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Pricing
Supplement
(To
Prospectus dated December 30, 2022,
Prospectus
Supplement dated December 30, 2022 and
Product
Supplement EQUITY-1 dated December 30, 2022)
January 24,
2023
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Filed Pursuant
to Rule 424(b)(2)
Series A
Registration Statement Nos. 333-268718 and
333-268718-01
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BofA Finance
LLC $3,400,000 Trigger Autocallable Contingent
Yield Notes
Linked to the
Least Performing of the EURO STOXX 50®
Index, the Russell 2000® Index and the
S&P 500® Index Due January 29,
2026
Fully and
Unconditionally Guaranteed by Bank of America
Corporation
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Investment
Description
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The
Trigger Autocallable Contingent Yield Notes linked to the least
performing of the EURO STOXX 50® Index, the Russell
2000® Index and the S&P 500® Index (each,
an “Underlying”) due January 29, 2026 (the “Notes”) are senior
unsecured obligations issued by BofA Finance LLC (“BofA Finance”),
a consolidated finance 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 six 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 any final Contingent
Coupon Payment otherwise due on the Maturity Date). However, if the
Notes have not been automatically called prior to maturity and the
Final Value of the Least Performing Underlying on the Final
Observation Date is less than its Downside Threshold, you will
receive less than the Stated Principal Amount at maturity,
resulting in a loss that is proportionate to the decline in the
Current Underlying 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 Underlyings. You will therefore
be adversely affected if any Underlying
performs poorly, regardless of the performance of the other
Underlyings. You will not receive dividends or other distributions
paid on any stocks included in the Underlyings or participate in
any appreciation of any 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 BofA Finance and the Guarantor and is
not, either directly or indirectly, an obligation of any third
party.
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Features
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Key
Dates
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❑
Contingent
Coupon Payment — We will pay you a Contingent Coupon
Payment on each quarterly Coupon Payment Date if, and only if, the
Current Underlying Level of the Least Performing Underlying on the
related quarterly Observation Date is greater than or equal to its
Coupon Barrier. Otherwise, no Contingent Coupon Payment will be
paid for that quarter.
❑
Automatic
Call — Beginning approximately six months after issuance,
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 are
not automatically called, investors will have full downside market
exposure to the Least Performing Underlying at
maturity.
❑
Downside
Exposure with Contingent Repayment of Principal at
Maturity — If the Notes are not automatically called prior
to maturity and the Final Value of the Least Performing Underlying
on the Final Observation Date is greater than or equal to its
Downside Threshold, you will receive the Stated Principal Amount at
maturity (plus any final Contingent Coupon Payment otherwise due on
the Maturity Date). However, if the Final Value of the Least
Performing Underlying on the Final Observation Date is less than
its Downside Threshold, you will receive less than the Stated
Principal Amount of your Notes at maturity, resulting in a loss
that is proportionate to the decline in the Current Underlying
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.
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Quarterly,
subject to automatic call beginning on July 24, 2023
See
“Supplement to the Plan of Distribution; Role of BofAS and
Conflicts of Interest” in this pricing supplement for additional
information.
See
page PS-6 for additional details.
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NOTICE TO
INVESTORS: THE NOTES ARE SIGNIFICANTLY RISKIER THAN CONVENTIONAL
DEBT INSTRUMENTS. BOFA FINANCE IS NOT NECESSARILY OBLIGATED TO
REPAY THE STATED PRINCIPAL AMOUNT AT MATURITY, AND THE NOTES CAN
HAVE DOWNSIDE MARKET RISK SIMILAR TO THE LEAST PERFORMING
UNDERLYING. THIS MARKET RISK IS IN ADDITION TO THE CREDIT RISK
INHERENT IN PURCHASING A DEBT OBLIGATION OF BOFA FINANCE THAT IS
GUARANTEED BY BAC. YOU SHOULD NOT PURCHASE THE NOTES IF YOU DO NOT
UNDERSTAND OR ARE NOT COMFORTABLE WITH THE SIGNIFICANT RISKS
INVOLVED IN INVESTING IN THE NOTES.
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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-6 OF THE
ACCOMPANYING PROSPECTUS SUPPLEMENT AND PAGE 7 OF THE ACCOMPANYING
PROSPECTUS BEFORE PURCHASING ANY NOTES. EVENTS RELATING TO ANY OF
THOSE RISKS, OR OTHER RISKS AND UNCERTAINTIES, COULD ADVERSELY
AFFECT THE MARKET VALUE OF, AND THE RETURN ON, YOUR NOTES. YOU MAY
LOSE SOME OR ALL OF YOUR INITIAL INVESTMENT IN THE NOTES. THE
NOTES WILL NOT BE LISTED ON ANY SECURITIES EXCHANGE AND MAY HAVE
LIMITED OR NO LIQUIDITY.
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Notes
Offering
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We are
offering Trigger Autocallable Contingent Yield Notes linked to the
least performing of the EURO STOXX 50® Index, the
Russell 2000® Index and the S&P
500® Index due January 29, 2026. Any payment on the
Notes will be based solely on the performance of the Least
Performing Underlying. The Notes are our senior unsecured
obligations, guaranteed by BAC, and are offered for a minimum
investment of 100 Notes (each Note corresponding to $10.00 in
Stated Principal Amount) at the Public Offering Price described
below.
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Underlyings
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Contingent
Coupon Rate
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Initial
Values
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Coupon
Barriers
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Downside
Thresholds
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CUSIP /
ISIN
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EURO
STOXX 50® Index (Ticker: SX5E)
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11.00%
per annum
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4,153.02
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3,114.77, which is
75% of the Initial Value (rounded to two decimal
places)
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3,114.77, which is
75% of the Initial Value (rounded to two decimal
places)
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09710H450 /
US09710H4508
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Russell
2000® Index (Ticker: RTY)
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1,885.611
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1,414.208, which
is 75% of the Initial Value (rounded to three decimal
places)
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1,414.208, which
is 75% of the Initial Value (rounded to three decimal
places)
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S&P
500® Index (Ticker: SPX)
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4,016.95
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3,012.71, which is
75% of the Initial Value (rounded to two decimal
places)
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3,012.71, which is
75% of the Initial Value (rounded to two decimal
places)
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See “Summary”
in this pricing supplement. The Notes will have the terms specified
in the accompanying product supplement, prospectus supplement and
prospectus, as supplemented by this pricing
supplement.
None
of the Securities and Exchange Commission (the “SEC”), any state
securities commission, or any other regulatory body has approved or
disapproved of these Notes or the guarantee, or passed upon the
adequacy or accuracy of this pricing supplement, or the
accompanying product supplement, prospectus supplement or
prospectus. Any representation to the contrary is a criminal
offense. The Notes and the related guarantee of the Notes by the
Guarantor are unsecured and are not savings accounts, deposits, or
other obligations of a bank. The Notes are not guaranteed by
Bank of America, N.A. or any other bank, are not insured by the
Federal Deposit Insurance Corporation or any other governmental
agency and involve investment risks.
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Public Offering
Price
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Underwriting
Discount(1)
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Proceeds
(before expenses) to BofA Finance
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Per
Note
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$10.00
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$0.20
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$9.80
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Total
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$3,400,000.00
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$68,000.00
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$3,332,000.00
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(1) The
underwriting discount is $0.20 per Note. BofA Securities, Inc.
(“BofAS”), acting as principal, has agreed to purchase from BofA
Finance, and BofA Finance has agreed to sell to BofAS, the
aggregate principal amount of the Notes set forth above for $9.80
per Note. UBS Financial Services Inc. (“UBS”), acting as a selling
agent for sales of the Notes, has agreed to purchase from BofAS,
and BofAS has agreed to sell to UBS, all of the Notes for $9.80 per
Note. UBS will receive an underwriting discount of $0.20 per Note
for each Note it sells in this offering. UBS proposes to offer the
Notes to the public at a price of $10.00 per Note. For additional
information on the distribution of the Notes, see “Supplement to
the Plan of Distribution; Role of BofAS and Conflicts of Interest”
in this pricing supplement.
The
initial estimated value of the Notes is less than the
public offering price. The initial estimated value of the Notes
as of the Trade Date is $9.784 per $10.00 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-23 of this
pricing supplement for additional information. The actual value of
your Notes at any time will reflect many factors and cannot be
predicted with accuracy.
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UBS
Financial Services Inc.
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BofA
Securities
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Additional
Information about BofA Finance LLC, Bank of America Corporation and
the Notes
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You
should read carefully this entire pricing supplement and the
accompanying product supplement, prospectus supplement and
prospectus to understand fully the terms of the Notes, as well as
the tax and other considerations important to you in making a
decision about whether to invest in the Notes. In particular, you
should review carefully the section in this pricing supplement
entitled “Risk Factors,” which highlights a number of risks of an
investment in the Notes, to determine whether an investment in the
Notes is appropriate for you. If information in this pricing
supplement is inconsistent with the product supplement, prospectus
supplement or prospectus, this pricing supplement will supersede
those documents. You are urged to consult with your own attorneys
and business and tax advisors before making a decision to purchase
any of the Notes.
The
information in the “Summary” section is qualified in its entirety
by the more detailed explanation set forth elsewhere in this
pricing supplement and the accompanying product supplement,
prospectus supplement and prospectus. You should rely only on the
information contained in this pricing supplement and the
accompanying product supplement, prospectus supplement and
prospectus. We have not authorized any other person to provide you
with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. None of us,
the Guarantor, BofAS or UBS is making an offer to sell these Notes
in any jurisdiction where the offer or sale is not permitted.
You should assume that the information in this pricing
supplement and the accompanying product supplement, prospectus
supplement, and prospectus is accurate only as of the date on their
respective front covers.
Certain terms used
but not defined in this pricing supplement have the meanings set
forth in the accompanying product supplement, prospectus supplement
and prospectus. Unless otherwise indicated or unless the
context requires otherwise, all references in this pricing
supplement to “we,” “us,” “our,” or similar references are to BofA
Finance, and not to BAC (or any other affiliate of BofA Finance).
The above-referenced accompanying documents may be accessed at the
following links:
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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, except obligations that are subject to
any priorities or preferences by law. The related guarantee
will rank equally in right of payment with all of BAC’s other
unsecured and unsubordinated obligations, except obligations that
are subject to any priorities or preferences by law, and senior in
right of payment to its subordinated obligations. Any payments due
on the Notes, including any repayment of the principal amount, will
be subject to the credit risk of BofA Finance, as issuer, and BAC,
as Guarantor.
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Investor
Suitability
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The
Notes may be suitable for you if, among other
considerations:
◆
You fully
understand the risks inherent in an investment in the Notes,
including the risk of loss of your entire investment.
◆
You can tolerate a
loss of all or a substantial portion of your investment and are
willing to make an investment that will have the full downside
market risk of an investment in the Least Performing
Underlying.
◆
You understand and
accept the risks associated with the Underlyings.
◆
You are willing to
accept the individual market risk of each Underlying and understand
that any decline in the level of one Underlying will not be offset
or mitigated by a lesser decline or any potential increase in the
level of any 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 any 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 any 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.
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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 on the Notes will be based on the performance of
the Least Performing Underlying and you will not benefit from the
performance of any other Underlying.
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You are willing to
hold Notes that will be called on the earliest Observation Date
(beginning six months after issuance, other than the Final
Observation Date) on which the Current Underlying 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.
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The
Notes may not be suitable for you if,
among other considerations:
◆
You do not fully
understand the risks inherent in an investment in the Notes,
including the risk of loss of your entire investment.
◆
You cannot
tolerate the loss of all or a substantial portion of your initial
investment, or you are not willing to make an investment that will
have the full downside market risk of an investment in the Least
Performing Underlying.
◆
You 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 any other Underlying.
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You require an
investment designed to guarantee a full return of the Stated
Principal Amount at maturity.
◆
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 any 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.
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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 on the Notes will be based on the
performance of the Least Performing Underlying, or you seek an
investment based on the performance of a basket composed of the
Underlyings.
◆
You are unwilling
to hold Notes that will be called on the earliest Observation Date
(beginning six months after issuance, other than the Final
Observation Date) on which the Current Underlying 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.
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The
suitability considerations identified above are not exhaustive.
Whether or not the Notes are a suitable investment for you will
depend on your individual circumstances and you should reach an
investment decision only after you and your investment, legal, tax,
accounting and other advisors have carefully considered the
suitability of an investment in the Notes in light of your
particular circumstances. You should review “The Underlyings”
section herein for more information on the Underlyings. You should
also review carefully the “Risk Factors” section herein for risks
related to an investment in the Notes.
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Summary
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100%
of the Stated Principal Amount
Approximately
three years, unless earlier automatically called
EURO
STOXX 50® Index (Ticker: SX5E)
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 July 24, 2023 (other than the Final
Observation Date) is greater than or equal to its Initial
Value.
If
the Notes are automatically called, on the applicable Coupon
Payment Date we will pay you a cash payment per $10.00 Stated
Principal Amount equal to the Stated Principal Amount plus any
Contingent Coupon Payment otherwise due on such Coupon Payment
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 $0.275 for each
$10.00 Stated Principal Amount (based on the per annum Contingent
Coupon Rate of 11.00%) and will be payable, if applicable, on the
related Coupon Payment Date.
Contingent
Coupon Payments on the Notes are not guaranteed. We will not pay
you the Contingent Coupon Payment for any Observation Date on which
the Current Underlying Level of the Least Performing Underlying on
that Observation Date is less than its Coupon Barrier, even if the
Current Underlying Level of each other Underlying is above its
Coupon Barrier.
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Payment At
Maturity (per $10.00 Stated Principal Amount)
If the Notes
are not automatically called prior to maturity and the Final Value
of the Least Performing Underlying on the Final Observation Date is
greater than or equal to its Downside Threshold, on the
Maturity Date we will pay you the Stated Principal Amount plus any
Contingent Coupon Payment otherwise due on the Maturity
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 each
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, 75% of its Initial Value, as specified on the cover
page of this pricing supplement.
For
any Underlying, 75% 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 relating to
the Notes and in the section entitled “Description of Debt
Securities of BofA Finance LLC - Events of Default and Rights of
Acceleration; Covenant Breaches” on page 54 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.
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1 See
“Supplement to the Plan of Distribution; Role of BofAS and
Conflicts of Interest” in this pricing supplement for additional
information.
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Investment
Timeline
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Trade
Date
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The
Initial Value of each Underlying is observed, the Contingent Coupon
Payment/Contingent Coupon Rate is set, and the Coupon Barrier
and Downside Threshold for each Underlying are
determined.
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Quarterly
(autocallable after six months)
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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.
The
Notes will be automatically called if the Current Underlying Level
of the Least Performing Underlying on any Observation Date
occurring on or after July 24, 2023 (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, on the
related Coupon Payment Date we will pay you a cash payment per
$10.00 Stated Principal Amount equal to the Stated Principal Amount
plus the applicable Contingent Coupon Payment.
If the
Notes are automatically called, no further payments will be made on
the Notes.
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Maturity Date
(if not previously automatically called)
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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 any Contingent Coupon Payment otherwise due
on the Maturity 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)
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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 ANY 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.
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Observation
Dates and Coupon Payment Dates
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Observation
Dates1
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Coupon Payment
Dates
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April
24, 2023 *
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April
26, 2023
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July
24, 2023
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July
26, 2023
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October 24,
2023
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October 26,
2023
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January 24,
2024
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January 26,
2024
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April
24, 2024
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April
26, 2024
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July
24, 2024
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July
26, 2024
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October 24,
2024
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October 28,
2024
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January 24,
2025
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January 28,
2025
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April
24, 2025
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April
28, 2025
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July
24, 2025
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July
28, 2025
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October 24,
2025
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October 28,
2025
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January 26, 2026
*
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January 29,
2026
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* The
Notes are NOT automatically callable until the second Observation
Date, which is July 24, 2023, and will NOT be automatically
callable on the Final Observation Date (January 26,
2026).
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1 The
Observation Dates are subject to postponement as set forth in
“Additional Terms Relating to Observation Dates”
below.
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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.
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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-6 of the accompanying prospectus supplement and
page 7 of the accompanying prospectus, each as identified on page
PS-2 above.
Structure-related
Risks
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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.
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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.
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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 the 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. 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.
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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 July 2023, 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, and no further amounts will be payable
on the Notes. 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.
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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 you will not receive a positive
return on the Notes.
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The
Contingent Coupon Payments, 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 payment
upon an automatic call 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.
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Because the
Notes are linked to the performance of the least performing among
the SX5E, 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
SX5E, 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
SX5E, just the RTY, or just the SPX. With three Underlyings, it is
more likely that an Underlying will close below its Coupon Barrier
on an Observation Date 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.
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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.
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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 any payment date, including
the Maturity Date. If we and the Guarantor
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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 levels of the
Underlyings, an improvement in our or the Guarantor’s credit
ratings will not reduce the other investment risks related to the
Notes.
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We
are a finance subsidiary and, as such, have no independent assets,
operations or revenues. We are a finance subsidiary of the
Guarantor, 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.
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Valuation-
and Market-related Risks
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The
public offering price you are paying for the Notes exceeds their
initial estimated value. The initial estimated value of the
Notes that is provided on the cover page of this pricing supplement
is an estimate only, determined as of the Trade Date by reference
to our and our affiliates’ pricing models. These pricing models
consider certain assumptions and variables, including our credit
spreads and those of the Guarantor, the Guarantor’s internal
funding rate, mid-market terms on hedging transactions,
expectations on interest rates, dividends and volatility,
price-sensitivity analysis, and the expected term of the
Notes. These pricing models rely in part on certain
forecasts about future events, which may prove to be incorrect. If
you attempt to sell the Notes prior to maturity, their market value
may be lower than the price you paid for them and lower than their
initial estimated value. This is due to, among other things,
changes in the levels of the Underlyings, changes in the
Guarantor’s internal funding rate, and the inclusion in the public
offering price of the underwriting discount and the hedging-related
charges, all as further described in “Structuring the Notes” below.
These factors, together with various credit, market and economic
factors over the term of the Notes, are expected to reduce the
price at which you may be able to sell the Notes in any secondary
market and will affect the value of the Notes in complex and
unpredictable ways.
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The
initial estimated value does not represent a minimum or maximum
price at which we, BAC, BofAS or any of our other affiliates would
be willing to purchase your Notes in any secondary market (if any
exists) at any time. The value of your Notes at any time after
issuance will vary based on many factors that cannot be predicted
with accuracy, including the performance of the Underlyings, our
and BAC’s creditworthiness and changes in market
conditions.
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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 UBS, for approximately a
seven-month period after the Trade Date, to the extent BofAS offers
to buy the Notes in the secondary market, it will do so at a price
that will exceed the estimated value of the Notes at that time. The
amount of this excess, which represents a portion of the
hedging-related charges expected to be realized by BofAS and UBS
over the term of the Notes, will decline to zero on a straight line
basis over that seven-month period. Accordingly, the estimated
value of your Notes during this initial seven-month period may be
lower than the value shown on your customer account statements.
Thereafter, if BofAS buys or sells your Notes, it will do so at
prices that reflect the estimated value determined by reference to
its pricing models at that time. Any price at any time after the
Trade Date will be based on then-prevailing market conditions and
other considerations, including the performance of the Underlyings
and the remaining term of the Notes. However, none of us, the
Guarantor, BofAS or any other party is obligated to purchase your
Notes at any price or at any time, and we cannot assure you that
any party will purchase your Notes at a price that equals or
exceeds the initial estimated value of the Notes.
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We
cannot assure you that a trading market for your Notes will ever
develop or be maintained. We will not list the Notes on
any securities exchange. We cannot predict how the Notes will trade
in any secondary market or whether that market will be liquid or
illiquid.
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.
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Economic and
market factors have affected the terms of the Notes and may affect
the market value of the Notes prior to maturity or an automatic
call. Because market-linked notes, including the Notes,
can be thought of as having a debt component and a derivative
component, factors that influence the values of debt instruments
and options and other derivatives will also affect the terms and
features of the Notes at issuance and the market price of the Notes
prior to maturity or an automatic call. These factors include the
levels of the Underlyings and the securities included in the
Underlyings, as applicable; 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 the level of any 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.
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Greater
expected volatility generally indicates an increased risk of
loss. Volatility is a measure of the degree of variation in the
level of an Underlying 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 volatility 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 other comparable securities and a lower Coupon Barrier
and/or lower Downside Threshold as compared to other comparable
securities. However, an Underlying’s volatility can change
significantly over the term of the Notes. A
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relatively higher
Contingent Coupon Rate generally will be indicative of a greater
risk of loss while a lower Coupon Barrier and/or a lower Downside
Threshold does not necessarily indicate that the Notes have a
greater likelihood of paying Contingent Coupon Payments or a return
of principal at maturity. You should be willing to accept the
downside market risk of each Underlying and the potential to lose a
significant portion or all of your initial investment.
Conflict-related
Risks
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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, as applicable, 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.
The transactions described above may affect the levels of the
Underlyings in a manner that could be adverse to your investment in
the Notes. On or before the Trade Date, any purchases or sales by
us, the Guarantor or our other affiliates, including BofAS or
others on its behalf, and UBS and its affiliates (including for the
purpose of hedging some or all of our anticipated exposure in
connection with the Notes) may have affected the levels of the
Underlyings. Consequently, the levels 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 levels of
the Underlyings, the market value of your Notes prior to maturity
or the amounts payable on the Notes.
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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.
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Underlying-related
Risks
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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 levels of the Underlyings can rise or fall
sharply due to factors specific to the Underlyings and the
securities included in the Underlyings and the issuers of such
securities, such as stock price volatility, earnings and financial
conditions, corporate, industry and regulatory developments,
management changes and decisions and other events, as well as
general market factors, such as general stock market or commodity
market volatility and levels, interest rates and economic and
political conditions.
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You
are exposed to the market risk of each Underlying. 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 SX5E, 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 each of the SX5E, the RTY and the SPX. Poor performance by any
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 any other Underlying. For the Notes to be
automatically called or to receive any Contingent Coupon Payment or
the contingent repayment of principal at maturity, each Underlying
must close at or above its respective Initial Value, Coupon Barrier
or Downside Threshold, respectively, on the applicable Observation
Date or Final Observation Date, as applicable. Therefore, 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 each other Underlying appreciates during the
term of the Notes. Accordingly, your investment is subject to the
market risk of each Underlying. Additionally, movements in the
levels 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 levels 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 of not receiving
a Contingent Coupon Payment and 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, Coupon
Barrier and Downside Threshold, 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 Coupon Barrier and Downside
Threshold 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.
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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.
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The
Notes are subject to risks associated with foreign securities
markets. The SX5E includes certain foreign equity
securities. You should be aware that investments in securities
linked to the value of foreign equity securities involve particular
risks. The foreign securities markets comprising the SX5E may have
less liquidity and may be more volatile than U.S. or other
securities markets and market developments may affect foreign
markets differently from U.S. or other securities markets. Direct
or indirect government intervention to stabilize these foreign
securities markets, as well as cross-shareholdings in foreign
companies, may affect trading prices and volumes in these markets.
Also, there is generally less publicly available information about
foreign companies than about those U.S. companies that are subject
to the reporting requirements of the SEC, and foreign companies are
subject to accounting, auditing and financial reporting standards
and requirements that differ from those applicable to U.S.
reporting companies. Prices of securities in foreign countries are
subject to political, economic, financial and social factors that
apply in those geographical regions. These factors, which could
negatively affect those securities markets, include the possibility
of recent or future changes in a foreign government’s economic and
fiscal policies, the possible imposition of, or changes in,
currency exchange laws or other laws or restrictions applicable to
foreign companies or investments in foreign equity securities and
the possibility of fluctuations in the rate of exchange between
currencies, the possibility of outbreaks of hostility and political
instability and the possibility of natural disaster or adverse
public health developments in the region. Moreover, foreign
economies may differ favorably or unfavorably from the U.S. economy
in important respects such as growth of gross national product,
rate of inflation, capital reinvestment, resources and
self-sufficiency.
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Governmental
regulatory actions could result in material changes to the
composition of the SX5E and could negatively affect your return on
the Notes. Governmental regulatory actions, including but
not limited to sanctions-related actions by the U.S. or foreign
governments, could make it necessary or advisable for there to be
material changes to the composition of the SX5E, depending on the
nature of such governmental regulatory actions and the constituent
stocks that are affected. For instance, pursuant to recent
executive orders, U.S. persons are prohibited from engaging in
transactions in publicly traded securities of certain companies
that are determined to be linked to the People’s Republic of China
(the “PRC”) military, intelligence and security apparatus, or
securities that are derivative of, or are designed to provide
investment exposure to such securities. If any governmental
regulatory action results in the removal of constituent stocks that
have (or historically have had) significant weights within the
SX5E, such removal, or even any uncertainty relating to a possible
removal, could have a material and negative effect on the price of
the SX5E and, therefore, your return on the Notes.
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The
publisher of an Underlying may adjust that Underlying in a way that
affects its level, 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.
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Tax-related
Risks
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The
U.S. federal income tax consequences of an investment in the Notes
are uncertain, and may be adverse to a holder of the Notes. No
statutory, judicial, or administrative authority directly addresses
the characterization of the Notes or securities similar to the
Notes for U.S. federal income tax purposes. As a result,
significant aspects of the U.S. federal income tax consequences of
an investment in the Notes are not certain. Under the terms of the
Notes, you will have agreed with us to treat the Notes as
contingent income-bearing single financial contracts, as described
below under “U.S. Federal Income Tax Summary—General.” If the
Internal Revenue Service (the “IRS”) were successful in asserting
an alternative characterization for the Notes, the timing and
character of income, gain or loss with respect to the Notes may
differ. No ruling will be requested from the IRS with respect to
the Notes and no assurance can be given that the IRS will agree
with the statements made in the section entitled “U.S. Federal
Income Tax Summary.” You are urged to consult with your own tax
advisor regarding all aspects of the U.S. federal income tax
consequences of investing in the Notes.
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Hypothetical
terms only. Actual terms may vary. See the cover page for actual
offering terms.
The
examples below illustrate the hypothetical payment upon an
automatic call or at maturity for a $10.00 Stated Principal Amount
Note with the following assumptions* (amounts may have been rounded
for ease of reference and do not take into account any tax
consequences from investing in the Notes):
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Stated
Principal Amount: $10.00
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Term:
Approximately 3 years, unless earlier automatically
called
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Hypothetical
Initial Values:
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❍
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EURO
STOXX 50® Index: 100.00
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❍
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Russell
2000® Index: 100.00
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Contingent Coupon
Rate: 11.00% per annum (or 2.75% per quarter)
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Quarterly
Contingent Coupon Payment: $0.275 per quarter per Note
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Observation Dates:
Quarterly, automatically callable (other than on the Final
Observation Date) after approximately six months, as set forth on
page PS-6 of this pricing supplement
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Hypothetical
Coupon Barriers:
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❍
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EURO
STOXX 50® Index: 75.00, which is 75% of its
hypothetical Initial Value
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❍
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Russell
2000® Index: 75.00, which is 75% of its
hypothetical Initial Value
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❍
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S&P
500® Index: 75.00, which is 75% of its hypothetical
Initial Value
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Hypothetical
Downside Thresholds:
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❍
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EURO
STOXX 50® Index: 75.00, which is 75% of its
hypothetical Initial Value
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❍
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Russell
2000® Index: 75.00, which is 75% of its
hypothetical Initial Value
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❍
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S&P
500® Index: 75.00, which is 75% of its hypothetical
Initial Value
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*The
hypothetical Initial Values, Coupon Barriers and Downside
Thresholds do not represent the actual Initial Values, Coupon
Barriers and Downside Thresholds, respectively, applicable to the
Underlyings. The actual Initial Values, Coupon Barriers and
Downside Thresholds are specified on the cover page of this pricing
supplement. All payments on the Notes are subject to issuer and
guarantor credit risk.
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Example 1 -
Notes are automatically called on the second Observation
Date.
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Date
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Current
Underlying Level of the Underlying
|
Payment (per
Note)
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EURO STOXX
50® Index
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Russell
2000® Index
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S&P
500® Index
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First
Observation Date
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85.00
(at or above Coupon Barrier)
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52.00
(below Coupon Barrier)*
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97.00
(at or above Coupon Barrier)
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$0.000 (not
callable)
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Second
Observation Date
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102.00
(at or above Coupon Barrier and Initial
Value)*
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108.00
(at or above Coupon Barrier and Initial
Value)
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104.00
(at or above Coupon Barrier and Initial
Value)
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$10.275 (Payment
upon automatic call)
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*
Denotes Least Performing Underlying for the applicable Observation
Date
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Total
Payment:
|
$10.275 (2.75%
total return)
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The
Least Performing Underlying on the first Observation Date 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 (which is approximately six months after the Trade
Date and is the first Observation Date on which the Notes are
subject to potential automatic call), the Least Performing
Underlying closes above its Initial Value, and the Notes are
automatically called on the related Coupon Payment Date. You will
receive on the related Coupon Payment Date a total of $10.275 per
Note, reflecting the $10.00 Stated Principal Amount
plus the applicable Contingent Coupon Payment. You
would have been paid a total of $10.275 per Note for a 2.75% total
return on the Notes over six months. No further amounts would be
owed to you under the Notes, and you would not participate in the
appreciation of the Underlyings.
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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 and Coupon Barrier.
|
|
Date
|
Current
Underlying Level of the Underlying / Final Value on the Final
Observation Date
|
Payment (per
Note)
|
|
EURO STOXX
50® Index
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Russell
2000® Index
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S&P
500® Index
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First
Observation Date
|
97.00
(at or above Coupon Barrier)
|
90.00
(at or above Coupon Barrier)*
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95.00
(at or above Coupon Barrier)
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$0.275
(Contingent Coupon Payment - not callable)
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Second
to Eleventh Observation Dates
|
Various (all at
or above Coupon Barrier; all below Initial
Value)
|
Various (all
below Coupon Barrier and Initial Value)*
|
Various (all at
or above Coupon Barrier; all below Initial
Value)
|
$0.000 (Notes
are not called)
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Final
Observation Date
|
85.00
(at or above Coupon Barrier and Downside
Threshold)
|
82.00
(at or above Coupon Barrier and Downside
Threshold)
|
80.00
(at or above Coupon Barrier and Downside
Threshold)*
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$10.275 (Stated
Principal Amount plus the final Contingent Coupon Payment - Payment
at Maturity)
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*
Denotes Least Performing Underlying for the applicable Observation
Date
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Total
Payment:
|
$10.550 (5.50%
total return)
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The
Least Performing Underlying on the first Observation Date closes
above its Coupon Barrier and therefore a Contingent Coupon Payment
is paid on the related 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 (which are the
Observation Dates on which the Notes are subject to potential
automatic call), the Least Performing Underlying closes below its
Initial Value, and as a result the Notes are not automatically
called. On the Final Observation Date, the Least Performing
Underlying closes at or above its Downside Threshold and its Coupon
Barrier. Therefore, at maturity, you would receive a total of
$10.275 per Note, reflecting the $10.00 Stated Principal Amount
plus the applicable Contingent Coupon Payment. When added to
the total Contingent Coupon Payments of $0.275 received in respect
of the prior Observation Dates, you would have been paid a total of
$10.550 per Note for a 5.50% total return on the Notes over 3
years.
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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 and Coupon Barrier.
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Date
|
Current
Underlying Level of the Underlying / Final Value on the Final
Observation Date
|
Payment (per
Note)
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EURO STOXX
50® Index
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Russell
2000® Index
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S&P
500® Index
|
|
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First
Observation Date
|
80.00
(at or above Coupon Barrier)
|
52.00
(below Coupon Barrier)*
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97.00
(at or above Coupon Barrier)
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$0.00
(not callable)
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Second
to Eleventh Observation Dates
|
Various (all
below Coupon Barrier and Initial Value)
|
Various (all
below Coupon Barrier and Initial Value)*
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Various (all
below Coupon Barrier and Initial Value)
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$0.00
(Notes are not called)
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Final
Observation Date
|
37.00
(below Coupon Barrier and Downside
Threshold)*
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75.00
(at or above Coupon Barrier and Downside
Threshold)
|
75.00
(at or above Coupon Barrier and Downside
Threshold)
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$10.00
x [1 + Underlying Return of the Least Performing Underlying on the
Final Observation Date] =
$10.00 x [1 + -63.00%] =
$10.00 x 0.37 =
$3.70 (Payment at Maturity)
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*
Denotes Least Performing Underlying for the applicable Observation
Date
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Total
Payment:
|
$3.70
(-63.00% total return)
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The
Least Performing Underlying on each Observation Date, including the
Final 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, including the Maturity Date. In
addition, on each of the second to eleventh Observation Dates
(which are the Observation Dates on which the Notes are subject to
potential automatic call), the Least Performing Underlying closes
below its Initial Value, and as a result the Notes are not
automatically called. On the Final Observation Date, the Least
Performing Underlying closes below its Downside Threshold and its
Coupon Barrier. Therefore, at maturity, investors are exposed to
the proportionate downside performance of the Least Performing
Underlying and you will receive $3.70 per Note for a -63.00% total
return on the Notes over 3 years, which reflects the percentage
decrease of the Least Performing Underlying from the Trade Date to
the Final Observation Date.
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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, the sponsor of the SX5E,
the sponsor of the RTY, and the sponsor of the SPX (collectively,
the “Underlying Sponsors”). The Underlying Sponsors, which license
the copyright and all other rights to the respective Underlyings,
have no obligation to continue to publish, and may discontinue
publication of, the applicable 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
EURO STOXX 50® Index
The
SX5E was created by STOXX, which is owned by Deutsche Börse AG.
Publication of the SX5E began in February 1998, based on an initial
index level of 1,000 at December 31, 1991.
Index
Composition and Maintenance
The
SX5E is composed of 50 stocks from 11 Eurozone countries (Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal and Spain) of the STOXX Europe 600
Supersector indices. The STOXX 600 Supersector indices contain the
600 largest stocks traded on the major exchanges of 18 European
countries and are organized into the following 20 Supersectors:
Technology; Telecommunications; Health Care; Banks; Financial
Services; Insurance; Real Estate; Automobiles and Parts; Consumer
Products and Services; Media; Retail; Travel and Leisure; Food,
Beverage and Tobacco; Personal Care, Drug and Grocery Stores;
Construction and Materials; Industrial Goods and Services; Basic
Resources; Chemicals; Energy; and Utilities.
For
each of the 20 EURO STOXX regional supersector indices, the stocks
are ranked in terms of free-float market capitalization. The
largest stocks are added to the selection list until the coverage
is close to, but still less than, 60% of the free-float market
capitalization of the corresponding supersector index. If the next
highest-ranked stock brings the coverage closer to 60% in absolute
terms, then it is also added to the selection list. All current
stocks in the SX5E are then added to the selection list. All of the
stocks on the selection list are then ranked in terms of free-float
market capitalization to produce the final index selection list.
The largest 40 stocks on the selection list are selected; the
remaining 10 stocks are selected from the largest remaining current
stocks ranked between 41 and 60; if the number of stocks selected
is still below 50, then the largest remaining stocks are selected
until there are 50 stocks. In exceptional cases, STOXX’s management
board can add stocks to and remove them from the selection
list.
The
index components are subject to a capped maximum index weight of
10%, which is applied on a quarterly basis.
The
composition of the SX5E is reviewed annually, based on the closing
stock data on the last trading day in August. Changes in the
composition of the SX5E are made to ensure that the SX5E includes
the 50 market sector leaders from within the EURO
STOXX® Index.
The
free float factors for each component stock used to calculate the
SX5E, as described below, are reviewed, calculated, and implemented
on a quarterly basis and are fixed until the next quarterly
review.
The
SX5E is subject to a “fast exit rule.” The index components are
monitored for any changes based on the monthly selection list
ranking. A stock is deleted from the SX5E if: (a) it ranks 75 or
below on the monthly selection list and (b) it has been ranked 75
or below for a consecutive period of two months in the monthly
selection list. The highest-ranked stock that is not an index
component will replace it. Changes will be implemented on the close
of the fifth trading day of the month, and are effective the next
trading day.
The
SX5E is also subject to a “fast entry rule.” All stocks on the
latest selection lists and initial public offering (IPO) stocks are
reviewed for a fast-track addition on a quarterly basis. A stock is
added, if (a) it qualifies for the latest STOXX blue-chip selection
list generated at the end of February, May, August or November and
(b) it ranks within the “lower buffer” on this selection
list.
The
SX5E is also reviewed on an ongoing monthly basis. Corporate
actions (including initial public offerings, mergers and takeovers,
spin-offs, delistings, and bankruptcy) that affect the index
composition are announced immediately, implemented two trading days
later and become effective on the next trading day after
implementation.
Index
Calculation
The
SX5E is calculated with the “Laspeyres formula,” which measures the
aggregate price changes in the component stocks against a fixed
base quantity weight. The formula for calculating the index value
can be expressed as follows:
The
“free float market capitalization of the EURO STOXX
50® Index” is equal to the sum of the
product of the price, the number of shares and the free float
factor and the weighting cap factor for each component stock as of
the time the SX5E is being calculated.
The
SX5E is also subject to a divisor, which is adjusted to maintain
the continuity of the index values across changes due to corporate
actions, such as the deletion and addition of stocks, the
substitution of stocks, stock dividends, and stock
splits.
Neither we nor any
of our affiliates, including BofAS and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, accepts any responsibility for the
calculation, maintenance, or publication of, or for any error,
omission, or disruption in, the SX5E or any successor to the SX5E.
STOXX does not guarantee the accuracy or the completeness of the
SX5E or any data included in the SX5E. STOXX assumes no liability
for any errors, omissions, or disruption in the calculation and
dissemination of the SX5E. STOXX disclaims all responsibility for
any errors or omissions in the calculation and dissemination of the
SX5E or the manner in which the SX5E is applied in determining the
amount payable on the Notes at maturity.
Historical
Performance of the SX5E
The
following graph sets forth the daily historical performance of the
SX5E in the period from January 2, 2018 through the Trade Date. We
obtained this historical data from Bloomberg L.P. We have not
independently verified the accuracy or completeness of the
information obtained from Bloomberg L.P. The horizontal line in the
graph represents the SX5E’s Coupon Barrier and Downside Threshold
of 3,114.77 (rounded to two decimal places), which is 75% of the
SX5E’s Initial Value of 4,153.02.
This
historical data on the SX5E is not necessarily indicative of the
future performance of the SX5E or what the value of the Notes may
be. Any historical upward or downward trend in the level of the
SX5E during any period set forth above is not an indication that
the level of the SX5E 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 SX5E.
License
Agreement
One of
our affiliates has entered into a non-exclusive license agreement
with STOXX providing for the license to it and certain of its
affiliated companies, including us, of the right to use indices
owned and published by STOXX (including the SX5E) in connection
with certain securities, including the Notes.
The
license agreement requires that the following language be stated in
this pricing supplement:
“STOXX
Limited, Deutsche Börse Group and their licensors, research
partners or data providers have no relationship to us other than
the licensing of the SX5E and the related trademarks for use in
connection with the Notes.
STOXX, Deutsche
Börse Group and their licensors, research partners or data
providers do not:
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sponsor, endorse,
sell or promote the Notes.
|
|
◆
|
recommend that any
person invest in the Notes or any other
securities.
|
|
◆
|
have
any responsibility or liability for or make any decisions about the
timing, amount or pricing of the Notes.
|
|
◆
|
have
any responsibility or liability for the administration, management
or marketing of the Notes.
|
|
◆
|
consider the needs
of the Notes or the owners of the Notes in determining, composing
or calculating the SX5E or have any obligation to do
so.
|
STOXX, Deutsche
Börse Group and their licensors, research partners or data
providers give no warranty, and exclude any liability (whether in
negligence or otherwise), in connection with the Notes or their
performance.
STOXX
does not assume any contractual relationship with the purchasers of
the Notes or any other third parties.
Specifically,
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STOXX,
Deutsche Börse Group and their licensors, research partners or data
providers do not give any warranty, express or implied, and exclude
any liability about:
|
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◆
|
The
results to be obtained by the Notes, the owner of the Notes or any
other person in connection with the use of the SX5E and the data
included in the SX5E;
|
|
◆
|
The
accuracy, timeliness, and completeness of the SX5E and its
data;
|
|
◆
|
The
merchantability and the fitness for a particular purpose or use of
the SX5E and its data;
|
|
◆
|
The
performance of the Notes generally.
|
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◆
|
STOXX,
Deutsche Börse Group and their licensors, research partners or data
providers give no warranty and exclude any liability, for any
errors, omissions or interruptions in the SX5E or its
data;
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◆
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Under
no circumstances will STOXX, Deutsche Börse Group or their
licensors, research partners or data providers be liable (whether
in negligence or otherwise) for any lost profits or indirect,
punitive, special or consequential damages or losses, arising as a
result of such errors, omissions or interruptions in the SX5E or
its data or generally in relation to the Notes, even in
circumstances where STOXX, Deutsche Börse Group or their licensors,
research partners or data providers are aware that such loss or
damage may occur.
|
The
licensing agreement discussed above is solely for our benefit and
that of STOXX, and not for the benefit of the owners of the Notes
or any other third parties.”
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 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) 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 check companies, special
purpose acquisition companies, and limited partnerships are also
ineligible for inclusion. Bulletin board, pink sheets, and
over-the-counter 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 2, 2018 through the Trade Date. We
obtained this historical data from Bloomberg L.P. We have not
independently verified the accuracy or completeness of the
information obtained from Bloomberg L.P. The horizontal line in the
graph represents the RTY’s Coupon Barrier and Downside Threshold of
1,414.208 (rounded to three decimal places), which is 75% of the
RTY’s Initial Value of 1,885.611.
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. 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 Merrill Lynch, Pierce, Fenner & Smith Incorporated
have entered into a non-exclusive license agreement providing for
the license to Merrill Lynch, Pierce, Fenner & Smith
Incorporated 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 Merrill Lynch, Pierce, Fenner &
Smith Incorporated 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 Merrill Lynch, Pierce, Fenner & Smith Incorporated, 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.
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 MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
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. S&P Dow Jones Indices LLC
(“SPDJI”), the sponsor of the SPX, 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
$14.6 billion or more (an increase from the previous requirement of
an unadjusted company market capitalization of $13.1 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 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. 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 2, 2018 through the Trade Date. We
obtained this historical data from Bloomberg L.P. We have not
independently verified the accuracy or completeness of the
information obtained from Bloomberg L.P. The horizontal line in the
graph represents the SPX’s Coupon Barrier and Downside Threshold of
3,012.71 (rounded to two decimal places), which is 75% of the SPX’s
Initial Value of 4,016.95.
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, Merrill Lynch, Pierce, Fenner &
Smith Incorporated. The SPX is a product of S&P Dow Jones
Indices LLC and/or its affiliates and has been licensed for use by
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
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 track
general market performance. S&P Dow Jones Indices’ only
relationship to Merrill Lynch, Pierce, Fenner & Smith
Incorporated 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, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, or the Notes. S&P Dow Jones Indices have no
obligation to take our needs, BAC’s needs or the needs of Merrill
Lynch, Pierce, Fenner & Smith Incorporated 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, MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED 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 MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED, OTHER THAN THE
LICENSORS OF S&P DOW JONES INDICES.
Correlation of
the Underlyings
The
graph below illustrates the daily performance of the SX5E, the RTY
and the SPX from January 2, 2018 through the Trade Date. For
comparison purposes, each Underlying has been “normalized” to have
a closing level of 100 on January 2, 2018 by dividing the closing
level of that Underlying on each trading day by the closing level
of that Underlying on January 2, 2018 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 group 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 among a group of Underlyings is
scaled from 1.0 to -1.0, with 1.0 indicating perfect positive
correlation (i.e., the value of all 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 group of
Underlyings) and -1.0 indicating perfect negative correlation
(i.e., as the value of one Underlying increases, the values of the
other Underlyings decrease 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 Underlyings. 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 on an Observation Date or below its
respective Downside Threshold on 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 all of the Underlyings may close below the
respective Coupon Barrier(s) on an Observation Date or below the
respective Downside Threshold(s) on the Final Observation Date, as
applicable, as the Underlyings may each 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 each Underlying”, and
“—Because the Notes are linked to the performance of the least
performing among the SX5E, 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 SX5E, just the RTY, or just the SPX”
herein.
Past
performance and correlation of the Underlyings are not indicative
of the future performance or correlation of the
Underlyings.
|
Supplement
to the Plan of Distribution; Role of BofAS and Conflicts of
Interest
|
|
|
BofAS,
an affiliate of BofA Finance and the lead selling agent for the
sale of the Notes, will receive an underwriting discount of $0.20
for any Note sold in this offering. UBS, as selling agent for sales
of the Notes, has agreed to purchase from BofAS, and BofAS has
agreed to sell to UBS, all of the Notes sold in this offering
for $9.80 per Note. UBS proposes to offer the Notes to the public
at a price of $10.00 per Note. UBS will receive an underwriting
discount of $0.20 for each Note it sells to the public. The
underwriting discount will be received by UBS and its financial
advisors collectively. If all of the Notes are not sold at the
initial offering price, BofAS may change the public offering price
and other selling terms.
BofAS,
a broker-dealer affiliate of ours, is a member of the Financial
Industry Regulatory Authority, Inc. (“FINRA”) and will participate
as lead selling agent in the distribution of the Notes.
Accordingly, the offering of the Notes will conform to the
requirements of FINRA Rule 5121. BofAS may not make sales in this
offering to any of its discretionary accounts without the prior
written approval of the account holder.
We
will deliver the Notes against payment therefor in New York, New
York on a date that is greater than two business days following the
Trade Date. Under Rule 15c6-1 of the Securities Exchange Act of
1934, trades in the secondary market generally are required to
settle in two business days, unless the parties to any such trade
expressly agree otherwise. Accordingly, purchasers who wish to
trade the Notes more than two business days prior to the Issue Date
will be required to specify alternative settlement arrangements to
prevent a failed settlement.
BofAS
and any of our other broker-dealer affiliates may use this pricing
supplement, and the accompanying product supplement, prospectus
supplement and prospectus, for offers and sales in secondary market
transactions and market-making transactions in the Notes. However,
they are not obligated to engage in such secondary market
transactions and/or market-making transactions. These broker-dealer
affiliates may act as principal or agent in these transactions, and
any such sales will be made at prices related to prevailing market
conditions at the time of the sale.
As
agreed by BofAS and UBS, for approximately a seven-month period
after the Trade Date, to the extent BofAS offers to buy the Notes
in the secondary market, it will do so at a price that will exceed
the estimated value of the Notes at that time. The amount of this
excess will decline on a straight line basis over that period.
Thereafter, if BofAS buys or sells your Notes, it will do so at
prices that reflect the estimated value determined by reference to
its pricing models at that time. Any price at any time after the
Trade Date will be based on then-prevailing market conditions and
other considerations, including the performance of the Underlyings
and the remaining term of the Notes. However, none of us, the
Guarantor, BofAS, UBS or any other party is obligated to purchase
your Notes at any price or at any time, and we cannot assure you
that any party will purchase your Notes at a price that equals or
exceeds the initial estimated value of the Notes.
Any
price that BofAS may pay to repurchase the Notes will depend upon
then prevailing market conditions, the creditworthiness of us and
the Guarantor, and transaction costs. At certain times, this price
may be higher than or lower than the initial estimated value of the
Notes.
Sales Outside
of the United States
The
Notes have not been approved for public sale in any jurisdiction
outside of the United States. There has been no registration or
filing as to the Notes with any regulatory, securities, banking, or
local authority outside of the United States and no action has been
taken by BofA Finance, BAC, BofAS or any other affiliate of BAC, or
by UBS or any of its affiliates, to offer the Notes in any
jurisdiction other than the United States. As such, these
Notes are made available to investors outside of the United States
only in jurisdictions where it is lawful to make such offer or sale
and only under circumstances that will result in compliance with
applicable laws and regulations, including private placement
requirements.
Further, no offer
or sale of the Notes is being made to residents of:
You
are urged to carefully review the selling restrictions that may be
applicable to your jurisdiction beginning on page S-56 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.
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.
The
Notes are our debt securities, the return on which is linked to the
performance of the Underlyings. The related guarantees are BAC’s
obligations. Any payments on the Notes, including any Contingent
Coupon Payments, depend on the credit risk of BofA Finance and BAC
and on the performance of each of the Underlyings. The economic
terms of the Notes reflect our and BAC’s actual or perceived
creditworthiness at the time of pricing and are based on BAC’s
internal funding rate, which is the rate it would pay to borrow
funds through the issuance of market-linked notes, and the economic
terms of certain related hedging arrangements it enters into. BAC’s
internal funding rate is typically lower than the rate it would pay
when it issues conventional fixed or floating rate debt securities.
This difference in funding rate, as well as the underwriting
discount and the hedging-related charges described elsewhere in
this pricing supplement, reduced the economic terms of the Notes to
you and the initial estimated value of the Notes. Due to these
factors, the public offering price you are paying to purchase the
Notes is greater than the initial estimated value of the Notes as
of the Trade Date.
On the
cover page of this pricing supplement, we have provided the initial
estimated value for the Notes 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-20 of
the accompanying product supplement.
In the
opinion of McGuireWoods LLP, as counsel to BofA Finance, as issuer,
and BAC, as guarantor, when the trustee has made the appropriate
entries or notations on Schedule 1 to the master global note that
represents the Notes (the “Master Note”) identifying the Notes
offered hereby as supplemental obligations thereunder in accordance
with the instructions of BofA Finance, and the Notes have been
delivered against payment therefor as contemplated in this pricing
supplement and the related prospectus, prospectus supplement and
product supplement, all in accordance with the provisions of the
indenture governing the Notes and the related guarantee, such Notes
will be the legal, valid and binding obligations of BofA Finance,
and the related guarantee will be the legal, valid and binding
obligation of BAC, subject, in each case, to the effects of
applicable bankruptcy, insolvency (including laws relating to
preferences, fraudulent transfers and equitable subordination),
reorganization, moratorium and other similar laws affecting
creditors’ rights generally, and to general principles of equity.
This opinion is given as of the date of this pricing supplement and
is limited to the Delaware General Corporation Law and the Delaware
Limited Liability Company Act (including the statutory provisions,
all applicable provisions of the Delaware Constitution and reported
judicial decisions interpreting either of the foregoing) and the
laws of the State of New York as in effect on the date hereof. In
addition, this opinion is subject to customary assumptions about
the trustee’s authorization, execution and delivery of the
indenture governing the Notes and due authentication of the Master
Note, the validity, binding nature and enforceability of the
indenture governing the Notes and the related guarantee with
respect to the trustee, the legal capacity of individuals, the
genuineness of signatures, the authenticity of all documents
submitted to McGuireWoods LLP as originals, the conformity to
original documents of all documents submitted to McGuireWoods LLP
as copies thereof, the authenticity of the originals of such copies
and certain factual matters, all as stated in the opinion letter of
McGuireWoods LLP dated December 8, 2022, which has been filed
as an exhibit to the Registration Statement (File Nos. 333-268718
and 333-268718-01) of BAC and BofA Finance, filed with the SEC on
December 8, 2022.
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U.S.
Federal Income Tax Summary
|
|
|
The
following summary of the material U.S. federal income and estate
tax considerations of the acquisition, ownership, and disposition
of the Notes supplements, and to the extent inconsistent
supersedes, the discussion under “U.S. Federal Income Tax
Considerations” in the accompanying prospectus 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 any issuer of a component
stock 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 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 (or the applicable paying agent)
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
(or the applicable paying agent) will not pay any additional
amounts in respect of such withholding. To claim benefits under an
income tax treaty, a Non-U.S. Holder must obtain a taxpayer
identification number and certify as to its eligibility under the
appropriate treaty’s limitations on benefits article, if
applicable. In addition, special rules may apply to claims for
treaty benefits made by Non-U.S. Holders that are entities rather
than individuals. The availability of a lower rate of withholding
under an applicable income tax treaty will depend on whether such
rate applies to the characterization of the payments under U.S.
federal income tax laws. A Non-U.S. Holder that is eligible for a
reduced rate of U.S. federal withholding tax pursuant to an income
tax treaty may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund with the IRS.
Except
as discussed below, a Non-U.S. Holder generally will not be subject
to U.S. federal income or withholding tax for amounts paid in
respect of the Notes (not including, for the avoidance of doubt,
amounts representing any Contingent Coupon Payment which would be
subject to the rules discussed in the previous paragraph) upon the
sale, exchange, or redemption of the Notes or their settlement at
maturity, provided that the Non-U.S. Holder complies with
applicable certification requirements and that the payment is not
effectively connected with the conduct by the Non-U.S. Holder of a
U.S. trade or business. Notwithstanding the foregoing, gain
from the sale, exchange, or redemption of the Notes or their
settlement at maturity may be subject to U.S. federal income tax if
that Non-U.S. Holder is a non-resident alien individual and is
present in the U.S. for 183 days or more during the taxable year of
the sale, exchange, redemption, or settlement and certain other
conditions are satisfied.
If a
Non-U.S. Holder of the Notes is engaged in the conduct of a trade
or business within the U.S. and if any Contingent Coupon Payment
and gain realized on the settlement at maturity, or upon sale,
exchange, or redemption of the Notes, is effectively connected with
the conduct of such trade or business (and, if certain tax treaties
apply, is attributable to a permanent establishment maintained by
the Non-U.S. Holder in the U.S.), the Non-U.S. Holder, although
exempt from U.S. federal withholding tax, generally will be subject
to U.S. federal income tax on such Contingent Coupon Payment and
gain on a net income basis in the same manner as if it were a U.S.
Holder. Such Non-U.S. Holders should read the material under the
heading “—U.S. Holders,” for a description of the U.S. federal
income tax consequences of acquiring, owning, and disposing of the
Notes. In addition, if such Non-U.S. Holder is a foreign
corporation, it may also be subject to a branch profits tax equal
to 30% (or such lower rate provided by any applicable tax treaty)
of a portion of its earnings and profits for the taxable year that
are effectively connected with its conduct of a trade or business
in the U.S., subject to certain adjustments.
A
“dividend equivalent” payment is treated as a dividend from sources
within the United States and such payments generally would be
subject to a 30% U.S. withholding tax if paid to a Non-U.S. Holder.
Under Treasury regulations, payments (including deemed
payments) with respect to equity-linked instruments (“ELIs”) that
are “specified ELIs” may be treated as dividend equivalents if such
specified ELIs reference an interest in an “underlying security,”
which is generally any interest in an entity taxable as a
corporation for U.S. federal income tax purposes if a payment with
respect to such interest could give rise to a U.S. source dividend.
However, IRS guidance provides that withholding on dividend
equivalent payments will not apply to specified ELIs that are not
delta-one instruments and that are issued before January 1, 2025.
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 —
General — 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.
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