On the second Observation End Date, the Issuer elects to call
the Notes. Because the Closing Level of each Underlying is at or above its applicable Coupon Barrier on each scheduled trading
day during the second Observation Period, the Issuer will pay you on the Call Settlement Date $10.225 per Note, which is equal
to your principal amount plus the Contingent Coupon due on the Coupon Payment Date that is also the Call Settlement Date.
No further amounts will be owed to you under the Notes.
In addition, because the Closing Level of each Underlying was
greater than or equal to its Coupon Barrier on each scheduled trading day during the first Observation Period, the Issuer will
pay the Contingent Coupon of $0.225 on the first Coupon Payment Date. Accordingly, the Issuer will have paid a total of $10.45
per Note for a total return of 4.50% on the Notes.
In this example, the Issuer does not elect to call the Notes
and the Notes remain outstanding until maturity. Because the Final Underlying Level of each Underlying is greater than or equal
to its Downside Threshold and the Closing Level of each Underlying is greater than or equal to its Coupon Barrier on each scheduled
trading day during the final Observation Period, the Issuer will pay you on the Maturity Date $10.225 per Note, which is equal
to your principal amount plus the Contingent Coupon due on the Coupon Payment Date that is also the Maturity Date.
In addition, because the Closing Level of each Underlying was
greater than or equal to its Coupon Barrier on each scheduled trading day during the first and second Observation Periods, the
Issuer will pay the Contingent Coupon of $0.225 on each of the first and second Coupon Payment Dates. However, because the Closing
Level of at least one Underlying was less than its Coupon Barrier on at least one scheduled trading day during the third through
ninth Observation Periods, the Issuer will not pay any Contingent Coupon on the Coupon Payment Dates following the Observation
End Dates on which those Observation Periods end. Accordingly, the Issuer will have paid a total of $10.675 per Note for a total
return of 6.75% on the Notes.
Example 3 — Notes Are NOT Called and the Final Underlying
Level of Each Underlying Is At or Above Its Downside Threshold But No Contingent Coupon Is Paid on the Maturity Date
Observation Period
|
|
Lowest Closing Level in Observation Period
|
|
Final Underlying Level
|
|
Payment (per Note)
|
First Observation Period
|
|
RTY Index: 115.000
SPX Index: 110.00
UKX Index: 105.00
|
|
N/A
|
|
Notes NOT called at the election of the Issuer. Closing Level of each Underlying at or above its Coupon Barrier on each scheduled trading day during first Observation Period; Issuer pays Contingent Coupon of $0.225 on first Coupon Payment Date.
|
Second Observation Period
|
|
RTY Index: 80.000
SPX Index: 75.00
UKX Index: 90.00
|
|
N/A
|
|
Notes NOT called at the election of the Issuer. Closing Level of each Underlying at or above its Coupon Barrier on each scheduled trading day during second Observation Period; Issuer pays Contingent Coupon of $0.225 on second Coupon Payment Date.
|
Third to Ninth Observation Periods
|
|
Various (at least one Underlying below Coupon Barrier)
|
|
N/A
|
|
Notes NOT called at the election of the Issuer. Closing Level of at least one Underlying below its Coupon Barrier on at least one scheduled trading day during each of the third to ninth Observation Periods; Issuer DOES NOT pay Contingent Coupon on any of the third to ninth Coupon Payment Dates.
|
Tenth Observation Period (the final Observation Period ending on the Final Valuation Date)
|
|
RTY Index: 90.000
SPX Index: 50.00
UKX Index: 80.00
|
|
RTY Index: 95.000
SPX Index: 65.00
UKX Index: 85.00
|
|
Notes NOT callable. Final Underlying Level of each Underlying at or above its Downside Threshold. Closing Level of SPX Index below its Coupon Barrier on at least one scheduled trading day during final Observation Period; Issuer repays principal but does not pay any Contingent Coupon on Maturity Date.
|
Total Payments (per Note):
|
|
Payment at Maturity:
|
$10.00
|
|
|
Prior Contingent Coupons:
|
$0.45 ($0.225 × 2)
|
|
|
Total:
|
$10.45
|
|
|
Total Return:
|
4.50%
|
In this example, the Issuer does not elect to call the Notes
and the Notes remain outstanding until maturity. Because the Final Underlying Level of each Underlying is greater than or equal
to its Downside Threshold but the Closing Level of at least one Underlying is less than its Coupon Barrier on at least one scheduled
trading day during the final Observation Period, the Issuer will pay you on the Maturity Date $10.00 per Note, which is equal to
your principal amount, but the Issuer will not pay any Contingent Coupon on the Coupon Payment Date that is also the Maturity Date.
In addition, because the Closing Level of each Underlying was
greater than or equal to its Coupon Barrier on each scheduled trading day during the first and second Observation Periods, the
Issuer will pay the Contingent Coupon of $0.225 on each of the first and second Coupon Payment Dates. However, because the Closing
Level of at least one Underlying was less than its Coupon Barrier on at least one scheduled trading day during the third through
ninth Observation Periods, the Issuer will not pay any Contingent Coupon on the Coupon Payment Dates following the Observation
End Dates on which those Observation Periods end. Accordingly, the Issuer will have paid a total of $10.45 per Note for a total
return of 4.50% on the Notes.
Example 4 — Notes Are NOT Called and the Final Underlying
Level of At Least One Underlying Is Below Its Downside Threshold
Observation Period
|
|
Lowest Closing Level in Observation Period
|
|
Final Underlying Level
|
|
Payment (per Note)
|
First Observation Period
|
|
RTY Index: 40.000
SPX Index: 45.00
UKX Index: 30.00
|
|
N/A
|
|
Notes NOT called at the election of the Issuer. Closing Level of each Underlying below its Coupon Barrier on at least one scheduled trading day during first Observation Period; Issuer DOES NOT pay Contingent Coupon on first Coupon Payment Date.
|
Second Observation Period
|
|
RTY Index: 105.000
SPX Index: 45.00
UKX Index: 80.00
|
|
N/A
|
|
Notes NOT called at the election of the Issuer. Closing Level of SPX Index below its Coupon Barrier on at least one scheduled trading day during second Observation Period; Issuer DOES NOT pay Contingent Coupon on second Coupon Payment Date.
|
Third to Ninth Observation Periods
|
|
Various (at least one Underlying below Coupon Barrier)
|
|
N/A
|
|
Notes NOT called at the election of the Issuer. Closing Level of at least one Underlying below its Coupon Barrier on at least one scheduled trading day during each of the third to ninth Observation Periods; Issuer DOES NOT pay Contingent Coupon on any of the third to ninth Coupon Payment Dates.
|
Tenth Observation Period (the final Observation Period ending on the Final Valuation Date)
|
|
RTY Index: 45.000
SPX Index: 110.00
UKX Index: 80.00
|
|
RTY Index: 45.000
SPX Index: 110.00
UKX Index: 80.00
|
|
Notes NOT callable. Closing Level of RTY Index below its Coupon Barrier and Downside Threshold; Issuer DOES NOT pay Contingent Coupon on Maturity Date; Issuer repays less than the principal amount resulting in a percentage loss of principal equal to the decline of the Least Performing Underlying.
|
Total Payments (per Note):
|
|
Payment at Maturity:
|
$4.50
|
|
|
Prior Contingent Coupons:
|
$0.00
|
|
|
Total:
|
$4.50
|
|
|
Total Return:
|
-55.00%
|
In this example, the Issuer does not elect to call the Notes
and the Notes remain outstanding until maturity. Because the Final Underlying Level of at least one Underlying is less than its
Downside Threshold on the Final Valuation Date, at maturity, the Issuer will pay you a total of $4.50 per Note,
for a total return of -55.00% on the Notes, calculated as follows:
$10 × (1 + Underlying Return of the
Least Performing Underlying)
Step 1: Calculate the Underlying Return of each Underlying:
Underlying Return of the RTY Index:
Final Underlying Level – Initial Underlying Level
|
=
|
45.000 – 100.000
|
= -55.00%
|
Initial Underlying Level
|
100.000
|
Underlying Return of the SPX Index:
Final Underlying Level – Initial Underlying Level
|
=
|
110.00 – 100.00
|
= 10.00%
|
Initial Underlying Level
|
100.00
|
Underlying Return of the UKX Index:
Final Underlying Level – Initial Underlying Level
|
=
|
80.00 – 100.00
|
= -20.00%
|
Initial Underlying Level
|
100.00
|
Step 2: Determine the Least Performing Underlying. The
RTY Index is the Underlying with the lowest Underlying Return.
Step 3: Calculate the Payment at Maturity:
$10 × (1 + Underlying Return of the
Least Performing Underlying) = $10 × (1 + -55.00%) = $4.50
In addition, because the Closing Level of at least one Underlying
is less than its Coupon Barrier on at least one scheduled trading day during each Observation Period, the Issuer will not pay any
Contingent Coupons over the term of the Notes.
What Are the Tax Consequences
of an Investment in the Notes?
|
You should review carefully the sections in the accompanying
prospectus supplement entitled “Material U.S. Federal Income Tax Consequences—Tax Consequences to U.S. Holders—Notes
Treated as Prepaid Forward or Derivative Contracts with Associated Contingent Coupons” and, if you are a non-U.S. holder,
“—Tax Consequences to Non-U.S. Holders.” The following discussion supersedes the discussion in the accompanying
prospectus supplement to the extent it is inconsistent therewith.
In determining our reporting responsibilities, if any, we intend
to treat (i) the Notes for U.S. federal income tax purposes as prepaid forward contracts with associated contingent coupons and
(ii) any Contingent Coupons as ordinary income, as described in the section entitled “Material U.S. Federal Income Tax Consequences—Tax
Consequences to U.S. Holders—Notes Treated as Prepaid Forward or Derivative Contracts with Associated Contingent Coupons”
in the accompanying prospectus supplement. Our special tax counsel, Davis Polk & Wardwell LLP, has advised that it believes
this treatment to be reasonable, but that there are other reasonable treatments that the Internal Revenue Service (the “IRS”)
or a court may adopt.
Sale, Exchange or Redemption of a Note. Assuming the treatment
described above is respected, upon a sale or exchange of the Notes (including upon early redemption or redemption at maturity),
you should recognize capital gain or loss equal to the difference between the amount realized on the sale or exchange and your
tax basis in the Notes, which should equal the amount you paid to acquire the Notes (assuming Contingent Coupons are properly treated
as ordinary income, consistent with the position referred to above). This gain or loss should be short-term capital gain or loss
unless you hold the Notes for more than one year, in which case the gain or loss should be long-term capital gain or loss, whether
or not you are an initial purchaser of the Notes at the issue price. The deductibility of capital losses is subject to limitations.
If you sell your Notes between the time your right to a Contingent Coupon is fixed and the time it is paid, it is likely that you
will be treated as receiving ordinary income equal to the Contingent Coupon. Although uncertain, it is possible that proceeds received
from the sale or exchange of your Notes prior to an Observation End Date but that can be attributed to an expected Contingent Coupon
payment could be treated as ordinary income. You should consult your tax advisor regarding this issue.
As noted above, there are other reasonable treatments that the
IRS or a court may adopt, in which case the timing and character of any income or loss on the Notes could be materially affected.
In addition, in 2007 the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income
tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in particular on whether to
require investors in these instruments to accrue income over the term of their investment. It also asks for comments on a number
of related topics, including the character of income or loss with respect to these instruments and the relevance of factors such
as the nature of the underlying property to which the instruments are linked. While the notice requests comments on appropriate
transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues
could materially affect the tax consequences of an investment in the Notes, possibly with retroactive effect. You should consult
your tax advisor regarding the U.S. federal income tax consequences of an investment in the Notes, including possible alternative
treatments and the issues presented by this notice.
Non-U.S. Holders. Insofar as we have responsibility as
a withholding agent, we do not currently intend to treat Contingent Coupon payments to non-U.S. holders (as defined in the accompanying
prospectus supplement) as subject to U.S. withholding tax. However, non-U.S. holders should in any event expect to be required
to provide appropriate Forms W-8 or other documentation in order to establish an exemption from backup withholding, as described
under the heading “—Information Reporting and Backup Withholding” in the accompanying prospectus supplement.
If any withholding is required, we will not be required to pay any additional amounts with respect to amounts withheld.
Treasury regulations under Section 871(m) generally impose a
withholding tax on certain “dividend equivalents” under certain “equity linked instruments.” A recent IRS
notice excludes from the scope of Section 871(m) instruments issued prior to January 1, 2023 that do not have a “delta of
one” with respect to underlying securities that could pay U.S.-source dividends for U.S. federal income tax purposes (each
an “Underlying Security”). Based on our determination that the Notes do not have a “delta of one” within
the meaning of the regulations, we expect that these regulations should not apply to the Notes with regard to non-U.S. holders.
Our determination is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its
application may depend on your particular circumstances, including whether you enter into other transactions with respect to an
Underlying Security. If necessary, further information regarding the potential application of Section 871(m) will be provided in
the pricing supplement for the Notes. You should consult your tax advisor regarding the potential application of Section 871(m)
to the Notes.
The Russell 2000® Index (the “RTY Index”)
measures the capitalization-weighted price performance of 2,000 small-capitalization stocks and is designed to track the performance
of the small-capitalization segment of the U.S. equity market. For more information about the RTY Index, see “Indices—The
Russell Indices” in the accompanying underlying supplement.
Historical Information
The following graph sets forth the historical performance of
the RTY Index from January 2, 2008 through January 20, 2021, based on the daily Closing Levels of the RTY Index. The Closing Level
of the RTY Index on January 20, 2021 was 2,160.617. The dotted lines represent a hypothetical Coupon Barrier and a hypothetical
Downside Threshold of 1,512.432 and 1,188.339, respectively, which are equal to 70.00% and 55.00%, respectively, of the Closing
Level of the RTY Index on January 20, 2021. The actual Coupon Barrier and Downside Threshold for the RTY Index will be determined
on the Trade Date and will be based on the Initial Underlying Level of the RTY Index.
We obtained the Closing Levels of the RTY Index from Bloomberg
Professional® service (“Bloomberg”), without independent verification. Historical performance of the
RTY Index should not be taken as an indication of future performance. Future performance of the RTY Index may differ significantly
from historical performance, and no assurance can be given as to the Closing Level of the RTY Index during the term of the Notes,
including on any scheduled trading day during an Observation Period or on the Final Valuation Date. We cannot give you assurance
that the performance of the RTY Index will not result in a loss of your principal amount.
PAST
PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
The S&P 500® Index (the “SPX Index”)
consists of stocks of 500 companies selected to provide a performance benchmark for the U.S. equity markets. For more information
about the SPX Index, see “Indices—The S&P U.S. Indices” in the accompanying underlying supplement.
Historical Information
The following graph sets forth the historical performance of
the SPX Index from January 2, 2008 through January 20, 2021, based on the daily Closing Levels of the SPX Index. The Closing Level
of the SPX Index on January 20, 2021 was 3,851.85. The dotted lines represent a hypothetical Coupon Barrier and a hypothetical
Downside Threshold of 2,696.30 and 2,118.52, respectively, which are equal to 70.00% and 55.00%, respectively, of the Closing Level
of the SPX Index on January 20, 2021. The actual Coupon Barrier and Downside Threshold for the SPX Index will be determined on
the Trade Date and will be based on the Initial Underlying Level of the SPX Index.
We obtained the Closing Levels of the SPX Index from Bloomberg,
without independent verification. Historical performance of the SPX Index should not be taken as an indication of future performance.
Future performance of the SPX Index may differ significantly from historical performance, and no assurance can be given as to the
Closing Level of the SPX Index during the term of the Notes, including on any scheduled trading day during an Observation Period
or on the Final Valuation Date. We cannot give you assurance that the performance of the SPX Index will not result in a loss of
your principal amount.
PAST PERFORMANCE IS NOT INDICATIVE
OF FUTURE RESULTS.
The FTSE® 100 Index (the “UKX Index”)
measures the composite price performance of stocks of the 100 largest companies (determined on the basis of market capitalization)
traded on the London Stock Exchange. For more information about the UKX Index, see “Indices—The FTSE®
100 Index” in the accompanying underlying supplement.
Historical Information
The following graph sets forth the historical performance of
the UKX Index from January 2, 2008 through January 20, 2021, based on the daily Closing Levels of the UKX Index. The Closing Level
of the UKX Index on January 20, 2021 was 6,740.39. The dotted lines represent a hypothetical Coupon Barrier and a hypothetical
Downside Threshold of 4,718.27 and 3,707.21, respectively, which are equal to 70.00% and 55.00%, respectively, of the Closing Level
of the UKX Index on January 20, 2021. The actual Coupon Barrier and Downside Threshold for the UKX Index will be determined on
the Trade Date and will be based on the Initial Underlying Level of the UKX Index.
We obtained the Closing Levels of the UKX Index from Bloomberg,
without independent verification. Historical performance of the UKX Index should not be taken as an indication of future performance.
Future performance of the UKX Index may differ significantly from historical performance, and no assurance can be given as to the
Closing Level of the UKX Index during the term of the Notes, including on any scheduled trading day during an Observation Period
or on the Final Valuation Date. We cannot give you assurance that the performance of the UKX Index will not result in a loss of
your principal amount.
PAST PERFORMANCE IS NOT INDICATIVE
OF FUTURE RESULTS.
Correlation
of the Underlyings
|
The following graph sets forth the historical performances of
the Russell 2000® Index, the S&P 500® Index and the FTSE® 100 Index from January
2, 2008 through January 20, 2021, based on the daily Closing Levels of the Underlyings. For comparison purposes, each Underlying
has been normalized to have a Closing Level of 100.00 on January 2, 2008 by dividing the Closing Level of that Underlying on each
day by the Closing Level of that Underlying on January 2, 2008 and multiplying by 100.00.
We obtained the Closing Levels used to determine the normalized
Closing Levels set forth below from Bloomberg, without independent verification. Historical performance of the Underlyings should
not be taken as an indication of future performance. Future performance of the Underlyings may differ significantly from historical
performance, and no assurance can be given as to the Closing Levels of the Underlyings during the term of the Notes, including
on any scheduled trading day during an Observation Period or on the Final Valuation Date. We cannot give you assurance that the
performances of the Underlyings will not result in a loss of your principal amount.
PAST PERFORMANCE AND CORRELATION OF
THE UNDERLYINGS ARE NOT INDICATIVE OF FUTURE PERFORMANCE OR CORRELATION.
The correlation of a pair of Underlyings represents a statistical
measurement of the degree to which the returns of those Underlyings were similar to each other over a given period in terms of
timing and direction. The correlation between a pair of Underlyings is scaled from 1.0 to -1.0, with 1.0 indicating perfect positive
correlation (i.e., the value of both Underlyings are increasing together or decreasing together and the ratio of their returns
has been constant), 0 indicating no correlation (i.e., there is no statistical relationship between the returns of that pair of
Underlyings) and -1.0 indicating perfect negative correlation (i.e., as the value of one Underlying increases, the value of the
other Underlying decreases and the ratio of their returns has been constant).
The closer the relationship of the returns of a pair of Underlyings
over a given period, the more positively correlated those Underlyings are. The graph above illustrates the historical performance
of each of the Underlyings relative to the other Underlyings over the time period shown and provides an indication of how close
the relative performance of one Underlying has historically been to another. However, the graph does not provide a precise measurement
of the correlation of the Underlyings. Moreover, any historical correlation of the Underlyings is not indicative of the degree
of correlation of the Underlyings, if any, that will be experienced over the term of the Notes.
The lower (or more negative) the correlation between two Underlyings,
the less likely it is that those Underlyings will move in the same direction at the same time and, therefore, the greater the potential
for one of those Underlyings to close below its Coupon Barrier or Downside Threshold on any day during an Observation Period or
the Final Valuation Date, respectively. This is because the less positively correlated a pair of Underlyings are, the greater the
likelihood that at least one of the Underlyings will decrease in value. However, even if two Underlyings have a higher positive
correlation, one or both of those Underlyings might close below its Coupon Barrier or Downside Threshold on any day during an Observation
Period or the Final Valuation Date, respectively, as both of those Underlyings may decrease in value together.
Although the correlation of the Underlyings’ performance
may change over the term of the Notes, the Contingent Coupon Rate is determined, in part, based on the correlations of the Underlyings’
performance calculated using our internal models at the time when the terms of the Notes are finalized. A higher Contingent Coupon
Rate is generally associated with lower correlation of the Underlyings, which reflects a greater potential for missed Contingent
Coupons and for a loss of principal at maturity. The correlations referenced in setting the terms of the Notes are calculated using
our internal models and are not derived from the returns of the Underlyings over the period set forth above. In addition, other
factors and inputs other than correlation may impact how the terms of the Notes are set and the performance of the Notes.