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Subject to Completion
Preliminary Term Sheet dated
July 18, 2019
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Filed Pursuant to Rule 433
Registration Statement No. 333-228614 (To Prospectus dated December 26, 2018, Prospectus Supplement dated December 26, 2018 and Product Prospectus Supplement EQUITY
SUN-1 dated February 21, 2019)
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Units $10 principal amount per unit CUSIP No. 
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Pricing Date* Settlement Date* Maturity Date* |
July , 2019
August , 2019
July , 2022
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*
Subject to change based on the actual date the notes are priced for initial sale to the public (the "pricing date")
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Autocallable Market-Linked Step Up Notes Linked to the Hang Seng China Enterprises
Index
◾
Maturity of approximately three years, if not called prior to maturity
◾
Automatic call
of the notes per unit at
$10 plus the applicable Call Premium
([$1.20 to $1.30] on the first Observation Date and [$2.40 to $2.60] on the final Observation Date) if the Index is flat or increases above
100.00% of the Starting Value on the relevant
Observation
Da
te
◾
The Observation Dates will occur approximately one year and two years after the pricing date
◾
If the notes are not called, at maturity:
◾
a return of 30.00% if the Index is flat or increases up to the Step Up Value
◾
a return equal to the percentage increase in the Index if the Index increases above the Step Up Value
◾
1-to-1 downside exposure to decreases in the Index, with up to 100.00% of your principal at risk
◾
All payments are subject to the credit risk of The Bank of Nova Scotia
◾
No periodic interest payments
◾
In addition to the underwriting discount set forth below, the notes include a
hedging-related charge of $0.075 per unit. See “Structuring the Notes”
◾
Limited secondary market liquidity, with no exchange listing
◾
The notes are unsecured debt securities and are not savings accounts or insured deposits of a bank. The notes are not insured or guaranteed by the Canada Deposit Insurance Corporation (the "CDIC"),
the U.S. Federal Deposit Insurance Corporation (the “FDIC”), or any other governmental agency of Canada, the United States or any other jurisdiction
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The notes are being issued by The Bank of Nova Scotia (“BNS”). There are important differences between the notes and a conventional
debt security, including different investment risks and certain additional costs. See “Risk Factors” beginning on page TS-8 of this term sheet and beginning on page PS-7 of product prospectus supplement EQUITY SUN-1.
The initial estimated value of the notes as of the pricing date is expected to be between $9.27 and $9.53
per unit
, which is less than the public offering price listed below.
See “Summary” on the following page, “Risk Factors” beginning on page TS-8 of this
term sheet, "Additional Risk Factors" on page TS-9 of this term sheet and “Structuring the Notes” on page TS-14 of this term sheet for additional information. The actual value of your notes at any time will reflect many factors and cannot
be predicted with accuracy.
None of the U.S. Securities and Exchange Commission (the “SEC”), any state securities commission, or any other regulatory body has approved or disapproved of these
securities or determined if this Note Prospectus (as defined below) is truthful or complete. Any representation to the contrary is a criminal offense.
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Per Unit
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Total
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Public offering price
(1)
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$ 10.00
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$
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Underwriting discount
(1)
|
$ 0.20
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$
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Proceeds, before expenses, to BNS
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$ 9.80
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$
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(1)
|
For any purchase of 500,000 units or more in a single transaction by an individual investor or in combined transactions with the investor's household in this offering,
the public offering price and the underwriting discount will be $9.95 per unit and $0.15 per unit, respectively. See “Supplement to the Plan of Distribution” below.
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The notes:
|
Are Not FDIC Insured
|
Are Not Bank Guaranteed
|
May Lose Value
|
BofA Merrill Lynch
July , 2019
|
Autocallable Market-Linked Step Up Notes
Linked to the Hang Seng China Enterprises Index, due July , 2022 |
Sum
m
ary
The Autocallable Market-Linked Step Up Notes Linked to the Hang Seng China Enterprises
Index, due July , 2022 (the “notes”) are our senior unsecured debt securities. The
notes are not guaranteed or insured by the CDIC or the FDIC, and are not, either directly or indirectly, an obligation of any third party. The notes are not bail-inable debt securities (as defined in the prospectus).
The
notes will rank equally with all of our other unsecured senior debt. Any payments due on the notes, including any repayment of principal, will be subject to the credit risk of BNS.
The notes will be automatically called at the applicable
Call Amount if the Observation Level of the Market Measure, which is the Hang Seng China Enterprises
Index (the “Index”), is equal to or greater than the Call Level on the relevant Observation Date. If the notes are not called, at
maturity, the notes provide you with a Step Up Payment if the Ending Value of the Index is equal to or greater than the Starting Value, but is not greater than the Step Up Value. If the Ending Value is greater than the Step Up Value, you will
participate on a 1-for-1 basis in the increase in the level of the Index above the Starting Value. If the Ending Value is less than the Starting Value, you will lose all or a portion of the principal amount of your notes. Any payments on the notes
will be calculated based on the $10 principal amount per unit and will depend on the performance of the Index, subject to our credit risk. See “Terms of the Notes” below.
The economic terms of the notes (including the Call Premiums and Call Amounts) are based on our internal funding rate, which is the rate we would pay to borrow funds through the
issuance of market-linked notes, and the economic terms of certain related hedging arrangements. Our internal funding rate is typically lower than the rate we would pay when we issue conventional fixed rate debt securities. This difference in
funding rate, as well as the underwriting discount and the hedging related charge described below, will reduce the economic terms of the notes to you and the initial estimated value of the notes on the pricing date. 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.
On the cover page of this term sheet, we have provided the initial estimated value range for the notes. This range of estimated values was determined by reference to our internal
pricing models, which take into consideration certain factors, such as our internal funding rate on the pricing date and our assumptions about market parameters. For more information about the initial estimated value and the structuring of the notes,
see “Structuring the Notes” on page TS-15.
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Terms of the Notes
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Issuer:
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The Bank of Nova Scotia (“BNS”)
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Call Settlement Dates:
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Approximately the fifth business day following the applicable Observation Date, subject to postponement if the related Observation Date is postponed, as described on page PS-26 of product prospectus supplement
EQUITY SUN-1.
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Principal Amount:
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$10.00 per unit
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Call Premiums:
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[$1.20 to $1.30] per unit if called on the first Observation Date (which represents a return of [12.00% to 13.00%] over the principal amount) and [$2.40 to $2.60] per unit if called on the final Observation Date (which represents a
return of [24.00% to 26.00%] over the principal amount).
The actual Call Premiums will be determined on the pricing date.
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Term:
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Approximately three years, if not called
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Ending Value:
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The closing level of the Market Measure on the calculation day. The scheduled calculation day is subject to postponement in the event of Market Disruption Events, as described beginning on page PS-28 of product
prospectus supplement EQUITY SUN-1.
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Market Measure:
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The Hang Seng China Enterprises
Index (Bloomberg symbol: “HSCEI”), a price return index
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Step Up Value:
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130.00% of the Starting Value
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Starting Value:
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The closing level of the Market Measure on the pricing date.
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Step Up Payment:
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$3.00 per unit, which represents a return of 30.00% over the principal amount.
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Observation Level:
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The closing level of the Market Measure on the applicable Observation Date
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Threshold Value:
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100.00% of the Starting Value
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Observation Dates:
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On or about July , 2020 and July , 2021, approximately one and two years after the pricing date. The Observation Dates are subject to postponement in the event of Market Disruption Events, as described beginning on page PS-28 of
product prospectus supplement EQUITY SUN-1.
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Calculation Day:
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Approximately the fifth scheduled Market Measure Business Day immediately preceding the maturity date.
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| Call Level: |
100.00% of the Starting Value
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Fees and Charges:
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The underwriting discount of $0.20 per unit listed on the cover page and the hedging related charge of $0.075 per unit described in “Structuring the Notes” on page TS-15.
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Call Amounts (per Unit):
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[$11.20 to $11.30] if called on the first Observation Date and [$12.40 to $12.60] if called on the final Observation Date.
The actual Call Amounts will be determined on the pricing date.
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Calculation Agent:
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BofA Securities, Inc. (“BofAS”).
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Automatic Call Provision
The notes will be called automatically on an Observation Date if the Observation Level on that Observation Date is equal to or greater than the Call Level. If the notes are called,
you will receive $10 per unit plus the applicable Call Premium.
Redemption Amount
Determination
If the notes are not automatically called, on the maturity date, you will
receive a cash payment per unit determined as follows:
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Autocallable Market-Linked Step Up Notes
|
TS-
3
|
|
Autocallable Market-Linked Step Up Notes
Linked to the Hang Seng China Enterprises Index, due July , 2022 |
The terms and risks of the notes are contained in this term sheet and in the following:
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◾
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Prospectus supplement dated December 26, 2018:
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◾
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Prospectus dated December 26, 2018:
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As a result of the completion of the reorganization of Bank of America’s U.S. broker-dealer
business, references to Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) in the accompanying product prospectus supplement EQUITY INDICES SUN-1, as such references relate to MLPF&S’s institutional services, should be read as
references to BofAS.
These
documents (together, the “Note Prospectus”) have been filed as part of a registration statement with the SEC, which may, without cost, be accessed on the SEC website as indicated above or obtained from MLPF&S or BofAS by calling 1-800-294-1322.
Before you invest, you should read the Note Prospectus, including this term sheet, for information about us and this offering. Any prior or contemporaneous oral statements and any other written materials you may have received are superseded by the
Note Prospectus. Capitalized terms used but not defined in this term sheet have the meanings set forth in product prospectus supplement EQUITY SUN-1. Unless otherwise indicated or unless the context requires otherwise, all references in this document
to “we,” “us,” “our,” or similar references are to BNS.
Investor Considerations
|
You may wish to consider an investment in the notes if:
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The notes may not be an appropriate investment for you if:
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|
◾
You
are willing to receive a return on your investment capped at the applicable Call Premium if the relevant Observation Level is equal to or greater than the Call Level.
◾
You
anticipate that the notes will be automatically called or that the Index will not decrease from the Starting Value to the Ending Value.
◾
You are willing to risk a substantial loss of principal and return if the notes are not automatically called and the Index decreases from the Starting Value to the Ending Value.
◾
You are willing to forgo the interest payments that are paid on conventional interest bearing debt securities.
◾
You are willing to forgo dividends or other benefits of owning the stocks included in the Index
.
◾
You are willing to accept a limited or no market for sales prior to maturity, and understand that the market prices for the notes, if any, will be affected by various factors, including our actual and perceived
creditworthiness, our internal funding rate and fees and charges on the notes
.
◾
You are willing to assume our credit risk, as issuer of the notes, for all payments under the notes, including the Redemption Amount.
|
◾
You want to hold your notes for the full term.
◾
You believe that the notes will not be automatically called and the Index will decrease from the Starting Value to the Ending Value.
◾
You seek principal repayment or preservation of capital.
◾
You seek interest payments or other current income on your investment.
◾
You want to receive dividends or other distributions paid on the stocks included in the Index.
◾
You seek an investment for which there will be a liquid secondary market.
◾
You are unwilling or are unable to take market risk on the notes or to take our credit risk as issuer of the notes.
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We urge you to consult your investment, legal, tax, accounting, and other advisors before you
invest in the notes.
|
Autocallable Market-Linked Step Up Notes
|
TS-
4
|
|
Autocallable Market-Linked Step Up Notes
Linked to the Hang Seng China Enterprises Index, due July , 2022 |
Hypothetical Payout
Profile and Examples of Payments at Maturity
The graph below is based on
hypothetical
numbers and values.
The graph below shows a payout profile at maturity, which would only apply if the notes are not called on any Observation Date.
|
Autocallable Market-Linked Step Up Notes
|
This graph reflects the returns on the notes, based on the Threshold Value of 100.00% of the Starting Value, the Step Up Payment of $3.00 per unit and the Step Up Value
of 130.00% of the Starting Value. The green line reflects the returns on the notes, while the dotted gray line reflects the returns of a direct investment in the stocks included in the Index, excluding dividends.
This graph has been prepared for purposes of illustration only.
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The following table and examples are for purposes of illustration only. They are based on
hypothetical
values and show
hypothetical
returns on the notes, assuming the notes are not called on any Observation Date. They illustrate the calculation of the Redemption Amount
and total rate of return based on a hypothetical Starting Value of 100, a hypothetical Threshold Value of 100, a hypothetical Step Up Value of 130, the Step Up Payment of $3.00 per unit and a range of hypothetical Ending Values.
The actual amount you receive and the resulting total rate of return will depend on the actual Starting Value, Threshold Value, Ending Value, Step Up Value, whether the notes
are called on an Observation Date, 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 Market Measure, see “The Index”
section below. The Index is a price return index and as such the Ending Value will not include any income generated by dividends paid on the stocks included in the Index, 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 credit risk.
|
Autocallable Market-Linked Step Up Notes
|
TS-
5
|
|
Autocallable Market-Linked Step Up Notes
Linked to the Hang Seng China Enterprises Index, due July , 2022 |
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Ending Value
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Percentage Change from the Starting Value to the Ending Value
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Redemption Amount per Unit
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Total Rate of Return on the Notes
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|||
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0.00
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-100.00%
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$0.00
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-100.00%
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50.00
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-50.00%
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$5.00
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-50.00%
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75.00
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-25.00%
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$7.50
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-25.00%
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80.00
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-20.00%
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$8.00
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-20.00%
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90.00
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-10.00%
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$9.00
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-10.00%
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95.00
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-5.00%
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$9.50
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-5.00%
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100.00
(1)(2)
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0.00%
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$13.00
(3)
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30.00%
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|||
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105.00
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5.00%
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$13.00
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30.00%
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110.00
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10.00%
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$13.00
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30.00%
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|||
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120.00
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20.00%
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$13.00
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30.00%
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|||
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130.00
(4)
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30.00%
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$13.00
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30.00%
|
|||
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135.00
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35.00%
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$13.50
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35.00%
|
|||
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140.00
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40.00%
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$14.00
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40.00%
|
|||
|
150.00
|
50.00%
|
$15.00
|
50.00%
|
|||
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160.00
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60.00%
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$16.00
|
60.00%
|
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(1)
|
This is the
hypothetical
Threshold Value.
|
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(2)
|
The
hypothetical
Starting Value of 100 used in these examples has been chosen for illustrative purposes only, and does not
represent a likely actual Starting Value for the Market Measure.
|
|
(3)
|
This amount represents the sum of the principal amount and the Step Up Payment of $3.00.
|
|
(4)
|
This is the
hypothetical
Step Up Value.
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|
Autocallable Market-Linked Step Up Notes
|
TS-
6
|
|
Autocallable Market-Linked Step Up Notes
Linked to the Hang Seng China Enterprises Index, due July , 2022 |
Redemption Amount Calculation Examples
|
Example 1
|
||
|
The Ending Value is 90.00, or 90.00% of the Starting Value:
|
||
|
Starting Value:
|
100.00
|
|
| Threshold Value: |
100.00
|
|
|
Ending Value:
|
90.00
|
|
|
Redemption Amount per unit
|
|
|
Example 2
|
||
|
The Ending Value is 110.00, or 110.00% of the Starting Value:
|
||
|
Starting Value:
|
100.00
|
|
|
Step Up Value:
|
130.00
|
|
|
Ending Value:
|
110.00
|
|
|
Redemption Amount per unit,
the principal amount plus the Step Up Payment, since the Ending Value is equal to or greater than the Starting Value, but less than the Step Up Value.
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|
|
Example 3
|
||
|
The Ending Value is 143.00, or 143.00% of the Starting Value:
|
||
|
Starting Value:
|
100.00
|
|
|
Step Up Value:
|
130.00
|
|
|
Ending Value:
|
143.00
|
|
|
Redemption Amount per unit
|
|
|
Autocallable Market-Linked Step Up Notes
|
TS-
7
|
|
Autocallable Market-Linked Step Up Notes
Linked to the Hang Seng China Enterprises Index, due July , 2022 |
Risk Factors
There are important differences between the notes and a conventional debt security. An investment in the notes
involves significant risks, including those listed below. You should carefully review the more detailed explanation of risks relating to the notes in the “Risk Factors” sections beginning on page PS-7 of product prospectus supplement EQUITY SUN-1, page
S-2 of the prospectus supplement, and page 5 of the prospectus identified above. We also urge you to consult your investment, legal, tax, accounting, and other
advisors before you invest in the
notes.
|
◾
|
If the notes are not automatically called, depending on the performance of the Index as measured shortly before the maturity date, your investment may result in a loss;
there is no guaranteed return of principal.
|
|
◾
|
Your return on the notes may be less than the yield you could earn by owning a conventional fixed or floating rate debt security of comparable maturity.
|
|
◾
|
If the notes are called, your investment return is limited to the return represented by the applicable Call Premium.
|
|
◾
|
Your investment return may be less than a comparable investment directly in the stocks included in the Index.
|
|
◾
|
Payments on the notes are subject to our credit risk, and actual or perceived changes in our creditworthiness are expected to affect the value of the notes. If we become
insolvent or are unable to pay our obligations, you may lose your entire investment.
|
|
◾
|
Our initial estimated value of the notes will be lower than the public offering price of the notes. Our initial estimated value of the notes is only an estimate. The
public offering price of the notes will exceed our initial estimated value because it includes costs associated with selling and structuring the notes, as well as hedging our obligations under the notes with a third party, which may include
BofAS or one of its affiliates. These costs include the underwriting discount and an expected hedging related charge, as further described in “Structuring the Notes” on page TS-15.
|
|
◾
|
Our initial estimated value of the notes does not represent future values of the notes and may differ from others’ estimates. Our initial estimated value of the notes is
determined by reference to our internal pricing models when the terms of the notes are set. These pricing models consider certain factors, such as our internal funding rate on the pricing date, the expected term of the notes, market
conditions and other relevant factors existing at that time, and our assumptions about market parameters, which can include volatility, dividend rates, interest rates and other factors. Different pricing models and assumptions could provide
valuations for the notes that are different from our initial estimated value. In addition, market conditions and other relevant factors in the future may change, and any of our assumptions may prove to be incorrect. On future dates, the
market value of the notes could change significantly based on, among other things, the performance of the Index, changes in market conditions, our creditworthiness, interest rate movements and other relevant factors. 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. Our initial estimated value does not represent a minimum price at which we or any agents would be willing to buy your notes in any secondary market (if any exists) at any time.
|
|
◾
|
Our initial estimated value is not determined by reference to credit spreads or the borrowing rate we would pay for our conventional fixed-rate debt securities. The
internal funding rate used in the determination of our initial estimated value of the notes generally represents a discount from the credit spreads for our conventional fixed-rate debt securities and the borrowing rate we would pay for our
conventional fixed-rate debt securities. If we were to use the interest rate implied by the credit spreads for our conventional fixed-rate debt securities, or the borrowing rate we would pay for our conventional fixed-rate debt securities, we
would expect the economic terms of the notes to be more favorable to you. Consequently, our use of an internal funding rate for the notes would have an adverse effect on the economic terms of the notes, the initial estimated value of the
notes on the pricing date, and the price at which you may be able to sell the notes in any secondary market.
|
|
◾
|
A trading market is not expected to develop for the notes. None of us, MLPF&S or BofAS is obligated to make a market for, or to repurchase, the notes. There is no
assurance that any party will be willing to purchase your notes at any price in any secondary market.
|
|
◾
|
Our business, hedging and trading activities, and those of MLPF&S, BofAS and our respective affiliates (including trades in shares of companies included in the
Index), and any hedging and trading activities we, MLPF&S, BofAS or our respective affiliates engage in for our clients’ accounts, may affect the market value and return of the notes and may create conflicts of interest with you.
|
|
◾
|
The Index sponsor may adjust the Index in a way that may adversely affect its level and your interests, and the Index sponsor has no obligation to consider your
interests.
|
|
◾
|
You will have no rights of a holder of the securities included in the Index, and you will not be entitled to receive securities or dividends or other distributions by the
issuers of those securities.
|
|
◾
|
While we, MLPF&S, BofAS or our respective affiliates may from time to time own securities of companies included in the Index, we, MLPF&S, BofAS and our respective
affiliates do not control any company included in the Index, and have not verified any disclosure made by any other company.
|
|
◾
|
The value of, and your return on, the notes may be affected by factors affecting the international securities markets, specifically changes in the countries represented by the Index. In addition, you will not obtain the benefit of any
increase in the value of the
|
|
Autocallable Market-Linked Step Up Notes
|
TS-
8
|
|
Autocallable Market-Linked Step Up Notes
Linked to the Hang Seng China Enterprises Index, due July , 2022 |
|
|
currencies in which the securities in the Index trade against the U.S. dollar which you would have received if you had owned the securities in the Index during the term of your notes, although the level of the Index may be adversely
affected by general exchange rate movements in the market.
|
|
◾
|
There may be potential conflicts of interest involving the calculation agent, which is BofAS. We have the right to appoint and remove the calculation agent.
|
|
◾
|
The U.S. federal income tax consequences of the notes are uncertain, and may be adverse to a holder of the notes. See “Summary of U.S. Federal Income Tax Consequences”
below.
|
|
◾
|
The conclusion that no portion of the interest paid or credited or deemed to be paid or credited on a note will be “Participating Debt Interest” subject to Canadian
withholding tax is based in part on the current published administrative position of the CRA. There cannot be any assurance that CRA’s current published administrative practice will not be subject to change, including potential expansion in
the current administrative interpretation of Participating Debt Interest subject to Canadian withholding tax. If, at any time, the interest paid or credited or deemed to be paid or credited on a note is subject to Canadian withholding tax,
you will receive an amount that is less than the Redemption Amount. You should consult your own adviser as to the potential for such withholding and the potential for reduction or refund of part or all of such withholding, including under any
bilateral Canadian tax treaty the benefits of which you may be entitled. For a discussion of the Canadian federal income tax consequences of investing in the notes, see “Summary of Canadian Federal Income Tax Consequences” below, “Canadian
Taxation—Debt Securities” on page 62 of the prospectus dated December 26, 2018, and “Supplemental Discussion of Canadian Federal Income Tax Consequences” on page PS-41 of product prospectus supplement EQUITY SUN-1.
|
Additional Risk Factors
An investment in the notes will involve risks that are associated with investments that are linked to the equity securities of issuers from an emerging market.
The
stocks included in the Index have been issued by companies incorporated
in the People’s Republic of China, some of which are owned by the Chinese government. Many emerging nations, including the People’s Republic of China, are undergoing rapid change, involving the restructuring of economic, political, financial and
legal systems. Regulatory and tax environments may be subject to change without review or appeal, and many emerging markets suffer from underdevelopment of capital markets and tax systems. In addition, in countries with emerging markets, such as
the People’s Republic of China, issuers of securities face the threat of expropriation of their assets, restrictions on foreign ownership and/or nationalization of their businesses. The economic and financial data about emerging market countries
may also be unreliable. Any of the above factors may have an adverse impact on the level of the Index, and therefore, the value of your notes.
Other Terms of the Notes
Market Measure Business Day
The following definition shall supersede and replace the definition of a “Market Measure Business Day” set forth in product prospectus supplement EQUITY
SUN-1.
A “Market Measure Business Day” means a day on
which:
(A) the Stock Exchange of Hong
Kong (or any successor) is open for trading; and
(B)
the Index or any successor thereto is calculated and published.
|
Autocallable Market-Linked Step Up Notes
|
TS-
9
|
|
Autocallable Market-Linked Step Up Notes
Linked to the Hang Seng China Enterprises Index, due July , 2022 |
The Index
All disclosures contained in this term sheet regarding the Index,
including, without limitation, its make up, method of calculation, and changes in its components, have been derived from publicly available sources. The information reflects the policies of, and is subject to change by, HIS Services Limited (“HIS” or
the “Index sponsor”). The Index sponsor, which licenses the copyright and all other rights to the Index, has no obligation to continue to publish, and may discontinue publication of, the Index. The consequences of the Index sponsor discontinuing
publication of the Index are discussed in the section entitled “Description of the Notes—Discontinuance of an Index” beginning on page PS-30 of product prospectus supplement EQUITY SUN-1. None of us, the calculation agent, MLPF&S, or BofAS
accepts any responsibility for the calculation, maintenance or publication of the Index or any successor index.
General
The Hang Seng China Enterprises Index (the “HSCEI”) was launched on August 8, 1994 as a free float adjusted market-capitalization weighted index and consists of Chinese mainland (“Mainland”)
securities primarily listed on the Main Board of the Stock Exchange of Hong Kong (the “HKSE”), including H-shares, Red-chips and P-chips. With the launch of the 200-stock Hang Seng Composite Index (the “HSCI”) on October 3, 2001, the HSCEI became
part of the Hang Seng Composite Index Series (the “HSCI Series”). HSCEI serves as a benchmark that reflects the overall performance of Mainland securities listed in Hong Kong. The Hang Seng China Enterprises Index is reported by Bloomberg under the
ticker symbol “HSCEI.”
Standards for Listing and Maintenance
A “Mainland security” is a Hong Kong-listed security that has at least 50% of its sales revenue (or profit or assets, if relevant) derived from the Mainland. Mainland securities include H-shares, Red-chips and P-chips. An “H-share” is a Hong
Kong listed share of a Mainland enterprise. A “Red-chip” is a Mainland security with a minimum of 30% of its shareholdings held by a Mainland entity or entities (including State-owned organisations and provincial or municipal authorities of the
Mainland). A “P-chip” is a Mainland security that is not classified as an H-share or a Red-chip.
Mainland securities primarily listed on the Main Board of the HKSE are eligible to be included in the HSCEI,
excluding stocks that are secondary listings, preference shares, debt securities, mutual funds and other derivatives. In addition, to be eligible for selection in the HSCEI, a stock: (1) should be listed for at least one month by the review cut-off
date (inclusive of both the listing date and the review cut-off date); and (2) must satisfy the turnover screening requirements. In order to pass the turnover requirements, stocks that are already included in the HSCEI must have a turnover velocity
of at least 0.1% for at least 10 out of the past 12 months. In the case that an existing stock fails the turnover requirements, each failing month will be examined. If the aggregate turnover in a failing month is among the top 90% of the total
market, the stock will nonetheless satisfy the turnover requirements for that particular month, and the month can be considered in determining if a stock passes the overall turnover requirements. To be added to the HSCEI, a stock must have a
turnover velocity of at least 0.1% for at least 10 out of the past 12 months and for each of the most recent three months. Turnover velocity is calculated by dividing the median of the daily trades shares during a specific calendar month by the
free float adjusted issued shares at the end of that month. For Red-chips and P-chips to be eligible for selection in the HSCEI, the following additional criterial must be met: (1) for companies with a market capitalization rank in the top 10 among
Mainland companies, the stock should have been listed for at least 1 year, for companies with a market capitalization rank of 11-20 among Mainland companies, the stock should have been listed for at least 2 years, and for companies with a market
capitalization rank outside of the top 20 among Mainland companies, the stock should have been listed for at least 3 years; (2) the past one-month, three-month and 12-month historical price volatility of a stock should not be greater than three
times the historical price volatility of the HSCEI for the respective period; (3) the stock was not suspended for a complete month in the past one month before the relevant review cut-off date; and (4) net profit attributable to equity holders, net
cash generated from operating activities and cash dividends were greater than zero for three consecutive fiscal years in the annual reports related to a stock. For determining the market capitalization rank of a stock, the market capitalization of
an individual stock refers to the average of month-end market capitalization for the past 12 months of any review period. For stocks with a listing history of less than 12 months, the Market Value will be the average of the past month-end Market
Values since listing. Stock for a company subject to a high shareholder concentration notice from the Hong Kong Securities and Futures Commission will not be eligible for inclusion in the HSCEI.
For a stock with a trading history of less than 12 months or a stock that has transferred from the Growth
Enterprise Market of the HKSE to the Main Board of the HKSE in the past 12 months before the data review cut-off date, the following turnover requirements will replace the general turnover requirements described in the preceding paragraph: (i) if
the stock has a trading record of less than 6 months, it must attain a minimum velocity of 0.1% for all trading months; (ii) if the stock has a trading record equal to or greater than 6 months, (a) it cannot have more than one month in which it
failed to attain a velocity of at least 0.1% and (b) if it is not an existing constituent, for the latest 3 months, it has attained a minimum velocity of .1% for all trading months; and (iii) if the stock is an existing constituent that fails the
turnover requirements, each failing month will be examined and, if the aggregate turnover in a failing month is among the top 90% of the total market, the stock will nonetheless satisfy the turnover requirements for that particular month, and the
month can be considered in determining if a stock passes the overall turnover requirements.
HSIL undertakes regular quarterly reviews of HSCEI constituents with data cut-off dates
of the end of March, June, September and December each year, with HSCEI constituents selected as follows:
|
1.
|
All eligible stocks (including H-shares, Red-chips and P-chips) are ranked by their combined (i) full market capitalization, in terms of average month-end market capitalization in the past 12 months and
(ii) free float adjusted market capitalization, in terms of 12-month average market capitalization after free float adjustment;
|
|
2.
|
the combined market capitalization ranking for each eligible H-share stock is determined as the weighted average of the full market capitalization ranking and the free float adjusted market capitalization
ranking, where each rank has a 50% weight;
|
|
3.
|
in cases where two stocks have the same combined market capitalization, a higher rank will be assigned to the stock with the higher full market capitalization rank; and
|
|
4.
|
the top 50 eligible stocks that have the highest combined market capitalization ranking are selected as the constituents of the HSCEI, subject to the following buffer zone rule and number of constituents
rule.
|
Effective dates of constituent changes will be the next trading day after
the first Friday of March, June, September and December. If that Friday falls on a public holiday, it will be postponed to the next Friday, subject to the final decision made by HSIL. Under normal circumstances, five trading days’ notice will be
given for any constituent changes before the effective dates.
Whether or not to remove a suspended constituent from the HSCEI and replace
it with an appropriate candidate will be determined in the regular index reviews. Should a suspended constituent be removed from the HSCEI, its last traded price may be adjusted down to the lowest price in the system (i.e. $0.0001 in the security’s
price currency) or an official residual price (if available) for index calculation on the trading day preceding the effective date of the constituent changes.
Number of
constituents.
The number of constituent stocks is fixed at 50. Between the June
2019 and December 2019 rebalancing, the number of constituent stocks under each share type will change according to the following schedule:
|
Quarterly Rebalancing
|
||
|
September 2019
|
December 2019 onwards
|
|
|
H-share constituents
|
Minimum of 30
|
No maximum/minimum
|
|
Red-chip and P-chip constituents
|
Maximum of 20
|
No maximum/minimum
|
|
Total constituents
|
50
|
50
|
Buffer zone
rules
.
Existing constituents (including
H-shares, Red-chips and P-chips) ranked 61st or lower will be removed from the HSCEI, while non-constituent stocks (including H-shares, Red-chips and P-chips) ranked 40th or above will be included. If the number of incoming stocks is greater than
the number of outgoing constituents, constituents with the lowest combined market capitalization rank will be removed from the HSCEI in order to maintain the number of constituents at 50. If the number of incoming stocks is smaller than the
number of outgoing constituents, stocks with the highest combined market capitalization rank will be added to the HSCEI in order to maintain the number of constituents at 50. In the September 2019 rebalancing, the maximum number of constituent
changes will be limited to five. This limit will not be applicable from the December 2019 rebalancing onwards.
Reserve list
. The five non-constituent stocks (including H-shares, Red-chips and P-chips) with the highest
combined market capitalization rank will form a reserve list. The purpose of the reserve list is to facilitate the replacement of any outgoing constituents between regular reviews in cases where a constituent may be removed due to trading
suspension or delisting.
Index Calculation
The HSCEI is calculated using a free float adjusted market capitalization
weighted methodology with a 10% cap on individual stock weightings.
The formula for the HSCEI is shown below:
|
current index
|
=
|
current aggregate free float adjusted market capitalization of constituents
|
×
|
yesterday’s closing index
|
|||||
|
yesterday’s aggregate free float adjusted market capitalization of constituents
|
|||||||||
|
=
|
Σ
(P
t × IS × FAF × CF)
|
×
|
yesterday’s closing index
|
||||||
|
Σ
(P
t-1 × IS × FAF × CF)
|
|||||||||
Where:
P
t
: current price at day t;
P
t-1
: closing price at day t-1;
IS
: number of issued shares;
FAF
: free float adjusted factor, which is between 0 and 1; and
CF
: capping factor, which is between 0 and 1.
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Autocallable Market-Linked Step Up Notes
|
TS-
11
|
|
Autocallable Market-Linked Step Up Notes
Linked to the Hang Seng China Enterprises Index, due July , 2022 |
Free float Adjustments
. The free float adjusted factor represents the
proportion of shares that is free floated as a percentage of the issued shares.
Capping Factor
. A capping factor (“CF”) is calculated quarterly, such
that no individual constituent in an index will have a weighting exceeding a cap level of 10% on the index capping date.
Index Rebalancing
. The update of the issued shares, adjustment of the
free float adjusted factors and calculation of the capping factors are undertaken quarterly. In addition, the issued shares will be updated simultaneously with the index adjustment for corporate actions such as bonus issues, rights issues,
stock splits and stock consolidations. Ad hoc rebalancing will be conducted if a constituent’s issued shares and/or free float adjusted factor is substantially different from the production data. The HSCEI will also be recapped in the event of
constituent changes if the newly added component weighting is higher than the index cap level.
The following graph shows the daily historical performance of the Index
in the period from January 1, 2008 through July 11, 2019. 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. On July 11, 2019, the
closing level of the Index was 10,784.01.
This historical data on the Index is not necessarily
indicative of the future performance of the Index or what the value of the notes may be. Any historical upward or downward trend in the level of the Index during any period set forth above is not an indication that the level of the Index 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 Index.
License Agreement
BNS or one of its affiliates has entered into a non-exclusive license agreement
with HSIL and Hang Seng Data Services Limited whereby BNS or one of its affiliates, in exchange for a fee, is permitted to use the HSCEI in connection with certain securities, including the notes. BNS is not affiliated with HSIL; the only
relationship between HSIL and BNS is any licensing of the use of HSIL’s indices and trademarks related to them.
THE HSCEI IS PUBLISHED AND COMPILED BY HANG SENG INDEXES COMPANY LIMITED PURSUANT
TO A LICENSE FROM HANG SENG DATA SERVICES LIMITED. THE MARK AND NAME OF HANG SENG CHINA ENTERPRISES INDEX ARE PROPRIETARY TO HANG SENG DATA SERVICES LIMITED. HANG SENG INDEXES COMPANY LIMITED AND HANG SENG DATA SERVICES LIMITED HAVE AGREED TO
THE USE OF, AND REFERENCE TO, THE HSCEI BY BNS IN CONNECTION WITH THE NOTES,
BUT NEITHER HANG SENG INDEXES COMPANY LIMITED NOR HANG SENG DATA SERVICES LIMITED WARRANTS OR REPRESENTS OR GUARANTEES TO ANY BROKER
OR HOLDER OF THE NOTES OR ANY OTHER PERSON (I) THE ACCURACY OR COMPLETENESS OF THE HSCEI AND ITS COMPUTATION OR ANY INFORMATION RELATED THERETO; OR (II) THE FITNESS OR SUITABILITY FOR ANY PURPOSE OF THE HSCEI OR ANY COMPONENT OR DATA
COMPRISED IN IT; OR (III) THE RESULTS WHICH MAY BE OBTAINED BY ANY PERSON FROM THE USE OF THE HSCEI OR ANY COMPONENT OR DATA COMPRISED IN IT FOR ANY PURPOSE, AND NO WARRANTY OR REPRESENTATION OR GUARANTEE OF ANY KIND WHATSOEVER RELATING TO
THE HSCEI IS GIVEN OR MAY BE IMPLIED.
THE PROCESS AND BASIS OF COMPUTATION AND COMPILATION OF THE HSCEI AND ANY OF THE RELATED FORMULA OR FORMULAE, CONSTITUENT STOCKS AND FACTORS MAY AT ANY TIME BE CHANGED OR ALTERED BY HANG SENG
INDEXES COMPANY LIMITED WITHOUT NOTICE.
TO THE
|
Autocallable Market-Linked Step Up Notes
|
TS-
12
|
|
Autocallable Market-Linked Step Up Notes
Linked to the Hang Seng China Enterprises Index, due July , 2022 |
EXTENT
PERMITTED BY APPLICABLE LAW, NO RESPONSIBILITY OR LIABILITY IS ACCEPTED BY HANG SENG INDEXES COMPANY LIMITED OR HANG SENG DATA SERVICES LIMITED (I) IN RESPECT OF THE USE OF AND/OR REFERENCE TO THE HSCEI BY BNS IN CONNECTION WITH THE NOTES;
OR (II) FOR ANY INACCURACIES, OMISSIONS, MISTAKES OR ERRORS OF HANG SENG INDEXES COMPANY LIMITED IN THE COMPUTATION OF THE HSCEI; OR (III) FOR ANY INACCURACIES, OMISSIONS, MISTAKES, ERRORS OR INCOMPLETENESS OF ANY INFORMATION USED IN
CONNECTION WITH THE COMPUTATION OF THE HSCEI WHICH IS SUPPLIED BY ANY OTHER PERSON; OR (IV) FOR ANY ECONOMIC OR OTHER LOSS WHICH MAY BE DIRECTLY OR INDIRECTLY SUSTAINED BY ANY BROKER OR HOLDER OF THE PRODUCT OR ANY OTHER PERSON DEALING WITH
THE NOTES AS A RESULT OF ANY OF THE AFORESAID, AND NO CLAIMS, ACTIONS OR LEGAL PROCEEDINGS MAY BE BROUGHT AGAINST HANG SENG INDEXES COMPANY LIMITED AND/OR HANG SENG DATA SERVICES LIMITED
IN CONNECTION WITH THE NOTES IN ANY MANNER WHATSOEVER BY ANY BROKER, HOLDER OR OTHER PERSON DEALING WITH THE NOTES.
ANY BROKER, HOLDER OR OTHER PERSON DEALING WITH THE NOTES DOES SO THEREFORE IN FULL KNOWLEDGE OF THIS DISCLAIMER AND CAN PLACE NO RELIANCE WHATSOEVER ON HANG SENG INDEXES COMPANY LIMITED AND HANG SENG DATA SERVICES LIMITED. FOR THE AVOIDANCE
OF DOUBT, THIS DISCLAIMER DOES NOT CREATE ANY CONTRACTUAL OR QUASI-CONTRACTUAL RELATIONSHIP BETWEEN ANY BROKER, HOLDER OR OTHER PERSON AND HANG SENG INDEXES COMPANY LIMITED AND/OR HANG SENG DATA SERVICES LIMITED AND MUST NOT BE CONSTRUED TO
HAVE CREATED SUCH RELATIONSHIP.
|
Autocallable Market-Linked Step Up Notes
|
TS-
13
|
|
Autocallable Market-Linked Step Up Notes
Linked to the Hang Seng China Enterprises Index, due July , 2022 |
Supplement to the Plan of Distribution
Under our distribution agreement with BofAS, BofAS will purchase the notes from us as principal at the public offering price indicated
on the cover of this term sheet, less the indicated underwriting discount.
MLPF&S will purchase the notes from BofAS for
resale, and will receive a selling concession in connection with the sale of the notes in an amount up to the full amount of underwriting discount set forth on the cover of this term sheet.
We may deliver the notes against payment therefor in New York, New York on a date that is greater than two
business days following the pricing date. Under Rule 15c6-1 of the Securities Exchange Act of 1934, trades in the secondary market generally are required to settle in two business days, unless the parties to any such trade expressly agree otherwise.
Accordingly, if the initial settlement of the notes occurs more than two business days from the pricing date, purchasers who wish to trade the notes more than two business days prior to the settlement date will be required to specify alternative
settlement arrangements to prevent a failed settlement.
The notes will not be listed on any securities exchange. In the original offering of the notes, the notes will
be sold in minimum investment amounts of 100 units. If you place an order to purchase the notes, you are consenting to MLPF&S and/or one of its affiliates acting as a principal in effecting the transaction for your account.
MLPF&S and BofAS may repurchase and resell the notes, with repurchases and resales being made at prices related to then-prevailing market prices or at negotiated prices, and
these prices will include MLPF&S’s and BofAS’s trading commissions and mark-ups or mark-downs. MLPF&S and BofAS may act as principal or agent in these market-making transactions; however, neither is obligated to engage in any such
transactions. At their discretion, for a short, undetermined initial period after the issuance of the notes, MLPF&S and BofAS may offer to buy the notes in the secondary market at a price that may exceed the initial estimated value of the
notes. Any price offered by MLPF&S or BofAS for the notes will be based on then-prevailing market conditions and other considerations, including the performance of the Index and the remaining term of the notes. However, none of us, MLPF&S,
BofAS or any of our respective affiliates is obligated to purchase your notes at any price or at any time, and we cannot assure you that we, MLPF&S, BofAS or any of our respective affiliates will purchase your notes at a price that equals or
exceeds the initial estimated value of the notes.
The value of the notes shown on your account statement produced by MLPF&S will be based on BofAS’s estimate of the value of the notes if BofAS or another of its affiliates were to make a market in the notes,
which it is not obligated to do. That estimate will be based upon the price that BofAS may pay for the notes in light of then-prevailing market conditions, and other considerations, as mentioned above, and will include transaction costs. At certain
times, this price may be higher than or lower than the initial estimated value of the notes.
The distribution of the Note Prospectus in connection with these offers or sales will be
solely for the purpose of providing investors with the description of the terms of the notes that was made available to investors in connection with their initial offering. Secondary market investors should not, and will not be authorized to, rely on
the Note Prospectus for information regarding BNS or for any purpose other than that described in the immediately preceding sentence.
An investor’s household, as referenced on the cover of this term sheet, will generally include accounts held by any
of the following, as determined by MLPF&S in its discretion and acting in good faith based upon information then available to MLPF&S:
|
●
|
the investor’s spouse (including a domestic
partner), siblings, parents, grandparents, spouse’s parents, children and grandchildren, but excluding accounts held by aunts, uncles, cousins, nieces, nephews or any other family relationship not directly above or below the individual
investor;
|
|
●
|
a family investment vehicle, including
foundations, limited partnerships and personal holding companies, but only if the beneficial owners of the vehicle consist solely of the investor or members of the investor’s household as described above; and
|
|
●
|
a trust where the grantors and/or beneficiaries
of the trust consist solely of the investor or members of the investor’s household as described above; provided that, purchases of the notes by a trust generally cannot be aggregated together with any purchases made by a trustee’s personal
account.
|
Purchases in retirement accounts will not be considered part
of the same household as an individual investor’s personal or other non-retirement account, except for individual retirement accounts (“IRAs”), simplified employee pension plans (“SEPs”), savings incentive match plan for employees (“SIMPLEs”), and
single-participant or owners only accounts (i.e., retirement accounts held by self-employed individuals, business owners or partners with no employees other than their spouses).
Please contact your Merrill
financial advisor if you have any questions about the application of these provisions to your specific circumstances or think you are eligible
.
|
Autocallable Market-Linked Step Up Notes
|
TS-
14
|
|
Autocallable Market-Linked Step Up Notes
Linked to the Hang Seng China Enterprises Index, due July , 2022 |
Structuring the Notes
The notes are our unsecured senior debt securities, the return on which is linked to the performance of the Index.
As is the case for all of our debt securities, including our market-linked notes, the economic terms of the notes reflect our actual or perceived creditworthiness at the time of pricing. The internal funding rate we use in pricing the market-linked
note is typically lower than the rate we would pay when we issue conventional fixed-rate debt securities of comparable maturity. This generally relatively lower internal funding rate, which is reflected in the economic terms of the notes, along with
the fees and charges associated with market-linked notes, typically results in the initial estimated value of the notes on the pricing date being less than their public offering price.
Payments on the notes, including the amount you receive at maturity or upon an automatic call, will be calculated based on the performance of the Index and the $10 per unit
principal amount. In order to meet these payment obligations, at the time we issue the notes, we may choose to enter into certain hedging arrangements (which may include call options, put options or other derivatives) with BofAS or one of its
affiliates. The terms of these hedging arrangements are determined by seeking bids from market participants, including MLPF&S, BofAS and its affiliates, and take into account a number of factors, including our creditworthiness, interest rate
movements, the volatility of the Index, the tenor of the notes and the tenor of the hedging arrangements. The economic terms of the notes and their initial estimated value depend in part on the terms of these hedging arrangements.
BofAS has advised us that the hedging arrangements will include a hedging related charge of approximately $0.075 per unit, reflecting an estimated profit to be credited to BofAS from these transactions. Since hedging
entails risk and may be influenced by unpredictable market forces, additional profits and losses from these hedging arrangements may be realized by BofAS or any third party hedge providers.
For further information, see “Risk Factors” beginning on page PS-7 and “Use of Proceeds and Hedging” on page PS-23
of product prospectus supplement EQUITY SUN-1.
Summary of Canadian Federal Income Tax
Consequences
An investor should read carefully the description of principal Canadian federal income tax
considerations under “Canadian Taxation” in the accompanying prospectus relevant to a holder (as defined on page 20 of the prospectus) owning debt securities, and the description of principal Canadian federal income tax considerations under
“Supplemental Discussion of Canadian Federal Income Tax Consequences” in product prospectus supplement EQUITY SUN-1.
Summary of U.S. Federal Income Tax
Consequences
The following is a general description of certain U.S.
federal tax considerations relating to the notes. Prospective purchasers of the notes should consult their tax advisors as to the consequences under the tax laws of the country of which they are residents for tax purposes and the tax laws of the U.S.
of acquiring, holding and disposing of the notes and receiving payments under the notes. This summary is based upon the law as in effect on the date of this document and is subject to any change in law that may take effect after such date. We urge
you to read the more detailed discussion in the “Material U.S. Federal Income Tax Consequences” section beginning on page PS-42 of product prospectus supplement EQUITY SUN-1.
No statutory, regulatory, judicial or administrative
authority directly discusses how the notes should be treated for U.S. federal income tax purposes. As a result, the U.S. federal income tax consequences of your investment in the notes are uncertain. Accordingly, we urge you to consult your tax
advisor as to the tax consequences of your investment in the notes (and of having agreed to the required tax treatment of your notes described below) and as to the application of state, local or other tax laws to your investment in your notes and the
possible effects of changes in federal or other tax laws.
Pursuant to the terms of the notes, BNS and you agree, in
the absence of a statutory or regulatory change or an administrative determination or judicial ruling to the contrary, to characterize your notes as prepaid derivative contracts with respect to the Index. If your notes are so treated, you should
generally recognize long-term capital gain or loss if you hold your notes for more than one year (and otherwise, short-term capital gain or loss) upon the taxable disposition of your notes in an amount equal to the difference between the amount you
receive at such time and the amount you paid for your notes. The deductibility of capital losses is subject to limitations.
However, it is possible that the Internal Revenue Service
(the “IRS”) could assert that your holding period in respect of your notes should end on the date on which the amount you are entitled to receive upon maturity or automatic call of your notes is determined, even though you will not receive any
amounts from the issuer in respect of your notes prior to the maturity or automatic call of your notes. In such case, you may be treated as having a holding period in respect of your notes prior to the maturity or automatic call of your notes, and
such holding period may be treated as less than one year even if you receive cash upon the maturity or automatic call of your notes at a time that is more than one year after the beginning of your holding period.
Based on certain factual representations received from us,
our special U.S. Tax counsel, Cadwalader, Wickersham & Taft LLP, is of the opinion that it would be reasonable to treat your notes in the manner described above. However, because there is no authority that specifically addresses the tax treatment
of the notes, it is possible that your notes could alternatively be treated for tax purposes as a single contingent payment debt instrument or pursuant to some other characterization, such that the timing and character of your income from the notes
could differ materially and adversely from the treatment described above.
Possible
Change in Law.
In 2007, the IRS released a notice
that may affect the taxation of holders of the notes. According to Notice 2008-2, the IRS and the U.S. Treasury Department (the “Treasury”) are actively considering whether a holder of an instrument such as the notes should be required to accrue
ordinary income on a current basis, and they are seeking taxpayer comments on the subject. It is not possible to determine what guidance they will ultimately issue, if any. It is possible, however, that under such guidance, holders of the notes
will ultimately be required to accrue income currently and this could be applied on a retroactive basis. The IRS and the Treasury are also considering other relevant issues, including whether additional gain or loss from such instruments should be
treated as ordinary or capital, whether non-U.S. holders of such instruments should be subject to withholding tax on any deemed income accruals, and whether the special “constructive ownership rules” of Section 1260 of the Internal Revenue Code of
1986, as amended (the “Code”) should be applied to such instruments.
Medicare Tax on Net Investment Income.
U.S. holders that are individuals, estates or certain trusts are subject
to an additional 3.8% tax on all or a portion of their “net investment income,” or “undistributed net investment income” in the case of an estate or trust, which may include any income or gain with respect to the notes, to the extent of their net
investment income or undistributed net investment income (as the case may be) that, when added to their other modified adjusted gross income, exceeds $200,000 for an unmarried individual, $250,000 for a married taxpayer filing a joint return (or a
surviving spouse), $125,000 for a married individual filing a separate return or the dollar amount at which the highest tax bracket begins for an estate or trust. The 3.8% Medicare tax is determined in a different manner than the regular income
tax. U.S. holders should consult their advisors with respect to the 3.8% Medicare tax.
Specified Foreign Financial Assets
.
U.S. holders may be subject to
reporting obligations with respect to their notes if they do not hold their notes in an account maintained by a financial institution and the aggregate value of their notes and certain other “specified foreign financial assets” (applying certain
attribution rules) exceeds an applicable threshold. Significant penalties can apply if a U.S. holder is required to disclose its notes and fails to do so.
|
Autocallable Market-Linked Step Up Notes
|
TS-
16
|
|
Autocallable Market-Linked Step Up Notes
Linked to the Hang Seng China Enterprises Index, due July , 2022 |
Amounts withheld under the backup withholding rules are
not additional taxes and may be refunded or credited against your U.S. federal income tax liability, provided the required information is furnished to the IRS.
Non-U.S. Holders.
If you are a non-U.S. holder, subject to Section 871(m) of the Code and FATCA, discussed below,
you should generally not be subject to generally applicable information reporting and backup withholding requirements with respect to payments on your notes if you comply with certain certification and identification requirements as to your non-U.S.
status including providing us (and/or the applicable withholding agent) a properly executed and fully completed applicable IRS Form W-8. Subject to Section 871(m) of the Code, discussed below, gain from the taxable disposition of a note generally
will not be subject to U.S. tax unless (i) such gain is effectively connected with a trade or business conducted by you in the U.S., (ii) you are a non-resident alien individual and are present in the U.S. for 183 days or more during the taxable year
of such taxable disposition and certain other conditions are satisfied or (iii) you have certain other present or former connections with the U.S.
Section 871(m)
. A 30% withholding tax (which may be reduced by an applicable income tax treaty) is imposed
under Section 871(m) of the Code on certain “dividend equivalents” paid or deemed paid to a non-U.S. holder with respect to a “specified equity-linked instrument” that references one or more dividend-paying U.S. equity securities or indices
containing U.S. equity securities. The withholding tax can apply even if the instrument does not provide for payments that reference dividends. Treasury regulations provide that the withholding tax applies to all dividend equivalents paid or deemed
paid on specified equity-linked instruments that have a delta of one (“delta-one specified equity-linked instruments”) issued after 2016 and to all dividend equivalents paid or deemed paid on all other specified equity-linked instruments issued after
2018. However, the IRS has issued guidance that states that the Treasury and the IRS intend to amend the effective dates of the Treasury regulations to provide that withholding on dividend equivalents paid or deemed paid will not apply to specified
equity-linked instruments that are not delta-one specified equity-linked instruments and are issued before January 1, 2021.
Based on our determination that the notes are not
“delta-one” with respect to the Index or any U.S. security included in the Index, our special U.S. tax counsel is of the opinion that the notes should not be delta-one specified equity-linked instruments and thus should not be subject to withholding on
dividend equivalents. Our determination is not binding on the IRS, and the IRS may disagree with this determination. Furthermore, the application of Section 871(m) of the Code will depend on our determinations made upon issuance of the notes. If
withholding is required, we will not make payments of any additional amounts.
Nevertheless, after issuance, it is possible that your
notes could be deemed to be reissued for tax purposes upon the occurrence of certain events affecting the Index, any U.S. security included in the Index or your notes, and following such occurrence your notes could be treated as delta-one specified
equity-linked instruments that are subject to withholding on dividend equivalents. It is also possible that withholding tax or other tax under Section 871(m) of the Code could apply to the notes under these rules if a non-U.S. holder enters, or has
entered, into certain other transactions in respect of the Index or any U.S. security included in the Index or the notes. A non-U.S. holder that enters, or has entered, into other transactions in respect of the Index or any U.S. security included in
the index or the notes should consult its tax advisor regarding the application of Section 871(m) of the Code to its notes in the context of its other transactions.
Because of the uncertainty regarding the application of the
30% withholding tax on dividend equivalents to the notes, you are urged to consult your tax advisor regarding the potential application of Section 871(m) of the Code and the 30% withholding tax to an investment in the notes.
Section 1297
. We will not attempt to ascertain whether any entity the
stock of which is included in the Index would be treated as a “passive foreign investment company” (a “PFIC”) within the meaning of the Code. If any such entity were so treated, certain adverse U.S. federal income tax consequences might apply to U.S.
holders upon the taxable disposition (including cash settlement) of the notes. You should refer to information filed with the SEC or an equivalent governmental authority by such entities and consult your tax advisor regarding the possible consequences
to you if such entity is or becomes a PFIC.
U.S. Federal Estate Tax
Treatment of Non-U.S. Holders.
A note may be subject to U.S. federal estate tax if
an individual non-U.S. holder holds the note at the time of his or her death. The gross estate of a non-U.S. holder domiciled outside the U.S. includes only property situated in the U.S. Individual non-U.S. holders should consult their tax advisors
regarding the U.S. federal estate tax consequences of holding the notes at death.
FATCA.
The Foreign Account Tax Compliance Act (“FATCA”) was enacted on March 18, 2010, and imposes a
30% U.S. withholding tax on “withholdable payments” (i.e., certain U.S.-source payments, including interest (and original issue discount), dividends or other fixed or determinable annual or periodical gain, profits, and income, and on the gross
proceeds from a disposition of property of a type which can produce U.S.-source interest or dividends) and “passthru payments” (i.e., certain payments attributable to withholdable payments) made to certain foreign financial institutions (and certain
of their affiliates) unless the payee foreign financial institution agrees (or is required), among other things, to disclose the identity of any U.S. individual with an account at the institution (or the relevant affiliate) and to annually report
certain information about such account. FATCA also requires withholding agents making withholdable payments to certain foreign entities that do not disclose the name, address, and taxpayer identification number of any substantial U.S. owners (or do
not certify that they do not have any
substantial U.S. owners) to withhold tax at a rate of 30%. Under certain circumstances, a holder may be eligible for refunds or credits of such taxes.
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Autocallable Market-Linked Step Up Notes
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Autocallable Market-Linked Step Up Notes
Linked to the Hang Seng China Enterprises Index, due July , 2022 |
Pursuant to final and temporary Treasury regulations and other IRS guidance,
the withholding and reporting requirements under FATCA will generally apply to certain “withholdable payments”, will not apply to gross proceeds on a sale or disposition, and will apply to certain foreign passthru payments only to the extent that
such payments are made after the date that is two years after final regulations defining the term “foreign passthru payment” are published. If withholding is required, we (or the applicable paying agent) will not be required to pay additional amounts
with respect to the amounts so withheld. Foreign financial institutions and non-financial foreign entities located in jurisdictions that have an intergovernmental agreement with the U.S. governing FATCA may be subject to different rules.
Investors should consult their own advisors about the application of FATCA, in
particular if they may be classified as financial institutions (or if they hold their notes through a foreign entity) under the FATCA rules.
Both U.S. and non-U.S. holders should consult their tax advisors regarding
the U.S. federal income tax consequences of an investment in the notes, as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction (including that of BNS and those of the issuers of the stocks included
in the Index).
Where You Can Find More
Information
We have filed a registration statement (including a product prospectus supplement, a
prospectus supplement and a prospectus) with the SEC for the offering to which this term sheet relates. Before you invest, you should read the Note Prospectus, including this term sheet, and the other documents that we have filed with the SEC, for
more complete information about us and this offering. You may get these documents without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, we, any agent, or any dealer participating in this offering will arrange to send you
these documents if you so request by calling MLPF&S or BofAS toll-free at 1-800-294-1322.
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Autocallable Market-Linked Step Up Notes
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