This pricing supplement, which is not complete and may be changed, relates to an effective Registration Statement under the Securities Act of 1933. This pricing supplement and the accompanying product supplement, prospectus supplement and prospectus are not an offer to sell these notes in any country or jurisdiction where such an offer would not be permitted.
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 Russell 2000® Index, the Dow Jones Industrial Average® and
the S&P 500® Value Index (the “Notes”) provide a monthly Contingent Coupon Payment of $5.00 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.
** The Notes will be automatically called on the related Contingent
Payment Date if the Observation Value of each Underlying is greater than or equal to its Starting Value. If the Notes are automatically
called, the Early Redemption Amount will be paid on the applicable Contingent Payment Date. No further amounts will be payable
following an Automatic Call.
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 and the hedging related charges described below (see “Risk Factors”
beginning on page PS-8), will reduce the economic terms of the Notes to you and the initial estimated value of the Notes. Due to
these factors, the public offering price you pay to purchase the Notes will be greater than the initial estimated value of the
Notes as of the pricing date.
The initial estimated value range of the Notes
as of the date of this pricing supplement is set forth on the cover page of this pricing supplement. The final pricing supplement
will set forth the initial estimated value of the Notes as of the pricing date. For more information about the initial estimated
value and the structuring of the Notes, see “Risk Factors” beginning on page PS-9 and “Structuring the Notes”
on page PS-25.
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 $5.00, 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 70
for the Least Performing Underlying, a hypothetical Threshold Value of 70 for the Least Performing Underlying, the Contingent Coupon
Payment of $5.00 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-28 below.
Structure-related Risks
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Your investment may result in a loss; there is no guaranteed return of principal. There is no fixed principal repayment
amount on the Notes at maturity. If the Notes are not automatically called prior to maturity and the 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, at maturity 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 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 its 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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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 July 2021, the Notes will
be automatically called if, on any of the Observation Dates indicated by the second footnote appearing below the table on page
PS-4, 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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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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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 Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
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Your return on the Notes may be less than the yield on a conventional debt security of comparable maturity. Any return
that you receive on the Notes may be less than the return you would earn if you purchased a conventional debt security with the
same Maturity Date. As a result, your investment in the Notes may not reflect the full opportunity cost to you when you consider
factors, such as inflation, that affect the time value of money. In addition, if interest rates increase during the term of the
Notes, the Contingent Coupon Payment (if any) may be less than the yield on a conventional debt security of comparable maturity.
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Any payment on the Notes is subject to our credit risk and the credit risk of the Guarantor, and any actual or perceived
changes in our or the Guarantor’s creditworthiness are expected to affect the value of the Notes. The Notes are our senior
unsecured debt securities. Any payment on the Notes will be fully and unconditionally guaranteed by the Guarantor. The Notes are
not guaranteed by any entity other than the Guarantor. As a result, your receipt of 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.
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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 the Guarantor, have no operations other than those related to the issuance, administration and repayment of our debt securities
that are guaranteed by the Guarantor, and are dependent upon the Guarantor and/or its other subsidiaries to meet our obligations
under the Notes in the ordinary course. Therefore, our ability to make payments on the Notes may be limited.
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Valuation- and Market-related Risks
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The public offering price you pay for the Notes will exceed their initial estimated value. The range of initial estimated
values of the Notes that is provided on the cover page of this preliminary pricing supplement, and the initial estimated value
as of the pricing date that will be provided in the final pricing supplement, are each estimates only, determined as of a particular
point in time by reference to our and our affiliates’ pricing models. These pricing models consider certain assumptions and
variables, including our credit spreads and those of the Guarantor, the Guarantor’s internal funding rate, mid-market terms
on hedging transactions, expectations on interest rates, dividends and volatility, price-sensitivity analysis, and the expected
term of the Notes. These pricing models rely in part on certain forecasts about future events, which may prove to be incorrect.
If you attempt to sell the Notes prior to maturity, their market value may be lower than the price you paid for them and lower
than their initial estimated value. This is due to, among other things, changes in the levels of the Underlyings, changes in the
Guarantor’s internal funding rate, and the inclusion in the public offering price of the underwriting discount and the hedging
related charges, all as further described in “Structuring the Notes” below. These factors, together with various credit,
market and economic factors over the term of the Notes, are expected to reduce the price at which you may be able to sell the Notes
in any secondary market and will affect the value of the Notes in complex and unpredictable ways.
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The initial estimated value does not represent a minimum or maximum price at which we, BAC, BofAS or any of our other affiliates
would be willing to purchase your Notes in any secondary market (if any exists) at any time. The value of your Notes at any
time after issuance will vary based on many factors that cannot be predicted with accuracy, including the performance of the Underlyings,
our and BAC’s creditworthiness and changes in market conditions.
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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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Conflict-related Risks
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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 pricing 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
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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 Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
purpose of hedging some or all of our anticipated
exposure in connection with the Notes), may affect the value of the Underlyings. Consequently, the value of the Underlyings may
change subsequent to the pricing date, which may adversely affect the market value of the Notes.
We, the Guarantor or one or more of our other affiliates, including BofAS, also expect to engage in hedging activities that could
affect the value of the Underlyings on the pricing 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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Underlying-related Risks
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The Notes are subject to risks associated with small-size capitalization companies. The stocks comprising the RTY are
issued by companies with small-sized market capitalization. The stock prices of small-size companies may be more volatile than
stock prices of large capitalization companies. Small-size capitalization companies may be less able to withstand adverse economic,
market, trade and competitive conditions relative to larger companies. Small-size capitalization companies may also be more susceptible
to adverse developments related to their products or services.
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The SVX may not outperform any other index or strategy that tracks U.S. stocks using different criteria. The SVX is
designed to measure the performance of companies included in the S&P 500® Index that exhibit relatively
strong value characteristics, according to the criteria set forth below (See “The Underlyings – The S&P 500® Value
Index” beginning on page PS-18). Companies that are considered to exhibit strong value characteristics may have a lower degree
of growth potential relative to comparable companies; this may cause the level of the SVX to decrease over the term of
the Notes. In such case, the SVX may not outperform any other index or strategy that tracks U.S. stocks using different
criteria. No assurance can be given that the investment strategy represented by the SVX will be successful or that the SVX
will outperform an investment linked to the S&P 500® Index.
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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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Tax-related Risks
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The U.S. federal income tax consequences of an investment in the Notes are uncertain, and may be adverse to a holder of
the Notes. No statutory, judicial, or administrative authority directly addresses the characterization of the Notes or securities
similar to the Notes for U.S. federal income tax purposes. As a result, significant aspects of the U.S. federal income tax consequences
of an investment in the Notes are not certain. Under the terms of the Notes, you will have agreed with us to treat the Notes as
contingent income-bearing single financial contracts, as described below under “U.S. Federal Income Tax Summary—General.”
If the Internal Revenue Service (the “IRS”) were successful in asserting an alternative characterization for the Notes,
the timing and character of income, gain or loss with respect to the Notes may differ. No ruling will be requested from the IRS
with respect to the Notes and no assurance can be given that the IRS will agree with the statements made in the section entitled
“U.S. Federal Income Tax Summary.” You are urged to consult with your own tax advisor regarding all aspects of the
U.S. federal income tax consequences of investing in the Notes.
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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 Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
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 RTY, S&P Dow Jones Indices LLC (“SPDJI”), the sponsor of the INDU and SVX.
We refer to FTSE Russell, and SPDJI as the “Underlying Sponsors”. The Underlying Sponsors, which license the copyright
and all other rights to the Underlyings, have no obligation to continue to publish, and may discontinue publication of, the Underlyings.
The consequences of any Underlying Sponsor discontinuing publication of the applicable Underlying are discussed in “Description
of the Notes — Discontinuance of an Index” in the accompanying product supplement. None of us, the Guarantor, the calculation
agent, or 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 Russell
2000® Index
The RTY was developed by Russell Investments
(“Russell”) before FTSE International Limited and Russell combined in 2015 to create FTSE Russell, which is wholly
owned by London Stock Exchange Group. Additional information on the RTY is available at the following website: http://www.ftserussell.com.
No information on that website is deemed to be included or incorporated by reference in this pricing supplement.
Russell began dissemination of the RTY (Bloomberg
L.P. index symbol “RTY”) on January 1, 1984. FTSE Russell calculates and publishes the RTY. The RTY was set to 135
as of the close of business on December 31, 1986. The RTY is designed to track the performance of the small capitalization segment
of the U.S. equity market. As a subset of the Russell 3000® Index, the
RTY consists of the smallest 2,000 companies included in the Russell 3000®
Index. The Russell 3000® Index measures the performance of the largest
3,000 U.S. companies, representing approximately 98% of the investable U.S. equity market. The RTY is determined, comprised, and
calculated by FTSE Russell without regard to the Notes.
Selection of Stocks Comprising the RTY
All companies eligible for inclusion in the RTY
must be classified as a U.S. company under FTSE Russell’s country-assignment methodology. If a company is incorporated, has
a stated headquarters location, and trades in the same country (American Depositary Receipts and American Depositary Shares are
not eligible), then the company is assigned to its country of incorporation. If any of the three factors are not the same, FTSE
Russell defines three Home Country Indicators (“HCIs”): country of incorporation, country of headquarters, and country
of the most liquid exchange (as defined by a two-year average daily dollar trading volume) (“ADDTV”) from all exchanges
within a country. Using the HCIs, FTSE Russell compares the primary location of the company’s assets with the three HCIs.
If the primary location of its assets matches any of the HCIs, then the company is assigned to the primary location of its assets.
If there is insufficient information to determine the country in which the company’s assets are primarily located, FTSE Russell
will use the country from which the company’s revenues are primarily derived for the comparison with the three HCIs in a
similar manner. FTSE Russell uses the average of two years of assets or revenues data to reduce potential turnover. If conclusive
country details cannot be derived from assets or revenues data, FTSE Russell will assign the company to the country of its headquarters,
which is defined as the address of the company’s principal executive offices, unless that country is a Benefit Driven Incorporation
“BDI” country, in which case the company will be assigned to the country of its most liquid stock exchange. BDI countries
include: Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, Bermuda, Bonaire, British Virgin Islands, Cayman Islands, Channel
Islands, Cook Islands, Curacao, Faroe Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Liberia, Marshall Islands, Panama, Saba,
Sint Eustatius, Sint Maarten, and Turks and Caicos Islands. For any companies incorporated or headquartered in a U.S. territory,
including Puerto Rico, Guam, and U.S. Virgin Islands, a U.S. HCI is assigned.
All securities eligible for inclusion in the
RTY must trade on a major U.S. exchange. Stocks must have a closing price at or above $1.00 on their primary exchange on the last
trading day in May to be eligible for inclusion during annual reconstitution. However, in order to reduce unnecessary turnover,
if an existing member’s closing price is less than $1.00 on the last day of May, it will be considered eligible if the average
of the daily closing prices (from its primary exchange) during the month of May is equal to or greater than $1.00. Initial public
offerings are added each quarter and must have a closing price at or above $1.00 on the last day of their eligibility period in
order to qualify for index inclusion. If an existing stock does not trade on the “rank day” (typically the last trading
day in May but a confirmed timetable is announced each spring) but does have a closing price at or above $1.00 on another eligible
U.S. exchange, that stock will be eligible for inclusion.
An important criterion used to determine the
list of securities eligible for the RTY is total market capitalization, which is defined as the market price as of the last trading
day in May for those securities being considered at annual reconstitution times the total number of shares outstanding. Where applicable,
common stock, non-restricted exchangeable shares and partnership units/membership interests are used to determine market capitalization.
Any other form of shares such as preferred stock, convertible preferred stock, redeemable shares, participating preferred stock,
warrants and rights, installment receipts or trust receipts, are excluded from the calculation. If multiple share classes of common
stock exist, they are combined. In cases where the common stock share classes act independently of each other (e.g., tracking
stocks), each class is considered for inclusion separately. If multiple share classes exist, the pricing vehicle will be designated
as the share class with the highest two-year trading volume as of the rank day in May.
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-12
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
Companies with a total market capitalization
of less than $30 million are not eligible for the RTY. Similarly, companies with only 5% or less of their shares available in the
marketplace are not eligible for the RTY. Royalty trusts, limited liability companies, closed-end investment companies (companies
that are required to report Acquired Fund Fees and Expenses, as defined by the SEC, including business development companies),
blank check companies, special purpose acquisition companies, and limited partnerships are also ineligible for inclusion. Bulletin
board, pink sheets, and over-the-counter (“OTC”) traded securities are not eligible for inclusion. Exchange traded
funds and mutual funds are also excluded.
Annual reconstitution is a process by which the
RTY is completely rebuilt. Based on closing levels of the company’s common stock on its primary exchange on the rank day
of May of each year, FTSE Russell reconstitutes the composition of the RTY using the then existing market capitalizations of eligible
companies. Reconstitution of the RTY occurs on the last Friday in June or, when the last Friday in June is the 29th or 30th, reconstitution
occurs on the prior Friday. In addition, FTSE Russell adds initial public offerings to the RTY on a quarterly basis based on total
market capitalization ranking within the market-adjusted capitalization breaks established during the most recent reconstitution.
After membership is determined, a security’s shares are adjusted to include only those shares available to the public. This
is often referred to as “free float.” The purpose of the adjustment is to exclude from market calculations the capitalization
that is not available for purchase and is not part of the investable opportunity set.
Historical Performance of the RTY
The following graph sets forth the daily historical
performance of the RTY in the period from January 1, 2008 through January 5, 2021. We obtained this historical data from Bloomberg
L.P. We have not independently verified the accuracy or completeness of the information obtained from Bloomberg L.P. The horizontal
line in the graph represents the RTY’s hypothetical Coupon Barrier and Threshold Value of 1,385.376
(rounded to three decimal places), which is 70% of the RTY’s hypothetical Starting Value of 1,979.108,
which was its closing level on January 5, 2021. The actual Starting Value, Coupon Barrier and Threshold Value will be determined
on the pricing date.
This historical data on the RTY is not necessarily
indicative of the future performance of the RTY or what the value of the Notes may be. Any historical upward or downward trend
in the level of the RTY during any period set forth above is not an indication that the level of the RTY is more or less likely
to increase or decrease at any time over the term of the Notes.
Before investing in the Notes, you should consult
publicly available sources for the levels of the RTY.
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-13
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
License Agreement
“Russell 2000®”
and “Russell 3000®” are trademarks of FTSE Russell and have
been licensed for use by our affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Notes are not sponsored, endorsed,
sold, or promoted by FTSE Russell, and FTSE Russell makes no representation regarding the advisability of investing in the Notes.
FTSE Russell and Merrill Lynch, Pierce, Fenner
& Smith Incorporated have entered into a non-exclusive license agreement providing for the license to Merrill Lynch, Pierce,
Fenner & Smith Incorporated and its affiliates, including us, in exchange for a fee, of the right to use indices owned and
published by FTSE Russell in connection with some securities, including the Notes. The license agreement provides that the following
language must be stated in this pricing supplement:
The Notes are not sponsored, endorsed, sold,
or promoted by FTSE Russell. FTSE Russell makes no representation or warranty, express or implied, to the holders of the Notes
or any member of the public regarding the advisability of investing in securities generally or in the Notes particularly or the
ability of the RTY to track general stock market performance or a segment of the same. FTSE Russell’s publication of the
RTY in no way suggests or implies an opinion by FTSE Russell as to the advisability of investment in any or all of the securities
upon which the RTY is based. FTSE Russell’s only relationship to Merrill Lynch, Pierce, Fenner & Smith Incorporated and
to us is the licensing of certain trademarks and trade names of FTSE Russell and of the RTY, which is determined, composed, and
calculated by FTSE Russell without regard to Merrill Lynch, Pierce, Fenner & Smith Incorporated, us, or the Notes. FTSE Russell
is not responsible for and has not reviewed the Notes nor any associated literature or publications and FTSE Russell makes no representation
or warranty express or implied as to their accuracy or completeness, or otherwise. FTSE Russell reserves the right, at any time
and without notice, to alter, amend, terminate, or in any way change the RTY. FTSE Russell has no obligation or liability in connection
with the administration, marketing, or trading of the Notes.
FTSE RUSSELL DOES NOT GUARANTEE THE ACCURACY
AND/OR THE COMPLETENESS OF THE RTY OR ANY DATA INCLUDED THEREIN AND FTSE RUSSELL SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS,
OR INTERRUPTIONS THEREIN. FTSE RUSSELL MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED, US, HOLDERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE RTY OR ANY DATA INCLUDED
THEREIN. FTSE RUSSELL MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RTY OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN
NO EVENT SHALL FTSE RUSSELL HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-14
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
The Dow
Jones Industrial Average®
Unless otherwise stated, all information on the
INDU provided in this pricing supplement is derived from Dow Jones Indexes, the marketing name and a licensed trademark of CME
Group Index Services, LLC. The INDU is a price-weighted index, which means an underlying stock’s weight in the INDU is based
on its price per share rather than the total market capitalization of the issuer. The INDU is designed to provide an indication
of the composite performance of 30 common stocks of corporations representing a broad cross-section of U.S. industry. The corporations
represented in the INDU tend to be market leaders in their respective industries and their stocks are typically widely held by
individuals and institutional investors.
The INDU is maintained by an Averages Committee
comprised of the Managing Editor of The Wall Street Journal (“WSJ”), the head of Dow Jones Indexes research and the
head of CME Group Inc. research. The Averages Committee was created in March 2010, when Dow Jones Indexes became part of CME Group
Index Services, LLC, a joint venture company owned 90% by CME Group Inc. and 10% by Dow Jones & Company. Generally, composition
changes occur only after mergers, corporate acquisitions or other dramatic shifts in a component's core business. When such an
event necessitates that one component be replaced, the entire INDU is reviewed. As a result, when changes are made they typically
involve more than one component. While there are no rules for component selection, a stock typically is added only if it has an
excellent reputation, demonstrates sustained growth, is of interest to a large number of investors and accurately represents the
sector(s) covered by the average.
Changes in the composition of the INDU are made
entirely by the Averages Committee without consultation with the corporations represented in the INDU, any stock exchange, any
official agency or us. Unlike most other indices, which are reconstituted according to a fixed review schedule, constituents of
the INDU are reviewed on an as-needed basis. Changes to the common stocks included in the INDU tend to be made infrequently, and
the underlying stocks of the INDU may be changed at any time for any reason. The companies currently represented in the INDU are
incorporated in the United States and its territories and their stocks are listed on the New York Stock Exchange (“NYSE”)
and The Nasdaq Stock Market (“NASDAQ”).
The INDU initially consisted of 12 common stocks
and was first published in the WSJ in 1896. The INDU was increased to include 20 common stocks in 1916 and to include 30 common
stocks in 1928. The number of common stocks in the INDU has remained at 30 since 1928, and, in an effort to maintain continuity,
the constituent corporations represented in the INDU have been changed on a relatively infrequent basis. The INDU includes companies
from nine main groups: Basic Materials; Consumer Goods; Consumer Services; Financials; Healthcare; Industrials; Oil & Gas;
Technology; and Telecommunications.
Computation of the INDU
The level of the INDU is the sum of the primary
exchange prices of each of the 30 component stocks included in the INDU, divided by a divisor that is designed to provide a meaningful
continuity in the level of the INDU. Because the INDU is price-weighted, stock splits or changes in the component stocks could
result in distortions in the INDU level. In order to prevent these distortions related to extrinsic factors, the divisor is periodically
changed in accordance with a mathematical formula that reflects adjusted proportions within the INDU. The current divisor of the
INDU is published daily in the WSJ and other publications. In addition, other statistics based on the INDU may be found in a variety
of publicly available sources.
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
Historical Performance of the INDU
The following graph sets forth the daily historical
performance of the INDU in the period from January 1, 2008 through January 5, 2021. 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 INDU’s hypothetical Coupon Barrier and Threshold Value of 21,274.12, which is 70% of the
INDU’s hypothetical Starting Value of 30,391.60,
which was its closing level on January 5, 2021. The actual Starting Value, Coupon Barrier and Threshold Value will be determined
on the pricing date.
This historical data on the INDU is not necessarily
indicative of the future performance of the INDU or what the value of the Notes may be. Any historical upward or downward trend
in the level of the INDU during any period set forth above is not an indication that the level of the INDU 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 INDU.
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 SPDJI. “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 INDU is a product of SPDJI 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 SPDJI, 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 INDU
to track general market performance. S&P Dow Jones Indices’ only relationship to Merrill Lynch, Pierce, Fenner &
Smith Incorporated with respect to the INDU is the licensing of the INDU and certain trademarks, service marks and/or trade names
of S&P Dow Jones Indices and/or its third party licensors. The INDU 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 INDU. 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 INDU will accurately track index performance or provide positive investment
returns. SPDJI 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
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
addition, CME Group Inc. and its affiliates may
trade financial products which are linked to the performance of the INDU. 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 INDU OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING
BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATIONS (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES
INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES
MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE OR AS TO RESULTS TO BE OBTAINED BY US, BAC, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, HOLDERS OF THE NOTES,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDU 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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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-17
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
The S&P
500® Value Index
The
SVX is a float-adjusted market capitalization weighted index. The index is designed to measure the performance of companies included
in the S&P 500® Index (the “SPX”) that are fully or partially categorized as value stocks,
as determined by style scores calculated for each SPX security and explained in more detailed in “Construction of the SVX”
below.
Construction of the SVX
To
be eligible for inclusion in SVX, a stock must be a constituent of the SPX.
Style Factors
S&P
uses the following factors to measure
growth and value for each constituent in the SPX:
Growth Factors
|
Value Factors
|
Three-Year Change in Earnings per Share (Excluding Extra Items) over Price per Share
|
Book Value to Price Ratio
|
Three-Year Sales per Share Growth Rate
|
Earnings to Price Ratio
|
Momentum (12-Month Percentage Price Change)
|
Sales to Price Ratio
|
Stocks that are fully characterized
as value stocks have 100% of their float-adjusted market capitalization in the SPX assigned to the SVX. Stocks that are partially
characterized as value stocks have a portion of their float-adjusted market capitalization in the SPX assigned to the SVX.
Stocks that are fully characterized as growth stocks are excluded from the SVX.
When earnings from three
years prior are not available for a security, the two-year change in earnings per share (excluding extra items) over price per
share is used. When earnings from two years prior are not available, the one-year change in earnings per share (excluding extra
items) over price per share is used. When earnings from one year prior are not available, the factor is set equal to zero. If the
starting value is less than zero, the score is multiplied by a factor of -1.
When sales from three years
prior are not available, the two-year sales per share growth rate is used. When sales from two years prior are not available, the
one-year sales per share growth rate is used. When sales from one year prior are not available, the factor is set equal to zero.
If the starting value is less than zero, the score is multiplied by a factor of -1.
When there is not enough
trading history to calculate 12-month momentum, then momentum is calculated from the stock’s listing date.
When the book value to price
ratio, earnings to price ratio or sales to price ratio is not available, the factor is set to zero.
Style
Scores
Once a year, raw values for
each of the above factors are calculated for each company in the eligible universe. These raw values are first “winsorized”
to the 90th percentile (generally speaking, “winsorization” is a process designed to limit the impact of extreme values);
then, these raw values are standardized by dividing the difference between each company’s raw score and the mean of the entire
set by the standard deviation of the entire set. A growth score for each company is computed as the average of the standardized
values of the three growth factors. Similarly, a value score for each company is computed as the average of the standardized values
of the three value factors.
At the end of this step,
each company has a growth score and a value score, with growth and value being measured along separate scales (sometimes referred
to as “dimensions”).
Establishing
Style Baskets
Companies within the SPX
are ranked based on growth and value scores. A company with a high growth score would have a higher growth rank, while a company
with a low value score would have a lower value rank. For example, the SPX constituent with the highest value score would have
a value rank of 1, while the constituent with the lowest value score would have a value rank of 500.
The companies within the
SPX are then sorted in ascending order of the ratio growth rank/value rank. The companies at the top of the list have a higher
growth rank (or high growth score) and a lower value rank (or low value score); these stocks exhibit pure growth characteristics.
The companies at the top of the list, which comprise 33% of the float-adjusted market capitalization of the SPX, are assigned to
the growth basket; they are fully categorized as growth stocks.
The companies at the bottom
of the list have a higher value rank (or high value score) and a lower growth rank (or low growth score); these stocks exhibit
pure value characteristics. The companies at the bottom of the list, which comprise 33% of the float-adjusted market capitalization
of the SPX, are assigned to the value basket; they are fully categorized as value stocks).
The companies in the middle
34% of the list are assigned to the blended basket. That is, they are partially categorized as growth stocks, and partially characterized
as value stocks.
Creating
the Growth and Value Indices
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-18
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
S&P divides the style
baskets of the SPX into growth and value constituent indices, the S&P 500® Growth Index (the “SGX”)
and the SVX, while limiting the number of stocks that overlap across both indices. 100% of the float-adjusted market capitalization
of a company fully categorized as a growth stock is assigned to the SGX, and 100% of the float-adjusted market capitalization of
a company fully categorized as a value stock is assigned to the SVX. The float-adjusted market capitalization of a company
in the middle 34% is distributed between the SGX and the SVX based on its distance from the average growth score of companies
fully categorized as growth stocks and the average value score of companies fully categorized as value stocks.
In particular, the percentage
of a company’s float-adjusted market capitalization in the SPX that is allocated to the SVX will be equal to (a)
its distance from the average growth score of companies fully categorized as growth stocks divided by (b) the sum of (i) its distance
from the average growth score of companies fully categorized as growth stocks plus (ii) its distance from the average value score
of companies fully categorized as value stocks. Further, to avoid very small fractions of a stock’s market capitalization
being in the SVX, (x) if the calculated percentage is greater than or equal to 80%, 100% will be allocated to the SVX,
and (y) if the calculated percentage is less than 20%, 0% will be allocated to the SVX.
The total float-adjusted
market capitalization of the SPX is approximately equally divided between the SVX and the SGX.
Calculation
of the SVX
The SVX is calculated
as the index market value divided by the divisor using the divisor methodology used in all S&P’s equity indices, including
the SPX. See “The SPX” below for more information.
Maintenance
of the SVX
The SVX is rebalanced
once a year in December. The rebalancings occur after the close on the third Friday of December. The reference date to calculate
style scores is after the close of the last trading date of the previous month. Style scores, float market-capitalization weights
and growth and value midpoint averages are reset only once a year at the December rebalancing.
If a constituent of the SVX is
dropped from the SPX, it will also be removed from the SVX.
Other changes to the SVX are
made on an as-needed basis, following the guidelines of the SPX.
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
payments on the Notes.
Historically, the market value of any component
stock of the SPX was calculated as the product of the market price per share and the number of then outstanding shares of such
component stock. In March 2005, SPDJI began shifting the SPX halfway from a market capitalization weighted formula to a float-adjusted
formula, before moving the SPX to full float adjustment on September 16, 2005. SPDJI’s criteria for selecting stocks for
the SPX did not change with the shift to float adjustment. However, the adjustment affects each company’s weight in the SPX.
Under float adjustment, the share counts used
in calculating the SPX reflect only those shares that are available to investors, not all of a company’s outstanding shares.
Float adjustment excludes shares that are closely held by control groups, other publicly traded companies or government agencies.
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-19
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
In September 2012, all shareholdings representing
more than 5% of a stock’s outstanding shares, other than holdings by “block owners,” were removed from the float
for purposes of calculating the SPX. Generally, these “control holders” will include officers and directors, private
equity, venture capital and special equity firms, other publicly traded companies that hold shares for control, strategic partners,
holders of restricted shares, ESOPs, employee and family trusts, foundations associated with the company, holders of unlisted share
classes of stock, government entities at all levels (other than government retirement/pension funds) and any individual person
who controls a 5% or greater stake in a company as reported in regulatory filings. However, holdings by block owners, such as depositary
banks, pension funds, mutual funds and ETF providers, 401(k) plans of the company, government retirement/pension funds, investment
funds of insurance companies, asset managers and investment funds, independent foundations and savings and investment plans, will
ordinarily be considered part of the float.
Treasury stock, stock options, restricted shares,
equity participation units, warrants, preferred stock, convertible stock, and rights are not part of the float. Shares held in
a trust to allow investors in countries outside the country of domicile, such as depositary shares and Canadian exchangeable shares,
are normally part of the float unless those shares form a control block. If a company has multiple classes of stock outstanding,
shares in an unlisted or non-traded class are treated as a control block.
For each stock, an investable weight factor (“IWF”)
is calculated by dividing the available float shares by the total shares outstanding. Available float shares are defined as the
total shares outstanding less shares held by control holders. This calculation is subject to a 5% minimum threshold for control
blocks. For example, if a company’s officers and directors hold 3% of the company’s shares, and no other control group
holds 5% of the company’s shares, SPDJI would assign that company an IWF of 1.00, as no control group meets the 5% threshold.
However, if a company’s officers and directors hold 3% of the company’s shares and another control group holds 20%
of the company’s shares, SPDJI would assign an IWF of 0.77, reflecting the fact that 23% of the company’s outstanding
shares are considered to be held for control. As of July 31, 2017, companies with multiple share class lines are no longer eligible
for inclusion in the SPX. Constituents of the SPX prior to July 31, 2017 with multiple share class lines will be grandfathered
in and continue to be included in the SPX. If a constituent company of the SPX reorganizes into a multiple share class line structure,
that company will remain in the SPX at the discretion of the S&P Index Committee in order to minimize turnover.
The SPX is calculated using a base-weighted aggregate
methodology. The level of the SPX reflects the total market value of all component stocks relative to the base period of the years
1941 through 1943. An indexed number is used to represent the results of this calculation in order to make the level easier to
work with and track over time. The actual total market value of the component stocks during the base period of the years 1941 through
1943 has been set to an indexed level of 10. This is often indicated by the notation 1941- 43 = 10. In practice, the daily calculation
of the SPX is computed by dividing the total market value of the component stocks by the “index divisor.” By itself,
the index divisor is an arbitrary number. However, in the context of the calculation of the SPX, it serves as a link to the original
base period level of the SPX. The index divisor keeps the SPX comparable over time and is the manipulation point for all adjustments
to the SPX, which is index maintenance.
Index Maintenance
Index maintenance includes monitoring and completing
the adjustments for company additions and deletions, share changes, stock splits, stock dividends, and stock price adjustments
due to company restructuring or spinoffs. Some corporate actions, such as stock splits and stock dividends, require changes in
the common shares outstanding and the stock prices of the companies in the SPX, and do not require index divisor adjustments.
To prevent the level of the SPX from changing
due to corporate actions, corporate actions which affect the total market value of the SPX require an index divisor adjustment.
By adjusting the index divisor for the change in market value, the level of the SPX remains constant and does not reflect the corporate
actions of individual companies in the SPX. Index divisor adjustments are made after the close of trading and after the calculation
of the SPX closing level.
Changes in a company’s shares outstanding
of 5.00% or more due to mergers, acquisitions, public offerings, tender offers, Dutch auctions, or exchange offers are made as
soon as reasonably possible. Share changes due to mergers or acquisitions of publicly held companies that trade on a major exchange
are implemented when the transaction occurs, even if both of the companies are not in the same headline index, and regardless of
the size of the change. All other changes of 5.00% or more (due to, for example, company stock repurchases, private placements,
redemptions, exercise of options, warrants, conversion of preferred stock, notes, debt, equity participation units, at-the-market
offerings, or other recapitalizations) are made weekly and are announced on Fridays for implementation after the close of trading
on the following Friday. Changes of less than 5.00% are accumulated and made quarterly on the third Friday of March, June, September,
and December, and are usually announced two to five days prior.
If a change in a company’s shares outstanding
of 5.00% or more causes a company’s IWF to change by five percentage points or more, the IWF is updated at the same time
as the share change. IWF changes resulting from partial tender offers are considered on a case by case basis.
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-20
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
Historical Performance of the SVX
The following graph sets forth the daily historical
performance of the SVX in the period from January 1, 2008 through January 5, 2021. 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 SVX’s hypothetical Coupon Barrier and Threshold Value of 880.781 (rounded to three decimal
places), which is 70% of the SVX’s hypothetical Starting Value of 1,258.258,
which was its closing level on January 5, 2021. The actual Starting Value, Coupon Barrier and Threshold Value will be determined
on the pricing date.
This historical data on the SVX is not necessarily
indicative of the future performance of the SVX or what the value of the Notes may be. Any historical upward or downward trend
in the level of the SVX during any period set forth above is not an indication that the level of the SVX 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 SVX.
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 SPDJI. “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 INDU is a product of SPDJI 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 SPDJI, 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 INDU
to track general market performance. S&P Dow Jones Indices’ only relationship to Merrill Lynch, Pierce, Fenner &
Smith Incorporated with respect to the INDU is the licensing of the INDU and certain trademarks, service marks and/or trade names
of S&P Dow Jones Indices and/or its third party licensors. The INDU 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 INDU. 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 INDU will accurately track index performance or provide positive investment
returns. SPDJI 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
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-21
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
addition, CME Group Inc. and its affiliates may
trade financial products which are linked to the performance of the INDU. 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 INDU OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING
BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATIONS (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES
INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES
MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE OR AS TO RESULTS TO BE OBTAINED BY US, BAC, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, HOLDERS OF THE NOTES,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDU 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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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-22
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
U.S. Federal Income Tax Summary
The following summary of the material U.S. federal
income tax considerations of the acquisition, ownership, and disposition of the Notes supplements, and to the extent inconsistent
supersedes, the discussions under “U.S. Federal Income Tax Considerations” in the accompanying prospectus and under
“U.S. Federal Income Tax Considerations” in the accompanying prospectus supplement and is not exhaustive of all possible
tax considerations. This summary is based upon the Internal Revenue Code of 1986, as amended (the “Code”), regulations
promulgated under the Code by the U.S. Treasury Department (“Treasury”) (including proposed and temporary regulations),
rulings, current administrative interpretations and official pronouncements of the IRS, and judicial decisions, all as currently
in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance
can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences
described below. This summary does not include any description of the tax laws of any state or local governments, or of any foreign
government, that may be applicable to a particular holder.
Although the Notes are issued by us, they will
be treated as if they were issued by BAC for U.S. federal income tax purposes. Accordingly throughout this tax discussion, references
to “we,” “our” or “us” are generally to BAC unless the context requires otherwise.
This summary is directed solely to U.S. Holders
and Non-U.S. Holders that, except as otherwise specifically noted, will purchase the Notes upon original issuance and will hold
the Notes as capital assets within the meaning of Section 1221 of the Code, which generally means property held for investment,
and that are not excluded from the discussion under “U.S. Federal Income Tax Considerations” in the accompanying prospectus.
You should consult your own tax advisor concerning
the U.S. federal income tax consequences to you of acquiring, owning, and disposing of the Notes, as well as any tax consequences
arising under the laws of any state, local, foreign, or other tax jurisdiction and the possible effects of changes in U.S. federal
or other tax laws.
General
Although there is no statutory, judicial, or
administrative authority directly addressing the characterization of the Notes, we intend to treat the Notes for all tax purposes
as contingent income-bearing single financial contracts with respect to the Underlyings and under the terms of the Notes, we and
every investor in the Notes agree, in the absence of an administrative determination or judicial ruling to the contrary, to treat
the Notes in accordance with such characterization. In the opinion of our counsel, Sidley Austin LLP, it is reasonable to treat
the Notes as contingent income-bearing single financial contracts with respect to the Underlyings. However, Sidley Austin LLP has
advised us that it is unable to conclude that it is more likely than not that this treatment will be upheld. This discussion assumes
that the Notes constitute contingent income-bearing single financial contracts with respect to the Underlyings for U.S. federal
income tax purposes. If the Notes did not constitute contingent income-bearing single financial contracts, the tax consequences
described below would be materially different.
This characterization of the Notes is not
binding on the IRS or the courts. No statutory, judicial, or administrative authority directly addresses the characterization of
the Notes or any similar instruments for U.S. federal income tax purposes, and no ruling is being requested from the IRS with respect
to their proper characterization and treatment. Due to the absence of authorities on point, significant aspects of the U.S. federal
income tax consequences of an investment in the Notes are not certain, and no assurance can be given that the IRS or any court
will agree with the characterization and tax treatment described in this pricing supplement. Accordingly, you are urged to consult
your tax advisor regarding all aspects of the U.S. federal income tax consequences of an investment in the Notes, including possible
alternative characterizations.
Unless otherwise stated, the following discussion
is based on the characterization described above. The discussion in this section assumes that there is a significant possibility
of a significant loss of principal on an investment in the Notes.
We will not attempt to ascertain whether the
issuer of any component stocks included in an Underlying would be treated as a “passive foreign investment company”
(“PFIC”), within the meaning of Section 1297 of the Code, or a United States real property holding corporation, within
the meaning of Section 897(c) of the Code. If the issuer of one or more stocks included in an Underlying were so treated, certain
adverse U.S. federal income tax consequences could possibly apply to a holder of the Notes. You should refer to information filed
with the SEC by the issuers of the component stocks included in the Underlyings 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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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-26
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
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.
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-27
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
Non-U.S. Holders
Because the U.S. federal income tax treatment
of the Notes (including any Contingent Coupon Payment) is uncertain, we will withhold U.S. federal income tax at a 30% rate (or
at a lower rate under an applicable income tax treaty) on the entire amount of any Contingent Coupon Payment made unless such payments
are effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the U.S. (in which case, to avoid withholding,
the Non-U.S. Holder will be required to provide a Form W-8ECI). We will not pay any additional amounts in respect of such withholding.
To claim benefits under an income tax treaty, a Non-U.S. Holder must obtain a taxpayer identification number and certify as to
its eligibility under the appropriate treaty’s limitations on benefits article, if applicable. In addition, special rules
may apply to claims for treaty benefits made by Non-U.S. Holders that are entities rather than individuals. The availability of
a lower rate of withholding under an applicable income tax treaty will depend on whether such rate applies to the characterization
of the payments under U.S. federal income tax laws. A Non-U.S. Holder that is eligible for a reduced rate of U.S. federal withholding
tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund
with the IRS.
Except as discussed below, a Non-U.S. Holder
generally will not be subject to U.S. federal income or withholding tax for amounts paid in respect of the Notes (not including,
for the avoidance of doubt, amounts representing any Contingent Coupon Payment which would be subject to the rules discussed in
the previous paragraph) upon the sale, exchange, or redemption of the Notes or their settlement at maturity, provided that the
Non-U.S. Holder complies with applicable certification requirements and that the payment is not effectively connected with the
conduct by the Non-U.S. Holder of a U.S. trade or business. Notwithstanding the foregoing, gain from the sale, exchange, or redemption
of the Notes or their settlement at 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.
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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-28
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index
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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CONTINGENT INCOME AUTO-CALLABLE YIELD NOTES | PS-29
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Contingent Income Auto-Callable Yield Notes Linked to the Least Performing of the Russell 2000® Index, the Dow Jones Industrial Average® and the S&P 500® Value Index