Product Prospectus Supplement No. EQUITY INDICES ARN-1
(To Prospectus dated December 26, 2018
and Prospectus Supplement dated December 26, 2018)
April 25, 2019
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Filed Pursuant to Rule 424(b)(2)
Registration No. 333-228614 |
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ARNs are senior unsecured debt securities issued by The Bank of Nova Scotia (the “
Bank
”). Any payments due on ARNs, including any repayment of principal, will be subject to the credit risk of the Bank.
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ARNs do not guarantee the return of principal at maturity, and we will not pay interest on ARNs. Instead, the return on ARNs will be based on
the performance of an underlying “
Market Measure,
” which will be an equity index or a basket of equity indices.
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ARNs provide an opportunity to earn a multiple (which will be 3 times, unless otherwise set forth in the applicable term sheet) of the positive
performance of the Market Measure, up to a specified cap (the “
Capped Value
”), while exposing you to any negative performance of the
Market Measure on a 1-to-1 basis.
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If the value of the Market Measure increases from its Starting Value to its Ending Value (each as defined below), you will receive at maturity a
cash payment per unit (the “
Redemption Amount
”) that equals the principal amount plus a multiple of that increase, up to the Capped
Value.
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If the value of the Market Measure decreases from its Starting Value to its Ending Value, you will be subject to 1-to-1 downside exposure to that
decrease. In such case, you may lose all or a significant portion of the principal amount of your ARNs.
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This product prospectus supplement describes the general terms of ARNs, the risk factors to consider before investing, the
general manner in which they may be offered and sold, and other relevant information.
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For each offering of ARNs, we will provide you with a pricing supplement (which we refer to as a “
term sheet
”) that will describe the specific terms of that offering, including the specific Market Measure, the Capped Value, and certain related risk factors.
The term sheet will identify, if applicable, any additions or changes to the terms specified in this product prospectus supplement.
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ARNs will be issued in denominations of whole units.
Unless otherwise set forth in the applicable term sheet, each unit will have a principal amount of $10.
The term sheet may also set forth a minimum number of units that you must purchase.
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Unless otherwise specified in the applicable term sheet, ARNs will not be listed on a securities exchange or quotation system.
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Merrill Lynch, Pierce, Fenner & Smith Incorporated (“
MLPF&S
”) and one or more of its affiliates may act as our agents to offer ARNs and MLPF&S will act in a principal capacity in such role.
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SUMMARY
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PS-3
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RISK FACTORS
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PS-6
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USE OF PROCEEDS AND HEDGING
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PS-16
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DESCRIPTION OF ARNS
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PS-17
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SUPPLEMENTAL PLAN OF DISTRIBUTION
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PS-24
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SUPPLEMENTAL DISCUSSION OF CANADIAN FEDERAL INCOME TAX CONSEQUENCES
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PS-26
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
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PS-27
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ERISA CONSIDERATIONS
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PS-34
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General:
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ARNs are senior unsecured debt securities issued by the Bank, are not guaranteed or insured by the Canada Deposit
Insurance Corporation or the FDIC, and are not, either directly or indirectly, an obligation of any third party. They rank equally with all of our other senior unsecured debt from time to time outstanding
. Any payments due on ARNs, including any repayment of principal, are subject to our credit risk
.
The return on ARNs will be based on the performance of a Market Measure and there is no guaranteed return of principal at maturity. Therefore,
you may lose all or a significant portion of your investment if the value of the Market Measure decreases from the Starting Value to the Ending Value.
Each issue of ARNs will mature on the date set forth in the applicable term sheet. We cannot redeem ARNs at any earlier date, except under the
limited circumstances set forth below. We will not make any payments on ARNs until maturity, and you will not receive any interest payments.
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Market Measure:
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The Market Measure may consist of one or more of the following:
·
U.S. broad-based equity indices;
·
U.S. sector or style-based equity indices;
·
non-U.S. or global equity indices; or
·
any combination of the above.
The Market Measure may consist of a group, or “
Basket
,”
of the foregoing. We refer to each equity index included in any Basket as a “
Basket Component
.” If the Market Measure to which your
ARNs are linked is a Basket, the Basket Components will be set forth in the applicable term sheet.
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Market Measure Performance:
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The performance of the Market Measure will be measured according to the percentage change of the Market Measure from its Starting Value to its
Ending Value.
Unless otherwise specified in the applicable term sheet:
The “
Starting Value
”
will be the closing level of the Market Measure on the date when the ARNs are priced for initial sale to the public (the “
pricing date
”).
If the Market Measure consists of a Basket, the Starting Value will be equal to 100. See “Description of ARNs—Basket Market Measures.”
The “
Ending Value
” will equal the average
of the closing levels of the Market Measure on each calculation day during the Maturity Valuation Period (each as defined below).
If a Market Disruption Event (as defined under “Description of ARNs— Market Disruption Events”) occurs and is continuing on a calculation day, or
if certain other events occur, the calculation agent will determine the Ending Value as set forth in the
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section “Description of ARNs—The Starting Value and the Ending Value—Ending Value.”
If the Market Measure consists of a Basket, the Ending Value will be determined as described in “Description of ARNs—Basket Market Measures—Ending
Value of the Basket.”
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Participation Rate:
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The rate at which investors participate in any increase in the value of the Market Measure, as calculated below. The Participation Rate will be
300% for ARNs, unless otherwise set forth in the applicable term sheet.
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Capped Value:
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The maximum Redemption Amount. Your investment return is limited to the return over the principal amount represented by the Capped Value specified
in the applicable term sheet. We will determine the applicable Capped Value on the pricing date of each issue of ARNs.
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Redemption Amount at Maturity:
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At maturity, you will receive a Redemption Amount that is greater than the principal amount if the value of the Market
Measure increases from the Starting Value to the Ending Value. However, in no event will the Redemption Amount exceed the Capped Value. If the value of the Market Measure does not change from the Staring Value to the Ending Value, you
will receive a Redemption Amount that equals the principal amount. If the value of the Market Measure decreases from the Starting Value to the Ending Value, you will be subject to 1-to-1 downside exposure to that decrease, and you will
receive a Redemption Amount that is less than the principal amount.
Any payments due on the ARNs, including any repayment of principal, are subject to our credit risk as issuer of ARNs.
The Redemption Amount, denominated in U.S. dollars, will be calculated as follows:
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Principal at Risk:
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You may lose all or a significant portion of the principal amount of the ARNs. Further, if you sell your ARNs prior to maturity, you may find that
the market value per ARN is less than the price that you paid for the ARNs.
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Calculation Agent:
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The calculation agent will make all determinations associated with the ARNs. Unless otherwise set forth in the applicable term sheet, we will
appoint MLPF&S or one of its affiliates to act as calculation agent for the ARNs. See the section entitled “Description of ARNs—Role of the Calculation Agent.”
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Agents:
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MLPF&S and one or more of its affiliates will act as our agents in connection with each offering of ARNs and will receive an underwriting
discount based on the number of units of ARNs sold. None of the agents is your fiduciary or advisor solely as a result of the making of any offering of ARNs, and you should not rely upon this product
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Value of the Market Measure.
We anticipate
that the market value of ARNs prior to maturity generally will depend to a significant extent on the value of the Market Measure. In general, it is expected that the market value of ARNs will decrease as the value of the Market Measure
decreases, and increase as the value of the Market Measure increases. However, as the value of the Market Measure increases or decreases, the market value of ARNs is not expected to increase or decrease at the same rate. If you sell
your ARNs when the value of the Market Measure is less than, or not sufficiently above, the applicable Starting Value, then you may receive less than the principal amount of your ARNs.
In addition, because the Redemption Amount will not exceed the applicable Capped Value, we do not expect that the ARNs will trade in any secondary
market at a price that is greater than the Capped Value
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Volatility of the Market Measure.
Volatility
is the term used to describe the size and frequency of market fluctuations. Increases or decreases in the volatility of the Market Measure may have an adverse impact on the market value of ARNs. Even if the value of the Market Measure
increases after the applicable pricing date, if you are able to sell your ARNs before their maturity date, you may receive substantially less than the amount that would be payable at maturity based on that value because of the
anticipation that the value of the Market Measure will continue to fluctuate until the Ending Value is determined.
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Economic and Other Conditions Generally.
The
general economic conditions of the capital markets in the United States, as well as geopolitical conditions and other financial, political, regulatory, and judicial events and related uncertainties that affect stock markets generally, may
adversely affect the value of the Market Measure and the
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market value of ARNs. If the Market Measure includes one or more indices that have returns that are calculated based upon securities prices in one
or more non-U.S. markets (a “
non-U.S. Market Measure
”), the value of your ARNs may also be adversely affected by similar events in the
markets of the relevant foreign countries.
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Interest Rates.
We expect that changes in
interest rates will affect the market value of ARNs. In general, if U.S. interest rates increase, we expect that the market value of ARNs will decrease, and conversely, if U.S. interest rates decrease, we expect that the market value of
ARNs will increase. In general, we expect that the longer the amount of time that remains until maturity, the more significant the impact of these changes will be on the value of the ARNs. In the case of non-U.S. Market Measures, the
level of interest rates in the relevant foreign countries may also affect their economies and, in turn, the value of the non-U.S. Market Measure, and, thus the market value of the ARNs may be adversely affected.
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Dividend Yields.
In general, if the cumulative
dividend yields on the securities included in the Market Measure increase, we anticipate that the market value of ARNs will decrease; conversely, if those dividend yields decrease, we anticipate that the market value of your ARNs will
increase.
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Exchange Rate Movements and Volatility.
If
the Market Measure of your ARNs includes any non-U.S. Market Measures, changes in, and the volatility of, the exchange rates between the U.S. dollar and the relevant non-U.S. currency or currencies could have a negative impact on the value
of your ARNs, and the Redemption Amount may depend in part on the relevant exchange rates. In addition, the correlation between the relevant exchange rate and any applicable non-U.S. Market Measure reflects the extent to which a percentage
change in that exchange rate corresponds to a percentage change in the applicable non-U.S. Market Measure, and changes in these correlations may have a negative impact on the value of your ARNs.
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Our Financial Condition and Creditworthiness.
Our
perceived creditworthiness, including any increases in our credit spreads and any actual or anticipated decreases in our credit ratings, may adversely affect the market value of the ARNs. In general, we expect the longer the amount of time
that remains until maturity, the more significant the impact will be on the value of the ARNs. However, a decrease in our credit spreads or an improvement in our credit ratings will not necessarily increase the market value of ARNs.
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Time to Maturity.
There may be a disparity
between the market value of the ARNs prior to maturity and their value at maturity. This disparity is often called a time “value,” “premium,” or “discount,” and reflects expectations concerning the value of the Market Measure prior to the
maturity date. As the time to maturity decreases, this disparity may decrease, such that the value of the ARNs will approach the expected Redemption Amount to be paid at maturity.
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Market Liquidity and Volatility.
The relevant
foreign securities markets may be less liquid and/or more volatile than U.S. or other securities markets and may be affected by market developments in different ways than U.S. or other securities markets.
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Political, Economic, and Other Factors.
The
prices and performance of securities of companies in foreign countries may be affected by political, economic, financial, and social factors in those regions. Direct or indirect government intervention to stabilize a particular securities
market and cross-shareholdings in companies in the relevant foreign markets may affect prices and the volume of trading in those markets. In addition, recent or future changes in government, economic, and fiscal policies in the relevant
jurisdictions, the possible imposition of, or changes in, currency exchange laws, or other laws or restrictions, and possible fluctuations in the rate of exchange between currencies, are factors that could negatively affect the relevant
securities markets. The relevant foreign economies may differ from the U.S. economy in economic factors such as growth of gross national product, rate of inflation, capital reinvestment, resources, and self-sufficiency.
In particular, many emerging nations are undergoing rapid change, involving the restructuring of economic, political, financial and legal systems.
Regulatory and tax
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Publicly Available Information.
There is
generally less publicly available information about foreign companies than about U.S. companies that are subject to the reporting requirements of the SEC. In addition, accounting, auditing, and financial reporting standards and
requirements in foreign countries differ from those applicable to U.S. reporting companies.
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If the Ending Value is greater than the Starting Value, then the Redemption Amount will equal:
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If the Ending Value is less than or equal to the Starting Value, then the Redemption Amount will equal:
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(A)
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the suspension of or material limitation on trading, in each case, for more than two consecutive hours of trading, or during the one-half hour period
preceding the close of trading, on the primary exchange where the securities included in an index trade (without taking into account any extended or after-hours trading session), in 20% or more of the securities which then compose the index
or any successor index;
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(B) |
the suspension of or material limitation on trading, in each case, for more than two consecutive hours of trading, or during the one-half hour period
preceding the close of trading, on the primary exchange that trades options contracts or futures contracts related to the index (without taking into account any extended or after-hours trading session), whether by reason of movements in
price otherwise exceeding levels permitted by the relevant exchange or otherwise, in options contracts or futures contracts related to the index, or any successor index; or
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(C)
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the determination that a scheduled calculation day is not a Market Measure Business Day by reason of an extraordinary event, occurrence,
declaration, or otherwise.
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For the purpose of determining whether a Market Disruption Event has occurred:
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(1)
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a limitation on the hours in a trading day and/or number of days of trading will not constitute a Market Disruption Event if it results from an
announced change in the regular business hours of the relevant exchange;
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(2)
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a decision to permanently discontinue trading in the relevant futures or options contracts related to the index, or any successor index, will not
constitute a Market Disruption Event;
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(3) |
a suspension in trading in a futures or options contract on the index, or any successor index, by a major securities market by reason of (a) a price change violating limits set by that securities market, (b) an imbalance of orders
relating to those contracts, or (c) a disparity in bid and ask quotes relating to those contracts will constitute a suspension of or material limitation on trading in futures or options contracts related to the index;
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(4)
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a suspension of or material limitation on trading on the relevant exchange will not include any time when that exchange is closed for trading under ordinary circumstances; and
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(5)
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if applicable to indices with component securities listed on the NYSE, for the purpose of clause (A) above, any limitations on trading during
significant market fluctuations under NYSE Rule 80B, or any applicable rule or regulation enacted or promulgated by the NYSE or any other self-regulatory organization or the SEC of similar scope as determined by the calculation agent, will
be considered “material” if so determined by the calculation agent.
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·
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the determination of the Ending Value; and
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·
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a determination by the calculation agent that a successor index is available,
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the Initial Component Weight (expressed as a percentage) for that Basket Component, multiplied by 100;
divided by
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the closing level of that Basket Component on the pricing date.
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Basket Component
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Initial Component
Weight |
Hypothetical Closing
Level (1) |
Hypothetical
Component Ratio (2) |
Initial Basket
Value Contribution |
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Index ABC
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50.00%
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500.00
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0.10000000
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50.00
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Index XYZ
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25.00%
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2,420.00
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0.01033058
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25.00
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Index RST
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25.00%
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1,014.00
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0.02465483
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25.00
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Starting Value
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100.00
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(1)
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This column sets forth the
hypothetical
closing
level of each Basket Component on the
hypothetical
pricing date.
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(2)
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The
hypothetical
Component Ratio for each
Basket Component equals its Initial Component Weight (expressed as a percentage) multiplied by 100, and then divided by the closing level of that Basket Component on the
hypothetical
pricing date, with the result rounded to eight decimal places.
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The closing level of each Basket Component that is not an Affected Basket Component will be its closing level on such non-calculation day.
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The closing level of each Basket Component that is an Affected Basket Component for the applicable non-calculation day will be determined in the same manner as described in the fifth paragraph of subsection “—The Starting Value and the
Ending Value—Ending Value,” provided that references to “Market Measure” will be references to “Basket Component.”
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(a)
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the expression “
retail investor
”
means a person who is one (or more) of the following:
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(i)
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a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “
MiFID II
”); or
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(ii)
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a customer within the meaning of Insurance Distribution Directive 2016/97/EU, as amended, where that customer
would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or
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(iii)
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not a qualified investor as defined in Directive 2003/71/EC, as amended;
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(b)
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the expression “
offer
”
includes the communication in any form and by any means of sufficient information on the terms of the offer and the ARNs to be offered so as to enable an investor to decide to purchase or subscribe the ARNs; and
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(c)
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the expression “
PRIIPs Regulation
” means Regulation (EU) No 1286/2014.
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(a)
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in relation to any ARNs which have a maturity of less than one year, (i) it is a person whose ordinary activities involve it in acquiring, holding,
managing, or disposing of investments (as principal or as agent) for the purposes of its business and (ii) it has not offered or sold and will not offer or sell any ARNs other than to persons whose ordinary activities involve them in
acquiring, holding, managing, or disposing of investments (as principal or as agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage, or dispose of investments (as principal or as agent) for
the purposes of their businesses where the issue of the ARNs would otherwise constitute a contravention of section 19 of the Financial Services and Markets Act 2000 (the “
FSMA
”) by the Bank;
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(b)
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it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in
investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of any ARNs in circumstances in which section 21(1) of the FSMA does not apply to the Bank; and
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(c)
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it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the ARNs in, from or
otherwise involving the United Kingdom.
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a dealer in securities or currencies,
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a trader in securities that elects to use a mark-to-market method of accounting for its securities holdings,
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a financial institution or a bank,
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a regulated investment company (a “RIC”) or a real estate investment trust (a “REIT”) or a common trust fund,
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a life insurance company,
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a tax-exempt organization or an investor holding the ARNs in a tax-advantaged account (such as an “Individual Retirement Account” or
“Roth IRA”), as defined in Section 408 or 408A of the Code, respectively,
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a person that owns ARNs as part of a hedging transaction, straddle, synthetic security, conversion transaction, or other integrated
transaction, or enters into a “constructive sale” with respect to the ARNs or a “wash sale” with respect to the ARNs or any Market Measure,
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a U.S. holder (as defined below) whose functional currency for tax purposes is not the U.S. dollar, or
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taxpayers subject to special tax accounting rules under Section 451(b) of the Code.
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the gain with respect to the ARNs is effectively connected with a trade or business conducted by the non-U.S. holder in the U.S.;
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the non-U.S. holder is a nonresident alien individual who holds the ARNs as a capital asset and is present in the U.S. for 183 days or more in the
taxable year of such taxable disposition (including but not limited to disposition by sale, exchange, redemption, or repayment of principal at maturity ) and certain other conditions are satisfied; or
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the non-U.S. holder has certain other present or former connections with the U.S.
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