We will deliver the notes in book-entry
form only through The Depository Trust Company on September 12, 2017 against payment in immediately available funds.
DESCRIPTION OF
THE NOTES
General
The notes will be part of a series of
medium-term notes entitled “Senior Medium-Term Notes, Series A” issued under the senior indenture, as amended and supplemented
from time to time, among us, the Guarantor and The Bank of New York Mellon Trust Company N.A., as trustee. 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.
Our payment obligations on the notes
are fully and unconditionally guaranteed by the Guarantor. The notes will rank equally with all of our other unsecured senior debt
from time to time outstanding. The guarantee of the notes will rank equally with all other unsecured senior obligations of the
Guarantor. All payments due on the notes, including any repayment of principal, are subject to our credit risk, as issuer, and
the credit risk of BAC, as guarantor.
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 your option or at our option. The notes may be automatically called prior to maturity as described under “—Automatic
Early Redemption.”
If any payment on the notes is due on
a day that is not a business day, the payment will be postponed to the next business day, and no additional interest will be payable
as a result of that postponement.
Interest Payments
We will pay interest on the notes at
the rate of 8.50% per annum if the notes have not been redeemed. Interest will be calculated on a 30/360 basis.
Interest will be paid on the interest
payment dates set forth on PS-3.
For so long as the notes are held in
book-entry only form, we will pay the interest payments to the persons in whose names the notes are registered at the close of
business one business day prior to each interest payment date. If the notes are not held in book-entry only form, the record dates
will be the fifteenth calendar day preceding the applicable interest payment date, whether or not that date is a business day.
Notwithstanding the foregoing, the Redemption
Amount, including the final interest payment will be paid to the persons in whose names the notes are registered on the maturity
date.
Automatic Early Redemption
The notes will be automatically called
in whole, but not in part, prior to maturity if the Observation Value of
each
Underlying Stock on any Observation Date (except
the Final Observation Date) is greater than or equal to its Starting Value. Upon an early redemption, you will receive the Early
Redemption Amount on the interest payment date next following the Observation Date. You will not receive any additional payments
on the notes after the early redemption date.
The “Early Redemption Amount”
will be the principal amount of your notes, plus the quarterly interest payment.
Redemption Amount
If
your notes are not automatically called prior to maturity, then at maturity, subject to our credit
risk as issuer of the
notes and the credit risk of the Guarantor as guarantor of the notes, you will receive the Redemption Amount per note that you
hold, denominated in U.S. dollars. The Redemption Amount will be calculated as follows:
|
·
|
If the Ending Value of
each
Underlying Stock is greater than or equal to its Threshold
Value, the Redemption Amount will equal the principal amount.
|
|
·
|
If the Ending Value of
any
Underlying Stock is less than its Threshold Value, the Redemption
Amount will equal the product of (a) the principal amount multiplied by (b) the sum of one plus the Underlying Return of the Least
Performing Underlying. In this case, the Redemption Amount will be less than 65% of the principal amount of the notes and could
be zero.
|
In each case, you will also receive
the final payment of interest on the notes.
The
“Least Performing Underlying” will be the Underlying Stock that has the lowest Underlying Return.
The
“Underlying Return” for each Stock will be equal to
.
Determining the Starting Value, the
Observation Value and the Ending Value of Each Underlying Stock
The “Starting Value” for
each Underlying Stock is set forth on page PS-4 above.
The “Observation Value”
for each Underlying Stock will be its Closing Market Price on the applicable Observation Date, multiplied by its Price Multiplier
as of that day.
The “Ending Value” for each
Underlying Stock will be its Observation Value on the Final Observation Date, multiplied by its Price Multiplier as of that day.
The “Price Multiplier” with
respect to each Underlying Stock will be 1, subject to adjustment for certain corporate events relating to that Underlying Stock
described in the product supplement under “Description of the Notes—Anti-Dilution Adjustments.”
The Observation Dates are subject to
postponement as set forth in the product supplement, in the section “Description of the Notes—Certain Terms of the
Notes—Events Relating to Observation Dates.”
Events of Default and Acceleration
If an
Event of Default, as defined in the senior indenture
and in the section entitled “Events
of Default and Rights of Acceleration” beginning on page 35 of the accompanying prospectus, with respect to the notes 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 amount described under the caption “—Redemption Amount,” calculated as though the date of acceleration
were the maturity date of the notes and as though the Final Observation Date were the third trading day prior to the date of acceleration,
together with accrued and unpaid interest. Any such final interest payment may be prorated by the calculation agent to reflect
the length of the final interest payment period. In case of a default in the payment of the notes, whether at their maturity or
upon acceleration, the notes will not bear a default interest rate.
THE UNDERLYING STOCKS
We have derived the following information
from publicly available documents. None of us, the Guarantor, MLPF&S or any of our other affiliates has independently verified
the accuracy or completeness of the following information.
Because each Underlying Stock is registered
under the Securities Exchange Act of 1934, the company issuing each Underlying Stock (each, an “Underlying Company”
and, together, the “Underlying Companies”) is required to file periodically certain financial and other information
specified by the SEC. Information provided to or filed with the SEC by the Underlying Companies can be located at the Public Reference
Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549 or through the SEC’s web site at http://www.sec.gov
by reference to the applicable CIK number set forth below.
This document relates only to the notes
and does not relate to any Underlying Stock or to any other securities of the Underlying Companies. None of us, the Guarantor,
MLPF&S or any of our other affiliates has participated or will participate in the preparation of the Underlying Companies’
publicly available documents. None of us, the Guarantor, MLPF&S or any of our other affiliates has made any due diligence inquiry
with respect to the Underlying Companies in connection with the offering of the notes. None of us, the Guarantor, MLPF&S or
any of our other affiliates makes any representation that the publicly available documents or any other publicly available information
regarding the Underlying Companies are accurate or complete. Furthermore, there can be no assurance that all events occurring prior
to the date of this document, including events that would affect the accuracy or completeness of these publicly available documents
that would affect the trading price of the Underlying Stocks, have been or will be publicly disclosed. Subsequent disclosure of
any events or the disclosure or failure to disclose material future events concerning an Underlying Company could affect the value
of the applicable Underlying Stock and therefore could affect your return on the notes. The selection of the Underlying Stocks
is not a recommendation to buy or sell the Underlying Stocks.
The Goldman Sachs Group, Inc.
The Goldman Sachs Group, Inc., a bank
holding company, is a global investment banking and securities firm specializing in investment banking, trading and principal investments,
asset management and securities services. The company provides services to corporations, financial institutions, governments, and
high-net worth individuals. This Underlying Stock trades on the New York Stock Exchange (the “NYSE”) under the symbol
“GS.” The company’s CIK number is 886982.
The following table shows the
quarterly high and low Closing Market Prices of the shares of this Underlying Stock on its primary exchange from the first quarter
of 2008 through the pricing date. 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. These historical trading prices may have been adjusted to reflect
certain corporate actions, such as stock splits and reverse stock splits.
|
High ($)
|
Low ($)
|
2008
|
|
|
First Quarter
|
207.78
|
151.02
|
Second Quarter
|
200.27
|
162.40
|
Third Quarter
|
188.04
|
108.00
|
Fourth Quarter
|
134.50
|
52.00
|
2009
|
|
|
First Quarter
|
112.95
|
59.20
|
Second Quarter
|
149.47
|
110.29
|
Third Quarter
|
185.52
|
138.55
|
Fourth Quarter
|
192.28
|
160.93
|
2010
|
|
|
First Quarter
|
177.90
|
148.72
|
Second Quarter
|
184.92
|
131.27
|
Third Quarter
|
156.41
|
131.08
|
Fourth Quarter
|
171.07
|
146.57
|
2011
|
|
|
First Quarter
|
175.00
|
154.38
|
Second Quarter
|
162.40
|
129.26
|
Third Quarter
|
137.60
|
93.98
|
Fourth Quarter
|
116.40
|
87.70
|
2012
|
|
|
First Quarter
|
128.07
|
93.42
|
Second Quarter
|
124.90
|
91.00
|
Third Quarter
|
121.36
|
93.16
|
Fourth Quarter
|
129.69
|
114.24
|
2013
|
|
|
First Quarter
|
158.65
|
130.94
|
Second Quarter
|
167.49
|
138.60
|
Third Quarter
|
169.75
|
150.43
|
Fourth Quarter
|
177.26
|
153.05
|
2014
|
|
|
First Quarter
|
179.37
|
159.82
|
Second Quarter
|
170.24
|
152.72
|
Third Quarter
|
187.89
|
163.42
|
Fourth Quarter
|
196.89
|
172.58
|
2015
|
|
|
First Quarter
|
194.41
|
172.41
|
Second Quarter
|
218.40
|
191.55
|
Third Quarter
|
213.25
|
171.86
|
Fourth Quarter
|
199.17
|
175.49
|
2016
|
|
|
First Quarter
|
177.14
|
140.69
|
Second Quarter
|
166.98
|
139.51
|
Third Quarter
|
171.66
|
144.45
|
Fourth Quarter
|
243.09
|
161.07
|
2017
|
|
|
First Quarter
|
252.89
|
225.48
|
Second Quarter
|
229.26
|
211.26
|
Third Quarter (through the pricing date)
|
232.92
|
215.84
|
MetLife, Inc.
MetLife, Inc. provides individual insurance,
employee benefits and financial services with operations throughout the United States and the regions of Latin America, Europe
and Asia Pacific. The company's products include life insurance, annuities, automobile and homeowners insurance, retail banking
and other financial services for individuals as well as group insurance. This Underlying Stock trades on the NYSE under the symbol
“MET.” The company’s CIK number is 1099219.
The following table shows the
quarterly high and low Closing Market Prices of the shares of this Underlying Stock on its primary exchange from the first quarter
of 2008 through the pricing date. 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. These historical trading prices may have been adjusted to reflect
certain corporate actions, such as stock splits and reverse stock splits.
|
High ($)
|
Low ($)
|
2008
|
|
|
First Quarter
|
54.78
|
48.67
|
Second Quarter
|
56.03
|
47.03
|
Third Quarter
|
56.14
|
38.99
|
Fourth Quarter
|
42.91
|
14.69
|
2009
|
|
|
First Quarter
|
32.05
|
10.78
|
Second Quarter
|
31.64
|
20.88
|
Third Quarter
|
36.39
|
23.97
|
Fourth Quarter
|
34.18
|
29.60
|
2010
|
|
|
First Quarter
|
38.62
|
29.98
|
Second Quarter
|
41.97
|
33.65
|
Third Quarter
|
38.08
|
32.52
|
Fourth Quarter
|
40.03
|
33.63
|
2011
|
|
|
First Quarter
|
43.34
|
37.68
|
Second Quarter
|
41.70
|
34.97
|
Third Quarter
|
39.55
|
23.90
|
Fourth Quarter
|
32.81
|
23.70
|
2012
|
|
|
First Quarter
|
35.16
|
28.55
|
Second Quarter
|
33.86
|
24.79
|
Third Quarter
|
32.30
|
25.52
|
Fourth Quarter
|
33.07
|
27.54
|
2013
|
|
|
First Quarter
|
35.82
|
30.87
|
Second Quarter
|
41.08
|
31.66
|
Third Quarter
|
45.87
|
40.86
|
Fourth Quarter
|
48.14
|
41.33
|
2014
|
|
|
First Quarter
|
48.61
|
41.94
|
Second Quarter
|
50.39
|
43.83
|
Third Quarter
|
50.99
|
45.52
|
Fourth Quarter
|
50.22
|
42.52
|
2015
|
|
|
First Quarter
|
48.04
|
41.44
|
Second Quarter
|
51.42
|
44.78
|
Third Quarter
|
51.42
|
41.05
|
Fourth Quarter
|
46.06
|
41.37
|
2016
|
|
|
First Quarter
|
42.17
|
31.38
|
Second Quarter
|
41.79
|
32.55
|
Third Quarter
|
39.83
|
33.73
|
Fourth Quarter
|
51.14
|
39.54
|
2017
|
|
|
First Quarter
|
50.04
|
45.80
|
Second Quarter
|
49.07
|
44.39
|
Third Quarter (through the pricing date)
|
50.06
|
46.68
|
The Priceline Group Inc.
The Priceline Group, Inc. operates as
an online travel company. The company's platform allows customers to make travel reservations with providers of travel services
globally. The company provides consumers with accommodation reservations, rentals cars, airline tickets and vacation packages.
This Underlying Stock trades on the Nasdaq Global Select Market (the “NASDAQ”) under the symbol “PCLN.”
The company’s CIK number is 1075531.
The following table shows the
quarterly high and low Closing Market Prices of the shares of this Underlying Stock on its primary exchange from the first quarter
of 2008 through the pricing date. 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. These historical trading prices may have been adjusted to reflect
certain corporate actions, such as stock splits and reverse stock splits.
|
High ($)
|
Low ($)
|
2008
|
|
|
First Quarter
|
127.51
|
89.36
|
Second Quarter
|
139.66
|
115.46
|
Third Quarter
|
117.20
|
66.84
|
Fourth Quarter
|
70.82
|
47.07
|
2009
|
|
|
First Quarter
|
86.68
|
66.04
|
Second Quarter
|
118.00
|
80.88
|
Third Quarter
|
168.24
|
103.75
|
Fourth Quarter
|
229.24
|
157.79
|
2010
|
|
|
First Quarter
|
255.99
|
195.35
|
Second Quarter
|
273.00
|
175.19
|
Third Quarter
|
349.93
|
176.41
|
Fourth Quarter
|
420.65
|
330.86
|
2011
|
|
|
First Quarter
|
506.44
|
409.41
|
Second Quarter
|
555.65
|
458.78
|
Third Quarter
|
552.15
|
446.32
|
Fourth Quarter
|
552.85
|
444.00
|
2012
|
|
|
First Quarter
|
735.40
|
476.08
|
Second Quarter
|
764.75
|
610.50
|
Third Quarter
|
690.55
|
562.00
|
Fourth Quarter
|
667.80
|
557.87
|
2013
|
|
|
First Quarter
|
725.07
|
638.40
|
Second Quarter
|
842.50
|
683.57
|
Third Quarter
|
1,014.97
|
840.74
|
Fourth Quarter
|
1,192.33
|
989.03
|
2014
|
|
|
First Quarter
|
1,370.43
|
1,113.49
|
Second Quarter
|
1,291.95
|
1,108.00
|
Third Quarter
|
1,309.28
|
1,153.59
|
Fourth Quarter
|
1,206.21
|
1,040.70
|
2015
|
|
|
First Quarter
|
1,250.86
|
998.25
|
Second Quarter
|
1,267.46
|
1,107.73
|
Third Quarter
|
1,351.80
|
1,116.94
|
Fourth Quarter
|
1,469.56
|
1,240.18
|
2016
|
|
|
First Quarter
|
1,350.99
|
973.80
|
Second Quarter
|
1,390.20
|
1,186.05
|
Third Quarter
|
1,472.98
|
1,267.37
|
Fourth Quarter
|
1,578.13
|
1,424.28
|
2017
|
|
|
First Quarter
|
1,789.20
|
1,477.57
|
Second Quarter
|
1,911.13
|
1,738.77
|
Third Quarter (through the pricing date)
|
2,049.00
|
1,789.91
|
SupplementAL
Plan of Distribution; Role of MLPF&S
and
Conflicts of Interest
MLPF&S, a broker-dealer affiliate
of ours, is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and will participate as selling
agent in the distribution of the notes. Accordingly, the offering of the notes will conform to the requirements of FINRA Rule 5121.
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 will deliver the notes against payment
therefor in New York, New York on a date that is greater than two business days following the pricing date. Under Rule 15c6-1 of
the Securities Exchange Act of 1934, as in effect as of the date of this pricing supplement, trades in the secondary market generally
are required to settle in two business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers
who wish to trade the notes more than two business days prior to the original issue date will be required to specify alternative
settlement arrangements to prevent a failed settlement.
MLPF&S and any of our other broker-dealer
affiliates, may use this pricing supplement, and the accompanying product supplement, 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, 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 Underlying Stocks and the remaining
term of the notes. However, none of us, the Guarantor, MLPF&S or any of our other affiliates is obligated to purchase your
notes at any price or at any time, and we cannot assure you that any party 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, the creditworthiness of us and the Guarantor, and 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 Underlying Stocks. The related guarantees are BAC’s obligations. As is
the case for all of our and BAC’s respective debt securities, including our market-linked notes, the economic terms of the
notes reflect our and BAC’s 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 and BAC, BAC typically borrows the funds under
these types of notes at a rate, which we refer to in this document as BAC’s internal funding rate, that is more favorable
to BAC than the rate that it 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 our other 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 and BAC’s creditworthiness, interest rate movements, the volatility of the Underlying Stocks, 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 any expected amounts.
For further information, see “Risk
Factors” beginning on page PS-9 above and “Supplemental Use of Proceeds” on page PS-16 of product supplement
STOCK-1.
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 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.
Although the notes are issued by us,
they will be treated as if they were issued by Bank of America Corporation for U.S. federal income tax purposes. Accordingly throughout
this tax discussion, references to “we,” “our” or “us” are generally to Bank of America Corporation
unless the context requires otherwise.
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 income-bearing single financial contracts linked to the Underlying Stocks 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. In the opinion of our counsel Morrison & Foerster LLP, it is reasonable to treat the
notes as income-bearing single financial contracts linked to the Underlying Stocks. However, Morrison & Foerster LLP has advised
us that it is unable to conclude that it is more likely than not that this treatment will be upheld. This discussion assumes that
the notes constitute income-bearing single financial contracts linked to the Underlying Stocks for U.S. federal income tax purposes.
If the notes do not constitute income-bearing 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 pricing 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 of the Underlying Stocks 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 any Underlying Stock 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 Underlying
Stocks and consult your tax advisor regarding the possible consequences to you, if any, if the issuer of any Underlying Stock is
or becomes a PFIC or is or becomes a United States real property holding corporation.
U.S. Holders
Although the U.S. federal income tax
treatment of the stated periodic interest payments on the notes is uncertain, we intend to take the position, and the following
discussion assumes, that the stated periodic interest payments constitute taxable ordinary income to a U.S. Holder at the time
received or accrued in accordance with the U.S. Holder’s regular method of accounting. By purchasing the notes you agree,
in the absence of an administrative determination or judicial ruling to the contrary, to treat the stated periodic interest payments
as described in the preceding sentence.
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 (other than amounts representing accrued stated periodic interest, which would
be taxed as described above) 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.
In addition, it is possible that the
notes could be treated as a unit consisting of a deposit and a put option written by the note holder, in which case the timing
and character of income on the notes would be affected significantly.
The IRS released Notice 2008-2 (“Notice”),
which sought comments from the public on the taxation of financial instruments currently taxed as “prepaid forward contracts.”
The scope of the Notice may extend to instruments similar to the notes. According to the Notice, the IRS and Treasury are considering
whether a holder of such instruments 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 sale, exchange or redemption of the notes should be
treated as ordinary gain or loss.
It is possible that the IRS could assert
that a U.S. Holder’s holding period in respect of the notes should end on the applicable Observation Date, even though such
holder will not receive any amounts in respect of the notes prior to the redemption or maturity of the notes. In such case, if
the applicable Observation Date is not in excess of one year from the original issue date, a U.S. Holder may be treated as having
a holding period in respect of the notes equal to one year or less, in which case any gain or loss such holder recognizes at such
time would be treated as short-term capital gain or loss.
Non-U.S. Holders
Because the U.S. federal income tax
treatment of the notes (including the periodic stated interest payments) is uncertain, we will withhold U.S. federal income tax
at a 30% rate (or at a lower rate under an applicable income tax treaty) on the entire amount of stated periodic interest payments
made unless such payments are effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the U.S.
(in which case, to avoid withholding, the Non-U.S. Holder will be required to provide a Form W-8ECI). We will not pay any additional
amounts in respect of such withholding. To claim benefits under an income tax treaty, a Non-U.S. Holder must obtain a taxpayer
identification number and certify as to its eligibility under the appropriate treaty’s limitations on benefits article, if
applicable. In addition, special rules may apply to claims for treaty benefits made by Non-U.S. Holders that are entities rather
than individuals. The availability of a lower rate of withholding under an applicable income tax treaty will depend on whether
such rate applies to the characterization of the payments under U.S. federal income tax laws. A Non-U.S. Holder that is eligible
for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld
by filing an appropriate claim for refund with the IRS.
A Non-U.S. Holder will generally not
be subject to U.S. federal income or withholding tax on any gain (not including, for the avoidance of doubt, any amounts representing
accrued stated periodic interest which would be subject to the rules discussed in the previous paragraph) from the sale, exchange
or redemption of the notes or their settlement at maturity, 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 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 any periodic stated interest payments and gain realized on
the sale, exchange, redemption, or settlement 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, although exempt from U.S. federal withholding tax, generally will be subject to U.S. federal income tax on
such periodic stated interest payments and 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.
A “dividend equivalent”
payment is treated as a dividend from sources within the United States and such payments generally would be subject to a 30% U.S.
withholding tax if paid to a Non-U.S. Holder. Under U.S. Treasury Department regulations, payments (including deemed payments)
with respect to equity-linked instruments (“ELIs”) that are “specified ELIs” may be treated as dividend
equivalents if such specified ELIs reference an interest in an “underlying security,” which is generally any interest
in an entity taxable as a corporation for U.S. federal income tax purposes if a payment with respect to such interest could give
rise to a U.S. source dividend. However, Internal Revenue Service guidance provides that withholding on dividend equivalent payments
will not apply to specified ELIs that are not delta-one instruments and that are issued before January 1, 2019. Based on our determination
that the notes are not delta one instruments, Non-U.S. Holders should not be subject to withholding on dividend equivalent payments,
if any, under the notes. However, it is possible that the notes could be treated as deemed reissued for U.S. federal income tax
purposes upon the occurrence of certain events affecting the Underlying Stocks or the notes, and following such occurrence the
notes could be treated as subject to withholding on dividend equivalent payments. Non-U.S. Holders that enter, or have entered,
into other transactions in respect of the Underlying Stocks or the notes should consult their tax advisors as to the application
of the dividend equivalent withholding tax in the context of the notes and their other transactions. If any payments are treated
as dividend equivalents subject to withholding, we (or the applicable paying agent) would be entitled to withhold taxes without
being required to pay any additional amounts with respect to amounts so withheld.
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 in addition
to the withholding tax described above, tax will be withheld at the applicable statutory rate. Non-U.S. Holders should consult
their own tax advisors regarding the tax consequences of such alternative characterizations.
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.