Filed
Pursuant to Rule 424(b)(2)
Registration
Statement No. 333-180488
Pricing Supplement No. 1419
(To Prospectus dated February 24, 2015 and
Series L Prospectus Supplement dated February 24, 2015)
Dated March 26, 2015
$2,450,000
Leveraged Notes with Cap Linked to the EURO STOXX 50® Index, due June 30, 2016
| · | The
notes are unsecured senior notes issued by Bank of America Corporation (“BAC”). The notes do not guarantee a full
return of your principal at maturity, and you could lose up to 100% of your investment. |
| · | The
notes will mature on June 30, 2016. |
| · | The
notes provide 3.5-to-1 upside exposure to increases in the EURO STOXX 50® Index (the “Market Measure”),
up to the “Capped Value” (which is 123% of the principal amount). |
| · | The
notes provide 1-to-1 downside exposure to decreases in the Market Measure, with 100% of your investment at risk. |
| · | All
payments on the notes occur at maturity and are subject to the credit risk of Bank of America Corporation. |
| · | No
periodic interest payments will be made on the notes. |
| · | The
notes will not be listed on any securities exchange. |
| · | The
notes will be issued in denominations of $1,000 and whole multiples of $1,000. |
| · | The
CUSIP number of the notes is 06048WQN3. |
| · | The
initial estimated value of the notes is less than the public offering price. As of the pricing date, the initial estimated
value of the notes is $970 per $1,000 in principal amount. See “Summary” on page PS-2 of this pricing supplement,
“Risk Factors” beginning on page PS-5 of this pricing supplement and “Structuring the Notes” on page PS-19
of this pricing supplement for additional information. The actual value of your notes at any time will reflect many factors and
cannot be predicted with accuracy. |
Are Not FDIC Insured |
Are Not Bank Guaranteed |
May Lose Value |
|
Per Note |
|
Total |
Public Offering Price |
$1,000 |
|
$2,450,000 |
Underwriting Discount |
$ 10 |
|
$ 24,500 |
Proceeds (before expenses) |
$ 990 |
|
$2,425,500 |
The notes are unsecured and are not savings accounts, deposits, or other obligations of a bank. The notes are not guaranteed by Bank of America, N.A. or any other bank, are not insured by the Federal Deposit Insurance Corporation or any other governmental agency and involve investment risks. Potential purchasers of the notes should consider the information in “Risk Factors” beginning on page PS-5 of this pricing supplement, page S-5 of the prospectus supplement, and page 9 of the prospectus.
None of the Securities and Exchange Commission (the “SEC”), any state securities commission, or any other regulatory body has approved or disapproved of these notes or passed upon the adequacy or accuracy of this pricing supplement or the accompanying prospectus supplement or prospectus. Any representation to the contrary is a criminal offense.
We will deliver the notes in book-entry form only through The Depository Trust Company on March 31, 2015 against payment in immediately available funds.
BofA Merrill Lynch
Selling Agent
SUMMARY
The Leveraged Notes with Cap Linked
to the EURO STOXX 50® Index, due June 30, 2016 (the “notes”) are our senior unsecured debt securities.
The notes are not guaranteed or insured by the Federal Deposit Insurance Corporation or secured by collateral. The notes will
rank equally with all of our other unsecured and unsubordinated debt. Any payments due on the notes, including any repayment of
principal, will be subject to the credit risk of BAC.
The notes provide you a leveraged positive
return if the Ending Value of the EURO STOXX 50® Index (the “Market Measure”) is greater than its Starting
Value, up to a Capped Value of 123% of the principal amount. If the Ending Value is less than the Starting Value, you will lose
all or a portion of the principal amount of your notes.
Payments on the notes depend on our
credit risk and on the performance of the Market Measure. The economic terms of the notes are based on our internal funding rate,
which is the rate we would pay to borrow funds through the issuance of market-linked notes and the economic terms of certain related
hedging arrangements we enter into. Our internal funding rate is typically lower than the rate we would pay when we issue conventional
fixed or floating rate debt securities. This difference in our internal funding rate, as well as the underwriting discount and
the hedging related charges described below, reduced the economic terms of the notes to you and the initial estimated value of
the notes. Due to these factors, the public offering price you pay to purchase the notes will be greater than the initial estimated
value of the notes.
The initial estimated value of the notes
as of the pricing date is set forth on the cover page of this document. For more information about the initial estimated value
and the structuring of the notes, see “Risk Factors” on page PS-5 and “Structuring the Notes” on page PS-19.
Key Terms:
Market Measure: |
The EURO STOXX 50®
Index, a price return index. (Bloomberg ticker: “SX5E”). |
Market Measure Performance: |
The performance of the Market Measure will be measured according
to the percentage change from its Starting Value to its Ending Value.
The “Starting Value” is 3,669.79.
The “Ending Value” will equal the closing level
of the Market Measure on the calculation day. If a Market Disruption Event (as defined below) occurs and is continuing on the calculation
day, or if certain other events occur, the calculation agent will determine the Ending Value as set forth in the section “Additional
Terms of the Notes.” |
Capped Value: |
$1,230 per $1,000 in principal amount. |
Calculation Day: |
June 27, 2016, subject to postponement as described herein. |
Participation
Rate: |
350%. |
Redemption
Amount at Maturity: |
At maturity, you will receive a Redemption Amount that is
greater than the principal amount if the closing level of the Market Measure increases from the Starting Value to the Ending Value.
If the closing level of the Market Measure decreases from the Starting Value to the Ending Value, you will be subject to 1-to-1
downside exposure to that decrease, and will receive a Redemption Amount that is less than the principal amount.
Any payments due on the notes, including any repayment
of principal, are subject to our credit risk as issuer of the notes.
The Redemption Amount, denominated in U.S. dollars, will
be calculated as follows:
If the Ending Value is greater than or equal to the Starting
Value, you will receive per unit, up to the Capped Value:
If the Ending Value is less than the Starting Value, you will receive per unit:
You will receive per unit: Principal Amount x |
|
|
Principal at Risk: |
You may lose all or a significant portion of the principal amount of the notes. Further, if you sell the notes prior to maturity, you may find that the market value per unit is less than the price that you paid for the notes. |
Calculation Agent: |
The calculation agent will make all determinations associated with the notes. We will appoint our affiliate, MLPF&S, to act as calculation agent. See the section entitled “Additional Terms of the Notes—Role of the Calculation Agent.” |
|
|
Selling Agent: |
MLPF&S. MLPF&S is not your fiduciary or advisor solely as a result of the making of the offering of the notes, and you should not rely upon this pricing supplement, or the accompanying prospectus or prospectus supplement, as investment advice or a recommendation to purchase notes. |
|
|
Listing: |
The notes will not be listed on a securities exchange or quotation system. |
HYPOTHETICAL PAYMENTS ON THE NOTES
The following table is for purposes
of illustration only. It is based on hypothetical values and shows hypothetical returns on the notes. It illustrates
the calculation of the Redemption Amount and total rate of return based on a hypothetical Starting Value of 100, the Participation
Rate of 350%, the Capped Value of 123% of the principal amount, and a range of hypothetical Ending Values. The actual amount
you receive and the resulting total rate of return will depend on the actual Starting Value, Ending Value and whether you hold
the notes to maturity. The numbers appearing in the table below have been rounded for ease of analysis, and do not take into
account any tax consequences from investing in the notes.
For recent actual levels of the Market
Measure, see “The Market Measure” section below. The Market Measure is a price return index and as such the Ending
Value will not include any income generated by dividends paid on the securities included in the Market Measure, which you would
otherwise be entitled to receive if you invested in those stocks directly. In addition, all payments on the notes are subject to
issuer credit risk.
Ending
Value |
|
Percentage
Change
from the Starting
Value to the Ending
Value |
|
Redemption
Amount
per Unit |
|
Total
Rate of Return
on the Notes |
0.00 |
|
-100.00% |
|
$0 |
|
-100.00% |
50.00 |
|
-50.00% |
|
$500 |
|
-50.00% |
80.00 |
|
-20.00% |
|
$800 |
|
-20.00% |
90.00 |
|
-10.00% |
|
$900 |
|
-10.00% |
94.00 |
|
-6.00% |
|
$940 |
|
-6.00% |
97.00 |
|
-3.00% |
|
$970 |
|
-3.00% |
100.00(1) |
|
0.00% |
|
$1,000 |
|
0.00% |
102.00 |
|
2.00% |
|
$1,070 |
|
7.00% |
103.00 |
|
3.00% |
|
$1,105 |
|
10.50% |
104.00 |
|
4.00% |
|
$1,140 |
|
14.00% |
105.00 |
|
5.00% |
|
$1,175 |
|
17.50% |
107.00 |
|
7.00% |
|
$1,230(2) |
|
23.00% |
110.00 |
|
10.00% |
|
$1,230 |
|
23.00% |
150.00 |
|
50.00% |
|
$1,230 |
|
23.00% |
(1) The hypothetical Starting Value of 100 used in
the table above has been chosen for illustrative purposes only. The actual Starting Value for the Market Measure is 3,669.79.
(2) The Redemption Amount per unit cannot exceed the Capped
Value.
RISK
FACTORS
Your investment in the notes is subject
to investment risks, many of which differ from those of a conventional debt security. Your decision to purchase notes should be
made only after carefully considering the risks, including those discussed below, in light of your particular circumstances. The
notes are not an appropriate investment for you if you are not knowledgeable about the material terms of the notes or investments
in equity or equity-based securities in general.
General Risks Relating to the Notes
Your investment may result in a loss;
there is no guaranteed return of principal. There is no fixed principal repayment amount on the notes at maturity. The notes
provide a return based on the performance of the Market Measure and therefore, you may lose all or a significant portion of your
investment if the level of the Market Measure decreases from the Starting Value to the Ending Value. If the Ending Value is less
than the Starting Value, then you will receive a Redemption Amount at maturity that will be less than the principal amount of your
notes.
Your investment return is limited
to the return represented by the Capped Value and may be less than a comparable investment directly in the Market Measure. You
will not receive a Redemption Amount greater than the Capped Value, regardless of the appreciation of the Market Measure. In contrast,
a direct investment in the Market Measure (or the securities included in the Market Measure) would allow you to receive the full
benefit of any appreciation in the value of the Market Measure (or those underlying securities).
Your return on the notes may be less
than the yield on a conventional fixed or floating rate debt security of comparable maturity. There will be no periodic interest
payments on the notes as there would be on a conventional fixed-rate or floating-rate debt security having the same maturity. Any
return that you receive on the notes may be less than the return you would earn if you purchased a conventional debt security with
the same maturity date. As a result, your investment in the notes may not reflect the full opportunity cost to you when you consider
factors, such as inflation, that affect the time value of money.
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.
The notes are our senior unsecured debt securities. As a result, your receipt of the Redemption Amount at maturity is dependent
upon our ability to repay our obligations on the maturity date, regardless of whether the Market Measure increases from the Starting
Value to the Ending Value. No assurance can be given as to what our financial condition will be on the maturity date. If we become
unable to meet our financial obligations as they become due, you may not receive the amounts payable under the terms of the notes.
In addition, our credit ratings are
an assessment by ratings agencies of our ability to pay our obligations. Consequently, our perceived creditworthiness and actual
or anticipated decreases in our credit ratings or increases in the spread between the yield on our securities and the yield on
U.S. Treasury securities (the “credit spread”) prior to the maturity date may adversely affect the market value of
the notes. However, because your return on the notes depends upon factors in addition to our ability to pay our obligations, such
as the level of the Market Measure, an improvement in our credit ratings will not reduce the other investment risks related to
the notes.
The public offering price you pay
for the notes exceeds their initial estimated value. The initial estimated value of the notes that is provided in this pricing
supplement is an estimate only, determined as of the pricing date 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, 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.
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 the date of this pricing supplement
will vary based on many factors that cannot be predicted with accuracy, including our creditworthiness and changes in market conditions.
The quoted price of any of our affiliates
for the notes could be higher or lower than the price that you paid for them.
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 their initial estimated value. This
is due to, among other things, changes in the level of the Market Measure, our internal funding rate, and the inclusion in the
public offering price of the underwriting discount and the hedging related charges, all as further described in “Structuring
the Notes” on page PS-19. 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.
We cannot assure you that a trading
market for your notes will ever develop or be maintained. We will not list the notes on any securities exchange. We cannot
predict how the notes will trade in any secondary market or whether that market will be liquid or illiquid.
The development of a trading market
for the notes will depend on our financial performance and other factors, including changes in the level of the Market Measure.
The number of potential buyers of your notes in any secondary market may be limited. We anticipate that MLPF&S will act as
a market-maker for the notes, but neither we nor MLPF&S is required to do so. There is no assurance that any party will be
willing to purchase your notes at any price in any secondary market. MLPF&S may discontinue its market-making activities as
to the notes at any time. To the extent that MLPF&S engages in any market-making activities, it may bid for or offer the notes.
Any price at which MLPF&S may bid for, offer, purchase, or sell any notes may differ from the values determined by pricing
models that it may use, whether as a result of dealer discounts, mark-ups, or other transaction costs. These bids, offers, or completed
transactions may affect the prices, if any, at which the notes might otherwise trade in the market.
In addition, if at any time MLPF&S
were to cease acting as a market-maker as to the notes, it is likely that there would be significantly less liquidity in the secondary
market. In such a case, the price at which the notes could be sold likely would be lower than if an active market existed.
The Redemption Amount will not reflect
changes in the level of the Market Measure other than on the calculation day. Changes in the level of the Market Measure during
the term of the notes other than on the calculation day will not be reflected in the calculation of the Redemption Amount. To calculate
the Redemption Amount, the calculation agent will compare only the Ending Value to the Starting Value. No other levels of the Market
Measure will be taken into account. As a result, even if the level of the Market Measure has increased at certain times during
the term of the notes, you will receive a Redemption Amount that is less than the principal amount if the Ending Value is less
than the Starting Value.
The publisher of the Market Measure
may adjust the Market Measure in a way that affects its levels, and the publisher has no obligation to consider your interests.
The publisher of the Market Measure can add, delete, or substitute the components included
in the Market Measure or make other methodological changes that could change its level. A new security included in the Market
Measure may perform significantly better or worse than the replaced security, and the performance will impact the level of the
Market Measure. Additionally, the publisher may alter, discontinue, or suspend calculation or dissemination of the Market Measure.
Any of these actions could adversely affect the value of your notes. The
publisher
of the Market Measure will have no obligation to consider your interests in calculating or revising the Market Measure.
If you attempt to sell notes prior
to maturity, their market value, if any, will be affected by various factors that interrelate in complex ways, and their market
value may be less than the principal amount. You have no right to have your notes redeemed prior to maturity. If you wish to
liquidate your investment in the notes prior to maturity, your only option would be to sell them. At that time, there may be an
illiquid market for your notes or no market at all. Even if you were able to sell your notes, there are many factors outside of
our control that may affect their market value, some of which, but not all, are stated below. The impact of any one factor may
be offset or magnified by the effect of another factor. The following paragraphs describe a specific factor’s expected impact
on the market value of the notes, assuming all other conditions remain constant.
| · | Level of the Market Measure. We anticipate that the market
value of the notes prior to maturity generally will depend to a significant extent on the level of the Market Measure. In general,
it is expected that the market value of the notes will decrease as the level of the Market Measure decreases, and increase as the
level of the Market Measure increases. However, as the level of the Market Measure increases or decreases, the market value of
the notes is not expected to increase or decrease at the same rate. If you sell your notes when the level of the Market Measure
is less than, or not sufficiently above the Starting Value, then you may receive less than the principal amount of your notes. |
| · | Volatility of the Market Measure. Volatility is the term
used to describe the size and frequency of market fluctuations. Increases or decreases in the volatility of the Market Measure
may have an adverse impact on the market value of the notes. Even if the level of the Market Measure increases after the pricing
date, if you are able to sell your notes before their maturity date, you may receive substantially less than the amount that would
be payable at maturity based on that level because of the anticipation that the level of the Market Measure will continue to fluctuate
until the Ending Value is determined. |
| · | Economic and Other Conditions Generally. The general economic
conditions of the capital markets in the United States, as well as geopolitical conditions and other financial, political, regulatory,
and judicial events and related uncertainties that affect stock markets generally, may affect the level of the Market Measure and
the market value of the notes. |
| · | Interest Rates. We expect that changes in interest rates
will affect the market value of the notes. In general, if U.S. interest rates increase, we expect that the market value of the
notes will decrease, and conversely, if U.S. interest rates decrease, we expect that the market value of the notes will increase.
In general, we expect that the longer the amount of time that remains until maturity, the more significant the impact of these
changes will be on the value of the notes. |
| · | Dividend Yields. In general, if cumulative dividend yields
on the securities included in the Market Measure increase, we anticipate that the market value of the notes will decrease; conversely,
if those dividend yields decrease, we anticipate that the market value of your notes will increase. |
| · | Our Financial Condition and Creditworthiness. Our perceived
creditworthiness, including any increases in our credit spreads and any actual or anticipated decreases in our credit ratings,
may adversely affect the market value of the notes. In general, we expect the longer the amount of time that remains until maturity,
the more significant the impact will be on the value of the notes. However, a decrease in our credit spreads or an improvement
in our credit ratings will not necessarily increase the market value of the notes. |
| · | Time to Maturity. There may be a disparity between the market
value of the notes prior to maturity and their value at maturity. This disparity is often called a time “value,” “premium,”
or “discount,” and reflects expectations concerning the level of the Market Measure prior to the maturity date. As
the time to maturity decreases, this disparity may |
decrease,
such that the value of the notes will approach the expected Redemption Amount to be paid at maturity.
Trading
and hedging activities by us and our affiliates may affect your return on the notes
and their market value. We and our affiliates, including MLPF&S, may buy or sell the securities included in the Market
Measure, or futures or options contracts on the Market Measure or its component securities. We may execute such purchases or sales
for our own accounts, for business reasons, or in connection with hedging our obligations under the notes. These transactions could
affect the value of these securities and, in turn, the level of the Market Measure in a manner that could be adverse to your investment
in the notes. On or before the pricing date, any purchases or sales by us, our affiliates or others on our behalf may have increased
the level of the Market Measure or its component securities. Consequently, the values of that Market Measure or the securities
included in the Market Measure may decrease subsequent to the pricing date, adversely affecting the market value of the notes.
We, or one or more of our affiliates,
including MLPF&S, may have also engaged in hedging activities that could have increased the level of the Market Measure on
the pricing date. In addition, these activities may decrease the market value of your notes prior to maturity, including on the
calculation day, and may affect the Redemption Amount. We or one or more of our affiliates, including MLPF&S, may purchase
or otherwise acquire a long or short position in the notes, and may hold or resell notes. For example, MLPF&S may enter into
these transactions in connection with any market making activities in which they engage. We cannot assure you that these activities
will not adversely affect the level of the Market Measure, the market value of your notes prior to maturity or the Redemption Amount.
Our trading, hedging and other business
activities may create conflicts of interest with you. We or one or more of our affiliates, including MLPF&S, may engage
in trading activities related to the Market Measure and to securities included in the Market Measure that are not for your account
or on your behalf. We or one or more of our affiliates, including MLPF&S, also may issue or underwrite other financial instruments
with returns based upon the Market Measure. These trading and other business activities may present a conflict of interest between
your interest in the notes and the interests we and our affiliates, including MLPF&S, may have in our proprietary accounts,
in facilitating transactions, including block trades, for our or their other customers, and in accounts under our or their management.
These trading and other business activities, if they influence the level of the Market Measure or secondary trading in your notes,
could be adverse to your interests as a beneficial owner of the notes.
We expect to enter into arrangements
or adjust or close out existing transactions to hedge our obligations under the notes. We or our affiliates also may enter into
hedging transactions relating to other notes or instruments that we issue, some of which may have returns calculated in a manner
related to that of the notes. We may enter into such hedging arrangements with one of our subsidiaries or affiliates. Such a party
may enter into additional hedging transactions with other parties relating to the notes and the Market Measure. This hedging activity
is expected to result in a profit to those engaging in the hedging activity, which could be more or less than initially expected,
or the hedging activity could also result in a loss. We or our affiliates will price these hedging transactions with the intent
to realize a profit, regardless of whether the value of the notes increases or decreases.
There may be potential conflicts
of interest involving the calculation agent. We have the right to appoint and remove the calculation agent. MLPF&S will
be the calculation agent for notes and, as such, determined the Starting Value, and will determine the Ending Value and the Redemption
Amount. Under some circumstances, these duties could result in a conflict of interest between its status as our affiliate and its
responsibilities as calculation agent. These conflicts could occur, for instance, in connection with the calculation agent’s
determination as to whether a Market Disruption Event has occurred, or in connection with judgments that it would be required to
make if the publication of the Market Measure is discontinued. See the sections entitled “Additional Terms of the Notes—Market
Disruption Events,” “—Adjustments to the Market Measure,” and “—Discontinuance of the Market
Measure.” The calculation agent will be required to carry out its duties in good faith and use
its
reasonable judgment. However, because we expect to control the calculation agent, potential conflicts of interest could arise.
The U.S. federal income tax consequences
of an investment in the notes are uncertain, and may be adverse to a holder of the notes. No statutory, judicial, or administrative
authority directly addresses the characterization of the notes or securities similar to the notes for U.S. federal income tax purposes.
As a result, significant aspects of the U.S. federal income tax consequences of an investment in the notes are not certain. Under
the terms of the notes, you will have agreed with us to treat the notes as single financial contracts, as described under “U.S.
Federal Income Tax Summary—General.” If the Internal Revenue Service (the “IRS”) were successful in asserting
an alternative characterization for the notes, the timing and character of gain or loss with respect to the notes may differ. No
ruling will be requested from the IRS with respect to the notes and no assurance can be given that the IRS will agree with the
statements made in the section entitled “U.S. Federal Income Tax Summary.” You are urged to consult with your own
tax advisor regarding all aspects of the U.S. federal income tax consequences of investing in the notes.
Risks Relating to the Market Measure
You must rely on your own evaluation
of the merits of an investment linked to the Market Measure. In the ordinary course of their businesses, our affiliates may
have expressed views on expected movements in the Market Measure or the securities included in the Market Measure, and may do so
in the future. These views or reports may be communicated to our clients and clients of our affiliates. However, these views are
subject to change from time to time. Moreover, other professionals who deal in markets relating to the Market Measure may at any
time have significantly different views from those of our affiliates. For these reasons, you are encouraged to derive information
concerning the Market Measure or its component securities from multiple sources, and you should not rely on the views expressed
by our affiliates.
You will have no rights as a security
holder, you will have no rights to receive any of the securities represented by the Market Measure, and you will not be entitled
to dividends or other distributions by the issuers of these securities. The notes are our debt securities. They are not equity
instruments, shares of stock, or securities of any other issuer. Investing in the notes will not make you a holder of any of the
securities represented by the Market Measure. You will not have any voting rights, any rights to receive dividends or other distributions,
or any other rights with respect to those securities. As a result, the return on your notes may not reflect the return you would
realize if you actually owned those securities and received the dividends paid or other distributions made in connection with them.
Additionally, the level of the Market Measure reflects only the prices of those component securities and does not take into consideration
the value of dividends paid on those securities. Your notes will be paid in cash and you have no right to receive delivery of any
of these securities.
Our business activities relating
to the companies represented by the Market Measure may create conflicts of interest with you. We and our affiliates, including
MLPF&S, at the time of the offering of the notes or in the future, may engage in business with the companies represented by
the Market Measure, including making loans to, equity investments in, or providing investment banking, asset management, or other
services to those companies, their affiliates, and their competitors.
In connection with these activities,
we or our affiliates may receive information about those companies that we will not divulge to you or other third parties. One
or more of our affiliates have published, and in the future may publish, research reports on one or more of these companies. This
research is modified from time to time without notice and may express opinions or provide recommendations that are inconsistent
with purchasing or holding your notes. Any of these activities may affect the market value of your notes. We, or any of our affiliates,
do not make any representation to any purchasers of the notes regarding any matters whatsoever relating to the issuers of the securities
included in the Market Measure. Any prospective purchaser of the notes should undertake an independent investigation of the companies
included in the Market Measure to a level that, in its judgment, is appropriate to make an informed decision regarding an investment
in the notes. The composition of the Market Measure does not reflect any investment recommendations from us or our affiliates.
Your return on the notes and the
value of the notes may be affected by factors affecting the international securities markets, including economic, financial, social
and political conditions. Specifically, the stocks included in the Market Measure are issued by companies located within the
Eurozone. The Eurozone is and has been undergoing severe financial stress, and the political, legal and regulatory ramifications
are impossible to predict. Changes within the Eurozone could adversely affect the performance of the Market Measure and, consequently,
the value of the notes.
The prices and performance of securities
of companies in foreign countries may be affected by political, economic, financial, and social factors in those regions. Direct
or indirect government intervention to stabilize a particular securities market and cross-shareholdings in companies in the relevant
foreign markets may affect prices and the volume of trading in those markets. In addition, recent or future changes in government,
economic, and fiscal policies in the relevant jurisdictions, the possible imposition of, or changes in, currency exchange laws,
or other laws or restrictions, and possible fluctuations in the rate of exchange between currencies, are factors that could negatively
affect the relevant securities markets. The relevant foreign economies may differ favorably or unfavorably from the U.S. economy
in economic factors such as growth of gross national product, rate of inflation, capital reinvestment, resources, and self-sufficiency.
Exchange rate movements may impact
the value of the notes. The securities included in the Market Measure are principally traded in euro. Accordingly, changes
in the exchange rate between the value of the U.S. dollar and the euro could adversely affect the level of the Market Measure,
and the Redemption Amount may be reduced.
Exchange rate movements may be particularly
impacted by existing and expected rates of inflation and interest rate levels, the balance of payments, and the extent of governmental
surpluses or deficits in the countries relevant to the Market Measure and the United States. All of these factors are in turn sensitive
to the monetary, fiscal, and trade policies pursued by the governments of those countries, the European Union, and the United States
and other countries important to international trade and finance.
USE OF
PROCEEDS
We will use the net proceeds we receive
from the sale of the notes for the purposes described in the accompanying prospectus under “Use of Proceeds.” In addition,
we expect that we or our affiliates may use a portion of the net proceeds to hedge our obligations under the notes.
ADDITIONAL
TERMS OF THE NOTES
General
The notes are part of a series of medium-term
notes entitled “Medium-Term Notes, Series L” issued under the Senior Indenture, as amended and supplemented from time
to time. The Senior Indenture is more fully described in the prospectus supplement and prospectus. The following description of
the notes supplements the description of the general terms and provisions of the notes and debt securities set forth under the
headings “Description of the Notes” in the prospectus supplement and “Description of Debt Securities” in
the prospectus. These documents should be read in connection with this pricing supplement.
The notes will be issued in denominations
of $1,000 and whole multiples of $1,000. You may transfer the notes only in whole multiples of $1,000.
Prior to maturity, the notes are not
repayable at our option or at your option. If the scheduled maturity date is not a business day, we will pay the Redemption Amount
on the next business day, and no interest will accrue as a result of such delay.
The notes are not subject to any sinking
fund.
The notes will be issued in book-entry
form only.
The Calculation Day
If the scheduled calculation day is
not a Market Measure Business Day or if there is a Market Disruption Event on that day, the calculation day will be the immediately
succeeding Market Measure Business Day during which no Market Disruption Event occurs or is continuing; provided that the Ending
Value will be determined (or, if not determinable, estimated) by the calculation agent in a manner which the calculation agent
considers commercially reasonable under the circumstances on a date no later than the second scheduled Market Measure Business
Day prior to the maturity date, regardless of the occurrence of a Market Disruption Event on that second scheduled Market Measure
Business Day. Even if the calculation day is postponed for any reason, the maturity date will not be postponed.
A “Market Measure Business Day”
means a day on which (1) the New York Stock Exchange (the “NYSE”) and The NASDAQ Stock Market (the “NASDAQ”),
or their successors, are open for trading and (2) the Market Measure or any successor is calculated and published.
Market Disruption Events
“Market Disruption Event”
means one or more of the following events, as determined by the calculation agent in its sole discretion:
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(A) |
the suspension of or material limitation on trading, in each case, for more than two consecutive hours of trading, or during the one-half hour period preceding the close of trading, on the primary exchange where the securities included in the Market Measure trade (without taking into account any extended or after-hours trading session), in 20% or more of the securities which then comprise the Market Measure or any successor index; and |
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(B)
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the suspension of or material limitation
on trading, in each case, for more than two consecutive hours of trading, or during the one-half hour period preceding the close
of trading, on the primary exchange that trades options contracts or futures contracts related to the Market Measure (without taking
into account any extended or after-hours trading session), whether by reason of movements in price otherwise exceeding levels permitted
by the relevant exchange or otherwise, in options contracts or futures contracts related to the Market Measure, or any successor
index.
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For the purpose of determining whether a Market Disruption
Event has occurred:
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(1) |
a limitation on the hours in a trading day and/or number of days of trading will not constitute a Market Disruption Event if it results from an announced change in the regular business hours of the relevant exchange; |
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(2) |
a decision to permanently discontinue trading in the relevant futures or options contracts related to the Market Measure, or any successor index, will not constitute a Market Disruption Event; |
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(3) |
a suspension in trading in a futures or options contract on the Market Measure, or any successor index, by a major securities market by reason of (a) a price change violating limits set by that securities market, (b) an imbalance of orders relating to those contracts, or (c) a disparity in bid and ask quotes relating to those contracts will constitute a suspension of or material limitation on trading in futures or options contracts related to the Market Measure; |
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(4) |
a suspension of or material limitation on trading on the relevant exchange will not include any time when that exchange is closed for trading under ordinary circumstances; and |
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(5) |
for the purpose of clause (A) above, any limitations on trading during significant market fluctuations under NYSE Rule 80B, or any applicable rule or regulation enacted or promulgated by the NYSE or any other self-regulatory organization or the SEC of similar scope as determined by the calculation agent, will be considered “material.” |
Adjustments to the Market Measure
After the pricing date, the publisher
of the Market Measure may make a material change in the method of calculating the Market Measure or in another way that changes
it such that it does not, in the opinion of the calculation agent, fairly represent the level of the index had those changes or
modifications not been made. In this case, the calculation agent will, at the close of business in New York, New York, on the calculation
day, make adjustments to the Market Measure. Those adjustments will be made in good faith as necessary to arrive at a calculation
of a level of the Market Measure as if those changes or modifications had not been made, and calculate the closing level of the
Market Measure, as so adjusted.
Discontinuance of the Market Measure
After the pricing date, the publisher
of the Market Measure may discontinue publication of the Market Measure. The publisher or another entity may then publish a substitute
index that the calculation agent determines, in its sole discretion, to be comparable to the original index (a “successor
index”). If this occurs, the calculation agent will substitute the successor index as calculated by that publisher or any
other entity and calculate the Ending Value. If the calculation agent selects a successor index, the calculation agent will give
written notice of the selection to the trustee, to us, and to the holders of the notes.
If the publisher of the Market Measure
discontinues its publication before the calculation day and the calculation agent does not select a successor index, then on the
day that would have been the calculation day, until the earlier to occur of:
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the determination of the Ending Value; and |
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a determination by the calculation agent that a successor index is available, |
the calculation agent will compute a substitute level for
the Market Measure in accordance with the procedures last used to calculate the Market Measure before any discontinuance. The calculation
agent will make available to holders of the notes information regarding those levels by means of Bloomberg L.P., Thomson Reuters,
a website, or any other means selected by the calculation agent in its reasonable discretion.
If a successor index is selected or
the calculation agent calculates a level as a substitute for the Market Measure, the successor index or level will be used as a
substitute for all purposes, including for the purpose of determining whether a Market Disruption Event exists.
Notwithstanding these alternative arrangements,
any modification or discontinuance of the publication of the Market Measure may adversely affect trading in the notes.
Role of the Calculation Agent
The calculation agent has the sole discretion
to make all determinations regarding notes as described in this pricing supplement, including determinations regarding the Ending
Value, the Market Measure, the Redemption Amount, any Market Disruption Events, a successor index, Market Measure Business Days,
business days, the calculation day, and determinations related to the discontinuance of the Market Measure. Absent manifest error,
all determinations of the calculation agent will be conclusive for all purposes and final and binding on you and us, without any
liability on the part of the calculation agent.
MLPF&S will act as the calculation
agent for the notes. However, we may change the calculation agent at any time without notifying you.
Same-Day Settlement and Payment
The notes will be delivered in book-entry
form only through The Depository Trust Company against payment by purchasers of the notes in immediately available funds. We will
pay the Redemption Amount in immediately available funds so long as the notes are maintained in book-entry form.
Events of Default and Acceleration
Events of default are defined in the
Senior Indenture. If such event occurs and is continuing, the amount payable to a holder of the notes upon any acceleration permitted
under the Senior Indenture will be equal to the Redemption Amount described above, determined as if the notes matured on the date
of acceleration. If a bankruptcy proceeding is commenced in respect of us, your claim may be limited under applicable bankruptcy
law. In case of a default in payment of the notes, whether at their maturity or upon acceleration, they will not bear a default
interest rate.
Listing
The notes will not be listed on any
securities exchange or quotation system.
THE MARKET MEASURE
All disclosures contained in this document
regarding the Market Measure, including, without limitation, its make-up, method of calculation, and changes in its components,
have been derived from publicly available sources. The information reflects the policies of, and is subject to change by, STOXX
Limited (“STOXX”). STOXX, which owns the copyright and all other rights to the Market Measure, has no obligation to
continue to publish, and may discontinue publication of, the Market Measure. The consequences of STOXX discontinuing publication
of the Market Measure are discussed in the section above entitled “Additional Terms of the Notes—Discontinuance of
the Market Measure.” None of us, the calculation agent, or MLPF&S accepts any responsibility for the calculation, maintenance,
or publication of the Market Measure or any successor index.
The Market Measure was created by STOXX,
a joint venture between Deutsche Börse AG and SIX Group AG. Publication of the Market Measure began in February 1998, based
on an initial index 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 Market Measure.
Index Composition and Maintenance
For each of the 19 EURO STOXX regional
supersector indices, the stocks are ranked in terms of free-float market capitalization. The largest stocks are added to the selection
list until the coverage is close to, but still less than, 60% of the free-float market capitalization of the corresponding supersector
index. If the next highest-ranked stock brings the coverage closer to 60% in absolute terms, then it is also added to the selection
list. All current stocks in the Market Measure are then added to the selection list. All of the stocks on the selection list are
then ranked in terms of free-float market capitalization to produce the final index selection list. The largest 40 stocks on the
selection list are selected; the remaining 10 stocks are selected from the largest remaining current stocks ranked between 41 and
60; if the number of stocks selected is still below 50, then the largest remaining stocks are selected until there are 50 stocks.
In exceptional cases, STOXX’s management board can add stocks to and remove them from the selection list.
The Market Measure components are subject
to a capped maximum index weight of 10%, which is applied on a quarterly basis.
The composition of the Market Measure
is reviewed annually, based on the closing stock data on the last trading day in August. Changes in the composition of the Market
Measure are made to ensure that the Market Measure includes the 50 market sector leaders from within the EURO STOXX®
Index.
The free float factors for each component
stock used to calculate the Market Measure, as described below, are reviewed, calculated, and implemented on a quarterly basis
and are fixed until the next quarterly review.
The Market Measure is subject to a “fast
exit rule.” The Market Measure components are monitored for any changes based on the monthly selection list ranking. A stock
is deleted from the Market Measure 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 Market Measure 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 Market Measure is also reviewed
on an ongoing basis. Corporate actions (including initial public offerings, mergers and takeovers, spin-offs, delistings, and bankruptcy)
that affect the Market Measure 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 Market Measure 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 index value can be expressed as follows:
Free float market capitalization
of the Index
Index = _________________________________________________
x 1,000
Adjusted base date market
capitalization of the Index
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 Market Measure is being calculated.
The Market Measure is also subject to
a divisor, which is adjusted to maintain the continuity of the index 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 Market Measure or any successor to the Market Measure. STOXX does not guarantee the accuracy or
the completeness of the Market Measure or any data included in the Market Measure. STOXX assumes no liability for any errors, omissions,
or disruption in the calculation and dissemination of the Market Measure. STOXX disclaims all responsibility for any errors or
omissions in the calculation and dissemination of the Market Measure or the manner in which the Market Measure is applied in determining
the amount payable on the notes at maturity.
The following graph shows the
monthly historical performance of the Market Measure in the period from February 2009 through February 2015. 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 the pricing date, the closing level of the Market Measure was 3,669.79.
Historical Performance of the Market
Measure
This historical data on the Market
Measure is not necessarily indicative of the future performance of the Market Measure or what the value of the notes may be. Any
historical upward or downward trend in the level of the Market Measure during any period set forth above is not an indication that
the level of the Market Measure 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 and trading pattern of the Market Measure.
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 Market Measure) in connection with certain securities,
including the notes.
The license agreement between us and
STOXX requires that the following language be stated in this document:
STOXX has no relationship to us, other
than the licensing of the Market Measure 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 Market Measure, 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 Market Measure and the data included in the Market Measure; |
| § | the accuracy or completeness of the Market Measure and its data; |
| § | the merchantability and the fitness for a particular purpose or
use of the Market Measure and its data; |
| § | STOXX will have no liability for any errors, omissions, or interruptions
in the Market Measure 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.
SUPPLEMENTAL PLAN OF DISTRIBUTION—CONFLICTS
OF INTEREST
Our broker-dealer subsidiary, MLPF&S,
will act as our selling agent in connection with the offering of the notes. The selling agent is a party to the Distribution Agreement
described in the “Supplemental Plan of Distribution” on page S-15 of the accompanying prospectus supplement.
The selling agent is a member of FINRA.
Accordingly, the offering of the notes will conform to the requirements of FINRA Rule 5121.
The selling agent is not your fiduciary
or advisor solely as a result of the offering of the notes, and you should not rely upon this pricing supplement, or the accompanying
prospectus or prospectus supplement as investment advice or a recommendation to purchase notes. You should make your own investment
decision regarding the notes after consulting with your legal, tax, and other advisors.
If you place an order to purchase the
notes from MLPF&S, you are consenting to MLPF&S acting as a principal in effecting the transaction for your account.
The selling agent and any of our other
broker-dealer affiliates, may use this pricing supplement, and the accompanying prospectus supplement and prospectus for offers
and sales in secondary market transactions and market-making transactions in the notes. However, they are not obligated to engage
in such secondary market transactions and/or market-making transactions. The selling agent may act as principal or agent in these
transactions, and any such sales will be made at prices related to prevailing market conditions at the time of the sale.
At MLPF&S’s discretion, during
an initial undetermined period after the issuance of the notes, any purchase price paid by MLPF&S may offer to buy the notes
in the secondary market at a price that may exceed the estimated initial value. Any price offered by MLPF&S for the notes will
be based on then-prevailing market conditions and other considerations, including the remaining term of the notes. However, neither
we nor any of our affiliates is obligated to purchase 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.
Any price that MLPF&S may pay to
repurchase the notes will depend upon then prevailing market conditions and other considerations, as mentioned above, and will
include transaction costs. At certain times, this price may be higher than or lower than the initial estimated value of the notes.
STRUCTURING THE NOTES
The notes are our debt securities,
the return on which is linked to the performance of the Market Measure. 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 generally 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, resulted in the initial estimated value of the
notes on the pricing date being less than their public offering price.
In order to meet our payment obligations
on the notes, 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 based upon terms provided by MLP&S and its affiliates, and take into account a number of factors, including our
creditworthiness, interest rate movements, the volatility of the Market Measure, the tenor of the notes and 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 hedging related charges, reflecting the costs associated with, and our affiliates’ profit
earned from, these hedging arrangements. Since hedging entails risk and may be influenced by unpredictable market forces, actual
profits or losses from these hedging transactions may be more or less than this amount.
For further information, see “Risk
Factors—General Risks Relating to the Notes” and “Use of Proceeds” in this pricing supplement.
VALIDITY OF THE NOTES
In the opinion of McGuireWoods LLP, as
counsel to BAC, when the trustee has made an appropriate entry on Schedule 1 to the Master Registered Global Senior Note, dated
March 30, 2012 (the “Master Note”) identifying the notes offered hereby as supplemental obligations thereunder in accordance
with the instructions of BAC and the notes have been delivered against payment therefor as contemplated in this pricing supplement
and the related prospectus supplement and prospectus, all in accordance with the provisions of the indenture governing the notes,
such notes will be legal, valid and binding obligations of BAC, subject to applicable bankruptcy, reorganization, insolvency, moratorium,
fraudulent conveyance or other similar laws affecting the rights of creditors now or hereafter in effect, and to equitable principles
that may limit the right to specific enforcement of remedies, and further subject to the application of principles of public policy.
This opinion is given as of the date hereof and is limited to the laws of the State of New York and the Delaware General Corporation
Law (including the statutory provisions, all applicable provisions of the Delaware Constitution and reported judicial decisions
interpreting the foregoing). In addition, this opinion is subject to the assumption that the trustee’s certificate of authentication
of the Master Note has been manually signed by one of the trustee’s authorized officers and to customary assumptions about
the trustee’s authorization, execution and delivery of the indenture governing the notes, the validity, binding nature and
enforceability of the indenture governing the notes with respect to the trustee, the legal capacity of natural persons, the genuineness
of signatures, the authenticity of all documents submitted to McGuireWoods LLP as originals, the conformity to original documents
of all documents submitted to McGuireWoods LLP as photocopies thereof, the authenticity of the originals of such copies and certain
factual matters, all as stated in the letter of McGuireWoods LLP dated February 24, 2015, which has been filed as an exhibit to
BAC’s Post-Effective Amendment No. 2 to Registration Statement relating to the notes filed with the Securities and Exchange
Commission on February 24, 2015.
U.S. FEDERAL INCOME
TAX SUMMARY
The
following summary of the material U.S. federal income tax considerations of the acquisition, ownership, and disposition of the
notes is based upon the advice of Morrison & Foerster LLP, our tax counsel. The following discussion supplements, and to the
extent inconsistent supersedes, the discussions under “U.S. Federal Income Tax Considerations” in the accompanying
prospectus and under “U.S. Federal Income Tax Considerations” in the accompanying prospectus supplement and is not
exhaustive of all possible tax considerations. This summary is based upon the Internal Revenue Code of 1986, as amended (the “Code”),
regulations promulgated under the Code by the U.S. Treasury Department (“Treasury”) (including proposed and temporary
regulations), rulings, current administrative interpretations and official pronouncements of the IRS, and judicial decisions, all
as currently in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect.
No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax
consequences described below. This summary does not include any description of the tax laws of any state or local governments,
or of any foreign government, that may be applicable to a particular holder.
This
summary is directed solely to U.S. Holders and Non-U.S. Holders that, except as otherwise specifically noted, will purchase the
notes upon original issuance and will hold the notes as capital assets within the meaning of Section 1221 of the Code, which generally
means property held for investment, and that are not excluded from the discussion under “U.S. Federal Income Tax Considerations”
in the accompanying prospectus.
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.
General
Although
there is no statutory, judicial, or administrative authority directly addressing the characterization of the notes, we intend to
treat the notes for all tax purposes as single financial contracts with respect to the Market Measure and under the terms of the
notes, we and every investor in the notes agree, in the absence of an administrative determination or judicial ruling to the contrary,
to treat the notes in accordance with such characterization. This discussion assumes that the notes constitute single financial
contracts with respect to the Market Measure for U.S. federal income tax purposes. If the notes did not constitute single financial
contracts, the tax consequences described below would be materially different.
This
characterization of the notes is not binding on the IRS or the courts. No statutory, judicial, or administrative authority directly
addresses the characterization of the notes or any similar instruments for U.S. federal income tax purposes, and no ruling is being
requested from the IRS with respect to their proper characterization and treatment. Due to the absence of authorities on point,
significant aspects of the U.S. federal income tax consequences of an investment in the notes are not certain, and no assurance
can be given that the IRS or any court will agree with the characterization and tax treatment described in this supplement. Accordingly,
you are urged to consult your tax advisor regarding all aspects of the U.S. federal income tax consequences of an investment in
the notes, including possible alternative characterizations.
Unless
otherwise stated, the following discussion is based on the characterization described above. The discussion in this section assumes
that there is a significant possibility of a significant loss of principal on an investment in the notes.
We
will not attempt to ascertain whether the issuer of any component stocks included in the Market Measure would be treated as a “passive
foreign investment company” (“PFIC”), within the meaning of Section 1297 of the Code, or a United States real
property holding corporation, within the meaning of Section 897(c) of the Code. If the issuer of one or more stocks included in
the Market Measure were so treated, certain adverse U.S. federal income tax consequences could possibly apply to a holder of the
notes. You should refer to information filed with the SEC by the issuers of the component stocks included in the Market Measure
and consult your tax advisor regarding the possible consequences to you, if any, if any issuer of the component stocks included
in the Market Measure is or becomes a PFIC or is or becomes a United States real property holding corporation.
U.S.
Holders
Upon
receipt of a cash payment at maturity or upon a sale, exchange, or redemption of the notes prior to maturity, a U.S. Holder generally
will recognize capital gain or loss equal to the difference between the amount realized and the U.S. Holder’s tax basis in
the notes. A U.S. Holder’s tax basis in the notes will equal the amount paid by that holder to acquire them. This capital
gain or loss generally will be long-term capital gain or loss if the U.S. Holder held the notes for more than one year. The deductibility
of capital losses is subject to limitations.
Alternative
Tax Treatments. Due to the absence of authorities that directly address the proper tax treatment of the notes, prospective
investors are urged to consult their tax advisors regarding all possible alternative tax treatments of an investment in the notes.
In particular, the IRS could seek to subject the notes to the Treasury regulations governing contingent payment debt instruments.
If the IRS were successful in that regard, the timing and character of income on the notes would be affected significantly. Among
other things, a U.S. Holder would be required to accrue original issue discount every year at a “comparable yield”
determined at the time of issuance. In addition, any gain realized by a U.S. Holder at maturity or upon a sale, exchange, or redemption
of the notes generally would be treated as ordinary income, and any loss realized at maturity would be treated as ordinary loss
to the extent of the U.S. Holder’s prior accruals of original issue discount, and as capital loss thereafter.
The
IRS released Notice 2008-2 (the “Notice”), which sought comments from the public on the taxation of financial instruments
currently taxed as “prepaid forward contracts.” This Notice addresses instruments such as the notes. According to the
Notice, the IRS and Treasury are considering whether a holder of an instrument such as the notes should be required to accrue ordinary
income on a current basis, regardless of whether any payments are made prior to maturity. It is not possible to determine what
guidance the IRS and Treasury will ultimately issue, if any. Any such future guidance may affect the amount, timing and character
of income, gain, or loss in respect of the notes, possibly with retroactive effect.
The
IRS and Treasury are also considering additional issues, including whether additional gain or loss from such instruments should
be treated as ordinary or capital, whether foreign holders of such instruments should be subject to withholding tax on any deemed
income accruals, whether Section 1260 of the Code, concerning certain “constructive ownership transactions,” generally
applies or should generally apply to such instruments, and whether any of these determinations depend on the nature of the underlying
asset.
In
addition, proposed Treasury regulations require the accrual of income on a current basis for contingent payments made under certain
notional principal contracts. The preamble to the regulations states that the “wait and see” method of accounting does
not properly reflect the economic accrual of income on those contracts, and requires current accrual of income for some contracts
already in existence. While the proposed regulations do not apply to prepaid forward contracts, the preamble to the proposed regulations
expresses the view that similar timing issues exist in the case of prepaid forward contracts. If the IRS or Treasury publishes
future guidance requiring current economic accrual for contingent payments on prepaid forward contracts, it is possible that you
could be required to accrue income over the term of the notes.
Because
of the absence of authority regarding the appropriate tax characterization of the notes, it is also possible that the IRS could
seek to characterize the notes in a manner that results in tax consequences that are different from those described above. For
example, the IRS could possibly assert that any gain or loss that a holder may recognize at maturity or upon the sale, exchange
or redemption of the notes should be treated as ordinary gain or loss.
Because
the Market Measure is an index that periodically rebalances, it is possible that the notes could be treated as a series of single
financial contracts, each of which matures on the next rebalancing date. If the notes were properly characterized in such a manner,
a U.S. Holder would be treated as disposing of the notes on each rebalancing date in return for new notes that mature on the next
rebalancing date, and a U.S. Holder would accordingly likely recognize capital gain or loss on each rebalancing date equal to the
difference between the holder’s tax basis in the notes (which would be adjusted to take into account any prior recognition
of gain or loss) and the fair market value of the notes on such date.
Non-U.S.
Holders
A
Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax for amounts paid in respect of the notes
provided that the Non-U.S. Holder complies with applicable certification requirements and that the payment is not effectively connected
with the conduct by the Non-U.S. Holder of a U.S. trade or business. Notwithstanding the foregoing, gain from the sale, exchange,
or redemption of the notes or their settlement at maturity may be subject to U.S. federal income tax if that Non-U.S. Holder is
a non-resident alien individual and is present in the U.S. for 183 days or more during the taxable year of the settlement at maturity,
sale, exchange, or redemption and certain other conditions are satisfied.
If
a Non-U.S. Holder of the notes is engaged in the conduct of a trade or business within the U.S. and if gain realized on the settlement
at maturity, or upon sale, exchange, or redemption of the notes, is effectively connected with the conduct of such trade or business
(and, if certain tax treaties apply, is attributable to a permanent establishment maintained by the Non-U.S. Holder in the U.S.),
the Non-U.S. Holder generally will be subject to U.S. federal income tax on such gain on a net income basis in the same manner
as if it were a U.S. Holder. Such Non-U.S. Holders should read the material under the heading “—U.S. Holders,”
for a description of the U.S. federal income tax consequences of acquiring, owning, and disposing of the notes. In addition, if
such Non-U.S. Holder is a foreign corporation, it may also be subject to a branch profits tax equal to 30% (or such lower rate
provided by any applicable tax treaty) of a portion of its earnings and profits for the taxable year that are effectively connected
with its conduct of a trade or business in the U.S., subject to certain adjustments.
As
discussed above, alternative characterizations of the notes for U.S. federal income tax purposes are possible. Should an alternative
characterization, by reason of change or clarification of the law, by regulation or otherwise, cause payments as to the notes to
become subject to withholding tax, we will withhold tax at the applicable statutory rate. As discussed above, the IRS has indicated
in the Notice that it is considering whether income in respect of instruments such as the notes should be subject to withholding
tax. Prospective Non-U.S. Holders of the notes should consult their own tax advisors in this regard.
U.S.
Federal Estate Tax. Under current law, while the matter is not entirely clear, individual Non-U.S. Holders, and entities whose
property is potentially includible in those individuals’ gross estates for U.S. federal estate tax purposes (for example,
a trust funded by such an individual and with respect to which the individual has retained certain interests or powers), should
note that, absent an applicable treaty benefit, a note is likely to be treated as U.S. situs property, subject to U.S. federal
estate tax. These individuals and entities should consult their own tax advisors regarding the U.S. federal estate tax consequences
of investing in a note.
Backup
Withholding and Information Reporting
Please
see the discussion under “U.S. Federal Income Tax Considerations — Taxation of Debt Securities — Backup Withholding
and Information Reporting” in the accompanying prospectus for a description of the applicability of the backup withholding
and information reporting rules to payments made on the notes.
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing,
or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974 (“ERISA”) (a “Plan”),
should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing
an investment in the notes. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the
Plan.
The fiduciary investment considerations
summarized above generally apply to employee benefit plans maintained by private-sector employers and to individual retirement
accounts and other arrangements subject to Section 4975 of the Code, but generally do not apply to governmental plans (as defined
in Section 3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA), and foreign plans (as described in Section
4(b)(4) of ERISA). However, these other plans may be subject to similar provisions under applicable federal, state, local, foreign,
or other regulations, rules, or laws (“similar laws”). The fiduciaries of plans subject to similar laws should also
consider the foregoing issues in general terms as well as any further issues arising under the applicable similar laws.
In addition, we and certain of our
subsidiaries and affiliates may be each considered a party in interest within the meaning of ERISA, or a disqualified person (within
the meaning of the Code), with respect to many Plans, as well as many individual retirement accounts and Keogh plans (also “Plans”).
Prohibited transactions within the meaning of ERISA or the Code would likely arise, for example, if the notes are acquired by or
with the assets of a Plan with respect to which we or any of our affiliates is a party in interest, unless the notes are acquired
under an exemption from the prohibited transaction rules. A violation of these prohibited transaction rules could result in an
excise tax or other liabilities under ERISA and/or Section 4975 of the Code for such persons, unless exemptive relief is available
under an applicable statutory or administrative exemption.
Under ERISA and various prohibited
transaction class exemptions (“PTCEs”) issued by the U.S. Department of Labor, exemptive relief may be available for
direct or indirect prohibited transactions resulting from the purchase, holding, or disposition of the notes. Those exemptions
are PTCE 96-23 (for certain transactions determined by in-house asset managers), PTCE 95-60 (for certain transactions involving
insurance company general accounts), PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 90-1
(for certain transactions involving insurance company separate accounts), PTCE 84-14 (for certain transactions determined by independent
qualified asset managers), and the exemption under Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code for certain
arm’s-length transactions with a person that is a party in interest solely by reason of providing services to Plans or being
an affiliate of such a service provider (the “Service Provider Exemption”).
Because we may be considered a party
in interest with respect to many Plans, the notes may not be purchased, held, or disposed of by any Plan, any entity whose underlying
assets include plan assets by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person
investing plan assets of any Plan, unless such purchase, holding, or disposition is eligible for exemptive relief, including relief
available under PTCE 96-23, 95-60, 91-38, 90-1, or 84-14 or the Service Provider Exemption, or such purchase, holding, or disposition
is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or holder of the
notes will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding of the notes
that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such notes on behalf of or with plan assets of any
Plan or any plan subject to similar laws or (b) its purchase, holding, and disposition are eligible for exemptive relief or such
purchase, holding, and disposition are not prohibited by ERISA or Section 4975 of the Code or similar laws.
Further, any person acquiring or holding
the notes on behalf of any plan or with any plan assets shall be deemed to represent on behalf of itself and such plan that (x)
the plan is paying no more than, and is receiving no less than, adequate consideration within the meaning
of
Section 408(b)(17) of ERISA in connection with the transaction or any redemption of the notes, (y) none of us, MLPF&S, or any
other selling agent directly or indirectly exercises any discretionary authority or control or renders investment advice or otherwise
acts in a fiduciary capacity with respect to the assets of the plan within the meaning of ERISA and (z) in making the foregoing
representations and warranties, such person has applied sound business principles in determining whether fair market value will
be paid, and has made such determination acting in good faith.
In addition, any purchaser, that is
a Plan or a Plan Asset Entity or that is acquiring the notes on behalf of a Plan or a Plan Asset Entity, including any fiduciary
purchasing on behalf of a Plan or Plan Asset entity, will be deemed to have represented, in its corporate and its fiduciary capacity,
by its purchase and holding of the notes that (a) none of us, MLPF&S, or any of our respective affiliates is a “fiduciary”
(under Section 3(21) of ERISA, or under any final or proposed regulations thereunder, or with respect to a governmental, church,
or foreign plan under any similar laws) with respect to the acquisition, holding or disposition of the notes, or as a result of
any exercise by us or our affiliates of any rights in connection with the notes, (b) no advice provided by us or any of our affiliates
has formed a primary basis for any investment decision by or on behalf of such purchaser in connection with the notes and the transactions
contemplated with respect to the notes, and (c) such purchaser recognizes and agrees that any communication from us or any of our
affiliates to the purchaser with respect to the notes is not intended by us or any of our affiliates to be impartial investment
advice and is rendered in its capacity as a seller of such notes and not a fiduciary to such purchaser. Purchasers of the notes
have exclusive responsibility for ensuring that their purchase, holding, and disposition of the notes do not violate the prohibited
transaction rules of ERISA or the Code or any similar regulations applicable to governmental or church plans, as described above.
This discussion is a general summary
of some of the rules which apply to benefit plans and their related investment vehicles. This summary does not include all of the
investment considerations relevant to Plans and other benefit plan investors such as governmental, church, and foreign plans and
should not be construed as legal advice or a legal opinion. Due to the complexity of these rules and the penalties that may be
imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other persons
considering purchasing the notes on behalf of or with “plan assets” of any Plan or other benefit plan investor consult
with their legal counsel prior to directing any such purchase.
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