The information in this
Preliminary Pricing Supplement is not complete and may be changed.
We may not sell these notes until the Pricing Supplement is
delivered in final form. We are not selling these notes, nor are we
soliciting offers to buy these notes, in any state
where such offer or sale is not
permitted.
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|
Subject to Completion
Preliminary Term Sheet
dated June 29, 2022
|
Filed Pursuant to Rule 433
Registration Statement No. 333-261476
(To Prospectus dated December 29, 2021,
Prospectus Supplement dated December 29, 2021
and Product Supplement EQUITY SUN-1 dated
December 29, 2021)
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|
Units
$10 principal amount per unit
CUSIP No.
|
Pricing Date*
Settlement Date*
Maturity Date*
|
July , 2022
July , 2022
July , 2023
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|
*Subject to change based on
the actual date the notes are priced for initial sale to the public
(the “pricing date”)
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Market-Linked One Look Notes Linked to the VanEck®
Gold Miners ETF
◾
Maturity of
approximately one year
◾
If the Underlying
Fund is flat or increases, a return of [21.00% to
27.00%]
◾
1-to-1
downside exposure to decreases in the Underlying Fund, with up to
100.00% of your principal at risk
◾
All
payments occur at maturity and are subject to the credit risk of
The Bank of Nova Scotia
◾
No
periodic interest payments
◾
In
addition to the underwriting discount set forth below, the notes
include a hedging-related charge of $0.05 per unit. See
“Structuring the Notes”
◾
Limited secondary
market liquidity, with no exchange listing
◾
The notes are
unsecured debt securities and are not savings accounts or insured
deposits of a bank. The notes are not insured or guaranteed by the
Canada Deposit Insurance Corporation (the “CDIC”), the U.S. Federal
Deposit Insurance Corporation (the “FDIC”), or any other
governmental agency of Canada, the United States or any other
jurisdiction
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The notes are
being issued by The Bank of Nova Scotia (“BNS”). There are
important differences between the notes and a conventional debt
security, including different investment risks and certain
additional costs. See “Risk Factors” beginning on page TS-7 of this
term sheet, “Additional Risk Factors” on page TS-8 of this term
sheet and “Risk Factors” beginning on page PS-8 of product
supplement EQUITY SUN-1.
The initial estimated value of the notes as of
the pricing date is expected to be between $9.00 and $9.35 per
unit, which is less than the public offering price listed
below. See “Summary” on the following page, “Risk Factors”
beginning on page TS-7 of this term sheet and “Structuring the
Notes” on page TS-15 of this term sheet for additional information.
The actual value of your notes at any time will reflect many
factors and cannot be predicted with accuracy.
None of the U.S.
Securities and Exchange Commission (the “SEC”), any state
securities commission, or any other regulatory body has approved or
disapproved of these securities or determined if this Note
Prospectus (as defined below) is truthful or complete. Any
representation to the contrary is a criminal offense.
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Per
Unit
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Total
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Public offering
price(1)
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$
|
10.00 |
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$
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Underwriting
discount(1)
|
$
|
0.15 |
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$
|
Proceeds, before
expenses, to BNS
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$
|
9.85 |
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$
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(1) |
For any purchase of 300,000 units or more in a single
transaction by an individual investor or in combined transactions
with the investor’s household in this offering, the public offering
price and the underwriting discount will be $9.95 per unit and
$0.10 per unit, respectively. See “Supplement to the Plan of
Distribution” below.
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The notes:
Are Not FDIC Insured
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Are Not Bank Guaranteed
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May Lose Value
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BofA Securities
July ,
2022
Summary
The Market-Linked
One Look Notes Linked to the VanEck®
Gold Miners ETF due July , 2023 (the “notes”) are our senior
unsecured debt securities. The notes are not guaranteed or insured
by the CDIC or the FDIC, and are not, either directly or
indirectly, an obligation of any third party. The notes are not
bail-inable debt securities (as defined in the prospectus).
The notes will rank equally with
all of our other unsecured senior debt. Any payments due on the
notes, including any repayment of principal, will be subject to the
credit risk of BNS. The notes provide you with a Step Up
Payment if the Ending Value of the Market Measure, which is the
VanEck®
Gold Miners ETF (the “Underlying Fund”), is equal to or greater
than the Starting Value. If the Ending Value is less than the
Starting Value, you will lose all or a portion of the principal
amount of your notes. Any payments on the notes will be calculated
based on the $10 principal amount per unit and will depend on the
performance of the Underlying Fund, subject to our credit risk. See
“Terms of the Notes” below.
The economic terms
of the notes (including the Step Up Payment) 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. Our internal
funding rate is typically lower than the rate we would pay when we
issue conventional fixed rate debt securities. This difference in
funding rate, as well as the underwriting discount and the hedging
related charge described below, will reduce the economic terms of
the notes to you and the initial estimated value of the notes on
the pricing date. 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.
On the cover page
of this term sheet, we have provided the initial estimated value
range for the notes. This range of estimated values was determined
by reference to our internal pricing models, which take into
consideration certain factors, such as our internal funding rate on
the pricing date and our assumptions about market parameters. For
more information about the initial estimated value and the
structuring of the notes, see “Structuring the Notes” on page
TS-15.
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Terms of the Notes
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Issuer:
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The Bank
of Nova Scotia (“BNS”)
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Principal
Amount:
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$10.00
per unit
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Term:
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Approximately one year
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Market Measure:
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The
VanEck®
Gold Miners ETF (Bloomberg symbol: “GDX”)
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Starting Value:
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The
Closing Market Price of the Market Measure on the pricing
date
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Ending Value:
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The
Closing Market Price of the Market Measure times the price
multiplier on the calculation day. The scheduled calculation day is
subject to postponement in the event of Market Disruption Events,
as described beginning on page PS-27 of product supplement EQUITY
SUN-1.
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Price Multiplier:
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1,
subject to adjustment for certain events relating to the Underlying
Fund, as described beginning on page PS-30 of product supplement
EQUITY SUN-1.
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Step Up
Payment:
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[$2.10
to $2.70] per unit, which represents a return of [21.00% to 27.00%]
over the principal amount. The actual Step Up Payment will be
determined on the pricing date.
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Threshold Value:
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100% of
the Starting Value.
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Calculation Day:
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Approximately the fifth scheduled Market Measure Business Day
immediately preceding the maturity date.
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Fees and
Charges:
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The
underwriting discount of $0.15 per unit listed on the cover page
and the hedging related charge of $0.05 per unit described in
“Structuring the Notes” on page TS-15.
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Calculation
Agent:
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BofA
Securities, Inc. (“BofAS”).
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Redemption Amount Determination
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Notwithstanding anything to the contrary in the accompanying
product supplement, the Redemption Amount will be determined as set
forth in this term sheet. On the maturity date, you will receive a
cash payment per unit determined as follows:
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The terms and
risks of the notes are contained in this term sheet and in the
following:
◾ |
Prospectus supplement dated December 29, 2021:
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These documents
(together, the “Note Prospectus”) have been filed as part of a
registration statement with the SEC, which may, without cost, be
accessed on the SEC website as indicated above or obtained from
Merrill Lynch, Pierce, Fenner & Smith Incorporated
(“MLPF&S”) or BofAS by calling 1-800-294-1322. You should read
the Note Prospectus, including this term sheet, for information
about us and this offering. Any prior or contemporaneous oral
statements and any other written materials you may have received
are superseded by the Note Prospectus. Capitalized terms used but
not defined in this term sheet have the meanings set forth in
product supplement EQUITY SUN-1. Unless otherwise indicated or
unless the context requires otherwise, all references in this
document to “we,” “us,” “our,” or similar references are to
BNS.
Investor Considerations
You may wish to consider an
investment in the notes if:
◾ |
You anticipate that the Underlying Fund will not decrease from
the Starting Value to the Ending Value.
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◾ |
You
accept that the return on the notes will be limited to the return
represented by the Step Up Payment.
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◾ |
You are willing to risk a substantial loss of principal if the
Underlying Fund decreases from the Starting Value to the Ending
Value.
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◾ |
You are willing to forgo the interest payments that are paid
on conventional interest bearing debt securities.
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◾ |
You are willing to forgo the benefits of directly owning the
Underlying Fund or the securities included in the Underlying
Fund.
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◾ |
You are willing to accept a limited or no market for sales
prior to maturity, and understand that the market prices for the
notes, if any, will be affected by various factors, including our
actual and perceived creditworthiness, our internal funding rate
and fees and charges on the notes.
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◾ |
You are willing to assume our credit risk, as issuer of the
notes, for all payments under the notes, including the Redemption
Amount.
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The notes may not be an appropriate
investment for you if:
◾ |
You believe that the Underlying Fund will decrease from the
Starting Value to the Ending Value or that it will increase by more
than the return represented by the Step Up Payment.
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◾ |
You seek principal repayment or preservation of capital.
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◾ |
You seek interest payments or other current income on your
investment.
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◾ |
You want to receive the benefits of directly owning the
Underlying Fund or the securities included in the Underlying
Fund.
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◾ |
You seek an investment for which there will be a liquid
secondary market.
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◾ |
You are unwilling or are unable to take market risk on the
notes or to take our credit risk as issuer of the notes.
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We urge you
to consult your investment, legal, tax, accounting, and other
advisors before you invest in the notes.
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Hypothetical Payout Profile and Examples of Payments at
Maturity
The graph below is based on hypothetical numbers and values.
Market-Linked One Look Notes
This graph
reflects the returns on the notes, based on the Threshold Value of
100.00% of the Starting Value and a hypothetical Step Up Payment of
$2.40 per unit (the midpoint of the Step Up Payment range of [$2.10
to $2.70]. The green line reflects the returns on the notes, while
the dotted gray line reflects the returns of a direct investment in
the Market Measure.
This graph has been prepared for purposes of illustration
only.
The following table and examples are for purposes of
illustration only. They are based on hypothetical values and show
hypothetical returns on the
notes. They illustrate the calculation of the Redemption Amount and
total rate of return based on a hypothetical Starting Value of 100,
a hypothetical Threshold Value of 100, a hypothetical Step Up
Payment of $2.40 per unit 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, Threshold Value, Ending Value, Step Up
Payment and whether you hold the notes to maturity. The
following examples do not take into account any tax consequences
from investing in the notes.
For recent actual levels of the
Market Measure, see “Underlying Fund” section below. All payments
on the notes are subject to issuer credit risk.
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Percentage
Change from the
Starting Value
to the Ending
Value
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|
Redemption
Amount per
Unit
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|
Total Rate of
Return on the
Notes
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0.00
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-100.00%
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$0.00
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-100.00%
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50.00
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-50.00%
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$5.00
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-50.00%
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80.00
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-20.00%
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$8.00
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-20.00%
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90.00
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-10.00%
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$9.00
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-10.00%
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94.00
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-6.00%
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$9.40
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-6.00%
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97.00
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-3.00%
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$9.70
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-3.00%
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100.00(1)(2)
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0.00%
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$12.40
(3)
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24.00%
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102.00
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2.00%
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$12.40
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24.00%
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105.00
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5.00%
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$12.40
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24.00%
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110.00
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10.00%
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$12.40
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24.00%
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120.00
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20.00%
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$12.40
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24.00%
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124.00
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24.00%
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$12.40
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24.00%
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130.00
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30.00%
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$12.40
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24.00%
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140.00
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40.00%
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$12.40
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24.00%
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150.00
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50.00%
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$12.40
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24.00%
|
160.00
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60.00%
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$12.40
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24.00%
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(1) |
This is the hypothetical Threshold Value.
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(2) |
The hypothetical
Starting Value of 100 used in these examples has been chosen for
illustrative purposes only, and does not represent a likely actual
Starting Value for the Underlying Fund.
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(3) |
This amount represents the sum of the principal amount and the
hypothetical Step Up
Payment of $2.40.
|
Redemption Amount Calculation Examples
Example 1
|
The Ending Value is 90.00, or 90.00%
of the Starting Value:
|
Starting Value: 100.00
|
Threshold Value: 100.00
|
Ending Value: 90.00
|
|
Redemption Amount per
unit |
Example 2
|
The Ending Value is 110.00, or
110.00% of the Starting Value:
|
Starting Value: 100.00
|
Ending Value: 110.00
|
|
Redemption
Amount per unit, the principal
amount plus the Step Up Payment, since the Ending Value is equal to
or greater than the Starting Value. |
Example 3
|
The Ending Value is 130.00, or
130.00% of the Starting Value:
|
Starting Value: 100.00
|
Ending Value: 130.00
|
|
Redemption Amount
per unit, the principal amount
plus the Step Up Payment, since the Ending Value is equal to or
greater than the Starting Value. |
In this example, even though the Ending Value greater than the
Starting Value by more than the return represented by the Step Up
Payment, your return on the notes will be limited to the return
represented by the Step Up Payment.
Risk Factors
There are important differences between the
notes and a conventional debt security. An investment in the
notes involves significant risks, including those listed below. You
should carefully review the more detailed explanation of risks
relating to the notes in the “Risk Factors” sections beginning on
page PS-8 of product supplement EQUITY SUN-1, page S-2 of the
prospectus supplement, and page 5 of the prospectus identified above. We also urge you
to consult your investment, legal, tax, accounting, and other
advisors before you invest in the notes.
Structure-Related Risks
|
◾ |
Depending on the performance of the Underlying Fund as
measured shortly before the maturity date, your investment may
result in a loss; there is no guaranteed return of principal.
|
|
◾ |
Your return on the notes may be less than the yield you could
earn by owning a conventional fixed or floating rate debt security
of comparable maturity.
|
|
◾ |
Your investment return is limited to the return represented by
the Step Up Payment and may be less than a comparable investment
directly in the Underlying Fund or the securities included in the
Underlying Fund.
|
Market Measure-Related Risks
|
◾ |
Your return on the notes and the value of the notes may be
affected by exchange rate movements and factors affecting the
international securities markets.
|
|
◾ |
The sponsor of the NYSE®
Arca®
Gold Miners Index®
(the “Underlying Index”) may adjust the Underlying Index in a way
that affects the Underlying Fund and has no obligation to consider
your interests.
|
|
◾ |
The sponsor and investment advisor of the Underlying Fund may
adjust the Underlying Fund in a way that could adversely affect the
price of the Underlying Fund and consequently, the return on the
notes, and have no obligation to consider your interests.
|
|
◾ |
As a noteholder, you will have no rights to receive shares of
the Underlying Fund or the securities held by the Underlying Fund,
and you will not be entitled to receive securities, dividends or
other distributions on those securities.
|
|
◾ |
While we, MLPF&S, BofAS or our respective affiliates may
from time to time own securities of companies included in the
Underlying Fund, we, MLPF&S, BofAS and our respective
affiliates do not control any company included in the Underlying
Fund, and have not verified any disclosure made by any other
company.
|
|
◾ |
There are liquidity and management risks associated with the
Underlying Fund.
|
|
◾ |
The performance of the Underlying Fund may not correlate with
the performance of its Underlying Index as well as the net asset
value per share of the Underlying Fund, especially during periods
of market volatility when the liquidity and the market price of
shares of the Underlying Fund and/or securities held by the
Underlying Fund may be adversely affected, sometimes
materially.
|
|
◾ |
Risks associated with the Underlying Index or the underlying
assets of the Underlying Fund will affect the share price of the
Underlying Fund and the value of the notes.
|
Valuation- and Market-Related Risks
|
◾ |
Our initial estimated value of the notes will be lower than
the public offering price of the notes. Our initial estimated value
of the notes is only an estimate. The public offering price of the
notes will exceed our initial estimated value because it includes
costs associated with selling and structuring the notes, as well as
hedging our obligations under the notes with a third party, which
may include BofAS or one of its affiliates. These costs include the
underwriting discount and an expected hedging related charge, as
further described in “Structuring the Notes” on page TS-15.
|
|
◾ |
Our initial estimated value of the notes does not represent
future values of the notes and may differ from others’ estimates.
Our initial estimated value of the notes is determined by reference
to our internal pricing models when the terms of the notes are set.
These pricing models consider certain factors, such as our internal
funding rate on the pricing date, the expected term of the notes,
market conditions and other relevant factors existing at that time,
and our assumptions about market parameters, which can include
volatility, dividend rates, interest rates and other factors.
Different pricing models and assumptions could provide valuations
for the notes that are different from our initial estimated value.
In addition, market conditions and other relevant factors in the
future may change, and any of our assumptions may prove to be
incorrect. On future dates, the market value of the notes could
change significantly based on, among other things, the performance
of the Underlying Fund, changes in market conditions, our
creditworthiness, interest rate movements and other relevant
factors. 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. Our initial estimated value does not
represent a minimum price at which we or any agents would be
willing to buy your notes in any secondary market (if any exists)
at any time.
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|
◾ |
Our initial estimated value is not determined by reference to
credit spreads or the borrowing rate we would pay for our
conventional fixed-rate debt securities. The internal funding rate
used in the determination of our initial estimated value of the
notes generally represents a discount from the credit spreads for
our conventional fixed-rate debt securities and the borrowing
|
rate we would pay
for our conventional fixed-rate debt securities. If we were to use
the interest rate implied by the credit spreads for our
conventional fixed-rate debt securities, or the borrowing rate we
would pay for our conventional fixed-rate debt securities, we would
expect the economic terms of the notes to be more favorable to you.
Consequently, our use of an internal funding rate for the notes
would have an adverse effect on the economic terms of the notes,
the initial estimated value of the notes on the pricing date, and
the price at which you may be able to sell the notes in any
secondary market.
|
◾ |
A trading market is not expected to develop for the notes.
None of us, MLPF&S or BofAS is obligated to make a market for,
or to repurchase, the notes. There is no assurance that any party
will be willing to purchase your notes at any price in any
secondary market.
|
Conflict-Related Risks
|
◾ |
Our business, hedging and trading activities, and those of
MLPF&S, BofAS and our respective affiliates (including trades
in the Underlying Fund or the securities included in the Underlying
Fund), and any hedging and trading activities we, MLPF&S, BofAS
or our respective affiliates engage in for our clients’ accounts,
may affect the market value and return of the notes and may create
conflicts of interest with you.
|
|
◾ |
There may be potential conflicts of interest involving the
calculation agent, which is BofAS. We have the right to appoint and
remove the calculation agent.
|
General Credit Risks
|
◾ |
Payments on the notes are subject to our credit risk, and
actual or perceived changes in our creditworthiness are expected to
affect the value of the notes. If we become insolvent or are unable
to pay our obligations, you may lose your entire investment.
|
Tax-Related Risks
|
◾ |
The U.S. federal income tax consequences of the notes are
uncertain, and may be adverse to a holder of the notes. See
“Summary of U.S. Federal Income Tax Consequences” below.
|
|
◾ |
The conclusion that no portion of the interest paid or
credited or deemed to be paid or credited on a note will be
“Participating Debt Interest” subject to Canadian withholding tax
is based in part on the current published administrative position
of the CRA. There cannot be any assurance that CRA’s
current published administrative practice will not be subject to
change, including potential expansion in the current administrative
interpretation of Participating Debt Interest subject to Canadian
withholding tax. If, at any time, the interest paid or credited or
deemed to be paid or credited on a note is subject to Canadian
withholding tax, you will receive an amount that is less than the
Redemption Amount. You should consult your own adviser as to the
potential for such withholding and the potential for reduction or
refund of part or all of such withholding, including under any
bilateral Canadian tax treaty the benefits of which you may be
entitled. For a discussion of the Canadian federal income tax
consequences of investing in the notes, see “Summary of Canadian
Federal Income Tax Consequences” below, “Canadian Taxation—Debt
Securities” on page 66 of the prospectus, and “Supplemental
Discussion of Canadian Federal Income Tax Consequences” on page
PS-40 of product supplement EQUITY SUN-1.
|
Additional Risk Factors
Additional Risk Factors Related to the Underlying Fund
All of
the securities held by the Underlying Fund are concentrated in one
industry.
All of the
securities held by the Underlying Fund are issued by companies in
the gold and silver mining industry. As a result, the securities
that will determine the performance of the notes are concentrated
in one industry. Although an investment in the notes will not give
holders any ownership or other direct interests in the securities
held by the Underlying Fund, the return on an investment in the
notes will be subject to certain risks similar to those associated
with direct equity investments in the gold and silver mining
industry. By investing in the notes, you will not benefit from the
diversification that could result from an investment linked to
companies that operate in multiple sectors.
A
limited number of securities may affect the price of the Underlying
Fund, and the securities included in the Underlying Index are not
necessarily representative of the gold and silver mining
industry.
As of May 31,
2022, the top two holdings of the Underlying Fund constituted
26.75% of the Underlying Fund’s portfolio and the top six holdings
constituted 52.31% of such portfolio. Any reduction in the market
price of those securities is likely to have a substantial adverse
impact on the price of the Underlying Fund and the value of the
notes.
While the
securities included in the Underlying Index are common stocks,
American Depositary Receipts (“ADRs”) or global depositary receipts
(“GDRs”) of companies generally considered to be involved in
various segments of the gold and silver mining industry, the
securities included in the Underlying Index may not follow the
price movements of the entire gold and silver mining industry
generally. If the securities included in the Underlying Index (and,
accordingly, the securities held by the Underlying Fund) decline in
value, the Underlying Fund will decline in value even if security
prices in the gold and silver mining industry generally increase in
value.
The
performance of the Underlying Fund may be influenced by gold and
silver prices.
To the extent
the price of gold or silver has a limited effect, if any, on the
prices of the securities held by the Underlying Fund, gold prices
and silver prices are subject to volatile price movements over
short periods of time, represent trading in commodities markets,
which are substantially different from equities markets, and are
affected by numerous factors. These include economic factors,
including the structure of and confidence in the global monetary
system, expectations of the future rate of inflation, the relative
strength of, and confidence in, the U.S. dollar (the currency in
which the prices of gold and silver are generally quoted), interest
rates and gold and silver borrowing and lending rates, and global
or regional economic, financial, political, regulatory, judicial,
or other events.
Gold prices and
silver prices may also be affected by industry factors such as
industrial and jewelry demand, lending, sales and purchases of gold
and silver by the official sector, including central banks and
other governmental agencies and multilateral institutions which
hold gold and silver, levels of gold and silver production and
production costs, and short-term changes in supply and demand
because of trading activities in the gold and silver markets. It is
not possible to predict the aggregate effects of all or any
combination of these factors. Any negative developments with
respect to these factors may have an adverse effect on gold and
silver prices and, as a result, on the prices of the securities
held by the Underlying Fund and the price of the Underlying
Fund.
There is
no direct correlation between the value of the notes or the price
of the Underlying Fund, on the one hand, and gold and silver
prices, on the other hand.
Although the
price of gold or silver is one factor that may influence the
performance of the securities held by the Underlying Fund, the
notes are not linked to the gold or silver spot prices or to gold
or silver futures. There is no direct linkage between the price of
the Underlying Fund and the prices of gold and silver. While gold
and silver prices may be one factor that could affect the prices of
the securities included in the Underlying Index and, consequently,
the price of the Underlying Fund, the amount payable on the notes
is not directly linked to the movement of gold and silver prices
and may be affected by factors unrelated to those movements.
Investing in the notes is not the same as investing in gold or
silver, and you should not invest in the notes if you wish to
invest in a product that is linked directly to the price of gold or
silver.
The
notes will be subject to risks associated with small-capitalization
and mid-capitalization companies.
The Underlying
Fund may invest in companies that may be considered
small-capitalization or mid-capitalization companies. These
companies often have greater stock price volatility, lower trading
volume and less liquidity than large-capitalization companies.
Accordingly, the Underlying Fund’s share price may be more volatile
than that of a fund that invests in stocks issued by
large-capitalization companies. Stock prices of
small-capitalization or mid-capitalization companies are also more
vulnerable than those of large-capitalization companies to adverse
business and economic developments, and the stocks of
small-capitalization or mid-capitalization companies may be thinly
traded, making it difficult for the Underlying Fund to buy and sell
them. In addition, small-capitalization or mid-capitalization
companies are typically less stable financially than
large-capitalization companies and may depend on a small number of
key personnel, making them more vulnerable to loss of
personnel. Small-capitalization or mid-capitalization
companies are often subject to less analyst coverage and may be in
early, and less predictable, periods of their corporate
existences. Such companies tend to have smaller revenues,
less diverse product lines, smaller shares of their product or
service markets, fewer financial resources and less competitive
strengths than large-capitalization companies and are more
susceptible to adverse developments related to their products.
These factors could adversely affect the price of the Underlying
Fund during the term of the notes, which may adversely affect the
value of your notes.
NYSE
Arca, Inc. (“NYSE Arca”), the sponsor and compiler of the
Underlying Index, retains significant control and discretionary
decision-making over the Underlying Index and is responsible
for decisions regarding the interpretation of and amendments to the
Underlying Index rules, which may have an adverse effect on the
price of the Underlying Fund, the market value of the notes and the
amount payable on the notes.
NYSE Arca is the
compiler of the Underlying Index and, as such, is responsible for
the day-to-day management of the Underlying Index and for decisions
regarding the interpretation of the rules governing the Underlying
Index. NYSE Arca has the discretion to make operational adjustments
to the Underlying Index and to the Underlying Index components,
including discretion to exclude companies that otherwise meet the
minimum criteria for inclusion in the Underlying Index. In
addition, NYSE Arca retains the power to supplement, amend in whole
or in part, revise or withdraw the Underlying Index rules at any
time, any of which may lead to changes in the way the Underlying
Index is compiled or calculated or adversely affect the Underlying
Index in another way. Any of these adjustments to the Underlying
Index or the Underlying Index rules may adversely affect the
composition of the Underlying Index, the price of the Underlying
Fund, the market value of the notes and the amount payable on the
notes. The Underlying Index sponsor has no obligation to take the
needs of any buyer, seller or holder of the notes into
consideration at any time.
Additional Risk Factors Relating
to General Credit Considerations
The COVID-19 virus
may have an adverse impact on BNS.
On March 11, 2020, the World Health
Organization declared the outbreak of a strain of novel coronavirus
disease, COVID-19, a global pandemic. Governments in affected areas
have imposed a number of measures designed to contain the outbreak,
including business closures, travel restrictions, quarantines and
cancellations of gatherings and events. The spread of COVID-19 has
had disruptive effects in countries in which BNS operates and the
global economy more widely, as well as causing increased volatility
and declines in financial markets. COVID-19 has materially impacted
and continues to materially impact the markets in which BNS
operates. If the pandemic is prolonged, or further diseases emerge
that give rise to similar effects, the adverse impact on the global
economy could deepen and result in further declines in financial
markets. A substantial amount of BNS’s business involves making
loans or otherwise committing
resources to specific companies,
industries or countries. The COVID-19 pandemic’s impact on such
borrowers, industries and countries could have a material adverse
effect on BNS’s financial results, businesses, financial condition
or liquidity. The COVID-19 pandemic may also result in disruption
to BNS’s key suppliers of goods and services and result in
increased unavailability of staff adversely impacting the quality
and continuity of service to customers and the reputation of BNS.
As a result the business, results of operations, corporate
reputation and financial condition of BNS could be adversely
impacted for a substantial period of time.
Other Terms of the Notes
Business
Day
A “business day” means a day
which is a Monday, Tuesday, Wednesday, Thursday or Friday that is
neither a legal holiday nor a day on which banking institutions are
authorized or required by law to close in New York City.
The
Underlying Fund
All disclosures contained in this
term sheet regarding the Underlying Fund and the Underlying Index,
including, without limitation, their make-up, method of their
calculation, and changes in their components, have been derived
from publicly available sources. The information reflects the
policies of, and is subject to change by, Van Eck Associates
Corporation (“VanEck”). The consequences of any
discontinuance of the Underlying Fund or the Underlying Index are
discussed in the section entitled “Description of the Notes—
Anti-Dilution and Discontinuance Adjustments Relating to Underlying
Funds” beginning on page PS-30 of product supplement EQUITY SUN-1.
None of us, the calculation agent, MLPF&S or BofAS accepts any
responsibility for the calculation, maintenance, or publication of
the Underlying Fund, the Underlying Index, or any successor
Underlying Fund.
The
VanEck® Gold
Miners ETF
The
Underlying Fund is an investment portfolio maintained and managed
by VanEck®
ETF Trust (the “VanEck Trust”). Van Eck is the investment
adviser to the Underlying Fund. The Underlying Fund is an
exchange-traded fund that trades on the NYSE Arca under the ticker
symbol “GDX.”
Information
provided to or filed with the SEC by the VanEck Trust pursuant to
the Securities Act and the Investment Company Act can be located by
reference to SEC file numbers 333-123257 and 811-10325,
respectively, through the SEC’s website at
http://www.sec.gov.
Investment Objective and Strategy
The
Underlying Fund seeks to provide investment results that correspond
generally to the price and yield performance, before fees and
expenses, of the Underlying Index. The Underlying Index,
calculated by NYSE Arca, is a modified market
capitalization-weighted index consisting of common stocks and ADRs
of publicly traded companies involved primarily in mining for gold
and silver.
The
Underlying Fund normally invests at least 80% of its total assets
in common stocks and ADRs of companies involved in the gold and
silver mining industry. The Underlying Fund’s 80% investment
policy is non-fundamental and requires 60 days’ prior written
notice to shareholders before it can be changed. The
Underlying Fund, using a “passive” or indexing investment approach,
attempts to approximate the investment performance of the
Underlying Index by investing in a portfolio of securities that
generally replicates the Underlying Index. The returns of the
Underlying Fund may be affected by certain management fees and
other expenses, which are detailed in its prospectus. Van Eck
expects that, over time, the correlation between the Underlying
Fund’s performance and that of the Underlying Index before fees and
expenses will be 95% or better. A figure of 100% would
indicate perfect correlation.
The
Underlying Fund may choose to concentrate its investments in a
particular industry or group of industries to the extent that the
Underlying Index concentrates in an industry or group of
industries.
Correlation
The
Underlying Index is a theoretical financial calculation, while the
Underlying Fund is an actual investment portfolio. The
performance of the Underlying Fund and the Underlying Index will
vary somewhat due to transaction costs, market impact, corporate
actions (such as mergers and spin-offs) and timing variances.
A figure of 100% would indicate perfect correlation. Any
correlation of less than 100% is called “tracking error.” The
Underlying Fund, using a “passive” or indexing investment approach,
can be expected to have a greater tracking error than a fund that
uses a replication indexing strategy.
The
NYSE®
Arca®
Gold Miners Index®
The
Underlying Index was developed by the NYSE Amex (formerly the
American Stock Exchange) and is calculated, maintained and
published by the NYSE Arca. The Underlying Index is reported
by Bloomberg under the ticker symbol “GDM.” The Underlying
Index benchmark was 500.00 at the close of trading on December 20,
2002.
Objectives and Guiding Principles Underlying the Underlying
Index
The
Underlying Index is a modified market capitalization weighted index
comprised of publicly traded companies involved primarily in the
mining of gold or silver. The Underlying Index includes common
stocks, ADRs or GDRs of selected companies that are involved in
mining for gold and silver and that are listed for trading and
electronically quoted on a major stock market that is accessible by
foreign investors. Generally, this includes exchanges in most
developed markets and major emerging markets, and includes
companies that are cross-listed, i.e., both U.S. and Canadian
listings. NYSE Arca will use its discretion to avoid exchanges and
markets that are considered “frontier” in nature or have major
restrictions to foreign ownership. The Underlying Index includes
companies that derive at least 50% of their revenues from gold
mining and related activities (40% for companies that are already
included in the Underlying Index). Also, the Underlying Index
will maintain an exposure to companies with a significant revenue
exposure to silver mining in addition to gold mining, which will
not exceed 20% of the Underlying Index weight at each rebalance.
Only companies with market capitalization greater than $750 million
that have a daily average trading volume of at least 50,000 shares
and an average daily value traded of at least $1 million over the
past three months are eligible for inclusion in the Underlying
Index. Starting in December 2013, for companies already included in
the Underlying Index, the market capitalization requirement at each
rebalance will be $450 million, the average daily volume
requirement will be at least 30,000 shares over the past three
months and the average daily value traded requirement will be at
least $600,000 over the past three months. NYSE Arca has the
discretion to not include all companies that meet the minimum
criteria for inclusion.
Index
Calculation
The Underlying
Index is calculated on a price return basis using a modified market
capitalization weighting methodology divided by a divisor.
The divisor was determined on the initial capitalization base of
the Underlying Index at the base level and may be adjusted as a
result of corporate actions and composition changes. The
Underlying Index is weighted based on the market capitalization of
each of the component securities, modified to conform to the
following asset diversification requirements, which are applied in
conjunction with the scheduled quarterly adjustments to the
Underlying Index:
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the weight of any single
component security may not account for more than 20% of the total
value of the Underlying Index;
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the component securities are
split into two subgroups-large and small, which are ranked by
market capitalization weight in the index. Large stocks are
defined as having an index weight greater than or equal to
5%. Small stocks are defined as having an index weight below
5%; and
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the aggregate weight of those
component securities which individually represent more than 4.5% of
the total value of the Underlying Index may not account for more
than 45% of the total Underlying Index value.
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The
Underlying Index is reviewed quarterly so that its components
continue to represent the universe of companies involved in the
gold and silver mining industry. The NYSE Arca may at any
time and from time to time change the number of securities
comprising the group by adding or deleting one or more securities,
or replacing one or more securities contained in the group with one
or more substitute securities of its choice, if in the NYSE Arca’s
discretion such addition, deletion or substitution is necessary or
appropriate to maintain the quality and/or character of the
Underlying Index. Changes to compositions and/or the
component share weights in the Underlying Index typically take
effect after the close of trading on the third Friday of each
calendar quarter month in connection with the quarterly index
rebalance.
At the time
of the quarterly rebalance, the weights for the components stocks
(taking into account expected component changes and share
adjustments), are modified in accordance with the following
procedures.
Diversification Rule 1: If
any component stock exceeds 20% of the total value of the
Underlying Index, then all stocks greater than 20% of the
Underlying Index are reduced to represent 20% of the value of the
Underlying Index. The aggregate amount by which all component
stocks are reduced is redistributed proportionately across the
remaining stocks that represent less than 20% of the index
value. After this redistribution, if any other stock then
exceeds 20%, the stock is set to 20% of the index value and the
redistribution is repeated.
Diversification Rule 2: The
components are sorted into two groups, large are components with a
starting index weight of 5% or greater and small are those that are
under 5% (after any adjustments for Diversification
Rule 1). The large group will represent in the aggregate
45% and the small group will represent 55% in the aggregate of the
final index weight. This will be adjusted through the following
process: The weight of each of the large stocks will be scaled down
proportionately with a floor of 5% so that the aggregate weight of
the large components will be reduced to represent 45% of the
Underlying Index. If any component stock falls below a weight
equal to the product of 5% and the proportion by which the stocks
were scaled down following this distribution, then the weight of
the stock is set equal to the product of 5% and the proportion by
which the stocks were scaled down, the components with weights
greater than 5% will reduced proportionately. The weight of
each of the small components will be scaled up proportionately from
the redistribution of the large components. If any component
stock exceeds a weight equal to the product of 4.5% and the
proportion by which the stocks were scaled down following this
distribution, then the weight of the stock is set equal to the
product of 4.5% and the proportion by which the stocks were scaled
down. The redistribution of weight to the remaining stocks is
repeated until the entire amount has been redistributed.
Index Maintenance
The Underlying Index is reviewed
quarterly to ensure that at least 90% of the index weight is
accounted for by index components that continue to meet the initial
eligibility requirements. Components will be removed from the
Underlying Index during the quarterly review if either (1) the
market capitalization falls below $450 million or (2) the traded
average daily shares for the previous three months is less than
30,000 shares and the average daily traded value for the previous
three months is less than $600,000. In conjunction with the
quarterly review, the share weights used in the calculation of the
Underlying Index are determined based upon current shares
outstanding modified, if necessary, to provide greater index
diversification, as described above. The index components and
their share weights are determined and announced prior to taking
effect. The share weight of each component stock in the index
portfolio remains fixed between quarterly reviews except in the
event of certain types of corporate actions such as stock splits,
reverse stock splits, stock dividends, or similar events. The
share weights used in the index calculation are not typically
adjusted for shares issued or repurchased between quarterly
reviews. However, in the event of a merger between two
components, the share weight of the surviving entity may be
adjusted to account for any stock issued in the acquisition.
The NYSE Arca may substitute stocks or change the number of stocks
included in the Underlying Index, based on changing conditions in
the industry or in the event of certain types of corporate actions,
including mergers, acquisitions, spin-offs, and
reorganizations. In the event of component or share weight
changes to the index portfolio, the payment of dividends other than
ordinary cash dividends, spin-offs, rights offerings,
re-capitalization, or other corporate
actions affecting a component
stock of the Underlying Index; the index divisor may be adjusted to
ensure that there are no changes to the index price as a result of
non-market forces.
Historical Data
The
following graph shows the daily historical performance of the
Underlying Fund on its primary exchange in the period from January
1, 2012 through June 27, 2022. 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 June 27, 2022, the Closing Market Price of the
Underlying Fund was $29.47. The graph below may have been adjusted
to reflect certain corporate actions such as stock splits and
reverse stock splits.
Historical Performance of the Underlying Fund
This
historical data on the Underlying Fund is not necessarily
indicative of the future performance of the Underlying Fund or what
the value of the notes may be. Any historical upward or downward
trend in the price per share of the Underlying Fund during any
period set forth above is not an indication that the price per
share of the Underlying Fund 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 prices and
trading pattern of the Underlying Fund.
Supplement to the Plan of Distribution
Under our distribution agreement with
BofAS, BofAS will purchase the notes from us as principal at the
public offering price indicated on the cover of this term sheet,
less the indicated underwriting discount.
MLPF&S will purchase the notes
from BofAS for resale, and will receive a selling concession in
connection with the sale of the notes in an amount up to the full
amount of the underwriting discount set forth on the cover of this
term sheet.
We may 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, 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, if the initial settlement of the notes
occurs more than two business days from the pricing date,
purchasers who wish to trade the notes more than two business days
prior to the settlement date will be required to specify
alternative settlement arrangements to prevent a failed
settlement.
The notes will not be listed on any
securities exchange. In the original offering of the notes, the
notes will be sold in minimum investment amounts of 100 units. If
you place an order to purchase the notes, you are consenting to
MLPF&S and/or one of its affiliates acting as a principal in
effecting the transaction for your account.
MLPF&S and BofAS may repurchase
and resell the notes, with repurchases and resales being made at
prices related to then-prevailing market prices or at negotiated
prices, and these prices will include MLPF&S’s and BofAS’s
trading commissions and mark-ups or mark-downs. MLPF&S and
BofAS may act as principal or agent in these market-making
transactions; however, neither is obligated to engage in any such
transactions. At their discretion, for a short, undetermined
initial period after the issuance of the notes, MLPF&S and
BofAS 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 or BofAS for the notes will be based on
then-prevailing market conditions and other considerations,
including the performance of the Underlying Fund and the remaining
term of the notes. However, none of us, MLPF&S, BofAS or any of
our respective affiliates is obligated to purchase your notes at
any price or at any time, and we cannot assure you that we,
MLPF&S, BofAS or any of our respective affiliates will purchase
your notes at a price that equals or exceeds the initial estimated
value of the notes.
The value of the notes shown on your
account statement produced by MLPF&S will be based on BofAS’s
estimate of the value of the notes if BofAS or another of its
affiliates were to make a market in the notes, which it is not
obligated to do. That estimate will be based upon the price that
BofAS may pay for the notes in light of then-prevailing market
conditions, and other considerations, as mentioned above, and will
include transaction costs. At certain times, this price may be
higher than or lower than the initial estimated value of the
notes.
The distribution of the Note
Prospectus in connection with these offers or sales will be solely
for the purpose of providing investors with the description of the
terms of the notes that was made available to investors in
connection with their initial offering. Secondary market investors
should not, and will not be authorized to, rely on the Note
Prospectus for information regarding BNS or for any purpose other
than that described in the immediately preceding sentence.
An
investor’s household, as referenced on the cover of this term
sheet, will generally include accounts held by any of the
following, as determined by MLPF&S in its discretion and acting
in good faith based upon information then available to
MLPF&S:
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the investor’s spouse (including
a domestic partner), siblings, parents, grandparents, spouse’s
parents, children and grandchildren, but excluding accounts held by
aunts, uncles, cousins, nieces, nephews or any other family
relationship not directly above or below the individual
investor;
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a family investment vehicle,
including foundations, limited partnerships and personal holding
companies, but only if the beneficial owners of the vehicle consist
solely of the investor or members of the investor’s household as
described above; and
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a trust where the grantors and/or
beneficiaries of the trust consist solely of the investor or
members of the investor’s household as described above; provided
that, purchases of the notes by a trust generally cannot be
aggregated together with any purchases made by a trustee’s personal
account.
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Purchases in retirement accounts
will not be considered part of the same household as an individual
investor’s personal or other non-retirement account, except for
individual retirement accounts (“IRAs”), simplified employee
pension plans (“SEPs”), savings incentive match plan for employees
(“SIMPLEs”), and single-participant or owners only accounts (i.e.,
retirement accounts held by self-employed individuals, business
owners or partners with no employees other than their
spouses).
Please contact
your Merrill financial advisor if you have any questions about the
application of these provisions to your specific circumstances or
think you are eligible.
Structuring the Notes
The notes are our unsecured senior
debt securities, the return on which is linked to the performance
of the Underlying Fund. 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. The internal funding rate we use in pricing
the market-linked note is typically lower than the rate we would
pay when we issue conventional fixed-rate debt securities of
comparable maturity. 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, typically results in the initial estimated
value of the notes on the pricing date being less than their public
offering price.
At maturity, we are required to pay
the Redemption Amount to holders of the notes, which will be
calculated based on the performance of the Underlying Fund and the
$10 per unit principal amount. In order to meet these payment
obligations, at the time we issue the notes, we may choose to enter
into certain hedging arrangements (which may include call options,
put options or other derivatives) with BofAS or one of its
affiliates. The terms of these hedging arrangements are
determined by seeking bids from market participants, including
MLPF&S, BofAS and its affiliates, and take into account a
number of factors, including our creditworthiness, interest rate
movements, the volatility of the Underlying Fund, the tenor of the
notes and the tenor of the hedging arrangements. The economic terms
of the notes and their initial estimated value depend in part on
the terms of these hedging arrangements.
BofAS has advised us that the hedging
arrangements will include a hedging related charge of approximately
$0.05 per unit, reflecting an estimated profit to be credited to
BofAS from these transactions. Since hedging entails risk and
may be influenced by unpredictable market forces, additional
profits and losses from these hedging arrangements may be realized
by BofAS or any third party hedge providers.
For further information, see “Risk
Factors” beginning on page PS-8 and “Use of Proceeds and Hedging”
on page PS-22 of product supplement EQUITY SUN-1.
Summary of Canadian Federal Income Tax Consequences
An investor should read carefully the
description of principal Canadian federal income tax considerations
under “Canadian Taxation” in the accompanying prospectus relevant
to a holder (as defined on page 20 of the prospectus) owning debt
securities, and the description of principal Canadian federal
income tax considerations under “Supplemental Discussion of
Canadian Federal Income Tax Consequences” in product supplement
EQUITY SUN-1. In addition to the assumptions, limitations and
conditions described therein, such discussion assumes that a
Non-Resident Holder is not an entity in respect of which the Bank
is a “specified entity” as defined in proposals to amend the Income
Tax Act (Canada) (the “Act”) released by the Minister of Finance
(Canada) on April 29, 2022 with respect to “hybrid mismatch
arrangements”, as defined (the “Hybrid Mismatch Proposals”). In
general terms, the Hybrid Mismatch Proposals provide that two
entities will be treated as specified entities in respect of one
another if one entity, directly or indirectly, holds a 25% equity
interest in the other entity, or a third entity, directly or
indirectly, holds a 25% equity interest in both entities.
Such discussion further assumes that
no amount paid or payable to a Non-Resident Holder will be the
deduction component of a “hybrid mismatch arrangement” under which
the payment arises within the meaning of proposed paragraph
18.4(3)(b) of the Act contained in the Hybrid Mismatch
Proposals.
Investors should note that the Hybrid
Mismatch Proposals are in consultation form, are highly complex,
and there remains significant uncertainty as to their
interpretation and application. There can be no assurance that the
Hybrid Mismatch Proposals will be enacted in their current form, or
at all.
Summary of U.S. Federal Income Tax Consequences
The following is a general
description of certain U.S. federal tax considerations relating to
the notes. Prospective purchasers of the notes should consult their
tax advisors as to the consequences under the tax laws of the
country of which they are residents for tax purposes and the tax
laws of the U.S. of acquiring, holding and disposing of the notes
and receiving payments under the notes. This summary is based upon
the law as in effect on the date of this document and is subject to
any change in law that may take effect after such date. We urge you
to read the more detailed discussion in the “Material U.S. Federal
Income Tax Consequences” section beginning on page PS-41 of product
supplement EQUITY SUN-1.
No statutory, regulatory, judicial or
administrative authority directly discusses how the notes should be
treated for U.S. federal income tax purposes. As a result, the U.S.
federal income tax consequences of your investment in the notes are
uncertain. Accordingly, we urge you to consult your tax advisor as
to the tax consequences of your investment in the notes (and of
having agreed to the required tax treatment of your notes described
below) and as to the application of state, local or other tax laws
to your investment in your notes and the possible effects of
changes in federal or other tax laws.
Pursuant to the terms of the notes, BNS and you agree, in the
absence of a statutory or regulatory change or an administrative
determination or judicial ruling to the contrary, to characterize
your notes as prepaid derivative contracts with respect to the
Underlying Fund. If your notes are so treated, subject to the
discussion below regarding Section 1260 of the U.S. Internal
Revenue Code of 1986, as amended (the “Code”), you should generally
recognize long-term capital gain or loss if you hold your notes for
more than one year (and, otherwise, short-term capital gain or
loss) upon the taxable disposition of your notes in an amount equal
to the difference between the amount you receive at such time and
the amount you paid for your notes. The deductibility of capital
losses is subject to limitations.
Section 1260. Because
the notes are linked to the shares of an ETF, there is a risk that
an investment in the notes could be treated as a “constructive
ownership transaction” within the meaning of Section 1260 of the
Code. A “constructive ownership transaction” includes a contract
under which an investor will receive payment equal to or credit for
the future value of any equity interest in certain “passthru
entities” (including regulated investment companies such as ETFs,
real estate investment trusts and passive foreign investment
companies). Under the “constructive ownership” rules, if an
investment in the notes is treated as a “constructive ownership
transaction,” any long-term capital gain recognized by a U.S.
holder (as defined under “Material U.S. Federal Income Tax
Consequences” in the accompanying product supplement) in respect of
the notes would be recharacterized as ordinary income to the extent
such gain exceeds the amount of “net underlying long-term capital
gain” (as defined in Section 1260 of the Code) of the U.S. holder
(the “Excess Gain”). In addition, an interest charge would also
apply to any deemed underpayment of tax in respect of any Excess
Gain to the extent such gain would have resulted in gross income
inclusion for the U.S. holder in taxable years prior to the taxable
year of the taxable disposition of the notes (assuming such income
accrued such that the amount in each successive year is equal to
the income in the prior year increased at a constant rate equal to
the applicable federal rate as of the date of the taxable
disposition of the notes).
It is not clear to what extent any
long-term capital gain recognized by a U.S. holder in respect of
the notes would be recharacterized as ordinary income and subject
to the interest charge described above, in part, because it is not
clear how the “net underlying long-term capital gain” would be
computed in respect of the notes. Under Section 1260 of the Code,
the net underlying long-term capital gain is generally the net
long-term capital gain a taxpayer would have recognized by
investing in the underlying “passthru entity” at the inception of
the constructive ownership transaction and selling on the date the
constructive ownership transaction is closed out (i.e. at maturity
or earlier disposition). It is possible that because the U.S.
holder does not share in distributions made on the Underlying Fund,
these distributions could be excluded from the calculation of the
amount and character of gain, if any, that would have been realized
had the U.S. holder held the Underlying Fund directly and that the
application of constructive ownership rules may not recharacterize
adversely a significant portion of the long-term capital gain you
may recognize with respect to the notes. However, it is also
possible that all or a portion of your gain with respect to the
notes could be treated as “Excess Gain” because the Underlying Fund
is an ETF, the “net underlying long-term capital gain” could equal
the amount of long-term capital gain a U.S. holder would have
recognized if on the
original issue date of the notes the
holder had invested, pro rata, the principal amount of the notes in
shares of the Underlying Fund and sold those shares for their fair
market value on the date the notes are sold, exchanged or retired.
In addition, all or a portion of your gain recognized with respect
to the notes could be “Excess Gain” if you purchase the notes for
an amount that is less than the principal amount of the notes.
Furthermore, unless otherwise established by clear and convincing
evidence, the “net underlying long-term capital gain” is treated as
zero. Accordingly, it is possible that all or a portion of any gain
on the sale or settlement of the notes after one year could be
treated as “Excess Gain” from a “constructive ownership
transaction,” which gain would be recharacterized as ordinary
income and subject to an interest charge. Because the application
of the constructive ownership rules to the notes is unclear, you
are urged to consult your tax advisor regarding the potential
application of the “constructive ownership” rules to an investment
in the notes.
Based on certain factual representations
received from us, our special U.S. tax counsel, Fried, Frank,
Harris, Shriver & Jacobson LLP, is of the opinion that
it would be reasonable to treat your notes in the manner described
above. However, because there is no authority that specifically
addresses the tax treatment of the notes, it is possible that your
notes could alternatively be treated for tax purposes as a single
contingent payment debt instrument or pursuant to some other
characterization (including possible treatment as a “constructive
ownership transaction” under Section 1260 of the Code), such that
the timing and character of your income from the notes could differ
materially and adversely from the treatment described above.
Notice 2008-2. In 2007, the Internal
Revenue Service (the “IRS”) released a notice that may affect the
taxation of holders of the notes. According to Notice 2008-2, the
IRS and the U.S. Department of the Treasury (the “Treasury”) are
actively considering whether a holder of an instrument such as the
notes should be required to accrue ordinary income on a current
basis. It is not possible to determine what guidance they will
ultimately issue, if any. It is possible, however, that under such
guidance, holders of the notes will ultimately be required to
accrue income currently and this could be applied on a retroactive
basis. The IRS and the Treasury are also considering other relevant
issues, including whether additional gain or loss from such
instruments should be treated as ordinary or capital, whether
non-U.S. holders of such instruments should be subject to
withholding tax on any deemed income accruals, and whether the
special “constructive ownership rules” of Section 1260 of the Code
should be applied to such instruments. Both U.S. and non-U.S.
holders are urged to consult their tax advisors concerning the
significance, and the potential impact, of the above
considerations.
Proposed Legislation. In 2007,
legislation was introduced in Congress that, if it had been
enacted, would have required holders of notes purchased after the
bill was enacted to accrue interest income over the term of the
notes despite the fact that there will be no interest payments over
the term of the notes.
Furthermore, in 2013 the House Ways
and Means Committee released in draft form certain proposed
legislation relating to financial instruments. If it had been
enacted, the effect of this legislation generally would have been
to require instruments such as the notes to be marked to market on
an annual basis with all gains and losses to be treated as
ordinary, subject to certain exceptions.
It is impossible to predict what any
such legislation or administrative or regulatory guidance might
provide, and whether the effective date of any legislation or
guidance will affect securities that were issued before the date
that such legislation or guidance is issued. You are urged to
consult your tax advisor as to the possibility that any legislative
or administrative action may adversely affect the tax treatment of
your notes.
Medicare Tax on Net Investment Income.
U.S. holders that are individuals, estates or certain trusts are
subject to an additional 3.8% tax on all or a portion of their “net
investment income,” or “undistributed net investment income” in the
case of an estate or trust, which may include any income or gain
realized with respect to the notes, to the extent of their net
investment income or undistributed net investment income (as the
case may be) that, when added to their other modified adjusted
gross income, exceeds $200,000 for an unmarried individual,
$250,000 for a married taxpayer filing a joint return (or a
surviving spouse), $125,000 for a married individual filing a
separate return or the dollar amount at which the highest tax
bracket begins for an estate or trust. The 3.8% Medicare tax is
determined in a different manner than the regular income tax. U.S.
holders should consult their tax advisors with respect to the 3.8%
Medicare tax.
Specified Foreign Financial Assets.
U.S. holders may be subject to reporting obligations with respect
to their notes if they do not hold their notes in an account
maintained by a financial institution and the aggregate value of
their notes and certain other “specified foreign financial assets”
(applying certain attribution rules) exceeds an applicable
threshold. Significant penalties can apply if a U.S. holder is
required to disclose its notes and fails to do so.
Backup Withholding and Information
Reporting. The proceeds received from a taxable disposition
of the notes will be subject to information reporting unless you
are an “exempt recipient” and may also be subject to backup
withholding at the rate specified in the Code if you fail to
provide certain identifying information (such as an accurate
taxpayer number, if you are a U.S. holder) or meet certain other
conditions.
Amounts withheld under the backup
withholding rules are not additional taxes and may be refunded or
credited against your U.S. federal income tax liability, provided
the required information is furnished to the IRS.
Non-U.S. Holders. If you are a
non-U.S. holder, subject to Section 871(m) of the Code and FATCA,
discussed below, you should generally not be subject to generally
applicable information reporting and backup withholding
requirements with respect to payments on your notes if you comply
with certain certification and identification requirements as to
your non-U.S. status including providing us (and/or the applicable
withholding agent) a properly executed and fully completed
applicable IRS Form W-8. Subject to Section 897 of the Code and
Section 871(m) of the Code, discussed herein, gain realized from
the taxable disposition of a note generally will not be subject to
U.S. tax unless (i) such gain is effectively connected with a trade
or business conducted by you in the U.S., (ii) you are a
non-resident alien individual and are present in the U.S. for 183
days or more during the taxable year of such taxable disposition
and certain other conditions are satisfied or (iii) you have
certain other present or former connections with the U.S.
Section 897. We will not attempt to
ascertain whether the Underlying Fund would be treated as a “United
States real property holding corporation” (“USRPHC”) within the
meaning of Section 897 of the Code. We also have not attempted to
determine whether the notes should be treated as “United States
real property interests” (“USRPI”) as defined in Section 897 of the
Code. If the Underlying Fund and/or the notes were so treated,
certain adverse U.S. federal income tax consequences could possibly
apply, including subjecting any gain realized by a non-U.S. holder
in respect of the notes upon a taxable disposition (including cash
settlement) of the notes to U.S. federal income tax on a net basis,
and the proceeds from such a taxable disposition to a withholding
tax. Non-U.S. holders should consult their tax advisors regarding
the potential treatment of the Underlying Fund as a USRPHC and/or
the notes as USRPI.
Section 871(m). A 30% withholding tax
(which may be reduced by an applicable income tax treaty) is
imposed under Section 871(m) of the Code on certain “dividend
equivalents” paid or deemed paid to a non-U.S. holder with respect
to a “specified equity-linked instrument” that references one or
more dividend-paying U.S. equity securities or indices containing
U.S. equity securities. The withholding tax can apply even if
the instrument does not provide for payments that reference
dividends. Treasury regulations provide that the withholding
tax applies to all dividend equivalents paid or deemed paid on
specified equity-linked instruments that have a delta of one
(“delta-one specified equity-linked instruments”) issued after 2016
and to all dividend equivalents paid or deemed paid on all
other specified equity-linked instruments issued after 2017.
However, the IRS has issued guidance that states that the Treasury
and the IRS intend to amend the effective dates of the Treasury
regulations to provide that withholding on dividend equivalents
paid or deemed paid will not apply to specified equity-linked
instruments that are not delta-one specified equity-linked
instruments and are issued before January 1, 2023.
Based on our determination that the
notes are not “delta-one” with respect to the Underlying Fund, our
special U.S. tax counsel is of the opinion that the notes should
not be delta-one specified equity-linked instruments and thus
should not be subject to withholding on dividend equivalents. Our
determination is not binding on the IRS, and the IRS may disagree
with this determination. Furthermore, the application of Section
871(m) of the Code will depend on our determinations on the date
the terms of the notes are set. If withholding is required, we will
not make payments of any additional amounts.
Nevertheless, after the date the
terms are set, it is possible that your notes could be deemed to be
reissued for tax purposes upon the occurrence of certain events
affecting the Underlying Fund or your notes, and following such
occurrence your notes could be treated as delta-one specified
equity-linked instruments that are subject to withholding on
dividend equivalents. It is also possible that withholding
tax or other tax under Section 871(m) of the Code could apply to
the notes under these rules if you enter, or have entered, into
certain other transactions in respect of the Underlying Fund or the
notes. If you enter, or have entered, into other transactions
in respect of the Underlying Fund or the notes, you should consult
your tax advisor regarding the application of Section 871(m) of the
Code to your notes in the context of your other transactions.
Because of the uncertainty regarding
the application of the 30% withholding tax on dividend equivalents
to the notes, you are urged to consult your tax advisor regarding
the potential application of Section 871(m) of the Code and the 30%
withholding tax to an investment in the notes.
U.S. Federal Estate Tax Treatment of Non-U.S.
Holders. A note may be subject to U.S. federal estate tax if
an individual non-U.S. holder holds the note at the time of his or
her death. The gross estate of a non-U.S. holder domiciled outside
the U.S. includes only property situated in the U.S. Individual
non-U.S. holders should consult their tax advisors regarding the
U.S. federal estate tax consequences of holding the notes at
death.
FATCA. The Foreign Account Tax
Compliance Act (“FATCA”) was enacted on March 18, 2010, and imposes
a 30% U.S. withholding tax on “withholdable payments” (i.e.,
certain U.S.-source payments, including interest (and original
issue discount), dividends or other fixed or determinable annual or
periodical gain, profits, and income, and on the gross proceeds
from a disposition of property of a type which can produce
U.S.-source interest or dividends) and “passthru payments” (i.e.,
certain payments attributable to withholdable payments) made to
certain foreign financial institutions (and certain of their
affiliates) unless the payee foreign financial institution agrees
(or is required), among other things, to disclose the identity of
any U.S. individual with an account at the institution (or the
relevant affiliate) and to annually report certain information
about such account. FATCA also requires withholding agents making
withholdable payments to certain foreign entities that do not
disclose the name, address, and taxpayer identification number of
any substantial U.S. owners (or do not certify that they do not
have any substantial U.S. owners) to withhold tax at a rate of 30%.
Under certain circumstances, a holder may be eligible for refunds
or credits of such taxes.
Pursuant to final and temporary
Treasury regulations and other IRS guidance, the withholding and
reporting requirements under FATCA will generally apply to certain
“withholdable payments”, will not apply to gross proceeds on a sale
or disposition, and will apply to certain foreign passthru payments
only to the extent that such payments are made after the date that
is two years after final regulations defining the term “foreign
passthru payment” are published. If withholding is required, we (or
the applicable paying agent) will not be required to pay additional
amounts with respect to the amounts so withheld. Foreign financial
institutions and non-financial foreign entities located in
jurisdictions that have an intergovernmental agreement with the
U.S. governing FATCA may be subject to different rules.
Investors should
consult their own advisors about the application of FATCA, in
particular if they may be classified as financial institutions (or
if they hold their notes through a foreign entity) under the FATCA
rules.
Both U.S. and
non-U.S. holders should consult their tax advisors regarding the
U.S. federal income tax consequences of an investment in the notes,
as well as any tax consequences arising under the laws of any
state, local or non-U.S. taxing jurisdiction (including that of
BNS).
Where You Can Find More Information
We have filed a registration statement (including a product
supplement, a prospectus supplement and a prospectus) with the SEC
for the offering to which this term sheet relates. Before you
invest, you should read the Note Prospectus, including this term
sheet, and the other documents that we have filed with the SEC, for
more complete information about us and this offering. You may
get these documents without cost by visiting EDGAR on the SEC
website at www.sec.gov. Alternatively, we, any agent, or any
dealer participating in this offering will arrange to send you
these documents if you so request by calling MLPF&S or BofAS
toll-free at 1-800-294-1322.