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Pricing
Supplement
(To
Prospectus dated December 31, 2019,
Prospectus
Supplement dated December 31, 2019 and
Product
Supplement EQUITY-1 dated January 3, 2020)
November 18,
2020
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Filed
Pursuant to Rule 424(b)(2)
Series
A Registration Statement No. 333-234425
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BofA
Finance LLC $5,824,870 Trigger Autocallable
Contingent Yield Notes
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Linked
to the Least Performing of the SPDR®
S&P® Bank ETF and
the iShares® Russell 2000
ETF Due November 24,
2023
Fully
and Unconditionally Guaranteed by Bank of America
Corporation
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Investment Description
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The
Trigger Autocallable Contingent
Yield Notes (the “Notes”) linked to
the least performing of the SPDR®
S&P® Bank ETF and the iShares®
Russell 2000 ETF (each, an “Underlying”) are senior
unsecured obligations issued by BofA Finance LLC (“BofA
Finance”), a direct, wholly-owned subsidiary of Bank of
America Corporation (“BAC” or the “Guarantor”), which are
fully and unconditionally guaranteed by the Guarantor.
The Notes will pay a Contingent
Coupon Payment on each quarterly Coupon Payment
Date if, and only if, the Current Underlying
Price of the Least Performing Underlying on the
related quarterly Observation Date is greater than
or equal to its Coupon Barrier. If the Current
Underlying Price of the Least Performing
Underlying on the applicable quarterly Observation
Date is less than its Coupon Barrier, no Contingent
Coupon Payment will accrue or be paid on the
related Coupon Payment Date. Beginning
approximately six months after issuance, if
the Current Underlying Price of the Least Performing
Underlying on the applicable quarterly Observation
Date (other than the Final Observation Date) is greater
than or equal to its Initial Value, we will automatically call
the Notes and pay you the Stated Principal
Amount plus the Contingent Coupon Payment for
that Observation Date, and no further amounts will be owed to
you. If the Notes have not previously been
automatically called, at maturity, the amount you receive
will depend on the Final Value of the Least
Performing Underlying on the Final Observation Date.
If the Final Value of the Least Performing
Underlying on the Final Observation Date is greater
than or equal to its Downside Threshold, you will receive the
Stated Principal Amount at
maturity (plus the final Contingent
Coupon Payment, if applicable). However, if
the Notes have not been automatically called prior to
maturity and the Final Value of the Least Performing
Underlying on the Final Observation Date is less
than its Downside Threshold, you will receive less than
the Stated Principal Amount at maturity, resulting in a loss that
is proportionate to the decline in the Current
Underlying Price of the Least Performing
Underlying from the Trade Date to the
Final Observation Date, up to a 100% loss of your investment.
On each Observation Date, the “Least Performing
Underlying” is the Underlying with the
lowest Underlying Return from the Trade Date to
that Observation Date. Investing in the Notes
involves significant risks. You may lose a substantial
portion or all of your initial investment. All payments on
the Notes will be based solely on
the performance of the Least Performing Underlying. You will
not benefit in any way from the performance of the other
Underlying. You will therefore be adversely affected
if either Underlying performs
poorly, regardless of the performance of the other Underlying.
You will not receive dividends or other distributions paid
on shares of the Underlyings or any stocks
included in the Underlyings or participate in any appreciation of
either Underlying. The contingent repayment of the Stated
Principal Amount applies only if you hold the Notes to maturity or
earlier automatic call. Any payment on the Notes, including
any repayment of the Stated Principal Amount, is subject to the
creditworthiness of the BofA Finance and the Guarantor and is not,
either directly or indirectly, an obligation of any third
party.
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Features
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Key Dates
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❑ Contingent
Coupon Payment — We will pay you
a Contingent Coupon Payment on
each quarterly Coupon Payment Date if, and only
if, the Current Underlying Price of the Least
Performing Underlying on the related Observation
Date is greater than or equal to its Coupon Barrier.
Otherwise, no Contingent Coupon Payment will
be paid for that quarter.
❑ Automatic
Call — Beginning approximately six
months after issuance, we will automatically call
the Notes and pay you the Stated Principal
Amount plus the final Contingent
Coupon Payment if the Current Underlying
Price of the Least Performing Underlying on the
applicable quarterly Observation Date (other than
the Final Observation Date) is greater than or equal to
its Initial Value. If the Notes are
not automatically called, investors will have
full downside market exposure to the Least Performing
Underlying at maturity.
❑ Downside
Exposure with Contingent Repayment of Principal at
Maturity — If the Notes are
not automatically called prior to maturity
and the Final Value of the Least Performing
Underlying on the Final Observation Date is greater
than or equal to its Downside Threshold, you will receive the
Stated Principal Amount at
maturity (plus the final Contingent
Coupon Payment, if applicable). However, if the Final
Value of the Least Performing Underlying on the
Final Observation Date is less
than its Downside Threshold, you will receive less
than the Stated Principal Amount of your Notes at
maturity, resulting in a loss that is proportionate to the decline
in the Current Underlying Price of the Least
Performing Underlying from the Trade Date to the
Final Observation Date, up to a 100% loss of your
investment.
Any
payment on the Notes is
subject to the creditworthiness of BofA
Finance and the Guarantor.
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Trade
Date1
Issue
Date1
Observation
Dates2
Final Observation Date2
Maturity
Date
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November
18, 2020
November
23, 2020
Quarterly, subject
to automatic call beginning on May 18, 2021
November
20, 2023
November
24, 2023
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1 See
“Supplement to the Plan of Distribution; Role of BofAS and
Conflicts of Interest” in this pricing supplement for
additional information.
2 See
page PS-6 for additional details.
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NOTICE
TO INVESTORS: THE NOTES ARE
SIGNIFICANTLY RISKIER THAN CONVENTIONAL DEBT
INSTRUMENTS. BOFA FINANCE IS NOT
NECESSARILY OBLIGATED TO REPAY THE STATED PRINCIPAL AMOUNT AT
MATURITY, AND THE NOTES CAN HAVE DOWNSIDE
MARKET RISK SIMILAR TO THE LEAST PERFORMING
UNDERLYING. THIS MARKET RISK IS IN
ADDITION TO THE CREDIT RISK INHERENT IN PURCHASING A DEBT
OBLIGATION OF BOFA FINANCE THAT IS
GUARANTEED BY BAC. YOU SHOULD NOT
PURCHASE THE NOTES IF YOU DO NOT UNDERSTAND
OR ARE NOT COMFORTABLE WITH THE SIGNIFICANT RISKS INVOLVED IN
INVESTING IN THE NOTES. YOU
SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER
“RISK FACTORS’’ BEGINNING ON PAGE
PS-7 OF THIS PRICING SUPPLEMENT, PAGE
PS-5 OF THE ACCOMPANYING PRODUCT SUPPLEMENT,
PAGE S-5 OF THE ACCOMPANYING PROSPECTUS
SUPPLEMENT AND PAGE 7 OF THE ACCOMPANYING
PROSPECTUS BEFORE PURCHASING
ANY NOTES. EVENTS RELATING TO ANY OF THOSE
RISKS, OR OTHER RISKS AND UNCERTAINTIES, COULD ADVERSELY AFFECT THE
MARKET VALUE OF, AND THE RETURN ON, YOUR NOTES.
YOU MAY LOSE SOME OR ALL OF YOUR INITIAL INVESTMENT IN
THE NOTES.
THE NOTES WILL NOT BE LISTED ON ANY
SECURITIES EXCHANGE AND MAY HAVE LIMITED OR NO
LIQUIDITY.
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Notes Offering
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We are
offering Trigger Autocallable Contingent
Yield Notes linked to the least performing of
the SPDR® S&P® Bank
ETF and the iShares® Russell 2000
ETF due November 24, 2023. Any payment on
the Notes will be based on the performance of
the Least Performing Underlying. The Notes are
our senior unsecured obligations, guaranteed
by BAC, and are offered for a minimum investment of
100 Notes (each Note corresponding to $10.00 in Stated
Principal Amount) at the Public Offering
Price described below.
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Underlyings
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Contingent
Coupon Rate
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Initial
Values
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Coupon
Barriers
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Downside
Thresholds
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CUSIP/
ISIN
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SPDR®
S&P® Bank
ETF (Ticker: KBE)
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6.25% per
annum
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$38.69
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$27.08,
which is 70% of the Initial Value (round to two
decimal places)
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$23.21,
which is 60% of the Initial Value (rounded to two
decimal places)
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05591G280 /
US05591G2802
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iShares®
Russell 2000 ETF (Ticker: IWM)
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$175.96
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$123.17, which is 70% of the Initial Value (rounded
to two decimal places)
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$105.58, which is 60% of the Initial Value (rounded
to two decimal places)
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See
“Summary” in this pricing
supplement. The Notes will have
the terms specified in the accompanying product supplement,
prospectus supplement and prospectus, as supplemented by
this pricing supplement. None of the Securities and
Exchange Commission (the “SEC”), any state securities commission,
or any other regulatory body has approved or disapproved of
these Notes or the guarantee, or passed upon the adequacy
or accuracy of this pricing supplement, or the accompanying product
supplement, prospectus supplement or prospectus. Any
representation to the contrary is a criminal
offense. The Notes and the related guarantee of
the Notes by the Guarantor are unsecured and are not
savings accounts, deposits, or other obligations of a bank.
The Notes are not guaranteed by Bank of America,
N.A. or any other bank, are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency and involve
investment risks.
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Public
Offering Price
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Underwriting
Discount(1)
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Proceeds
(before expenses) to BofA Finance
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Per Note
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$10.00
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$0.20
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$9.80
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Total
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$5,824,870.00
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$116,497.40
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$5,708,372.60
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(1)The
underwriting discount is $0.20 per Note. BofA Securities, Inc.
(“BofAS”), acting as principal, has agreed to purchase
from BofA Finance, and BofA Finance has agreed to sell to
BofAS, the aggregate principal amount of the Notes set forth above
for $9.80 per Note. UBS Financial Services Inc. (“UBS”),
acting as a selling agent for sales of the Notes, has
agreed to purchase from BofAS, and BofAS has
agreed to sell to UBS, all of the Notes for $9.80 per
Note. UBS will receive an underwriting discount of $0.20 per
Note for each Note it sells in this offering. UBS proposes to
offer the Notes to the public at a price of $10.00 per Note.
For additional information on the distribution of the Notes,
see “Supplement to the Plan of Distribution; Role of BofAS and
Conflicts of Interest” in this pricing supplement.
The
initial estimated value of the
Notes is less than the public
offering price. The initial estimated value of
the Notes as of the Trade Date is
$9.637 per $10 in Stated Principal Amount. See “Summary”
beginning on page PS-4 of this pricing supplement, “Risk
Factors” beginning on page PS-7 of this pricing supplement and
“Structuring the Notes” on page PS-22 of this pricing
supplement for additional information. The actual value of
your Notes at any time will reflect many factors and
cannot be predicted with accuracy.
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UBS
Financial Services Inc.
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BofA
Securities
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Additional Information about BofA
Finance LLC, Bank of America Corporation and the
Notes
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You
should read carefully this entire pricing supplement and the
accompanying product supplement, prospectus supplement and
prospectus to understand fully the terms of the Notes, as well as
the tax and other considerations important to you in making a
decision about whether to invest in the Notes. In
particular, you should review carefully the section in this pricing
supplement entitled “Risk Factors,” which highlights a number
of risks of an investment in the Notes, to determine whether
an investment in the Notes is appropriate for you. If
information in this pricing supplement is inconsistent with the
product supplement, prospectus supplement or prospectus, this
pricing supplement will supersede those documents. You are urged to
consult with your own attorneys and business and tax advisors
before making a decision to purchase any of the Notes.
The
information in the “Summary” section is qualified in its entirety
by the more detailed explanation set forth elsewhere in this
pricing supplement and the accompanying product supplement,
prospectus supplement and prospectus. You should rely only on
the information contained in this pricing supplement and the
accompanying product supplement, prospectus supplement and
prospectus. We have not authorized any other person to
provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely
on it. None of us, the Guarantor, BofAS or
UBS is making an offer to sell these Notes in any
jurisdiction where the offer or sale is not permitted. You
should assume that the information in this pricing supplement and
the accompanying product supplement, prospectus supplement, and
prospectus is accurate only as of the date on their respective
front covers.
Certain terms
used but not defined in this pricing supplement have the meanings
set forth in the accompanying product supplement, prospectus
supplement and prospectus. Unless otherwise indicated or
unless the context requires otherwise, all references in this
pricing supplement to “we,” “us,” “our,” or similar references are
to BofA Finance, and not to BAC (or any other affiliate of BofA
Finance).
The
above-referenced accompanying documents may be accessed at the
following links:
♦
Product
supplement EQUITY-1 dated January 3, 2020:
♦
Series
A MTN prospectus supplement dated December 31, 2019 and
prospectus dated December 31, 2019:
The Notes are our senior debt securities. Any payments on the Notes
are fully and unconditionally guaranteed by BAC. The Notes and the
related guarantee are not insured by the Federal Deposit Insurance
Corporation or secured by collateral. The Notes will rank equally
in right of payment with all of our other unsecured and
unsubordinated obligations, and the related guarantee will rank
equally in right of payment with all of BAC’s other unsecured and
unsubordinated obligations, in each case except
obligations that are subject to any priorities or preferences by
law. Any payments due on the Notes, including any repayment of the
principal amount, will be subject to the credit risk of BofA
Finance, as Issuer, and BAC, as Guarantor.
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PS-2
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The Notes may
be suitable for you if, among other
considerations:
♦
You
fully understand the risks inherent in an investment in
the Notes, including the risk of loss of your
entire investment.
♦
You
can tolerate a loss of all or a substantial portion of
your investment and are willing to make an investment that
will have the full downside market risk of an
investment in the Least Performing Underlying.
♦
You
understand and accept the risks associated with the
Underlyings.
♦
You
are willing to accept the individual market risk of each Underlying
and understand that any decline in the price of one
Underlying will not be offset or mitigated by a lesser decline or
any potential increase in the price of the other
Underlying.
♦
You
believe the Current Underlying Price of each Underlying
is likely to be greater than or equal to its Coupon Barrier on the
Observation Dates, and, if the Current Underlying
Price of either Underlying is not, you can tolerate receiving
few or no Contingent Coupon Payments over the term of the
Notes.
♦
You
believe the Current Underlying Price of each Underlying
will be greater than or equal to its Downside Threshold on the
Final Observation Date, and, if the Current Underlying
Price of either Underlying is below its Downside Threshold on
the Final Observation Date, you can tolerate a loss of all or a
substantial portion of your investment.
♦
You
can tolerate fluctuations in the value of the Notes prior to
maturity that may be similar to or exceed the downside fluctuations
in the level of the Least Performing Underlying.
♦
You
understand that your return will be based on the performance of the
Least Performing Underlying and you will not benefit from the
performance of the other Underlying.
♦
You
are willing to hold Notes that will be called on the
earliest Observation Date (beginning six
months after issuance, other than the Final Observation
Date) on which the Current Underlying
Price of the Least Performing Underlying is
greater than or equal to its Initial Value.
♦
You
are willing to make an investment whose positive return is limited
to the Contingent Coupon Payments, regardless of the
potential appreciation of the Underlyings, which could be
significant.
♦
You
are willing and able to hold the Notes to maturity,
and accept that there may be little or no secondary
market for the Notes.
♦
You
do not seek guaranteed current income
from your investment and are willing to
forgo dividends or any other distributions paid on shares
of the Underlyings or the stocks included in
the Underlyings.
♦
You
are willing to assume the credit risk of BofA
Finance and BAC for all payments under
the Notes, and understand that if BofA
Finance and BAC default
on their obligations, you might not receive any
amounts due to you, including any repayment of the Stated
Principal Amount.
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The Notes may not be
suitable for you if, among other considerations:
♦
You
do not fully understand the risks inherent in an investment in
the Notes, including the risk of loss of your
entire investment.
♦
You
cannot tolerate the loss of all or a substantial portion of
your initial investment, or you are not willing to
make an investment that will have the full downside
market risk of an investment in the Least Performing
Underlying.
♦
You require an
investment designed to guarantee a full return
of the Stated Principal Amount at maturity.
♦
You
do not understand or are not willing to accept the risks
associated with each
of the Underlyings.
♦
You
are unwilling to accept the individual market risk of each
Underlying or do not understand that any decline in
the price of one Underlying will not be offset or
mitigated by a lesser decline or any potential increase in
the price of the other Underlying.
♦
You
do not believe the Current Underlying
Price of each Underlying is likely to be
greater than or equal to its Coupon Barrier on
the Observation Dates, or you cannot tolerate
receiving few or no Contingent Coupon Payments over the
term of the Notes.
♦
You
believe the Current Underlying Price of
either Underlying will be less
than its Downside Threshold on
the Final Observation Date, exposing you to the full
downside performance of the Least Performing
Underlying.
♦
You
cannot tolerate fluctuations in the value of
the Notes prior to maturity that may be similar to or
exceed the downside fluctuations in the price of
the Least Performing Underlying.
♦
You
are unwilling to accept that your return will be based on the
performance of the Least Performing Underlying, or you seek an
investment based on the performance of a basket composed of
the Underlyings.
♦
You
are unwilling to hold Notes that will be called on the
earliest Observation Date (beginning six
months after issuance, other than the Final Observation
Date) on which the Current Underlying
Price of the Least Performing Underlying is
greater than or equal to its Initial Value.
♦
You
seek an investment that participates in the full appreciation of
the Underlyings and whose positive return is not limited
to the Contingent Coupon Payments.
♦
You
seek an investment for which there will be an active secondary
market.
♦
You
seek guaranteed current income
from this investment or prefer to
receive the dividends and any other
distributions paid on shares of the Underlyings
or the stocks included in
the Underlyings.
♦
You
prefer the lower risk of conventional fixed income investments with
comparable maturities and credit ratings.
♦
You
are not willing to assume the credit risk of BofA
Finance and BAC for all payments under
the Notes, including any repayment of the Stated
Principal Amount.
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The
suitability considerations identified above are not exhaustive.
Whether or not the Notes are a suitable investment for you will
depend on your individual circumstances and you should reach an
investment decision only after you and your investment, legal, tax,
accounting and other advisors have carefully considered the
suitability of an investment in the Notes in light of your
particular circumstances. You should review “The
Underlyings” herein for more information on
the Underlyings. You should
also review carefully the “Risk Factors” section
herein for risks related to an investment in the
Notes.
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PS-3
100%
of the Stated Principal Amount
Approximately three years,
unless earlier automatically called
SPDR®
S&P® Bank ETF (Ticker: KBE)
iShares®
Russell 2000 ETF (Ticker: IWM)
The Notes will
be automatically called if the Current Underlying
Price of the Least Performing Underlying on
any Observation Date occurring on or after May 18,
2021 (other than the Final Observation Date) is greater
than or equal to its Initial Value.
If
the Notes are automatically called, we will pay you on
the applicable Coupon Payment Date a cash payment per
$10.00 Stated Principal Amount equal to the Stated
Principal Amount plus the Contingent
Coupon Payment for the applicable Observation
Date.
If the Notes are
automatically called, no further payments will be made on
the Notes.
See
“Observation Dates and Coupon Payment Dates” on page
PS-6.
See
“Observation Dates and Coupon Payment Dates” on page
PS-6.
Contingent
Coupon Payment/Contingent Coupon Rate
If
the Current Underlying Price of the Least Performing
Underlying on the applicable quarterly Observation
Date is greater than or equal to its Coupon
Barrier, we will make a Contingent Coupon Payment with
respect to that Observation Date on the
related Coupon Payment Date.
However,
if the Current Underlying Price of the Least
Performing Underlying on the
applicable quarterly Observation Date is below
its Coupon Barrier, no Contingent
Coupon Payment will accrue or be
payable on the related Coupon Payment Date.
Each
Contingent Coupon Payment will be in the amount
of $0.15625 for each $10.00 Stated Principal Amount
(based on the per annum Contingent Coupon Rate of 6.25%)
and will be payable, if applicable, on the related Coupon Payment
Date.
Contingent
Coupon Payments on
the Notes are not
guaranteed. We will not pay you
the Contingent
Coupon Payment for
any Observation Date on which
the Current Underlying
Price of the Least Performing
Underlying on that Observation
Date is less than its Coupon
Barrier, even if the Current
Underlying Price of the
other Underlying is above its Coupon
Barrier.
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Payment
At
Maturity (per $10.00
Stated Principal Amount)
If
the Notes are
not automatically called prior
to maturity and the Final
Value of the Least Performing
Underlying on the
Final Observation
Date is greater than
or equal to its Downside
Threshold, on the Maturity Date we will pay you
the Stated Principal Amount plus the Contingent
Coupon Payment (if applicable) with respect to
the Final Observation Date.
If
the Notes are
not automatically called prior
to maturity and the Final
Value of the Least Performing
Underlying on the Final Observation
Date is less
than its Downside
Threshold, we will pay you a cash payment on
the Maturity Date that is less than your Stated Principal
Amount and may be zero, resulting in a loss that is proportionate
to the negative Underlying Return of the Least
Performing Underlying on the Final Observation Date,
equal to:
$10.00 × (1
+ Underlying Return of the Least Performing
Underlying on the Final Observation Date)
Accordingly, you may lose all or a substantial
portion of your Stated Principal Amount at maturity,
depending on how significantly the Least
Performing Underlying declines,
even if the Final Value of the
other Underlying is above its Downside
Threshold.
Least
Performing Underlying
On
each Observation Date, including the
Final Observation Date, the Underlying with the
lowest Underlying Return as of that Observation
Date.
For any Underlying on
any Observation Date, calculated as follows:
Current
Underlying Price — Initial Value
Initial Value
For any Underlying, 60%
of its Initial Value, as specified on the
cover page of this pricing supplement.
For
any Underlying, 70% of its Initial Value, as
specified on the cover page of this pricing
supplement.
For
any Underlying,
its Closing Market Price on the Trade
Date, as specified on the cover page of this pricing
supplement.
For
any Underlying, 1, subject to adjustment for certain events as
described in “Description of the Notes—Anti-Dilution and
Discontinuance Adjustments Relating to ETFs” beginning on page
PS-27 of the accompanying product supplement.
For
any Underlying and any Observation Date,
the Closing Market Price of
that Underlying on that Observation Date, multiplied
by its Price Multiplier, as determined by the calculation
agent.
For
any Underlying, its Current Underlying Price on the
Final Observation Date.
As defined
on page PS-21 of the accompanying product
supplement.
BofAS,
an affiliate of BofA Finance.
Events
of Default and Acceleration
If an
Event of Default, as defined in the senior indenture and in the
section entitled “Description of Debt Securities—Events of Default
and Rights of Acceleration” beginning on page 22 of
the
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1 See
“Supplement to the Plan of Distribution; Role of BofAS and
Conflicts of Interest” in this pricing supplement for additional
information.
PS-4
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 “—Payment at Maturity” above,
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. We
will also determine whether the final Contingent Coupon
Payment is payable based upon the prices of the Underlyings on the
deemed Final Observation Date; any such final Contingent Coupon
Payment will be prorated by the calculation agent to reflect the
length of the final contingent 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
Investment Timeline
The Closing Market Price of each Underlying (its Initial
Value) is observed, the Contingent
Coupon Payment/Contingent
Coupon Rate is set and the Coupon
Barrier and Downside Threshold for
each Underlying are determined.
Quarterly (autocallable
after six months)
If
the Current Underlying Price of the Least Performing
Underlying on any quarterly Observation Date is
greater than or equal to its Coupon Barrier, we will
pay you a Contingent Coupon Payment on
the related Coupon Payment Date. However, if
the Current Underlying Price of the Least Performing
Underlying on any quarterly Observation
Date is below its Coupon Barrier, no Contingent
Coupon Payment will accrue or be payable on the
related Coupon Payment Date.
The Notes will
be automatically called if the Current Underlying
Price of the Least Performing
Underlying on any Observation
Date (beginning approximately six months after
issuance, other than the Final Observation Date) is
greater than or equal to its Initial Value.
If
the Notes are automatically called on
any Observation Date, we will pay the Stated Principal
Amount plus the applicable Contingent
Coupon Payment on the related Coupon Payment
Date.
If the Notes are
automatically called, no further payments will be made on
the Notes.
Maturity
Date (if not
previously automatically called)
If
the Notes are not automatically called prior to maturity,
the Final Value of each Underlying will
be observed on the Final Observation
Date.
If
the Final Value of the Least
Performing Underlying on the
Final Observation
Date is greater than or equal
to its Downside Threshold, on the
Maturity Date we will pay you
the Stated Principal Amount plus the Contingent
Coupon Payment (if applicable) with respect to the
Final Observation Date.
If
the Final Value of the Least
Performing Underlying on the
Final Observation Date is less
than its Downside
Threshold, on the Maturity Date we will pay you a
cash payment that is less than your Stated Principal Amount
and may be zero, resulting in a loss that is proportionate to
the
|
negative Underlying
Return of the Least Performing Underlying on the
Final Observation Date, equal to:
$10.00 × (1
+ Underlying Return of the Least Performing
Underlying on the Final Observation Date)
INVESTING
IN THE NOTES INVOLVES SIGNIFICANT RISKS.
YOU MAY LOSE A SUBSTANTIAL PORTION OR ALL OF YOUR INITIAL
INVESTMENT. YOU WILL BE EXPOSED TO THE MARKET RISK OF
EACH UNDERLYING AND ANY DECLINE IN THE LEVEL OF ONE UNDERLYING MAY
NEGATIVELY AFFECT YOUR RETURN AND WILL NOT BE OFFSET OR MITIGATED
BY A LESSER DECLINE OR ANY POTENTIAL INCREASE IN THE LEVEL
OF THE OTHER UNDERLYING. THE
CONTINGENT REPAYMENT OF THE STATED PRINCIPAL AMOUNT APPLIES ONLY IF
YOU HOLD THE NOTES TO
MATURITY OR EARLIER AUTOMATIC CALL. ANY PAYMENT
ON THE NOTES IS SUBJECT TO THE
CREDITWORTHINESS OF BOFA FINANCE AND THE
GUARANTOR.
|
PS-5
|
Observation Dates and Coupon Payment
Dates
|
|
Observation
Dates1
|
Coupon
Payment Dates
|
|
February
18, 2021*
|
February
22, 2021
|
|
May 18,
2021
|
May 20,
2021
|
|
August
18, 2021
|
August
20, 2021
|
|
November
18, 2021
|
November
22, 2021
|
|
February
18, 2022
|
February
23, 2022
|
|
May 18,
2022
|
May 20,
2022
|
|
August
18, 2022
|
August
22, 2022
|
|
November
18, 2022
|
November
22, 2022
|
|
February
21, 2023
|
February
23, 2023
|
|
May 18,
2023
|
May 22,
2023
|
|
August
18, 2023
|
August
22, 2023
|
|
November
20, 2023*
|
November
24, 2023
|
|
*The Notes are
NOT automatically callable until the second Observation Date, which
is May 18, 2021, and will NOT be automatically
callable on the Final Observation Date (November 20,
2023).
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1 The
Observation Dates are subject to postponement as set forth in
“Additional Terms Relating to Observation Dates”
below.
Additional Terms
Relating to Observation
Dates
Events
Relating to Observation Dates — The
following replaces in its entirety the section entitled
“Description of the Notes—Certain Terms of the Notes
— Events Relating to Observation Dates” in the
accompanying product supplement:
If, with
respect to any Underlying, (i) a Market Disruption Event
occurs on a scheduled Observation Date or
(ii) the calculation agent determines that by reason of
an extraordinary event, occurrence, declaration or otherwise,
any scheduled Observation Date is not a Trading
Day for any Underlying (any such day in either
(i) or (ii) being a “Non-Observation Date”), the
calculation agent will determine
the Closing Market Price of the
applicable Underlyings for that day as
follows:
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●
|
The Closing Market Price of
an Underlying that is not so affected will be
its Closing Market Price on
that Non-Observation Date.
|
|
●
|
The Closing Market Price of
an Underlying that is affected by
that Non-Observation Date will be deemed to be
its Closing Market Price on the first scheduled
Trading Day following
that Non-Observation Date. However, if (i) a Market
Disruption Event occurs on the first scheduled Trading Day
following that Non-Observation Date or (ii) the first scheduled
Trading Day following that Non-Observation Date is determined by
the calculation agent not to be a Trading Day by reason of an
extraordinary event, occurrence, declaration or otherwise,
the Closing Market Price of the Underlying for
the relevant Observation Date will be determined (or, if not
determinable, estimated) by the calculation agent in a manner which
the calculation agent considers commercially reasonable under the
circumstances on such first scheduled Trading Day following that
Non-Observation Date, regardless of the occurrence of a Market
Disruption Event or non-Trading Day on that day.
|
The
applicable Observation Date will be deemed to occur after the
calculation agent has determined
the Closing Market Prices of the Underlyings as
provided above.
PS-6
Your
investment in the Notes entails significant risks, many of which
differ from those of a conventional debt security. Your decision to
purchase the Notes should be made only after carefully considering
the risks of an investment in the Notes, including those discussed
below, with your advisors in light of your particular
circumstances. The Notes are not an appropriate investment for you
if you are not knowledgeable about significant elements of the
Notes or financial matters in general. You should carefully review
the more detailed explanation of risks relating to the Notes in the
“Risk Factors” sections beginning on page PS-5 of the
accompanying product supplement, page S-5 of the
accompanying prospectus supplement and page 7 of the accompanying
prospectus identified on page
PS-2 above.
Structure-related Risks
|
♦
|
Your
investment may result in a loss; there is no guaranteed
return of principal. There is no fixed principal repayment
amount on the Notes at maturity. If the Notes are
not automatically called prior to maturity and
the Final Value of any Underlying is less than
its Downside Threshold, at maturity, you will lose
1% of the Stated Principal Amount for each 1% that
the Final Value of the Least Performing Underlying is
less than its Initial Value. In that case, you will
lose a significant portion or all of your investment in the
Notes. Generally, the longer the Notes remain outstanding, the
less likely the Notes will be subject to an automatic
call because of the shorter time remaining for the level of an
Underlying that has experienced a decline to recover. The
periods in which it is less likely the Notes will be subject
to an automatic call generally coincide with a period of greater
risk of loss of the Stated Principal Amount on your
Notes.
|
|
♦
|
The limited
downside protection provided by the Downside
Threshold applies only at maturity. You
should be willing to hold your Notes to maturity. If you are able
to sell your Notes in the secondary market prior to an
automatic call or maturity, you may have to sell them at a loss
relative to your initial investment even if the level of
each Underlying at that time is equal to or greater
than its Downside Threshold. All payments on the Notes are subject
to the credit risk of BofA Finance, as issuer, and BAC, as
guarantor.
|
|
♦
|
Your
return on the Notes is limited to the return represented by the
Contingent Coupon Payments, if any, over the term of the
Notes. Your
return on the Notes is limited to the Contingent Coupon Payments
paid over the term of the Notes, regardless of the extent to which
the Current Underlying Price or Final Value of
any Underlying exceeds its Coupon Barrier or Initial Value, as
applicable. Similarly, the amount payable at maturity or upon
an automatic call will never exceed the sum of the Stated Principal
Amount and the applicable Contingent Coupon Payment, regardless of
the extent to which the Final Value or the Current
Underlying Price of any Underlying exceeds its Initial
Value. In contrast, a direct investment in
the Underlyings or the securities included in one or more
of the Underlyings would allow you to receive the benefit of any
appreciation in their values. Thus, any return on the Notes
will not reflect the return you would realize if you actually owned
those securities and received the dividends paid or distributions
made on them.
|
|
♦
|
The
Notes are subject to a potential automatic early
call, which would limit your ability to receive the
Contingent Coupon Payments over the full term of the
Notes. The
Notes are subject to a potential automatic early call. Beginning
in May 2021, the Notes will be automatically
called if, on any Observation Date (other than the
Final Observation Date), the Current Underlying
Price of the Least Performing Underlying is greater than
or equal to its Initial Value. If the Notes
are automatically called prior to the Maturity Date, you
will be entitled to receive the Stated Principal
Amount and the Contingent Coupon Payment with respect to the
applicable Observation Date. In this case, you will lose the
opportunity to continue to receive Contingent Coupon Payments after
the date of automatic call. If the Notes are called prior to
the Maturity Date, you may be unable to invest in other securities
with a similar level of risk that could provide a return that is
similar to the Notes.
|
|
♦
|
You
may not receive any Contingent Coupon
Payments. The
Notes do not provide for any regular fixed coupon
payments. Investors in the Notes will not necessarily
receive any Contingent Coupon Payments on the Notes. If
the Current Underlying Price of the Least Performing
Underlying is less than its Coupon Barrier on an Observation
Date, you will not receive the Contingent Coupon Payment applicable
to that Observation Date. If the Current Underlying
Price of the Least Performing Underlying is less than its
Coupon Barrier on all the Observation Dates during the term of the
Notes, you will not receive any Contingent Coupon Payments during
the term of the Notes, and will not receive a positive return on
the Notes.
|
|
♦
|
The
Contingent Coupon Payment, Payment at
Maturity, or payment upon an automatic
call, as applicable, will not reflect the
prices of the Underlyings other than on the Observation
Dates. The
prices of the Underlyings during the term of the Notes other than
on the Observation Dates will not affect payments on the Notes.
Notwithstanding the foregoing, investors should generally be aware
of the performance of the Underlyings while holding the Notes, as
the performance of the Underlyings may influence the market value
of the Notes. The calculation agent will determine whether each
Contingent Coupon Payment is payable and will calculate the
Contingent Coupon Payment or the Payment at Maturity, as
applicable, by comparing only the Initial Value, the Coupon Barrier
or the Downside Threshold, as applicable, to the Current
Underlying Price or the Final Value for each Underlying. No
other levels of the Underlyings will be taken into account. As a
result, if the Notes are not automatically called prior to maturity
and the Final Value of the Least Performing Underlying is less than
its Downside Threshold, you will receive less than the Stated
Principal Amount at maturity, even if the level of each
Underlying was always above its Downside Threshold prior
to the Final Observation Date.
|
|
♦
|
Because
the Notes are linked to the performance of the least performing
between the KBE and the IWM, you are exposed to greater risk of
receiving no Contingent Coupon Payments or sustaining a significant
loss on your investment than if the Notes were linked to just the
KBE or just the IWM. The risk that you will not receive
any Contingent Coupon Payments and/or lose a significant portion or
all of your investment in the Notes is greater if you invest in the
Notes as opposed to substantially similar securities that are
linked to the performance of just the KBE or just the IWM. With two
Underlyings, it is more likely that either Underlying will close
below its Coupon Barrier on the Observation Dates or below its
Downside Threshold on the Final Observation Date than if the Notes
were linked to only one of the Underlyings,
|
PS-7
|
|
and
therefore it is more likely that you will not receive any
Contingent Coupon Payments or will receive a Payment at Maturity
that is significantly less than the Stated Principal Amount on the
Maturity Date.
|
|
♦
|
Your
return on the Notes may be less than the yield on a
conventional debt security of comparable maturity.
Any return that you receive on the Notes may be
less than the return you would earn if you purchased a conventional
debt security with the same Maturity Date. As a result,
your investment in the Notes may not reflect the full opportunity
cost to you when you consider factors, such as inflation, that
affect the time value of money. In addition, if interest rates
increase during the term of the Notes, the Contingent Coupon
Payment (if any) may be less than the yield on a conventional debt
security of comparable maturity.
|
|
♦
|
Any
payment on the Notes is subject to our credit risk and the
credit risk of the Guarantor, and actual or perceived changes in
our or the Guarantor’s creditworthiness are expected to affect the
value of the Notes. The
Notes are our senior unsecured debt securities. Any payment
on the Notes will be fully and unconditionally guaranteed by the
Guarantor. The Notes are not guaranteed by any entity other
than the Guarantor. As a result, your receipt of all payments
on the Notes will be dependent upon our ability and the ability of
the Guarantor to repay our respective obligations under the Notes
on the applicable payment date, regardless of the Current
Underlying Price or Final Value, as applicable, of
any Underlying as compared to its Coupon Barrier, Downside
Threshold or Initial Value, as applicable. No
assurance can be given as to what our financial condition or the
financial condition of the Guarantor will be on the Maturity Date.
If we and the Guarantor become unable to meet our respective
financial obligations as they become due, you may not receive the
amounts payable under the terms of the Notes and you
could lose all of your initial investment.
|
In
addition, our credit ratings and the credit ratings of the
Guarantor are assessments by ratings agencies of our respective
abilities to pay our obligations. Consequently, our or the
Guarantor’s perceived creditworthiness and actual or anticipated
decreases in our or the Guarantor’s credit ratings or increases in
the spread between the yield on our respective securities and the
yield on U.S. Treasury securities (the “credit spread”) prior to
the Maturity Date may adversely affect the market value of the
Notes. However, because your return on the Notes depends upon
factors in addition to our ability and the ability of the Guarantor
to pay our respective obligations, such as the values of the
Underlyings, an improvement in our or the Guarantor’s credit
ratings will not reduce the other investment risks related to the
Notes.
|
♦
|
We
are a finance subsidiary and, as such, have no independent assets,
operations or revenues. We are a finance subsidiary of
BAC, have no operations other than those related to the issuance,
administration and repayment of our debt securities that are
guaranteed by the Guarantor, and are dependent upon the Guarantor
and/or its other subsidiaries to meet our obligations under the
Notes in the ordinary course. Therefore, our ability to make
payments on the Notes may be limited.
|
Valuation- and Market-related
Risks
|
♦
|
The
public offering price
you are paying for the
Notes exceeds their initial
estimated value. The
initial estimated value of the Notes that is provided on the cover
page of this pricing supplement is an estimate only,
determined as of the Trade Date by reference to our and
our affiliates' pricing models. These pricing models consider
certain assumptions and variables, including our credit spreads and
those of the Guarantor, the Guarantor’s internal funding rate,
mid-market terms on hedging transactions, expectations on interest
rates, dividends and volatility, price-sensitivity analysis, and
the expected term of the Notes. These pricing models
rely in part on certain forecasts about future events, which may
prove to be incorrect. If
you attempt to sell the Notes prior to maturity, their market value
may be lower than the price you paid for them and lower than their
initial estimated value. This is due to, among other things,
changes in the level of the Underlyings, changes in the
Guarantor’s internal funding rate, and the inclusion in the public
offering price of the underwriting discount and the hedging related
charges, all as further described in "Structuring the Notes" below.
These factors, together with various credit, market and economic
factors over the term of the Notes, are expected to reduce the
price at which you may be able to sell the Notes in any secondary
market and will affect the value of the Notes in complex and
unpredictable ways.
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|
♦
|
The
initial estimated value does not represent a minimum or maximum
price at which we, BAC, BofAS or any
of our other affiliates would be willing to purchase your
Notes in any secondary market (if any exists) at any
time. The value of your Notes at any time after issuance
will vary based on many factors that cannot be predicted with
accuracy, including the performance of the Underlyings,
our and BAC’s creditworthiness and changes in market
conditions.
|
|
♦
|
The
price of the Notes that may be paid by BofAS in any
secondary market (if BofAS makes a market, which it is not required
to do), as well as the price which
may be reflected on customer account statements,
will be higher than the then-current estimated value of
the Notes for a limited time period after the Trade
Date. As agreed by BofAS and the distribution
participants, for approximately a seven-month period
after the Trade Date, to the extent BofAS offers to
buy the Notes in the secondary market, it will do so at a
price that will exceed the estimated value of the Notes at that
time. The amount of this excess, which represents a
portion of the hedging-related charges expected to be realized by
BofAS and the distribution participants over the term of the Notes,
will decline to zero on a straight line basis over
that seven-month period. Accordingly, the
estimated value of your Notes during this
initial seven-month period may be lower than the value
shown on your customer account statements. Thereafter,
if BofAS buys or sells your Notes, it will do so at prices that
reflect the estimated value determined by reference to its pricing
models at that time. Any price at any time after the Trade Date
will be based on then-prevailing market conditions and other
considerations, including the performance of the Underlyings and
the remaining term of the Notes. However, none of us,
the Guarantor, BofAS or any other party 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.
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|
♦
|
We
cannot assure you that a trading market for your
Notes will ever develop or be
maintained. We will not list the Notes on any
securities exchange. We cannot predict how the Notes will
trade in any secondary market or whether that market will be liquid
or illiquid.
|
PS-8
The
development of a trading market for the Notes will depend on the
Guarantor’s financial performance and other factors, including
changes in the prices of the Underlyings. The number of potential
buyers of your Notes in any secondary market may be limited. We
anticipate that BofAS will act as a market-maker for the Notes, but
none of us, the Guarantor or BofAS is required to do so. There is
no assurance that any party will be willing to purchase your Notes
at any price in any secondary market. BofAS may discontinue its
market-making activities as to the Notes at any time. To the extent
that BofAS engages in any market-making activities, it may bid for
or offer the Notes. Any price at which BofAS may bid for, offer,
purchase, or sell any Notes may differ from the values determined
by pricing models that it may use, whether as a result of dealer
discounts, mark-ups, or other transaction costs. These bids,
offers, or completed transactions may affect the prices, if any, at
which the Notes might otherwise trade in the market. In addition,
if at any time BofAS were to cease acting as a market-maker as to
the Notes, it is likely that there would be significantly less
liquidity in the secondary market. In such a case, the price at
which the Notes could be sold likely would be lower than if an
active market existed.
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♦
|
Economic
and market factors have affected the terms
of the Notes and may affect the
market value of the Notes prior to
maturity or an automatic call. Because
market-linked notes, including the Notes, can be thought of as
having a debt component and a derivative component, factors that
influence the values of debt instruments and options and other
derivatives will also affect the terms and features of the Notes at
issuance and the market price of the Notes prior to
maturity or an automatic call. These factors include the
prices of the Underlyings and the securities
included in the Underlyings; the volatility of
the Underlyings and the securities included in the
Underlyings; the correlation among the Underlyings; the
dividend rate paid on the Underlyings or the securities
included in the Underlyings, if applicable; the time remaining to
the maturity of the Notes; interest rates in the markets;
geopolitical conditions and economic, financial, political, force
majeure and regulatory or judicial events; whether each of
the Underlyings is currently or has been less than its
Coupon Barrier; the availability of comparable instruments; the
creditworthiness of BofA Finance, as issuer, and BAC, as
guarantor; and the then current bid-ask spread for the
Notes and the factors discussed under “— Trading and hedging
activities by us, the Guarantor and any of our other affiliates,
including BofAS, and UBS and its affiliates may create
conflicts of interest with you and may affect your return on the
Notes and their market value” below. These factors are
unpredictable and interrelated and may offset or magnify each
other.
|
|
♦
|
A
higher Contingent Coupon Rate and/or a lower Coupon Barrier and/or
Downside Threshold may reflect greater expected volatility of the
Underlyings, which is generally associated with a greater risk of
loss. Volatility is a measure of the degree of
variation in the levels of the Underlyings over a period of time.
The greater the expected volatilities of the Underlyings at the
time the terms of the Notes are set, the greater the expectation is
at that time that you may not receive one or more, or all,
Contingent Coupon Payments and that you may lose a
significant portion or all of the Stated Principal
Amount at maturity. In addition, the economic terms of the
Notes, including the Contingent Coupon Rate, the Coupon Barrier and
the Downside Threshold, are based, in part, on the expected
volatilities of the Underlyings at the time the terms of the Notes
are set, where higher expected volatilities will generally be
reflected in a higher Contingent Coupon Rate than the fixed rate we
would pay on conventional debt securities of the same maturity
and/or on otherwise comparable securities and/or a lower Coupon
Barrier and/or a lower Downside Threshold as compared to otherwise
comparable securities. Accordingly, a higher Contingent Coupon Rate
will generally be indicative of a greater risk of loss while a
lower Coupon Barrier or Downside Threshold does not necessarily
indicate that the Notes have a greater likelihood of paying
Contingent Coupon Payments or returning the Stated Principal
Amount at maturity. You should be willing to accept the
downside market risk of each Underlying and the potential loss of a
significant portion or all of the Stated Principal Amount at
maturity.
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Conflict-related Risks
|
♦
|
Trading
and hedging activities by us, the Guarantor and any of our other
affiliates,including BofAS, and UBS and its
affiliates, may create conflicts of interest with you
and may affect your return on the Notes and their market
value. We, the Guarantor or one or more of our
other affiliates, including BofAS, and UBS and its
affiliates, may buy or sell shares of the Underlyings
or the securities held by or included in the Underlyings, or
futures or options contracts on the Underlyings or those
securities, or other listed or over-the-counter derivative
instruments linked to the Underlyings or those securities. We,
the Guarantor or one or more of our other affiliates,
including BofAS, and UBS and its affiliates also may
issue or underwrite other financial instruments with returns based
upon the Underlyings. We expect to enter into arrangements or
adjust or close out existing transactions to hedge our obligations
under the Notes. We, the Guarantor or our other affiliates,
including BofAS, and UBS and its affiliates also may
enter into hedging transactions relating to other Notes or
instruments, some of which may have returns calculated in
a manner related to that of the Notes offered hereby.
We or UBS may enter into such hedging arrangements with
one of our or their affiliates. Our affiliates or
their affiliates may enter into additional hedging
transactions with other parties relating to the Notes and the
Underlyings. This hedging activity is expected to result in a
profit to those engaging in the hedging activity, which could be
more or less than initially expected, or the hedging activity could
also result in a loss. We and our affiliates and UBS and its
affiliates will price these hedging transactions with the
intent to realize a profit, regardless of whether the value of the
Notes increases or decreases. Any profit in connection with such
hedging activities will be in addition to any other compensation
that we, the Guarantor and our other affiliates,
including BofAS, and UBS and its affiliates receive
for the sale of the Notes, which creates an additional incentive to
sell the Notes to you. While we, the Guarantor or one or more
of our other affiliates, including BofAS, and UBS and its
affiliates may from time to time own shares of the Underlyings
or securities represented by the Underlyings, except to the
extent that BAC’s or UBS Group AG’s (the parent company of
UBS) common stock may be included in the Underlyings, as
applicable, we, the Guarantor and our other affiliates,
including BofAS, and UBS and its affiliates do not control any
company included in the Underlyings, and have not verified any
disclosure made by any other company. We, the Guarantor or one or
more of our other affiliates, including BofAS, and UBS and its
affiliates may execute such purchases or sales for our own or
their own accounts, for business reasons, or in connection with
hedging our obligations under the
Notes. The transactions described above may
present a conflict of interest between your interest in the Notes
and the interests we, the Guarantor and our other affiliates,
including BofAS, and UBS and its affiliates may
have in our or their proprietary accounts, in
facilitating transactions, including block trades, for our or their
other customers, and in accounts under our or their
management.
|
PS-9
The transactions described
above may adversely affect the prices of the
Underlyings in a manner that could be adverse to your investment in
the Notes. On or before the Trade Date, any purchases or sales
by us, the Guarantor or our other affiliates, including BofAS or
others on its behalf, and UBS and its affiliates (including
for the purpose of hedging some or all of our anticipated
exposure in connection with the
Notes) may have affected the prices of the
Underlyings. Consequently, the prices of the Underlyings may
change subsequent to the Trade Date, which may adversely
affect the market value of the Notes. In addition, these
activities may decrease the market value of your Notes prior to
maturity, and may affect the amounts to be paid on the Notes. We,
the Guarantor or one or more of our other affiliates, including
BofAS, and UBS and its affiliates may purchase or
otherwise acquire a long or short position in the Notes and may
hold or resell the Notes. For example, BofAS may enter into these
transactions in connection with any market making activities in
which it engages. We cannot assure you that these activities will
not adversely affect the value of the Underlyings, the market value
of your Notes prior to maturity or the amounts payable on the
Notes.
|
♦
|
There
may be potential conflicts of interest involving
the calculation agent, which is an affiliate of
ours. We
have the right to appoint and remove the calculation agent.
One of our affiliates will be the calculation agent for
the Notes and, as such, will make a variety
of determinations relating to the Notes, including the amounts
that will be paid on the Notes. Under some circumstances, these
duties could result in a conflict of interest between its status as
our affiliate and its responsibilities as calculation
agent.
|
Underlying-related Risks
|
♦
|
The
Notes are subject to the market risk of the
Underlyings. The return on the Notes, which may be
negative, is directly linked to the performance of
the Underlyings and indirectly linked to the value of
the securities included in the Underlyings. The prices of
the Underlyings can rise or fall sharply due to factors
specific to the Underlyings and the securities
included in the Underlyings and the issuers of such
securities, such as stock price volatility, earnings and financial
conditions, corporate, industry and regulatory developments,
management changes and decisions and other events, as well as
general market factors, such as general stock market or commodity
market volatility and levels, interest rates and economic and
political conditions.
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|
♦
|
The
stocks held by the KBE are concentrated in one
sector. The KBE holds securities issued by companies
in the financial services sector. As a result, the stocks that
will in part determine the performance of the Notes are
concentrated in one sector. Although an investment in the Notes
will not give holders any ownership or other direct interests in
the securities held by the KBE, the return on an investment in the
Notes will be subject to certain risks associated with a direct
equity investment in companies in this sector. Accordingly, by
investing in the Notes, you will not benefit from the
diversification which could result from an investment linked to
companies that operate in multiple sectors.
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|
♦
|
The
Notes are subject to risks associated with the banking
industry. All of the stocks held by the KBE are issued by
companies in the banking industry. The performance of companies in
the banking industry are influenced by many complex and
unpredictable factors, including industry competition, interest
rates, geopolitical events, the ability of borrowers to repay
loans, government regulation, and supply and demand for the
products and services offered by such companies. Any adverse
development in the banking industry may have a material adverse
effect on the stocks held by the KBE, and as a result, on the
value of the Notes. The Notes may be subject to greater volatility
and be more adversely affected by a single positive or negative
economic, political or regulatory occurrence affecting this
industry than a different investment linked to securities of a more
broadly diversified group of issuers.
|
|
♦
|
The Notes
are subject to risks associated with small-size capitalization
companies. The stocks comprising the Russell
2000® Index, which is the IWM’s underlying index,
are issued by companies with small-sized market capitalization. The
stock prices of small-size companies may be more volatile than
stock prices of large capitalization companies. Small-size
capitalization companies may be less able to withstand adverse
economic, market, trade and competitive conditions relative to
larger companies. Small-size capitalization companies may also be
more susceptible to adverse developments related to their products
or services.
|
|
♦
|
The performance
of each Underlying may not correlate with the performance of its
underlying index (each, an “Underlying Index”) as well as the net
asset value per share of the Underlying, especially during periods
of market volatility. The performance of each
Underlying and that of its Underlying Index generally will vary due
to, for example, transaction costs, management fees, certain
corporate actions, and timing variances. Moreover, it is also
possible that the performance of an Underlying may not fully
replicate or may, in certain circumstances, diverge significantly
from the performance of its Underlying Index. This could be due to,
for example, the Underlying not holding all or substantially all of
the underlying assets included in the Underlying Index and/or
holding assets that are not included in the Underlying Index, the
temporary unavailability of certain securities in the secondary
market, the performance of any derivative instruments held by the
Underlying, differences in trading hours between the Underlying (or
the underlying assets held by the Underlying) and the Underlying
Index, or due to other circumstances. This variation in performance
is called the “tracking error,” and, at times, the tracking error
may be significant. In addition, because the shares of each
Underlying are traded on a securities exchange and are subject to
market supply and investor demand, the market price of one share of
the Underlying may differ from its net asset value per share;
shares of the Underlying may trade at, above, or below its net
asset value per share. During periods of market volatility,
securities held by each Underlying may be unavailable in the
secondary market, market participants may be unable to calculate
accurately the net asset value per share of the Underlying and the
liquidity of the Underlying may be adversely affected. Market
volatility may also disrupt the ability of market participants to
trade shares of the Underlying. Further, market volatility may
adversely affect, sometimes materially, the prices at which market
participants are willing to buy and sell shares of the Underlying.
As a result, under these circumstances, the market value of shares
of the Underlying may vary substantially from the net asset value
per share of the Underlying.
|
For
the foregoing reasons, the performance of each Underlying may not
match the performance of its Underlying Index or the net asset
value per share of the Underlying over the same period. Because of
this variance, the return on the Notes to the extent dependent on
the performance of the Underlying may not be the same as an
investment directly in the securities included in the Underlying
Index or the same as a debt security with a return linked to the
performance of the Underlying Index.
PS-10
|
♦
|
The
sponsors or investment advisors of
the Underlyings may adjust
an Underlying in a way that affects its
price, and the sponsors or investment
advisors have no obligation to
consider your interests. The
sponsors or investment advisors of the Underlyings can
add, delete, or substitute the components included in
the Underlyings or make other methodological changes that
could change their prices. Any of these actions could
adversely affect the value of your Notes.
|
|
♦
|
You
are exposed to the market risk of both
Underlyings. Your
return on the Notes is not linked to a basket consisting of the
Underlyings. Rather, it will be contingent upon the independent
performance of each of the KBE and the IWM. Unlike
an instrument with a return linked to a basket of underlying
assets, in which risk is mitigated and diversified among all of the
components of the basket, you will be exposed to the risks related
to both the KBE and the IWM. Poor performance by
either of the Underlyings over the term of the Notes may negatively
affect your return and will not be offset or mitigated by positive
performance by the other Underlying. For the Notes to be
automatically called or to receive any Contingent Coupon Payment or
contingent repayment of principal at maturity, both Underlyings
must close at or above their respective Initial Values, Coupon
Barriers or Downside Thresholds, respectively, on the applicable
Observation Date or Final Observation Date, as applicable. In
addition, if the Notes are not called prior to maturity, you may
incur a loss proportionate to the negative return of the Least
Performing Underlying even if the other Underlying appreciates
during the term of the Notes. Accordingly, your investment is
subject to the market risk of both Underlyings. Additionally,
movements in the values of the Underlyings may be correlated or
uncorrelated at different times during the term of the Notes, and
such correlation (or lack thereof) could have an adverse effect on
your return on the Notes. For example, the likelihood that one of
the Underlyings will close below its Coupon Barrier on an
Observation Date or below its Downside Threshold on the Final
Observation Date will increase when the movements in the values of
the Underlyings are uncorrelated. Thus, if the performance of the
Underlyings is not correlated or is negatively correlated, the risk
of not receiving a Contingent Coupon Payment and of incurring a
significant loss of principal at maturity is greater. In addition,
correlation generally decreases for each additional Underlying to
which the Notes are linked, resulting in a greater potential for a
significant loss of principal at maturity. Although the
correlation of the Underlyings’ performance may change over the
term of the Notes, the economic terms of the Notes, including the
Contingent Coupon Rate, Downside Thresholds and Coupon Barriers,
are determined, in part, based on the correlation of the
Underlyings’ performance calculated using our and our
affiliates' pricing models at the time when the terms of the
Notes are finalized. All other things being equal, a higher
Contingent Coupon Rate and lower Downside Threshold and Coupon
Barrier is generally associated with lower correlation of the
Underlyings, which may indicate a greater potential for missed
Contingent Coupon Payments and/or a significant loss on your
investment at maturity. See “Correlation of the Underlyings”
below.
|
Tax-related Risks
|
♦
|
The
U.S. federal income tax consequences of an investment in the
Notes are uncertain, and may be adverse to a
holder of the Notes. No
statutory, judicial, or administrative authority directly addresses
the characterization of the Notes or securities similar to the
Notes for U.S. federal income tax purposes. As a result,
significant aspects of the U.S. federal income tax consequences of
an investment in the Notes are not certain. Under the terms
of the Notes, you will have agreed with us to treat the Notes as
contingent income-bearing single financial contracts, as described
below under “U.S. Federal Income Tax Summary—General.” If the
Internal Revenue Service (the “IRS”) were successful in asserting
an alternative characterization for the Notes, the timing and
character of income, gain or loss with respect to the Notes may
differ. No ruling will be requested from the IRS with respect to
the Notes and no assurance can be given that the IRS will agree
with the statements made in the section entitled “U.S. Federal
Income Tax Summary.” You are urged to consult with your own
tax advisor regarding all aspects of the U.S. federal income tax
consequences of investing in the
Notes.
|
PS-11
Hypothetical
terms only. Actual terms may vary. See the cover page for actual
offering terms.
The
examples below illustrate the hypothetical payment upon
automatic call or at maturity for a $10.00 Stated Principal
Amount Note with the following assumptions* (amounts may
have been rounded for ease of reference and do not take into
account any tax consequences from investing in
the Notes.):
|
♦
|
Stated
Principal Amount: $10
|
|
♦
|
Term: 3 years,
unless earlier automatically called
|
|
♦
|
Hypothetical Initial
Values:
|
|
o
|
SPDR®
S&P® Bank ETF: 100.00
|
|
o
|
iShares®
Russell 2000 ETF: 100.00
|
|
♦
|
Contingent
Coupon Rate: 6.25% per annum
(or 1.5625% per quarter)
|
|
♦
|
Quarterly Contingent
Coupon Payment: $0.15625 per quarter per
|
|
♦
|
Observation
Dates: Quarterly, automatically callable (other
than on the Final Observation Date) after approximately
6 months, as set forth on page PS-6 of this pricing
supplement
|
|
♦
|
Hypothetical Coupon
Barriers:
|
|
o
|
SPDR®
S&P® Bank ETF: 70.00, which is 70% of its
hypothetical Initial Value
|
|
o
|
iShares®
Russell 2000 ETF: 70.00, which is 70% of its
hypothetical Initial Value
|
|
♦
|
Hypothetical Downside
Thresholds:
|
|
o
|
SPDR®
S&P® Bank ETF: 60.00, which is 60% of its
hypothetical Initial Value
|
|
o
|
iShares®
Russell 2000 ETF: 60.00, which is 60% of its
hypothetical Initial Value
|
*The
hypothetical Initial Values, Coupon
Barriers and Downside Thresholds
do not represent the actual Initial
Values, Coupon Barriers
and Downside Thresholds, respectively,
applicable to the Underlyings. The
actual Initial Values, Coupon
Barriers and Downside
Thresholds are set forth on the cover page of
this pricing supplement. All
payments on the Notes are subject to
issuer and guarantor credit
risk.
Example
1 — Notes are automatically called on the second Observation
Date.
|
Date
|
Current
Underlying Price of
the Underlying
|
Payment
(per Note)
|
|
SPDR®
S&P® Bank ETF
|
iShares®
Russell 2000 ETF
|
|
|
First Observation
Date
|
50.00 (below Coupon
Barrier and Initial Value)*
|
78.00
(at or above Coupon
Barrier; below Initial Value)
|
$0.00 (not
callable)
|
|
Second Observation
Date
|
110.00 (at
or above Coupon Barrier and Initial
Value)*
|
120.00 (at
or above Coupon Barrier and Initial
Value)
|
$10.15625 (Payment
upon automatic call)
|
|
|
|
Total
Payment:
|
$10.15625 (1.5625% total return)
|
* Denotes
Least Performing Underlying for the applicable Observation
Date
The
Least Performing Underlying on the first Observation Date closes
below its Coupon Barrier and Initial Value, and as a
result no Contingent Coupon Payment is paid
on the first Coupon Payment Date. On the second Observation
Date (which is approximately six months after the Trade Date
and is the first Observation Date on which the Notes are subject to
potential automatic call), the Least Performing
Underlying closes above its Initial
Value, and the Notes are automatically called on
the related Coupon Payment Date. You will receive on
the Coupon Payment Date a total of
$10.15625 per Note, reflecting the $10.00 Stated
Principal Amount plus the
applicable Contingent Coupon Payment. You would have been
paid a total of $10.15625 per Note for
a 1.5625% total return on the Notes over six
months. No further amount would be owed to you under
the Notes, and you would not participate in the
appreciation of the Underlyings.
Example
2 — Notes are NOT automatically called and
the Final Value of the Least
Performing Underlying on the Final Observation
Date is at or
above its Downside
Threshold.
|
Date
|
Current
Underlying Price of
the Underlying
|
Payment
(per Note)
|
|
SPDR®
S&P® Bank ETF
|
iShares®
Russell 2000 ETF
|
|
|
First Observation
Date
|
99.00 (at
or above Coupon Barrier; below Initial
Value)
|
85.00 (at
or above Coupon Barrier; below Initial
Value)*
|
$0.15625 (Contingent
Coupon Payment — not callable)
|
PS-12
|
Second Observation Date
|
95.00 (at
or above Coupon Barrier; below Initial
Value)
|
90.00 (at
or above Coupon Barrier; below Initial
Value)*
|
$0.15625 (Contingent
Coupon Payment — not called)
|
|
Third Observation
Date
|
75.00 (at
or above Coupon Barrier; below Initial
Value)
|
55.00 (below Coupon
Barrier and Initial Value)*
|
$0.00 (not called)
|
|
Fourth Observation
Date
|
90.00 (at
or above Coupon Barrier; below Initial
Value)
|
66.00 (below Coupon
Barrier and Initial Value)*
|
$0.00 (not
called)
|
|
Fifth
to Eleventh Observation Dates
|
various
(all at or above Coupon
Barrier; all below Initial
Value)
|
various
(all below Coupon Barrier and Initial
Value)*
|
$0.00 (not
called)
|
|
Final
Observation Date
|
78.00 (at
or above Downside Threshold and Coupon
Barrier)
|
77.00 (at
or above Downside Threshold and Coupon
Barrier)*
|
$10.15625 (Payment
at Maturity)
|
|
|
|
Total
Payment:
|
$10.46875 (4.6875% total return)
|
* Denotes
Least Performing Underlying for the applicable Observation
Date(s)
The
Least Performing Underlying on the first Observation
Date closes above its Coupon Barrier and
therefore a Contingent Coupon Payment is paid on the
first Coupon Payment Date. On the second Observation Date
(which is approximately six months after the Trade Date and is the
first Observation Date on which the Notes are subject to potential
automatic call), the Least Performing Underlying closes above its
Coupon Barrier but below its Initial Value. Therefore, a Contingent
Coupon Payment is paid on the related Coupon Payment Date, but the
Notes are not automatically called. On each of the third
to eleventh Observation Dates, the Least Performing
Underlying closes below its Coupon Barrier.
Therefore, no Contingent Coupon Payment is paid on
any related Coupon Payment Date. In addition, on each of
the second to eleventh Observation Dates, the Least
Performing Underlying closes below its Initial
Value, and as a result the Notes are not automatically called. On
the Final Observation Date, the Least Performing
Underlying on the Final Observation Date closes at
or above its Downside Threshold and Coupon Barrier.
Therefore, at maturity, you would receive a total
of $10.15625 per Note, reflecting the $10.00 Stated
Principal Amount plus the
applicable Contingent Coupon Payment. When added to the
total Contingent Coupon Payments of $0.31250 received in
respect of the prior Observation Dates, you would have
been paid a total of $10.46875 per Note for
a 4.6875% total return on the Notes over three years.
Example
3 — Notes are NOT automatically called and
the Final Value of the Least
Performing Underlying on the Final Observation Date is below its
Downside Threshold.
|
Date
|
Current
Underlying Price of
the Underlying
|
Payment
(per Note)
|
|
SPDR®
S&P® Bank ETF
|
iShares®
Russell 2000 ETF
|
|
|
First
Observation Date
|
50.00 (below Coupon
Barrier and Initial Value)*
|
75.00
(at or above Coupon
Barrier; below Initial Value)
|
$0.00
(not callable)
|
|
Second to Eleventh Observation
Dates
|
Various
(all below Coupon Barrier and Initial
Value)
|
Various
(all below Coupon Barrier and Initial
Value)*
|
$0.00 (not
called)
|
|
Final
Observation Date
|
110.00 (at
or above Downside Threshold and Coupon
Barrier)
|
30.00 (below Downside
Threshold and Coupon Barrier)*
|
$10.00 ×
[1 + Underlying Return of the Least Performing
Underlying on the Final Observation Date] =
$10.00 ×
[1 + -70.00%] =
$10.00 × 0.30 =
$3.00
(Payment at Maturity)
|
|
|
|
Total
Payment:
|
$3.00 (-70.00% total return)
|
|
|
|
|
|
* Denotes
Least Performing Underlying for the applicable Observation
Date(s)
The
Least Performing Underlying on each Observation Date closes below
its Coupon Barrier, and as a result no Contingent
Coupon Payment is paid on any Coupon Payment Date
during the term of the Notes. In addition, on each of the
second to eleventh Observation Dates (which
are the Observation Dates on which the Notes are subject to
potential automatic call), the Least Performing
Underlying closes below its Initial Value, and as a
result the Notes are not automatically called. On the
Final Observation Date, the Least Performing
Underlying closes below its Downside Threshold and Coupon
Barrier. Therefore, at maturity, investors are exposed to the
downside performance of the Least Performing Underlying and
you will receive $3.00 per Note for a
-70.00% total return over three years, which
reflects the percentage decrease of the Least Performing
Underlying from the Trade Date to the Final Observation
Date.
PS-13
All
disclosures contained in this pricing supplement regarding the
Underlyings, including, without limitation, their make-up, method
of calculation, and changes in their components, have been derived
from publicly available sources. The information reflects the
policies of, and is subject to change by, each of SSGA Funds
Management, Inc. (“SSGA”), the investment advisor of
the KBE, and BlackRock Fund Advisors (“BFA”), the
investment advisor of the IWM. We refer to SSGA and
BFA as the “Investment Advisors.” The Investment Advisors,
which license the copyright and all other rights to the
Underlyings, have no obligation to continue to publish, and
may discontinue publication of, the Underlyings. The consequences
of an Investment Advisor discontinuing publication of
the applicable Underlying are discussed in “Description
of the Notes— Anti-Dilution and Discontinuance Adjustments Relating
to ETFs— Discontinuance of an ETF” in the accompanying product
supplement. None of us, the Guarantor, the calculation agent,
or either Selling Agent accepts any responsibility for the
calculation, maintenance or publication of any Underlyings or
any successor underlying.
None of
us, the Guarantor, the Selling Agents or any of
our or their respective affiliates makes any
representation to you as to the future performance of the
Underlyings.
You
should make your own investigation into the
Underlyings.
The SPDR®
S&P® Bank ETF
The KBE
seeks to provide investment results that correspond generally to
the price and yield performance, before fees and expenses, of the
S&P Banks Select Industry Index (the “underlying index”). The
underlying index represents the banks industry portion of the
S&P® Total Market Index (“S&P TMI”), an index
that measures the performance of the U.S. equity market. The KBE is
composed of companies that are publicly traded money centers and
leading regional banks or thrifts.
The
shares of the KBE are traded on the NYSE Arca and are
registered under the Securities and Exchange
Act (“Exchange Act”). Accordingly, information filed with
the SEC relating to the KBE, including its periodic financial
reports, may be found on the SEC website.
The KBE
utilizes a “sampling” investment approach in attempting to track
the performance of the underlying index. The KBE typically invests
in substantially all of the securities which comprise the
underlying index in approximately the same proportions as the
underlying index. The KBE will normally invest at least 80% of its
total assets in the common stocks that comprise the underlying
index. The returns of the KBE may be affected by certain management
fees and other expenses, which are detailed in its
prospectus.
The S&P Banks Select Industry Index
This
underlying index is an equal-weighted index that is designed to
measure the performance of the banks portion of the S&P TMI.
The S&P TMI includes all U.S. common equities listed on the
NYSE (including NYSE Arca), the NYSE MKT, the NASDAQ Global Select
Market, and the NASDAQ Capital Market. Each of the component stocks
in the underlying index is a constituent company within the banks
industry portion of the S&P TMI.
To be
eligible for inclusion in the underlying index, companies must be
in the S&P TMI and must be included in the relevant Global
Industry Classification Standard (GICS) industry. The GICS was
developed to establish a global standard for categorizing companies
into sectors and industries. In addition to the above, companies
must satisfy one of the two following combined size and liquidity
criteria:
|
●
|
float-adjusted
market capitalization above US$2 billion and float-adjusted
liquidity ratio above 100%; or
|
|
●
|
float-adjusted
market capitalization above US$1 billion and float-adjusted
liquidity ratio above 50%.
|
All
U.S. companies satisfying these requirements are included in the
underlying index. The total number of companies in the underlying
index should be at least 35. If there are fewer than 35 stocks,
stocks from a supplementary list of highly correlated
sub-industries that meet the market capitalization and liquidity
thresholds above are included in order of their float-adjusted
market capitalization to reach 35 constituents. Minimum market
capitalization requirements may be relaxed to ensure there are at
least 22 companies in the underlying index as of each rebalancing
effective date.
Eligibility
factors include:
|
●
|
Market
Capitalization: Float-adjusted market capitalization should be at
least US$1 billion for inclusion in the underlying
index.
|
|
●
|
Liquidity:
The liquidity measurement used is a liquidity ratio, defined as
dollar value traded over the previous 12-months divided by the
float-adjusted market capitalization as of the underlying index
rebalancing reference date. Stocks having a float-adjusted market
capitalization above US$2 billion must have a liquidity ratio
greater than 100% to be eligible for addition to the underlying
index. Stocks having a float-adjusted market capitalization between
US$1 and US$2 billion must have a liquidity ratio greater than 50%
to be eligible for addition to the underlying index. Existing index
constituents must have a liquidity ratio greater than 50% to remain
in the underlying index at the quarterly rebalancing. The length of
time to evaluate liquidity is reduced to the available trading
period for IPOs or spin-offs that do not have 12 months of trading
history.
|
|
●
|
Takeover
Restrictions: At the discretion of S&P®,
constituents with shareholder ownership restrictions defined in
company bylaws may be deemed ineligible for inclusion in the
underlying index. Ownership restrictions preventing entities from
replicating the index weight of a company may be excluded from the
eligible universe or removed from the underlying
index.
|
|
●
|
Turnover:
S&P® believes turnover in index membership should be
avoided when possible. At times, a company may appear to
temporarily violate one or more of the addition criteria. However,
the addition criteria are for addition to the underlying index, not
for
|
PS-14
|
|
continued membership.
As a result, an index constituent that appears to violate the
criteria for addition to the underlying index will not be deleted
unless ongoing conditions warrant a change in the composition of
the underlying index.
|
Computation
of the Underlying Index
The
underlying index is calculated as the underlying index market value
divided by the divisor. In an equal-weighted index like the
underlying index, the market capitalization of each stock used in
the calculation of the index market value is redefined so that each
stock has an equal weight in the index on each rebalancing date.
The adjusted market capitalization for each stock in the index is
calculated as the product of the stock price, the number of shares
outstanding, the stock’s float factor and the adjustment
factor.
A
stock’s float factor refers to the number of shares outstanding
that are available to investors. S&P indices exclude shares
closely held by control groups from the underlying index
calculation because such shares are not available to investors. For
each stock, S&P calculates an Investable Weight Factor (IWF)
which is the percentage of total shares outstanding that are
included in the underlying index calculation.
The
adjustment factor for each stock is assigned at each rebalancing
date and is calculated by dividing a specific constant set for the
purpose of deriving the adjustment factor (often referred to as
modified index shares) by the number of stocks in the underlying
index multiplied by the float adjusted market value of such stock
on such rebalancing date.
Adjustments
are also made to ensure that no stock in the underlying index will
have a weight that exceeds the value that can be traded in a single
day for a theoretical portfolio of $2 billion. Theoretical
portfolio values are reviewed annually and any updates are made at
the discretion of the underlying index committee, as defined below.
The maximum basket liquidity weight for each stock in the
underlying index will be calculated using the ratio of its
three-month median daily value traded to the theoretical portfolio
value of $2 billion. Each stock’s weight in the underlying index is
then compared to its maximum basket liquidity weight and is set to
the lesser of (1) its maximum basket liquidity weight or (2) its
initial equal weight. All excess weight is redistributed across the
underlying index to the uncapped stocks. If necessary, a final
adjustment is made to ensure that no stock in the underlying index
has a weight greater than 4.5%. No further adjustments are made if
the latter step would force the weight of those stocks limited to
their maximum basket liquidity weight to exceed that weight. If the
underlying index contains exactly 22 stocks as of the rebalancing
effective date, the underlying index will be equally weighted
without basket liquidity constraints.
If a
company has more than one share class line in the S&P Total
Market Index, such company will be represented once by the
designated listing (generally the share class with both (i) the
highest one-year trading liquidity as defined by median daily value
traded and (ii) the largest float-adjusted market capitalization).
S&P reviews designated listings on an annual basis and any
changes are implemented after the close of the third Friday in
September. The last trading day in July is used as the reference
date for the liquidity and market capitalization data in such
determination. Once a listed share class line is added to the
underlying index, it may be retained in the underlying index even
though it may appear to violate certain constituent addition
criteria. For companies that issue a second publicly traded share
class to underlying index share class holders, the newly issued
share class line will be considered for inclusion if the event is
mandatory and the market capitalization of the distributed class is
not considered to be de minimis.
The
underlying index is calculated by using the divisor methodology
used in all S&P equity indices. The initial divisor was set to
have a base value of 1,000 on June 20, 2003. The underlying index
level is the underlying index market value divided by the
underlying index divisor. In order to maintain underlying index
series continuity, it is also necessary to adjust the divisor at
each rebalancing. Therefore, the divisor (after rebalancing) equals
the underlying index market value (after rebalancing) divided by
the underlying index value before rebalancing. The divisor keeps
the underlying index comparable over time and is one manipulation
point for adjustments to the underlying index, which we refer to as
maintenance of the underlying index.
PS-15
Historical Performance of
the KBE
The
following graph sets forth the daily historical performance of
the KBE in the period from January 1,
2008 through the Trade 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. The horizontal orange line in the graph represents
the KBE’s Coupon Barrier of $27.08 (rounded to two
decimal places), which is 70% of the KBE’s Initial Value of
$38.69. The horizontal grey line in the graph represents
the KBE’s Downside Threshold of $23.21 (rounded to two
decimal places), which is 60% of the KBE’s Initial
Value.
This
historical data on the KBE is not necessarily indicative
of the future performance of the KBE or what the value of
the Notes may be. Any historical upward or downward trend in the
price of the KBE during any period set forth above is not
an indication that the price of the KBE 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 patterns of
the KBE.
The iShares®
Russell 2000 ETF
The iShares®
Russell 2000 ETF seeks investment results that correspond
generally to the price and yield performance, before fees and
expenses, of the Russell 2000® Index. The
IWM typically earns income dividends from securities included in
the Russell 2000® Index. These amounts,
net of expenses and taxes (if applicable), are passed along to the
IWM’s shareholders as “ordinary income.” In addition, the IWM
realizes capital gains or losses whenever it sells securities. Net
long-term capital gains are distributed to shareholders as “capital
gain distributions.” However, because the Notes are linked only to
the share price of the IWM, you will not be entitled to receive
income, dividend, or capital gain distributions from the IWM or any
equivalent payments. The shares of
the iShares® Russell 2000 Index ETF trade
on the NYSE Arca under the “IWM”.
The
shares of the IWM are registered under the Exchange Act.
Accordingly, information filed with the SEC relating to the IWM,
including its periodic financial reports, may be found on the SEC
website.
The Russell
2000® Index
The
Russell 2000® Index was developed by Russell
Investments (“Russell”) before FTSE International Limited and
Russell combined in 2015 to create FTSE Russell, which is wholly
owned by London Stock Exchange Group. Additional information on the
Russell 2000® Index is available at the following
website: http://www.ftserussell.com. No information on that website
is deemed to be included or incorporated by reference in this
pricing supplement.
Russell
began dissemination of the Russell 2000® Index
(Bloomberg L.P. index “Russell 2000® Index”) on
January 1, 1984. FTSE Russell calculates and publishes the Russell
2000® Index. The Russell
2000® Index was set to 135 as of the close of
business on December 31, 1986. The Russell
2000® Index is designed to track the performance of
the small capitalization segment of the U.S. equity market. As a
subset of the Russell 3000® Index, the Russell
2000® Index consists of the smallest 2,000
companies included in the Russell 3000® Index. The
Russell 3000® Index measures the performance of the
largest 3,000 U.S. companies, representing approximately 98% of the
investable U.S. equity market. The Russell
2000® Index is determined, comprised, and
calculated by FTSE Russell without regard to the
Notes.
PS-16
Selection
of Stocks Comprising the Russell
2000® Index
All
companies eligible for inclusion in the Russell
2000® Index must be classified as a U.S. company
under FTSE Russell’s country-assignment methodology. If a company
is incorporated, has a stated headquarters location, and trades in
the same country (American Depositary Receipts and American
Depositary Shares are not eligible), then the company is assigned
to its country of incorporation. If any of the three factors are
not the same, FTSE Russell defines three Home Country Indicators
(“HCIs”): country of incorporation, country of headquarters, and
country of the most liquid exchange (as defined by a two-year
average daily dollar trading volume) (“ADDTV”) from all exchanges
within a country. Using the HCIs, FTSE Russell compares the primary
location of the company’s assets with the three HCIs. If the
primary location of its assets matches any of the HCIs, then the
company is assigned to the primary location of its assets. If there
is insufficient information to determine the country in which the
company’s assets are primarily located, FTSE Russell will use the
country from which the company’s revenues are primarily derived for
the comparison with the three HCIs in a similar manner. FTSE
Russell uses the average of two years of assets or revenues data to
reduce potential turnover. If conclusive country details cannot be
derived from assets or revenues data, FTSE Russell will assign the
company to the country of its headquarters, which is defined as the
address of the company’s principal executive offices, unless that
country is a Benefit Driven Incorporation “BDI” country, in which
case the company will be assigned to the country of its most liquid
stock exchange. BDI countries include: Anguilla, Antigua and
Barbuda, Bahamas, Barbados, Belize, Bermuda, Bonaire, British
Virgin Islands, Cayman Islands, Channel Islands, Cook Islands,
Curacao, Faroe Islands, Gibraltar, Guernsey, Isle of Man, Jersey,
Liberia, Marshall Islands, Panama, Saba, Sint Eustatius, Sint
Maarten, and Turks and Caicos Islands. For any companies
incorporated or headquartered in a U.S. territory, including Puerto
Rico, Guam, and U.S. Virgin Islands, a U.S. HCI is
assigned.
All
securities eligible for inclusion in the Russell
2000® Index must trade on a major U.S. exchange.
Stocks must have a closing price at or above $1.00 on their primary
exchange on the last trading day in May to be eligible for
inclusion during annual reconstitution. However, in order to reduce
unnecessary turnover, if an existing member’s closing price is less
than $1.00 on the last day of May, it will be considered eligible
if the average of the daily closing prices (from its primary
exchange) during the month of May is equal to or greater than
$1.00. Initial public offerings are added each quarter and must
have a closing price at or above $1.00 on the last day of their
eligibility period in order to qualify for index inclusion. If an
existing stock does not trade on the “rank day” (typically the last
trading day in May but a confirmed timetable is announced each
spring) but does have a closing price at or above $1.00 on another
eligible U.S. exchange, that stock will be eligible for
inclusion.
An
important criterion used to determine the list of securities
eligible for the Russell 2000® Index is total
market capitalization, which is defined as the market price as of
the last trading day in May for those securities being considered
at annual reconstitution times the total number of shares
outstanding. Where applicable, common stock, non-restricted
exchangeable shares and partnership units/membership interests are
used to determine market capitalization. Any other form of shares
such as preferred stock, convertible preferred stock, redeemable
shares, participating preferred stock, warrants and rights,
installment receipts or trust receipts, are excluded from the
calculation. If multiple share classes of common stock exist, they
are combined. In cases where the common stock share classes act
independently of each other (e.g., tracking stocks), each class is
considered for inclusion separately. If multiple share classes
exist, the pricing vehicle will be designated as the share class
with the highest two-year trading volume as of the rank day in
May.
Companies
with a total market capitalization of less than $30 million are not
eligible for the Russell 2000® Index. Similarly,
companies with only 5% or less of their shares available in the
marketplace are not eligible for the Russell
2000® Index. Royalty trusts, limited liability
companies, closed-end investment companies (companies that are
required to report Acquired Fund Fees and Expenses, as defined by
the SEC, including business development companies), blank check
companies, special purpose acquisition companies, and limited
partnerships are also ineligible for inclusion. Bulletin board,
pink sheets, and over-the-counter (“OTC”) traded securities are not
eligible for inclusion. Exchange traded funds and mutual funds are
also excluded.
Annual
reconstitution is a process by which the Russell
2000® Index is completely rebuilt. Based
on closing market prices of the company’s common stock on its
primary exchange on the rank day of May of each year, FTSE Russell
reconstitutes the composition of the Russell
2000® Index using the then existing market
capitalizations of eligible companies. Reconstitution of the
Russell 2000® Index occurs on the last Friday in
June or, when the last Friday in June is the 29th or 30th,
reconstitution occurs on the prior Friday. In addition, FTSE
Russell adds initial public offerings to the Russell
2000® Index on a quarterly basis based on total
market capitalization ranking within the market-adjusted
capitalization breaks established during the most recent
reconstitution. After membership is determined, a security’s shares
are adjusted to include only those shares available to the public.
This is often referred to as “free float.” The purpose of the
adjustment is to exclude from market calculations the
capitalization that is not available for purchase and is not part
of the investable opportunity set.
PS-17
Historical Performance of
the IWM
The
following graph sets forth the daily historical performance of
the IWM in the period from January 1,
2008 through the Trade 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. The horizontal orange line in the graph represents
the IWM’s Coupon Barrier of $123.17 (rounded to
two decimal places), which is 70% of the IWM’s Initial
Value of $175.96. The horizontal grey line in the graph
represents the IWM’s Downside Threshold of
$105.58 (rounded to two decimal places), which is 60% of
the IWM’s Initial Value.
This
historical data on the IWM is not necessarily indicative
of the future performance of the IWM or what the value of
the Notes may be. Any historical upward or downward trend in the
price of the IWM during any period set forth above is not
an indication that the price of the IWM 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 patterns of
the IWM.
PS-18
Correlation
of the Underlyings
The
graph below illustrates the daily performance of
the KBE and the IWM from January 1, 2008
through the Trade Date. For comparison purposes, each
Underlying has been “normalized” to have
a Closing Market Price of 100 on January 1,
2008 by dividing the Closing Market Price of
that Underlying on each trading day by
the Closing Market Price of that Underlying on
January 1, 2008 and multiplying by 100. We obtained
the Closing Market Prices used to determine the
normalized Closing Market Prices set forth
below from Bloomberg L.P., without independent
verification.
The
correlation of a pair of Underlyings represents a statistical
measurement of the degree to which the returns of those Underlyings
were similar to each other over a given period in terms of timing
and direction. The correlation between a pair of Underlyings is
scaled from 1.0 to -1.0, with 1.0 indicating perfect positive
correlation (i.e., the value of both Underlyings are
increasing together or decreasing together and the ratio of their
returns has been constant), 0 indicating no correlation
(i.e., there is no statistical relationship between the
returns of that pair of Underlyings) and
-1.0 indicating perfect negative
correlation (i.e., as the value of one Underlying increases,
the value of the other Underlying decreases and the ratio of their
returns has been constant).
The
graph below illustrates the historical performance of each
Underlying relative to each other over the time period shown and
provides an indication of how close the relative performance of
each Underlying has historically been to the other Underlying. A
closer relationship between the daily returns of two or more
underlying assets over a given period indicates that such
underlying assets have been more positively correlated. Lower (or
more-negative) correlation among two or more underlying assets over
a given period may indicate that it is less likely that those
underlying assets will subsequently move in the same direction.
Therefore, lower correlation among the Underlyings may indicate a
greater potential for one of the Underlyings to close below its
respective Coupon Barrier or Downside Threshold on an Observation
Date, including the Final Observation Date, as applicable, because
there may be a greater likelihood that at least one of the
Underlyings will decrease in value significantly. However, even if
the Underlyings have a higher positive correlation, one or both of
the Underlyings may close below the respective Coupon Barrier(s) or
Downside Threshold(s) on an Observation Date or the Final
Observation Date, as applicable, as the Underlyings may both
decrease in value. Moreover, the actual correlation among the
Underlyings may differ, perhaps significantly, from their
historical correlation. Although the correlation of the
Underlyings’ performance may change over the term of the Notes, the
economic terms of the Notes, including the Contingent Coupon Rate,
Downside Threshold and Coupon Barrier are determined, in part,
based on the correlation of the Underlyings’ performance calculated
using our and our affiliates' pricing models at the time when the
terms of the Notes are finalized. All other things being equal, a
higher Contingent Coupon Rate and lower Downside Threshold and
Coupon Barrier is generally associated with lower correlation among
the Underlyings, which may indicate a greater potential for missed
Contingent Coupon Payments and/or a significant loss on your
investment at maturity. See “Risk Factors — You are exposed to the
market risk of both Underlyings”, “—Because the Notes are linked to
the performance of the least performing between
the KBE and the IWM, you are exposed to greater risk
of receiving no Contingent Coupon Payments or sustaining a
significant loss on your investment than if the Notes were linked
to just the KBE or just the IWM” and “—A higher
Contingent Coupon Rate and/or a lower Coupon Barrier and/or
Downside Threshold may reflect greater expected volatility of the
Underlyings, which is generally associated with a greater risk of
loss” herein.
Past
performance and correlation of the Underlyings are not indicative
of the future performance or correlation of the
Underlyings.
PS-19
|
Supplement to the Plan of Distribution; Role
of BofAS and Conflicts of
Interest
|
BofAS,
an affiliate of BofA Finance and the lead selling agent for the
sale of the Notes, will receive an underwriting discount of
$0.20 for any Note sold in this offering. UBS, as
selling agent for sales of the Notes, has agreed to
purchase from BofAS, and BofAS has agreed to sell to UBS,
all of the Notes sold in this offering for $9.80 per Note.
UBS proposes to offer the Notes to the public at a price of
$10.00 per Note. UBS will receive an underwriting discount of
$0.20 for each Note it sells to the public. The
underwriting discount will be received by UBS and its financial
advisors collectively. If all of the Notes are not sold at
the initial offering price, BofAS may change the public offering
price and other selling terms.
BofAS,
a broker-dealer affiliate of ours, is a member of the Financial
Industry Regulatory Authority, Inc. (“FINRA”) and will participate
as lead selling agent in the distribution of
the Notes. Accordingly, the offering of the Notes
will conform to the requirements of FINRA Rule 5121.
BofAS 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 Trade
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, purchasers who wish to trade the
Notes more than two business days prior to the Issue Date will be
required to specify alternative settlement arrangements to prevent
a failed settlement.
BofAS 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.
BofAS 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.
As
agreed by BofAS and UBS, for approximately
a seven-month period after the Trade Date, to the
extent BofAS offers to buy the Notes in the secondary
market, it will do so at a price that will exceed the
estimated value of the Notes at that time. The amount of this
excess will decline on a straight line basis over that period.
Thereafter, if BofAS buys or sells your Notes, it will do so
at prices that reflect the estimated value determined by reference
to its pricing models at that time. Any price at any time
after the Trade Date will be based on then-prevailing market
conditions and other considerations, including the performance
of the Underlyings and the remaining term of the Notes. However,
none of us, the Guarantor, BofAS, UBS or any other
party 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 BofAS 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.
Sales
Outside of the United
States
The
Notes have not been approved for public sale in any jurisdiction
outside of the United States. There has been no registration
or filing as to the Notes with any regulatory, securities, banking,
or local authority outside of the United States and no action has
been taken by BofA Finance, BAC, BofAS or any other affiliate of
BAC, or by UBS or any of its affiliates, to offer the Notes in any
jurisdiction other than the United States. As such,
these Notes are made available to investors outside of the United
States only in jurisdictions where it is lawful to make such offer
or sale and only under circumstances that will result in compliance
with applicable laws and regulations, including private placement
requirements.
Further,
no offer or sale of the Notes is being made to residents
of:
You are
urged to carefully review the selling restrictions that
may be applicable to your jurisdiction beginning on page S-68 of
the accompanying prospectus supplement.
European Economic Area and United Kingdom
None of this pricing supplement, the accompanying product
supplement, the accompanying prospectus or the accompanying
prospectus supplement is a prospectus for the purposes of the
Prospectus Regulation (as defined below). This pricing supplement,
the accompanying product supplement, the accompanying prospectus
and the accompanying prospectus supplement have been prepared on
the basis that any offer of Notes in any Member State of the
European Economic Area (the “EEA”) or in the United Kingdom (each,
a “Relevant State”) will only be made to a legal entity which is a
qualified investor under the Prospectus Regulation (“Qualified
Investors”). Accordingly any person making or intending to make an
offer in that Relevant State of Notes which are the subject of the
offering contemplated in this pricing supplement, the accompanying
product
PS-20
supplement, the accompanying prospectus and the accompanying
prospectus supplement may only do so with respect to Qualified
Investors. Neither BofA Finance nor BAC has authorized, nor does
it authorize, the making of any offer of Notes other than to
Qualified Investors. The expression “Prospectus Regulation” means
Regulation (EU) 2017/1129.
PROHIBITION OF SALES TO EEA AND UNITED KINGDOM RETAIL
INVESTORS — The Notes are not intended to be offered, sold
or otherwise made available to and should not be offered, sold or
otherwise made available to any retail investor in the EEA or in
the United Kingdom. For these purposes: (a) a retail investor means
a person who is one (or more) of: (i) a retail client as defined in
point (11) of Article 4(1) of Directive 2014/65/EU, as amended
(“MiFID II”); or (ii) a customer within the meaning of Directive
(EU) 2016/97 (the Insurance Distribution Directive), where that
customer would not qualify as a professional client as defined in
point (10) of Article 4(1) of MiFID II; or (iii) not a qualified
investor as defined in the Prospectus Regulation; and (b) the
expression “offer” includes the communication in any form and by
any means of sufficient information on the terms of the offer and
the Notes to be offered so as to enable an investor to decide to
purchase or subscribe for the Notes. Consequently no key
information document required by Regulation (EU) No 1286/2014, as
amended (the “PRIIPs Regulation”) for offering or selling the Notes
or otherwise making them available to retail investors in the EEA
or in the United Kingdom has been prepared and therefore offering
or selling the Notes or otherwise making them available to any
retail investor in the EEA or in the United Kingdom may be unlawful
under the PRIIPs Regulation.
United Kingdom
The communication of this pricing supplement, the accompanying
product supplement, the accompanying prospectus supplement, the
accompanying prospectus and any other document or materials
relating to the issue of the Notes offered hereby is not being
made, and such documents and/or materials have not been approved,
by an authorized person for the purposes of section 21 of the
United Kingdom’s Financial Services and Markets Act 2000, as
amended (the “FSMA”). Accordingly, such documents and/or materials
are not being distributed to, and must not be passed on to, the
general public in the United Kingdom. The communication of such
documents and/or materials as a financial promotion is only being
made to those persons in the United Kingdom who have professional
experience in matters relating to investments and who fall within
the definition of investment professionals (as defined in Article
19(5) of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005, as amended (the “Financial Promotion
Order”)), or who fall within Article 49(2)(a) to (d) of the
Financial Promotion Order, or who are any other persons to whom it
may otherwise lawfully be made under the Financial Promotion Order
(all such persons together being referred to as “relevant
persons”). In the United Kingdom, the Notes offered hereby are only
available to, and any investment or investment activity to which
this pricing supplement, the accompanying product supplement, the
accompanying prospectus supplement and the accompanying prospectus
relates will be engaged in only with, relevant persons. Any person
in the United Kingdom that is not a relevant person should not act
or rely on this pricing supplement, the accompanying product
supplement, the accompanying prospectus supplement or the
accompanying prospectus or any of their contents.
Any invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the FSMA) in connection with
the issue or sale of the Notes may only be communicated or caused
to be communicated in circumstances in which Section 21(1) of the
FSMA does not apply to the Issuer or the Guarantor.
All applicable provisions of the FSMA must be complied with in
respect to anything done by any person in relation to the Notes in,
from or otherwise involving the United Kingdom.
PS-21
The
Notes are our debt securities, the return on which is linked to the
performance of the Underlyings. The related guarantees are
BAC’s obligations. Any payments on the Notes, including any
Contingent Coupon Payments, depend on the credit risk of BofA
Finance and BAC and on the performance of each of the Underlyings.
The economic terms of the Notes reflect our and BAC’s actual
or perceived creditworthiness at the time of pricing and are based
on BAC’s internal funding rate, which is the rate it would pay to
borrow funds through the issuance of market-linked Notes, and the
economic terms of certain related hedging arrangements it enters
into. BAC’s internal funding rate is typically lower than the
rate it would pay when it issues conventional fixed or floating
rate debt securities. This difference in funding rate, as
well as the underwriting discount and the hedging related charges
described elsewhere in this pricing supplement, reduced the
economic terms of the Notes to you and the initial estimated value
of the Notes. Due to these factors, the public offering price
you are paying to purchase the
Notes is greater than the initial estimated value of the
Notes as of the Trade Date.
On the
cover page of this pricing supplement, we have provided the initial
estimated value for the Notes.
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 BofAS or one of our other affiliates.
The terms of these hedging arrangements are determined based
upon terms provided by BofAS and its affiliates, and take into
account a number of factors, including our and BAC’s
creditworthiness, interest rate movements, the volatility of the
Underlyings, 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.
BofAS 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-7 above and “Supplemental Use of Proceeds” on page
PS-19 of the accompanying product
supplement.
In
the opinion of McGuireWoods LLP, as counsel to BofA Finance and
BAC, when the trustee has made the appropriate entries or notations
on the applicable schedule to the master global note that
represents the Notes (the “master note”) identifying the
Notes offered hereby as supplemental obligations thereunder in
accordance with the instructions of BofA Finance and the provisions
of the indenture governing the Notes and the related guarantee, and
the Notes have been delivered against payment therefor as
contemplated in this pricing supplement and the related prospectus,
prospectus supplement and product supplement, such Notes will be
the legal, valid and binding obligations of BofA Finance, and the
related guarantee will be the legal, valid and binding obligation
of BAC, subject, in each case, to the effects of applicable
bankruptcy, insolvency (including laws relating to preferences,
fraudulent transfers and equitable subordination), reorganization,
moratorium and other similar laws affecting creditors' rights
generally, and to general principles of equity. This opinion is
given as of the date of this pricing supplement and is limited to
the laws of the State of New York and the Delaware Limited
Liability Company Act and the Delaware General Corporation Law
(including the statutory provisions, all applicable provisions of
the Delaware Constitution and reported judicial decisions
interpreting the foregoing) as in effect on the date hereof. In
addition, this opinion is subject to customary assumptions about
the trustee's authorization, execution and delivery of the
indenture governing the Notes and due authentication of the master
note, the validity, binding nature and enforceability of the
indenture governing the Notes and the related guarantee with
respect to the trustee, the legal capacity of individuals, the
genuineness of signatures, the authenticity of all documents
submitted to McGuireWoods LLP as originals, the conformity to
original documents of all documents submitted to McGuireWoods LLP
as copies thereof, the authenticity of the originals of such copies
and certain factual matters, all as stated in the letter of
McGuireWoods LLP dated December 30, 2019, which has been filed as
an exhibit to Pre-Effective Amendment No. 1 to the Registration
Statement (File No. 333-234425) of BofA Finance and BAC, filed with
the Securities and Exchange Commission on December 30,
2019.
Sidley
Austin LLP, New York, New York, is acting as counsel to BofAS and
as special tax counsel to BofA Finance and BAC.
PS-22
|
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 BAC for U.S. federal income tax
purposes. Accordingly throughout this tax discussion,
references to “we,” “our” or “us” are generally
to BAC 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
contingent income-bearing single financial contracts with respect
to the Underlyings 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, Sidley Austin LLP, it is
reasonable to treat the Notes as contingent
income-bearing single financial contracts with respect to the
Underlyings. However, Sidley Austin 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 contingent income-bearing single
financial contracts with respect to the Underlyings for U.S.
federal income tax purposes. If the Notes did not
constitute contingent 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 either Underlying
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 either
Underlying 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 Underlyings and consult your tax advisor regarding the possible
consequences to you, if any, if the issuer of either Underlying 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 any Contingent Coupon
Payment on the Notes is uncertain, we intend to take the
position, and the following discussion assumes, that any Contingent
Coupon Payment constitutes 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 any
Contingent Coupon Payment 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 any Contingent Coupon Payment, 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. Subject to
the discussion below concerning the possible application of the
“constructive
PS-23
ownership”
rules of Section 1260 of the Code, 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.
Possible
Application of Section 1260 of the Code. Since the
Underlyings are the type of financial asset described under Section
1260 of the Code (including, among others, any equity interest in
pass-through entities such as exchange traded funds, regulated
investment companies, real estate investment trusts, partnerships,
and passive foreign investment companies, each a “Section 1260
Financial Asset”), while the matter is not entirely clear, there
may exist a risk that an investment in the Notes will be treated,
in whole or in part, as a “constructive ownership transaction”
to which Section 1260 of the Code applies. If Section 1260 of the
Code applies, all or a portion of any long-term capital gain
recognized by a U.S. Holder in respect of the Notes will be
recharacterized as ordinary income (the “Excess Gain”). In
addition, an interest charge will 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 sale,
exchange, redemption, or settlement (assuming such income accrued
at a constant rate equal to the applicable federal rate as of the
date of sale, exchange, redemption, or settlement).
If an
investment in the Notes is treated as a constructive ownership
transaction, it is not clear to what extent any long-term capital
gain of a U.S. Holder in respect of the Notes will be
recharacterized as ordinary income. It is possible, for example,
that the amount of the Excess Gain (if any) that would be
recharacterized as ordinary income in respect of the Notes will
equal the excess of (i) any long-term capital gain recognized by
the U.S. Holder in respect of the Notes and attributable to Section
1260 Financial Assets, over (ii) the “net underlying long-term
capital gain” (as defined in Section 1260 of the Code) such U.S.
Holder would have had if such U.S. Holder had acquired an amount of
the corresponding Section 1260 Financial Assets at fair market
value on the original issue date for an amount equal to the portion
of the issue price of the Notes attributable to the corresponding
Section 1260 Financial Assets and sold such amount of Section 1260
Financial Assets at maturity or upon sale, exchange, or redemption
of the Notes at fair market value. Unless otherwise established by
clear and convincing evidence, the net underlying long-term capital
gain is treated as zero and therefore it is possible that all
long-term capital gain recognized by a U.S. Holder in respect of
the Notes will be recharacterized as ordinary income if Section
1260 of the Code applies to an investment in the Notes. U.S.
Holders should consult their tax advisors regarding the potential
application of Section 1260 of the Code to an investment in the
Notes.
As
described below, the IRS, as indicated in Notice 2008-2 (the
“Notice”), is considering whether Section 1260 of the Code
generally applies or should apply to the Notes, including in
situations where the Underlyings are not the type of financial
asset described under Section 1260 of the Code.
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 or upon a sale, exchange,
or redemption of the Notes generally 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
Notice sought comments from the public on the taxation of financial
instruments currently taxed as “prepaid forward contracts.”
This Notice addresses instruments such as the Notes.
According to the Notice, the IRS and Treasury are
considering whether a holder of an instrument such as
the Notes should be required to accrue ordinary income on
a current basis, regardless of whether any payments are made prior
to maturity. It is not possible to determine what guidance
the IRS and Treasury will ultimately issue, if any. Any such
future guidance may affect the amount, timing and character of
income, gain, or loss in respect of the Notes, possibly with
retroactive effect.
The IRS
and Treasury are also considering additional issues, including
whether additional gain or loss from such instruments should be
treated as ordinary or capital, whether foreign holders of such
instruments should be subject to withholding tax on any deemed
income accruals, whether Section 1260 of the Code, concerning
certain “constructive ownership transactions,” generally applies or
should generally apply to such instruments, and whether any of
these determinations depend on the nature of the underlying
asset.
In
addition, proposed Treasury regulations require the accrual of
income on a current basis for contingent payments made under
certain notional principal contracts. The preamble to the
regulations states that the “wait and see” method of accounting
does not properly reflect the economic accrual of income on those
contracts, and requires current accrual of income for some
contracts already in existence. While the proposed regulations do
not apply to prepaid forward contracts, the preamble to the
proposed regulations expresses the view that similar timing issues
exist in the case of prepaid forward contracts. If the IRS or
Treasury publishes future guidance requiring current economic
accrual for contingent payments on prepaid forward contracts, it is
possible that you could be required to accrue income over the term
of the Notes.
Because
of the absence of authority regarding the appropriate tax
characterization of the Notes, it is also possible that the
IRS could seek to characterize the Notes in a manner that
results in tax consequences that are different from those described
above. For example, the IRS could possibly assert that any gain or
loss that a holder may recognize at maturity or upon the sale,
exchange, or redemption of the Notes should be
treated as ordinary gain or loss.
PS-24
Non-U.S.
Holders
Because
the U.S. federal income tax treatment of
the Notes (including any Contingent Coupon Payment) 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 any Contingent Coupon Payment 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.
Except
as discussed below, a Non-U.S. Holder generally will not be subject
to U.S. federal income or withholding tax for amounts paid in
respect of the Notes (not including, for the avoidance of
doubt, amounts representing any Contingent Coupon
Payment which would be subject to the rules discussed in the
previous paragraph) upon 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, redemption, or settlement 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 Contingent Coupon
Payment and gain realized on the settlement at maturity, or upon
sale, exchange, or redemption of the Notes, is
effectively connected with the conduct of such trade or business
(and, if certain tax treaties apply, is attributable to a permanent
establishment maintained by the Non-U.S. Holder in the U.S.), the
Non-U.S. Holder, although exempt from U.S. federal withholding tax,
generally will be subject to U.S. federal income tax on such
Contingent Coupon Payment 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 Treasury 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, IRS 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, 2023.
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 Underlyings 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
Underlyings 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.
Prospective 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.
PS-25
