fiscal years;
|
|
●
|
the company’s financials have disclosed doubt regarding its ability to continue as a going concern;
|
|
●
|
disclosure of insufficient financials controls;
|
|
●
|
the stock has been designated as a security to be delisted
or security on alert; or
|
|
●
|
certain listing violations have occurred over the past year
.
|
(2)
Each stock is scored by
(a) three
-year average
return on equity (weighted 40%), (b) three
-year cumulative operating pro
fit (weighted 40%) and (c) market capitalization on the sel
ection base date
(weighted 20%), determined as follows:
Three-year average return on equity is calculated as follows:
Three-year cumulative operating profit is the sum of reported operating profit over the past three years.
The market capitalization of a stock is calculated based on the number of listed shares multiplied by its closing share price as of the annual selection base date.
(3)
400 stocks are selected by the final ranking with
the scores calculated
above
in (2) and qualitative factors from
the perspectives of corporate g
overnance and disclosure.
These factors are applied as of the selection base date and include the appointment of at least two independent outside directors, releasing the most recent earnings report according to international financial reporting standards and the release of English language earnings information via TDnet. The final score for each stock equals the sum of the score calculated above in (2) plus the score from the qualitative factors. Stocks are ranked from highest to lowest based on their final scores, with the exception that stocks with negative three-year average return on equity and most recent return on equity are negative or that have negative three-year cumulative operating profit are moved to the bottom of the ranking. In the event of a tie in final scores, the stock with the higher market capitalization is ranked higher.
|
Market-Linked Step Up Notes
|
TS-
12
|
|
Market-Linked Step Up Notes
Linked to a Basket of International Indices, due September , 2018
|
|
Calculation of the Index
The JPNK400
is calculated using free-float adjusted market value weighting
and is calculated to two decimal places. The level of the JPNK400 equals the current total free float adjusted market value divided by the base market value. The market value is the sum of the number of shares of each constituent stock multiplied by its stock price. The b
ase market value is adjusted
to maintain continuity in the JPNK400
when the market value o
f constituent
s changes for non-market reasons
. The weight of each JPNK400 component is capped at 1.5% of the JPNK400, and if any component exceeds that weight, it is adjusted downwards at the time of the annual review.
In case of delisting of the components due to a me
rger, bankruptcy, or other corporate event, new stocks are not added until the next annual review
.
The free-float adjustment marke
t
value is determined by excluding the estimated number of listed shares that are deemed not to be available for trading in the market, using
publicly available documents. Among the shares that are not treated as available are, among others, shares held by specified types of
major
shareholders, and shares held by board members and other representatives. The free-float weights are reviewed annually for each index stock, with the announcement and effective date for each index constituent occurring on a quarterly basis, depending upon the relevant company’s earnings release schedule. In addition to this annual review, the JPNK400 sponsor may also adjust a company’s free-float weight to reflect extraordinary events.
The index components can be updated from time to reflect, for example, the establishment of a new company as a result of a corporate consolidation, or the delisting of a company. A variety of corporate events will result in the change of the number of shares used to calculate the index, including securities offerings, exercises of warrants and share dividends.
The following graph shows the
daily
historical performance of the JP
NK
400 in the period from January
6
, 20
14
through September 8, 2016.
The JPNK400 was first published on January 6, 2014, thus only limited historical information exists with respect to the JPNK400.
We obtained this historical data from Bloomberg L.P. We have not independently verified the accuracy or completeness of the information obtained from Bloomberg L.P. On September 8, 2016, the closing level of the
JP
NK
400
was 12,070.28.
Historical Performance of the JP
NK
400
This historical data on the JP
NK
400 is not necessarily indicative of the future performance of the
JP
NK
400
or what the value of the notes may be. Any historical upward or downward trend in the level of the
JP
NK400
during any period set forth above is not an indication that the level of the
JP
NK
400
is more or less likely to increase or decrease at any time over the term of the notes.
Before investing in the
notes
, you should consult publicly available sources for the levels of the JP
NK
400.
License
Agreement
We
expect to enter
into an agreement with
the JPNK400 sponsor
providing us with a non-exclusive license with the right to use the
JPNK400
in exchange for a fee. The
JPNK400
is the intellectual property of
the JPNK400 sponsor.
The JPNK400 is a copyrighted material using a methodology independently developed and created by the JPNK400 sponsor, and the JPNK400 sponsor owns the copyrights and other intellectual property rights subsisting in the JPNK400 itself and the methodology used to calculate the JPNK400. Ownership of trademarks and any other intellectual property rights with respect to the markets to indicate the JPNK400 belong to the JPNK400 sponsor. The notes are arranged, managed and sold exclusively at the risk of
MLPF&S
, and the JPNK400 sponsor does not guarantee the notes and shall assume no obligation or responsibility with respect to the notes.
The JPNK400 sponsor shall not be obligated to continuously publish the JPNK400 and shall not be liable for any errors, delays, or suspensions of the publication of the JPNK400. The JPNK400 sponsor shall have the right to change the composition of the stocks included in the JPNK400, the calculation methodology of the JPNK400 or any other details of the JPNK400 and shall have the right to discontinue the publication of the JPNK400 at any time.
|
Market-Linked Step Up Notes
|
TS-
13
|
|
Market-Linked Step Up Notes
Linked to a Basket of International Indices, due September , 2018
|
|
Supplement to the Plan of Distribution; Conflicts of Interest
Under our distribution agreement with MLPF&S, MLPF&S will purchase the notes from us as principal at the public offering price indicated on the cover of this term sheet, less the indicated underwriting discount.
MLPF&S, a broker-dealer subsidiary of BAC, is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and will participate as selling agent in the distribution of the notes.
Accordingly, offerings of the notes will conform to the requirements of Rule 5121 applicable to FINRA members.
MLPF&S may not make sales in this offering to any of its discretionary accounts without the prior written approval of the account holder.
We may deliver the notes against payment therefor in New York, New York on a date that is greater than three business days following the pricing date.
Under Rule 15c6-1 of the Securities Exchange Act of 1934, trades in the secondary market generally are required to settle in three business days, unless the parties to any such trade expressly agree otherwise.
Accordingly, if the initial settlement of the notes occurs more than three business days from the pricing date, purchasers who wish to trade the notes more than three business days prior to the original issue date will be required to specify alternative settlement arrangements to prevent a failed settlement.
The notes will not be listed on any securities exchange.
In the original offering of the notes, the notes will be sold in minimum investment amounts of 100 units.
If you place an order to purchase the notes, you are consenting to MLPF&S acting as a principal in effecting the transaction for your account
.
MLPF&S
may repurchase and resell the notes, with repurchases and resales being made at prices related to then-prevailing market prices or at negotiated prices
, and these will
include MLPF&S’s trading commissions and mark-ups.
MLPF&S may act as principal or agent in these market-making transactions; however
,
it is not obligated to engage in any such transactions.
At
MLPF&S’s discretion
,
for a short
,
undetermined
initial period after the issuance of the notes, MLPF&S
may offer to buy the notes
in the secondary market
at a price that may exceed
the
initial estimated value
of the notes. Any price offered by MLPF&S for the notes will be based on then-prevailing market conditions and other considerations, including the performance of the
Basket
and the remaining term of the notes.
However, neither we nor any of our
affiliates is obligated to purc
hase your notes at any price, or at any time, and we cannot assure you that we or any of our affiliates will purchase your notes
at a price that
equals or
exceeds the
initial estimated value
of the notes.
The value of the notes shown on your account statement
will be based on
MLPF&S’s
estimate of the value of the notes if MLPF&S or another of our affiliates were to make a market in the notes, which it is not obligated t
o do.
That estimate will be based upon the price that MLPF&S may pay
for the notes in light of then-prevailing market conditions
and other considerations, as mentioned above, and will include transaction costs.
At certain times, this price may b
e higher than or lower than the
initial estimated value
of the notes
.
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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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●
|
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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●
|
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.
|
|
Market-Linked Step Up Notes
|
TS-
14
|
|
Market-Linked Step Up Notes
Linked to a Basket of International Indices, due September , 2018
|
|
The notes are our debt securities, the return on which is linked to the
performance
of the Basket. As is the case for all of our debt securities, including our market-linked notes, the economic terms of the notes reflect our actual or perceived creditworthiness at the time of pricing. In addition, because market-linked notes result in increased operational, funding and liability management costs to us, we typically borrow the funds under these notes at a rate that is more favorable to us than the rate that we might pay for a conventional fixed or floating rate debt security.
This
rate, which we refer to in this term sheet as our internal funding rate, is typically lower than the rate we would pay when we issue conventional fixed or floating rate debt securities.
This ge
nerally relatively lower internal funding
rate, which is reflected in the economic terms of the notes, along with the fees and charges associated with market-
linked notes, typically
results in the initial estimated value of the notes on the pricing date being less than their public offering price
.
At maturity, we are required to pay the Redemption Amount to holders of the notes, which will be calculated based on the
performance
of the Basket and the $10 per unit
p
rincipal
a
mount
.
In order to meet these payment obligations, at the time we issue the notes, we may choose to enter into certain hedging arrangements (which may include call options, put options or other derivatives) with MLPF&S or one of its affiliates. The terms of these hedging arrangements are determined by seeking bids from market participants,
including
MLPF&S and its affiliates
, and take into account a number of factors, including our creditworthiness, interest rate movements, the volatility of the Basket Components, the tenor of the note
s
and the tenor of the hedging arrangements. The economic terms of the notes and their initial estimated value depend in part on the terms of these hedging arrangements.
MLPF&S has advised us that the hedging arrangements will include a hedging related charge of approximately $0.075 per unit, reflecting an estimated profit to be credited to MLPF&S from these transactions. Since hedging entails risk and may be influenced by unpredictable market forces, additional profits and losses from these hedging arrangements may be realized by MLPF&S or any third party hedge providers.
For further information, see “Risk Factors—General Risks Relating to the Notes” beginning on page PS-7 and “Use of Proceeds” on page PS-16 of product supplement EQUITY INDICES SUN-1.
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Market-Linked Step Up Notes
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TS-
15
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Market-Linked Step Up Notes
Linked to a Basket of International Indices, due September , 2018
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Summary Tax Consequences
You should consider the U.S. federal income tax consequences of an investment in the notes, including the following:
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There is no statutory, judicial, or administrative authority directly addressing the characterization of the notes.
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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
Basket.
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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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No assurance can be given that the
IRS
or any court will agree with this characterization and tax treatment.
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You should consult your own tax advisor concerning the U.S. federal income tax consequences to you of acquiring, owning, and disposing of the notes, as well as any tax consequences arising under the laws of any state, local, foreign, or other tax jurisdiction and the possible effects of changes in
U.S. federal or other tax laws.
You should review carefully the discussion under the section entitled
“U.S. Federal Income Tax Summary” beginning on page PS-26 of product supplement EQUITY INDICES SUN-1
.
Where You Can Find More Information
We have filed a registration statement (including a product
suppl
ement, a prospectus supplement,
and a prospectus) with the SEC for the offering to which this term sheet relates. Before you invest, you should read the Note Prospectus, including this term sheet, and the other documents that we have filed with the SEC, for more complete information about us and this offering. You may get these documents without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, we, any agent, or any dealer participating in this offering will arrange to send you these documents if you so request by c
alling MLPF&S toll-free at 1-800-294-1322
.
Market-Linked Investments Classification
MLPF&S classifies certain market-linked investments (the “Market-Linked Investments”) into categories, each with different investment characteristics. The following description is meant solely for informational purposes and is not intended to represent any particular Enhanced Return Market-Linked Investment or guarantee any performance.
Enhanced Return Market-Linked Investments are short- to medium-term investments that offer you a way to enhance exposure to a particular market view without taking on a similarly enhanced level of market downside risk. They can be especially effective in a flat to moderately positive market (or, in the case of bearish investments, a flat to moderately negative market). In exchange for the potential to receive better-than market returns on the linked asset, you must generally accept market downside risk and capped upside potential. As these investments are not market downside protected, and do not assure full repayment of principal at maturity, you need to be prepared for the possibility that you may lose all or part of your investment.
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Market-Linked Step Up Notes
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TS-
16
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