This
pricing supplement, which is not complete and may be changed,
relates to an effective Registration Statement under the Securities
Act of 1933. This pricing supplement and the accompanying
product supplement, prospectus supplement and prospectus are not an
offer to sell these notes in any country or jurisdiction where such
an offer would not be permitted.
SUBJECT TO COMPLETION, DATED November 23,
2020
Preliminary
Pricing Supplement - Subject to Completion
(To
Prospectus dated December 31, 2019,
Prospectus
Supplement dated December 31, 2019 and
Product
Supplement EQUITY-1 dated January 3, 2020)
November ,
2020
|
Filed
Pursuant to Rule 424(b)(2)
Series
A Registration Statement No. 333-234425
|
|
|
BofA
Finance LLC $---- Trigger Autocallable Contingent
Yield Notes
|
Linked
to the Least Performing of the Russell 2000®
Index and the S&P
500® Index Due November
30, 2023
Fully
and Unconditionally Guaranteed by Bank of America
Corporation
|
Investment Description
|
The
Trigger Autocallable Contingent
Yield Notes (the “Notes”) linked to
the least performing of the Russell 2000®
Index and the S&P
500® Index (each, an
“Underlying”) due November 30, 2023 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
Level of the Least Performing Underlying on the
related quarterly Observation Date is greater than
or equal to its Coupon Barrier. If the Current
Underlying Level 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 three months after issuance, if
the Current Underlying Level 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). 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 closing level 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
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.
|
Features
|
|
Key Dates1
|
❑ Contingent
Coupon Payment — We will pay you
a Contingent Coupon Payment on
each quarterly Coupon Payment Date if, and only
if, the Current Underlying Level 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 three 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
Level 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 may 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). 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 closing level 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.
|
|
Trade
Date2
Issue
Date2
Observation
Dates3
Final Observation Date3
Maturity
Date
|
November
25, 2020
November
30, 2020
Quarterly, subject
to automatic call beginning on February 25,
2021
November
27, 2023
November
30, 2023
|
1 Subject
to change and will be set forth in the final pricing supplement
relating to the Notes.
2 See
“Supplement to the Plan of Distribution; Role
of BofAS and Conflicts of Interest” in this pricing
supplement for additional information.
3 See
page PS-6 for additional details.
|
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.
|
Notes Offering
|
We are
offering Trigger Autocallable Contingent
Yield Notes linked to the least performing of the
Russell 2000® Index and the S&P
500® Index due November 30, 2023. Any
payment on the Notes will be based on the performance of
the Least Performing Underlying. The Contingent Coupon
Rate, Initial Values, Coupon Barriers and Downside
Thresholds will be determined on the Trade Date.
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.
|
Underlyings
|
Contingent
Coupon Rate
|
Initial
Values
|
Coupon
Barrier
|
Downside
Threshold
|
CUSIP
|
Russell
2000® Index (Ticker: RTY)
|
[6.00%
to 6.50%] per annum
|
|
-----,
which is 70% of the Initial Value
|
-----,
which is 70% of the Initial Value
|
05591G264/
US05591G2646
|
S&P
500® Index (Ticker: SPX)
|
|
-----,
which is 70%of the Initial Value
|
-----,
which is 70%of the Initial Value
|
|
|
|
|
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.
|
Public
Offering Price
|
Underwriting
Discount(1)
|
Proceeds
(before expenses) to BofA Finance
|
Per Note
|
$10.00
|
$0.20
|
$9.80
|
Total
|
$
|
$
|
$
|
(1) The
underwriting discount is $0.20 per Note. BofA
Securities, Inc. (“BofAS”), acting
as principal, expects to purchase from BofA Finance,
and BofA Finance expects 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, expects to purchase from BofAS,
and BofAS expects 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 will
be less than the public offering price. The initial
estimated value of the Notes as of the Trade
Date is expected to be between $9.50 and $9.80 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.
UBS
Financial Services Inc.
|
BofA
Securities
|
Additional Information about BofA
Finance LLC, Bank of America Corporation and the
Notes
|
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.
|
PS-2
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 level of one Underlying will
not be offset or mitigated by a lesser decline or any potential
increase in the level of the other Underlying.
♦
You
believe the Current Underlying Level of each Underlying is likely
to be greater than or equal to its Coupon Barrier on the
Observation Dates, and, if the Current Underlying Level 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 Level of each Underlying will be
greater than or equal to its Downside Threshold on the Final
Observation Date, and, if the Current Underlying Level 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 three months after
issuance, other than the Final Observation Date) on
which the Current Underlying Level 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 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.
|
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 level of
one Underlying will not be offset or mitigated by a lesser decline
or any potential increase in the level of the other
Underlying.
♦
You
do not believe the Current Underlying
Level 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 Level 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 level 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 three months after
issuance, other than the Final Observation Date) on
which the Current Underlying Level 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 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.
|
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.
|
PS-3
100%
of the Stated Principal Amount
Approximately three years,
unless earlier automatically called
Russell
2000® Index (Ticker: RTY)
S&P
500® Index (Ticker: SPX)
The Notes will
be automatically called if the Current Underlying
Level of the Least Performing Underlying on
any Observation Date occurring on or
after February 25, 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 Level 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 Level 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 between [$0.1500 to $0.1625] for
each $10.00 Stated Principal Amount (based on the
per annum Contingent Coupon Rate
of between [6.00% to 6.50%]) and will be
payable, if applicable, on the related Coupon Payment
Date. The actual Contingent Coupon Payment and
Contingent Coupon Rate will be determined on the Trade
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
Level of the Least Performing
Underlying on that Observation
Date is less than its Coupon
Barrier, even if the Current Underlying Level
of the
other Underlying is above its Coupon
Barrier.
1 Subject
to change and will be set forth in the final pricing supplement
relating to the Notes.
2 See
“Supplement to the Plan of Distribution; Role of BofAS and
Conflicts of Interest” in this pricing supplement for additional
information.
|
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 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 Level
— Initial Value
Initial Value
For any Underlying, 70%
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 level on the Trade Date,
as specified on the cover page of this pricing
supplement.
For
any Underlying and any Observation Date, the closing
level of that Underlying on that Observation
Date.
For
any Underlying, its Current Underlying Level on the
Final Observation Date.
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
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 levels 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.
|
PS-4
The closing
level 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 three months)
If
the Current Underlying Level 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 Level 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
Level of the Least Performing
Underlying on any Observation
Date (beginning approximately three 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
Dates1,2
|
Coupon
Payment Dates1
|
February
25, 2021
|
March
1, 2021
|
May
25, 2021
|
May
27, 2021
|
August
25, 2021
|
August
27, 2021
|
November
26, 2021
|
November
30, 2021
|
February
25, 2022
|
March
1, 2022
|
May
25, 2022
|
May
27, 2022
|
August
25, 2022
|
August
29, 2022
|
November
25, 2022
|
November
29, 2022
|
February
27, 2023
|
March
1, 2023
|
May
25, 2023
|
May
30, 2023
|
August
25, 2023
|
August
29, 2023
|
November
27, 2023*
|
November
30, 2023
|
*The Notes will
NOT be automatically callable on the Final Observation Date
(November 27, 2023).
|
1 Subject
to change and will be set forth in the final pricing supplement
relating to the Notes.
2 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 level of
the applicable Underlyings for that day as
follows:
●
|
The
closing level of an Underlying that is not so affected will be its
closing level on
that Non-Observation Date.
|
●
|
The
closing level of an Underlying that is affected by
that Non-Observation Date will be deemed to be its
closing level 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 level 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 levels
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
Level 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 Level of any Underlying exceeds its Initial
Value. In contrast, a direct investment in 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 February 2021, the Notes will be automatically
called if, on any Observation Date (other than the
Final Observation Date), the Current Underlying
Level 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 Level 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
Level 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 levels of the
Underlyings other than on the Observation
Dates. The levels 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 Level 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 RTY and
the SPX, 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 RTY or just
the SPX. 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 RTY or
just the SPX. With two Underlyings, it is more likely
that either Underlying will close below its Coupon
Barrier on the
|
PS-7
|
Observation
Dates or below its Downside Threshold on the Final Observation Date
than if the Notes were linked to only one of the
Underlyings, 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 Level 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 pay for the Notes will
exceed their initial estimated
value. The range of initial estimated values of the
Notes that is provided on the cover page of this preliminary
pricing supplement, and the initial estimated value as of
the Trade Date that will be provided in the final pricing
supplement, are each estimates only, determined as of a particular
point in time 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.
|
♦
|
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.
|
♦
|
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 levels 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.
♦
|
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
levels 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 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.
|
Conflicted-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 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 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 value 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 affect the value of
the Underlyings. Consequently, the value 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 level 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.
|
♦
|
The
publisher of an Underlying may adjust that Underlying in a way that
affects its levels, and the publisher has no obligation to consider
your interests. The publisher of an Underlying can
add, delete, or substitute the components included in that
Underlying or make other methodological changes that could change
its level. 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 RTY and the SPX. 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 RTY and the SPX. 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.
|
♦
|
The
Notes are subject to risks associated with small-size
capitalization companies. The
stocks comprising the RTY 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.
|
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
|
PS-10
|
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* (the actual
terms of the Notes will be determined on
the Trade Date; 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
|
Russell
2000® Index: 100.00
|
♦
|
Hypothetical Contingent
Coupon Rate: 6.00% per annum (or 1.50% per
quarter) (the lower end of the range for
the Contingent Coupon Rate)
|
♦
|
Hypothetical quarterly Contingent
Coupon Payment: $0.1500 per quarter per
Note (the lower end of the range for the Contingent
Coupon Payment)
|
♦
|
Observation
Dates: Quarterly, automatically callable (other
than on the Final Observation Date) after
approximately 3 months as set forth on page
PS-6 of this pricing supplement
|
♦
|
Hypothetical Coupon
Barriers:
|
o
|
Russell
2000® Index: 70.00, which is 70% of its
hypothetical Initial Value
|
o
|
S&P
500® Index: 70.00, which is 70% of its
hypothetical Initial Value
|
♦
|
Hypothetical Downside
Thresholds:
|
o
|
Russell
2000® Index: 70.00, which is 70% of its
hypothetical Initial Value
|
o
|
S&P
500® Index: 70.00, which is 70% of its
hypothetical Initial Value
|
*The
hypothetical Contingent
Coupon Rate/Contingent Coupon
Payment may not represent the
actual Contingent
Coupon Rate/Contingent Coupon
Payment and 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 Contingent
Coupon Rate/Contingent Coupon
Payment, Initial
Values, Coupon Barriers
and Downside Thresholds will be determined on
the Trade Date. 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 Level of
the Underlying
|
Payment
(per Note)
|
Russell
2000® Index
|
S&P
500® Index
|
|
First Observation
Date
|
50.00 (below Coupon
Barrier and Initial Value)*
|
78.00
(at or above Coupon Barrier; below Initial
Value)
|
$0.00 (not
called)
|
Second Observation
Date
|
105.00 (at
or above Coupon Barrier and
Initial Value)*
|
105.00 (at
or above Coupon Barrier and
Initial Value)
|
$10.1500 (Payment
upon automatic call)
|
|
|
Total
Payment:
|
$10.1500 (1.50% total return)
|
* Denotes Least
Performing Underlying for the applicable Observation
Date
The
Least Performing Underlying on the first Observation Date closes
below its
Initial Level, and therefore the Notes are not automatically
called. The Least Performing Underlying on the first Observation
Date also closes below its Coupon Barrier, and as a
result no Contingent Coupon Payment is paid
on the first Coupon Payment Date. On
the second Observation Date, 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
$10.1500 per Note, reflecting the $10.00
Stated Principal Amount plus the
applicable Contingent Coupon Payment. You would
have been paid a total of $10.1500 per Note for
a 1.50% 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.
PS-12
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 Level of
the Underlying
|
Payment
(per Note)
|
Russell
2000® Index
|
S&P
500® Index
|
|
First Observation
Date
|
99.00 (at
or above Coupon Barrier; below Initial
Value)
|
85.00 (at
or above Coupon Barrier; below Initial
Value)*
|
$0.1500 (Contingent
Coupon Payment — not called)
|
Second 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)
|
77.00 (at
or above Downside Threshold)*
|
$10.1500 (Payment
at Maturity)
|
|
|
Total
Payment:
|
$10.3000 (3.00% total return)
|
* Denotes Least
Performing Underlying for the applicable Observation
Date(s)
The
Least Performing Underlying on the first Observation
Date closes below its Initial Level, and therefore the
Notes are not automatically called. However, 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 each of
the second 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. Therefore, at maturity,
you would receive a total of $10.1500 per Note,
reflecting the $10.00 Stated Principal
Amount plus the applicable Contingent
Coupon Payment. When added to the total Contingent
Coupon Payments of $0.1500 received in respect of
the prior Observation Dates, you would have been
paid a total of $10.3000 per Note for a 3.00% 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 Level of
the Underlying
|
Payment
(per Note)
|
Russell
2000® Index
|
S&P
500® Index
|
|
First Observation
Date
|
95.00 (at
or above Coupon Barrier; below Initial
Value)
|
66.00 (below Coupon
Barrier; below Initial Value)*
|
$0
(not called)
|
Second to Eleventh Observation
Dates
|
Various
(all below Coupon Barrier and Initial
Value)
|
Various
(all below Coupon Barrier and Initial
Value)*
|
$0
(not called)
|
Final
Observation Date
|
110.00 (at
or above Downside Threshold)
|
30.00 (below Downside
Threshold)*
|
$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 first 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 closes below
its Downside Threshold. 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 on the Notes over
three years, which reflects the percentage decrease of
the Least Performing Underlying on the
Final Observation Date 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 FTSE
Russell, the sponsor of the RTY, and S&P
Dow Jones Indices LLC (“SPDJI”), the sponsor of the SPX.
We refer to FTSE Russell and SPDJI as the
“Underlying Sponsors.” The Underlying Sponsors, 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 any Underlying Sponsor
discontinuing publication of the applicable Underlying are
discussed in “Description of the Notes—Discontinuance of an Index”
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 Underlying or any successor
index.
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
Russell 2000® Index
The RTY 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 RTY 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 RTY (Bloomberg L.P. index symbol
“RTY”) on January 1, 1984. FTSE Russell calculates and publishes
the RTY. The RTY was set to 135 as of the close of business on
December 31, 1986. The RTY 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 RTY 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 RTY is
determined, comprised, and calculated by FTSE Russell without
regard to the Notes.
Selection
of Stocks Comprising the RTY
All companies eligible for inclusion in the RTY 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 RTY 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 RTY 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 RTY. Similarly, companies with
only 5% or less of their shares available in the marketplace are
not eligible for the RTY. 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
PS-14
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 RTY is completely
rebuilt. Based on closing levels 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 RTY using the then
existing market capitalizations of eligible companies.
Reconstitution of the RTY 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 RTY 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.
Historical Performance of the RTY
The
following graph sets forth the daily historical performance of
the RTY in the period from January 1, 2008
through November 20, 2020. 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 line in the graph represents the
RTY’s hypothetical Coupon Barrier and Downside Threshold
of 1,249.739 (rounded to three decimal places),
which is 70% of the RTY’s hypothetical Initial
Value of 1,785.341, which was its closing level
on November 20, 2020. The actual Initial Value, Coupon
Barrier and Downside Threshold will be determined on
the Trade Date.

This
historical data on the RTY is not necessarily indicative
of the future performance of the RTY or what the value of
the Notes may be. Any historical upward or downward trend in the
level of the RTY during any period set forth above is not
an indication that the level of the RTY is more or less
likely to increase or decrease at any time over the term of the
Notes.
Before
investing in the Notes, you should consult publicly available
sources for the levels of the RTY.
License
Agreement
“Russell 2000®” and “Russell 3000®” are
trademarks of FTSE Russell and have been licensed for use by our
affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"). The Notes are not sponsored, endorsed,
sold, or promoted by FTSE Russell, and FTSE Russell makes no
representation regarding the advisability of investing in the
Notes.
FTSE Russell and MLPF&S have entered into a
non-exclusive license agreement providing for the license
to MLPF&S and its affiliates, including us, in
exchange for a fee, of the right to use indices owned and published
by FTSE Russell in connection with some securities, including the
Notes. The license agreement provides that the following language
must be stated in this pricing supplement:
The Notes are not sponsored, endorsed, sold, or promoted by FTSE
Russell. FTSE Russell makes no representation or warranty, express
or implied, to the holders of the Notes or any member of the public
regarding the advisability of investing in securities generally or
in the Notes particularly or the ability of the RTY to track
general stock market performance or a segment of the same. FTSE
Russell’s publication of the RTY in no way suggests or implies an
opinion by FTSE Russell as to the advisability of investment in any
or all of the securities upon which the RTY is based. FTSE
Russell’s only relationship to MLPF&S and to us is
the licensing of certain trademarks and trade names of FTSE Russell
and of the RTY, which is determined, composed, and calculated by
FTSE Russell without regard to MLPF&S, us, or the Notes.
FTSE Russell is not responsible for and has not reviewed the Notes
nor any associated literature or publications and FTSE Russell
makes no representation or warranty express or implied as to their
accuracy or completeness, or otherwise. FTSE Russell reserves the
right, at any time and without notice, to alter, amend, terminate,
or in any way change the RTY. FTSE Russell has no obligation or
liability in connection with the administration, marketing, or
trading of the Notes.
PS-15
FTSE RUSSELL DOES NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE RTY OR ANY DATA INCLUDED THEREIN AND FTSE
RUSSELL SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS THEREIN. FTSE RUSSELL MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY MLPF&S, US,
HOLDERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE RTY OR ANY DATA INCLUDED THEREIN. FTSE RUSSELL MAKES NO EXPRESS
OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE RTY OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL FTSE RUSSELL HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
The
S&P 500® Index
The
SPX includes a representative sample of 500 companies in leading
industries of the U.S. economy. The SPX is intended to provide an
indication of the pattern of common stock price movement. The
calculation of the level of the SPX is based on the relative value
of the aggregate market value of the common stocks of 500 companies
as of a particular time compared to the aggregate average market
value of the common stocks of 500 similar companies during the base
period of the years 1941 through 1943.
The
SPX includes companies from eleven main groups: Communication
Services; Consumer Discretionary; Consumer Staples; Energy;
Financials; Health Care; Industrials; Information Technology; Real
Estate; Materials; and Utilities. SPDJI may from time to time, in
its sole discretion, add companies to, or delete companies from,
the SPX to achieve the objectives stated above.
Company
additions to the SPX must have an unadjusted company market
capitalization of $8.2 billion or more (an increase from the
previous requirement of an unadjusted company market capitalization
of $6.1 billion or more).
SPDJI
calculates the SPX by reference to the prices of the constituent
stocks of the SPX without taking account of the value of dividends
paid on those stocks. As a result, the return on the Notes will not
reflect the return you would realize if you actually owned the SPX
constituent stocks and received the dividends paid on those
stocks.
Computation
of the SPX
While
SPDJI currently employs the following methodology to calculate the
SPX, no assurance can be given that SPDJI will not modify or change
this methodology in a manner that may affect the payments on
the Notes.
Historically,
the market value of any component stock of the SPX was calculated
as the product of the market price per share and the number of then
outstanding shares of such component stock. In March 2005, SPDJI
began shifting the SPX halfway from a market capitalization
weighted formula to a float-adjusted formula, before moving the SPX
to full float adjustment on September 16, 2005. SPDJI’s criteria
for selecting stocks for the SPX did not change with the shift to
float adjustment. However, the adjustment affects each company’s
weight in the SPX.
Under
float adjustment, the share counts used in calculating the SPX
reflect only those shares that are available to investors, not all
of a company’s outstanding shares. Float adjustment excludes shares
that are closely held by control groups, other publicly traded
companies or government agencies.
In
September 2012, all shareholdings representing more than 5% of a
stock’s outstanding shares, other than holdings by “block owners,”
were removed from the float for purposes of calculating the SPX.
Generally, these “control holders” will include officers and
directors, private equity, venture capital and special equity
firms, other publicly traded companies that hold shares for
control, strategic partners, holders of restricted shares, ESOPs,
employee and family trusts, foundations associated with the
company, holders of unlisted share classes of stock, government
entities at all levels (other than government retirement/pension
funds) and any individual person who controls a 5% or greater stake
in a company as reported in regulatory filings. However, holdings
by block owners, such as depositary banks, pension funds, mutual
funds and ETF providers, 401(k) plans of the company, government
retirement/pension funds, investment funds of insurance companies,
asset managers and investment funds, independent foundations and
savings and investment plans, will ordinarily be considered part of
the float.
Treasury
stock, stock options, restricted shares, equity participation
units, warrants, preferred stock, convertible stock, and rights are
not part of the float. Shares held in a trust to allow investors in
countries outside the country of domicile, such as depositary
shares and Canadian exchangeable shares are normally part of the
float unless those shares form a control block. If a company has
multiple classes of stock outstanding, shares in an unlisted or
non-traded class are treated as a control block.
For
each stock, an investable weight factor (“IWF”) is calculated by
dividing the available float shares by the total shares
outstanding. Available float shares are defined as the total shares
outstanding less shares held by control holders. This calculation
is subject to a 5% minimum threshold for control blocks. For
example, if a company’s officers and directors hold 3% of the
company’s shares, and no other control group holds 5% of the
company’s shares, SPDJI would assign that company an IWF of 1.00,
as no control group meets the 5% threshold. However, if a company’s
officers and directors hold 3% of the company’s shares and another
control group holds 20% of the company’s shares, SPDJI would assign
an IWF of 0.77, reflecting the fact that 23% of the company’s
outstanding shares are considered to be held for control. As of
July 31, 2017, companies with multiple share class lines are no
longer eligible for inclusion in the SPX. Constituents of the SPX
prior to July 31, 2017 with multiple share class lines will be
grandfathered in and continue to be included in the SPX. If a
constituent company of the SPX reorganizes into a multiple share
class line structure, that company will remain in the SPX at the
discretion of the S&P Index Committee in order to minimize
turnover.
The
SPX is calculated using a base-weighted aggregate methodology. The
level of the SPX reflects the total market value of all component
stocks relative to the base period of the years 1941 through 1943.
An indexed number is used to represent the results of this
calculation in order to make the level easier to work with and
track over time. The actual total market value of the component
stocks during the base period of the years 1941 through 1943 has
been set to an indexed level of 10. This is often indicated by the
notation 1941- 43 = 10. In practice, the daily calculation of the
SPX is computed by dividing the total market value of the component
stocks by the “index divisor.” By itself, the index divisor is an
arbitrary number.
PS-16
However,
in the context of the calculation of the SPX, it serves as a link
to the original base period level of the SPX. The index divisor
keeps the SPX comparable over time and is the manipulation point
for all adjustments to the SPX, which is index
maintenance.
Index
Maintenance
Index
maintenance includes monitoring and completing the adjustments for
company additions and deletions, share changes, stock splits, stock
dividends, and stock price adjustments due to company restructuring
or spinoffs. Some corporate actions, such as stock splits and stock
dividends, require changes in the common shares outstanding and the
stock prices of the companies in the SPX, and do not require index
divisor adjustments.
To
prevent the level of the SPX from changing due to corporate
actions, corporate actions which affect the total market value of
the SPX require an index divisor adjustment. By adjusting the index
divisor for the change in market value, the level of the SPX
remains constant and does not reflect the corporate actions of
individual companies in the SPX. Index divisor adjustments are made
after the close of trading and after the calculation of the SPX
closing level.
Changes
in a company’s shares outstanding of 5.00% or more due to mergers,
acquisitions, public offerings, tender offers, Dutch auctions, or
exchange offers are made as soon as reasonably possible. Share
changes due to mergers or acquisitions of publicly held companies
that trade on a major exchange are implemented when the
transaction occurs, even if both of the companies are not in the
same headline index, and regardless of the size of the change. All
other changes of 5.00% or more (due to, for example, company stock
repurchases, private placements, redemptions, exercise of options,
warrants, conversion of preferred stock, notes, debt, equity
participation units, at-the-market offerings, or other
recapitalizations) are made weekly and are announced on Fridays for
implementation after the close of trading on the following Friday.
Changes of less than 5.00% are accumulated and made quarterly on
the third Friday of March, June, September, and December, and are
usually announced two to five days prior. If a change in a
company’s shares outstanding of 5.00% or more causes a company’s
IWF to change by five percentage points or more, the IWF is updated
at the same time as the share change. IWF changes resulting from
partial tender offers are considered on a case by case
basis.
Historical
Performance of the SPX
The
following graph sets forth the daily historical performance of
the SPX in the period from January 1, 2008
through November 20, 2020. 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 line in the graph represents the
SPX’s hypothetical Coupon Barrier and Downside Threshold
of 2,490.28 (rounded to two decimal places), which
is 70% of the SPX’s hypothetical Initial
Value of 3,557.54, which was its closing level
on November 20, 2020. The actual Initial Value, Coupon
Barrier and Downside Threshold will be determined on
the Trade Date.

This
historical data on the SPX is not necessarily indicative of
the future performance of the SPX or what the value of the
Notes may be. Any historical upward or downward trend in the level
of the SPX during any period set forth above is not an
indication that the level of the SPX is more or less likely to
increase or decrease at any time over the term of the
Notes.
Before
investing in the Notes, you should consult publicly available
sources for the levels of the SPX.
License
Agreement
S&P® is
a registered trademark of Standard & Poor’s Financial Services
LLC (“S&P”) and Dow Jones® is a registered
trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). These
trademarks have been licensed for use by S&P Dow Jones Indices
LLC. “Standard & Poor’s®,” “S&P 500®”
and “S&P®” are trademarks of S&P. These
trademarks have been sublicensed for certain purposes by our
affiliate, MLPF&S. The SPX is a product of S&P
Dow Jones Indices LLC and/or its affiliates and has been licensed
for use by MLPF&S.
The
Notes are not sponsored, endorsed, sold or promoted by S&P Dow
Jones Indices LLC, Dow Jones, S&P or any of their respective
affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow
Jones Indices make no representation or warranty, express or
implied, to the holders of the Notes or any member of the public
regarding the advisability of investing in securities generally or
in the Notes particularly or the ability of the SPX
to
PS-17
track
general market performance. S&P Dow Jones Indices’ only
relationship to MLPF&S with respect to the SPX is the
licensing of the SPX and certain trademarks, service marks and/or
trade names of S&P Dow Jones Indices and/or its third party
licensors. The SPX is determined, composed and calculated by
S&P Dow Jones Indices without regard to us, MLPF&S, or
the Notes. S&P Dow Jones Indices have no obligation to take our
needs, BAC’s needs or the needs of MLPF&S or holders
of the Notes into consideration in determining, composing or
calculating the SPX. S&P Dow Jones Indices are not responsible
for and have not participated in the determination of the prices,
and amount of the Notes or the timing of the issuance or sale of
the Notes or in the determination or calculation of the equation by
which the Notes are to be converted into cash. S&P Dow Jones
Indices have no obligation or liability in connection with the
administration, marketing or trading of the Notes. There is no
assurance that investment products based on the SPX will accurately
track index performance or provide positive investment returns.
S&P Dow Jones Indices LLC and its subsidiaries are not
investment advisors. Inclusion of a security or futures contract
within an index is not a recommendation by S&P Dow Jones
Indices to buy, sell, or hold such security or futures contract,
nor is it considered to be investment advice. Notwithstanding the
foregoing, CME Group Inc. and its affiliates may independently
issue and/or sponsor financial products unrelated to the Notes
currently being issued by us, but which may be similar to and
competitive with the Notes. In addition, CME Group Inc. and its
affiliates may trade financial products which are linked to the
performance of the SPX. It is possible that this trading activity
will affect the value of the Notes.
S&P
DOW JONES INDICES DO NOT GUARANTEE THE ADEQUACY, ACCURACY,
TIMELINESS AND/OR THE COMPLETENESS OF THE SPX OR ANY DATA
RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO,
ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS)
WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE
SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR
DELAYS THEREIN. S&P DOW JONES INDICES MAKE NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO
RESULTS TO BE OBTAINED BY US, BAC, MLPF&S, HOLDERS OF THE
NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
SPX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P
DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL,
PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO,
LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF
THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER
IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO
THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN
S&P DOW JONES INDICES AND MLPF&S, OTHER THAN THE
LICENSORS OF S&P DOW JONES INDICES.
PS-18
Correlation
of the Underlyings
The
graph below illustrates the daily performance of
the RTY and the SPX from January 1, 2008
through November 20, 2020. For comparison purposes, each
Underlying has been “normalized” to have a closing
level of 100 on January 1, 2008 by dividing the closing
level of that Underlying on each trading day by
the closing level of that Underlying on January 1, 2008
and multiplying by 100. We obtained the closing
levels used to determine the normalized closing
levels 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 RTY and the SPX, 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 RTY or just the SPX” 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, expects to purchase
from BofAS, and BofAS expects 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.
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 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 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 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.
PS-20
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, will reduce the economic terms of the
Notes to you and the initial estimated value of the Notes.
Due to these factors, the public offering price you pay
to purchase the Notes will be greater than the initial estimated
value of the Notes as of the Trade Date. On the
cover page of this preliminary pricing supplement, we have provided
the initial estimated value range for the Notes. The final
pricing supplement will set forth the initial estimated value of
the Notes as of the Trade Date.
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.
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 any component stocks included in an 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 one or more
stocks included in an 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 component stocks included in
each Underlying and consult your tax advisor regarding the possible
consequences to you, if any, if any issuer of a component stock
included in an 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
PS-23
the
amount paid by that holder to acquire them. This capital gain or
loss generally will be long-term capital gain or loss if the U.S.
Holder held the Notes for more than one year. The
deductibility of capital losses is subject to
limitations.
Alternative
Tax Treatments. Due to the absence of authorities that
directly address the proper tax treatment of the Notes,
prospective investors are urged to consult their tax advisors
regarding all possible alternative tax treatments of an investment
in the Notes. In particular, the IRS could seek to
subject the Notes to the Treasury regulations governing
contingent payment debt instruments. If the IRS were
successful in that regard, the timing and character of income on
the Notes would be affected significantly. Among other
things, a U.S. Holder would be required to accrue original issue
discount every year at a “comparable yield” determined at the time
of issuance. In addition, any gain realized by a U.S. Holder
at maturity or upon a sale, exchange, or redemption of
the Notes generally would be treated as ordinary income,
and any loss realized at maturity 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
IRS released Notice 2008-2 (the “Notice”), which sought comments
from the public on the taxation of financial instruments currently
taxed as “prepaid forward contracts.” This Notice addresses
instruments such as the Notes. According to the Notice,
the IRS and Treasury are considering whether a holder of an
instrument such as the Notes should be required to accrue
ordinary income on a current basis, regardless of whether any
payments are made prior to maturity. It is not possible to
determine what guidance the IRS and Treasury will ultimately issue,
if any. Any such future guidance may affect the amount,
timing and character of income, gain, or loss in respect of
the Notes, possibly with retroactive effect.
The
IRS and Treasury are also considering additional issues, including
whether additional gain or loss from such instruments should be
treated as ordinary or capital, whether foreign holders of such
instruments should be subject to withholding tax on any deemed
income accruals, whether Section 1260 of the Code, concerning
certain “constructive ownership transactions,” generally applies or
should generally apply to such instruments, and whether any of
these determinations depend on the nature of the underlying
asset.
In
addition, proposed Treasury regulations require the accrual of
income on a current basis for contingent payments made under
certain notional principal contracts. The preamble to the
regulations states that the “wait and see” method of accounting
does not properly reflect the economic accrual of income on those
contracts, and requires current accrual of income for some
contracts already in existence. While the proposed regulations do
not apply to prepaid forward contracts, the preamble to the
proposed regulations expresses the view that similar timing issues
exist in the case of prepaid forward contracts. If the IRS or
Treasury publishes future guidance requiring current economic
accrual for contingent payments on prepaid forward contracts, it is
possible that you could be required to accrue income over the term
of the Notes.
Because
of the absence of authority regarding the appropriate tax
characterization of the Notes, it is also possible that the
IRS could seek to characterize the Notes in a manner that
results in tax consequences that are different from those described
above. For example, the IRS could possibly assert that any gain or
loss that a holder may recognize at maturity or upon the sale,
exchange, or redemption of the Notes should be
treated as ordinary gain or loss.
Because
each Underlying is an index that periodically rebalances, it is
possible that the Notes could be treated as a series of
contingent income-bearing single financial contracts, each of which
matures on the next rebalancing date. If
the Notes were properly characterized in such a manner, a
U.S. Holder would be treated as disposing of the Notes on
each rebalancing date in return for new Notes that mature
on the next rebalancing date, and a U.S. Holder would accordingly
likely recognize capital gain or loss on each rebalancing date
equal to the difference between the holder’s tax basis in
the Notes (which would be adjusted to take into account
any prior recognition of gain or loss) and the fair market value of
the Notes on such date.
Non-U.S.
Holders
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
PS-24
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