None of the Securities and Exchange Commission (the
“SEC”), any state securities commission, or any other regulatory body has approved or disapproved of these securities
or determined if this Note Prospectus (as defined on page PS-30) is truthful or complete. Any representation to the contrary is
a criminal offense.
The Contingent Income Auto-Callable Yield
Notes Linked to the Least Performing of the Nasdaq-100® Index,
the Russell 1000® Value Index and the S&P 500® Index (the “Notes”) provide a monthly
Contingent Coupon Payment of $6.667 on the applicable Contingent Payment Date if, on any monthly Observation Date, the Observation
Value of each Underlying is greater than or equal to its Coupon Barrier.
* The Observation Dates are subject to postponement as
set forth in “Description of the Notes—Certain Terms of the Notes—Events Relating to Observation Dates”
beginning on page PS-22 of the accompanying product supplement.
Any payments on the Notes depend on the
credit risk of BofA Finance, as Issuer, and BAC, as Guarantor, and on the performance of the Underlyings. The economic terms of
the Notes 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 BAC’s affiliates enter 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, the referral fee and the hedging related charges described
below (see “Risk Factors” beginning on page PS-8), 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 pricing date.
The initial estimated value of the Notes
as of the pricing date is set forth on the cover page of this pricing supplement. For more information about the initial estimated
value and the structuring of the Notes, see “Risk Factors” beginning on page PS-8 and “Structuring the Notes”
on page PS-26.
All payments described above are subject to the credit
risk of BofA Finance, as Issuer, and BAC, as Guarantor.
The table below illustrates the hypothetical
total Contingent Coupon Payments per $1,000 in principal amount of Notes over the term of the Notes, based on the Contingent Coupon
Payment of $6.667, depending on how many Contingent Coupon Payments are payable prior to an Automatic Call or maturity. Depending
on the performance of the Underlyings, you may not receive any Contingent Coupon Payments during the term of the Notes.
The following table is for purposes of
illustration only. It assumes the Notes have not been automatically called prior to maturity and is based on hypothetical values
and shows hypothetical returns on the Notes. The table illustrates the calculation of the Redemption Amount and the return
on the Notes based on a hypothetical Starting Value of 100 for the Least Performing Underlying, a hypothetical Coupon Barrier of
60 for the Least Performing Underlying, a hypothetical Threshold Value of 60 for the Least Performing Underlying, the Contingent
Coupon Payment of $6.667 per $1,000 in principal amount of Notes and a range of hypothetical Ending Values of the Least Performing
Underlying. The actual amount you receive and the resulting return will depend on the actual Starting Values, Coupon Barriers,
Threshold Values, Observation Values and Ending Values of the Underlyings, whether the Notes are automatically called prior to
maturity, and whether you hold the Notes to maturity. The following examples do not take into account any tax consequences
from investing in the Notes.
For recent actual levels of the Underlyings,
see “The Underlyings” section below. Each Underlying is a price return index and as such its Ending Value will not
include any income generated by dividends paid on the stocks included in that Underlying, which you would otherwise be entitled
to receive if you invested in those stocks directly. In addition, all payments on the Notes are subject to Issuer and Guarantor
credit risk.
Risk Factors
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, each as identified on page PS-30
below.
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Your investment may result in a loss; there is no guaranteed return of principal. There is no fixed principal repayment
amount on the Notes at maturity. If the Notes are not automatically called prior to maturity and the Ending Value of any
Underlying is less than its Threshold Value, at maturity, you will lose 1% of the principal amount for each 1% that the Ending
Value of the Least Performing Underlying is less than its Starting Value. In that case, you will lose a significant portion or
all of your investment in the Notes.
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Your return on the Notes is limited to the return represented by the Contingent Coupon Payments, if any, over the term of
the Notes. Your return on the Notes is limited to the Contingent Coupon Payments paid over the term of the Notes, regardless
of the extent to which the Observation Value or Ending Value of any Underlying exceeds its Coupon Barrier or Starting Value, as
applicable. Similarly, the amount payable at maturity or upon an Automatic Call will never exceed the sum of the principal amount
and the applicable Contingent Coupon Payment, regardless of the extent to which the Observation Value of any Underlying exceeds
its Starting Value. In contrast, a direct investment in the securities included in one or more of the Underlyings would allow you
to receive the benefit of any appreciation in their values. Thus, any return on the Notes will not reflect the return you would
realize if you actually owned those securities and received the dividends paid or distributions made on them.
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The Notes are subject to a potential Automatic Call, which would
limit your ability to receive the Contingent Coupon Payments over the full term of the Notes. The Notes are subject to a potential
Automatic Call. Beginning in February 2021, the Notes will be automatically called if, on any Observation Date (other than the
final Observation Date), the Observation Value of each Underlying is greater than or equal to its Starting Value. If the Notes
are automatically called prior to the Maturity Date, you will be entitled to receive the principal amount and the Contingent Coupon
Payment with respect to the applicable Observation Date. In this case, you will lose the opportunity to continue to receive Contingent
Coupon Payments after the date of the Automatic Call. If the Notes are called prior to the Maturity Date, you may be unable to
invest in other securities with a similar level of risk that could provide a return that is similar to the Notes.
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You may not receive any Contingent Coupon Payments. The Notes do not provide for any regular fixed coupon payments.
Investors in the Notes will not necessarily receive any Contingent Coupon Payments on the Notes. If the Observation Value of any
Underlying is less than its Coupon Barrier on an Observation Date, you will not receive the Contingent Coupon Payment applicable
to that Observation Date. If the Observation Value of any Underlying is less than its Coupon Barrier on all the Observation Dates
during the term of the Notes, you will not receive any Contingent Coupon Payments during the term of the Notes, and will not receive
a positive return on the Notes.
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Your return on the Notes may be less than the yield on a conventional debt security of comparable maturity. Any return
that you receive on the Notes may be less than the return you would earn if you purchased a conventional debt security with the
same Maturity Date. As a result, your investment in the Notes may not reflect the full opportunity cost to you when you consider
factors, such as inflation, that affect the time value of money. In addition, if interest rates increase during the term of the
Notes, the Contingent Coupon Payment (if any) may be less than the yield on a conventional debt security of comparable maturity.
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Any payment on the Notes is subject to the credit risk of BofA Finance and the Guarantor, and actual or perceived changes in BofA Finance’s 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 the Early Redemption Amount or the Redemption Amount at maturity, as applicable, will be dependent upon our ability and the ability of the Guarantor to repay our respective obligations under the Notes on the applicable Contingent Payment Date or the Maturity Date, regardless of the Ending Value of the Least Performing Underlying as compared to its Starting Value.
In addition, our credit ratings and the credit ratings of the Guarantor are assessments by ratings agencies of our respective abilities to pay our obligations. Consequently, our or the Guarantor’s perceived creditworthiness and actual or anticipated decreases in our or the Guarantor’s credit ratings or increases in the spread between the yield on our respective securities and the yield on U.S. Treasury securities (the “credit spread”) prior to the Maturity Date of your Notes may adversely affect the market value of the Notes. However, because your return on the Notes depends upon factors in addition to our ability and the ability of the Guarantor to pay our respective obligations, such as the values of the Underlyings, an improvement in our or the Guarantor’s credit ratings will not reduce the other investment risks related to the Notes.
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We are a finance subsidiary and, as such, have no independent assets, operations, or revenues. We are a finance subsidiary
of BAC, have no operations other than those related to the issuance, administration and repayment of our debt securities that are
guaranteed by the Guarantor, and are dependent upon the Guarantor and/or its other subsidiaries to meet our obligations under the
Notes in the ordinary course. Therefore, our ability to make payments on the Notes may be limited.
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The public offering price you are paying for the Notes exceeds their initial estimated value. The initial estimated
value of the Notes that is provided on the cover page of this pricing supplement is an estimate only, determined as of the pricing
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
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-8
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Nasdaq-100® Index, the Russell 1000® Value Index and the S&P 500® Index
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than their initial estimated value.
This is due to, among other things, changes in the levels of the Underlyings, changes in the Guarantor’s internal funding
rate, and the inclusion in the public offering price of the underwriting discount, the referral fee and the hedging related charges,
all as further described in “Structuring the Notes” below. These factors, together with various credit, market and
economic factors over the term of the Notes, are expected to reduce the price at which you may be able to sell the Notes in any
secondary market and will affect the value of the Notes in complex and unpredictable ways.
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The initial estimated value does not represent a minimum or maximum price at which we, BAC, BofAS or any of our other affiliates
would be willing to purchase your Notes in any secondary market (if any exists) at any time. The value of your Notes at any
time after issuance will vary based on many factors that cannot be predicted with accuracy, including the performance of the Underlyings,
our and BAC’s creditworthiness and changes in market conditions.
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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.
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The Contingent Coupon Payment, Early Redemption Amount or Redemption Amount, as applicable, will not reflect the levels
of the Underlyings other than on the Observation Dates. The levels of the Underlyings during the term of the Notes other than
on the Observation Dates will not affect payments on the Notes. Notwithstanding the foregoing, investors should generally be aware
of the performance of the Underlyings while holding the Notes, as the performance of the Underlyings may influence the market value
of the Notes. The calculation agent will determine whether each Contingent Coupon Payment is payable and will calculate the Early
Redemption Amount or the Redemption Amount, as applicable, by comparing only the Starting Value, the Coupon Barrier or the Threshold
Value, as applicable, to the Observation Value or the Ending Value for each Underlying. No other levels of the Underlyings will
be taken into account. As a result, if the Notes are not automatically called prior to maturity, and the Ending Value of the Least
Performing Underlying is less than the Threshold Value, you will receive less than the principal amount at maturity even if the
level of each Underlying was always above its Threshold Value prior to the Valuation Date.
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Because the Notes are linked to the least performing (and not the average performance) of the Underlyings, you may not receive
any return on the Notes and may lose a significant portion or all of your principal amount even if the Observation Value or Ending
Value of one Underlying is always greater than or equal to its Coupon Barrier or Threshold Value, as applicable. Your Notes
are linked to the least performing of the Underlyings, and a change in the level of one Underlying may not correlate with changes
in the level of the other Underlying(s). The Notes are not linked to a basket composed of the Underlyings, where the depreciation
in the level of one Underlying could be offset to some extent by the appreciation in the level of the other Underlying(s). In the
case of the Notes, the individual performance of each Underlying would not be combined, and the depreciation in the level of one
Underlying would not be offset by any appreciation in the level of the other Underlying(s). Even if the Observation Value of an
Underlying is at or above its Coupon Barrier on an Observation Date, you will not receive the Contingent Coupon Payment with respect
to that Observation Date if the Observation Value of another Underlying is below its Coupon Barrier on that day. In addition, even
if the Ending Value of an Underlying is at or above its Threshold Value, you will lose a portion of your principal if the Ending
Value of the Least Performing Underlying is below its Threshold Value.
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The investment strategy represented by the Russell 1000® Value Index may
not be successful. The Russell 1000® Value Index measures the capitalization-weighted performance of the
stocks included in the Russell 1000® Index that are determined by the sponsor of the Russell
1000® Value Index to be value oriented, with lower price-to-book ratios and lower forecasted and historical
growth. The basic principle of a value investment strategy is to invest in stocks that are determined to be relatively cheap
or “undervalued” under the assumption that the value of such stocks will increase over time as the market
recognizes and reflects those stocks’ “fair” market value. However, stocks that are considered value stocks
may fail to appreciate for extended periods of time, and may never realize their full potential value. In addition, stocks
that are considered to be value oriented may have lower growth potential than other securities. Moreover, the selection
methodology for the Russell 1000® Value Index includes a significant bias against stocks with strong growth
characteristics. Even if a value strategy with respect to the stocks included in the Russell 1000® Value Index
would generally be successful, the manner in which the Russell 1000® Value Index implements its strategy may
prove to be unsuccessful. As described below under “The Russell 1000® Value Index”, the
methodology of the Russell 1000® Value Index has set parameters to determine whether a stock should be
considered a “value” stock. The Russell 1000® Value Index’s parameters may not effectively
implement its value strategy, and there can be no assurance that it will select stocks that are value oriented, or that the
Russell 1000® Value Index’s methodology will not underperform any alternative implementation of such a
strategy. Accordingly, the investment strategy represented by the Russell 1000® Value Index may not be
successful, and your investment in the Notes may result in a loss. An investment in the Notes may also provide a return that
is less than an investment linked to the Russell 1000® Index as a whole.
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The Notes are subject to risks associated with foreign securities markets. The NDX includes certain foreign equity securities. You should be
aware that investments in securities linked to the value of foreign equity securities involve particular risks. The foreign securities
markets comprising the NDX may have less liquidity and may be more volatile than U.S. or other securities markets and market developments
may affect foreign markets differently from U.S. or other securities markets. Direct or indirect government intervention to stabilize
these foreign securities markets, as well as cross-shareholdings in foreign companies, may affect trading prices and volumes in
these markets. Also, there is generally less publicly available information about foreign companies than about those U.S. companies
that are subject to the reporting requirements of the U.S. Securities and Exchange Commission, and foreign companies are subject
to accounting, auditing and financial reporting standards and requirements that differ from those applicable to U.S. reporting
companies. Prices of securities in foreign countries are subject to political, economic, financial and social factors that apply
in those geographical regions. These factors, which could negatively affect those securities markets, include the possibility of
recent or future changes in a foreign government’s economic and fiscal policies, the possible imposition of, or changes in,
currency exchange laws or other laws or restrictions applicable to foreign companies or investments in foreign equity securities
and the possibility of fluctuations in the rate of exchange between currencies, the possibility of outbreaks of hostility and political
instability and the possibility of natural disaster or adverse public health developments in the region. Moreover, foreign economies
may differ favorably or unfavorably from the U.S. economy in important respects such as growth of gross national product, rate
of inflation, capital reinvestment, resources and self-sufficiency.
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The publisher of an Underlying may adjust that Underlying in a way that affects its levels, and the publisher has no obligation
to consider your interests. The publisher of an Underlying can add, delete, or substitute the components included in that Underlying
or make other methodological changes that could change its level. Any of these actions could adversely affect the value of your
Notes.
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-9
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Nasdaq-100® Index, the Russell 1000® Value Index and the S&P 500® Index
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Trading and hedging activities by us, the Guarantor and any of our other affiliates, including BofAS, 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, may buy or sell the securities held by or included in the Underlyings, or futures or options
contracts or exchange traded instruments on the Underlyings or those securities, or other instruments whose value is derived from
the Underlyings or those securities. While we, the Guarantor or one or more of our other affiliates, including BofAS, may from
time to time own securities represented by the Underlyings, except to the extent that BAC’s common stock may be included
in the Underlyings, we, the Guarantor and our other affiliates, including BofAS, do not control any company included in the Underlyings,
and have not verified any disclosure made by any other company. We, the Guarantor or one or more of our other affiliates, including
BofAS, 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. These transactions may present a conflict of interest between your interest in the Notes and the
interests we, the Guarantor and our other affiliates, including BofAS, 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. These transactions
may adversely affect the value of the Underlyings in a manner that could be adverse to your investment in the Notes. On or before
the Strike Date, any purchases or sales by us, the Guarantor or our other affiliates, including BofAS or others on our or their
behalf (including those for the purpose of hedging some or all of our anticipated exposure in connection with the Notes), may have
affected the value of the Underlyings. Consequently, the value of the Underlyings may change subsequent to the Strike Date, which
may adversely affect the market value of the Notes.
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We, the Guarantor or one or more of
our other affiliates, including BofAS, may have also engaged in hedging activities that could have affected the value of the Underlyings
on the Strike Date. In addition, these hedging activities, including the unwinding of a hedge, 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, may purchase or otherwise acquire a long or short position in the Notes and may hold or resell the
Notes. For example, BofAS may enter into these transactions in connection with any market making activities in which it engages.
We cannot assure you that these activities will not adversely affect the value of the Underlyings, the market value of your Notes
prior to maturity or the amounts payable on the Notes.
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There may be potential conflicts of interest involving the calculation agent, which is an affiliate of ours. We
have the right to appoint and remove the calculation agent. One of our affiliates will be the calculation agent for the Notes and,
as such, will make a variety of determinations relating to the Notes, including the amounts that will be paid on the Notes. Under
some circumstances, these duties could result in a conflict of interest between its status as our affiliate and its responsibilities
as calculation agent.
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The U.S. federal income tax consequences of an investment in the Notes are uncertain, and may be adverse to a holder of
the Notes. No statutory, judicial, or administrative authority directly addresses the characterization of the Notes or securities
similar to the Notes for U.S. federal income tax purposes. As a result, significant aspects of the U.S. federal income tax consequences
of an investment in the Notes are not certain. Under the terms of the Notes, you will have agreed with us to treat the Notes as
contingent income-bearing single financial contracts, as described below under “U.S. Federal Income Tax Summary—General.”
If the Internal Revenue Service (the “IRS”) were successful in asserting an alternative characterization for the Notes,
the timing and character of income, gain or loss with respect to the Notes may differ. No ruling will be requested from the IRS
with respect to the Notes and no assurance can be given that the IRS will agree with the statements made in the section entitled
“U.S. Federal Income Tax Summary.” You are urged to consult with your own tax advisor regarding all aspects of the
U.S. federal income tax consequences of investing in the Notes.
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-10
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Nasdaq-100® Index, the Russell 1000® Value Index and the S&P 500® Index
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The Underlyings
All disclosures contained in this pricing
supplement regarding the Underlyings, including, without limitation, their make-up, method of calculation, and changes in their
components, have been derived from publicly available sources. The information reflects the policies of, and is subject to change
by, each of FTSE Russell, the sponsor of the RLV, S&P Dow Jones Indices LLC (“SPDJI”), the sponsor of the SPX,
and Nasdaq, Inc., the sponsor of the NDX. We refer to FTSE Russell, SPDJI and Nasdaq, Inc. as the “Underlying Sponsors”.
The Underlying Sponsors, which license the copyright and all other rights to the Underlyings, have no obligation to continue to
publish, and may discontinue publication of, the Underlyings. The consequences of any Underlying Sponsor discontinuing publication
of the applicable Underlying are discussed in “Description of the Notes - Discontinuance of an Index” in the accompanying
product supplement. None of us, the Guarantor, the calculation agent, or BofAS accepts any responsibility for the calculation,
maintenance or publication of any Underlying or any successor index. None of us, the Guarantor, BofAS or any of our other affiliates
makes any representation to you as to the future performance of the Underlyings. You should make your own investigation into the
Underlyings.
The Nasdaq-100® Index
The NDX is intended to measure the performance
of the 100 largest domestic and international non-financial securities listed on The Nasdaq Stock Market (“NASDAQ”) based
on market capitalization. The NDX reflects companies across major industry groups including computer hardware and software, telecommunications,
retail/wholesale trade and biotechnology. It does not contain securities of financial companies including investment companies.
The NDX began trading on January 31, 1985
at a base value of 125.00. The NDX is calculated and published by Nasdaq, Inc. In administering the NDX, Nasdaq, Inc. will exercise
reasonable discretion as it deems appropriate.
Underlying Stock Eligibility Criteria
NDX eligibility is limited to specific
security types only. The security types eligible for the NDX include foreign or domestic common stocks, ordinary shares, ADRs and
tracking stocks. Security types not included in the NDX are closed-end funds, convertible debt securities, exchange traded funds,
limited liability companies, limited partnership interests, preferred stocks, rights, shares or units of beneficial interest, warrants,
units, and other derivative securities. The NDX does not contain securities of investment companies. For purposes of the NDX eligibility
criteria, if the security is a depositary receipt representing a security of a non-U.S. issuer, then references to the “issuer”
are references to the issuer of the underlying security.
Initial Eligibility Criteria
To be eligible for initial inclusion in
the NDX, a security must be listed on NASDAQ and meet the following criteria:
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the security’s U.S. listing must be exclusively
on the Nasdaq Global Select Market or the Nasdaq Global Market (unless the security was dually listed on another U.S. market prior
to January 1, 2004 and has continuously maintained such listing);
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the security must be of a non-financial company;
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the security may not be issued by an issuer currently
in bankruptcy proceedings;
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the security must have a minimum three-month
average daily trading volume of at least 200,000 shares;
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if the issuer of the security is organized under
the laws of a jurisdiction outside the U.S., then such security must have listed options on a recognized options market in the
U.S. or be eligible for listed-options trading on a recognized options market in the U.S.;
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the issuer of the security may not have entered
into a definitive agreement or other arrangement which would likely result in the security no longer being eligible for inclusion
in the NDX;
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the issuer of the security may not have annual
financial statements with an audit opinion that is currently withdrawn; and
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the issuer of the security must have “seasoned”
on NASDAQ, the New York Stock Exchange (“NYSE”) or NYSE Amex. Generally, a company is considered to be seasoned if
it has been listed on a market for at least three full months (excluding the first month of initial listing).
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Continued Eligibility Criteria
In
addition, to be eligible for continued inclusion in the NDX, the following criteria apply:
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the security’s U.S. listing must be exclusively
on the Nasdaq Global Select Market or the Nasdaq Global Market;
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the security must be of a non-financial company;
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the security may not be issued by an issuer currently
in bankruptcy proceedings;
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the security must have a minimum three-month
average daily trading volume of at least 200,000 shares;
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-11
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Nasdaq-100® Index, the Russell 1000® Value Index and the S&P 500® Index
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if the issuer of the security is organized under
the laws of a jurisdiction outside the U.S., then such security must have listed options on a recognized options market in the
U.S. or be eligible for listed-options trading on a recognized options market in the U.S. (measured annually during the ranking
review process);
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the security must have an adjusted market capitalization
equal to or exceeding 0.10% of the aggregate adjusted market capitalization of the NDX at each month-end. In the event a company
does not meet this criterion for two consecutive month-ends, it will be removed from the NDX effective after the close of trading
on the third Friday of the following month; and
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the issuer of the security may not have annual
financial statements with an audit opinion that is currently withdrawn.
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Computation of the NDX
The
value of the NDX equals the aggregate value of the NDX share weights (the “NDX Shares”) of each of the NDX securities
multiplied by each such security’s last sale price (last sale price refers to the last sale price on NASDAQ), and divided
by the divisor of the NDX. If trading in an NDX security is halted while the market is open, the last traded price for that security
is used for all NDX computations until trading resumes. If trading is halted before the market is open, the previous day’s
last sale price is used. The formula for determining the NDX value is as follows:
The NDX is ordinarily calculated without
regard to cash dividends on NDX securities. The NDX is calculated during the trading day and is disseminated once per second from
09:30:01 to 17:16:00 ET. The closing level of the NDX may change up until 17:15:00 ET due to corrections to the last sale price
of the NDX securities. The official closing value of the NDX is ordinarily disseminated at 17:16:00 ET.
NDX Maintenance
Changes to NDX Constituents
Changes to the NDX constituents may be
made during the annual ranking review. In addition, if at any time during the year other than the annual review, it is determined
that an NDX security issuer no longer meets the criteria for continued inclusion in the NDX, or is otherwise determined to have
become ineligible for continued inclusion in the NDX, it is replaced with the largest market capitalization issuer not currently
in the NDX that meets the applicable eligibility criteria for initial inclusion in the NDX.
Ordinarily, a security will be removed
from the NDX at its last sale price. However, if at the time of its removal the NDX security is halted from trading on its primary
listing market and an official closing price cannot readily be determined, the NDX security may, in Nasdaq, Inc.’s discretion,
be removed at a price of $0.00000001 (“zero price”). This zero price will be applied to the NDX security after the
close of the market but prior to the time the official closing value of the NDX is disseminated.
Divisor Adjustments
The divisor is adjusted to ensure that
changes in the NDX constituents either by corporate actions (that adjust either the price or shares of an NDX security) or NDX
participation outside of trading hours do not affect the value of the NDX. All divisor changes occur after the close of the applicable
index security markets.
Quarterly NDX Rebalancing
The NDX will be rebalanced on a quarterly
basis if it is determined that (1) the current weight of the single NDX security with the largest market capitalization is greater
than 24.0% of the NDX or (2) the collective weight of those securities whose individual current weights are in excess of 4.5% exceeds
48.0% of the NDX. In addition, a “special rebalancing” of the NDX may be conducted at any time if Nasdaq, Inc. determines
it necessary to maintain the integrity and continuity of the NDX. If either one or both of the above weight distribution conditions
are met upon quarterly review, or Nasdaq, Inc. determines that a special rebalancing is necessary, a weight rebalancing will be
performed.
If the first weight distribution condition
is met and the current weight of the single NDX security with the largest market capitalization is greater than 24.0%, then the
weights of all securities with current weights greater than 1.0% (“large securities”) will be scaled down proportionately
toward 1.0% until the adjusted weight of the single largest NDX security reaches 20.0%.
If the second weight distribution condition
is met and the collective weight of those securities whose individual current weights are in excess of 4.5% (or adjusted weights
in accordance with the previous step, if applicable) exceeds 48.0% of the NDX, then the weights of all such large securities in
that group will be scaled down proportionately toward 1.0% until their collective weight, so adjusted, is equal to 40.0%.
The aggregate weight reduction among the
large securities resulting from either or both of the rebalancing steps above will then be redistributed to those securities with
weightings of less than 1.0% (“small securities”) in the following manner. In the first iteration, the weight of the
largest small security will be scaled upwards by a factor which sets it equal to the average NDX weight of 1.0%. The weights of
each of the smaller remaining small securities will be scaled up by the same factor reduced in relation to each security’s
relative ranking among the small securities such that the smaller the NDX security in the ranking, the less its weight will be
scaled upward. This is intended to reduce the market impact of the weight rebalancing on the smallest component securities in the
NDX.
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In the second iteration of the small security
rebalancing, the weight of the second largest small security, already adjusted in the first iteration, will be scaled upwards by
a factor which sets it equal to the average NDX weight of 1.0%. The weights of each of the smaller remaining small securities will
be scaled up by this same factor reduced in relation to each security’s relative ranking among the small securities such
that, once again, the smaller the security in the ranking, the less its weight will be scaled upward. Additional iterations will
be performed until the accumulated increase in weight among the small securities equals the aggregate weight reduction among the
large securities that resulted from the rebalancing in accordance with the two weight distribution conditions discussed above.
Finally, to complete the rebalancing process,
once the final weighting percentages for each NDX security have been set, the NDX Shares will be determined anew based upon the
last sale prices and aggregate capitalization of the NDX at the close of trading on the last calendar day in February, May, August
and November. Changes to the NDX Shares will be made effective after the close of trading on the third Friday in March, June, September
and December, and an adjustment to the divisor is made to ensure continuity of the NDX. Ordinarily, new rebalanced NDX Shares will
be determined by applying the above procedures to the current NDX Shares. However, Nasdaq, Inc. may, from time to time, determine
rebalanced weights, if necessary, by applying the above procedure to the actual current market capitalization of the NDX components.
In such instances, Nasdaq, Inc. would announce the different basis for rebalancing prior to its implementation.
During the quarterly rebalancing, data
is cutoff as of the previous month end and no changes are made to the NDX from that cutoff until the quarterly index share change
effective date, except in the case of changes due to corporate actions with an ex-date.
Adjustments for Corporate Actions
Changes in the price and/or NDX Shares
driven by corporate events such as stock dividends, splits, and certain spin-offs and rights issuances will be adjusted on the
ex-date. If the change in total shares outstanding arising from other corporate actions is greater than or equal to 10.0%, the
change will be made as soon as practicable. Otherwise, if the change in total shares outstanding is less than 10.0%, then all such
changes are accumulated and made effective at one time on a quarterly basis after the close of trading on the third Friday in each
of March, June, September, and December. The NDX Shares are derived from the security’s total shares outstanding. The NDX
Shares are adjusted by the same percentage amount by which the total shares outstanding have changed.
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Historical Performance of the NDX
The following graph sets forth the daily historical
performance of the NDX in the period from January 1, 2008 through the Strike 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 NDX’s Coupon Barrier and Threshold Value of 6,543.53 (rounded to two decimal places), which
is 60% of the NDX’s Starting Value of 10,905.88, which was its closing level on the Strike Date.
This historical data on the NDX is
not necessarily indicative of the future performance of the NDX or what the value of the Notes may be. Any historical upward or
downward trend in the level of the NDX during any period set forth above is not an indication that the level of the NDX 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 NDX.
License Agreement
The Notes are not sponsored, endorsed, sold or promoted by Nasdaq,
Inc. or its affiliates (Nasdaq, Inc., with its affiliates, are referred to as the “Corporations”). The Corporations
have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the
Notes. The Corporations make no representation or warranty, express or implied, to the owners 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 NDX
to track general stock market performance. The Corporations’ only relationship to our affiliate, Merrill Lynch, Pierce, Fenner
& Smith Incorporated (“Licensee”), is in the licensing of the NASDAQ®, OMX®, NASDAQ
OMX®, and NDX registered trademarks, and certain trade names of the Corporations or their licensor and the use of
the NDX which is determined, composed and calculated by Nasdaq, Inc. without regard to Licensee or the Notes. Nasdaq, Inc. has
no obligation to take the needs of the Licensee or the owners of the Notes into consideration in determining, composing or calculating
the NDX. The Corporations are not responsible for and have not participated in the determination of the timing of, prices at, or
quantities of the Notes to be issued or in the determination or calculation of the equation by which the Notes are to be converted
into cash. The Corporations have no liability in connection with the administration, marketing or trading of the Notes.
THE CORPORATIONS DO NOT
GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE NDX OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE NDX OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE NDX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-14
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The Russell
1000® Value Index
The Russell 1000® Value
Index (the “RLV”) measures the capitalization-weighted price performance of the stocks included in the Russell 1000® Index that are determined by FTSE Russell to be value oriented, with lower price-to-book ratios and lower forecasted and
historical growth. The Russell 1000® Index tracks 1,000 U.S. large-capitalization stocks listed on eligible
U.S. exchanges (the “Russell 1000 Stocks”). The RLV is reported by Bloomberg L.P. under the ticker symbol “RLV.”
FTSE Russell’s Value and Growth Style Methodology
FTSE Russell uses a “non-linear
probability” method to assign stocks to the RLV and the Russell 1000® Growth Index (the “Growth Index”),
an index that measures the capitalization-weighted price performance of the Russell 1000 Stocks determined by FTSE Russell
to be growth oriented, with higher price-to-book ratios and higher forecasted and historical growth. FTSE Russell uses
three variables in the determination of value and growth. For value, book-to-price (B/P) ratio is used, while for growth, two variables—I/B/E/S
forecast medium-term growth (2-year) and sales per share historical growth (5-year)—are used. The term “probability”
is used to indicate the degree of certainty that a stock is value or growth based on its relative book-to-price (B/P) ratio, I/B/E/S
forecast medium-term growth (2 year) and sales per share historical growth (5 year).
First, the Russell 1000 Stocks are ranked
by their adjusted book-to-price ratio (B/P), their I/B/E/S forecast medium-term growth (2 year) and sales per share historical
growth (5 year). These rankings are then converted to standardized units, where the value variable represents 50% of the score
and the two growth variables represent the remaining 50%. Next, these units are combined to produce a composite value score (“CVS”).
The Russell 1000 Stocks are then ranked
by their CVS, and a probability algorithm is applied to the CVS distribution to assign growth and value weights to each stock.
In general, a stock with a lower CVS is considered growth, a stock with a higher CVS is considered value and a stock with a CVS
in the middle range is considered to have both growth and value characteristics, and is weighted proportionately in the Growth
Index and the RLV. Stocks are always fully represented by the combination of their growth and value weights (e.g., a stock
that is given a 20% weight in the RLV will have an 80% weight in the Growth Index). Style index assignment for non-pricing vehicle
share classes will be based on that of the pricing vehicle and assigned consistently across all additional share classes.
Stock A, in the figure below, is a security
with 20% of its available shares assigned to the RLV and the remaining 80% assigned to the Growth Index. The growth and value probabilities
will always sum to 100%. Hence, the sum of a stock’s market capitalization in the Growth Index and the RLV will always equal
its market capitalization in the Russell 1000® Index.
In the figure above, the quartile breaks
are calculated such that approximately 25% of the available market capitalization lies in each quartile. Stocks at the median are
divided 50% in each of the Growth Index and the RLV. Stocks below the first quartile are 100% in the Growth Index. Stocks above
the third quartile are 100% in the RLV. Stocks falling between the first and third quartile breaks are included in both the Growth
Index and the RLV to varying degrees, depending on how far they are above or below the median and how close they are to the first
or third quartile breaks.
Roughly 70% of the available market capitalization
is classified as all growth or all value. The remaining 30% have some portion of their market value in either the RLV or the Growth
Index, depending on their relative distance from the median value score. Note that there is a small position cutoff rule. If a
stock’s weight is more than 95% in one style index, its weight is increased to 100% in that index.
In an effort to mitigate unnecessary
turnover, FTSE Russell implements a banding methodology at the CVS level of the growth and value style algorithm. If a company’s
CVS change from the previous year is greater than or equal to +/- 0.10 and if the company remains in the Russell 1000®
Value Index, then the CVS remains unchanged during the next reconstitution process. Keeping the CVS static for these companies
does not mean the probability (growth/value) will remain unchanged in all cases due to the relation of a CVS score to the overall
index. However, this banding methodology is intended to reduce turnover caused by smaller, less meaningful movements while continuing
to allow the larger, more meaningful changes to occur, signaling a true change in a company’s relation to the market.
In calculating growth and value weights,
stocks with missing or negative values for B/P, or missing values for I/B/E/S growth (negative I/B/E/S growth is valid), or missing
sales per share historical growth (6 years of quarterly numbers are required), are allocated by using the mean value score of the
Russell 1000® Index, the Russell Global Sectors (or, beginning in September 2020, the Industry Classification
Benchmark (“ICB”)) industry, subsector or sector group of the Russell 1000® Index into which the
company falls. Each missing (or negative B/P) variable is substituted with the industry, subsector or sector group independently.
An industry must have five members or the substitution reverts to the subsector, and so forth to the sector. In addition, a weighted
value score is calculated for securities with low analyst coverage for I/B/E/S medium-term growth. For securities with coverage
by a single analyst, 2/3 of the industry, subsector, or sector group value score is weighted with 1/3 the security’s independent
value score. For those securities with coverage by two analysts, 2/3 of the independent security’s value score is used and
only 1/3 of the industry, subsector, or sector group is weighted. For those securities with at least three analysts contributing
to the I/B/E/S medium-term growth, 100% of the independent security’s value score is used.
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Selection of Stocks Underlying the RLV
The RLV is a sub-index of the Russell
3000® Index. To be eligible for inclusion in the Russell 3000® Index and, consequently, the RLV,
a company must meet the following criteria as of the rank day in May (except that initial public offerings (“IPOs”)
are considered for inclusion on a quarterly basis):
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U.S. Equity Market. The company must be determined to be part of the
U.S. equity market, meaning that its home country is the United States. If a company incorporates in, has a stated headquarters
location in, and also trades in the same country (ADRs and ADSs are not eligible), the company is assigned to its country of incorporation.
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If any of the three
criteria do not match, FTSE Russell then defines three Home Country Indicators (“HCIs”): country of incorporation,
country of headquarters and country of the most liquid exchange as defined by two-year average daily dollar trading volume from
all exchanges within a country. After the HCIs are defined, the next step in the country assignment involves an analysis of assets
by location. FTSE Russell cross-compares the primary location of the company’s assets with the three HCIs. If the primary
location of assets matches any of the HCIs, then the company is assigned to its primary asset location.
If there is not enough
information to determine a company’s primary location of assets, FTSE Russell uses the primary location of the company’s
revenue for the same cross-comparison and assigns the company to the appropriate country in a similar fashion. FTSE Russell uses
an average of two years of assets or revenue data for analysis to reduce potential turnover.
If conclusive country
details cannot be derived from assets or revenue, FTSE Russell assigns the company to the country in which its headquarters are
located unless the country is a Benefit Driven Incorporation (“BDI”) country. If the country in which its headquarters
are located is a BDI country, the company is assigned to the country of its most liquid stock exchange. The BDI countries are Anguilla,
Antigua and Barbuda, Aruba, 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.
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U.S. Eligible Exchange. The following exchanges and markets are deemed
to be eligible U.S. exchanges: the Chicago Board Options Exchange, NYSE, NYSE American, NASDAQ and NYSE Arca. Stocks that are
not traded on an eligible U.S. exchange (Bulletin Board, Pink Sheet and over-the-counter securities, including securities for which
prices are displayed on the FINRA Alternative Display Facility) are not eligible for inclusion.
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Minimum Closing Price. A stock must have a close price at or above
$1.00 (on its primary exchange), subject to exceptions to reduce turnover.
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Minimum Total Market Capitalization. Companies with a total market
capitalization less than $30 million are not eligible for inclusion.
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Minimum Free Float. Companies with 5.5% or less of their shares available
in the marketplace are not eligible for inclusion.
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Company Structure. Companies structured in the following ways are not
eligible for inclusion: royalty trusts, U.S. limited liability companies, closed-end investment companies, business development
companies (and other companies that are required to report Acquired Fund Fees and Expenses, as defined by the SEC), blank-check
companies, special-purpose acquisition companies (SPACs), limited partnerships, exchange-traded funds and mutual funds.
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UBTI. Real estate investment trusts and publicly traded partnerships
that generate or have historically generated unrelated business taxable income (“UBTI”) and have not taken steps to
block UBTI to equity holders are not eligible for inclusion. Information used to confirm UBTI impact includes the following publicly
available sources: 10-K, SEC Form S-3, K-1, company annual report, dividend notices or company website.
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Security Types. The following types of securities are not eligible
for inclusion: preferred and convertible preferred stock, redeemable shares, participating preferred stock, warrants, rights, installment
receipts and trust receipts.
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Minimum Voting Rights. As of August 2017, more than 5% of a company’s
voting rights (aggregated across all of its equity securities, including, where identifiable, those that are not listed or trading)
must be in the hands of unrestricted shareholders. Existing constituents have a 5 year grandfathering period to comply or they
will be removed from the RLV in September 2022.
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Multiple Share Classes. If an eligible company trades under multiple
share classes, each share class is reviewed independently for eligibility for inclusion. Share classes in addition to the primary
share class must meet the following minimum size, liquidity and float requirements to be eligible: (i) total market cap must be
larger than $30 million; (ii) average daily dollar trading value must exceed that of the global median; and (iii) more than 5%
of shares must be available in the marketplace.
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Securities of eligible companies are
included in the RLV based on total market capitalization. Total market capitalization is determined by multiplying total outstanding
shares by the market price (generally, the last price traded on the primary exchange of the share class with the highest two-year
trading volume, subject to exceptions) as of the rank day in May (except that IPOs are considered for inclusion on a quarterly
basis). Common stock, non-restricted exchangeable shares and partnership units/membership interests (but not operating partnership
units of umbrella partnership real estate investment trusts) are used to calculate a company’s total market capitalization.
If multiple share classes of common stock exist, they are combined to determine total shares outstanding; however, in cases where
the common stock share classes act independently of each other (e.g., tracking stocks), each class is considered for inclusion
separately. For merger and spin-off transactions that are effective between rank day in May and the Friday prior to annual reconstitution
in June, the market capitalizations of the impacted securities are recalculated and membership is reevaluated as of the effective
date of the corporate action.
The 4,000 securities with the greater
total market capitalization become members of the Russell 3000® Index. The RLV is a subset of the Russell 3000®
Index. Market capitalization breakpoints are determined by the breaks between the rankings of companies (based on descending total
market capitalization). Market capitalization breakpoints for the RLV are determined by the break between the companies ranked
#1 through #1,000. New members are assigned on the basis of the breakpoints, and existing members are reviewed to determine if
they fall within a cumulative 5% market cap range around these new market capitalization breakpoints. If an existing member’s
market cap falls within this cumulative 5% of the market capitalization breakpoint, it will remain in the RLV rather than be moved
to a different Russell index.
After membership is determined, a security’s
shares are adjusted to include only those shares available to the public (“free float”). The purpose of this adjustment
is to exclude from market calculations the capitalization that is not available for purchase and is not part of the investable
opportunity set. Stocks in the RLV are weighted by their available (also called float-adjusted) market capitalization. The following
types of shares are removed from total market capitalization to arrive at free float or available market capitalization, based
on information recorded in SEC corporate filings: officers’ and directors’ holdings, private holdings exceeding 10%
of shares outstanding, institutional holdings exceeding 30% of shares outstanding, shares held by
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-16
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publicly listed companies, shares held
by an Employee Stock Ownership Plan or a Leveraged Employee Stock Ownership Plan; shares locked up during an IPO; direct government
holdings; and indirect government holdings exceeding 10% of shares outstanding.
Reconstitution occurs on the last Friday
in June. However, at times this date is too proximal to exchange closures and abbreviated exchange trading schedules when market
liquidity is exceptionally low. In order to ensure proper liquidity in the markets, when the last Friday in June falls on the 29th
or 30th, reconstitution will occur on the preceding Friday. A full calendar for reconstitution is made available each spring.
Corporate Actions and Events Affecting the RLV
FTSE Russell applies corporate actions
to the RLV on a daily basis. FTSE Russell applies the following methodology guidelines, among others, when adjusting the RLV in
response to corporate actions:
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“No Replacement” Rule. Securities that leave the RLV for
any reason (e.g., mergers, acquisitions or other similar corporate activity) are not replaced. Thus, the number of securities
in the RLV over a year will fluctuate according to corporate activity.
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Statement of Principles and Adjustments for Specific Corporate Events.
FTSE Russell has stated as general principles that the treatment of corporate events (a) should reflect how such events are likely
to be dealt with in investment portfolios to maintain the portfolio structure in line with the target set out in the index objective
and index methodology and (b) should normally be designed to minimize the trading activity required by investors to match the index
performance. No assurance can be provided that corporate actions and events will be treated by FTSE Russell in a manner consistent
with its statement of general principles.
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In addition, FTSE Russell
has established guidance for the treatment of corporate actions and events, including, but not limited to, dividends, capital repayments,
companies converting to a REIT structure, share buybacks, rights issues, mergers, acquisitions, tender offers, split-offs, spin-offs,
bankruptcies, insolvencies, liquidations and trading suspensions. However, because of the complexities involved in some cases,
those guidelines are not definitive rules that will determine FTSE Russell’s actions in all circumstances. FTSE Russell reserves
the right to determine the most appropriate method of implementation for any corporate event which is not covered by those guidelines
or which is of a complex nature.
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Changes to Shares Outstanding and Free Float. The RLV will be reviewed
quarterly for updates to shares outstanding and to free floats used within the calculation of the RLV. In March, September and
December, shares outstanding and free float will be updated to reflect changes greater than 1% for cumulative shares in issue changes
and changes greater than 3% (or 1%, for constituents with a free float of 15% or below) for cumulative free float changes. In June,
the shares and free float updates will be implemented regardless of size. Shares and free float updates can be triggered in some
cases by certain events, such as some primary or secondary offerings.
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The RLV 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 RLV 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.
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-17
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Historical Performance of the RLV
The following graph sets forth the
daily historical performance of the RLV in the period from January 1, 2008 through the Strike 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 RLV’s Coupon Barrier and Threshold Value
of 692.657 (rounded to three decimal places), which is 60% of the RLV’s Starting Value of 1,154.429, which was its
closing level on the Strike Date.
This historical data on the RLV is not
necessarily indicative of the future performance of the RLV or what the value of the Notes may be. Any historical upward or downward
trend in the level of the RLV during any period set forth above is not an indication that the level of the RLV 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 RLV.
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-18
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License Agreement
“Russell 1000®”
and “Russell 3000®” are trademarks of FTSE Russell and have
been licensed for use by our affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Notes are not sponsored, endorsed,
sold, or promoted by FTSE Russell, and FTSE Russell makes no representation regarding the advisability of investing in the Notes.
FTSE Russell and Merrill Lynch, Pierce,
Fenner & Smith Incorporated have entered into a non-exclusive license agreement providing for the license to Merrill Lynch,
Pierce, Fenner & Smith Incorporated and its affiliates, including us, in exchange for a fee, of the right to use indices owned
and published by FTSE Russell in connection with some securities, including the Notes. The license agreement provides that the
following language must be stated in this pricing supplement:
The Notes are not sponsored, endorsed,
sold, or promoted by FTSE Russell. FTSE Russell makes no representation or warranty, express or implied, to the holders of the
Notes or any member of the public regarding the advisability of investing in securities generally or in the Notes particularly
or the ability of the RLV to track general stock market performance or a segment of the same. FTSE Russell’s publication
of the RLV 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 RLV is based. FTSE Russell’s only relationship to Merrill Lynch, Pierce, Fenner & Smith Incorporated and
to us is the licensing of certain trademarks and trade names of FTSE Russell and of the RLV, which is determined, composed, and
calculated by FTSE Russell without regard to Merrill Lynch, Pierce, Fenner & Smith Incorporated, us, or the Notes. FTSE Russell
is not responsible for and has not reviewed the Notes nor any associated literature or publications and FTSE Russell makes no representation
or warranty express or implied as to their accuracy or completeness, or otherwise. FTSE Russell reserves the right, at any time
and without notice, to alter, amend, terminate, or in any way change the RLV. 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 RLV OR ANY DATA INCLUDED THEREIN AND FTSE RUSSELL SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS,
OR INTERRUPTIONS THEREIN. FTSE RUSSELL MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED, US, HOLDERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE RLV 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 RLV 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.
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-19
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The S&P
500® Index
The SPX includes a representative sample
of 500 companies in leading industries of the U.S. economy. The SPX is intended to provide an indication of the pattern of common
stock price movement. The calculation of the level of the SPX is based on the relative value of the aggregate market value of the
common stocks of 500 companies as of a particular time compared to the aggregate average market value of the common stocks of 500
similar companies during the base period of the years 1941 through 1943.
The SPX includes companies from eleven
main groups: Communication Services; Consumer Discretionary; Consumer Staples; Energy; Financials; Health Care; Industrials; Information
Technology; Real Estate; Materials; and Utilities. SPDJI may from time to time, in its sole discretion, add companies to, or delete
companies from, the SPX to achieve the objectives stated above.
Company additions to the SPX must have
an unadjusted company market capitalization of $8.2 billion or more (an increase from the previous requirement of an unadjusted
company market capitalization of $6.1 billion or more).
SPDJI calculates the SPX by reference to
the prices of the constituent stocks of the SPX without taking account of the value of dividends paid on those stocks. As a result,
the return on the Notes will not reflect the return you would realize if you actually owned the SPX constituent stocks and received
the dividends paid on those stocks.
Computation of the SPX
While SPDJI currently employs the following
methodology to calculate the SPX, no assurance can be given that SPDJI will not modify or change this methodology in a manner that
may affect the Redemption Amount.
Historically, the market value of any component
stock of the SPX was calculated as the product of the market price per share and the number of then outstanding shares of such
component stock. In March 2005, SPDJI began shifting the SPX halfway from a market capitalization weighted formula to a float-adjusted
formula, before moving the SPX to full float adjustment on September 16, 2005. SPDJI’s criteria for selecting stocks for
the SPX did not change with the shift to float adjustment. However, the adjustment affects each company’s weight in the SPX.
Under float adjustment, the share counts
used in calculating the SPX reflect only those shares that are available to investors, not all of a company’s outstanding
shares. Float adjustment excludes shares that are closely held by control groups, other publicly traded companies or government
agencies.
In September 2012, all shareholdings representing
more than 5% of a stock’s outstanding shares, other than holdings by “block owners,” were removed from the float
for purposes of calculating the SPX. Generally, these “control holders” will include officers and directors, private
equity, venture capital and special equity firms, other publicly traded companies that hold shares for control, strategic partners,
holders of restricted shares, ESOPs, employee and family trusts, foundations associated with the company, holders of unlisted share
classes of stock, government entities at all levels (other than government retirement/pension funds) and any individual person
who controls a 5% or greater stake in a company as reported in regulatory filings. However, holdings by block owners, such as depositary
banks, pension funds, mutual funds and ETF providers, 401(k) plans of the company, government retirement/pension funds, investment
funds of insurance companies, asset managers and investment funds, independent foundations and savings and investment plans, will
ordinarily be considered part of the float.
Treasury stock, stock options, restricted
shares, equity participation units, warrants, preferred stock, convertible stock, and rights are not part of the float. Shares
held in a trust to allow investors in countries outside the country of domicile, such as depositary shares and Canadian exchangeable
shares, are normally part of the float unless those shares form a control block. If a company has multiple classes of stock outstanding,
shares in an unlisted or non-traded class are treated as a control block.
For each stock, an investable weight factor
(“IWF”) is calculated by dividing the available float shares by the total shares outstanding. Available float shares
are defined as the total shares outstanding less shares held by control holders. This calculation is subject to a 5% minimum threshold
for control blocks. For example, if a company’s officers and directors hold 3% of the company’s shares, and no other
control group holds 5% of the company’s shares, SPDJI would assign that company an IWF of 1.00, as no control group meets
the 5% threshold. However, if a company’s officers and directors hold 3% of the company’s shares and another control
group holds 20% of the company’s shares, SPDJI would assign an IWF of 0.77, reflecting the fact that 23% of the company’s
outstanding shares are considered to be held for control. As of July 31, 2017, companies with multiple share class lines are no
longer eligible for inclusion in the SPX. Constituents of the SPX prior to July 31, 2017 with multiple share class lines will be
grandfathered in and continue to be included in the SPX. If a constituent company of the SPX reorganizes into a multiple share
class line structure, that company will remain in the SPX at the discretion of the S&P Index Committee in order to minimize
turnover.
The SPX is calculated using a base-weighted
aggregate methodology. The level of the SPX reflects the total market value of all component stocks relative to the base period
of the years 1941 through 1943. An indexed number is used to represent the results of this calculation in order to make the level
easier to work with and track over time. The actual total market value of the component stocks during the base period of the years
1941 through 1943 has been set to an indexed level of 10. This is often indicated by the notation 1941- 43 = 10. In practice, the
daily calculation of the SPX is computed by dividing the total market value of the component stocks by the “index divisor.”
By itself, the index divisor is an arbitrary number. However, in the context of the calculation of the SPX, it serves as a link
to the original base period level of the SPX. The index divisor keeps the SPX comparable over time and is the manipulation point
for all adjustments to the SPX, which is index maintenance.
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Index Maintenance
Index maintenance includes monitoring and
completing the adjustments for company additions and deletions, share changes, stock splits, stock dividends, and stock price adjustments
due to company restructuring or spinoffs. Some corporate actions, such as stock splits and stock dividends, require changes in
the common shares outstanding and the stock prices of the companies in the SPX, and do not require index divisor adjustments.
To prevent the level of the SPX from changing
due to corporate actions, corporate actions which affect the total market value of the SPX require an index divisor adjustment.
By adjusting the index divisor for the change in market value, the level of the SPX remains constant and does not reflect the corporate
actions of individual companies in the SPX. Index divisor adjustments are made after the close of trading and after the calculation
of the SPX closing level.
Changes in a company’s shares outstanding
of 5.00% or more due to mergers, acquisitions, public offerings, tender offers, Dutch auctions, or exchange offers are made as
soon as reasonably possible. Share changes due to mergers or acquisitions of publicly held companies that trade on a major exchange
are implemented when the transaction occurs, even if both of the companies are not in the same headline index, and regardless of
the size of the change. All other changes of 5.00% or more (due to, for example, company stock repurchases, private placements,
redemptions, exercise of options, warrants, conversion of preferred stock, notes, debt, equity participation units, at-the-market
offerings, or other recapitalizations) are made weekly and are announced on Fridays for implementation after the close of trading
on the following Friday. Changes of less than 5.00% are accumulated and made quarterly on the third Friday of March, June, September,
and December, and are usually announced two to five days prior.
If a change in a company’s shares
outstanding of 5.00% or more causes a company’s IWF to change by five percentage points or more, the IWF is updated at the
same time as the share change. IWF changes resulting from partial tender offers are considered on a case by case basis.
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Historical Performance of the SPX
The following graph sets forth the
daily historical performance of the SPX in the period from January 1, 2008 through the Strike Date. We obtained this
historical data from Bloomberg L.P. We have not independently verified the accuracy or completeness of the information
obtained from Bloomberg L.P. The horizontal line in the graph represents the SPX’s Coupon Barrier and Threshold Value
of 1,962.67 (rounded to two decimal places), which is 60% of the SPX’s Starting Value of 3,271.12, which was its
closing level on the Strike Date.
This historical data on the SPX is not
necessarily indicative of the future performance of the SPX or what the value of the Notes may be. Any historical upward or downward
trend in the level of the SPX during any period set forth above is not an indication that the level of the SPX is more or less
likely to increase or decrease at any time over the term of the Notes.
Before investing in the Notes, you should
consult publicly available sources for the levels of the SPX.
License Agreement
S&P® is a registered
trademark of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered
trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). These trademarks have been licensed for use by S&P
Dow Jones Indices LLC. “Standard & Poor’s®,” “S&P 500®” and
“S&P®” are trademarks of S&P. These trademarks have been sublicensed for certain purposes by
our affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated. The SPX is a product of S&P Dow Jones Indices LLC and/or
its affiliates and has been licensed for use by Merrill Lynch, Pierce, Fenner & Smith Incorporated.
The Notes are not sponsored, endorsed,
sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P or any of their respective affiliates (collectively, “S&P
Dow Jones Indices”). S&P Dow Jones Indices make no representation or warranty, express or implied, to the holders of
the Notes or any member of the public regarding the advisability of investing in securities generally or in the Notes particularly
or the ability of the SPX to track general market performance. S&P Dow Jones Indices’ only relationship to Merrill Lynch,
Pierce, Fenner & Smith Incorporated with respect to the SPX is the licensing of the SPX and certain trademarks, service marks
and/or trade names of S&P Dow Jones Indices and/or its third party licensors. The SPX is determined, composed and calculated
by S&P Dow Jones Indices without regard to us, Merrill Lynch, Pierce, Fenner & Smith Incorporated, or the Notes. S&P
Dow Jones Indices have no obligation to take our needs, BAC’s needs or the needs of Merrill Lynch, Pierce, Fenner & Smith
Incorporated or holders of the Notes into consideration in determining, composing or calculating the SPX. S&P Dow Jones Indices
are not responsible for and have not participated in the determination of the prices, and amount of the Notes or the timing of
the issuance or sale of the Notes or in the determination or calculation of the equation by which the Notes are to be converted
into cash. S&P Dow Jones Indices have no obligation or liability in connection with the administration, marketing or trading
of the Notes. There is no assurance that investment products based on the SPX will accurately track index performance or provide
positive investment returns. S&P Dow Jones Indices LLC and its subsidiaries are not investment advisors. Inclusion of a security
or futures contract within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security or
futures contract, nor is it considered to be investment advice. Notwithstanding the foregoing, CME Group Inc. and its affiliates
may independently issue and/or sponsor financial products unrelated to the Notes currently being issued by us, but which may be
similar to and competitive with the Notes. In addition, CME Group Inc. and its affiliates may trade financial products which are
linked to the performance of the SPX. It is possible that this trading activity will affect the value of the Notes.
S&P DOW JONES INDICES DO NOT GUARANTEE
THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE SPX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING
BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES
INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES
MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE OR AS TO RESULTS TO BE OBTAINED BY US, BAC, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
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HOLDERS OF THE NOTES, OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE SPX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES
INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS
OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, OTHER THAN THE LICENSORS
OF S&P DOW JONES INDICES.
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U.S. Federal Income Tax Summary
The following summary of the material U.S.
federal income tax considerations of the acquisition, ownership, and disposition of the Notes supplements, and to the extent inconsistent
supersedes, the discussions under “U.S. Federal Income Tax Considerations” in the accompanying prospectus and under
“U.S. Federal Income Tax Considerations” in the accompanying prospectus supplement and is not exhaustive of all possible
tax considerations. This summary is based upon the Internal Revenue Code of 1986, as amended (the “Code”), regulations
promulgated under the Code by the U.S. Treasury Department (“Treasury”) (including proposed and temporary regulations),
rulings, current administrative interpretations and official pronouncements of the IRS, and judicial decisions, all as currently
in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance
can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences
described below. This summary does not include any description of the tax laws of any state or local governments, or of any foreign
government, that may be applicable to a particular holder.
Although the Notes are issued by us, they
will be treated as if they were issued by BAC for U.S. federal income tax purposes. Accordingly throughout this tax discussion,
references to “we,” “our” or “us” are generally to BAC unless the context requires otherwise.
This summary is directed solely to U.S.
Holders and Non-U.S. Holders that, except as otherwise specifically noted, will purchase the Notes upon original issuance and will
hold the Notes as capital assets within the meaning of Section 1221 of the Code, which generally means property held for investment,
and that are not excluded from the discussion under “U.S. Federal Income Tax Considerations” in the accompanying prospectus.
You should consult your own tax advisor
concerning the U.S. federal income tax consequences to you of acquiring, owning, and disposing of the Notes, as well as any tax
consequences arising under the laws of any state, local, foreign, or other tax jurisdiction and the possible effects of changes
in U.S. federal or other tax laws.
General
Although there is no statutory, judicial,
or administrative authority directly addressing the characterization of the Notes, we intend to treat the Notes for all tax purposes
as contingent income-bearing single financial contracts with respect to the Underlyings and under the terms of the Notes, we and
every investor in the Notes agree, in the absence of an administrative determination or judicial ruling to the contrary, to treat
the Notes in accordance with such characterization. In the opinion of our counsel, Sidley Austin LLP, it is reasonable to treat
the Notes as contingent income-bearing single financial contracts with respect to the Underlyings. However, Sidley Austin LLP has
advised us that it is unable to conclude that it is more likely than not that this treatment will be upheld. This discussion assumes
that the Notes constitute contingent income-bearing single financial contracts with respect to the Underlyings for U.S. federal
income tax purposes. If the Notes did not constitute contingent income-bearing single financial contracts, the tax consequences
described below would be materially different.
This characterization of the Notes is
not binding on the IRS or the courts. No statutory, judicial, or administrative authority directly addresses the characterization
of the Notes or any similar instruments for U.S. federal income tax purposes, and no ruling is being requested from the IRS with
respect to their proper characterization and treatment. Due to the absence of authorities on point, significant aspects of the
U.S. federal income tax consequences of an investment in the Notes are not certain, and no assurance can be given that the IRS
or any court will agree with the characterization and tax treatment described in this pricing supplement. Accordingly, you are
urged to consult your tax advisor regarding all aspects of the U.S. federal income tax consequences of an investment in the Notes,
including possible alternative characterizations.
Unless otherwise stated, the following
discussion is based on the characterization described above. The discussion in this section assumes that there is a significant
possibility of a significant loss of principal on an investment in the Notes.
We will not attempt to ascertain whether the issuer of any component
stock included in an Underlying would be treated as a “passive foreign investment company” (“PFIC”), within
the meaning of Section 1297 of the Code, or a United States real property holding corporation, within the meaning of Section 897(c)
of the Code. If the issuer of one or more stocks included in an Underlying were so treated, certain adverse U.S. federal income
tax consequences could possibly apply to a holder of the Notes. You should refer to information filed with the SEC by the issuers
of the component stocks included in each Underlying and consult your tax advisor regarding the possible consequences to you, if
any, if any issuer of a component stock included in an Underlying is or becomes a PFIC or is or becomes a United States real property
holding corporation.
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U.S. Holders
Although the U.S. federal income tax treatment
of any Contingent Coupon Payment on the Notes is uncertain, we intend to take the position, and the following discussion assumes,
that any Contingent Coupon Payment constitutes taxable ordinary income to a U.S. Holder at the time received or accrued in accordance
with the U.S. Holder’s regular method of accounting. By purchasing the Notes you agree, in the absence of an administrative
determination or judicial ruling to the contrary, to treat any Contingent Coupon Payment as described in the preceding sentence.
Upon receipt of a cash payment at maturity
or upon a sale, exchange, or redemption of the Notes prior to maturity, a U.S. Holder generally will recognize capital gain or
loss equal to the difference between the amount realized (other than amounts representing any Contingent Coupon Payment, which
would be taxed as described above) and the U.S. Holder’s tax basis in the Notes. A U.S. Holder’s tax basis in the Notes
will equal the amount paid by that holder to acquire them. This capital gain or loss generally will be long-term capital gain or
loss if the U.S. Holder held the Notes for more than one year. The deductibility of capital losses is subject to limitations.
Alternative Tax Treatments. Due
to the absence of authorities that directly address the proper tax treatment of the Notes, prospective investors are urged to consult
their tax advisors regarding all possible alternative tax treatments of an investment in the Notes. In particular, the IRS could
seek to subject the Notes to the Treasury regulations governing contingent payment debt instruments. If the IRS were successful
in that regard, the timing and character of income on the Notes would be affected significantly. Among other things, a U.S. Holder
would be required to accrue original issue discount every year at a “comparable yield” determined at the time of issuance.
In addition, any gain realized by a U.S. Holder at maturity or upon a sale, exchange, or redemption of the Notes generally would
be treated as ordinary income, and any loss realized at maturity or upon a sale, exchange, or redemption of the Notes generally
would be treated as ordinary loss to the extent of the U.S. Holder’s prior accruals of original issue discount, and as capital
loss thereafter.
In addition, it is possible that the Notes
could be treated as a unit consisting of a deposit and a put option written by the Note holder, in which case the timing and character
of income on the Notes would be affected significantly.
The IRS released Notice 2008-2 (the “Notice”),
which sought comments from the public on the taxation of financial instruments currently taxed as “prepaid forward contracts.”
This Notice addresses instruments such as the Notes. According to the Notice, the IRS and Treasury are considering whether a holder
of an instrument such as the Notes should be required to accrue ordinary income on a current basis, regardless of whether any payments
are made prior to maturity. It is not possible to determine what guidance the IRS and Treasury will ultimately issue, if any. Any
such future guidance may affect the amount, timing and character of income, gain, or loss in respect of the Notes, possibly with
retroactive effect.
The IRS and Treasury are also considering
additional issues, including whether additional gain or loss from such instruments should be treated as ordinary or capital, whether
foreign holders of such instruments should be subject to withholding tax on any deemed income accruals, whether Section 1260 of
the Code, concerning certain “constructive ownership transactions,” generally applies or should generally apply to
such instruments, and whether any of these determinations depend on the nature of the underlying asset.
In addition, proposed Treasury regulations
require the accrual of income on a current basis for contingent payments made under certain notional principal contracts. The preamble
to the regulations states that the “wait and see” method of accounting does not properly reflect the economic accrual
of income on those contracts, and requires current accrual of income for some contracts already in existence. While the proposed
regulations do not apply to prepaid forward contracts, the preamble to the proposed regulations expresses the view that similar
timing issues exist in the case of prepaid forward contracts. If the IRS or Treasury publishes future guidance requiring current
economic accrual for contingent payments on prepaid forward contracts, it is possible that you could be required to accrue income
over the term of the Notes.
Because of the absence of authority regarding
the appropriate tax characterization of the Notes, it is also possible that the IRS could seek to characterize the Notes in a manner
that results in tax consequences that are different from those described above. For example, the IRS could possibly assert that
any gain or loss that a holder may recognize at maturity or upon the sale, exchange, or redemption of the Notes should be treated
as ordinary gain or loss.
Because each Underlying is an index that
periodically rebalances, it is possible that the Notes could be treated as a series of contingent income-bearing single financial
contracts, each of which matures on the next rebalancing date. If the Notes were properly characterized in such a manner, a U.S.
Holder would be treated as disposing of the Notes on each rebalancing date in return for new Notes that mature on the next rebalancing
date, and a U.S. Holder would accordingly likely recognize capital gain or loss on each rebalancing date equal to the difference
between the holder’s tax basis in the Notes (which would be adjusted to take into account any prior recognition of gain or
loss) and the fair market value of the Notes on such date.
Non-U.S. Holders
Because the U.S. federal income tax treatment
of the Notes (including any Contingent Coupon Payment) is uncertain, we will withhold U.S. federal income tax at a 30% rate (or
at a lower rate under an applicable income tax treaty) on the entire amount of any Contingent Coupon Payment made unless such payments
are effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the U.S. (in which case, to avoid withholding,
the Non-U.S. Holder will be required to provide a Form W-8ECI). We will not pay any additional amounts in respect of such withholding.
To claim benefits under an income tax treaty, a Non-U.S. Holder must obtain a taxpayer identification number and certify as to
its eligibility under the appropriate treaty’s limitations on benefits article, if applicable. In addition, special rules
may apply to claims for treaty benefits made by Non-U.S.
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Holders that are entities rather than individuals.
The availability of a lower rate of withholding under an applicable income tax treaty will depend on whether such rate applies
to the characterization of the payments under U.S. federal income tax laws. A Non-U.S. Holder that is eligible for a reduced rate
of U.S. federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund with the IRS.
Except as discussed below, a Non-U.S. Holder
generally will not be subject to U.S. federal income or withholding tax for amounts paid in respect of the Notes (not including,
for the avoidance of doubt, amounts representing any Contingent Coupon Payment which would be subject to the rules discussed in
the previous paragraph) upon the sale, exchange, or redemption of the Notes or their settlement at maturity, provided that the
Non-U.S. Holder complies with applicable certification requirements and that the payment is not effectively connected with the
conduct by the Non-U.S. Holder of a U.S. trade or business. Notwithstanding the foregoing, gain from the sale, exchange, or redemption
of the Notes or their settlement at maturity may be subject to U.S. federal income tax if that Non-U.S. Holder is a non-resident
alien individual and is present in the U.S. for 183 days or more during the taxable year of the sale, exchange, redemption, or
settlement and certain other conditions are satisfied.
If a Non-U.S. Holder of the Notes is engaged
in the conduct of a trade or business within the U.S. and if any Contingent Coupon Payment and gain realized on the settlement
at maturity, or upon sale, exchange, or redemption of the Notes, is effectively connected with the conduct of such trade or business
(and, if certain tax treaties apply, is attributable to a permanent establishment maintained by the Non-U.S. Holder in the U.S.),
the Non-U.S. Holder, although exempt from U.S. federal withholding tax, generally will be subject to U.S. federal income tax on
such Contingent Coupon Payment and gain on a net income basis in the same manner as if it were a U.S. Holder. Such Non-U.S. Holders
should read the material under the heading “—U.S. Holders,” for a description of the U.S. federal income tax
consequences of acquiring, owning, and disposing of the Notes. In addition, if such Non-U.S. Holder is a foreign corporation, it
may also be subject to a branch profits tax equal to 30% (or such lower rate provided by any applicable tax treaty) of a portion
of its earnings and profits for the taxable year that are effectively connected with its conduct of a trade or business in the
U.S., subject to certain adjustments.
A “dividend equivalent” payment
is treated as a dividend from sources within the United States and such payments generally would be subject to a 30% U.S. withholding
tax if paid to a Non-U.S. Holder. Under Treasury regulations, payments (including deemed payments) with respect to equity-linked
instruments (“ELIs”) that are “specified ELIs” may be treated as dividend equivalents if such specified
ELIs reference an interest in an “underlying security,” which is generally any interest in an entity taxable as a corporation
for U.S. federal income tax purposes if a payment with respect to such interest could give rise to a U.S. source dividend. However,
IRS guidance provides that withholding on dividend equivalent payments will not apply to specified ELIs that are not delta-one
instruments and that are issued before January 1, 2023. Based on our determination that the Notes are not delta-one instruments,
Non-U.S. Holders should not be subject to withholding on dividend equivalent payments, if any, under the Notes. However, it is
possible that the Notes could be treated as deemed reissued for U.S. federal income tax purposes upon the occurrence of certain
events affecting the Underlyings or the Notes, and following such occurrence the Notes could be treated as subject to withholding
on dividend equivalent payments. Non-U.S. Holders that enter, or have entered, into other transactions in respect of the Underlyings
or the Notes should consult their tax advisors as to the application of the dividend equivalent withholding tax in the context
of the Notes and their other transactions. If any payments are treated as dividend equivalents subject to withholding, we (or the
applicable paying agent) would be entitled to withhold taxes without being required to pay any additional amounts with respect
to amounts so withheld.
As discussed above, alternative characterizations
of the Notes for U.S. federal income tax purposes are possible. Should an alternative characterization, by reason of change or
clarification of the law, by regulation or otherwise, cause payments as to the Notes to become subject to withholding tax in addition
to the withholding tax described above, tax will be withheld at the applicable statutory rate. Prospective Non-U.S. Holders should
consult their own tax advisors regarding the tax consequences of such alternative characterizations.
U.S. Federal Estate Tax. Under current
law, while the matter is not entirely clear, individual Non-U.S. Holders, and entities whose property is potentially includible
in those individuals’ gross estates for U.S. federal estate tax purposes (for example, a trust funded by such an individual
and with respect to which the individual has retained certain interests or powers), should note that, absent an applicable treaty
benefit, a Note is likely to be treated as U.S. situs property, subject to U.S. federal estate tax. These individuals and entities
should consult their own tax advisors regarding the U.S. federal estate tax consequences of investing in a Note.
Backup Withholding and Information Reporting
Please see the discussion under “U.S.
Federal Income Tax Considerations — Taxation of Debt Securities — Backup Withholding and Information Reporting”
in the accompanying prospectus for a description of the applicability of the backup withholding and information reporting rules
to payments made on the Notes.
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