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Pricing
Supplement
(To
Prospectus dated December 31, 2019,
Prospectus
Supplement dated December 31, 2019 and
Product
Supplement EQUITY-1 dated January 3, 2020)
Dated
May 18, 2022
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Filed Pursuant
to Rule 424(b)(2)
Series
A Registration Statement No. 333-234425
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| |
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BofA Finance
LLC $582,900 Trigger Callable Yield Notes
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Linked to the
Least Performing of the iShares® S&P 500 Value ETF
and the iShares® Russell 2000 Value ETF Due August
23, 2023
Fully and
Unconditionally Guaranteed by Bank of America
Corporation
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Investment
Description
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The
Trigger Callable Yield Notes linked to the Least Performing of the
iShares® S&P 500 Value ETF and the
iShares® Russell 2000 Value ETF (each, an “Underlying”)
due August 23, 2023 (the “Notes”) are senior unsecured obligations
issued by BofA Finance LLC (“BofA Finance” or the “issuer”), a
direct, wholly-owned subsidiary of Bank of America Corporation
(“BAC” or the “Guarantor”), which are fully and unconditionally
guaranteed by the Guarantor. The Notes will pay a Coupon Payment,
regardless of the performance of the Least Performing Underlying,
on each monthly Coupon Payment Date. Beginning in August 2022, on
any Call Date, the issuer may, in its sole discretion, call the
Notes in whole, but not in part, and pay you the Stated Principal
Amount plus the Coupon Payment otherwise due on such Call Date, and
no further amounts will be owed to you. If the Notes have not
previously been called, at maturity, the amount you receive will
depend on the Final Value of the Least Performing Underlying on the
Final Observation Date. If the Final Value of the Least Performing
Underlying on the Final Observation Date is greater than or equal
to its Downside Threshold, you will receive the Stated Principal
Amount at maturity (plus the final Coupon Payment). However, if the
Notes have not been called prior to maturity and the Final Value of
the Least Performing Underlying on the Final Observation Date is
less than its Downside Threshold, although you will receive the
final Coupon Payment, you will receive less than the Stated
Principal Amount at maturity, resulting in a loss that is
proportionate to the decline in the closing price of the Least
Performing Underlying from the Trade Date to the Final Observation
Date, up to a 100% loss of your investment. The “Least Performing
Underlying” is the Underlying with the lowest Underlying Return
from the Trade Date to the Final Observation Date. Investing in
the Notes involves significant risks. You may lose a substantial
portion or all of your initial investment. The payment at maturity
on the Notes will be based on the performance of the Least
Performing Underlying. You will not benefit in any way from the
performance of the other Underlying. You will therefore be
adversely affected if either Underlying performs poorly, regardless
of the performance of the other Underlying. You will not receive
dividends or other distributions paid on any shares of the
Underlying or stocks included in the Underlyings or participate in
any appreciation of either Underlying. The contingent repayment of
the Stated Principal Amount applies only if you hold the Notes to
maturity or earlier call by the issuer. 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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❑ Coupon
Payment — Regardless of the performance of the Underlying, we
will pay you a Coupon Payment on each monthly Coupon Payment
Date.
❑ Issuer
Callable — Beginning in August 2022, on any Call Date, the
issuer may, in its sole discretion, call the Notes in whole, but
not in part, and pay you the Stated Principal Amount plus the
Coupon Payment otherwise due on such Call Date. If the Notes are
not called, investors may have full downside market exposure to the
Least Performing Underlying at maturity.
❑ Downside
Exposure with Contingent Repayment of Principal at Maturity —
If the Notes are not called prior to maturity and the Final Value
of the Least Performing Underlying on the Final Observation Date is
greater than or equal to its Downside Threshold, you will receive
the Stated Principal Amount at maturity (plus the final Coupon
Payment). However, if the Final Value of the Least Performing
Underlying on the Final Observation Date is less than its Downside
Threshold, although you will receive the final Coupon Payment, you
will receive less than the Stated Principal Amount of your Notes at
maturity, resulting in a loss that is proportionate to the decline
in the closing price of the Least Performing Underlying from the
Trade Date to the Final Observation Date, up to a 100% loss of your
investment.
Any
payment on the Notes is subject to the creditworthiness of
BofA Finance and the Guarantor.
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Trade
Date1
Issue
Date1
Coupon
Payment Dates2
Call
Dates2
Final
Observation Date2
Maturity
Date
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May
18, 2022
May
23, 2022
Monthly, beginning
on June 23, 2022
Monthly, prior
to the Maturity Date, beginning on August 22,
2022.
August
18, 2023
August
23, 2023
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1
See “Supplement
to the Plan of Distribution; Role of BofAS and Conflicts of
Interest” in this pricing supplement for additional
information.
2
See page PS-6
for additional details.
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NOTICE TO
INVESTORS: THE NOTES ARE SIGNIFICANTLY RISKIER THAN CONVENTIONAL
DEBT INSTRUMENTS. BOFA FINANCE IS NOT NECESSARILY OBLIGATED TO
REPAY THE STATED PRINCIPAL AMOUNT AT MATURITY, AND THE NOTES CAN
HAVE DOWNSIDE MARKET RISK SIMILAR TO THE LEAST PERFORMING
UNDERLYING. THIS MARKET RISK IS IN ADDITION TO THE CREDIT RISK
INHERENT IN PURCHASING A DEBT OBLIGATION OF BOFA FINANCE THAT IS
GUARANTEED BY BAC. YOU SHOULD NOT PURCHASE THE NOTES IF YOU
DO NOT UNDERSTAND OR ARE NOT COMFORTABLE WITH THE SIGNIFICANT RISKS
INVOLVED IN INVESTING IN THE NOTES.
YOU
SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER “RISK FACTORS’’
BEGINNING ON PAGE PS-7 OF THIS PRICING SUPPLEMENT, PAGE PS-5 OF THE
ACCOMPANYING PRODUCT SUPPLEMENT, PAGE S-5 OF THE ACCOMPANYING
PROSPECTUS SUPPLEMENT AND PAGE 7 OF THE ACCOMPANYING PROSPECTUS
BEFORE PURCHASING ANY NOTES. EVENTS RELATING TO ANY OF THOSE RISKS,
OR OTHER RISKS AND UNCERTAINTIES, COULD ADVERSELY AFFECT THE MARKET
VALUE OF, AND THE RETURN ON, YOUR NOTES. YOU MAY LOSE SOME OR ALL
OF YOUR INITIAL INVESTMENT IN THE NOTES. THE NOTES WILL NOT BE
LISTED ON ANY SECURITIES EXCHANGE AND MAY HAVE LIMITED OR NO
LIQUIDITY.
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Notes Offering
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We are
offering Trigger Callable Yield Notes linked to the Least
Performing of the iShares® S&P 500 Value ETF and the
iShares® Russell 2000 Value ETF due August 23, 2023. The
payment at maturity on the Notes will be based on the performance
of the Least Performing Underlying. The Notes are our senior
unsecured obligations, guaranteed by BAC, and are offered for a
minimum investment of 100 Notes (each Note corresponding to $10.00
in Stated Principal Amount) at the Public Offering
Price described below.
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Underlyings
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Coupon
Rate
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Initial
Values
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Downside
Thresholds
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CUSIP /
ISIN
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iShares® S&P
500 Value ETF
(Ticker:
IVE)
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7.75%
per annum
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$143.85
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$86.31, which is
60% of the Initial Value
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09710G593
/ US09710G5936
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iShares® Russell
2000 Value ETF
(Ticker:
IWN)
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$144.34
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$86.60, which is
60% of the Initial Value (rounded to two decimal
places)
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See
“Summary” in this pricing supplement. The Notes will have the terms
specified in the accompanying product supplement, prospectus
supplement and prospectus, as supplemented by this pricing
supplement.
None
of the Securities and Exchange Commission (the “SEC”), any state
securities commission, or any other regulatory body has approved or
disapproved of these Notes or the guarantee, or passed upon the
adequacy or accuracy of this pricing supplement, or the
accompanying product supplement, prospectus supplement or
prospectus. Any representation to the contrary is a criminal
offense. The Notes and the related guarantee of the Notes by the
Guarantor are unsecured and are not savings accounts, deposits, or
other obligations of a bank. The Notes are not guaranteed by Bank
of America, N.A. or any other bank, are not insured by the Federal
Deposit Insurance Corporation or any other governmental agency and
involve investment risks.
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Public Offering
Price
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Underwriting
Discount(1)
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Proceeds
(before expenses) to BofA Finance
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Per Note
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$10.00
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$0.00
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$10.00
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Total
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$582,900.00
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$0.00
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$582,900.00
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(1) The
underwriting discount is $0.00 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 $10.00
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 $10.00
per Note. UBS proposes to offer the Notes to certain
fee-based advisory accounts for which UBS is an investment advisor
at a price of $10.00 per Note. UBS will receive no underwriting
discount for each Note that it sells in this offering. 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 $9.879
per
$10 in Stated Principal Amount. See “Summary” beginning on page
PS-4 of this pricing supplement, “Risk Factors” beginning on page
PS-7 of this pricing supplement and “Structuring the Notes” on page
PS-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:
♦
Product supplement
EQUITY-1 dated January 3, 2020:
♦
Series A MTN
prospectus supplement dated December 31, 2019 and prospectus dated
December 31, 2019:
The
Notes are our senior debt securities. Any payments on the Notes are
fully and unconditionally guaranteed by BAC. The Notes and the
related guarantee are not insured by the Federal Deposit Insurance
Corporation or secured by collateral. The Notes will rank equally
in right of payment with all of our other unsecured and
unsubordinated obligations, and the related guarantee will rank
equally in right of payment with all of BAC’s other unsecured and
unsubordinated obligations, in each case, except obligations that
are subject to any priorities or preferences by law. Any payments
due on the Notes, including any repayment of the principal amount,
will be subject to the credit risk of BofA Finance, as Issuer, and
BAC, as Guarantor.
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PS-2
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The
Notes may be suitable for you if, among other
considerations:
♦
You fully
understand the risks inherent in an investment in the Notes,
including the risk of loss of your
entire investment.
♦
You can tolerate
a loss of all or a substantial portion of your investment and are
willing to make an investment that will have the full downside
market risk of an investment in the Least
Performing Underlying.
♦
You understand
and accept the risks associated with the Underlyings.
♦
You are willing
to accept the individual market risk of each Underlying and
understand that any decline in the price of one Underlying will not
be offset or mitigated by a lesser decline or any potential
increase in the price of the other Underlying.
♦
You believe the
Final Value of each Underlying will be greater than or equal to its
Downside Threshold on the Final Observation Date, and, if the Final
Value of either Underlying is below its Downside Threshold on the
Final Observation Date, you can tolerate a loss of all or a
substantial portion of your investment.
♦
You can tolerate
fluctuations in the value of the Notes prior to maturity that may
be similar to or exceed the downside fluctuations in the price of
each Underlying.
♦
You understand
that your return will be based on the performance of the Least
Performing Underlying and you will not benefit from the performance
of the other Underlying.
♦
You are willing
to hold Notes that may be called early by the issuer in its sole
discretion, regardless of the closing price of either Underlying,
on any Call Date on or after the August 2022 Call Date, and you
are otherwise willing to hold such Notes to
maturity.
♦
You are willing
to make an investment whose positive return is limited to the
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 are willing
to forgo dividends or any other distributions paid on shares of the
Underlyings or the stocks included in
the Underlyings.
♦
You are willing
to assume the credit risk of BofA Finance and BAC for all payments
under the Notes, and understand that if BofA Finance and BAC
default on their obligations, you might not receive any amounts due
to you, including any repayment of the Stated Principal
Amount.
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The Notes may
not be suitable for you if, among other
considerations:
♦
You do not fully
understand the risks inherent in an investment in the Notes,
including the risk of loss of your
entire investment.
♦
You cannot
tolerate the loss of all or a substantial portion of your initial
investment, or you are not willing to make an investment that will
have the full downside market risk of an investment in the Least
Performing Underlying.
♦
You require an
investment designed to guarantee a full return of the Stated
Principal Amount at maturity.
♦
You do not
understand or are not willing to accept the risks associated with
each of the Underlyings.
♦
You are
unwilling to accept the individual market risk of each Underlying
or do not understand that any decline in the price of one
Underlying will not be offset or mitigated by a lesser decline or
any potential increase in the price of the other
Underlying.
♦
You believe the
Final Value of either Underlying will be less than its Downside
Threshold on the Final Observation Date, exposing you to the full
downside performance of the Least
Performing Underlying.
♦
You cannot
tolerate fluctuations in the value of the Notes prior to maturity
that may be similar to or exceed the downside fluctuations in the
price of each Underlying.
♦
You are
unwilling to accept that your return will be based on the
performance of the Least Performing Underlying, or you seek an
investment based on the performance of a basket composed of the
Underlyings.
♦
You are
unwilling to hold Notes that may be called early by the issuer in
its sole discretion, regardless of the closing price of either
Underlying, on any Call Date on or after the August 2022 Call
Date, or you are otherwise unable or unwilling to hold such Notes
to maturity.
♦
You seek an
investment that participates in the full appreciation of the
Underlyings and whose positive return is not limited to
the Coupon Payments.
♦
You seek an
investment for which there will be an active secondary
market.
♦
You prefer to
receive the dividends and any other distributions paid on shares of
the Underlyings or the stocks included in
the Underlyings.
♦
You prefer the
lower risk of conventional fixed income investments with comparable
maturities and credit ratings.
♦
You are not
willing to assume the credit risk of BofA Finance and BAC for all
payments under the Notes, including any repayment of the
Stated Principal Amount.
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The
suitability considerations identified above are not exhaustive.
Whether or not the Notes are a suitable investment for you will
depend on your individual circumstances and you should reach an
investment decision only after you and your investment, legal, tax,
accounting and other advisors have carefully considered the
suitability of an investment in the Notes in light of your
particular circumstances. You should review “The Underlyings”
herein for more information on the Underlyings. You should
also review carefully the “Risk Factors” section herein for
risks related to an investment in the Notes.
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PS-3
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Summary
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Issuer
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BofA
Finance
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Guarantor
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BAC
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Public Offering
Price
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100%
of the Stated Principal Amount
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Stated Principal
Amount
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$10.00 per
Note
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Minimum
Investment
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$1,000 (100
Notes)
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Term
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Approximately 15
months, unless earlier called
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Trade
Date1
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May
18, 2022
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Issue
Date1
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May
23, 2022
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Final Observation
Date
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August 18, 2023,
subject to postponement as described under “Description of the
Notes—Certain Terms of the Notes—Events Relating to Calculation
Days” in the accompanying product supplement.
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Maturity
Date
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August 23,
2023
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Underlyings
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iShares® S&P
500 Value ETF (Ticker: IVE)
iShares®
Russell 2000 Value ETF (Ticker: IWN)
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Issuer Call
Feature
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Beginning in
August 2022, the issuer may, in its sole discretion, call the Notes
in whole, but not in part, on any Call Date upon not less than five
(5) business days’ but not more than 60 calendar days’ notice prior
to such Call Date.
If
the Notes are called, on the applicable Call Date we will pay you a
cash payment per $10.00 Stated Principal Amount equal to the Stated
Principal Amount plus the Coupon Payment otherwise due on
such Call Date.
If the
Notes are called, no further payments will be made on the
Notes.
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Coupon Payment
Dates
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See
“Coupon Payment Dates” on page PS-6.
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Coupon
Payment/Coupon Rate
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We
will pay a Coupon Payment on each monthly Coupon Payment
Date.
Each
Coupon Payment will be in the amount of $0.06459 for each $10.00
Stated Principal Amount (based on the per annum Coupon Rate of
7.75%) and will be payable on the related Coupon Payment
Date.
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Call
Dates
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The
monthly Coupon Payment Dates beginning on August 22, 2022 and
ending on July 20, 2023, as indicated on page
PS-6.
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Payment At
Maturity (per $10.00 Stated Principal Amount)
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If the Notes
are not 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.
If the Notes
are not 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,
equal to:
$10.00
× (1
+ Underlying Return of the Least Performing
Underlying)
Accordingly,
you may lose all or a substantial portion of your Stated
Principal Amount at maturity, depending on how significantly
the Least Performing Underlying
declines, even if the Final Value of the other Underlying
is above its Downside
Threshold.
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In
each case described above you will also
receive the final Coupon Payment.
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Least Performing
Underlying
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The
Underlying with the lowest Underlying Return as of the
Final Observation Date.
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|
Underlying
Return
|
For
any Underlying,
Final Value
— Initial Value
Initial Value
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|
Downside
Threshold
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For
any Underlying, 60% of its Initial Value, as specified on the cover
page of this pricing supplement.
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Initial
Value
|
For
any Underlying, its Closing Market Price on the Trade Date, as
specified on the cover page of this pricing
supplement.
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Price
Multiplier
|
For
any Underlying, 1, subject to adjustment for certain events as
described in “Description of the Notes—Anti-Dilution and
Discontinuance Adjustments Relating to ETFs” beginning on page
PS-27 of the accompanying product supplement.
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Final
Value
|
For
any Underlying, its Closing Market Price on the
Final Observation Date, multiplied by its Price
Multiplier.
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Calculation
Agent
|
BofAS, an
affiliate of BofA Finance.
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Selling
Agents
|
BofAS and
UBS.
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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—Events of Default and Rights of Acceleration” beginning
on page 22 of the accompanying prospectus, with respect to the
Notes occurs and is continuing, the amount payable to a holder of
the Notes upon any acceleration permitted under the senior
indenture will be equal to the amount described under the caption
“—Payment at Maturity” above, calculated as though the date of
acceleration were the Maturity Date of the Notes and as though the
Final Observation Date were the third trading day prior to the date
of acceleration. The final Coupon Payment will be prorated by the
calculation agent to reflect the length of the final coupon 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.
PS-4
|
Investment
Timeline
|
|
|
|
|
|
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|
Trade
Date
|
|
The
Closing Market Price of each Underlying (its Initial Value) is
observed, the Coupon Payment/Coupon Rate is set and the Downside
Threshold for each Underlying is determined.
|
|
|
|
|
|
|
|
Monthly
(callable by the issuer in its sole discretion beginning in
August 2022)
|
|
We
will pay a Coupon Payment on each Coupon Payment Date.
Beginning
in August 2022, the issuer may, in its sole discretion, call
the Notes in whole, but not in part, on any Call Date upon not less
than five (5) business days’ but not more than 60 calendar days’
notice prior to such Call Date.
If
the Notes are called, on the applicable Call Date we will pay you a
cash payment per $10.00 Stated Principal Amount equal to the Stated
Principal Amount plus the Coupon Payment otherwise due on
such Call Date.
If the
Notes are called, no further payments will be made on the
Notes.
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|
|
|
|
|
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|
Maturity
Date (if not previously called)
|
|
If
the Notes are not 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.
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, equal to:
$10.00
× (1
+ Underlying Return of the Least Performing
Underlying)
In
each case described above you will also receive the final Coupon
Payment.
|
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 PRICE 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 PRICE OF THE OTHER UNDERLYING. THE
CONTINGENT REPAYMENT OF THE STATED PRINCIPAL AMOUNT APPLIES ONLY IF
YOU HOLD THE NOTES TO MATURITY OR EARLIER CALL BY THE ISSUER. ANY
PAYMENT ON THE NOTES IS SUBJECT TO THE CREDITWORTHINESS OF BOFA
FINANCE AND THE GUARANTOR.
PS-5
|
June
23, 2022
|
|
July
20, 2022
|
|
August
22, 2022*
|
|
September 21,
2022*
|
|
October 20,
2022*
|
|
November 22,
2022*
|
|
December 21,
2022*
|
|
January 20,
2023*
|
|
February 23,
2023*
|
|
March
22, 2023*
|
|
April
20, 2023*
|
|
May
22, 2023*
|
|
June
22, 2023*
|
|
July
20, 2023*
|
|
August
23, 2023
|
|
*These
are the Call Dates.
|
PS-6
Your investment
in the Notes entails significant risks, many of which differ from
those of a conventional debt security. Your decision to purchase
the Notes should be made only after carefully considering the risks
of an investment in the Notes, including those discussed below,
with your advisors in light of your particular circumstances. The
Notes are not an appropriate investment for you if you are not
knowledgeable about significant elements of the Notes or financial
matters in general. You should carefully review the more detailed
explanation of risks relating to the Notes in the “Risk Factors”
sections beginning on page PS-5 of the accompanying product
supplement, page S-5 of the accompanying prospectus
supplement and page 7 of the accompanying prospectus identified
on page PS-2 above.
Structure-related
Risks
|
♦
|
Your investment
may result in a loss; there is no guaranteed return of
principal. There is no fixed principal repayment amount on the
Notes at maturity. If the Notes are not called prior to maturity
and the Final Value of either 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.
|
|
♦
|
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 a call or maturity, you may have to sell
them at a loss relative to your initial investment even if the
price of each Underlying at that time is equal to or greater than
its Downside Threshold. All payments on the Notes are subject to
the credit risk of BofA Finance, as issuer, and BAC, as
guarantor.
|
|
♦
|
Your return on
the Notes is limited to the return represented by the Coupon
Payments over the term of the Notes. Your
return on the Notes is limited to the Coupon Payments paid over the
term of the Notes, regardless of the extent to which the Closing
Market Price of either Underlying exceeds its Initial Value.
Similarly, the amount payable at maturity or upon a call will never
exceed the sum of the Stated Principal Amount and the applicable
Coupon Payment, regardless of the extent to which the Closing
Market Price or Final Value, as applicable, of either Underlying
exceeds its Initial Value. In contrast, a direct investment in the
Underlyings or the securities included in one or more of the
Underlyings would allow you to receive the benefit of any
appreciation in their values. Thus, any return on the Notes
will not reflect the return you would realize if you actually owned
those securities and received the dividends paid or distributions
made on them.
|
|
♦
|
The
Notes are subject to a potential early call, which would limit your
ability to receive the Coupon Payments over the full term of
the Notes. Beginning
in August 2022, on each Call Date, at our option, we may redeem
your Notes in whole, but not in part. If the Notes are called prior
to the Maturity Date, you will be entitled to receive the Stated
Principal Amount plus the Coupon Payment otherwise due on such Call
Date. In this case, you will lose the opportunity to continue to
receive Coupon Payments after the date of the early 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. Even if we do not
exercise our option to redeem your Notes, our ability to do so may
adversely affect the market value of your Notes. It is our sole
option whether to redeem your Notes prior to maturity on any Call
Date and we may or may not exercise this option for any reason.
Because of this, the term of your Notes could be anywhere between
three and fifteen months.
|
It is
more likely that we will call the Notes in our sole discretion
prior to maturity to the extent that the expected Coupon Payments
payable on the Notes are greater than the coupon that would be
payable on other instruments issued by us of comparable maturity,
terms and credit rating trading in the market. The greater
likelihood of us calling the Notes in that environment increases
the risk that you will not be able to reinvest the proceeds from
the called Notes in another investment that provides a similar
yield with a similar level of risk. We are less likely to call the
Notes prior to maturity when the expected Coupon Payments payable
on the Notes are less than the coupon that would be payable on
other comparable instruments issued by us. Therefore, the Notes are
more likely to remain outstanding when the expected Coupon Payments
payable on the Notes are less than what would be payable on other
comparable instruments and when your risk of not receiving
a coupon is relatively higher.
|
♦
|
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 Coupon
Payment (if any) may be less than the yield on a conventional
debt security of comparable maturity.
|
|
♦
|
Any
payment on the Notes is subject to our credit risk and the credit
risk of the Guarantor, and actual or perceived changes in our or
the Guarantor’s creditworthiness are expected to affect the value
of the Notes. The
Notes are our senior unsecured debt securities. Any payment on the
Notes will be fully and unconditionally guaranteed by the
Guarantor. The Notes are not guaranteed by any entity other than
the Guarantor. As a result, your receipt of all payments on the
Notes will be dependent upon our ability and the ability of the
Guarantor to repay our respective obligations under the Notes on
the applicable payment date, regardless of the Closing Market Price
or Final Value of either Underlying as compared to its Downside
Threshold or Initial Value, as applicable. No assurance can be
given as to what our financial condition or the financial condition
of the Guarantor will be on the Maturity Date. If we and the
Guarantor become unable to meet our respective financial
obligations as they become due, you may not receive the amounts
payable under the terms of the Notes and you could lose all of
your initial investment.
|
In
addition, our credit ratings and the credit ratings of the
Guarantor are assessments by ratings agencies of our respective
abilities to pay our obligations. Consequently, our or the
Guarantor’s perceived creditworthiness and actual or anticipated
decreases in our or the Guarantor’s credit ratings or increases in
the spread between the yield on our respective securities and the
yield on U.S. Treasury securities (the “credit spread”) prior to
the Maturity Date of your Notes may adversely affect the market
value of the Notes. However, because your return on the Notes
depends upon factors in addition to our ability and the ability of
the Guarantor to pay our respective obligations, such as the
values of the Underlyings, an improvement in our or the
Guarantor’s credit ratings will not reduce the other investment
risks related to the Notes.
PS-7
|
♦
|
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.
|
|
♦
|
Because the
Notes are linked to the performance of the least performing between
the IVE and the IWN, you are exposed to greater risk of sustaining
a significant loss on your investment than if the Notes were linked
to just the IVE or just the IWN. The
risk that you will 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 IVE or just the IWN. With two
Underlyings, it is more likely that either Underlying will close
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 receive a Payment at Maturity that
is significantly less than the Stated Principal Amount on the
Maturity Date.
|
|
♦
|
Greater
expected volatility generally indicates an increased risk of
loss. A higher Coupon Rate and/or a lower Downside Threshold
may reflect greater expected volatilities of the Underlyings, which
is generally associated with a greater risk of loss. Volatility is
a measure of the degree of variation in the prices of the
Underlyings over a period of time. The greater the expected
volatilities of the Underlyings at the time the terms of the Notes
are set, the greater the expectation is at that time that you may
lose a significant portion or all of the Stated Principal Amount at
maturity. In addition, the economic terms of the Notes, including
the Coupon Rate and the Downside Threshold, are based, in part, on
the expected volatilities of the Underlyings at the time the terms
of the Notes are set, where higher expected volatilities will
generally be reflected in a higher Coupon Rate than the fixed rate
we would pay on conventional debt securities of the same maturity
and/or on otherwise comparable securities and/or a lower Downside
Threshold as compared to otherwise comparable securities.
Accordingly, a higher Coupon Rate will generally be indicative of a
greater risk of loss while a lower Downside Threshold does not
necessarily indicate that the Notes have a greater likelihood of
returning the Stated Principal Amount at maturity. You should be
willing to accept the downside market risk of each Underlying and
the potential loss of a significant portion or all of the Stated
Principal Amount at maturity.
|
Valuation
and Market-related Risks
|
♦
|
The
public offering price you are paying for the Notes exceeds
their initial estimated value. The
initial estimated value of the Notes that is provided on the cover
page of this pricing supplement is an estimate only, determined as
of the Trade Date by reference to our and our affiliates' pricing
models. These pricing models consider certain assumptions and
variables, including our credit spreads and those of the Guarantor,
the Guarantor’s internal funding rate, mid-market terms on hedging
transactions, expectations on interest rates, dividends and
volatility, price-sensitivity analysis, and the expected term of
the Notes. These pricing models rely in part on certain
forecasts about future events, which may prove to be
incorrect. If
you attempt to sell the Notes prior to maturity, their market value
may be lower than the price you paid for them and lower than their
initial estimated value. This is due to, among other things,
changes in the prices of the Underlyings, changes in the
Guarantor’s internal funding rate, and the inclusion in the public
offering price of the underwriting discount and the hedging related
charges, all as further described in “Structuring the
Notes” below. These factors, together with various credit,
market and economic factors over the term of the Notes, are
expected to reduce the price at which you may be able to sell the
Notes in any secondary market and will affect the value of the
Notes in complex and unpredictable ways.
|
|
♦
|
The
initial estimated value does not represent a minimum or maximum
price at which we, BAC, BofAS or any of
our other affiliates would be willing to purchase your
Notes in any secondary market (if any exists) at any
time. The value of your Notes at any time after issuance
will vary based on many factors that cannot be predicted with
accuracy, including the performance of the Underlyings,
our and BAC’s creditworthiness and changes in market
conditions.
|
|
♦
|
The
price of the Notes that may be paid by BofAS in any secondary
market (if BofAS makes a market, which it is not required to do),
as well as the price which may be reflected on customer account
statements, will be higher than the then-current estimated value of
the Notes for a limited time period after the Trade Date. As
agreed by BofAS and UBS, for approximately a three-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
three-month period. Accordingly, the estimated value of your
Notes during this initial three-month period may be lower than the
value shown on your customer account statements. Thereafter,
if BofAS buys or sells your Notes, it will do so at prices that
reflect the estimated value determined by reference to its pricing
models at that time. Any price at any time after the Trade Date
will be based on then-prevailing market conditions and other
considerations, including the performance of the Underlyings and
the remaining term of the Notes. However, none of us, the
Guarantor, BofAS or any other party is obligated to purchase your
Notes at any price or at any time, and we cannot assure you that
any party will purchase your Notes at a price that equals or
exceeds the initial estimated value of the
Notes.
|
|
♦
|
We
cannot assure you that a trading market for your Notes will ever
develop or be maintained. We will not list the Notes on
any securities exchange. We cannot predict how the Notes will
trade in any secondary market or whether that market will be liquid
or illiquid.
|
The
development of a trading market for the Notes will depend on the
Guarantor’s financial performance and other factors, including
changes in the prices of the Underlyings. The number of
potential buyers of your Notes in any secondary market may be
limited. We anticipate that BofAS will act as a market-maker for
the Notes, but none of us, the Guarantor or BofAS is required to do
so. There is no assurance that any party will be willing to
purchase your Notes at any price in any secondary market. BofAS may
discontinue its market-making activities as to the Notes at any
time. To the extent that BofAS engages in any market-making
activities, it may bid for or offer the Notes. Any price at which
BofAS may bid for, offer, purchase, or sell any Notes may differ
from the values determined by pricing models that it may use,
whether as a result of dealer discounts, mark-ups, or other
transaction costs. These bids, offers, or completed transactions
may affect the prices, if any, at which the Notes might otherwise
trade in the market. In addition, if at any time BofAS were to
cease acting as a market-maker as to the Notes, it is likely that
there would be significantly less liquidity in the secondary
market. In such a case, the price at which the Notes could be sold
likely would be lower than if an active market
existed.
PS-8
|
♦
|
Economic and
market factors have affected the terms of the Notes and may affect
the market value of the Notes prior to maturity or a 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 a
call. These factors include the prices of the Underlyings and the
securities included in the Underlyings; the volatility of the
Underlyings and the securities included in the Underlyings; the
correlation among the Underlyings; the dividend rate paid on the
Underlyings or the securities included in the Underlyings, if
applicable; the time remaining to the maturity of the Notes;
interest rates in the markets; geopolitical conditions and
economic, financial, political, force majeure and regulatory or
judicial events; 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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Conflict-related Risks
|
♦
|
Trading and
hedging activities by us, the Guarantor and any of our other
affiliates, including BofAS, and UBS and its affiliates, may create
conflicts of interest with you and may affect your return on the
Notes and their market value. We, the Guarantor or one or more
of our other affiliates, including BofAS, and UBS and its
affiliates, may buy or sell shares of the Underlyings or the
securities held by or included in the Underlyings, or futures or
options contracts on the Underlyings or those securities, or other
listed or over-the-counter derivative instruments linked to the
Underlyings or those securities. We, the Guarantor or one or more
of our other affiliates, including BofAS, and UBS and its
affiliates also may issue or underwrite other financial instruments
with returns based upon the Underlyings. We expect to enter into
arrangements or adjust or close out existing transactions to hedge
our obligations under the Notes. We, the Guarantor or our other
affiliates, including BofAS, and UBS and its affiliates also may
enter into hedging transactions relating to other notes or
instruments, some of which may have returns calculated in a manner
related to that of the Notes offered hereby. We or UBS may enter
into such hedging arrangements with one of our or their affiliates.
Our affiliates or their affiliates may enter into additional
hedging transactions with other parties relating to the Notes and
the Underlyings. This hedging activity is expected to result in a
profit to those engaging in the hedging activity, which could be
more or less than initially expected, or the hedging activity could
also result in a loss. We and our affiliates and UBS and its
affiliates will price these hedging transactions with the intent to
realize a profit, regardless of whether the value of the Notes
increases or decreases. Any profit in connection with such hedging
activities will be in addition to any other compensation that we,
the Guarantor and our other affiliates, including BofAS, and UBS
and its affiliates receive for the sale of the Notes, which creates
an additional incentive to sell the Notes to you. While we, the
Guarantor or one or more of our other affiliates, including BofAS,
and UBS and its affiliates may from time to time own shares of the
Underlyings or securities represented by the Underlyings, except to
the extent that BAC’s or UBS Group AG’s (the parent company of UBS)
common stock may be included in the Underlyings, as applicable, we,
the Guarantor and our other affiliates, including BofAS, and UBS
and its affiliates do not control any company included in the
Underlyings, and have not verified any disclosure made by any other
company. We, the Guarantor or one or more of our other affiliates,
including BofAS, and UBS and its affiliates may execute such
purchases or sales for our own or their own accounts, for business
reasons, or in connection with hedging our obligations under the
Notes. The transactions described above may present a conflict of
interest between your interest in the Notes and the interests we,
the Guarantor and our other affiliates, including BofAS, and UBS
and its affiliates may have in our or their proprietary accounts,
in facilitating transactions, including block trades, for our or
their other customers, and in accounts under our or their
management.
|
The
transactions described above may affect the prices of the
Underlyings in a manner that could be adverse to your investment in
the Notes. On or before the Trade Date, any purchases or sales by
us, the Guarantor or our other affiliates, including BofAS or
others on its behalf, and UBS and its affiliates (including for the
purpose of hedging some or all of our anticipated exposure in
connection with the Notes) may have affected the prices of the
Underlyings. Consequently, the prices of the Underlyings may change
subsequent to the Trade Date, which may adversely affect the market
value of the Notes. In addition, these activities may decrease the
market value of your Notes prior to maturity, and may affect the
amounts to be paid on the Notes. We, the Guarantor or one or more
of our other affiliates, including BofAS, and UBS and its
affiliates may purchase or otherwise acquire a long or short
position in the Notes and may hold or resell the Notes. For
example, BofAS may enter into these transactions in connection with
any market making activities in which it engages. We cannot assure
you that these activities will not adversely affect the prices of
the Underlyings, the market value of your Notes prior to
maturity or the amounts payable on the Notes.
|
♦
|
There may be
potential conflicts of interest involving the calculation
agent, which is an affiliate of ours. We
have the right to appoint and remove the calculation agent. One of
our affiliates will be the calculation agent for the Notes and, as
such, will make a variety of determinations relating to the Notes,
including the amounts that will be paid on the Notes. Under some
circumstances, these duties could result in a conflict of interest
between its status as our affiliate and its responsibilities as
calculation agent.
|
Underlying-related
Risks
|
♦
|
The
Notes are subject to the market risk of the Underlyings. The
return on the Notes, which may be negative, is directly linked to
the performance of the Underlyings and indirectly linked to the
value of the securities included in the Underlyings. The price of
the Underlyings can rise or fall sharply due to factors specific to
the Underlyings and the securities included in the Underlyings and
the issuers of such securities, such as stock price volatility,
earnings and financial conditions, corporate, industry and
regulatory developments, management changes and decisions and other
events, as well as general market factors, such as general stock
market or commodity market volatility and levels, interest rates
and economic and political conditions.
|
|
♦
|
The
sponsor or investment advisor of an Underlying may adjust that
Underlying in a way that affects its prices, and the sponsor or
investment advisor has no obligation to consider your
interests. The
sponsor or investment advisor of an Underlying can add, delete, or
substitute the components included in that Underlying or make other
methodological changes that could change its price. Any of
these actions could adversely affect the value of your
Notes.
|
|
♦
|
An
investment in the Notes is subject to risks associated with small
capitalization stocks with respect to the IWN. The equity
securities held by the IWN are issued by companies with relatively
small 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,
|
PS-9
trade
and competitive conditions relative to larger companies. Small-size
capitalization companies may also be more susceptible to adverse
developments related to their products or services.
|
♦
|
The
performance of an Underlying may not correlate with the performance
of its underlying index as well as the net asset value per share of
the Underlying, especially during periods of market volatility.
The performance of an Underlying and that of its
underlying index generally will vary due to, for example,
transaction costs, management fees, certain corporate actions, and
timing variances. Moreover, it is also possible that the
performance of an Underlying may not fully replicate or may, in
certain circumstances, diverge significantly from the performance
of its underlying index. This could be due to, for example, the
Underlying not holding all or substantially all of the underlying
assets included in its underlying index and/or holding assets that
are not included in its underlying index, the temporary
unavailability of certain securities in the secondary market, the
performance of any derivative instruments held by the Underlying,
differences in trading hours between the Underlying (or the
underlying assets held by the Underlying) and its underlying index,
or other circumstances. This variation in performance is called the
“tracking error,” and, at times, the tracking error may be
significant. In addition, because the shares of each Underlying are
traded on a securities exchange and are subject to market supply
and investor demand, the market price of one share of the
Underlying may differ from its net asset value per share; shares of
the Underlying may trade at, above, or below its net asset value
per share. During periods of market volatility, securities held by
an Underlying may be unavailable in the secondary market, market
participants may be unable to calculate accurately the net asset
value per share of the Underlying and the liquidity of the
Underlying may be adversely affected. Market volatility may also
disrupt the ability of market participants to trade shares of the
Underlying. Further, market volatility may adversely affect,
sometimes materially, the prices at which market participants are
willing to buy and sell shares of the Underlying. As a result,
under these circumstances, the market value of shares of the
Underlying may vary substantially from the net asset value per
share of the Underlying.
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|
♦
|
You
are exposed to the market risk of both
Underlyings. Your
return on the Notes is not linked to a basket consisting of the
Underlyings. Rather, it will be contingent upon the independent
performance of each of the IVE and the IWN. Unlike an instrument
with a return linked to a basket of underlying assets, in which
risk is mitigated and diversified among all of the components of
the basket, you will be exposed to the risks related to both the
IVE and the IWN. Poor performance by either of the Underlyings over
the term of the Notes may negatively affect your return and will
not be offset or mitigated by positive performance by the other
Underlying. To receive the contingent repayment of principal at
maturity, each Underlying must close at or above its Downside
Threshold on the Final Observation Date. 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 the other Underlying appreciates during the term
of the Notes. Accordingly, your investment is subject to the market
risk of both Underlyings. Additionally, movements in the prices 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 Downside Threshold on the Final Observation Date will
increase when the movements in the prices of the Underlyings are
uncorrelated. Thus, if the performance of the Underlyings is not
correlated or is negatively correlated, the risk of incurring a
significant loss of principal at maturity is greater. In addition,
correlation generally decreases for each additional Underlying to
which the Notes are linked, resulting in a greater potential for a
significant loss of principal at maturity. Although the correlation
of the Underlyings’ performance may change over the term of the
Notes, the economic terms of the Notes, including the Coupon Rate
and Downside Thresholds, 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
Coupon Rate and lower Downside Threshold is generally associated
with lower correlation of the Underlyings, which may indicate a
greater potential for a significant loss on your investment at
maturity. See “Correlation of the Underlyings”
below.
|
For
the foregoing reasons, the performance of an Underlying may not
match the performance of its underlying index or the net
asset value per share of the Underlying over the same period.
Because of this variance, the return on the Notes to the extent
dependent on the performance of the Underlying may not be the same
as an investment directly in the securities included in the
underlying index or the same as a debt security with a return
linked to the performance of the underlying index .
|
♦
|
The
anti-dilution adjustments will be limited. The calculation
agent may adjust the Price Multiplier of an Underlying and other
terms of the Notes to reflect certain actions by an Underlying, as
described in the section “Description of the Notes—Anti-Dilution
and Discontinuance Adjustments Relating to ETFs” in the
accompanying product supplement. The calculation agent will not be
required to make an adjustment for every event that may affect an
Underlying and will have broad discretion to determine whether and
to what extent an adjustment is required.
|
Tax-related
Risks
|
♦
|
The
U.S. federal income tax consequences of an investment in the Notes
are uncertain, and may be adverse to a holder of the
Notes. No
statutory, judicial, or administrative authority directly addresses
the characterization of the Notes or securities substantially
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 consisting of a put option and a deposit, as more fully
described below under “U.S. Federal Income Tax Summary—General.” If
the Internal Revenue Service (the “IRS”) were successful in
asserting an alternative characterization for the Notes, the timing
and character of income, gain or loss with respect to the Notes may
differ. No ruling will be requested from the IRS with respect to
the Notes and no assurance can be given that the IRS will agree
with the statements made in the section entitled “U.S. Federal
Income Tax Summary.” You are urged to consult with your own
tax advisor regarding all aspects of the U.S. federal income tax
consequences of investing in the Notes.
|
PS-10
Hypothetical
terms only. Actual terms may vary. See the cover page for actual
offering terms.
The
examples below illustrate the hypothetical payment upon a call or
at maturity for a $10.00 Stated Principal Amount Note with the
following assumptions* (amounts may have been rounded for ease of
reference and do not take into account any tax consequences from
investing in the Notes):
|
♦
|
Stated
Principal Amount: $10
|
|
♦
|
Term: Fifteen
months, unless earlier called
|
|
♦
|
Hypothetical Initial
Values:
|
|
o
|
iShares®
S&P 500 Value ETF: 100.00
|
|
o
|
iShares® Russell
2000 Value ETF: 100.00
|
|
♦
|
Coupon
Rate: 7.75% per annum (or 0.6459% per month)
|
|
♦
|
Monthly Coupon
Payment: $0.06459 per month per Note
|
|
♦
|
Issuer
Call: Beginning in August 2022, monthly, on any Call
Date
|
|
♦
|
Hypothetical
Downside Thresholds:
|
|
o
|
iShares®
S&P 500 Value ETF: 60.00, which is 60% of its
hypothetical Initial Value
|
|
o
|
iShares®
Russell 2000 Value ETF: 60.00, which is 60% of its
hypothetical Initial Value
|
*The hypothetical
Initial Values and Downside
Thresholds do not represent the actual
Initial Values and Downside
Thresholds, respectively, applicable to the
Underlyings. The actual Initial
Values and Downside Thresholds
are set forth on the cover page of this pricing
supplement. All payments on
the Notes are subject to issuer
and Guarantor credit risk.
Example 1 —
Notes are called by us in our sole discretion on the third Coupon
Payment Date (which is also the first Call
Date).
|
Date
|
Payment
(per Note)
|
|
First
Coupon Payment Date
|
$0.06459 (Coupon
Payment — Not callable)
|
|
Second
Coupon Payment Date
|
$0.06459 (Coupon
Payment — Not callable)
|
|
Third
Coupon Payment Date (First Call Date)
|
$10.06459 (Stated
Principal Amount plus Coupon Payment — Notes are
called)
|
|
Total
Payment:
|
$10.19377 (1.9377%
total return)
|
A
Coupon Payment is paid on each of the first and second Coupon
Payment Dates. Since the Notes are called by us in our sole
discretion on the third Coupon Payment date, which is also the
first Call Date, we will pay you a total of $10.06459 per Note
(equal to the Stated Principal Amount plus the applicable Coupon
Payment) on that Call Date. When added to the $0.12918 in Coupon
Payments received in respect of the first two Coupon Payment Dates,
you would have been paid a total of $10.19377 per Note,
representing a 1.9377% total return on the Notes over the
approximately three months the Notes were outstanding before they
were called by us in our sole discretion. You will not
receive any further payments on the Notes.
PS-11
Example 2 —
Notes are NOT called prior to the Maturity Date and the Final Value
of the Least Performing Underlying on the Final Observation Date is
at or above its Downside Threshold.
|
Date
|
Final Value on
the Final Observation Date
|
Payment (per
Note)
|
|
iShares® S&P 500 Value ETF
|
iShares® Russell 2000 Value ETF
|
|
|
First
Coupon Payment Date
|
N/A
|
N/A
|
$0.06459 (Coupon
Payment — Not callable)
|
|
Second
Coupon Payment Date
|
N/A
|
N/A
|
$0.06459 (Coupon
Payment — Not callable)
|
|
Third
to Fourteenth Coupon Payment Dates
|
N/A
|
N/A
|
$0.06459 (Coupon
Payment on each Coupon Payment Date—Notes are not
called)
|
|
Final
Observation Date
|
99.00
(at or above Downside Threshold)
|
85.00
(at or above Downside Threshold)*
|
$10.06459 (Stated
Principal Amount plus the final Coupon Payment)
|
|
|
|
Total
Payment:
|
$10.96885 (9.6885%
total return)
|
* Represents
Least Performing Underlying
A
Coupon Payment is paid on each of the first fourteen Coupon Payment
Dates, but the Notes are not called prior to maturity. On the Final
Observation Date, the Final Value of the Least Performing
Underlying is above its Downside Threshold. At maturity, we will
pay you $10.06459 per Note (equal to the Stated Principal Amount
plus the final Coupon Payment). When added to the Coupon Payments
of $0.90426 received in respect of the first fourteen Coupon
Payment Dates, you would have been paid a total of $10.96885 per
Note, representing a 9.6885% total return on the Notes
over fifteen months.
Example 3 —
Notes are NOT called prior to the Maturity Date and the Final Value
of the Least Performing Underlying on the Final Observation Date is
below its Downside Threshold.
|
Date
|
Final Value on
the Final Observation Date
|
Payment (per
Note)
|
|
iShares® S&P 500 Value ETF
|
iShares® Russell 2000 Value ETF
|
|
|
First
Coupon Payment Date
|
N/A
|
N/A
|
$0.06459 (Coupon
Payment — Not callable)
|
|
Second
Coupon Payment Date
|
N/A
|
N/A
|
$0.06459 (Coupon
Payment — Not callable)
|
|
Third
to Fourteenth Coupon Payment Dates
|
N/A
|
N/A
|
$0.06459 (Coupon
Payment on each Coupon Payment Date—Notes are not
called)
|
|
Final
Observation Date
|
99.00
(at or above Downside Threshold)
|
50.00
(below Downside Threshold)*
|
$10.00
× [1 + Underlying Return of the Least Performing Underlying]
=
$10.00
× [1 + -50.00%] =
$10.00
× 0.50 =
$5.00
$5.00+$0.06459 =
$5.06459 (Payment at Maturity)
|
|
|
|
Total
Payment:
|
$5.96885
(-40.3115% total return)
|
* Represents
Least Performing Underlying
A
Coupon Payment is paid on each of the first fourteen Coupon Payment
Dates, but the Notes are not called. On the Final Observation Date,
the Least Performing Underlying closes below its Downside
Threshold. At maturity, investors are exposed to the proportionate
downside performance of the Least Performing Underlying and you
will receive $5.00 per Note, which reflects the percentage decrease
of the price of the Least Performing Underlying from the Trade Date
to the Final Observation Date, plus the final Coupon Payment of
$0.06459, for a Payment at Maturity
of $5.06459. When
added to the $0.90426 in Coupon Payments received in respect of the
first fourteen Coupon Payment Dates, you would have been paid a
total of $5.96885 per Note, representing a -40.3115%
total return over fifteen months.
PS-12
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 BlackRock Fund Advisors
(“BFA”), the advisor to each of the IWN and IVE. We refer to BFA as
the “Investment Advisor.” The Investment Advisor, which licenses
the copyright and all other rights to the Underlyings, has no
obligation to continue to publish, and may discontinue publication
of, the Underlyings. The consequences of Investment Advisor
discontinuing publication of the applicable Underlying are
discussed in “Description of the Notes—Anti-Dilution and
Discontinuance Adjustments Relating to ETFs—Discontinuance of an
ETF” in the accompanying product supplement. None of us, the
Guarantor, the calculation agent, or either Selling Agent accepts
any responsibility for the calculation, maintenance or publication
of either Underlyings or any
successor underlying.
None
of us, the Guarantor, the Selling Agents or any of our or their
respective affiliates makes any representation to you as to
the future performance of the Underlyings.
You
should make your own investigation into the
Underlyings.
The
iShares® S&P 500 Value ETF
The
IVE seeks to provide investment results that correspond generally
to the price and yield performance, before fees and expenses, of
the S&P 500® Value Index, its underlying index. The
S&P 500® Value Index was developed by SPDJI and
is designed to track the performance of large-capitalization U.S.
companies that exhibit value characteristics. The IVE uses a
representative sampling strategy to try to track the S&P
500® Value Index and generally will invest at least 80%
of its assets in the components of the S&P
500® Value Index. The returns of the IVE will be
reduced by certain management fees and other expenses, which are
detailed in its prospectus.
The S&P 500® Value
Index
The
S&P® 500 Value Index is a subset of the
S&P® 500 Index, is published by S&P Dow Jones
Indices LLC (“SPDJI”) and is an unmanaged float adjusted market
capitalization weighted index comprised of stocks representing
approximately half the market capitalization of the
S&P® 500 Index that have been identified as being on
the “value” end of the growth-value spectrum. SPDJI is a joint
venture between S&P Global, Inc. (73% owner) and CME Group Inc.
(27% owner), owner of CME Group Index Services LLC.
Methodology
The
S&P 500 Value Index is one of the S&P Style Indices. The
S&P Style Indices methodology was developed to measure growth
and value characteristics based on six different growth and value
factors, while reflecting the fact that some companies exhibit
neither strong growth nor value attributes.
S&P
measures growth and value of each of the companies included in the
S&P 500® Index across three growth factors and three
value factors. The growth factors include three-year change in
earnings per share over price per share, three year sales per share
growth rate and momentum (12-month percent price change). The value
factors include book value to price ratio, earnings to price ratio
and sales to price ratio. After standardizing the factor scores,
each company is assigned a growth score and a value score by
averaging its individual growth and value factor scores,
respectively. All 500 companies are then ranked twice, once by
growth and once by value. These companies are sorted in ascending
order of the ratio of each company’s growth rank divided by its
value rank. Companies in the top 33% of this list as measured by
weight in the S&P 500® Index have all of their
market capitalization assigned to the S&P 500 Growth Index.
Companies in the bottom 33% of this list as measured by weight in
the S&P 500® Index have all of their market
capitalization assigned to the S&P 500 Value Index. Companies
in the middle 34% of this list have their market capitalization
distributed between the growth and value style indices according to
the deviation of their growth and value score from the average
score in each of the two groups. This methodology results in some
companies being members of both the growth and value indices, but
because the market capitalization of these companies is split
between the two indices, the summed total capitalization of the
growth and value indices equals the total capitalization of the
parent index, the S&P 500® Index. Growth scores and
value scores are reviewed and indices are rebalanced once a year on
the third Friday of December. The S&P 500® Value
Index is calculated following SPDJI’s market
capitalization-weighted, divisor-based index
methodology.
The S&P
500® Index
The
S&P 500® Index (“SPX”) includes a
representative sample of 500 companies in leading industries of the
U.S. economy. The SPX is intended to provide an indication of the
pattern of common stock price movement. The calculation of the
level of the SPX is based on the relative value of the aggregate
market value of the common stocks of 500 companies as of a
particular time compared to the aggregate average market value of
the common stocks of 500 similar companies during the base period
of the years 1941 through 1943.
The
SPX includes companies from eleven main groups: Communication
Services; Consumer Discretionary; Consumer Staples; Energy;
Financials; Health Care; Industrials; Information Technology; Real
Estate; Materials; and Utilities. SPDJI may from time to time, in
its sole discretion, add companies to, or delete companies from,
the SPX to achieve the objectives stated above.
Company additions
to the SPX must have an unadjusted company market capitalization of
$8.2 billion or more (an increase from the previous requirement of
an unadjusted company market capitalization of $6.1 billion or
more).
SPDJI
calculates the SPX by reference to the prices of the constituent
stocks of the SPX without taking account of the value of dividends
paid on those stocks. As a result, the return on the Notes will not
reflect the return you would realize if you actually owned the SPX
constituent stocks and received the dividends paid on those
stocks.
Computation of
the SPX
While
SPDJI currently employs the following methodology to calculate the
SPX, no assurance can be given that SPDJI will not modify or change
this methodology in a manner that may affect the Payment at
Maturity.
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
PS-13
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 Market Price.
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 IVE
The
following graph sets forth the daily historical performance of the
IVE in the period from January 3, 2017 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 gray line
in the graph represents the IVE’s Downside Threshold of $86.31,
which is 60% of the IVE’s Initial Value of
$143.85.
PS-14
This
historical data on the IVE is not necessarily indicative of the
future performance of the IVE or what the value of the Notes may
be. Any historical upward or downward trend in the Closing Market
Price of the IVE during any period set forth above is not an
indication that the Closing Market Price of the IVE 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 Closing Market Prices and trading pattern of
the IVE.
PS-15
The
iShares® Russell 2000 Value ETF
The
shares of the iShares® Russell 2000 Value ETF are issued
by iShares® Trust, a registered investment
company.
|
●
|
The
IWN is a tracking ETF that seeks investment results which
correspond generally to the price and yield performance, before
fees and expenses, of the Russell 2000® Value
Index.
|
|
●
|
IWN’s
shares trade on the NYSE Arca under the ticker symbol
“IWN”.
|
|
●
|
The
iShares® Trust’s SEC CIK Number is
0001100663.
|
|
●
|
IWN’s
inception date was May 22, 2000.
|
|
●
|
The
IWN’s shares are issued or redeemed only in creation units of
50,000 shares or multiples thereof.
|
We
obtained the following fee information from the iShares®
website without independent verification. The investment advisor is
entitled to receive a management fee from the IWN based on the
IWN’s allocable portion of an aggregate management fee based on the
aggregate average daily net assets of the IWN and a set of other
specified iShares® funds (together, the “funds”) as
follows: 0.2500% per annum of the aggregate net assets less than or
equal to $46 billion, plus 0.2375% per annum of the aggregate net
assets in excess of $46 billion, up to and including $81 billion,
plus 0.2257% per annum of the aggregate net assets in excess of $81
billion, up to and including $111 billion, plus 0.2144% per annum
of the aggregate net assets in excess of $111 billion, up to and
including $141 billion, plus 0.2037% per annum of the aggregate net
assets in excess of $141 billion, up to and including $171 billion,
plus .01935% per annum of the aggregate net assets in excess of
$171 billion. As of June 30, 2021, the aggregate expense ratio of
the IWN was 0.24% per annum.
The
investment advisory agreement between
iShares® Trust and BFA provides that BFA will pay
all operating expenses of the IWN, except the management fees,
interest expenses, taxes, expenses incurred with respect to the
acquisition and disposition of portfolio securities and the
execution of portfolio transactions, including brokerage
commissions, distribution fees or expenses, litigation expenses and
any extraordinary expenses.
For
additional information regarding iShares® Trust or BFA,
please consult the reports (including the Annual Report to
Shareholders on Form N-CSR for the fiscal year ended March 31,
2021) and other information iShares® Trust files with
the SEC. In addition, information regarding the IWN (including the
top ten holdings and weights and sector weights), may be obtained
from other sources including, but not limited to, press releases,
newspaper articles, other publicly available documents, and the
iShares® website at
us.ishares.com/product_info/fund/overview/IWN.htm. We are not
incorporating by reference the website, the sources listed above or
any material they include in this pricing supplement.
Investment Objective
The
IWN seeks to track the investment results, before fees and
expenses, of the Russell 2000® Value Index, which
measures the performance of the small-capitalization value sector
of the U.S. equity market, as defined by FTSE Russell, the sponsor
of the Russell 2000® Value Index. The IWN’s investment
objective and the Russell 2000® Value Index may be
changed without shareholder approval. Notwithstanding the IWN’s
investment objective, the return on your Notes will not reflect any
dividends paid on the IWN shares, on the securities purchased by
the IWN or on the securities that comprise the Russell
2000® Value Index.
Representative Sampling
BFA
uses a representative sampling indexing strategy to manage the IWN.
This strategy involves investing in a representative sample of
securities that collectively has an investment profile similar to
that of the Russell 2000® Value Index. The securities
selected are expected to have, in the aggregate, investment
characteristics (based on factors such as market capitalization and
industry weightings), fundamental characteristics (such as return
variability and yield) and liquidity measures similar to those of
the Russell 2000® Value Index.
The
IWN generally invests at least 80% of its assets in the component
securities of the Russell 2000® Value Index and in
investments that have economic characteristics that are
substantially identical to the component securities of the Russell
2000® Value Index (i.e., depositary receipts
representing securities of the Russell 2000® Value
Index) and may invest up to 20% of its assets in certain futures,
options and swap contracts, cash and cash equivalents, including
shares of money market funds advised by BFA or its affiliates, as
well as in securities not included in the Russell 2000®
Value Index, but which BFA believes will help the IWN track the
Russell 2000® Value Index. Also, the IWN may lend
securities representing up to one-third of the value of the IWN’s
total assets (including the value of the collateral
received).
Tracking Error
The
performance of the IWN and the Russell 2000® Value Index
may vary due to a variety of factors, including differences between
the securities and other instruments held in the IWN’s portfolio
and those included in the Russell 2000® Value Index,
pricing differences, transaction costs incurred by the IWN, the
IWN’s holding of uninvested cash, differences in timing of the
accrual of or the valuation of dividends or interest, the
requirements to maintain pass-through tax treatment, portfolio
transactions carried out to minimize the distribution of capital
gains to shareholders, acceptance of custom baskets, changes to the
Russell 2000® Value Index or the costs of complying with
various new or existing regulatory requirements. Tracking error
also may result because the IWN incurs fees and expenses, while the
Russell 2000® Value Index does not. The IWN’s use of a
representative sampling indexing strategy can be expected to
produce a larger tracking error than would result if the IWN used a
replication indexing strategy in which an exchange traded fund
invests in substantially all of the securities in its index in
approximately the same proportions as in the Russell
2000® Value Index.
PS-16
Industry Concentration Policy
The
IWN will concentrate its investments (i.e., hold 25% or more of its
total assets) in a particular industry or group of industries to
approximately the same extent that the Russell
2000® Value Index is concentrated.
The Russell 2000® Value
Index
The
Russell 2000® Value Index measures the
capitalization-weighted price performance of the stocks included in
the Russell 2000® Index that are determined by FTSE
Russell to be value oriented, with lower price-to-book ratios and
lower forecasted growth. The Russell 2000® Index tracks
2,000 U.S. small-capitalization stocks listed on eligible U.S.
exchanges (the “Russell 2000 Stocks”). The Russell
2000® Value Index is reported by Bloomberg L.P.
under the ticker symbol “RUJ.”
FTSE
Russell’s Value and Growth Style Methodology
FTSE
Russell uses a “non-linear probability” method to assign stocks to
the Russell 2000® Value Index and the Russell
2000® Growth Index (the “Growth Index”), an index
that measures the capitalization-weighted price performance of the
Russell 2000 Stocks determined by FTSE Russell to be growth
oriented, with higher price-to-book ratios and higher forecasted
and historical growth. FTSE Russell uses three variables in the
determination of value and growth. For value, book-to-price (B/P)
ratio is used, while for growth, two variables—I/B/E/S forecast
medium-term growth (2-year) and sales per share historical growth
(5-year)—are used. The term “probability” is used to indicate the
degree of certainty that a stock is value or growth based on its
relative book-to-price (B/P) ratio, I/B/E/S forecast medium-term
growth (2 year) and sales per share historical growth (5
year).
First,
the Russell 2000 Stocks are ranked by their adjusted book-to-price
ratio (B/P), their I/B/E/S forecast medium-term growth (2 year) and
sales per share historical growth (5 year). These rankings are then
converted to standardized units, where the value variable
represents 50% of the score and the two growth variables represent
the remaining 50%. Next, these units are combined to produce a
composite value score (“CVS”).
The
Russell 2000 Stocks are then ranked by their CVS, and a probability
algorithm is applied to the CVS distribution to assign growth and
value weights to each stock. In general, a stock with a lower CVS
is considered growth, a stock with a higher CVS is considered value
and a stock with a CVS in the middle range is considered to have
both growth and value characteristics, and is weighted
proportionately in the Growth Index and the Russell
2000® Value Index. Stocks are always fully represented
by the combination of their growth and value weights (e.g., a stock
that is given a 20% weight in the Russell
2000® Value Index will have an 80% weight in the
Growth Index). Style index assignment for non-pricing vehicle share
classes will be based on that of the pricing vehicle and assigned
consistently across all additional share classes.
Stock
A, in the figure below, is a security with 20% of its available
shares assigned to the Russell 2000® Value Index and the
remaining 80% assigned to the Growth Index. The growth and value
probabilities will always sum to 100%. Hence, the sum of a stock’s
market capitalization in the Growth Index and the Russell
2000® Value Index will always equal its market
capitalization in the Russell
2000® Index.
In
the figure above, the quartile breaks are calculated such that
approximately 25% of the available market capitalization lies in
each quartile. Stocks at the median are divided 50% in each of the
Growth Index and the Russell 2000® Value Index. Stocks
below the first quartile are 100% in the Growth Index. Stocks above
the third quartile are 100% in the Russell 2000® Value
Index. Stocks falling between the first and third quartile breaks
are included in both the Growth Index and the Russell
2000® Value Index to varying degrees, depending on
how far they are above or below the median and how close they are
to the first or third quartile breaks.
Roughly
72% of the available market capitalization is classified as all
growth or all value. The remaining 30% have some portion of their
market value in either the Russell 2000® Value
Index or the Growth Index, depending on their relative distance
from the median value score. Note that there is a small position
cutoff rule. If a stock’s weight is more than 95% in one style
index, its weight is increased to 100% in that index.
In
an effort to mitigate unnecessary turnover, FTSE Russell implements
a banding methodology at the CVS level of the growth and value
style algorithm. If a company’s CVS change from the previous year
is greater than or equal to +/- 0.10 and if the company remains in
the Russell 2000® Index, then the CVS remains
unchanged during the next reconstitution process. Keeping the CVS
static for these companies does not mean the probability
(growth/value) will remain unchanged in all cases due to the
relation of a CVS score to the overall index. However, this banding
methodology is intended to reduce turnover caused by smaller, less
meaningful movements while continuing to allow the larger, more
meaningful changes to occur, signaling a true change in a company’s
relation to the market.
PS-17
In
calculating growth and value weights, stocks with missing or
negative values for B/P, or missing values for I/B/E/S growth
(negative I/B/E/S growth is valid), or missing sales per share
historical growth (6 years of quarterly numbers are required), are
allocated by using the mean value score of the Industry
Classification Benchmark (“ICB”) industry, subsector or sector
group of the Russell 2000® Index into which the company
falls. Each missing (or negative B/P) variable is substituted with
the industry, subsector or sector group independently. An industry
must have five members or the substitution reverts to the
subsector, and so forth to the sector. In addition, a weighted
value score is calculated for securities with low analyst coverage
for I/B/E/S medium-term growth. For securities with coverage by a
single analyst, 2/3 of the industry, subsector, or sector group
value score is weighted with 1/3 the security’s independent value
score. For those securities with coverage by two analysts, 2/3 of
the independent security’s value score is used and only 1/3 of the
industry, subsector, or sector group is weighted. For those
securities with at least three analysts contributing to the I/B/E/S
medium-term growth, 100% of the independent security’s value score
is used.
Selection
of Stocks Comprising the Russell
2000® Index
All
companies eligible for inclusion in the Russell
2000® Index must be classified as a U.S. company
under FTSE Russell’s country-assignment methodology. If a company
is incorporated, has a stated headquarters location, and trades in
the same country (American Depositary Receipts and American
Depositary Shares are not eligible), then the company is assigned
to its country of incorporation. If any of the three factors are
not the same, FTSE Russell defines three Home Country Indicators
(“HCIs”): country of incorporation, country of headquarters, and
country of the most liquid exchange (as defined by a two-year
average daily dollar trading volume) from all exchanges within a
country. Using the HCIs, FTSE Russell compares the primary location
of the company’s assets with the three HCIs. If the primary
location of its assets matches any of the HCIs, then the company is
assigned to the primary location of its assets. If there is
insufficient information to determine the country in which the
company’s assets are primarily located, FTSE Russell will use the
country from which the company’s revenues are primarily derived for
the comparison with the three HCIs in a similar manner. FTSE
Russell uses the average of two years of assets or revenues data to
reduce potential turnover. If conclusive country details cannot be
derived from assets or revenues data, FTSE Russell will assign the
company to the country of its headquarters, which is defined as the
address of the company’s principal executive offices, unless that
country is a Benefit Driven Incorporation (“BDI”) country, in which
case the company will be assigned to the country of its most liquid
stock exchange. BDI countries include: Anguilla, Antigua and
Barbuda, Bahamas, Barbados, Belize, Bermuda, Bonaire, British
Virgin Islands, Cayman Islands, Channel Islands, Cook Islands,
Curacao, Faroe Islands, Gibraltar, Guernsey, Isle of Man, Jersey,
Liberia, Marshall Islands, Panama, Saba, Sint Eustatius, Sint
Maarten, and Turks and Caicos Islands. For any companies
incorporated or headquartered in a U.S. territory, including Puerto
Rico, Guam, and U.S. Virgin Islands, a U.S. HCI is
assigned.
All
securities eligible for inclusion in the Russell 2000®
Index must trade on a major U.S. exchange. Stocks must have a
closing price at or above $1.00 on their primary exchange on
the last trading day in May to be eligible for inclusion during
annual reconstitution. However, in order to reduce unnecessary
turnover, if an existing member’s closing price is less than $1.00
on the last day of May, it will be considered eligible if the
average of the daily closing prices (from its primary exchange)
during the month of May is equal to or greater than $1.00. Initial
public offerings are added each quarter and must have a closing
price at or above $1.00 on the last day of their eligibility period
in order to qualify for index inclusion. If an existing
stock does not trade on the “rank day” (typically the last
trading day in May but a confirmed timetable is announced each
spring) but does have a closing price at or above $1.00 on
another eligible U.S. exchange, that stock will be eligible
for inclusion.
An
important criterion used to determine the list of securities
eligible for the Russell 2000® Index is total
market capitalization, which is defined as the market price as of
the last trading day in May for those securities being considered
at annual reconstitution times the total number of shares
outstanding. Where applicable, common stock, non-restricted
exchangeable shares and partnership units/membership interests are
used to determine market capitalization. Any other form of shares
such as preferred stock, convertible preferred stock, redeemable
shares, participating preferred stock, warrants and rights,
installment receipts or trust receipts, are excluded from the
calculation. If multiple share classes of common stock exist, they
are combined. In cases where the common stock share classes act
independently of each other (e.g., tracking stocks), each class is
considered for inclusion separately. If multiple share classes
exist, the pricing vehicle will be designated as the share class
with the highest two-year trading volume as of the rank day in
May.
Companies
with a total market capitalization of less than $30 million are not
eligible for the Russell 2000® Index. Similarly,
companies with only 5% or less of their shares available in the
marketplace are not eligible for the Russell 2000®
Index. Royalty trusts, limited liability companies, closed-end
investment companies (companies that are required to report
Acquired Fund Fees and Expenses, as defined by the SEC, including
business development companies), blank check companies, special
purpose acquisition companies, and limited partnerships are also
ineligible for inclusion. Bulletin board, pink sheets, and
over-the-counter traded securities are not eligible for inclusion.
Exchange traded funds and mutual funds are also
excluded.
Annual
reconstitution is a process by which the Russell 2000®
Index is completely rebuilt. Based on closing 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
Russell 2000® Index using the then existing market
capitalizations of eligible companies. Reconstitution of the
Russell 2000® Index occurs on the last Friday in June
or, when the last Friday in June is the 29th or 30th,
reconstitution occurs on the prior Friday. In addition, FTSE
Russell adds initial public offerings to the Russell
2000® Index on a quarterly basis based on total
market capitalization ranking within the market-adjusted
capitalization breaks established during the most recent
reconstitution. After membership is determined, a security’s
shares are adjusted to include only those shares available to the
public. This is often referred to as “free float.” The purpose of
the adjustment is to exclude from market calculations the
capitalization that is not available for purchase and is not part
of the investable opportunity set.
PS-18
Historical
Performance of the IWN
The
following graph sets forth the daily historical performance of the
IWN in the period from January 3, 2017 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 gray line
in the graph represents the IWN’s Downside Threshold of $86.60
(rounded to two decimal places), which is 60% of the IWN’s Initial
Value of $144.34.
This
historical data on the IWN is not necessarily indicative of the
future performance of the IWN or what the value of the Notes may
be. Any historical upward or downward trend in the Closing Market
Price of the IWN during any period set forth above is not an
indication that the Closing Market Price of the IWN 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 Closing Market Prices and trading pattern of
the IWN.
PS-19
Correlation of
the Underlyings
The
graph below illustrates the daily performance of the IVE and the
IWN from January 3, 2017 through the Trade Date. For comparison
purposes, each Underlying has been “normalized” to have a Closing
Market Price of 100 on January 3, 2017 by dividing the Closing
Market Price of that Underlying on each trading day by the Closing
Market Price of that Underlying on January 3, 2017 and multiplying
by 100. We obtained the Closing Market Prices used to determine the
normalized Closing Market Prices set forth below from
Bloomberg L.P., without independent verification.
The
correlation of a pair of Underlyings represents a statistical
measurement of the degree to which the returns of those Underlyings
were similar to each other over a given period in terms of timing
and direction. The correlation between a pair of Underlyings is
scaled from 1.0 to -1.0, with 1.0 indicating perfect positive
correlation (i.e., the value of both Underlyings are
increasing together or decreasing together and the ratio of their
returns has been constant), 0 indicating no correlation
(i.e., there is no statistical relationship between the
returns of that pair of Underlyings) and -1.0 indicating perfect
negative correlation (i.e., as the value of one
Underlying increases, the value of the other Underlying decreases
and the ratio of their returns has been constant).
The
graph below illustrates the historical performance of each
Underlying relative to each other over the time period shown and
provides an indication of how close the relative performance of
each Underlying has historically been to the other Underlying. A
closer relationship between the daily returns of two or more
underlying assets over a given period indicates that such
underlying assets have been more positively correlated. Lower (or
more-negative) correlation among two or more underlying assets over
a given period may indicate that it is less likely that those
underlying assets will subsequently move in the same direction.
Therefore, lower correlation among the Underlyings may indicate a
greater potential for one of the Underlyings to close below its
Downside Threshold on the Final Observation Date, because there may
be a greater likelihood that at least one of the Underlyings will
decrease in value significantly. However, even if the Underlyings
have a higher positive correlation, one or both of the Underlyings
may close below the respective Downside Threshold(s) on the Final
Observation Date, as the Underlyings may both decrease in value.
Moreover, the actual correlation among the Underlyings may differ,
perhaps significantly, from their historical correlation. Although
the correlation of the Underlyings’ performance may change over the
term of the Notes, the economic terms of the Notes, including the
Coupon Rate 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
Coupon Rate and lower Downside Threshold is generally associated
with lower correlation among the Underlyings, which may indicate a
greater potential for a significant loss on your investment at
maturity. See “You are exposed to the market risk of both
Underlyings”, “Because the Notes are linked to the performance of
the least performing between the IVE and the IWN, you are exposed
to greater risk of sustaining a significant loss on your investment
than if the Notes were linked to just the IVE or just the IWN” and
“Greater expected volatility generally indicates an increased
greater risk of loss” in the Risk Factors
section herein.
Past
performance and correlation of the Underlyings are not indicative
of the future performance or correlation of the
Underlyings.
PS-20
|
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 not receive an underwriting discount 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 $10.00
per Note. UBS will not receive an underwriting discount for any
Note sold in this offering. UBS proposes to offer the Notes to
certain fee-based advisory accounts for which UBS is an investment
advisor at a price of $10.00 per Note. 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 three-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:
PS-21
You
are urged to carefully review the selling restrictions that
may be applicable to your jurisdiction beginning on page S-68 of
the accompanying prospectus supplement.
European
Economic Area and United Kingdom
None
of this pricing supplement, the accompanying product supplement,
the accompanying prospectus or the accompanying prospectus
supplement is a prospectus for the purposes of the Prospectus
Regulation (as defined below). This pricing supplement, the
accompanying product supplement, the accompanying prospectus and
the accompanying prospectus supplement have been prepared on the
basis that any offer of Notes in any Member State of the European
Economic Area (the “EEA”) or in the United Kingdom (each, a
“Relevant State”) will only be made to a legal entity which is a
qualified investor under the Prospectus Regulation (“Qualified
Investors”). Accordingly any person making or intending to make an
offer in that Relevant State of Notes which are the subject of the
offering contemplated in this pricing supplement, the accompanying
product supplement, the accompanying prospectus and the
accompanying prospectus supplement may only do so with respect to
Qualified Investors. Neither BofA Finance nor BAC has authorized,
nor does it authorize, the making of any offer of Notes other
than to Qualified Investors. The expression “Prospectus Regulation”
means Regulation (EU) 2017/1129.
PROHIBITION
OF SALES TO EEA AND UNITED KINGDOM RETAIL INVESTORS — The
Notes are not intended to be offered, sold or otherwise made
available to and should not be offered, sold or otherwise made
available to any retail investor in the EEA or in the United
Kingdom. For these purposes: (a) a retail investor means a person
who is one (or more) of: (i) a retail client as defined in point
(11) of Article 4(1) of Directive 2014/65/EU, as amended (“MiFID
II”); or (ii) a customer within the meaning of Directive (EU)
2016/97 (the Insurance Distribution Directive), where that customer
would not qualify as a professional client as defined in point (10)
of Article 4(1) of MiFID II; or (iii) not a qualified investor as
defined in the Prospectus Regulation; and (b) the expression
“offer” includes the communication in any form and by any means of
sufficient information on the terms of the offer and the Notes to
be offered so as to enable an investor to decide to purchase or
subscribe for the Notes. Consequently no key information document
required by Regulation (EU) No 1286/2014, as amended (the “PRIIPs
Regulation”) for offering or selling the Notes or otherwise making
them available to retail investors in the EEA or in the United
Kingdom has been prepared and therefore offering or selling the
Notes or otherwise making them available to any retail investor in
the EEA or in the United Kingdom may be unlawful under the PRIIPs
Regulation.
United
Kingdom
The
communication of this pricing supplement, the accompanying product
supplement, the accompanying prospectus supplement, the
accompanying prospectus and any other document or materials
relating to the issue of the Notes offered hereby is not being
made, and such documents and/or materials have not been approved,
by an authorized person for the purposes of section 21 of the
United Kingdom’s Financial Services and Markets Act 2000, as
amended (the “FSMA”). Accordingly, such documents and/or materials
are not being distributed to, and must not be passed on to, the
general public in the United Kingdom. The communication of such
documents and/or materials as a financial promotion is only being
made to those persons in the United Kingdom who have professional
experience in matters relating to investments and who fall within
the definition of investment professionals (as defined in Article
19(5) of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005, as amended (the “Financial Promotion
Order”)), or who fall within Article 49(2)(a) to (d) of the
Financial Promotion Order, or who are any other persons to whom it
may otherwise lawfully be made under the Financial Promotion Order
(all such persons together being referred to as “relevant
persons”). In the United Kingdom, the Notes offered hereby are only
available to, and any investment or investment activity to which
this pricing supplement, the accompanying product supplement, the
accompanying prospectus supplement and the accompanying prospectus
relates will be engaged in only with, relevant persons. Any person
in the United Kingdom that is not a relevant person should not act
or rely on this pricing supplement, the accompanying product
supplement, the accompanying prospectus supplement or the
accompanying prospectus or any of their contents.
Any
invitation or inducement to engage in investment activity (within
the meaning of Section 21 of the FSMA) in connection with the issue
or sale of the Notes may only be communicated or caused to be
communicated in circumstances in which Section 21(1) of the
FSMA does not apply to the issuer or the Guarantor.
All
applicable provisions of the FSMA must be complied with in respect
to anything done by any person in relation to the Notes in, from or
otherwise involving the United Kingdom.
PS-22
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 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 of the Notes as of the
Trade Date.
In
order to meet our payment obligations on the Notes, at the time we
issue the Notes, we may choose to enter into certain hedging
arrangements (which may include call options, put options or other
derivatives) with BofAS or one of our other affiliates. The terms
of these hedging arrangements are determined based upon terms
provided by BofAS and its affiliates, and take into account a
number of factors, including our and BAC’s creditworthiness,
interest rate movements, the volatility of the Underlyings, the
tenor of the Notes and the hedging arrangements. The economic terms
of the Notes and their initial estimated value depend in part on
the terms of these hedging arrangements.
BofAS
has advised us that the hedging arrangements will include hedging
related charges, reflecting the costs associated with, and our
affiliates’ profit earned from, these hedging arrangements. Since
hedging entails risk and may be influenced by unpredictable market
forces, actual profits or losses from these hedging transactions
may be more or less than any expected amounts.
For
further information, see “Risk Factors” beginning on page PS-7
above and “Supplemental Use of Proceeds” on page PS-19 of the
accompanying product supplement.
In the
opinion of McGuireWoods LLP, as counsel to BofA Finance and BAC,
when the trustee has made the appropriate entries or notations on
the applicable schedule to the master global note that represents
the Notes (the “master note”) identifying the Notes offered
hereby as supplemental obligations thereunder in accordance with
the instructions of BofA Finance and the provisions of the
indenture governing the Notes and the related guarantee, and the
Notes have been delivered against payment therefor as contemplated
in this pricing supplement and the related prospectus, prospectus
supplement and product supplement, such Notes will be the legal,
valid and binding obligations of BofA Finance, and the related
guarantee will be the legal, valid and binding obligation of BAC,
subject, in each case, to the effects of applicable bankruptcy,
insolvency (including laws relating to preferences, fraudulent
transfers and equitable subordination), reorganization, moratorium
and other similar laws affecting creditors' rights generally, and
to general principles of equity. This opinion is given as of the
date of this pricing supplement and is limited to the laws of the
State of New York and the Delaware Limited Liability Company Act
and the Delaware General Corporation Law (including the statutory
provisions, all applicable provisions of the Delaware Constitution
and reported judicial decisions interpreting the foregoing) as in
effect on the date hereof. In addition, this opinion is subject to
customary assumptions about the trustee's authorization, execution
and delivery of the indenture governing the Notes and due
authentication of the master note, the validity, binding nature and
enforceability of the indenture governing the Notes and the related
guarantee with respect to the trustee, the legal capacity of
individuals, the genuineness of signatures, the authenticity of all
documents submitted to McGuireWoods LLP as originals, the
conformity to original documents of all documents submitted to
McGuireWoods LLP as copies thereof, the authenticity of the
originals of such copies and certain factual matters, all as stated
in the letter of McGuireWoods LLP dated December 30, 2019, which
has been filed as an exhibit to Pre-Effective Amendment No. 1 to
the Registration Statement (File No. 333-234425) of BofA Finance
and BAC, filed with the Securities and Exchange Commission on
December 30, 2019.
Sidley
Austin LLP, New York, New York, is acting as counsel to BofAS and
as special tax counsel to BofA Finance and BAC.
PS-23
|
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 discussions under “U.S. Federal Income Tax
Considerations” in the accompanying prospectus and under “U.S.
Federal Income Tax Considerations” in the accompanying prospectus
supplement and is not exhaustive of all possible tax
considerations. This summary is based upon the Internal
Revenue Code of 1986, as amended (the “Code”), regulations
promulgated under the Code by the U.S. Treasury Department
(“Treasury”) (including proposed and temporary regulations),
rulings, current administrative interpretations and official
pronouncements of the IRS, and judicial decisions, all as currently
in effect and all of which are subject to differing interpretations
or to change, possibly with retroactive effect. No assurance can be
given that the IRS would not assert, or that a court would not
sustain, a position contrary to any of the tax consequences
described below. This summary does not include any description of
the tax laws of any state or local governments, or of any foreign
government, that may be applicable to a particular
holder.
Although the Notes
are issued by us, they will be treated as if they were issued by
BAC for U.S. federal income tax purposes. Accordingly throughout
this tax discussion, references to “we,” “our” or “us” are
generally to BAC unless the context requires
otherwise.
This
summary is directed solely to U.S. Holders and Non-U.S. Holders
that, except as otherwise specifically noted, will purchase the
Notes upon original issuance and will hold the Notes as capital
assets within the meaning of Section 1221 of the Code, which
generally means property held for investment, and that are not
excluded from the discussion under “U.S. Federal Income Tax
Considerations” in the accompanying prospectus.
You
should consult your own tax advisor concerning the U.S. federal
income tax consequences to you of acquiring, owning, and disposing
of the Notes, as well as any tax consequences
arising under the laws of any state, local, foreign, or other tax
jurisdiction and the possible effects of changes in U.S. federal or
other tax laws.
General
There
is no statutory, judicial, or administrative authority directly
addressing the characterization of the Notes or instruments
substantially similar to the Notes. We intend to treat the Notes
for all tax purposes as a unit (a “Unit”) consisting of the
following:
|
(i)
|
a put option (the
“Put Option”) written by you to us that, if exercised, requires you
to pay us an amount equal to the Deposit (as defined below) in
exchange for a cash amount based upon the performance of
the Underlyings; and
|
|
(ii)
|
a deposit with us
of a fixed amount of cash, equal to the issue price of
the Note, to secure your obligation under the Put Option (the
“Deposit”) that pays you interest based on our cost of borrowing at
the time of issuance (the “Deposit Interest”).
|
Based
on the treatment of each Note as a Unit consisting of the Put
Option and the Deposit, it would be reasonable to allocate each
Coupon Payment between the Deposit and the Put Option and
treat 40% of each Coupon Payment as Deposit Interest
and 60% of each Coupon Payment as Put Option premium. Under
this approach, it would be reasonable to allocate 100% of the issue
price of a Note to the Deposit and none to the Put
Option.
No
statutory, judicial or administrative authority directly addresses
the proper treatment of the Notes or instruments substantially
similar to the Notes for U.S. federal income tax purposes, and no
ruling is being requested from the IRS with respect to the Notes.
Significant aspects of the U.S. federal income tax consequences of
an investment in the Notes are uncertain, and no assurance can be
given that the IRS or a court will agree with the tax treatment
described herein. In the opinion of our counsel, Sidley Austin LLP,
the treatment of the Notes described above is reasonable under
current law; however, our counsel has advised us that it is unable
to conclude affirmatively that this treatment is more likely than
not to be upheld, and that alternative treatments are possible.
Accordingly, you should consult your tax advisor regarding the U.S.
federal income tax consequences of an investment in the Notes
(including alternative treatments of the notes). Unless otherwise
expressly stated, the remainder of this discussion is based upon,
and assumes, the treatment of each Note as a Unit consisting of the
Put Option and the Deposit, as well as the allocation of the Coupon
Payments and issue price of the Note described
above.
Unless
otherwise stated, the following discussion is based on the
characterization described above. The discussion in this section
assumes that there is a significant possibility of a significant
loss of principal on an investment in the Notes.
We
will not attempt to ascertain whether the issuer of either
Underlying would be treated as a “passive foreign investment
company” (“PFIC”), within the meaning of Section 1297 of the Code,
or a United States real property holding corporation, within the
meaning of Section 897(c) of the Code. If the issuer of either
Underlying were so treated, certain adverse U.S. federal income tax
consequences could possibly apply to a holder of the Notes. You
should refer to information filed with the SEC by the issuers of
the Underlyings and consult your tax advisor regarding the possible
consequences to you, if any, if any issuer of either
Underlying is or becomes a PFIC or is or becomes a United
States real property holding corporation.
U.S.
Holders
The
Deposit Interest payments will be included in the income of a U.S.
Holder as interest at the time that such interest is accrued or
received in accordance with such U.S. Holder’s regular method of
tax accounting. The Put Option premium will not be included in the
income of a U.S. Holder until the sale, exchange, redemption or
maturity of the Notes. Accordingly, all of the Put Option premium
payments on the Notes (except for the last Put Option premium
payment) generally will not be included in the income of a U.S.
Holder when they are received.
If at
maturity the U.S. Holder receives cash equal to the full principal
amount plus the last Deposit Interest payment and the last Put
Option premium payment, then such U.S. Holder (i) would include the
last Deposit Interest payment in income as interest in the manner
described above and (ii) would
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recognize
short-term capital gain equal to the entire amount of Put Option
premium, which amount is equal to the sum of all of the Put Option
premium payments received.
If at
maturity the U.S. Holder receives an amount of cash that is less
than the full principal amount and receives the last Deposit
Interest payment and the last Put Option premium payment, then such
U.S. Holder (i) will include the last Deposit Interest payment in
income as interest in the manner described above and (ii) will
recognize long-term capital gain or loss with respect to the
remaining cash received at maturity (other than the last Put Option
premium payment) in an amount equal to the difference between (1)
the sum of all of the Put Option premiums received (including the
last Put Option premium payment) and (2) the excess of the
principal amount of the Note over the amount of such cash
received.
Upon a
redemption of the Notes prior to maturity, a U.S. Holder (i)
would include the last Deposit Interest payment in income as
interest in the manner described above and (ii) would recognize
short-term capital gain equal to the sum of all the Put Option
premium payments received.
Upon a
sale or exchange of a Note prior to maturity (except upon
redemption of the Notes prior to maturity, which is described
above), a U.S. Holder will generally recognize short-term or
long-term capital gain or loss with respect to the Deposit
(depending upon the U.S. Holder’s holding period for the Notes).
The U.S. Holder will also generally recognize short-term capital
gain or loss with respect to the Put Option. For purposes of
determining the amount of such gain or loss, a U.S. Holder should
apportion the amount realized on the sale or exchange (other than
amounts attributable to accrued but unpaid Deposit Interest
payments, which would be taxed as described above) between the
Deposit and the Put Option based upon their respective fair market
values on the date of such sale or exchange. In general, the amount
of capital gain or loss on the Deposit will equal the amount
realized that is attributable to the Deposit, less the U.S.
Holder’s adjusted tax basis in the Deposit. The amount realized
that is attributable to the Put Option plus the total Put Option
premiums previously received by the U.S. Holder should be treated
as short-term capital gain. Notwithstanding the foregoing, if the
fair market value of the Deposit on the date of such sale or
exchange exceeds the total amount realized on the sale or exchange
(other than amounts attributable to accrued but unpaid Deposit
Interest payments), the U.S. Holder should be treated as having (i)
sold or exchanged the Deposit for an amount equal to its fair
market value on such date and (ii) made a payment (the “Put Option
Assumption Payment”) equal to the amount of such excess in exchange
for the purchaser’s assumption of the U.S. Holder’s rights and
obligations under the Put Option. In such event, the U.S.
Holder should recognize short-term capital gain or loss in respect
of the Put Option in an amount equal to the difference between the
total Put Option premiums previously received by the U.S. Holder
and the Put Option Assumption Payment.
Possible
Application of Section 1260 of the Code. Since the Underlyings
are the type of financial asset described under Section 1260 of the
Code (including, among others, any equity interest in pass-through
entities such as exchange traded funds, regulated investment
companies, real estate investment trusts, partnerships, and passive
foreign investment companies, each a “Section 1260 Financial
Asset”), while the matter is not entirely clear, there may exist a
risk that an investment in the Notes will be treated, in whole or
in part, as a “constructive ownership transaction” to which Section
1260 of the Code applies. If Section 1260 of the Code applies, all
or a portion of any long-term capital gain recognized by a U.S.
Holder in respect of the Notes will be recharacterized as ordinary
income (the “Excess Gain”). In addition, an interest charge
will also apply to any deemed underpayment of tax in respect of any
Excess Gain to the extent such gain would have resulted in gross
income inclusion for the U.S. Holder in taxable years prior to the
taxable year of the sale, exchange, redemption, or settlement
(assuming such income accrued at a constant rate equal to the
applicable federal rate as of the date of sale, exchange,
redemption, or settlement.
If an
investment in the Notes is treated as a constructive ownership
transaction, it is not clear to what extent any long-term capital
gain of a U.S. Holder in respect of the Notes will be
recharacterized as ordinary income. It is possible, for example,
that the amount of the Excess Gain (if any) that would be
recharacterized as ordinary income in respect of the Notes will
equal the excess of (i) any long-term capital gain recognized by
the U.S. Holder in respect of the Notes and attributable to Section
1260 Financial Assets, over (ii) the “net underlying long-term
capital gain” (as defined in Section 1260 of the Code) such U.S.
Holder would have had if such U.S. Holder had acquired an amount of
the corresponding Section 1260 Financial Assets at fair market
value on the original issue date for an amount equal to the portion
of the issue price of the Notes attributable to the corresponding
Section 1260 Financial Assets and sold such amount of Section 1260
Financial Assets at maturity or upon sale, exchange, or redemption
of the Notes at fair market value. Unless otherwise established by
clear and convincing evidence, the net underlying long-term capital
gain is treated as zero and therefore it is possible that all
long-term capital gain recognized by a U.S. Holder in respect of
the Notes will be recharacterized as ordinary income if Section
1260 of the Code applies to an investment in the Notes. U.S.
Holders should consult their tax advisors regarding the potential
application of Section 1260 of the Code to an investment in the
Notes.
As
described below, the IRS, as indicated in Notice 2008-2 (the
“Notice”), is considering whether Section 1260 of the Code
generally applies or should apply to the Notes, including in
situations where theUnderlyings are not the type of financial asset
described under Section 1260 of the Code.
Alternative Tax
Treatments. Due to the absence of authorities that directly
address the proper tax treatment of the Notes, prospective
investors are urged to consult their tax advisors regarding all
possible alternative tax treatments of an investment in the Notes.
In particular, the IRS could seek to subject the Notes to the
Treasury regulations governing contingent payment debt instruments.
If the IRS were successful in that regard, the timing and character
of income on the Notes would be affected significantly. Among other
things, a U.S. Holder would be required to accrue original issue
discount every year at a “comparable yield” determined at the time
of issuance. In addition, any gain realized by a U.S. Holder at
maturity or upon a sale, exchange, or redemption of the Notes
generally would be treated as ordinary income, and any loss
realized at maturity or upon a sale, exchange, or redemption of the
Notes generally would be treated as ordinary loss to the extent of
the U.S. Holder’s prior accruals of original issue discount, and as
capital loss thereafter. Alternatively, under an alternative
characterization of the Notes as single income-bearing financial
contracts, the entire Coupon Payments could be required to be
included in income as ordinary income by a U.S. holder at the time
received accrued. Other alternative characterizations are possible
and prospective investors should consult with their tax
advisors regarding all aspects of the U.S. federal income tax
consequences of an investment in the Notes.
The
Notice sought comments from the public on the taxation of financial
instruments currently taxed as “prepaid forward contracts.” This
Notice addresses instruments such as the Notes. According to the
Notice, the IRS and Treasury are considering whether a holder of an
instrument such as the Notes should be required to accrue ordinary
income on a current basis, regardless of whether any payments are
made prior to maturity. It is not
PS-25
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.
Non-U.S.
Holders
Assuming the
treatment of the Notes as set forth above is respected and subject
to the discussions below regarding the potential application of
Section 871(m) of the Code and the discussions in the accompanying
prospectus regarding FATCA, Coupon Payments with respect to a Note,
and gain realized on the sale, exchange or redemption of such Note,
should not be subject to U.S. federal income or withholding tax
under current law, provided that:
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the Non-U.S.
Holder does not own, directly or by attribution, ten percent or
more of the total combined voting power of all classes of our
stock entitled to vote;
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the Non-U.S.
Holder is not a controlled foreign corporation related, directly or
indirectly, to us through stock ownership;
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the Non-U.S.
Holder is not a bank receiving interest under Section 881(c)(3)(A)
of the Code;
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the certification
requirement described below has been fulfilled with respect to the
beneficial owner; and
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and the payment is
not effectively connected with the conduct by the Non-U.S. Holder
of U.S. trade or business.
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Certification
Requirement. The certification requirement referred to in the
preceding paragraph will be fulfilled if the beneficial owner of a
Note (or a financial institution holding a Note on behalf of the
beneficial owner) furnishes to the applicable withholding agent an
IRS Form W-8BEN (or other appropriate form), on which the
beneficial owner certifies under penalties of perjury that it
is not a U.S. person.
Alternative Tax
Treatments. As described above under “— U.S. Holders —
Alternative Tax Treatments,” the IRS may seek to apply a different
characterization and tax treatment from the treatment described
herein. While the U.S. federal income and withholding tax
consequences to a Non-U.S. Holder of ownership and disposition of a
Note under current law should generally be the same as those
described immediately above, it is possible that a Non-U.S. Holder
could be subject to withholding tax under certain
recharacterizations of the Notes.
Moreover, among
the issues addressed in the Notice described in “— U.S. Holders —
Alternative Tax Treatments” is the degree, if any, to which income
realized by Non-U.S. Holders should be subject to withholding tax.
It is possible that any Treasury regulations or other guidance
issued after consideration of this issue could materially and
adversely affect the withholding tax consequences of ownership and
disposition of the Notes, possibly with retroactive effect.
Accordingly, prospective investors should consult their tax
advisors regarding all aspects of the U.S. federal income tax
consequences of an investment in the Notes, including the possible
implications of the Notice discussed above. Prospective investors
should note that we currently do not intend to withhold on any of
the payments made with respect to the Notes to Non-U.S. Holders
(subject to compliance by such holders with the certification
requirement described above and to the discussion regarding FATCA
in the accompanying prospectus). However, in the event of a change
of law or any formal or informal guidance by the IRS, the Treasury
or Congress, we (or the applicable paying agent) may decide to
withhold on payments made with respect to the Notes to
Non-U.S. Holders and we will not be required to pay any additional
amounts with respect to amounts withheld.
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 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 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.
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A
“dividend equivalent” payment is treated as a dividend from sources
within the United States and such payments generally would be
subject to a 30% U.S. withholding tax if paid to a Non-U.S. Holder.
Under Treasury regulations, payments (including deemed payments)
with respect to equity-linked instruments (“ELIs”) that are
“specified ELIs” may be treated as dividend equivalents if such
specified ELIs reference an interest in an “underlying security,”
which is generally any interest in an entity taxable as a
corporation for U.S. federal income tax purposes if a payment with
respect to such interest could give rise to a U.S. source dividend.
However, IRS guidance provides that withholding on dividend
equivalent payments will not apply to specified ELIs that are not
delta-one instruments and that are issued before January 1, 2023.
Based on our determination that the Notes are not delta-one
instruments, Non-U.S. Holders should not be subject to withholding
on dividend equivalent payments, if any, under the Notes. However,
it is possible that the Notes could be treated as deemed reissued
for U.S. federal income tax purposes upon the occurrence of certain
events affecting the Underlyings or the Notes, and following such
occurrence the Notes could be treated as subject to withholding on
dividend equivalent payments. Non-U.S. Holders that enter, or have
entered, into other transactions in respect of the Underlyings or
the Notes should consult their tax advisors as to the application
of the dividend equivalent withholding tax in the context of
the Notes and their other transactions. If any payments are
treated as dividend equivalents subject to withholding, we (or the
applicable paying agent) would be entitled to withhold taxes
without being required to pay any additional amounts with respect
to amounts so withheld.
As
discussed above, alternative characterizations of the Notes for
U.S. federal income tax purposes are possible. Should an
alternative characterization, by reason of change or clarification
of the law, by regulation or otherwise, cause payments as to the
Notes to become subject to withholding tax in addition to the
withholding tax described above, tax will be withheld at the
applicable statutory rate. Prospective Non-U.S. Holders
should consult their own tax advisors regarding the tax
consequences of such alternative characterizations.
U.S. Federal
Estate Tax. Under current law, while the matter is not entirely
clear, individual Non-U.S. Holders, and entities whose property is
potentially includible in those individuals’ gross estates for U.S.
federal estate tax purposes (for example, a trust funded by such an
individual and with respect to which the individual has retained
certain interests or powers), should note that, absent an
applicable treaty benefit, a Note is likely to be treated as U.S.
situs property, subject to U.S. federal estate tax. These
individuals and entities should consult their own tax advisors
regarding the U.S. federal estate tax consequences of investing in
a Note.
Backup
Withholding and Information Reporting
Please
see the discussion under “U.S. Federal Income Tax Considerations —
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.
PS-27
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