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Subject to Completion
Preliminary Term Sheet dated
January 9, 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 INDICES MITTS-1
dated December 26, 2018)
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Units
$10 principal amount per unit CUSIP No.  |
Pricing Date*
Settlement Date* Maturity Date* |
January , 2019
January , 2019 January , 2023 |
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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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Market Index Target-Term Securities® Linked to an International Equity Index Basket
◾ Maturity of approximately four years
◾ Between [100% and 120%, to be determined on the pricing date] participation in increases in the Basket
◾ If the Basket is flat or decreases, payment at
maturity will be the principal amount
◾ The Basket will be comprised of the EURO STOXX 50® Index,
the FTSE® 100 Index, the Nikkei Stock Average Index, the Swiss Market Index®, the S&P/ASX 200 Index and the Hang Seng® Index. The EURO STOXX 50® Index will be given an initial weight of
40.00%, each of the FTSE® 100 Index and the Nikkei Stock Average Index will be given an initial weight of 20.00%, each of the Swiss Market Index® and the S&P/ASX 200 Index will be given an initial weight of
7.50% and the Hang Seng® Index will be given an initial weight of 5.00%
◾ All payments occur at maturity and 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-6 of this term sheet and beginning on page PS-6 of product prospectus supplement EQUITY INDICES MITTS-1.
The initial estimated value of the notes as of the
pricing date is expected to be between $9.02 and $9.29 per unit, which is less than the public offering price listed
below. See “Summary” on the following page, “Risk Factors” beginning on page TS-6 of this term sheet and “Structuring the Notes” on page TS-26 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)
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$ 0.25
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$
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Proceeds, before expenses, to BNS
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$ 9.75
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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 $0.20 per unit, respectively. See “Supplement to the Plan of Distribution” below.
The notes:
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Are Not FDIC Insured
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Are Not Bank Guaranteed
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May Lose Value
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
 |
Summary
The Market Index Target-Term Securities® Linked to an International Equity Index Basket, due January , 2023 (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 provide you with between [100% and 120%, to be determined on the pricing date] participation in increases in the Market Measure, which is the International
Equity Index Basket (the “Basket”). If the Basket decreases, you will receive only 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 Basket, subject to our credit risk. See “Terms of the Notes” below.
The Basket is comprised of the EURO STOXX 50® Index, the FTSE® 100 Index, the Nikkei Stock
Average Index, the Swiss Market Index®, the S&P/ASX 200 Index and the Hang Seng® Index (each a “Basket Component”). On the pricing date, the EURO STOXX 50® Index will be given an initial weight of 40.00%,
each of the FTSE® 100 Index and the Nikkei Stock Average Index will be given an initial weight of 20.00%, each of the Swiss Market Index® and the S&P/ASX 200 Index will be given an initial weight of 7.50% and the Hang
Seng® Index will be given an initial weight of 5.00%.
The economic terms of the notes (including the Participation Rate) 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-26.
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Terms of the Notes
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Redemption Amount Determination
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Issuer:
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The Bank of Nova Scotia ("BNS")
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On the maturity date, you will receive a cash payment per unit determined as follows:
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Principal Amount:
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$10.00 per unit
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 You will receive the Minimum Redemption Amount per unit of $10.00
(The Redemption Amount will not be less than the Minimum Redemption Amount per unit.)
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Term:
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Approximately four years
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Market Measure:
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An international equity index basket comprised of the EURO STOXX 50® Index (Bloomberg symbol: “SX5E”), the FTSE® 100 Index
(Bloomberg symbol: “UKX”), the Nikkei Stock Average Index (Bloomberg symbol: “NKY”), the Swiss Market Index® (Bloomberg symbol: “SMI”), the S&P/ASX 200 Index (Bloomberg symbol: “AS51”) and the Hang Seng® Index
(Bloomberg symbol: “HSI”). Each Basket Component is a price return index.
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Starting Value:
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The Starting Value will be set to 100.00 on the pricing date.
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Ending Value:
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The average of the closing levels of the Market Measure on each calculation day occurring during the Maturity Valuation Period. The
scheduled calculation days are subject to postponement in the event of Market Disruption Events, as described beginning on page PS-18 of product prospectus supplement EQUITY INDICES MITTS-1.
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Minimum Redemption Amount:
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$10.00 per unit. If you sell your notes before the maturity date, you may receive less than the Minimum Redemption Amount per unit. | ||
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Participation Rate:
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Between [100% and 120%]. The actual Participation Rate will be determined on the pricing date.
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Maturity Valuation Period:
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Five scheduled calculation days shortly before the maturity date
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Fees and Charges:
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The underwriting discount of $0.25 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-26.
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Calculation Agent:
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Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S")
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
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The terms and risks of the notes are contained in this term sheet and in the following:
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Product prospectus supplement EQUITY INDICES MITTS-1 dated December 26, 2018:
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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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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 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 INDICES MITTS-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
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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 anticipate that the Basket will
increase moderately from the Starting Value to the Ending Value.
◾ You accept that the return on the
notes will be zero if the Basket does not increase 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 Basket Components.
◾ 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.
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◾ You believe that the Basket will decrease from the
Starting Value to the Ending Value or that it will not increase sufficiently over the term of the notes to provide you with your desired return.
◾ You seek a guaranteed return beyond the Minimum Redemption Amount.
◾ 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 Basket Components.
◾ 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.
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
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Hypothetical Payout Profile and Examples of Payments at Maturity
The graph below is based on hypothetical numbers and values.
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Market Index Target-Term Securities
 |
This graph reflects the returns on the notes, based on a hypothetical Participation Rate of 110% (the midpoint of the
Participation Rate range of [100% to 120%]), the Minimum Redemption Amount of $10.00. The blue 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
Basket Components, 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. They illustrate the calculation of the
Redemption Amount and total rate of return based on the Starting Value of 100, a hypothetical Participation Rate of 110%, the Minimum Redemption Amount of $10.00 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 Ending Value, Participation Rate, 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 hypothetical levels of the Basket, see “The
Basket” section below. For recent actual levels of the Basket Components, see the “Basket Component” section below. Each Basket Component 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 any of the Basket Components, 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.
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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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0.00
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-100.00%
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$10.00(1)
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0.00%
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25.00
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-75.00%
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$10.00
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0.00%
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50.00
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-50.00%
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$10.00
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0.00%
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75.00
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-25.00%
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$10.00
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0.00%
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100.00
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0.00%
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$10.00
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0.00%
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110.00
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10.00%
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$11.10
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11.00%
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120.00
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20.00%
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$12.20
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22.00%
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130.00
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30.00%
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$13.30
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33.00%
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140.00
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40.00%
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$14.40
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44.00%
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150.00
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50.00%
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$15.50
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55.00%
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160.00
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60.00%
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$16.60
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66.00%
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170.00
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70.00%
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$17.70
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77.00%
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190.00
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90.00%
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$19.90
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99.00%
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(1)
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The Redemption Amount per unit will not be less than the Minimum Redemption Amount.
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
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Example 1
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The Ending Value is 90.00, or 90.00% of the Starting Value:
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Starting Value: 100.00
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Ending Value: 90.00
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= $9.00, however, because the Redemption Amount for the notes cannot be less than the Minimum Redemption Amount, the
Redemption Amount will be $10.00 per unit
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Example 2
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The Ending Value is 120.00, or 120.00% of the Starting Value:
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Starting Value: 100.00
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Ending Value: 120.00
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= $12.20 Redemption Amount per unit
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
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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-6 of product prospectus supplement EQUITY INDICES
MITTS-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.
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◾
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Depending on the performance of the Basket as measured shortly before the maturity
date, you may not earn a return on your investment.
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◾
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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.
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◾
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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.
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◾
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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 MLPF&S 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-26.
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◾
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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 Basket, 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.
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◾
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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.
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◾
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A trading market is not expected to develop for the notes. Neither we
nor MLPF&S 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.
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◾
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Changes in the level of one of the Basket Components may be offset by
changes in the levels of the other Basket Components. Due to the different Initial Component Weights (as defined in “The Basket” section below), changes in the levels of some Basket Components will have a more
substantial impact on the value of the Basket than similar changes in the levels of the other Basket Components.
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◾
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Our business, hedging and trading activities, and those of
MLPF&S and our respective affiliates (including trades in shares of companies included in the Basket Components), and any hedging and trading activities we, MLPF&S 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.
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◾
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An Index sponsor (as defined below) may adjust the relevant Basket Component
in a way that may adversely affect its level and your interests, and has no obligation to consider your interests.
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◾
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You will have no rights of a holder of the securities included in the
Basket Components, and you will not be entitled to receive securities or dividends or other distributions by the issuers of those securities.
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◾
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While we, MLPF&S or our respective affiliates may from time to time own securities of companies included in the Basket
Components, we, MLPF&S and our respective affiliates do not control any company included in the Basket Components, and have not verified any disclosure made by any other company.
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
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◾
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Your return on the notes may be affected by factors affecting the international securities markets, specifically changes in the countries
represented by the Basket Components. In addition, you will not obtain the benefit of any increase in the value of the currencies in which the securities in the Basket Components trade against the U.S. Dollar which you would
have received if you had owned the securities in the Basket Components during the term of your notes, although the value of the Basket may be adversely affected by general exchange rate movements in the market.
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◾
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There may be potential conflicts of interest involving the calculation agent, which is MLPF&S. We have the right to appoint and remove the
calculation agent.
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◾
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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.
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◾
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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-26 of product prospectus supplement EQUITY INDICES MITTS-1.
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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 INDICES MITTS-1:
A “Market Measure Business Day” means a day on which:
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(A)
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each of the Eurex (as to the EURO STOXX 50® Index), the London Stock Exchange (as to the FTSE® 100
Index), the Tokyo Stock Exchange (as to the Nikkei Stock Average Index), the SIX Swiss Exchange (as to the Swiss Market Index®), the Australian Stock Exchange (as to the S&P/ASX 200 Index) and the Stock Exchange of
Hong Kong (as to the Hang Seng® Index) (or any successor to the foregoing exchanges) are open for trading; and
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(B)
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the Basket Components or any successors thereto are calculated and published.
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
|
The Basket
The Basket is designed to allow investors to participate in the percentage changes in the levels of the Basket Components from the Starting Value
to the Ending Value of the Basket. The Basket Components are described in the section “The Basket Components” below. Each Basket Component will be assigned an initial weight on the pricing date, as set forth in the table below.
For more information on the calculation of the value of the Basket, please see the section entitled “Description of the
Notes—Basket Market Measures” beginning on page PS-21 of product prospectus supplement EQUITY INDICES MITTS-1.
If January 7, 2019 were the pricing date, for each Basket Component, the Initial Component Weight, the closing
level, the hypothetical Component Ratio and the initial contribution to the Basket value would be as follows:
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Basket Component
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Bloomberg Symbol
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Initial Component Weight
|
Closing Level(1)(2)
|
Hypothetical Component Ratio(1)(3)
|
Initial Basket Value Contribution
|
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EURO STOXX 50® Index
|
SX5E
|
40.00%
|
3,033.64
|
0.01318548
|
40.00
|
|||||
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FTSE® 100 Index
|
UKX
|
20.00%
|
6,810.88
|
0.00293648
|
20.00
|
|||||
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Nikkei Stock Average Index
|
NKY
|
20.00%
|
20,038.97
|
0.00099806
|
20.00
|
|||||
|
Swiss Market Index®
|
SMI
|
7.50%
|
8,535.95
|
0.00087864
|
7.50
|
|||||
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S&P/ASX 200 Index
|
AS51
|
7.50%
|
5,683.189
|
0.00131968
|
7.50
|
|||||
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Hang Seng® Index
|
HSI
|
5.00%
|
25,835.70
|
0.00019353
|
5.00
|
|||||
|
Starting Value
|
100.00
|
|
(1)
|
The actual closing level of each Basket Component and the resulting actual Component Ratios will be determined on the pricing
date, subject to adjustment as more fully described in the section entitled “Description of the Notes—Basket Market Measures—Determination of the Component Ratio for Each Basket Component” beginning on page PS-36 of product
prospectus supplement EQUITY INDICES MITTS-1 if a Market Disruption Event occurs on the pricing date as to any Basket Component.
|
|
(2)
|
These were the closing levels of the Basket Components on January 7, 2019.
|
|
(3)
|
Each hypothetical Component Ratio equals the Initial Component Weight of the relevant Basket Component (as a percentage)
multiplied by 100.00, and then divided by the closing level of that Basket Component on January 7, 2019 and rounded to eight decimal places.
|
The calculation agent will calculate the value of the Basket on each calculation day during the Maturity Valuation
Period by summing the products of the closing level for each Basket Component on such calculation day and the Component Ratio applicable to such Basket Component. If a Market Disruption Event occurs as to any Basket Component on any
scheduled calculation day, the closing level of that Basket Component will be determined as more fully described beginning on page PS-22 of product prospectus supplement EQUITY INDICES MITTS-1 in the section “Description of the
Notes—Observation Level or Ending Value of the Basket”.
|
Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
|
While actual historical information on the Basket will not exist before the pricing date, the
following graph sets forth the hypothetical historical performance of the Basket from January 1, 2008 through January 7, 2019. The graph is based upon actual daily historical levels of the Basket Components, hypothetical Component Ratios
based on the closing levels of the Basket Components as of December 31, 2007, and a Basket value of 100.00 as of that date. This hypothetical historical data on the Basket is not necessarily indicative of the future performance of the Basket
or what the value of the notes may be. Any hypothetical historical upward or downward trend in the value of the Basket during any period set forth below is not an indication that the value of the Basket is more or less likely to increase or
decrease at any time over the term of the notes.
Hypothetical Historical Performance of the Basket
|
Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
|
The Basket Components
All disclosures contained in this term sheet regarding the Basket Components, including, without limitation, their
make-up, method of calculation, and changes in their components, have been derived from publicly available sources. The information reflects the policies of, and is subject to change by each of STOXX Limited (“STOXX”) with respect to the
EURO STOXX 50® Index (the “SX5E”), FTSE International Limited (“FTSE”) with respect to the FTSE® 100 Index (the “UKX”), Nikkei Inc. (“Nikkei”) with respect to the Nikkei 225 Index (the “NKY”), S&P Dow Jones Indices
LLC (“S&P”), a division of S&P Global, with respect to the S&P/ASX 200 Index (the “AS51”), the Geneva, Zurich, SIX Group Ltd., certain of its subsidiaries, and the Management Committee of the SIX Swiss Exchange (the “SIX
Exchange”), with respect to the Swiss Market Index® (the “SMI”), and Hang Seng Indexes Company Limited (“HSIL”) with respect to the Hang Seng® Index (the “HSI”) (STOXX, FTSE, Nikkei, S&P, Six Exchange and HSIL
together, the “Index sponsors”). The Index sponsors have no obligation to continue to publish, and may discontinue or suspend the publication of any Basket Component at any time. The consequences of any Index sponsor discontinuing
publication of a Basket Component are discussed in the section entitled “Description of the MITTS—Discontinuance of an Index" beginning on page PS-20 of product prospectus supplement EQUITY INDICES MITTS-1. None of us, the calculation
agent, or MLPF&S accepts any responsibility for the calculation, maintenance or publication of any Basket Component or any successor index.
The EURO STOXX 50® Index
The SX5E is a capitalization-weighted index of 50 European blue-chip stocks in 11 Eurozone countries. Publication of the
SX5E began on February 26, 1998, based on an initial index value of 1,000 at December 31, 1991. The level of the SX5E is disseminated on, and additional information about the SX5E is published on, the STOXX website. Information contained in
the STOXX website is not incorporated by reference in, and should not be considered a part of, this term sheet.
As of November 30, 2018, the top ten industry sectors which comprise the SX5E represent the following weights in
the SX5E: Banks (11.1%), Industrial Goods & Services (10.7%), Health Care (10.0%), Personal & Household Goods (10.0%), Technology (9.6%), Chemicals (8.0%), Oil & Gas (7.3%), Insurance (6.8%), Telecommunications (5.2%) and
Automobiles & Parts (4.4%). As of November 30, 2018, the eight countries which comprise the SX5E represent the following weights therein: France (38.3%), Germany (31.6%), Netherlands (10.5%), Spain (10.3%), Italy (4.7%), Belgium (2.5%),
Finland (1.2%) and Ireland (0.9%).
Index Composition and Maintenance
For each of the 19 EURO STOXX regional supersector indices, the stocks are ranked in terms of free-float market capitalization. The largest
stocks are added to the selection list until the coverage is close to, but still less than, 60% of the free-float market capitalization of the corresponding supersector index. If the next highest-ranked stock brings the coverage closer to
60% in absolute terms, then it is also added to the selection list. All current stocks in the SX5E are then added to the selection list. All of the stocks on the selection list are then ranked in terms of free-float market capitalization to
produce the final index selection list. The largest 40 stocks on the selection list are selected; the remaining 10 stocks are selected from the largest remaining current stocks ranked between 41 and 60; if the number of stocks selected is
still below 50, then the largest remaining stocks are selected until there are 50 stocks. In exceptional cases, STOXX’s management board can add stocks to and remove them from the selection list.
The SX5E components are subject to a capped maximum index weight of 10%, which is applied on a quarterly basis.
The composition of the SX5E is reviewed annually, based on the closing stock data on the last trading day in August.
Changes in the composition of the SX5E are made to ensure that the SX5E includes the 50 market sector leaders from within the SX5E.
The SX5E is subject to a “fast exit rule.” The SX5E components are monitored for any changes based on the monthly
selection list ranking. A stock is deleted from the SX5E if: (a) it ranks 75 or below on the monthly selection list and (b) it ranked 75 or below on the selection list of the previous month. The highest-ranked stock that is not an SX5E
component will replace it. Changes will be implemented on the close of the fifth trading day of the month, and are effective the next trading day.
The SX5E is also subject to a “fast entry rule.” All stocks on the latest selection lists and initial public offering
(IPO) stocks are reviewed for a fast-track addition on a quarterly basis. A stock is added, if (a) it qualifies for the latest STOXX blue-chip selection list generated at the end of February, May, August or November and (b) it ranks within
the “lower buffer” (ranks 1-25) on this selection list. The SX5E is also reviewed on an ongoing basis. Corporate actions (including initial public offerings,
mergers and takeovers, spin-offs, delistings, and bankruptcy) that affect the SX5E composition are immediately reviewed. Any changes are announced, implemented, and effective in line with the type of corporate action and the magnitude of
the effect.
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Index Calculation
The SX5E is calculated with the “Laspeyres formula,” which measures the aggregate price changes in the component stocks against a fixed
base quantity weight. The formula for calculating the SX5E value can be expressed as follows:
Index = free float market capitalization
of the Index at the time
divisor of the Index at the time
The “free float market capitalization of the Index” is equal to the sum of the products of the closing price, number of
shares, free float factor, and weighting cap factor for the component company as of the time that the SX5E is being calculated.
The SX5E is calculated using a divisor that helps to maintain the continuity of the SX5E’s value so that corporate
actions do not artificially increase or decrease the level of the SX5E. The divisor of the SX5E is adjusted to maintain the continuity of the SX5E’s values across changes due to corporate actions, such as cash dividends, rights offerings,
stock dividends from treasury shares, repurchases of shares and self-tender, and spin-offs.
The following graph
shows the daily historical performance of the SX5E in the period from January 1, 2008 through January 7, 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 January 7, 2019, the closing level of the SX5E was 3,033.64.
Historical Performance of the EURO STOXX 50® Index
This historical data on the SX5E is not necessarily indicative of the future performance of the
SX5E or what the value of the notes may be. Any historical upward or downward trend in the level of the SX5E during any period set forth above is not an indication that the level of the SX5E 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 SX5E.
License Agreement
BNS has entered into a non-exclusive license agreement with STOXX, which grants BNS a license in exchange for a fee to use
the SX5E in connection with the issuance of certain securities, including the notes.
STOXX, Deutsche Börse Group and their licensors, research partners or data providers have no relationship to BNS, other
than the licensing of the SX5E and the related trademarks for use in connection with the notes.
STOXX, Deutsche Börse Group and their licensors, research partners or data providers do not:
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sponsor, endorse, sell or promote the notes;
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recommend that any person invest in the notes or any other financial products;
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have any responsibility or liability for or make any decisions about the timing, amount or pricing of the notes;
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have any responsibility or liability for the administration, management or marketing of the notes; and
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consider the needs of the notes or the owners of the notes in determining, composing or calculating the SX5E or have any
obligation to do so.
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
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STOXX, Deutsche Börse Group and their licensors, research partners or data providers give no warranty, and exclude any liability
(whether in negligence or otherwise) in connection with the notes or their performance.
STOXX does not assume any contractual relationship with the purchasers of the notes or any third parties.
Specifically,
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The Sponsor, Deutsche Börse Group and their licensors, research partners or data providers do not make any warranty, express or
implied and disclaim any and all warranty about:
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the results to be obtained by the notes, the owner of the notes or any other person in connection with the use of the SX5E and
the data included in the SX5E;
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the accuracy, timeliness, and completeness of the SX5E or its data;
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the merchantability and the fitness for a particular purpose or use of the SX5E or its data; and
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the performance of the notes generally.
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STOXX, Deutsche Börse Group and their licensors, research partners or data providers give no warranty and exclude any liability,
for any errors, omissions or interruptions in the SX5E or its data; and
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under no circumstances will Deutsche Börse Group and their licensors, research partners or data providers be liable (whether in
negligence or otherwise) for any lost profits or indirect, punitive, special or consequential damages or losses, arising as a result of such errors, omissions or interruptions in the SX5E or its data or generally in relation to
the notes, even in circumstances where the Sponsor Deutsche Börse Group and their licensors, research partners or data providers are aware that such loss or damage may occur.
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The FTSE® 100 Index
The UKX is a market-capitalization weighted index calculated, published and disseminated by FTSE, an independent company
wholly owned by the London Stock Exchange Group (the “LSE”). The UKX is designed to measure the composite performance of the 100 largest UK domiciled blue chip companies that pass screening for size and liquidity traded on the LSE. The UKX
was launched on January 3, 1984 and has a base date of December 30, 1983. The UKX is reported by Bloomberg under the ticker symbol “UKX.”
The UKX is calculated by (i) multiplying the per share price of each stock included in the UKX by the number of
outstanding shares and by the free float factor applicable to such stock, (ii) calculating the sum of all these products (such sum referred to hereinafter as the “FTSE Aggregate Market Value”) as of the starting date of the UKX and
(iii) dividing the FTSE Aggregate Market Value by a divisor which represents the total issued share capital of the UKX on the base date and which can be adjusted to allow changes in the issued share capital of individual underlying stocks
(including the deletion and addition of stocks, the substitution of stocks, stock dividends and stock splits) to be made without distorting the UKX. Because of such capitalization weighting, movements in share prices of companies with
relatively larger market capitalization will have a greater effect on the level of the entire UKX than will movements in share prices of companies with relatively smaller market capitalization.
The 100 stocks included in the UKX (the “FTSE 100 Index Underlying Stocks”) were selected from a reference group of stocks
trading on the LSE which were selected by excluding certain stocks that have low liquidity based on public float, accuracy and reliability of prices, size and number of trading days. The FTSE 100 Index Underlying Stocks were selected from
this reference group by selecting 100 stocks with the largest market value. A list of the issuers of the FTSE 100 Index Underlying Stocks is available from FTSE. The UKX is reviewed quarterly by the FTSE Europe/Middle East/Africa Regional
Committee (the “Committee”) in order to maintain continuity in the level. The FTSE 100 Index Underlying Stocks may be replaced, if necessary, in accordance with deletion/addition rules which provide generally for the removal and replacement
of a stock from the UKX if such stock is delisted or its issuer is subject to a takeover offer that has been declared unconditional or it has ceased to be a viable component of the UKX. To maintain continuity, a stock will be added at the
quarterly review if it has risen to 90th place or above and a stock will be deleted if at the quarterly review it has fallen to 111th place or below, in each case ranked on the basis of market value.
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Market Index Target-Term Securities®
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The following graph shows the daily historical performance of the UKX in the period from January
1, 2008 through January 7, 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 January 7, 2019, the closing level of
the UKX was 6,810.88.
Historical Performance of the FTSE® 100 Index
This historical data on the UKX is not necessarily indicative of the future
performance of the UKX or what the value of the notes may be. Any historical upward or downward trend in the level of the UKX during any period set forth above is not an indication that the level of the UKX 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 UKX.
License Agreement
BNS has entered into a non-exclusive license agreement with FTSE, whereby BNS and its affiliates and subsidiary companies
and certain of its affiliates, in exchange for a fee, will be permitted to use the UKX, which is owned and published by FTSE, in connection with certain products, including the notes.
Neither FTSE nor the LSE makes any representation or warranty, express or implied, to the owners of the notes or any
member of the public regarding the advisability of investing in structured products generally or in the notes particularly, or the ability of the UKX to track general stock market performance. FTSE and the LSE’s only relationship with BNS
is the licensing of certain trademarks and trade names of FTSE, respectively, without regard to us or the notes. FTSE and the LSE have no obligation to take the needs of us or the holders of the notes into consideration in determining,
composing or calculating the UKX. Neither FTSE nor the LSE is responsible for and has not participated in the determination of the timing, price or quantity of the notes to be issued or in the determination or calculation of the amount due
at maturity of the notes. Neither FTSE nor the LSE has any obligation or liability in connection with the administration, marketing or trading of the notes.
The notes are not in any way sponsored, endorsed, sold or promoted by FTSE or the LSE, and neither FTSE nor the LSE makes
any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the UKX and/or the figure at which the said component stands at any particular time on any
particular day or otherwise, or the suitability of the UKX for the purpose to which it is being put in connection with the notes. The UKX is compiled and calculated by FTSE. However, neither FTSE nor the LSE shall be liable (whether in
negligence or otherwise) to any person for any error in the UKX and neither FTSE nor the LSE shall be under any obligation to advise any person of any error therein.
“FTSE®,” “FTSETM,” “FT-SE®” and “Footsie®” are trade marks of the London Stock
Exchange Group companies and are used by FTSE International Limited under license. “All-World,” “All-Share” and “All-Small” are trade marks of FTSE International Limited.
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Market Index Target-Term Securities®
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The Nikkei Stock Average Index
The NKY is a stock index that measures the composite price performance of selected Japanese stocks. The NKY is based on
225 underlying stocks (the “Nikkei Underlying Stocks”) trading on the Tokyo Stock Exchange (“TSE”), representing a broad cross-section of Japanese industries. All 225 Nikkei Underlying Stocks are stocks listed in the First Section of the
TSE. Stocks listed in the First Section of the TSE are among the most actively traded stocks on the TSE. Nikkei’s rules require that the 75 most liquid issues (one-third of the component count of the NKY) be included in the NKY. Nikkei
first calculated and published the NKY in 1970; prior to 1970, the TSE calculated the NKY. The NKY is reported by Bloomberg under the ticker symbol “NKY.”
The 225 companies included in the NKY are divided into six sector categories: Technology, Financials,
Consumer Goods, Materials, Capital Goods/Others and Transportation and Utilities. These six sector categories are further divided into 36 industrial classifications as follows:
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Technology — Pharmaceuticals, Electrical Machinery, Automobiles, Precision Machinery, Telecommunications;
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Financials — Banks, Miscellaneous Finance, Securities, Insurance;
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Consumer Goods — Marine Products, Food, Retail, Services;
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Materials — Mining, Textiles, Paper and Pulp, Chemicals, Oil, Rubber, Ceramics, Steel, Nonferrous Metals, Trading Houses;
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Capital Goods/Others — Construction, Machinery, Shipbuilding, Transportation Equipment, Miscellaneous Manufacturing, Real Estate;
and
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Transportation and Utilities — Railroads and Buses, Trucking, Shipping, Airlines, Warehousing, Electric Power, Gas.
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Calculation of the NKY
The NKY is a modified, price-weighted index (i.e., a Nikkei Underlying Stock’s weight in the NKY is based on its price per share rather than the total market capitalization of the issuer) which is calculated by (i) multiplying the per share price of each
Nikkei Underlying Stock by the corresponding weighting factor for such Nikkei Underlying Stock (a “Weight Factor”), (ii) calculating the sum of all these products and (iii) dividing such sum by a divisor (the “Divisor”). The Divisor was
initially set at 225 for the date of May 16, 1949 (the date on which the TSE was reopened after World War II) using historical numbers from that date. The Divisor is subject to periodic adjustments as set forth below. Each Weight Factor is
computed by dividing ¥50 by the presumed par value of the relevant Nikkei Underlying Stock, so that the share price of each Nikkei Underlying Stock when multiplied by its Weight Factor corresponds to a share price based on a uniform par
value of ¥50. The stock prices used in the calculation of the NKY are those reported by a primary market for the Nikkei Underlying Stocks (currently the TSE). The level of the NKY is calculated once every 15 seconds during TSE trading
hours.
In order to maintain continuity in the NKY in the event of certain changes due to non-market factors affecting the Nikkei
Underlying Stocks, such as the addition or deletion of stocks, substitution of stocks, stock splits or distributions of assets to stockholders, the Divisor used in calculating the NKY is adjusted in a manner designed to prevent any
instantaneous change or discontinuity in the level of the NKY. Thereafter, the Divisor remains at the new value until a further adjustment is necessary as the result of another change. As a result of such change affecting any Nikkei
Underlying Stock, the Divisor is adjusted in such a way that the sum of all share prices immediately after the change multiplied by the applicable Weight Factor and divided by the new Divisor (i.e., the level of the NKY immediately after such change) will equal the level of the NKY immediately prior to the change.
Standards for Listing and Maintenance
A Nikkei Underlying Stock may be deleted or added by Nikkei. Any stock becoming ineligible for listing in the First
Section of the TSE due to any of the following reasons will be deleted from the Nikkei Underlying Stocks: (i) bankruptcy of the issuer, (ii) merger of the issuer with, or acquisition of the issuer by, another company, (iii) delisting of
such stock, (iv) transfer of such stock to the “Seiri-Meigara” because of excess debt of the issuer or because of any other reason or (v) transfer of such stock to the Second Section. In addition, a component stock transferred to the
“Kanri-Meigara” (posts for stocks under supervision) becomes a candidate for deletion. Nikkei Underlying Stocks with relatively low liquidity, based on trading value and rate of price fluctuation over the past five years, may be deleted by
Nikkei. Upon deletion of a stock from the Nikkei Underlying Stocks, Nikkei will select a replacement for such deleted Nikkei Underlying Stock in accordance with certain criteria. In an exceptional case, a newly listed stock in the First
Section of the TSE that is recognized by Nikkei to be representative of a market may be added to the Nikkei Underlying Stocks. In such a case, an existing Nikkei Underlying Stock with low trading volume and deemed not to be representative
of a market will be deleted by Nikkei.
A list of the issuers of the Nikkei Underlying Stocks constituting the NKY is published by Nikkei. Nikkei may delete,
add or substitute any stock underlying the NKY.
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Market Index Target-Term Securities®
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The following graph shows the daily historical performance of the NKY in the period from
January 1, 2008 through January 7, 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 January 7, 2019, the closing
level of the NKY was 20,038.97.
Historical Performance of the Nikkei Stock Average Index
This historical data on the NKY is not necessarily indicative of the future
performance of the NKY or what the value of the notes may be. Any historical upward or downward trend in the level of the NKY during any period set forth above is not an indication that the level of the NKY 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 NKY.
License Agreement
BNS will enter into an agreement with Nikkei providing us with a non-exclusive license with the right to use the NKY in
exchange for a fee. The NKY is the intellectual property of Nikkei. “Nikkei,” “Nikkei Stock Average,” “Nikkei Average,” and “Nikkei 225” are the service marks of Nikkei. Nikkei reserves all the rights, including copyright, to the NKY.
The notes are not in any way sponsored, endorsed or promoted by Nikkei. Nikkei does not make any warranty or
representation whatsoever, express or implied, either as to the results to be obtained as to the use of the NKY or the figure as which the NKY stands at any particular day or otherwise. The NKY is compiled and calculated solely by Nikkei.
However, Nikkei shall not be liable to any person for any error in the NKY and Nikkei shall not be under any obligation to advise any person, including a purchaser or seller of the notes, of any error therein.
In addition, Nikkei gives no assurance regarding any modification or change in any methodology used in calculating
the NKY and is under no obligation to continue the calculation, publication and dissemination of the NKY.
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Market Index Target-Term Securities®
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The Swiss Market Index®
The Swiss Market Index® (Bloomberg ticker “SMI”):
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was first launched with a base level of 1,500 as of June 30, 1988; and
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is sponsored, calculated, published and disseminated by the SIX Exchange.
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The SMI is a price return float-adjusted market capitalization-weighted index of the 20 largest stocks traded on the Swiss
Stock Exchange. The Management Committee of SIX Swiss Exchange is supported by an Index Commission (advisory board) in all index-related matters, notably in connection with changes to the SMI rules and adjustments, additions and exclusions
outside of the established review and acceptance period. The Index Commission meets at least twice annually.
Index Composition and Selection Criteria
The SMI is comprised of the 20 highest-ranked stocks traded on the Swiss Stock Exchange that have a free float of 20% or
more and that are not investment companies. The equity universe is largely Swiss domestic companies; however, in some cases, foreign issuers with a primary listing on the Swiss Stock Exchange or investment companies that do not hold any
shares of any other eligible company and that have a primary listing on the Swiss Stock Exchange may be included.
The ranking of each security is determined by a combination of the following criteria:
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average free-float market capitalization (compared to the capitalization of the entire Swiss Stock Exchange index family), and
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cumulative on order book turnover (compared to the total turnover of the Swiss Stock Exchange index family).
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Each of these two factors is assigned a 50% weighting in ranking the stocks eligible for the SMI.
The SMI is reconstituted annually after prior notice of at least two months on the third Friday in September after the
close of trading.
The reconstitution is based on data from the previous July 1 through June 30. Provisional interim selection (ranking)
lists are also published following the end of the third, fourth and first financial quarters.
In order to reduce turnover, an index constituent will not be replaced unless it is ranked below 23 or, if it is ranked 21
or 22, if another share ranks 18 or higher. If a company has primary listings on several exchanges and less than 50% of that company’s total turnover is generated on the Swiss Stock Exchange, it will not be included in the SMI unless it
ranks at least 18 or better on the selection list on the basis of its turnover alone (i.e., without considering its free float).
Maintenance of the SMI
Constituent Changes.
In the case of major market changes as a result of capital events such as mergers or new listings, the Management Committee of SIX Swiss Exchange can decide at the request of the Index Commission that a security should be admitted to the
SMI outside the annual review period as long as it clearly fulfills the criteria for inclusion. For the same reasons, a security can also be excluded if the requirements for admission to the SMI are no longer fulfilled. As a general rule,
extraordinary acceptances into the SMI take place after a three-month period on a quarterly basis after the close of trading on the third Friday of March, June, September and December (for example, a security listed on or before the fifth
trading day prior to the end of November cannot be included until the following March). An announced insolvency is deemed to be an extraordinary event and the security will be removed from the SMI with five trading days’ prior notice if the
circumstances permit such notice.
Number of Shares and Free
Float. The securities included in the SMI are weighted according to their free float. This means that shares deemed to be in firm hands are subtracted from the total market capitalization of that company. The free float is
calculated on the basis of outstanding shares. Issued and outstanding equity capital is, as a rule, the total amount of equity capital that has been fully subscribed and wholly or partially paid in and documented in the Commercial Register.
Not counting as issued and outstanding equity capital are the approved capital and the conditional capital of a company. The free float is calculated on the basis of listed shares only. If a company offers several different categories of
listed participation rights, each is treated separately for purposes of index calculation.
Shares held deemed to be in firm hands are shareholdings that have been acquired by one person or a group of persons in
companies domiciled in Switzerland and which, upon exceeding 5%, have been reported to the SIX Exchange. Shares of persons and groups of persons who are subject to a shareholder agreement which is binding for more than 5% of the listed
shares or who, according to publicly known facts, have a long-term interest in a company, are also deemed to be in firm hands.
For the calculation of the number of shares in firm hands, the SIX Exchange may also use other sources than the reports
submitted to it. In particular, the SIX Exchange may use data gained from issuer surveys that it conducts itself.
In general, shares held by custodian nominees, trustee companies, investment funds, pension funds and investment companies
are deemed free-floating regardless whether a report has been made to the SIX Exchange. The SIX Exchange classifies at its own discretion persons and groups of persons who, because of their area of activity or the absence of important
information, cannot be clearly assigned.
The free-float rule applies only to bearer shares and registered shares. Capital issued in the form of participation
certificates and bonus certificates is taken into full account in calculating the SMI because it does not confer voting rights.
The number of securities in the SMI and the free-float factors are adjusted after the close of trading on four
adjustment dates per year, the third Friday of March, June, September and December. Such changes are pre-announced at least one month before the adjustment
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Market Index Target-Term Securities®
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date, although the Index sponsor reserves the right to take account of recent changes before the adjustment date in the actual
adjustment, so the definite new securities are announced five trading days before the adjustment date.
In order to avoid frequent slight changes to the weighting and to maintain the stability of the SMI, any extraordinary
change of the total number of outstanding securities or the free float will only result in an extraordinary adjustment if it exceeds 10% and 5%, respectively, and is in conjunction with a corporate action.
After a takeover, Six Exchange may, in exceptional cases, adjust the free float of a company upon publication of the end
results after a five-day notification period or may exclude the security from the relevant index family. When an insolvency has been announced, an extraordinary adjustment will be made and the affected security will be removed from the SMI
after five trading days’ notice.
The Index sponsor reserves the right to make an extraordinary adjustment, in exceptional cases, without observing the
notification period.
Calculation of the Index
The Index sponsor calculates the SMI using the “Laspeyres formula,” with a weighted arithmetic mean of a defined number of
securities issues. The formula for calculating the index value can be expressed as follows:
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Free Float Market Capitalization of the index
Divisor |
The “free float market capitalization of the index” is equal to the sum of the product of the last-paid price, the number of shares, the
free-float factor and, if a foreign stock is included, the current CHF exchange rate as of the time the index value is being calculated. The index value is calculated in real time and is updated whenever a trade is made in a component
stock. Where any index component stock price is unavailable on any trading day, Six Exchange will use the last reported price for such component stock. Only prices from the SIX Exchange’s electronic order book are used in calculating the
SMI.
Divisor Value and Adjustments
The divisor is a technical number used to calculate the SMI and is adjusted to
reflect changes in market capitalization due to corporate events, and is adjusted by Six Exchange to reflect corporate events, as described in the SMI rules.
The following graph shows the daily historical performance of the SMI in
the period from January 1, 2008 through January 7, 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 January 7, 2019,
the closing level of the SMI was 8,535.95.
Historical Performance of the Swiss Market Index®
This historical data on the SMI is not necessarily indicative of the future
performance of the SMI or what the value of the notes may be. Any historical upward or downward trend in the level of the SMI during any period set forth above is not an indication that the level of the SMI 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 SMI.
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
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License Agreement
SIX Swiss Exchange AG (“SIX Swiss Exchange”) and its licensors (“Licensors”) have no relationship to BNS, other than the
licensing of the SMI and the related trademarks, in exchange for a fee, for use in connection with the notes.
SIX Swiss Exchange and its Licensors do not:
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Sponsor, endorse, sell or promote the notes.
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Recommend that any person invest in the notes or any other securities.
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Have any responsibility or liability for or make any decisions about the timing, amount or pricing of the notes.
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Have any responsibility or liability for the administration, management or marketing of the notes.
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Consider the needs of the notes or the owners of the notes in determining, composing or calculating the SMI or have any
obligation to do so.
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SIX Swiss Exchange and its Licensors give no warranty, and exclude any liability (whether in negligence
or otherwise), in connection with the notes or their performance.
SIX Swiss Exchange does not assume any contractual relationship with the purchasers of the notes or any other third
parties.
Specifically,
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SIX Swiss Exchange and its Licensors do not give any warranty, express or implied, and exclude any liability for:
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The results to be obtained by the notes; the owner of the notes or any other person in connection with the use of the SMI and the
data included in the SMI.
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The accuracy, timeliness, and completeness of the SMI and its data.
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The merchantability and the fitness for a particular purpose or use of the SMI and its data.
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The performance of the notes generally.
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SIX Swiss Exchange and its Licensors give no warranty, and exclude any liability, for any errors, omissions
or interruptions in the SMI or its data.
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Under no circumstances will SIX Swiss Exchange or its Licensors be liable (whether in negligence or otherwise) for any lost
profits or indirect, punitive, special or consequential damages or losses arising as a result of such errors, omissions or interruptions in the SMI or its data or generally in relation to the notes, even in circumstances where SIX
Swiss Exchange or its Licensors are aware that such loss or damage may occur.
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The licensing agreement between BNS and SIX Swiss Exchange is solely for their benefit and not for the benefit of the
owners of the notes or any other third parties.
The S&P/ASX 200 Index
The S&P/ASX 200 Index (Bloomberg ticker “AS51”):
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was first launched in 1979 by the Australian Securities Exchange and was acquired and re-launched by its current Index sponsor on
April 3, 2000; and
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is sponsored, calculated, published and disseminated by S&P.
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The AS51 includes 200 companies and covers approximately 80% of the Australian equity market by market capitalization. As
discussed below, the AS51 is not limited solely to companies having their primary operations or headquarters in Australia or to companies having their primary listing on the Australian Securities Exchange (the “ASX”). All ordinary and
preferred shares (if such preferred shares are not of a fixed income nature) listed on the ASX, including secondary listings, are eligible for the AS51. Hybrid stocks, bonds, warrants, preferred stock that provides a guaranteed fixed return
and listed investment companies are not eligible for inclusion.
The AS51 is intended to provide exposure to the largest 200 eligible securities that are listed on the ASX by
float-adjusted market capitalization. Constituent companies for the AS51 are chosen based on market capitalization, public float and liquidity. All index-eligible securities that have their primary or secondary listing on the ASX are
included in the initial selection of stocks from which the 200 index stocks may be selected.
The float-adjusted market capitalization of companies is determined based on the daily average market capitalization
over the last six months. The security’s price history over the last six months, the latest available shares on issue and the investable weight factor (the “IWF”), are the factors relevant to the calculation of daily average market
capitalization. The IWF is a variable that is primarily used to determine the available float of a security for ASX listed securities.
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
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Number of Shares
When considering the index eligibility of securities for inclusion or promotion into S&P/ASX indices, the number of
index securities under consideration is based upon the latest available ASX quoted securities. For domestic securities (companies incorporated in Australia and traded on the ASX, companies incorporated overseas but exclusively listed on the
ASX and companies incorporated overseas and traded on other markets but most of its trading activity is on the ASX), this figure is purely based upon the latest available data from the ASX.
Foreign-domiciled securities may quote the total number of securities on the ASX that is representative of their global
equity capital; whereas other foreign-domiciled securities may quote securities on the ASX on a partial basis that represents their Australian equity capital. In order to overcome this inconsistency, S&P will quote the number of index
securities that are represented by CHESS Depositary Interests (“CDIs”) for a foreign entity. When CDIs are not issued, S&P will use the total securities held on the Australian register (CHESS and, where supplied, the issuer sponsored
register). This quoted number for a foreign entity is representative of the Australian equity capital, thereby allowing the AS51 to be increasingly reflective of the Australian market.
The number of CDIs or shares of a foreign entity quoted on the ASX can experience more volatility than is typically the
case for ordinary shares on issue. Therefore, an average number on issue will be applied over a six-month period.
Where CDI information is not supplied to the ASX by the company or the company’s share register, estimates for Australian
equity capital will be drawn from CHESS data and, ultimately, registry-sourced data.
IWF
The IWF represents the float-adjusted portion of a stock’s equity capital. Therefore any strategic holdings that are
classified as either corporate, private or government holdings reduce the IWF which, in turn, results in a reduction in the float-adjusted market capital.
The IWF ranges between 0 and 1, is calculated as 1 – Sum of the % held by strategic shareholders who possess 5% or more of
issued shares, and is an adjustment factor that accounts for the publicly available shares of a company. A company must have a minimum IWF of 0.3 to be eligible for index inclusion.
S&P Dow Jones Indices identifies the following shareholders whose holdings are considered to be control blocks and are
subject to float adjustment:
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Government and government agencies;
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Controlling and strategic shareholders/partners;
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Any other entities or individuals which hold more than 5%, excluding insurance companies, securities companies and investment
funds; and
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Other restricted portions such as treasury stocks.
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Liquidity Test
Only stocks that are regularly traded are eligible for inclusion. Eligible stocks are considered for index inclusion based
on their stock median liquidity (median daily value traded divided by its average float-adjusted market capitalization for the last six months relative to the market capitalization weighted average of the stock median liquidities of the 500
constituents of the All Ordinaries index, another member of the S&P/ASX index family).
Index Maintenance
S&P rebalances constituents quarterly to ensure adequate market capitalization and liquidity using the previous six
months’ data to determine index eligibility. Quarterly review changes take effect the third Friday of March, June, September and December. Eligible stocks are considered for index inclusion based on their float-adjusted market
capitalization rank relative to the stated quota of 200 securities. For example, a stock that is currently in the S&P/ASX 300 and is ranked at 175, based on float-adjusted market capitalization, within the universe of eligible
securities may be considered for inclusion into the AS51, provided that liquidity hurdles are met.
In order to limit the level of index turnover, eligible securities will only be considered for index inclusion once
another stock is excluded due to a sufficiently low rank and/or liquidity, based on the float-adjusted market capitalization. Potential index inclusions and exclusions need to satisfy buffer requirements in terms of the rank of the stock
relative to a given index. The buffers are established to limit the level of index turnover that may take place at each quarterly rebalancing.
Between rebalancing dates, an index addition is generally made only if a vacancy is created by an index deletion. Index
additions are made according to float-adjusted market capitalization and liquidity. An initial public offering is added to the AS51 only when an appropriate vacancy occurs and is subject to proven liquidity for at least two months. An
exception may be made for extraordinary large offerings where sizeable trading volumes justify index inclusion.
Deletions can occur between index rebalancing dates due to acquisitions, mergers and spin-offs or due to suspension or
bankruptcies. The decision to remove a stock from the AS51 will be made once there is sufficient evidence that the transaction will be completed. Stocks that are removed due to mergers and acquisitions are removed from the AS51 at the cash
offer price for cash-only offers. Otherwise, the best available price in the market is used.
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
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Share numbers for all index constituents are updated quarterly and are rounded to the nearest thousand. The update to
the number of issued shares will be considered if the change is at least 5% of the float adjusted shares or $100 million in value.
Share updates for foreign-domiciled securities will take place annually at the March rebalancing. The update to the number of index
shares will only take place when the six-month average of CDIs or the Total Securities held in the Australian branch of issuer sponsored register (where supplied) and in CHESS, as of the March rebalancing, differs from the current index
shares by either 5% or a market-cap dollar amount greater than A$ 100 million. Where CDI information is not supplied to the ASX by the company or the company’s share register, estimates for Australian equity capital will be drawn from CHESS
data and, ultimately, registry-sourced data.
Intra-quarter share changes are implemented at the effective date or as soon as reliable information is available;
however, they will only take place in the following circumstances:
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changes in a company’s float-adjusted shares of 5% or more due to market-wide shares issuance;
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rights issues, bonus issues and other major corporate actions; and
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share issues resulting from index companies merging and major off-market buy-backs.
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Share changes due to mergers or acquisitions are implemented when the transaction occurs, even if both of the companies
are not in the same index and regardless of the size of the change.
IWFs are reviewed annually as part of the September quarterly review. However, any event that alters the float of a
security in excess of 5% will be implemented as soon as practicable by an adjustment to the IWF.
The function of the IWF is also to manage the index weight of foreign-domiciled securities that quote shares on the basis
of CDIs. Due to the volatility that is displayed by CDIs, unusually large changes in the number of CDIs on issue could result. Where this is the case, the IWF may be used to limit the effect of unusually large changes in the average number
of CDIs (and, thereby, limit the potential to manipulate this figure). Where the Australian Index Committee sees fit to apply the IWF in this manner, the rationale for the decision will be announced to the market. This will be reviewed
annually at the March-quarter index rebalancing date.
Index Calculation
The AS51 is calculated using a base-weighted aggregate methodology. The value of the AS51 on any day for which an index
value is published is determined by a fraction, the numerator of which is the aggregate of the price of each stock in the AS51 times the number of shares of such stock included in the AS51 times that stock’s IWF, and the denominator of
which is the divisor, which is described more fully below.
In order to prevent the value of the AS51 from changing due to corporate actions, all corporate actions may require
S&P to make an index or divisor adjustment, as described in S&P’s rules. This helps maintain the value of the AS51 and ensures that the movement of the AS51 does not reflect the corporate actions of the individual companies that
comprise the AS51.
In situations where an exchange is forced to close early due to unforeseen events, such as computer or electric power
failures, weather conditions or other events, S&P will calculate the closing price of the indices based on (1) the closing prices published by the exchange or (2) if no closing price is available, the last regular trade reported for
each security before the exchange closed. If the exchange fails to open due to unforeseen circumstances, S&P treats this closure as a standard market holiday. The AS51 will use the prior day’s closing prices and shifts any corporate
actions to the following business day. If all exchanges fail to open or in other extreme circumstances, S&P may determine not to publish the AS51 for that day.
S&P reserves the right to recalculate the AS51 under certain limited circumstances.
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
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The following graph shows the daily historical performance of the AS51 in the period from January
1, 2008 through January 7, 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 January 7, 2019, the closing level of
the AS51 was 5,683.189.
Historical Performance of the S&P/ASX 200 Index
This historical data on the AS51 is not necessarily indicative of the future
performance of the AS51 or what the value of the notes may be. Any historical upward or downward trend in the level of the AS51 during any period set forth above is not an indication that the level of the AS51 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 AS51.
License Agreement
The AS51 is a product of S&P or its affiliates (“SPDJI”) and the Australian Securities Exchange, and has been licensed
for use by us in exchange for a fee. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P Financial”); Dow Jones® is a registered trademark
of Dow Jones Trademark Holdings LLC (“Dow Jones”); and ASX® is a registered trademark of the Australian Securities Exchange. The trademarks have been licensed to SPDJI and have been sublicensed for certain purposes by us. The
notes are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P Financial, any of their respective affiliates (collectively, “S&P Dow Jones Indices”) or the Australian Securities Exchange. Neither S&P Dow Jones
Indices nor the Australian Securities Exchange make any representation or warranty, express or implied, to the owners of the notes or any member of the public regarding the advisability of investing in securities generally or in the notes
particularly or the ability of the AS51 to track general market performance. S&P Dow Jones Indices’ and the Australian Securities Exchange’s only relationship to us with respect to the AS51 is the licensing of the AS51 and certain
trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its licensors. The AS51 is determined, composed and calculated by S&P Dow Jones Indices or the Australian Securities Exchange without regard to us or the
notes. S&P Dow Jones Indices and the Australian Securities Exchange have no obligation to take our needs or the owners of notes into consideration in determining, composing or calculating the AS51. S&P Dow Jones Indices and the
Australian Securities Exchange are not responsible for and have not participated in the determination of the prices, and amount of the notes or the timing of the issuance or sale of the notes or in the determination or calculation of the
equation by which the notes are to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices and the Australian Securities Exchange have no obligation or liability in connection with the administration,
marketing or trading of the notes. There is no assurance that investment products based on the AS51 will accurately track index performance or provide positive investment returns. SPDJI is not an investment advisor. Inclusion of a security
within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
NEITHER S&P DOW JONES INDICES NOR THIRD PARTY LICENSORS GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE
COMPLETENESS OF THE AS51 OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND THE AUSTRALIAN
SECURITIES EXCHANGE SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND THE AUSTRALIAN SECURITIES EXCHANGE MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY US, OWNERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE AS51 OR WITH RESPECT TO ANY DATA RELATED
THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR THE AUSTRALIAN SECURITIES EXCHANGE BE LIABLE FOR ANY
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
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INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST
TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW
JONES INDICES AND US, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
The Hang Seng® Index
The HSI is calculated, maintained and published by HSIL, a wholly owned subsidiary of Hang Seng Bank, in concert with the
HSI Advisory Committee and was first developed, calculated and published on November 24, 1969. The HSI is a free float-adjusted market capitalization weighted stock market index that is designed to reflect the performance of the Hong Kong
stock market.
Only companies with a primary listing on the main board of the Stock Exchange of Hong Kong (“SEHK”) are eligible as
constituents of the HSI. Mainland China enterprises that have an H-share listing in Hong Kong will not be eligible for inclusion in the HSI unless the company has no unlisted share capital. In addition, to be eligible for selection, a
company: (1) must be among those that constitute the top 90% of the total market value of all primary listed shares on the SEHK (the market value of a company refers to the average of its month-end market capitalizations for the past
12 months); (2) must be among those that constitute the top 90% of the total turnover of all primary listed shares on the SEHK in a sufficient number of measurement sub-periods (turnover is assessed over the last eight quarterly
sub-periods: if a company was in the top 90% in any of the most recent four sub-periods, it receives two points; if it was in the top 90% in any of the latter four sub-periods, it receives one point. A company must attain a “score” of eight
points to meet the turnover requirement); and (3) should normally have a listing history of 24 months (there are exceptions for companies that have shorter listing histories but large market values and/or high turnover scores). From the
many eligible candidates, final selections are based on the following: (1) the market value and turnover rankings of the companies; (2) the representation of the sub‑sectors within the HSI directly reflecting that of the market; and (3) the
financial performance of the companies.
Calculation of the HSI
The calculation methodology of the HSI is a free float-adjusted market capitalization weighting with a 10% cap on
individual stocks. Under this calculation methodology, shares held by any entities (excluding custodians, trustees, mutual funds and investment companies) which control more than 5% of shares are excluded for index calculation:
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Strategic holdings
(governments and affiliated entities or any other entities which hold substantial shares in the company would be considered as non-freefloat unless otherwise proved);
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Directors’ and management holdings
(directors, members of the board committee, principal officers or founding members);
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Corporate cross holdings
(publicly traded companies or private firms / institutions); and
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Lock-up shares
(shareholdings with a publicly disclosed lock-up arrangement).
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A free float-adjusted factor representing the proportion of shares that is free floated as a percentage of the issued
shares, is rounded up to the nearest multiple of 5% for the calculation of the HSI and is updated quarterly.
A cap of 10% on individual stock weightings is applied. A cap factor is calculated quarterly to coincide with the regular
update of the free float-adjusted factor. Additional re-capping is performed upon constituent changes.
The formula for the index calculation is as follows:
Current Index = 
where:
Pt : current price at day t;
Pt-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.
|
Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
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The following graph shows the daily historical performance of the HSI in the period from January
1, 2008 through January 7, 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 January 7, 2019, the closing level of
the HSI was 25,835.70.
Historical Performance of the Hang Seng® Index
This historical data on the HSI is not necessarily indicative of the future
performance of the HSI or what the value of the notes may be. Any historical upward or downward trend in the level of the HSI during any period set forth above is not an indication that the level of the HSI 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 HSI.
License Agreement
BNS or one of its affiliates has agreed to enter 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 HSI 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 HSI IS PUBLISHED AND COMPILED BY HANG SENG INDEXES COMPANY LIMITED PURSUANT TO A LICENSE FROM HANG SENG DATA
SERVICES LIMITED. THE MARK AND NAME 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
HSI 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 HSI AND ITS COMPUTATION OR ANY INFORMATION RELATED THERETO; OR (II) THE FITNESS OR SUITABILITY FOR ANY PURPOSE OF THE HSI OR
ANY COMPONENT OR DATA COMPRISED IN IT; OR (III) THE RESULTS WHICH MAY BE OBTAINED BY ANY PERSON FROM THE USE OF THE HSI 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 HSI IS GIVEN OR MAY BE IMPLIED. THE PROCESS AND BASIS OF COMPUTATION AND COMPILATION OF THE HSI 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 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 HSI 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 HSI; OR (III) FOR ANY INACCURACIES, OMISSIONS, MISTAKES, ERRORS OR INCOMPLETENESS OF ANY
INFORMATION USED IN CONNECTION WITH THE COMPUTATION OF THE HSI 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
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
|
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.
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
|
Supplement to the Plan of Distribution
Under our distribution agreement with MLPF&S, MLPF&S 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.
The current business of MLPF&S is being reorganized into two affiliated broker-dealers: MLPF&S and a new broker-dealer,
BofAML Securities, Inc. (“BofAMLS”). BofAMLS will be the new legal entity for the institutional services that are now provided by MLPF&S. MLPF&S will be assigning its rights and obligations as selling agent for the notes under our
distribution agreement to BofAMLS effective on the “Transfer Date”. Accordingly, if the pricing date of the notes occurs on or after the Transfer Date, BofAMLS will be responsible for the pricing of the notes. If the settlement date of the notes
occurs on or after the Transfer Date, BofAMLS will, subject to the terms and conditions of the distribution agreement, purchase the notes from us as principal on the settlement date. MLPF&S will in turn purchase the notes from BofAMLS for
resale, and it 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 acting as a principal in effecting the transaction for your account.
MLPF&S 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 trading commissions and mark-ups. MLPF&S may act as principal or agent in these market-making transactions; however, it is not obligated to engage in any such transactions. At
MLPF&S's discretion, for a short, undetermined initial period after the issuance of the notes, MLPF&S 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 for the notes will be based on then-prevailing market conditions and other considerations, including the performance of the Basket and the remaining term of the notes. However, none of us, MLPF&S, 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 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 MLPF&S's estimate of the value of the
notes if MLPF&S 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 MLPF&S 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:
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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;
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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
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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.
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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 Lynch financial advisor if you have any questions about the application of these provisions to
your specific circumstances or think you are eligible.
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
|
Structuring the Notes
The notes are our unsecured senior debt securities, the return on which is linked to the performance of the Basket. 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.
At maturity, we are required to pay the Redemption Amount to holders of the notes, which will be calculated based on the
performance of the Basket 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 MLPF&S or one of its affiliates. The terms of these hedging arrangements are determined by seeking bids from market participants, including MLPF&S and its affiliates, and take into account a number of
factors, including our creditworthiness, interest rate movements, the volatility of the Basket Components, 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.
MLPF&S 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 MLPF&S 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 MLPF&S or any third party hedge providers.
For further information, see “Risk Factors—General Risks Relating to MITTS” beginning on page PS-6 and “Use of Proceeds
and Hedging” on page PS-16 of product prospectus supplement EQUITY INDICES MITTS-1.
MLPF&S Reorganization
As discussed above under “Supplement to the Plan of Distribution”, the current business of MLPF&S is being reorganized into two affiliated
broker-dealers. Effective on the Transfer Date, BofAMLS will be the new legal entity for the institutional services that are now provided by MLPF&S. As such, beginning on the Transfer Date, the institutional services currently being provided
by MLPF&S, including acting as selling agent for the notes, acting as calculation agent for the notes, acting as principal or agent in secondary market-making transactions for the notes and entering into hedging arrangements with respect to
the notes, are expected to be provided by BofAMLS. Accordingly, references to MLPF&S in this term sheet as such references relate to MLPF&S’s institutional services, such as those described above, should be read as references to BofAMLS
to the extent these services are to be performed on or after the Transfer Date.
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
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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 19 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 the applicable product prospectus supplement.
Summary of U.S. Federal Income Tax Consequences
The U.S. federal income tax
consequences of your investment in the notes are uncertain. There are no statutory provisions, regulations, published rulings or judicial decisions addressing the characterization for U.S. federal income tax purposes of securities with terms
that are substantially the same as the notes. No ruling from the U.S. Internal Revenue Service (the “IRS”) has been sought as to the U.S. federal income tax consequences of your investment in the notes, and the following discussion is not
binding on the IRS. Some of these tax consequences are summarized below, but we urge you to read the more detailed discussion under “Material U.S. Federal Income Tax Consequences” in the product prospectus supplement EQUITY INDICES MITTS-1 and to discuss the tax consequences of your particular situation with your tax advisor. This discussion is
based upon the Internal Revenue Code of 1986, as amended (the “Code”), final, temporary and proposed U.S. Treasury Department (the “Treasury”) regulations, rulings and decisions, in each case, as available and in effect as of the date
hereof, all of which are subject to change, possibly with retroactive effect. Tax consequences under state, local and non-U.S. laws are not addressed herein.
U.S. Tax Treatment. Your notes will be treated as contingent payment debt instruments (“CPDI”) subject to taxation under the “noncontingent bond method”. If your notes are so treated, you should
generally, for each accrual period, accrue original issue discount (“OID”) equal to the product of (i) the “comparable yield” (adjusted for the length of the accrual period) and (ii) the “adjusted issue price” of the notes at the beginning of
the accrual period. This amount is ratably allocated to each day in the accrual period and is includible as ordinary interest income by a U.S. holder for each day in the accrual period on which the U.S. holder holds the CPDI, whether or not
the amount of any payment is fixed or determinable in the taxable year. Thus, the noncontingent bond method will result in recognition of income prior to the receipt of cash.
In general, the comparable yield of a CPDI is equal to the yield at which we would issue a fixed rate debt instrument with
terms and conditions similar to those of the CPDI, including the level of subordination, term, timing of payments, and general market conditions. In general, because similar fixed rate debt instruments issued by us are traded at a price that
reflects a spread above a benchmark rate, the comparable yield is the sum of the benchmark rate on the issue date and the spread.
The adjusted issue price at the beginning of each accrual period is generally equal to the issue price of the note plus the
amount of OID previously includible in the gross income of the U.S. holder.
In addition to the determination of a comparable yield, the noncontingent bond method requires the construction of a
projected payment schedule. The projected payment schedule includes the projected amounts for each contingent payment to be made under the CPDI that are adjusted to produce the comparable yield. If the notes had priced on January 7, 2019, and
we had determined the comparable yield on that date, it would have been equal to 3.66% per annum, compounded semi-annually, with a projected payment at maturity of $11.55 based on an investment of $10.00.
Based on the comparable yield as of January 7, 2019, if you are an initial holder that holds a note until maturity and
you calculate your taxes on a calendar year basis, we have determined that you would be required to report the following amounts as ordinary interest income from the note, not taking into account any positive or negative adjustments you may
be required to take into account based on actual payments on such note:
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Accrual Period
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Interest Deemed to Accrue During Accrual Period (per $10.00 Note)
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Total Interest Deemed to Have Accrued From Original Issue Date (per $10.00 Note) as of End
of Accrual Period
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January 31, 2019 through December 31, 2019
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$0.34
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$0.34
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January 1, 2020 through December 31, 2020
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$0.38
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$0.72
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January 1, 2021 through December 31, 2021
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$0.39
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$1.11
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January 1, 2022 through December 31, 2022
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$0.41
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$1.52
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January 1, 2023 through January 27, 2023
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$0.03
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$1.55
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The actual comparable yield and projected payment schedule for the
notes will be completed on the pricing date and updated in the pricing supplement.
A U.S. holder of the notes is required to use our projected payment schedule to determine its interest
accruals and adjustments, unless such holder determines that our projected payment schedule is unreasonable, in which case such holder must disclose its own projected payment schedule in connection with its U.S. federal income tax return and the
reason(s) why it is not using our projected payment
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Market Index Target-Term Securities®
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schedule. Neither the comparable yield nor the projected payment schedule
constitutes a representation by us regarding the actual contingent amount(s) that we will pay on a note.
If the actual amounts of contingent payments are different from the amounts reflected in the projected payment schedule, a
U.S. holder is required to make adjustments in its OID accruals under the noncontingent bond method described above when those amounts are paid. Accordingly, an adjustment arising from the contingent payment made at maturity that is greater
than the assumed amount of such payment is referred to as a “positive adjustment”; such adjustment arising from the contingent payment at maturity that is less than the assumed amount of such payment is referred to as a “negative adjustment”.
Any positive adjustment for a taxable year is treated as additional OID income of the U.S. holder. Any net negative adjustment reduces any OID on the note for the taxable year that would otherwise accrue. Any excess is then treated as a
current-year ordinary loss to the U.S. holder to the extent of OID accrued in prior years.
In general, a U.S. holder’s basis in a CPDI is increased by the projected contingent payments accrued by such holder under the
projected payment schedule (as determined without regard to adjustments made to reflect differences between actual and projected payments) and reduced by the projected amount of any contingent payments previously made. Gain on the taxable
disposition of a CPDI generally is treated as ordinary income. Loss, on the other hand, is treated as ordinary loss only to the extent of the U.S. holder’s prior net OID inclusions (i.e., reduced by the total net negative adjustments previously
allowed to the U.S. holder as an ordinary loss) and capital loss to the extent in excess thereof. However, the deductibility of a capital loss realized on the taxable disposition of a note is subject to limitations. Under the rules governing
CPDI, special rules would apply to a person who purchases notes at a price other than the adjusted issue price as determined for tax purposes.
A U.S. holder that purchases a note for an amount other than the public offering price of the note will be required to adjust
its OID inclusions to account for the difference. These adjustments will affect the U.S. holder’s basis in the note. Reports to U.S. holders may not include these adjustments. U.S. holders that purchase notes at other than the public offering
price should consult their tax advisor regarding these adjustments.
Prospective investors should consult their tax advisor with respect to the application of the CPDI provisions to the notes. The
discussions herein and in the product prospectus supplement do not address the consequences to taxpayers that file “applicable financial statements” or are otherwise subject to the special tax accounting rules under Section 451(b) of the Code.
Based on certain factual representations received from us, our special U.S. tax counsel, Cadwalader, Wickersham
& Taft LLP, is of the opinion that your notes should be treated in the manner described above.
Alternative Characterizations. 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 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. In particular, the IRS might assert that the notes should be treated as deemed to
be redeemed and reissued on any rebalancing of the Index or rollover of, or change to, the stocks included in the Index.
Medicare Tax on Net Investment
Income. U.S. holders that are individuals or estates and 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 tax advisors as to the
consequences of the 3.8% Medicare tax with respect to their investment in the notes.
Specified Foreign Financial Assets. Certain U.S. holders that own “specified foreign financial assets” in excess of an applicable threshold may be subject to reporting obligations with respect to such assets with their
tax returns, especially if such assets are held outside the custody of a U.S. financial institution. You are urged to consult your tax advisor as to the application of this legislation to your ownership of the notes.
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 U.S. withholding tax with respect to payments on your notes or 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, as discussed below, gain from taxable disposition of the notes 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
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
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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 any Basket Component or any stocks
comprising any Basket Component, 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 Basket Components, stocks comprising any Basket Component 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 you enter, or have entered, into
certain other transactions in respect of the Basket Components, stocks comprising any Basket Component or your notes. If you enter, or have entered, into other transactions in respect of the Basket Components, stocks comprising any
Basket Component or your notes, you should consult your tax advisor regarding the application of Section 871(m) of the Code to your notes in the context of your 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.
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, 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.
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 non-U.S. entity) under the FATCA rules.
As mentioned above, alternative characterizations of the notes for U.S. federal income tax purposes are possible. Should an
alternative characterization of the notes cause payments with respect to the notes to become subject to withholding tax, we (and/or the applicable withholding agent) will withhold tax at the applicable statutory rate and we will not make payments
of any additional amounts.
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 Basket Components).
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Market Index Target-Term Securities®
Linked to an International Equity Index Basket, due January , 2023 |
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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 toll-free at 1-800-294-1322.
Market-Linked Investments Classification
MLPF&S classifies certain market-linked investments (the “Market-Linked Investments”) into categories,
each with different investment characteristics. The following description is meant solely for informational purposes and is not intended to represent any particular Market Downside Protection Market-Linked Investment or guarantee any performance.
Market Downside Protection Market-Linked Investments combine some of the capital preservation features of traditional bonds with
the growth potential of equities and other asset classes. They offer full or partial market downside protection at maturity, while offering market exposure that may provide better returns than comparable fixed income securities. It is important
to note that the market downside protection feature provides investors with protection only at maturity, subject to issuer credit risk. In addition, in exchange for full or partial protection, you forfeit dividends and full exposure to the linked
asset’s upside. In some circumstances, this could result in a lower return than with a direct investment in the asset.
"Market Index Target-Term Securities® " and "MITTS® " are registered service marks of Bank of America Corporation, the
parent company of MLPF&S.
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Market Index Target-Term Securities
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TS-30
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