Pricing
Supplement
(To
Prospectus dated December 31, 2019,
Prospectus
Supplement dated December 31, 2019 and
Product
Supplement EQUITY-1 dated January 3, 2020)
Dated November
16, 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 $7,920,640 Trigger Callable Yield Notes
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Linked to the
Russell 2000® Index Due February 22,
2024
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 Russell 2000®
Index (the “Underlying”) due February 22, 2024 (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
underlying asset, on each monthly Coupon Payment Date. Beginning in
February 2023, on any Coupon Payment Date prior to the Maturity
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 Coupon Payment 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 Underlying on the Final
Observation Date. If the Final Value on the Final Observation Date
is greater than or equal to the 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 on the Final Observation Date is
less than the 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 level of the Underlying
from the Trade Date to the Final Observation Date, up to a 100%
loss of your investment. Investing in the Notes involves
significant risks. You may lose a substantial portion or all of
your initial investment. All payments on the Notes will be based on
the performance of the Underlying. You will not receive dividends
or other distributions paid on any stocks included in the
Underlying or participate in any appreciation of the 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 February 2023, on any Coupon Payment
Date prior to the Maturity 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 Coupon Payment Date. If the Notes are not called, investors
may have full downside market exposure to the 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
on the Final Observation Date is greater than or equal to the
Downside Threshold, you will receive the Stated Principal Amount at
maturity (plus the final Coupon Payment). However, if the Final
Value on the Final Observation Date is less than the 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 level of the 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
Final Observation
Date3
Maturity
Date
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November 16,
2022
November 21,
2022
Monthly, beginning
on December 20, 2022
February 16,
2024
February 22,
2024
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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.
3 See
page PS-4 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 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 Russell
2000® Index due February 22, 2024. If the notes
are not called prior to maturity, the payment at maturity on the
Notes will be based on the performance of the 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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Underlying
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Coupon
Rate
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Initial
Value
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Downside
Threshold
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CUSIP /
ISIN
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Russell
2000® Index (Ticker: RTY)
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7.75% per
annum
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1,853.165
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1,019.241, which
is 55% of the Initial Value (rounded to three decimal
places)
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09710H666
/ US09710H6669
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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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$0.10
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$9.90
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Total
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$7,920,640.00
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$79,206.40
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$7,841,433.60
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(1) The
underwriting discount is $0.10 per Note. BofA Securities, Inc.
(“BofAS”), acting as principal, has agreed to purchase from BofA
Finance, and BofA Finance has agreed to sell to BofAS, the
aggregate principal amount of the Notes set forth above for $9.90
per Note. UBS Financial Services Inc. (“UBS”), acting as a selling
agent for sales of the Notes, has agreed to purchase from BofAS,
and BofAS has agreed to sell to UBS, all of the Notes for $9.90 per
Note, UBS will receive an underwriting discount of $0.10 per Note
for each Note it sells in this offering. UBS proposes to offer the
Notes to the public at a price of $10.00 per Note. For
additional information on the distribution of the Notes, see
“Supplement to the Plan of Distribution; Role of BofAS and
Conflicts of Interest” in this pricing supplement.
The
initial estimated value of the Notes is less than the public
offering price. The initial estimated value of the Notes as of
the Trade Date is $9.831 per $10 in Stated Principal Amount. See
“Summary” 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-18 of this pricing supplement for additional
information. The actual value of your Notes at any time will
reflect many factors and cannot be predicted with
accuracy.
UBS
Financial Services Inc.
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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:
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
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 Underlying.
♦
You understand
and accept the risks associated with the Underlying.
♦
You believe the
Final Value will be greater than or equal to the Downside Threshold
on the Final Observation Date, and, if the Final Value is below the
Downside Threshold on the Final Observation Date, you can
tolerate a loss of all or a substantial portion of your
investment.
♦
You can tolerate
fluctuations in the value of the Notes prior to maturity that may
be similar to or exceed the downside fluctuations in the level of
the Underlying.
♦
You understand
that your return will
be based on the performance of the Underlying.
♦
You are willing
to hold Notes that may be called early by the issuer in its sole
discretion, regardless of the closing level of the Underlying, on
any Coupon Payment Date on or after the February 2023 Coupon
Payment Date and prior to the Maturity 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 Underlying, 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 the stocks
included in the Underlying.
♦
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 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
the Underlying.
♦
You believe the
Final Value will be less than the Downside Threshold on the Final
Observation Date, exposing you to the full
downside performance of the Underlying.
♦
You cannot
tolerate fluctuations in the value of the Notes prior to maturity
that may be similar to or exceed the downside fluctuations in the
level of the Underlying.
♦
You are
unwilling to accept that your return will
be based on the performance of the Underlying.
♦
You are
unwilling to hold Notes that may be called early by the issuer in
its sole discretion, regardless of the closing level of the
Underlying, on any Coupon Payment Date on or after the February
2023 Coupon Payment Date and prior to the Maturity 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
Underlying 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 the
stocks included in the Underlying.
♦
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 Underlying” herein
for more information on the Underlying. 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
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
fifteen months, unless earlier called
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Trade
Date1
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November 16,
2022
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Issue
Date1
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November 21,
2022
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Final Observation
Date
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February 16,
2024, 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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February 22,
2024
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Underlying
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Russell
2000® Index (Ticker: RTY)
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Issuer Call
Feature
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Beginning
in February 2023, the issuer may, in its sole discretion, call
the Notes in whole, but not in part, on any Coupon Payment Date
prior to the Maturity Date upon not less than five (5) business
days’ but not more than 60 calendar days’ notice prior to such
Coupon Payment Date.
If
the Notes are called, on the applicable Coupon Payment Date we will
pay you a cash payment per $10.00 Stated Principal Amount equal to
the Stated Principal Amount plus the Coupon Payment otherwise
due on such Coupon Payment 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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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 on the Final
Observation Date is greater than or equal to the 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 on the Final
Observation Date is less than the 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, equal
to:
$10.00
× (1
+ Underlying Return)
Accordingly,
you may lose all or a substantial portion of your Stated Principal
Amount at maturity, depending on how significantly the Underlying
declines.
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In each
case described above you will also
receive the final Coupon Payment.
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Underlying
Return
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Final
Value — Initial Value
Initial Value
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Downside
Threshold
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55%
of the Initial Value, as specified on the cover page of this
pricing supplement.
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Initial
Value
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The
closing level of the Underlying on the Trade Date, as
specified on the cover page of this pricing
supplement.
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Final
Value
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The
closing level of the Underlying on the Final Observation
Date.
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Calculation
Agent
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BofAS, an
affiliate of BofA Finance.
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Selling
Agents
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BofAS and
UBS.
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Events of
Default and Acceleration
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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
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The
closing level of the Underlying (its Initial Value) is observed,
the Coupon Payment/Coupon Rate is set and the Downside Threshold
for the Underlying is determined.
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|
|
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Monthly
(callable by the issuer in its sole discretion beginning
in February 2023)
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We
will pay a Coupon Payment on each Coupon Payment Date.
Beginning
in February 2023, the issuer may, in its sole discretion, call
the Notes in whole, but not in part, on any Coupon Payment Date
prior to the Maturity Date upon not less than five (5) business
days’ but not more than 60 calendar days’ notice prior to such
Coupon Payment Date.
If the
Notes are called, on the applicable Coupon Payment Date we will pay
you a cash payment per $10.00 Stated Principal Amount equal to the
Stated Principal Amount plus the Coupon Payment otherwise due
on such Coupon Payment Date.
If the Notes
are called, no further payments will be made on the
Notes.
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|
|
|
|
|
Maturity
Date (if not previously called)
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If the
Notes are not called prior to maturity, the Final Value will be
observed on the Final Observation Date.
If
the Final Value on the Final Observation Date is greater than or
equal to the Downside Threshold, on the Maturity Date we will
pay you the Stated Principal Amount.
If
the Final Value on the Final Observation Date is less than the
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, equal to:
$10.00
× (1
+ Underlying Return)
In
each case described above you will also receive the final Coupon
Payment.
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INVESTING IN
THE NOTES INVOLVES SIGNIFICANT RISKS. YOU MAY LOSE A
SUBSTANTIAL PORTION OR ALL OF YOUR INITIAL INVESTMENT. YOU
WILL BE EXPOSED TO THE MARKET RISK OF THE UNDERLYING AND ANY
DECLINE IN THE LEVEL OF THE UNDERLYING MAY NEGATIVELY AFFECT YOUR
RETURN. 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
Coupon Payment
Dates
|
December 20,
2022*
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January 19,
2023*
|
February 21,
2023
|
March 20,
2023
|
April 19,
2023
|
May 18,
2023
|
June 21,
2023
|
July 19,
2023
|
August 18,
2023
|
September 20,
2023
|
October 18,
2023
|
November 20,
2023
|
December 20,
2023
|
January 18,
2024
|
February 22,
2024*
|
*The
Notes are NOT callable by the issuer until the third Coupon Payment
Date, which is February 21, 2023, and will NOT be callable by
the issuer on the Maturity Date (February 22, 2024).
|
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 is less than the Downside Threshold, at
maturity, you will lose 1% of the Stated Principal Amount for each
1% that the Final Value is less than the 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
level of the Underlying at that time is equal to or greater than
the Downside Threshold. All payments on the Notes are subject to
the credit risk of BofA Finance, as issuer, and BAC, as
guarantor.
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♦
|
Your return on
the Notes is limited to the return represented by the 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 level of the
Underlying at any time exceeds the 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 level or Final Value
of the Underlying, as applicable, exceeds the Initial Value. In
contrast, a direct investment in the securities included in the
Underlying 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 February 2023, on each Coupon Payment
Date prior to the Maturity 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
Coupon Payment 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 Coupon Payment 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 level or Final Value of the
Underlying as compared to the 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
PS-7
credit
ratings or increases in the spread between the yield on our
respective securities and the yield on U.S. Treasury securities
(the “credit spread”) prior to the Maturity Date may adversely
affect the market value of the Notes. However, because your return
on the Notes depends upon factors in addition to our ability and
the ability of the Guarantor to pay our respective obligations,
such as the value of the Underlying, an improvement in our or
the Guarantor’s credit ratings will not reduce the other investment
risks related to the Notes.
♦
|
We
are a finance subsidiary and, as such, have no independent assets,
operations or revenues. We are a finance subsidiary of 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.
|
Valuation
and Market-related Risks
♦
|
The
public offering price you are paying for the Notes exceeds their
initial estimated value. The initial estimated value of the
Notes that is provided on the cover page of this pricing supplement
is an estimate only, determined as of the Trade Date by reference
to our and our affiliates' pricing models. These pricing models
consider certain assumptions and variables, including our credit
spreads and those of the Guarantor, the Guarantor’s internal
funding rate, mid-market terms on hedging transactions,
expectations on interest rates, dividends and volatility,
price-sensitivity analysis, and the expected term of the
Notes. These pricing models rely in part on certain forecasts
about future events, which may prove to be incorrect. If you
attempt to sell the Notes prior to maturity, their market value may
be lower than the price you paid for them and lower than their
initial estimated value. This is due to, among other things,
changes in the level of the Underlying, 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 Underlying,
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 Underlying 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 level of the Underlying. The number of
potential buyers of your Notes in any secondary market may be
limited. We anticipate that BofAS will act as a market-maker for
the Notes, but none of us, the Guarantor or BofAS is required to do
so. There is no assurance that any party will be willing to
purchase your Notes at any price in any secondary market. BofAS may
discontinue its market-making activities as to the Notes at any
time. To the extent that BofAS engages in any market-making
activities, it may bid for or offer the Notes. Any price at which
BofAS may bid for, offer, purchase, or sell any Notes may differ
from the values determined by pricing models that it may use,
whether as a result of dealer discounts, mark-ups, or other
transaction costs. These bids, offers, or completed transactions
may affect the prices, if any, at which the Notes might otherwise
trade in the market. In addition, if at any time BofAS were to
cease acting as a market-maker as to the Notes, it is likely that
there would be significantly less liquidity in the secondary
market. In such a case, the price at which the Notes could be sold
likely would be lower than if an active market
existed.
♦
|
Economic and
market factors have affected the terms of the Notes and may affect
the market value of the Notes prior to maturity or 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 level of the Underlying and the
securities included in the Underlying; the volatility of the
Underlying and the securities included in the Underlying; the
dividend rate paid on the securities included in the Underlying, 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
|
PS-8
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.
♦
|
Greater
expected volatility generally indicates an increased risk of
loss. Volatility is a measure of the degree of variation in the
level of the Underlying over a period of time. The greater the
expected volatility of the Underlying 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. However, the Underlying’s volatility can change
significantly over the term of the Notes and a relatively lower
Downside Threshold may not necessarily indicate that the Notes have
a greater likelihood of a return of principal at maturity. You
should be willing to accept the downside market risk of the
Underlying and the potential to lose a significant portion or
all of your initial investment.
|
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 the securities held by or included in
the Underlying, or futures or options contracts on the Underlying
or those securities, or other listed or over-the-counter derivative
instruments linked to the Underlying 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 Underlying. 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 Underlying. This hedging activity is expected to
result in a profit to those engaging in the hedging activity, which
could be more or less than initially expected, or the hedging
activity could also result in a loss. We and our affiliates and UBS
and its affiliates will price these hedging transactions with the
intent to realize a profit, regardless of whether the value of the
Notes increases or decreases. Any profit in connection with such
hedging activities will be in addition to any other compensation
that we, the Guarantor and our other affiliates, including BofAS,
and UBS and its affiliates receive for the sale of the Notes, which
creates an additional incentive to sell the Notes to you. While we,
the Guarantor or one or more of our other affiliates, including
BofAS, and UBS and its affiliates may from time to time own
securities represented by the Underlying, except to the extent that
BAC’s or UBS Group AG’s (the parent company of UBS) common stock
may be included in the Underlying, as applicable, we, the Guarantor
and our other affiliates, including BofAS, and UBS and its
affiliates do not control any company included in the Underlying,
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 value of the Underlying
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
exposures in
connection with the Notes) may have affected the value of the
Underlying. Consequently, the value of the Underlying may change
subsequent to the Trade Date, adversely affecting the market value
of the Notes. In addition, these activities may decrease the market
value of your Notes prior to maturity, and may affect the amounts
to be paid on the Notes. We, the Guarantor or one or more of our
other affiliates, including BofAS, and UBS and its affiliates may
purchase or otherwise acquire a long or short position in the Notes
and may hold or resell the Notes. For example, BofAS may enter into
these transactions in connection with any market making activities
in which it engages. We cannot assure you that these activities
will not adversely affect the value of the Underlying, 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 Underlying. The
return on the Notes, which may be negative, is directly linked to
the performance of the Underlying and indirectly linked to the
value of the securities included in the Underlying. The level of
the Underlying can rise or fall sharply due to factors specific to
the Underlying and the securities included in the Underlying 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
Notes are subject to risks associated with small-size
capitalization companies. The stocks comprising the
RTY are issued by companies with small-sized market capitalization.
The stock prices of small-size companies may be more volatile than
stock prices of large capitalization companies. Small-size
capitalization companies may be less able to withstand adverse
economic, market, trade and competitive conditions relative to
larger companies. Small-size capitalization companies may also be
more susceptible to adverse developments related to their products
or services.
|
PS-9
♦
|
The
publisher of the Underlying may adjust the Underlying in a way that
affects its levels, and the publisher has no obligation to consider
your interests. The publisher of the Underlying can add,
delete, or substitute the components included in the Underlying or
make other methodological changes that could change its level. Any
of these actions could adversely affect the value of your
Notes.
|
Tax-related
Risks
♦
|
The
U.S. federal income tax consequences of an investment in the Notes
are uncertain, and may be adverse to a holder of the Notes. No
statutory, judicial, or administrative authority directly addresses
the characterization of the Notes or securities similar to the
Notes for U.S. federal income tax purposes. As a result,
significant aspects of the U.S. federal income tax consequences of
an investment in the Notes are not certain. Under the terms of the
Notes, you will have agreed with us to treat the Notes as
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: Approximately
fifteen months, unless earlier called
|
♦
|
Hypothetical Initial
Value:
|
o
|
Russell
2000® Index : 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 February 2023, monthly, on any Coupon
Payment Date prior to the Maturity Date
|
♦
|
Hypothetical
Downside Threshold:
|
o
|
Russell
2000® Index : 55.00, which is 55% of its
hypothetical Initial Value
|
*The
hypothetical Initial Value and Downside Threshold do not represent
the actual Initial Value and Downside Threshold, respectively,
applicable to the Underlying. The actual Initial Value and Downside
Threshold 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.
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
|
$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 the first date on which the Notes are callable by us), we will
pay you a total of $10.06459 per Note (equal to the Stated
Principal Amount plus the Coupon Payment) on that Coupon Payment
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.
Example 2 —
Notes are NOT called prior to the Maturity Date and the Final Value
on the Final Observation Date is at or above the Downside
Threshold.
Date
|
Final Value on
the Final Observation Date
|
Payment (per
Note)
|
|
Russell
2000® Index
|
|
First
Coupon Payment Date
|
N/A
|
$0.06459 (Coupon
Payment — Not callable)
|
Second
Coupon Payment Date
|
N/A
|
$0.06549 (Coupon
Payment — Not callable)
|
PS-11
Third
to Fourteenth Coupon Payment Dates
|
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)
|
$10.06459 (Stated
Principal Amount plus the final Coupon Payment)
|
|
Total
Payment:
|
$10.96885 (9.6885%
total return)
|
|
|
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 Final Value closes above the 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
on the Final Observation Date is below the Downside
Threshold.
Date
|
Final Value on
the Final Observation Date
|
Payment (per
Note)
|
|
Russell
2000® Index
|
|
First
Coupon Payment Date
|
N/A
|
$0.06459 (Coupon
Payment — Not callable)
|
Second
Coupon Payment Date
|
N/A
|
$0.06459 (Coupon
Payment — Not callable)
|
Third
to Fourteenth Coupon Payment Dates
|
N/A
|
$0.06459 (Coupon
Payment on each Coupon Payment Date — Notes are not
called)
|
Final
Observation Date
|
30.00
(below Downside Threshold)
|
$10.00
× [1 + Underlying Return of the Underlying] =
$10.00
× [1 + -70.00%] =
$10.00
× 0.30 =
$3.00
$3.00+$0.06459 =
$3.06459 (Payment at Maturity)
|
|
Total
Payment:
|
$3.96885 (-60.3115%
total return)
|
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 Underlying closes below the Downside Threshold. At maturity,
investors are exposed to the proportionate downside performance of
the Underlying and you will receive $3.00 per Note, which reflects
the percentage decrease of the closing level of the Underlying from
the Trade Date to the Final Observation Date, plus the final Coupon
Payment of $0.06459, for a Payment at Maturity of $3.06459. 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 $3.96885 per Note, representing a -60.3115% total return
over fifteen months.
PS-12
All
disclosures contained in this pricing supplement regarding the
Underlying, 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, FTSE Russell, the sponsor
of the RTY. We refer to FTSE Russell as the “Underlying Sponsor.”
The Underlying Sponsor, which licenses the copyright and all other
rights to the Underlying, has no obligation to continue to publish,
and may discontinue publication of, the Underlying. The
consequences of the Underlying Sponsor discontinuing publication of
the Underlying are discussed in “Description of the
Notes—Discontinuance of an Index” in the accompanying product
supplement. None of us, the Guarantor, the Calculation Agent,
or either Selling Agent accepts any responsibility for the
calculation, maintenance or publication of the Underlying or any
successor index.
None
of us, the Guarantor, the Selling Agents or any of our or their
respective affiliates makes any representation to you as to the
future performance of the Underlying.
You
should make your own investigation into the
Underlying.
The
Russell 2000® Index
The
RTY was developed by Russell Investments (“Russell”) before FTSE
International Limited and Russell combined in 2015 to create FTSE
Russell, which is wholly owned by London Stock Exchange Group.
Additional information on the RTY is available at the following
website: http://www.ftserussell.com. No information on that website
is deemed to be included or incorporated by reference in this
pricing supplement.
Russell
began dissemination of the RTY (Bloomberg L.P. index symbol “RTY”)
on January 1, 1984. FTSE Russell calculates and publishes the RTY.
The RTY was set to 135 as of the close of business on December 31,
1986. The RTY is designed to track the performance of the small
capitalization segment of the U.S. equity market. As a subset of
the Russell 3000® Index, the RTY consists of the
smallest 2,000 companies included in the Russell 3000®
Index. The Russell 3000® Index measures the
performance of the largest 3,000 U.S. companies, representing
approximately 98% of the investable U.S. equity market. The RTY is
determined, comprised, and calculated by FTSE Russell without
regard to the Notes.
Selection
of Stocks Comprising the RTY
All
companies eligible for inclusion in the RTY must be classified as a
U.S. company under FTSE Russell’s country-assignment methodology.
If a company is incorporated, has a stated headquarters location,
and trades in the same country (American Depositary Receipts and
American Depositary Shares are not eligible), then the company is
assigned to its country of incorporation. If any of the three
factors are not the same, FTSE Russell defines three Home Country
Indicators (“HCIs”): country of incorporation, country of
headquarters, and country of the most liquid exchange (as defined
by a two-year average daily dollar trading volume) from all
exchanges within a country. Using the HCIs, FTSE Russell compares
the primary location of the company’s assets with the three HCIs.
If the primary location of its assets matches any of the HCIs, then
the company is assigned to the primary location of its assets. If
there is insufficient information to determine the country in which
the company’s assets are primarily located, FTSE Russell will use
the country from which the company’s revenues are primarily derived
for the comparison with the three HCIs in a similar manner. FTSE
Russell uses the average of two years of assets or revenues data to
reduce potential turnover. If conclusive country details cannot be
derived from assets or revenues data, FTSE Russell will assign the
company to the country of its headquarters, which is defined as the
address of the company’s principal executive offices, unless that
country is a Benefit Driven Incorporation (“BDI”) country, in
which case the company will be assigned to the country of its most
liquid stock exchange. BDI countries include: Anguilla, Antigua and
Barbuda, Bahamas, Barbados, Belize, Bermuda, Bonaire, British
Virgin Islands, Cayman Islands, Channel Islands, Cook Islands,
Curacao, Faroe Islands, Gibraltar, Guernsey, Isle of Man, Jersey,
Liberia, Marshall Islands, Panama, Saba, Sint Eustatius, Sint
Maarten, and Turks and Caicos Islands. For any companies
incorporated or headquartered in a U.S. territory, including Puerto
Rico, Guam, and U.S. Virgin Islands, a U.S. HCI is
assigned.
All
securities eligible for inclusion in the RTY must trade on a major
U.S. exchange. Stocks must have a closing price at or above $1.00
on their primary exchange on the last trading day in May to be
eligible for inclusion during annual reconstitution. However, in
order to reduce unnecessary turnover, if an existing member’s
closing price is less than $1.00 on the last day of May, it will be
considered eligible if the average of the daily closing prices
(from its primary exchange) during the month of May is equal to or
greater than $1.00. Initial public offerings are added each quarter
and must have a closing price at or above $1.00 on the last day of
their eligibility period in order to qualify for index inclusion.
If an existing stock does not trade on the “rank day” (typically
the last trading day in May but a confirmed timetable is announced
each spring) but does have a closing price at or above $1.00 on
another eligible U.S. exchange, that stock will be eligible for
inclusion.
An
important criterion used to determine the list of securities
eligible for the RTY is total market capitalization, which is
defined as the market price as of the last trading day in May for
those securities being considered at annual reconstitution times
the total number of shares outstanding. Where applicable, common
stock, non-restricted exchangeable shares and partnership
units/membership interests are used to determine market
capitalization. Any other form of shares such as preferred stock,
convertible preferred stock, redeemable shares, participating
preferred stock, warrants and rights, installment receipts or trust
receipts, are excluded from the calculation. If multiple share
classes of common stock exist, they are combined. In cases where
the common stock share classes act independently of each other
(e.g., tracking stocks), each class is considered for inclusion
separately. If multiple share classes exist, the pricing vehicle
will be designated as the share class with the highest two-year
trading volume as of the rank day in May.
Companies
with a total market capitalization of less than $30 million are not
eligible for the RTY. Similarly, companies with only 5% or less of
their shares available in the marketplace are not eligible for the
RTY. Royalty trusts, limited liability companies, closed-end
investment companies (companies that are required to report
Acquired Fund Fees and Expenses, as defined by the SEC, including
business development companies), blank check companies, special
purpose acquisition companies, and limited partnerships are also
ineligible for inclusion. Bulletin board, pink sheets, and
over-the-counter traded securities are not eligible for inclusion.
Exchange traded funds and mutual funds are also
excluded.
PS-13
Annual
reconstitution is a process by which the RTY is completely rebuilt.
Based on closing levels of the company’s common stock on its
primary exchange on the rank day of May of each year, FTSE Russell
reconstitutes the composition of the RTY using the then existing
market capitalizations of eligible companies. Reconstitution of the
RTY occurs on the last Friday in June or, when the last Friday in
June is the 29th or 30th, reconstitution occurs on the prior
Friday. In addition, FTSE Russell adds initial public offerings to
the RTY on a quarterly basis based on total market capitalization
ranking within the market-adjusted capitalization breaks
established during the most recent reconstitution. After membership
is determined, a security’s shares are adjusted to include only
those shares available to the public. This is often referred to as
“free float.” The purpose of the adjustment is to exclude from
market calculations the capitalization that is not available for
purchase and is not part of the investable opportunity
set.
Historical
Performance of the RTY
The
following graph sets forth the daily historical performance of the
RTY in the period from January 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 line in the
graph represents the RTY’s Downside Threshold of 1,019.241 (rounded
to three decimal places), which is 55% of the RTY’s Initial Value
of 1,853.165.
This
historical data on the RTY is not necessarily indicative of the
future performance of the RTY or what the value of the Notes may
be. Any historical upward or downward trend in the level of the RTY
during any period set forth above is not an indication that the
level of the RTY is more or less likely to increase or
decrease at any time over the term of the Notes.
Before
investing in the Notes, you should consult publicly available
sources for the levels of the RTY.
PS-14
License
Agreement
“Russell
2000®” and “Russell 3000®” are trademarks of
FTSE Russell and have been licensed for use by our
affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"). The Notes are not sponsored, endorsed,
sold, or promoted by FTSE Russell, and FTSE Russell makes no
representation regarding the advisability of investing in the
Notes.
FTSE
Russell and MLPF&S have entered into a non-exclusive license
agreement providing for the license to MLPF&S and its
affiliates, including us, in exchange for a fee, of the right to
use indices owned and published by FTSE Russell in connection with
some securities, including the Notes. The license agreement
provides that the following language must be stated in this pricing
supplement:
The
Notes are not sponsored, endorsed, sold, or promoted by FTSE
Russell. FTSE Russell makes no representation or warranty, express
or implied, to the holders of the Notes or any member of the public
regarding the advisability of investing in securities generally or
in the Notes particularly or the ability of the RTY to track
general stock market performance or a segment of the same. FTSE
Russell’s publication of the RTY in no way suggests or implies an
opinion by FTSE Russell as to the advisability of investment in any
or all of the securities upon which the RTY is based. FTSE
Russell’s only relationship to MLPF&S and to us is the
licensing of certain trademarks and trade names of FTSE Russell and
of the RTY, which is determined, composed, and calculated by FTSE
Russell without regard to MLPF&S, us, or the Notes. FTSE
Russell is not responsible for and has not reviewed the Notes nor
any associated literature or publications and FTSE Russell makes no
representation or warranty express or implied as to their accuracy
or completeness, or otherwise. FTSE Russell reserves the right, at
any time and without notice, to alter, amend, terminate, or in any
way change the RTY. FTSE Russell has no obligation or liability in
connection with the administration, marketing, or trading of the
Notes.
FTSE
RUSSELL DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE RTY OR ANY DATA INCLUDED THEREIN AND FTSE RUSSELL SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. FTSE
RUSSELL MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY MLPF&S, US, HOLDERS OF THE NOTES, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE RTY OR ANY DATA INCLUDED
THEREIN. FTSE RUSSELL MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RTY OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT SHALL FTSE RUSSELL HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
PS-15
Supplement
to the Plan of Distribution; Role of BofAS and Conflicts of
Interest
|
BofAS,
an affiliate of BofA Finance and the lead selling agent for the
sale of the Notes, will receive an underwriting discount of $0.10
for any Note sold in this offering. UBS, as selling agent for sales
of the Notes, has agreed to purchase from BofAS, and BofAS has
agreed to sell to UBS, all of the Notes sold in this offering for
$9.90 per Note. UBS proposes to offer the Notes to the public at a
price of $10.00 per Note. UBS will receive an underwriting discount
of $0.10 for each Note it sells to the public. The underwriting
discount will be received by UBS and its financial advisors
collectively. If all of the Notes are not sold at the initial
offering price, BofAS may change the public offering price and
other selling terms.
BofAS,
a broker-dealer affiliate of ours, is a member of the Financial
Industry Regulatory Authority, Inc. (“FINRA”) and will participate
as lead selling agent in the distribution of the Notes.
Accordingly, the offering of the Notes will conform to the
requirements of FINRA Rule 5121. BofAS may not make sales in
this offering to any of its discretionary accounts without the
prior written approval of the account holder.
We
will deliver the Notes against payment therefor in New York, New
York on a date that is greater than two business days following the
Trade Date. Under Rule 15c6-1 of the Securities Exchange Act of
1934, trades in the secondary market generally are required to
settle in two business days, unless the parties to any such trade
expressly agree otherwise. Accordingly, purchasers who wish to
trade the Notes more than two business days prior to the Issue Date
will be required to specify alternative settlement arrangements to
prevent a failed settlement.
BofAS
and any of our other broker-dealer affiliates may use this pricing
supplement, and the accompanying product supplement, prospectus
supplement and prospectus, for offers and sales in secondary market
transactions and market-making transactions in the Notes. However,
they are not obligated to engage in such secondary market
transactions and/or market-making transactions. These broker-dealer
affiliates may act as principal or agent in these
transactions, and any such sales will be made at prices related to
prevailing market conditions at the time of the sale.
As
agreed by BofAS and UBS, for approximately a 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 Underlying
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-16
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-17
The
Notes are our debt securities, the return on which is linked to the
performance of the Underlying. 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 the Underlying. 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 Underlying, 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-18
U.S.
Federal Income Tax Summary
|
The
following summary of the material U.S. federal income tax 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
Underlying; 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 79%
of each Coupon Payment as Deposit Interest and 21% 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 any component
stocks included in the Underlying would be treated as a “passive
foreign investment company” (“PFIC”), within the meaning of Section
1297 of the Code, or a United States real property holding
corporation, within the meaning of Section 897(c) of the Code.
If the issuer of one or more stocks included in the
Underlying were so treated, certain adverse U.S. federal income tax
consequences could possibly apply to a holder of the Notes. You
should refer to information filed with the SEC by the issuers of
the component stocks included in the Underlying and consult your
tax advisor regarding the possible consequences to you, if any, if
any issuer of a component stock included in the 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
PS-19
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 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.
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 income-bearing
single 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
IRS released Notice 2008-2 (the “Notice”), which sought comments
from the public on the taxation of financial instruments currently
taxed as “prepaid forward contracts.” This Notice addresses
instruments such as the Notes. According to the Notice, the IRS and
Treasury are considering whether a holder of an instrument such as
the Notes should be required to accrue ordinary income on a current
basis, regardless of whether any payments are made prior to
maturity. It is not possible to determine what guidance the IRS and
Treasury will ultimately issue, if any. Any such future
guidance may affect the amount, timing and character of income,
gain, or loss in respect of the Notes, possibly with retroactive
effect.
The
IRS and Treasury are also considering additional issues, including
whether additional gain or loss from such instruments should be
treated as ordinary or capital, whether foreign holders of such
instruments should be subject to withholding tax on any deemed
income accruals, whether Section 1260 of the Code, concerning
certain “constructive ownership transactions,” generally applies or
should generally apply to such instruments, and whether any of
these determinations depend on the nature of the underlying
asset.
In
addition, proposed Treasury regulations require the accrual of
income on a current basis for contingent payments made under
certain notional principal contracts. The preamble to the
regulations states that the “wait and see” method of accounting
does not properly reflect the economic accrual of income on those
contracts, and requires current accrual of income for some
contracts already in existence. While the proposed regulations do
not apply to prepaid forward contracts, the preamble to the
proposed regulations expresses the view that similar timing issues
exist in the case of prepaid forward contracts. If the IRS or
Treasury publishes future guidance requiring current economic
accrual for contingent payments on prepaid forward contracts, it is
possible that you could be required to accrue income over the term
of the Notes.
PS-20
Because of the
absence of authority regarding the appropriate tax characterization
of the Notes, it is also possible that the IRS could seek to
characterize the Notes in a manner that results in tax consequences
that are different from those described above. For example, the IRS
could possibly assert that any gain or loss that a holder may
recognize at maturity or upon the sale, exchange, or redemption of
the Notes should be treated as ordinary gain or loss.
Because the
Underlying is an index that periodically rebalances, it is possible
that the Notes could be treated as a series of income-bearing
single financial contracts, each of which matures on the next
rebalancing date. If the Notes were properly characterized in
such a manner, a U.S. Holder would be treated as disposing of the
Notes on each rebalancing date in return for new Notes that mature
on the next rebalancing date, and a U.S. Holder would accordingly
likely recognize capital gain or loss on each rebalancing date
equal to the difference between the holder’s tax basis in the Notes
(which would be adjusted to take into account any prior recognition
of gain or loss) and the fair market value of the Notes on such
date.
Non-U.S.
Holders
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.
|
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.
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
PS-21
respect to such
interest could give rise to a U.S. source dividend. However, IRS
guidance provides that withholding on dividend equivalent payments
will not apply to specified ELIs that are not delta-one instruments
and that are issued before January 1, 2025. Based on our
determination that the Notes are not delta-one instruments,
Non-U.S. Holders should not be subject to withholding on dividend
equivalent payments, if any, under the Notes. However, it is
possible that the Notes could be treated as deemed reissued for
U.S. federal income tax purposes upon the occurrence of certain
events affecting the Underlying 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 Underlying 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-22
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