Filed Pursuant to Rule 424(b)(2)
File No. 333-180728
The information in this preliminary pricing supplement is not complete and may be changed. This preliminary pricing supplement and the accompanying product supplement, prospectus supplement and prospectus are not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject To Completion, dated April 1, 2014 PRICING SUPPLEMENT No. 421 dated April , 2014 (To Product Supplement No. 3 dated May 2, 2012, Prospectus Supplement dated April 13, 2012 and Prospectus dated April 13, 2012) |
Wells Fargo & Company
Medium-Term Notes, Series K ETF Linked Securities
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Market Linked SecuritiesLeveraged Upside Participation to a Cap and Fixed Percentage Buffered Downside Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017 | ||||||||
n |
Linked to a Global ETF Basket comprised of the SPDR® S&P 500® ETF Trust (50%); the iShares® Russell 2000 ETF (20%); the iShares® MSCI EAFE ETF (15%); and the iShares® MSCI Emerging Markets ETF (15%) |
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n | Unlike ordinary debt securities, the securities do not pay interest or repay a fixed amount of principal at maturity. Instead, the securities provide for a payment at maturity that may be greater than, equal to or less than the original offering price of the securities, depending on the performance of the basket from its starting price to its ending price. The payment at maturity will reflect the following terms: |
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n | If the value of the basket appreciates, you will receive the original offering price plus 150% participation in the upside performance of the basket, subject to a maximum total return at maturity of 35.00% to 40.00% (to be determined on the pricing date) of the original offering price |
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n | If the value of the basket decreases but the decrease is not more than 10%, you will be repaid the original offering price |
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n | If the value of the basket decreases by more than 10%, you will receive less than the original offering price and have 1-to-1 downside exposure to the decrease in the value of the basket in excess of 10% |
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n | Investors may lose up to 90% of the original offering price |
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n | All payments on the securities are subject to the credit risk of Wells Fargo & Company, and you will have no ability to pursue the shares of the basket components or any securities held by the basket components for payment; if Wells Fargo & Company defaults on its obligations, you could lose some or all of your investment |
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n | No periodic interest payments or dividends |
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n | No exchange listing; designed to be held to maturity
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On the date of this preliminary pricing supplement, the estimated value of the securities is approximately $961.80 per security. While the estimated value of the securities on the pricing date may differ from the estimated value set forth above, we do not expect it to differ significantly absent a material change in market conditions or other relevant factors. In no event will the estimated value of the securities on the pricing date be less than $951.80 per security. The estimated value of the securities was determined for us by Wells Fargo Securities, LLC using its proprietary pricing models. It is not an indication of actual profit to us or to Wells Fargo Securities, LLC or any of our other affiliates, nor is it an indication of the price, if any, at which Wells Fargo Securities, LLC or any other person may be willing to buy the securities from you at any time after issuance. See Investment Description in this pricing supplement.
The securities have complex features and investing in the securities involves risks not associated with an investment in conventional debt securities. See Selected Risk Considerations herein on page PRS-10 and Risk Factors in the accompanying product supplement.
The securities are unsecured obligations of Wells Fargo & Company and all payments on the securities are subject to the credit risk of Wells Fargo & Company. The securities are not deposits or other obligations of a depository institution and are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund or any other governmental agency of the United States or any other jurisdiction.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this pricing supplement or the accompanying product supplement, prospectus supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Original Offering Price | Agent Discount(1) | Proceeds to Wells Fargo | ||||
Per Security |
$1,000.00 | $13.25 | $986.75 | |||
Total |
(1) | Wells Fargo Securities, LLC, a wholly-owned subsidiary of Wells Fargo & Company, is the agent for the distribution of the securities and is acting as principal. See Investment Description in this pricing supplement for further information. |
Wells Fargo Securities
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Investment Description |
The Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017 are senior unsecured debt securities of Wells Fargo & Company that do not pay interest or repay a fixed amount of principal at maturity. Instead, the securities provide for a payment at maturity that may be greater than, equal to or less than the original offering price of the securities depending on the performance of the basket of exchange traded funds (the Basket) from its starting price to its ending price. The securities provide:
(i) | the possibility of a leveraged return at maturity if the value of the Basket increases from its starting price to its ending price, provided that the total return at maturity of the securities will not exceed the maximum total return of 35.00% to 40.00% of the original offering price, as determined on the pricing date; |
(ii) | repayment of principal if, and only if, the ending price of the Basket is not less than the starting price by more than 10%; and |
(iii) | exposure to decreases in the value of the Basket if and to the extent the ending price is less than the starting price by more than 10%. |
If the ending price is less than the starting price by more than 10%, you will receive less, and possibly 90% less, than the original offering price of your securities at maturity. All payments on the securities are subject to the credit risk of Wells Fargo.
The Basket is comprised of the following four unequally-weighted basket components, with each basket component having the weighting noted parenthetically:
| the SPDR® S&P 500® ETF Trust (50%), an exchange traded fund that seeks to track the S&P 500 Index (an equity index that is intended to provide an indication of the pattern of common stock price movement in the large capitalization segment of the United States equity market); |
| the iShares® Russell 2000 ETF (20%), an exchange traded fund that seeks to track the Russell 2000 Index (an equity index that is designed to reflect the performance of the small capitalization segment of the United States equity market); |
| the iShares® MSCI EAFE ETF (15%), an exchange traded fund that seeks to track the MSCI EAFE Index (an equity index that is designed to measure equity performance in developed markets, excluding the United States and Canada); and |
| the iShares® MSCI Emerging Markets ETF (15%), an exchange traded fund that seeks to track the MSCI Emerging Markets Index (an equity index that is designed to measure equity performance in global emerging markets). |
You should read this pricing supplement together with product supplement no. 3 dated May 2, 2012, the prospectus supplement dated April 13, 2012 and the prospectus dated April 13, 2012 for additional information about the securities. Information included in this pricing supplement supersedes information in the product supplement, prospectus supplement and prospectus to the extent it is different from that information. Certain defined terms used but not defined herein have the meanings set forth in the product supplement.
You may access the product supplement, prospectus supplement and prospectus on the SEC website www.sec.gov as follows (or if such address has changed, by reviewing our filing for the relevant date on the SEC website):
| Product Supplement No. 3 dated May 2, 2012, filed with the SEC on May 2, 2012: http://www.sec.gov/Archives/edgar/data/72971/000119312512204514/d342625d424b2.htm |
| Prospectus Supplement dated April 13, 2012 and Prospectus dated April 13, 2012 filed with the SEC on April 13, 2012: http://www.sec.gov/Archives/edgar/data/72971/000119312512162780/d256650d424b2.htm |
SPDR® and S&P 500® are trademarks of Standard & Poors Financial Services LLC (S&P Financial). The securities are not sponsored, endorsed, sold or promoted by the SPDR® S&P 500® ETF Trust (the SPDR Trust) or S&P Financial. Neither the SPDR Trust nor S&P Financial makes any representations or warranties to the holders of the securities or any member of the public regarding the advisability of investing in the securities. Neither the SPDR Trust nor S&P Financial will have any obligation or liability in connection with the registration, operation, marketing, trading or sale of the securities or in connection with Wells Fargo & Companys use of information about the SPDR Trust.
iShares® is a registered mark of BlackRock Institutional Trust Company, N.A. (BTC). The securities are not sponsored, endorsed, sold or promoted by BTC, its affiliate, BlackRock Fund Advisors (BFA), iShares Trust or iShares, Inc. None of BTC, BFA, iShares Trust or iShares, Inc. makes any representations or warranties to the holders of the securities or any member of the public regarding the advisability of investing in the securities. None of BTC, BFA, iShares Trust or iShares, Inc. will have any obligation or liability in connection with the registration, operation, marketing, trading or sale of the securities or in connection with Wells Fargo & Companys use of information about the iShares® Russell 2000 ETF, the iShares® MSCI EAFE ETF and the iShares® MSCI Emerging Markets ETF.
PRS-2
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Investment Description (Continued) |
The original offering price of each security of $1,000 includes certain costs that are borne by you. Because of these costs, the estimated value of the securities on the pricing date will be less than the original offering price. The costs included in the original offering price relate to selling, structuring, hedging and issuing the securities, as well as to our funding considerations for debt of this type.
The costs related to selling, structuring, hedging and issuing the securities include (i) the agent discount, (ii) the projected profit that our hedge counterparty (which may be one of our affiliates) expects to realize for assuming risks inherent in hedging our obligations under the securities and (iii) hedging and other costs relating to the offering of the securities.
Our funding considerations take into account the higher issuance, operational and ongoing management costs of market-linked debt such as the securities as compared to our conventional debt of the same maturity, as well as our liquidity needs and preferences. Our funding considerations are reflected in the fact that we determine the economic terms of the securities based on an assumed funding rate that is generally lower than the interest rates implied by secondary market prices for our debt obligations and/or by other traded instruments referencing our debt obligations, which we refer to as our secondary market rates. As discussed below, our secondary market rates are used in determining the estimated value of the securities.
If the costs relating to selling, structuring, hedging and issuing the securities were lower, or if the assumed funding rate we use to determine the economic terms of the securities were higher, the economic terms of the securities would be more favorable to you and the estimated value would be higher. The estimated value of the securities as of the pricing date will be set forth in the final pricing supplement.
Determining the estimated value
Our affiliate, Wells Fargo Securities, LLC (WFS), calculated the estimated value of the securities set forth on the cover page of this pricing supplement based on its proprietary pricing models. Based on these pricing models and related market inputs and assumptions referred to in this section below, WFS determined an estimated value for the securities by estimating the value of the combination of hypothetical financial instruments that would replicate the payout on the securities, which combination consists of a non-interest bearing, fixed-income bond (the debt component) and one or more derivative instruments underlying the economic terms of the securities (the derivative component).
The estimated value of the debt component is based on a reference interest rate, determined by WFS as of a recent date, that generally tracks our secondary market rates. Because WFS does not continuously calculate our reference interest rate, the reference interest rate used in the calculation of the estimated value of the debt component may be higher or lower than our secondary market rates at the time of that calculation.
WFS calculated the estimated value of the derivative component based on a proprietary derivative-pricing model, which generated a theoretical price for the derivative instruments that constitute the derivative component based on various inputs, including the derivative component factors identified in Selected Risk ConsiderationsThe Value Of The Securities Prior To Stated Maturity Will Be Affected By Numerous Factors, Some Of Which Are Related In Complex Ways. These inputs may be market-observable or may be based on assumptions made by WFS in its discretion.
The estimated value of the securities determined by WFS is subject to important limitations. See Selected Risk ConsiderationsThe Estimated Value Of The Securities Is Determined By Our Affiliates Pricing Models, Which May Differ From Those Of Other Dealers and Potential Conflicts Of Interest Could Arise Between You And Us.
Valuation of the securities after issuance
The estimated value of the securities is not an indication of the price, if any, at which WFS or any other person may be willing to buy the securities from you in the secondary market. The price, if any, at which WFS or any of its affiliates may purchase the securities in the secondary market will be based upon WFSs proprietary pricing models and will fluctuate over the term of the securities due to changes in market conditions and other relevant factors. However, absent changes in these market conditions and other relevant factors, except as otherwise described in the following paragraph, any secondary market price will be lower than the estimated value on the pricing date because the secondary market price will be reduced by a bid-offer spread, which may vary depending on the aggregate face amount of the securities to be purchased in the secondary market transaction, and the expected cost of unwinding any
PRS-3
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Investment Description (Continued) |
related hedging transactions. Accordingly, unless market conditions and other relevant factors change significantly in your favor, any secondary market price for the securities is likely to be less than the original offering price.
If WFS or any of its affiliates purchases the securities from you at any time up to the issue date or during the 4-month period following the issue date, the secondary market price will be increased by an amount reflecting a portion of the costs associated with selling, structuring, hedging and issuing the securities that are included in the original offering price. Because this portion of the costs, which includes the projected profit that is expected to accrue over time but does not include the agent discount, is not fully deducted upon issuance, any secondary market price offered by WFS or any of its affiliates during this period will be higher than it would be if it were based solely on WFSs proprietary pricing models less the bid-offer spread and hedging unwind costs described above. The amount of this increase in the secondary market price will decline steadily to zero over this 4-month period. We expect that this increase will also be reflected in the value indicated for the securities on any brokerage account statements.
The securities will not be listed or displayed on any securities exchange or any automated quotation system. Although WFS and/or its affiliates may buy the securities from investors, they are not obligated to do so and are not required to make a market for the securities. There can be no assurance that a secondary market will develop.
PRS-4
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Investor Considerations |
We have designed the securities for investors who:
¡ | seek 150% leveraged exposure to the upside performance of the Basket if the ending price is greater than the starting price, subject to the maximum total return at maturity of 35.00% to 40.00% (to be determined on the pricing date) of the original offering price; |
¡ | desire to limit downside exposure to the Basket through the 10% buffer; |
¡ | understand that if the ending price is less than the starting price by more than 10%, they will receive less, and possibly 90% less, than the original offering price at maturity; |
¡ | are willing to forgo interest payments on the securities and dividends on shares of the basket components; and |
¡ | are willing to hold the securities until maturity. |
The securities are not designed for, and may not be a suitable investment for, investors who:
¡ | seek a liquid investment or are unable or unwilling to hold the securities to maturity; |
¡ | are unwilling to accept the risk that the ending price of the Basket may decrease by more than 10% from the starting price; |
¡ | seek uncapped exposure to the upside performance of the Basket; |
¡ | seek full return of the original offering price of the securities at stated maturity; |
¡ | are unwilling to purchase securities with an estimated value as of the pricing date that is lower than the original offering price and that may be as low as the lower estimated value set forth on the cover page; |
¡ | seek current income; |
¡ | are unwilling to accept the risk of exposure to the equity markets, including foreign developed equity markets and foreign emerging equity markets; |
¡ | seek exposure to the Basket but are unwilling to accept the risk/return trade-offs inherent in the payment at stated maturity for the securities; |
¡ | are unwilling to accept the credit risk of Wells Fargo to obtain exposure to the Basket generally, or to the exposure to the Basket that the securities provide specifically; or |
¡ | prefer the lower risk of fixed income investments with comparable maturities issued by companies with comparable credit ratings. |
PRS-5
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Terms of the Securities |
Market Measure:
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A basket (the Basket) comprised of the following basket components, with the return of each basket component having the weighting noted parenthetically: the SPDR S&P 500 ETF Trust (50%); the iShares Russell 2000 ETF (20%); the iShares MSCI EAFE ETF (15%); and the iShares MSCI Emerging Markets ETF (15%). | |||||||||||||||||||||||||
Pricing Date:
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April 30, 2014.* | |||||||||||||||||||||||||
Issue Date:
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May 7, 2014.* (T+5) | |||||||||||||||||||||||||
Original Offering Price:
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$1,000 per security. References in this pricing supplement to a security are to a security with a face amount of $1,000. | |||||||||||||||||||||||||
Redemption Amount: |
The redemption amount per security will equal: | |||||||||||||||||||||||||
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if the ending price is greater than the starting price: the lesser of: | |||||||||||||||||||||||||
(i) |
$1,000 plus:
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$1,000 | x | ending price starting price | x participation rate | ; and | ||||||||||||||||||||||
starting price | ||||||||||||||||||||||||||
(ii) |
the capped value; |
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if the ending price is less than or equal to the starting price, but greater than or equal to the threshold price: $1,000; or | |||||||||||||||||||||||||
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if the ending price is less than the threshold price: $1,000 minus: | |||||||||||||||||||||||||
$1,000 x | threshold price ending price | |||||||||||||||||||||||||
starting price | ||||||||||||||||||||||||||
If the ending price is less than the threshold price, you will receive less, and possibly 90% less, than the original offering price of your securities at maturity.
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Stated Maturity Date:
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November 7, 2017*, subject to postponement if a market disruption event occurs or is continuing on the calculation day.
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Calculation Day:
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October 31, 2017*. If such day is not a trading day with respect to a basket component, the calculation day for such basket component will be postponed to the next succeeding trading day for such basket component. Notwithstanding the postponement of the calculation day for a particular basket component due to a non-trading day for such basket component, the originally scheduled calculation day will remain the calculation day for any basket component not affected by such non-trading day. The calculation day is also subject to postponement due to the occurrence of a market disruption event.
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Starting Price:
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The starting price is 100. | |||||||||||||||||||||||||
Ending Price:
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The ending price will be calculated based on the weighted returns of the basket components and will be equal to the product of (i) 100 and (ii) an amount equal to 1 plus the sum of: (A) 50% of the component return of the SPDR S&P 500 ETF Trust; (B) 20% of the component return of the iShares Russell 2000 ETF; (C) 15% of the component return of the iShares MSCI EAFE ETF; and (D) 15% of the component return of the iShares MSCI Emerging Markets ETF.
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* | To the extent that we make any change to the expected pricing date or expected issue date, the calculation day and stated maturity date may also be changed in our discretion to ensure that the term of the securities remains the same. |
PRS-6
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Terms of the Securities (Continued) |
Component Return: | The component return of a basket component will be equal to:
final component price initial component price initial component price
where,
the initial component price will be the fund closing price of such basket component on the pricing date; and
the final component price will be the fund closing price of such basket component on the calculation day.
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Capped Value: |
The capped value will be determined on the pricing date and will be within the range of 135.00% to 140.00% of the original offering price per security ($1,350.00 to $1,400.00 per security). As a result of the capped value, the maximum total return at maturity of the securities will be 35.00% to 40.00% of the original offering price.
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Threshold Price: |
, which is equal to 90% of the starting price.
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Participation Rate:
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150% | |
Calculation Agent:
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Wells Fargo Securities, LLC
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Material Tax Consequences: |
For a discussion of the material U.S. Federal income tax consequences of the ownership and disposition of the securities see United States Federal Tax Considerations below.
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Agent: |
Wells Fargo Securities, LLC. The agent expects to make a profit by selling, structuring and, where applicable, hedging the securities. The agent may resell the securities to other securities dealers at the original offering price of the securities less a concession not in excess of $12.50 per security. Such securities dealers may include Wells Fargo Advisors, LLC (WFA), one of our affiliates. In addition to the concession allowed to WFA, WFS will pay $0.75 per security of the agents discount to WFA as a distribution expense fee for each security sold by WFA.
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Denominations:
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$1,000 and any integral multiple of $1,000.
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CUSIP:
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94986RTS0
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PRS-7
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Determining Payment at Stated Maturity |
On the stated maturity date, you will receive a cash payment per security (the redemption amount) calculated as follows:
PRS-8
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Hypothetical Payout Profile |
The following profile is based on a hypothetical capped value of 137.50% or $1,375.00 per security (the midpoint of the specified range for the capped value), a participation rate of 150% and a threshold price equal to 90% of the starting price. This graph has been prepared for purposes of illustration only. Your actual return will depend on the actual ending price, the actual capped value and whether you hold your securities to maturity.
PRS-9
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Selected Risk Considerations |
The securities have complex features and investing in the securities will involve risks not associated with an investment in conventional debt securities. These risks are explained in more detail in the Risk Factors section of the product supplement. You should reach an investment decision only after you have carefully considered with your advisors the suitability of an investment in the securities in light of your particular circumstances. The indices underlying the basket components are sometimes referred to collectively as the underlying indices and individually as an underlying index.
| If The Ending Price Is Less Than The Threshold Price, You Will Receive Less, And Possibly 90% Less, Than The Original Offering Price Of Your Securities At Maturity. If the ending price is less than the threshold price, the redemption amount that you receive at stated maturity will be reduced by an amount equal to the decline in the price of the Basket to the extent it is below the threshold price (expressed as a percentage of the starting price). The threshold price is 90% of the starting price. As a result, you may receive less, and possibly 90% less, than the original offering price per security at maturity even if the value of the Basket is greater than or equal to the starting price or the threshold price at certain times during the term of the securities. |
| No Periodic Interest Will Be Paid On The Securities. |
| Your Return Will Be Limited By The Capped Value And May Be Lower Than The Return On A Direct Investment In The Basket. The opportunity to participate in the possible increases in the price of the Basket through an investment in the securities will be limited because the redemption amount will not exceed the capped value. Furthermore, the effect of the participation rate will be progressively reduced for all ending prices exceeding the ending price at which the capped value is reached. |
| The Securities Are Subject To The Credit Risk Of Wells Fargo. The securities are our obligations and are not, either directly or indirectly, an obligation of any third party. Any amounts payable under the securities are subject to our creditworthiness, and you will have no ability to pursue the shares of the basket components or any securities held by the basket components for payment. As a result, our actual and perceived creditworthiness may affect the value of the securities and, in the event we were to default on our obligations, you may not receive any amounts owed to you under the terms of the securities. |
| The Estimated Value Of The Securities On The Pricing Date, Based On WFSs Proprietary Pricing Models, Will Be Less Than The Original Offering Price. The original offering price of the securities includes certain costs that are borne by you. Because of these costs, the estimated value of the securities on the pricing date will be less than the original offering price. The costs included in the original offering price relate to selling, structuring, hedging and issuing the securities, as well as to our funding considerations for debt of this type. The costs related to selling, structuring, hedging and issuing the securities include (i) the agent discount, (ii) the projected profit that our hedge counterparty (which may be one of our affiliates) expects to realize for assuming risks inherent in hedging our obligations under the securities and (iii) hedging and other costs relating to the offering of the securities. Our funding considerations are reflected in the fact that we determine the economic terms of the securities based on an assumed funding rate that is generally lower than our secondary market rates. If the costs relating to selling, structuring, hedging and issuing the securities were lower, or if the assumed funding rate we use to determine the economic terms of the securities were higher, the economic terms of the securities would be more favorable to you and the estimated value would be higher. |
| The Estimated Value Of The Securities Is Determined By Our Affiliates Pricing Models, Which May Differ From Those Of Other Dealers. The estimated value of the securities was determined for us by WFS using its proprietary pricing models and related market inputs and assumptions referred to above under Investment DescriptionDetermining the estimated value. Certain inputs to these models may be determined by WFS in its discretion. WFSs views on these inputs may differ from other dealers views, and WFSs estimated value of the securities may be higher, and perhaps materially higher, than the estimated value of the securities that would be determined by other dealers in the market. WFSs models and its inputs and related assumptions may prove to be wrong and therefore not an accurate reflection of the value of the securities. |
| The Estimated Value Of The Securities Is Not An Indication Of The Price, If Any, At Which WFS Or Any Other Person May Be Willing To Buy The Securities From You In The Secondary Market. Secondary market prices, if any, for the securities will be based on WFSs proprietary pricing models and will fluctuate over the term of the securities as a result of changes in the market and other factors described in the next risk consideration. Any secondary market price for the securities will also be reduced by a bid-offer spread, which may vary depending on the aggregate face amount of the securities to be purchased in the secondary market transaction, and the expected cost of unwinding any related hedging transactions. Unless the factors described in the next risk consideration change significantly in your favor, any secondary market price for the securities is likely to be less than the original offering price. |
PRS-10
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Selected Risk Considerations (Continued) |
If WFS or any of its affiliates purchases the securities from you at any time up to the issue date or during the 4-month period following the issue date, the secondary market price will be increased by an amount reflecting a portion of the costs associated with selling, structuring, hedging and issuing the securities that are included in the original offering price. Because this portion of the costs, which includes the projected profit that is expected to accrue over time but does not include the agent discount, is not fully deducted upon issuance, any secondary market price offered by WFS or any of its affiliates during this period will be higher than it would be if it were based solely on WFSs proprietary pricing models less the bid-offer spread and hedging unwind costs described above. The amount of this increase in the secondary market price will decline steadily to zero over this 4-month period. We expect that this increase will also be reflected in the value indicated for the securities on any brokerage account statements.
| The Value Of The Securities Prior To Stated Maturity Will Be Affected By Numerous Factors, Some Of Which Are Related In Complex Ways. The value of the securities prior to stated maturity will be affected by the price of the Basket at that time, interest rates at that time and a number of other factors, some of which are interrelated in complex ways. The effect of any one factor may be offset or magnified by the effect of another factor. The following factors, which we refer to as the derivative component factors, are expected to affect the value of the securities: Basket performance; interest rates; volatility of the Basket; correlation of the basket components; time remaining to maturity; dividend yields on the securities included in the basket components; volatility of currency exchange rates; and correlation between currency exchange rates and the basket components. In addition to the derivative component factors, the value of the securities will be affected by actual or anticipated changes in our creditworthiness, as reflected in our secondary market rates. Because numerous factors are expected to affect the value of the securities, changes in the value of the Basket may not result in a comparable change in the value of the securities. |
| The Securities Will Not Be Listed On Any Securities Exchange And We Do Not Expect A Trading Market For The Securities To Develop. The securities will not be listed or displayed on any securities exchange or any automated quotation system. Although the agent and/or its affiliates may purchase the securities from holders, they are not obligated to do so and are not required to make a market for the securities. There can be no assurance that a secondary market will develop. Because we do not expect that any market makers will participate in a secondary market for the securities, the price at which you may be able to sell your securities is likely to depend on the price, if any, at which the agent is willing to buy your securities. If a secondary market does exist, it may be limited. Accordingly, there may be a limited number of buyers if you decide to sell your securities prior to stated maturity. This may affect the price you receive upon such sale. Consequently, you should be willing to hold the securities to stated maturity. |
| The Amount You Receive On The Securities Will Depend Upon The Performance Of The Basket And Therefore The Securities Are Subject To The Following Risks, As Discussed In More Detail In The Product Supplement: |
| Your Return On The Securities Could Be Less Than If You Owned The Shares Of The Basket Components. Your return on the securities will not reflect the return you would realize if you actually owned the shares of the basket components because, among other reasons, the redemption amount will be determined by reference only to the closing prices of the shares of the basket components without taking into consideration the value of dividends and other distributions paid on such shares. In addition, the redemption amount will not be greater than the capped value. |
| Historical Prices Of The Basket Components Or The Securities Included In The Basket Components Should Not Be Taken As An Indication Of The Future Performance Of The Basket Components During The Term Of The Securities. |
| Changes That Affect The Basket Components Or The Underlying Indices May Adversely Affect The Value Of The Securities And The Amount You Will Receive At Stated Maturity. |
| We Cannot Control Actions By Any Of The Unaffiliated Companies Whose Securities Are Included In The Basket Components Or The Underlying Indices. |
| We And Our Affiliates Have No Affiliation With The Sponsors Of The Basket Components Or The Sponsors Of The Underlying Indices And Have Not Independently Verified Their Public Disclosure Of Information. |
| Changes In The Value Of One Or More Basket Components May Offset Each Other. Price movements in the basket components may not correlate with each other. Even if the price of one or more of the basket components increases, the price of one or more of the other basket components may not increase as much or may even decline in value. Therefore, in calculating the ending price of the Basket, increases in the price of one or more of the basket components may be moderated, or wholly offset, by lesser increases or declines in the price of one or more of the other basket components. This may be particularly the case with the Basket since one of the basket components has a 50% weighting in the Basket. |
PRS-11
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Selected Risk Considerations (Continued) |
| An Investment Linked To The Shares Of The Basket Components Is Different From An Investment Linked To The Underlying Indices. The performance of the shares of a basket component may not exactly replicate the performance of the related underlying index because the basket component may not invest in all of the securities included in the related underlying index and because the basket component will reflect transaction costs and fees that are not included in the calculation of the related underlying index. A basket component may also hold securities or derivative financial instruments not included in the related underlying index. It is also possible that a basket component may not fully replicate the performance of the underlying index due to the temporary unavailability of certain securities in the secondary market or due to other extraordinary circumstances. In addition, because the shares of a basket component are traded on a securities exchange and are subject to market supply and investor demand, the value of a share of a basket component may differ from the net asset value per share of such basket component. As a result, the performance of a basket component may not correlate perfectly with the performance of the related underlying index, and the return on the securities based on the performance of the basket components will not be the same as the return on securities based on the performance of the related underlying indices. |
| You Will Not Have Any Shareholder Rights With Respect To The Shares Of The Basket Components. |
| Anti-dilution Adjustments Relating To The Shares Of The Basket Components Do Not Address Every Event That Could Affect Such Shares. |
| An Investment In The Securities Is Subject To Risks Associated With Foreign Securities Markets. Two of the basket components include the stocks of foreign companies and you should be aware that investments in securities linked to the value of foreign equity securities involve particular risks. Foreign securities markets may have less liquidity and may be more volatile than the U.S. securities markets, and market developments may affect foreign markets differently than U.S. securities markets. Direct or indirect government intervention to stabilize a foreign securities market, as well as cross-shareholdings in foreign companies, may affect trading prices and volumes in those markets. Also, there is generally less publicly available information about non-U.S. companies that are not subject to the reporting requirements of the Securities and Exchange Commission, and non-U.S. companies are subject to accounting, auditing and financial reporting standards and requirements that differ from those applicable to U.S. reporting companies. |
The prices and performance of securities of non-U.S. companies are subject to political, economic, financial, military and social factors which could negatively affect foreign securities markets, including the possibility of recent or future changes in a foreign governments economic, monetary and fiscal policies, the possible imposition of, or changes in, currency exchange laws or other laws or restrictions applicable to foreign companies or investments in foreign equity securities, the possibility of imposition of withholding taxes on dividend income, the possibility of fluctuations in the rate of exchange between currencies, the possibility of outbreaks of hostility or political instability and the possibility of natural disaster or adverse public health developments. Moreover, the relevant non-U.S. economies may differ favorably or unfavorably from the U.S. economy in important respects, such as growth of gross national product, rate of inflation, trade surpluses or deficits, capital reinvestment, resources and self-sufficiency.
In addition, one of the basket components includes companies in countries with emerging markets. Countries with emerging markets may have relatively unstable governments, may present the risks of nationalization of businesses, restrictions on foreign ownership and prohibitions on the repatriation of assets, and may have less protection of property rights than more developed countries. The economies of countries with emerging markets may be based on only a few industries, may be highly vulnerable to changes in local or global trade conditions (due to economic dependence upon commodity prices and international trade), and may suffer from extreme and volatile debt burdens, currency devaluations or inflation rates. Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult or impossible at times.
The securities included in two of the basket components may be listed on a foreign stock exchange. A foreign stock exchange may impose trading limitations intended to prevent extreme fluctuations in individual security prices and may suspend trading in certain circumstances. These actions could limit variations in the closing price of such basket components which could, in turn, adversely affect the value of the securities.
| Exchange Rate Movements May Impact The Value Of The Securities. The securities will be denominated in U.S. dollars. Since the value of securities included in two of the basket components is quoted in a currency other than U.S. dollars and, as per such basket components, is converted into U.S. dollars, the amount payable on the securities on the maturity date will depend in part on the relevant exchange rates. |
PRS-12
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Selected Risk Considerations (Continued) |
| An Investment In The Securities Is Subject To Risks Associated With Investing In Stocks With A Small Market Capitalization. The stocks that constitute the Russell 2000 Index and that are held by the iShares Russell 2000 ETF are issued by companies with relatively small market capitalization. These companies often have greater stock price volatility, lower trading volume and less liquidity than large capitalization companies. As a result, the price of the iShares Russell 2000 ETF may be more volatile than that of an equity ETF that does not track solely small capitalization stocks. Stock prices of small capitalization companies are also generally more vulnerable than those of large capitalization companies to adverse business and economic developments, and the stocks of small capitalization companies may be thinly traded, and be less attractive to many investors if they do not pay dividends. In addition, small capitalization companies are typically less well-established and less stable financially than large capitalization companies and may depend on a small number of key personnel, making them more vulnerable to loss of those individuals. Small capitalization companies tend to have lower revenues, less diverse product lines, smaller shares of their target markets, fewer financial resources and fewer competitive strengths than large capitalization companies. These companies may also be more susceptible to adverse developments related to their products or services. |
| The Calculation Agent Can Postpone The Stated Maturity Date If A Market Disruption Event Occurs. |
| Potential Conflicts Of Interest Could Arise Between You And Us. You should be aware of the following potential conflicts of interest between you and us in connection with the offering of the securities: |
| WFS, which is our affiliate and the agent for the distribution of the securities, will be the calculation agent for purposes of determining, among other things, the ending price, calculating the redemption amount, determining whether adjustments should be made to the adjustment factors, determining whether adjustments should be made to the ending price and determining whether a market disruption event has occurred. |
| The estimated value of the securities set forth on the cover page of this pricing supplement was calculated for us by WFS. |
| We or one or more of our affiliates may, at present or in the future, publish research reports on the basket components or the underlying indices or the companies whose securities are included in the basket components or the underlying indices. This research is modified from time to time without notice and may express opinions or provide recommendations that are inconsistent with purchasing or holding the securities. Any of these activities may affect the price of the basket components or the closing price of securities included in the underlying indices and, therefore, the value of the securities. |
| We or one or more of our affiliates may, at present or in the future, engage in business with the companies whose securities are included in the basket components or the underlying indices. |
These activities may present a conflict between us and our affiliates and you.
| Trading And Other Transactions By Us Or Our Affiliates Could Affect The Price Of The Basket Components, Prices Of Securities Included In The Basket Components Or The Value Of The Securities. |
| The U.S. Federal Tax Consequences Of An Investment In The Securities Are Unclear. There is no direct legal authority regarding the proper U.S. federal tax treatment of the securities, and we do not plan to request a ruling from the Internal Revenue Service (the IRS). Consequently, significant aspects of the tax treatment of the securities are uncertain, and the IRS or a court might not agree with the treatment of the securities as prepaid derivative contracts that are open transactions for U.S. federal income tax purposes. If the IRS were successful in asserting an alternative treatment of the securities, the tax consequences of the ownership and disposition of the securities might be materially and adversely affected. Even if the treatment of the securities as prepaid derivative contracts that are open transactions is respected, a security may be treated as a constructive ownership transaction, with consequences described below under United States Federal Tax Considerations. In addition, in 2007 the U.S. Treasury Department and the IRS released a notice requesting comments on various issues regarding the U.S. federal income tax treatment of prepaid forward contracts and similar instruments. Any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, including the character and timing of income or loss and the degree, if any, to which income realized by non-U.S. persons should be subject to withholding tax, possibly with retroactive effect. You should read carefully the discussion under United States Federal Tax Considerations in this pricing supplement. You should also consult your tax adviser regarding the U.S. federal tax consequences of an investment in the securities, as well as tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction. |
PRS-13
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Hypothetical Returns |
The following table illustrates, for a hypothetical capped value of 137.50% or $1,375.00 per security (the midpoint of the specified range of the capped value) and a range of hypothetical ending prices of the Basket:
| the hypothetical percentage change from the starting price to the hypothetical ending price; |
| the hypothetical redemption amount payable at stated maturity per security; |
| the hypothetical total pre-tax rate of return; and |
| the hypothetical pre-tax annualized rate of return. |
Hypothetical ending price |
Hypothetical percentage change from the starting price to the hypothetical ending price |
Hypothetical redemption amount payable at stated maturity per security |
Hypothetical pre-tax total rate of return |
Hypothetical pre-tax annualized rate of return(1) | ||||
175.00 |
75.00% | $1,375.00 | 37.50% | 9.29% | ||||
150.00 |
50.00% | $1,375.00 | 37.50% | 9.29% | ||||
140.00 |
40.00% | $1,375.00 | 37.50% | 9.29% | ||||
130.00 |
30.00% | $1,375.00 | 37.50% | 9.29% | ||||
125.00 |
25.00% | $1,375.00 | 37.50% | 9.29% | ||||
120.00 |
20.00% | $1,300.00 | 30.00% | 7.62% | ||||
115.00 |
15.00% | $1,225.00 | 22.50% | 5.87% | ||||
110.00 |
10.00% | $1,150.00 | 15.00% | 4.03% | ||||
105.00 |
5.00% | $1,075.00 | 7.50% | 2.07% | ||||
100.00(2) |
0.00% | $1,000.00 | 0.00% | 0.00% | ||||
95.00 |
-5.00% | $1,000.00 | 0.00% | 0.00% | ||||
90.00 |
-10.00% | $1,000.00 | 0.00% | 0.00% | ||||
89.00 |
-11.00% | $990.00 | -1.00% | -0.29% | ||||
80.00 |
-20.00% | $900.00 | -10.00% | -2.98% | ||||
70.00 |
-30.00% | $800.00 | -20.00% | -6.26% | ||||
60.00 |
-40.00% | $700.00 | -30.00% | -9.92% | ||||
50.00 |
-50.00% | $600.00 | -40.00% | -14.05% | ||||
25.00 |
-75.00% | $350.00 | -65.00% | -27.80% |
(1) | The annualized rates of return are calculated on a semi-annual bond equivalent basis with compounding. |
(2) | The starting price. |
The above figures are for purposes of illustration only and may have been rounded for ease of analysis. The actual amount you receive at stated maturity and the resulting pre-tax rates of return will depend on the actual ending price and the actual capped value.
PRS-14
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Hypothetical Payments at Stated Maturity |
Set forth below are four examples of payment at stated maturity calculations (rounded to two decimal places), reflecting a hypothetical capped value of 137.50% or $1,375.00 per security (the midpoint of the specified range for the capped value) and assuming component returns as indicated in the examples.
Example 1. Redemption amount is greater than the original offering price but less than the capped value:
SPDR S&P 500 ETF Trust |
iShares Russell 2000 ETF |
iShares MSCI EAFE ETF |
iShares MSCI Emerging Markets ETF | |||||
Initial Component Price |
185.50 | 114.32 | 66.86 | 40.74 | ||||
Final Component Price |
213.33 | 137.18 | 74.21 | 50.93 | ||||
Component Return |
15.00% | 20.00% | 10.99% | 25.01% |
Based on the component returns set forth above, the hypothetical ending price would equal:
100 x [1 + (50% x 15.00%) + (20% x 20.00%) + (15% x 10.99%) + (15% x 25.01%)] = 116.90
Since the hypothetical ending price is greater than the starting price, the redemption amount would equal:
$1,000 + | $1,000 x |
116.90 100.00 | x 150% | = $1,253.50 | ||||||||||||||||||
100.00 |
On the stated maturity date you would receive $1,253.50 per security.
Example 2. Redemption amount is equal to the capped value:
SPDR S&P 500 ETF Trust |
iShares Russell 2000 ETF |
iShares MSCI EAFE ETF |
iShares MSCI Emerging Markets ETF | |||||
Initial Component Price |
185.50 | 114.32 | 66.86 | 40.74 | ||||
Final Component Price |
250.43 | 137.18 | 86.92 | 50.93 | ||||
Component Return |
35.00% | 20.00% | 30.00% | 25.01% |
Based on the component returns set forth above, the hypothetical ending price would equal:
100 x [1 + (50% x 35.00%) + (20% x 20.00%) + (15% x 30.00%) + (15% x 25.01%)] = 129.75
The redemption amount would be equal to the capped value since the capped value is less than:
$1,000 + | $1,000 x |
129.75 100.00 | x 150% | = $1,446.25 | ||||||||||||||||||
100.00 |
On the stated maturity date you would receive $1,375.00 per security.
In addition to limiting your return on the securities, the capped value limits the positive effect of the participation rate. If the ending price is greater than the starting price, you will participate in the performance of the Basket at a rate of 150% up to a certain point. However, the effect of the participation rate will be progressively reduced for ending prices that are greater than 125.00% of the starting price (assuming a capped value of 137.50% or $1,375.00 per security, the midpoint of the specified range for the capped value) since your return on the securities for any ending price greater than 125.00% of the starting price will be limited to the capped value.
PRS-15
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Hypothetical Payments at Stated Maturity (Continued) |
Example 3. Redemption amount is equal to the original offering price:
SPDR S&P 500 ETF Trust |
iShares Russell 2000 ETF |
iShares MSCI EAFE ETF |
iShares MSCI Emerging Markets ETF | |||||
Initial Component Price |
185.50 | 114.32 | 66.86 | 40.74 | ||||
Final Component Price |
148.40 | 123.47 | 73.55 | 46.85 | ||||
Component Return |
-20.00% | 8.00% | 10.01% | 15.00% |
Based on the component returns set forth above, the hypothetical ending price would equal:
100 x [1 + (50% x -20.00%) + (20% x 8.00%) + (15% x 10.01%) + (15% x 15.00%)] = 95.35
In this example, the 20.00% decrease in the SPDR S&P 500 ETF Trust has a significant impact on the ending price notwithstanding the percentage increases in the other basket components due to the 50% weighting of the SPDR S&P 500 ETF Trust.
Since the hypothetical ending price is less than the starting price, but not by more than 10%, you would not lose any of the original offering price of your securities.
On the stated maturity date you would receive $1,000 per security.
Example 4. Redemption amount is less than the original offering price:
SPDR S&P 500 ETF Trust |
iShares Russell 2000 ETF |
iShares MSCI EAFE ETF |
iShares MSCI Emerging Markets ETF | |||||
Initial Component Price |
185.50 | 114.32 | 66.86 | 40.74 | ||||
Final Component Price |
120.58 | 85.74 | 56.83 | 36.67 | ||||
Component Return |
-35.00% | -25.00% | -15.00% | -9.99% |
Based on the component returns set forth above, the hypothetical ending price would equal:
100 x [1 + (50% x -35.00%) + (20% x -25.00%) + (15% x -15.00%) + (15% x -9.99%)] = 73.75
Since the hypothetical ending price is less than the starting price by more than 10%, you would lose a portion of the original offering price of your securities and receive the redemption amount equal to:
$1,000 | $1,000 x |
90.00 73.75 | = $837.50 | |||||||||||||||||||
100.00 |
On the stated maturity date you would receive $837.50 per security.
To the extent that the component returns, ending price and the actual capped value differ from the values assumed above, the results indicated above would be different.
PRS-16
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
Hypothetical Historical Performance of the Basket |
The Basket will represent a weighted portfolio of the following four basket components, with the return of each basket component having the weighting noted parenthetically: the SPDR S&P 500 ETF Trust (50%); the iShares Russell 2000 ETF (20%); the iShares MSCI EAFE ETF (15%); and the iShares MSCI Emerging Markets ETF (15%). The value of the Basket will increase or decrease depending upon the performance of the basket components. For more information regarding the basket components, see The SPDR S&P 500 ETF Trust, The iShares Russell 2000 ETF, The iShares MSCI EAFE ETF and The iShares MSCI Emerging Markets ETF. The Basket does not reflect the performance of all major securities markets.
While historical information on the value of the Basket does not exist for dates prior to the pricing date, the following graph sets forth the hypothetical historical daily values of the Basket for the period from January 1, 2004 to March 28, 2014 assuming that the Basket was constructed on January 1, 2004 with a starting price of 100 and that each of the basket components had the applicable weighting as of such day. We obtained the closing prices and other information used by us in order to create the graph below from Bloomberg Financial Markets (Bloomberg) without independent verification.
The hypothetical historical basket values, as calculated solely for the purposes of the offering of the securities, fluctuated in the past and may, in the future, experience significant fluctuations. Any historical upward or downward trend in the value of the Basket during any period shown below is not an indication that the percentage change in the value of the Basket is more likely to be positive or negative during the term of the securities. The hypothetical historical values do not give an indication of future values of the Basket.
PRS-17
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
The SPDR S&P 500 ETF Trust |
The SPDR S&P 500 ETF Trust is an exchange traded fund that seeks to track the S&P 500 Index, an equity index that is intended to provide an indication of the pattern of common stock price movement in the large capitalization segment of the United States equity market. See The SPDR S&P 500 ETF Trust in Annex A to the product supplement for additional information about the SPDR S&P 500 ETF Trust.
We obtained the closing prices listed below from Bloomberg without independent verification. You can obtain the value of the SPDR S&P 500 ETF Trust at any time from Bloomberg under the symbol SPY or from the SPDR website at www.spdrs.com. No information contained on the SPDR website is incorporated by reference into this pricing supplement.
The following graph sets forth daily closing prices of the SPDR S&P 500 ETF Trust for the period from January 1, 2004 to March 28, 2014. The closing price on March 28, 2014 was $185.50.
PRS-18
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
The SPDR S&P 500 ETF Trust (Continued) |
The following table sets forth the high and low closing prices, as well as end-of-period closing prices, of the SPDR S&P 500 ETF Trust for each quarter in the period from January 1, 2004 through December 31, 2013 and for the period from January 1, 2014 to March 28, 2014.
High | Low | Last | ||||
2004 |
||||||
First Quarter |
$116.28 | $109.41 | $112.87 | |||
Second Quarter |
$115.33 | $108.85 | $114.45 | |||
Third Quarter |
$113.62 | $106.83 | $111.74 | |||
Fourth Quarter |
$121.36 | $109.86 | $120.87 | |||
2005 |
||||||
First Quarter |
$122.78 | $116.54 | $118.05 | |||
Second Quarter |
$121.58 | $113.82 | $119.17 | |||
Third Quarter |
$124.70 | $119.46 | $123.02 | |||
Fourth Quarter |
$127.82 | $117.50 | $124.50 | |||
2006 |
||||||
First Quarter |
$130.99 | $125.51 | $129.84 | |||
Second Quarter |
$132.63 | $122.57 | $127.25 | |||
Third Quarter |
$133.74 | $123.35 | $133.57 | |||
Fourth Quarter |
$143.07 | $133.07 | $141.66 | |||
2007 |
||||||
First Quarter |
$146.01 | $137.41 | $142.07 | |||
Second Quarter |
$154.15 | $142.24 | $150.38 | |||
Third Quarter |
$155.03 | $141.13 | $152.67 | |||
Fourth Quarter |
$156.44 | $140.90 | $146.39 | |||
2008 |
||||||
First Quarter |
$144.94 | $127.90 | $131.89 | |||
Second Quarter |
$143.08 | $127.69 | $128.04 | |||
Third Quarter |
$130.70 | $111.38 | $116.54 | |||
Fourth Quarter |
$116.00 | $75.95 | $90.33 | |||
2009 |
||||||
First Quarter |
$93.44 | $68.11 | $79.44 | |||
Second Quarter |
$95.09 | $81.00 | $91.92 | |||
Third Quarter |
$107.33 | $87.95 | $105.56 | |||
Fourth Quarter |
$112.67 | $102.54 | $111.44 | |||
2010 |
||||||
First Quarter |
$117.40 | $105.87 | $116.99 | |||
Second Quarter |
$121.79 | $103.22 | $103.22 | |||
Third Quarter |
$114.79 | $102.20 | $114.12 | |||
Fourth Quarter |
$125.92 | $113.75 | $125.78 | |||
2011 |
||||||
First Quarter |
$134.57 | $126.21 | $132.51 | |||
Second Quarter |
$136.54 | $126.81 | $131.97 | |||
Third Quarter |
$135.46 | $112.26 | $113.17 | |||
Fourth Quarter |
$128.68 | $109.93 | $125.50 | |||
2012 |
||||||
First Quarter |
$141.61 | $127.49 | $140.72 | |||
Second Quarter |
$141.79 | $128.10 | $136.27 | |||
Third Quarter |
$147.24 | $133.51 | $143.93 | |||
Fourth Quarter |
$146.27 | $135.70 | $142.52 | |||
2013 |
||||||
First Quarter |
$156.73 | $145.53 | $156.55 | |||
Second Quarter |
$167.11 | $154.14 | $160.01 | |||
Third Quarter |
$173.14 | $161.16 | $168.10 | |||
Fourth Quarter |
$184.67 | $165.48 | $184.67 | |||
2014 |
||||||
January 1, 2014 to March 28, 2014 |
$188.26 | $174.15 | $185.50 |
PRS-19
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
The iShares Russell 2000 ETF |
The iShares Russell 2000 ETF is an exchange traded fund that seeks to track the Russell 2000 Index, an equity index that is designed to reflect the small capitalization segment of the United States equity market. According to publicly available information, on July 1, 2013, the name of the iShares Russell 2000 ETF changed from the iShares Russell 2000 Index Fund to the iShares Russell 2000 ETF. The information about the iShares Russell 2000 ETF contained herein updates the information under The iShares Russell 2000 Index Fund in Annex A to the product supplement.
We obtained the closing prices listed below from Bloomberg without independent verification. You can obtain the value of the iShares Russell 2000 ETF at any time from Bloomberg under the symbol IWM or from the iShares website at www.ishares.com. No information contained on the iShares website is incorporated by reference into this pricing supplement.
The following graph sets forth daily closing prices of the iShares Russell 2000 ETF for the period from January 1, 2004 to March 28, 2014. The closing price on March 28, 2014 was $114.32.
PRS-20
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
The iShares Russell 2000 ETF (Continued) |
The following table sets forth the high and low closing prices, as well as end-of-period closing prices, of the iShares Russell 2000 ETF for each quarter in the period from January 1, 2004 through December 31, 2013 and for the period from January 1, 2014 to March 28, 2014.
High | Low | Last | ||||
2004 |
||||||
First Quarter |
$59.94 | $55.75 | $58.77 | |||
Second Quarter |
$60.39 | $53.41 | $58.88 | |||
Third Quarter |
$58.09 | $51.56 | $56.94 | |||
Fourth Quarter |
$65.04 | $56.30 | $64.70 | |||
2005 |
||||||
First Quarter |
$64.35 | $60.22 | $61.00 | |||
Second Quarter |
$64.08 | $56.96 | $63.58 | |||
Third Quarter |
$68.40 | $64.00 | $66.36 | |||
Fourth Quarter |
$68.86 | $61.62 | $66.73 | |||
2006 |
||||||
First Quarter |
$75.97 | $68.03 | $75.97 | |||
Second Quarter |
$77.58 | $66.69 | $71.66 | |||
Third Quarter |
$73.26 | $66.70 | $71.96 | |||
Fourth Quarter |
$79.35 | $71.26 | $78.05 | |||
2007 |
||||||
First Quarter |
$82.39 | $75.17 | $79.51 | |||
Second Quarter |
$84.79 | $79.75 | $82.96 | |||
Third Quarter |
$85.74 | $75.20 | $80.04 | |||
Fourth Quarter |
$84.18 | $73.02 | $75.92 | |||
2008 |
||||||
First Quarter |
$75.12 | $64.30 | $68.51 | |||
Second Quarter |
$76.17 | $68.47 | $69.03 | |||
Third Quarter |
$75.20 | $65.50 | $68.39 | |||
Fourth Quarter |
$67.02 | $38.58 | $49.27 | |||
2009 |
||||||
First Quarter |
$51.27 | $34.36 | $41.94 | |||
Second Quarter |
$53.19 | $42.82 | $50.96 | |||
Third Quarter |
$62.02 | $47.87 | $60.23 | |||
Fourth Quarter |
$63.36 | $56.22 | $62.26 | |||
2010 |
||||||
First Quarter |
$69.25 | $58.68 | $67.81 | |||
Second Quarter |
$74.14 | $61.08 | $61.08 | |||
Third Quarter |
$67.67 | $59.04 | $67.47 | |||
Fourth Quarter |
$79.22 | $66.94 | $78.23 | |||
2011 |
||||||
First Quarter |
$84.17 | $77.18 | $84.17 | |||
Second Quarter |
$86.37 | $77.77 | $82.80 | |||
Third Quarter |
$85.65 | $64.25 | $64.25 | |||
Fourth Quarter |
$76.45 | $60.97 | $73.69 | |||
2012 |
||||||
First Quarter |
$84.41 | $74.56 | $82.85 | |||
Second Quarter |
$83.79 | $73.64 | $79.65 | |||
Third Quarter |
$86.40 | $76.68 | $83.46 | |||
Fourth Quarter |
$84.69 | $76.88 | $84.29 | |||
2013 |
||||||
First Quarter |
$94.80 | $86.65 | $94.26 | |||
Second Quarter |
$99.51 | $89.58 | $97.16 | |||
Third Quarter |
$107.10 | $98.08 | $106.62 | |||
Fourth Quarter |
$115.31 | $103.67 | $115.31 | |||
2014 |
||||||
January 1, 2014 to March 28, 2014 |
$119.83 | $108.64 | $114.32 |
PRS-21
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
The iShares MSCI EAFE ETF |
The iShares MSCI EAFE ETF is an exchange traded fund that seeks to track the MSCI EAFE Index, an equity index that is designed to measure equity performance in developed markets, excluding the United States and Canada. According to publicly available information, (i) on July 1, 2013, the name of the iShares MSCI EAFE ETF changed from the iShares MSCI EAFE Index Fund to the iShares MSCI EAFE ETF and (ii) Greece is no longer included in the MSCI EAFE Index. The information about the iShares MSCI EAFE ETF contained herein updates the information under The iShares MSCI EAFE Index Fund in Annex A to the product supplement.
We obtained the closing prices listed below from Bloomberg without independent verification. You can obtain the value of the iShares MSCI EAFE ETF at any time from Bloomberg under the symbol EFA or from the iShares website at www.ishares.com. No information contained on the iShares website is incorporated by reference into this pricing supplement.
The following graph sets forth daily closing prices of the iShares MSCI EAFE ETF for the period from January 1, 2004 to March 28, 2014. The closing price on March 28, 2014 was $66.86.
PRS-22
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
The iShares MSCI EAFE ETF (Continued) |
The following table sets forth the high and low closing prices, as well as end-of-period closing prices, of the iShares MSCI EAFE ETF for each quarter in the period from January 1, 2004 through December 31, 2013 and for the period from January 1, 2014 to March 28, 2014.
High | Low | Last | ||||
2004 |
||||||
First Quarter |
$48.09 | $45.06 | $47.23 | |||
Second Quarter |
$48.04 | $43.41 | $47.67 | |||
Third Quarter |
$47.49 | $44.60 | $47.16 | |||
Fourth Quarter |
$53.36 | $47.18 | $53.30 | |||
2005 |
||||||
First Quarter |
$55.27 | $51.18 | $52.92 | |||
Second Quarter |
$53.87 | $51.33 | $52.35 | |||
Third Quarter |
$58.50 | $52.05 | $58.09 | |||
Fourth Quarter |
$60.91 | $54.72 | $59.42 | |||
2006 |
||||||
First Quarter |
$65.40 | $60.33 | $64.99 | |||
Second Quarter |
$70.58 | $59.60 | $65.35 | |||
Third Quarter |
$68.46 | $61.62 | $67.78 | |||
Fourth Quarter |
$74.31 | $67.96 | $73.26 | |||
2007 |
||||||
First Quarter |
$76.94 | $70.95 | $76.27 | |||
Second Quarter |
$81.79 | $76.47 | $80.63 | |||
Third Quarter |
$83.77 | $73.70 | $82.56 | |||
Fourth Quarter |
$86.18 | $78.24 | $78.50 | |||
2008 |
||||||
First Quarter |
$78.35 | $68.31 | $71.90 | |||
Second Quarter |
$78.52 | $68.10 | $68.70 | |||
Third Quarter |
$68.04 | $53.08 | $56.30 | |||
Fourth Quarter |
$55.88 | $35.71 | $44.87 | |||
2009 |
||||||
First Quarter |
$45.44 | $31.69 | $37.59 | |||
Second Quarter |
$49.04 | $38.57 | $45.81 | |||
Third Quarter |
$55.81 | $43.91 | $54.70 | |||
Fourth Quarter |
$57.28 | $52.66 | $55.30 | |||
2010 |
||||||
First Quarter |
$57.96 | $50.45 | $56.00 | |||
Second Quarter |
$58.03 | $46.29 | $46.51 | |||
Third Quarter |
$55.42 | $47.09 | $54.92 | |||
Fourth Quarter |
$59.46 | $54.25 | $58.23 | |||
2011 |
||||||
First Quarter |
$61.91 | $55.31 | $60.09 | |||
Second Quarter |
$63.87 | $57.10 | $60.14 | |||
Third Quarter |
$60.80 | $46.66 | $47.75 | |||
Fourth Quarter |
$55.57 | $46.45 | $49.53 | |||
2012 |
||||||
First Quarter |
$55.80 | $49.15 | $54.90 | |||
Second Quarter |
$55.51 | $46.55 | $49.96 | |||
Third Quarter |
$55.15 | $47.62 | $53.00 | |||
Fourth Quarter |
$56.88 | $51.96 | $56.82 | |||
2013 |
||||||
First Quarter |
$59.89 | $56.90 | $58.98 | |||
Second Quarter |
$63.53 | $57.03 | $57.38 | |||
Third Quarter |
$65.05 | $57.55 | $63.79 | |||
Fourth Quarter |
$67.06 | $62.71 | $67.06 | |||
2014 |
||||||
January 1, 2014 to March 28, 2014 |
$68.03 | $62.31 | $66.86 |
PRS-23
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
The iShares MSCI Emerging Markets ETF |
The iShares MSCI Emerging Markets ETF is an exchange traded fund that seeks to track the MSCI Emerging Markets Index, an equity index that is designed to measure equity performance in global emerging markets. According to publicly available information, (i) on July 1, 2013, the name of the iShares MSCI Emerging Markets ETF changed from the iShares Emerging Markets Index Fund to the iShares MSCI Emerging Markets ETF and (ii) Greece is now included in the MSCI Emerging Markets Index while Morocco has been removed from the MSCI Emerging Markets Index. The information about the iShares MSCI Emerging Markets ETF contained herein updates the information under The iShares MSCI Emerging Markets Index Fund in Annex A to the product supplement.
We obtained the closing prices listed below from Bloomberg without independent verification. You can obtain the value of the iShares MSCI Emerging Markets ETF at any time from Bloomberg under the symbol EEM or from the iShares website at www.ishares.com. No information contained on the iShares website is incorporated by reference into this pricing supplement.
The following graph sets forth daily closing prices of the iShares MSCI Emerging Markets ETF for the period from January 1, 2004 to March 28, 2014. The closing price on March 28, 2014 was $40.74.
PRS-24
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
The iShares MSCI Emerging Markets ETF (Continued) |
The following table sets forth the high and low closing prices, as well as end-of-period closing prices, of the iShares MSCI Emerging Markets ETF for each quarter in the period from January 1, 2004 through December 31, 2013 and for the period from January 1, 2014 to March 28, 2014.
High | Low | Last | ||||
2004 |
||||||
First Quarter |
$19.73 | $18.39 | $19.44 | |||
Second Quarter |
$20.20 | $15.91 | $18.03 | |||
Third Quarter |
$19.16 | $16.95 | $19.16 | |||
Fourth Quarter |
$22.41 | $18.92 | $22.41 | |||
2005 |
||||||
First Quarter |
$24.65 | $21.23 | $22.54 | |||
Second Quarter |
$24.37 | $21.67 | $23.83 | |||
Third Quarter |
$28.32 | $23.93 | $28.32 | |||
Fourth Quarter |
$29.83 | $25.07 | $29.40 | |||
2006 |
||||||
First Quarter |
$33.59 | $30.43 | $33.02 | |||
Second Quarter |
$37.03 | $27.34 | $31.23 | |||
Third Quarter |
$33.14 | $29.20 | $32.29 | |||
Fourth Quarter |
$38.15 | $31.80 | $38.10 | |||
2007 |
||||||
First Quarter |
$39.53 | $35.03 | $38.75 | |||
Second Quarter |
$44.42 | $39.13 | $43.82 | |||
Third Quarter |
$50.11 | $39.50 | $49.78 | |||
Fourth Quarter |
$55.64 | $47.27 | $50.10 | |||
2008 |
||||||
First Quarter |
$50.37 | $42.17 | $44.79 | |||
Second Quarter |
$51.70 | $44.43 | $45.19 | |||
Third Quarter |
$44.43 | $31.33 | $34.53 | |||
Fourth Quarter |
$33.90 | $18.22 | $24.97 | |||
2009 |
||||||
First Quarter |
$27.09 | $19.94 | $24.81 | |||
Second Quarter |
$34.64 | $25.65 | $32.23 | |||
Third Quarter |
$39.29 | $30.75 | $38.91 | |||
Fourth Quarter |
$42.07 | $37.56 | $41.50 | |||
2010 |
||||||
First Quarter |
$43.22 | $36.83 | $42.12 | |||
Second Quarter |
$43.98 | $36.16 | $37.32 | |||
Third Quarter |
$44.77 | $37.59 | $44.77 | |||
Fourth Quarter |
$48.58 | $44.77 | $47.62 | |||
2011 |
||||||
First Quarter |
$48.69 | $44.63 | $48.69 | |||
Second Quarter |
$50.21 | $45.50 | $47.60 | |||
Third Quarter |
$48.46 | $34.95 | $35.07 | |||
Fourth Quarter |
$42.80 | $34.36 | $37.94 | |||
2012 |
||||||
First Quarter |
$44.76 | $38.23 | $42.94 | |||
Second Quarter |
$43.54 | $36.68 | $39.19 | |||
Third Quarter |
$42.37 | $37.42 | $41.32 | |||
Fourth Quarter |
$44.35 | $40.14 | $44.35 | |||
2013 |
||||||
First Quarter |
$45.20 | $41.80 | $42.78 | |||
Second Quarter |
$44.23 | $36.63 | $38.57 | |||
Third Quarter |
$43.29 | $37.34 | $40.77 | |||
Fourth Quarter |
$43.66 | $40.44 | $41.77 | |||
2014 |
||||||
January 1, 2014 to March 28, 2014 |
$40.74 | $37.09 | $40.74 |
PRS-25
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
United States Federal Tax Considerations |
Prospective investors should note that the discussion under the section called United States Federal Tax Considerations in the accompanying product supplement does not apply to the securities issued under this pricing supplement and is superseded by the following discussion.
The following is a discussion of the material U.S. federal income and certain estate tax consequences of the ownership and disposition of the securities. It applies to you only if you purchase a security for cash in the initial offering at the issue price, which is the first price at which a substantial amount of the securities is sold to the public, and hold the security as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the Code). It does not address all of the tax consequences that may be relevant to you in light of your particular circumstances or if you are a holder subject to special rules, such as:
| a financial institution; |
| a regulated investment company; |
| a tax-exempt entity, including an individual retirement account or Roth IRA; |
| a dealer or trader in securities subject to a mark-to-market method of tax accounting with respect to the securities; |
| a person holding a security as part of a straddle or conversion transaction or who has entered into a constructive sale with respect to a security; |
| a U.S. Holder (as defined below) whose functional currency is not the U.S. dollar; or |
| an entity classified as a partnership for U.S. federal income tax purposes. |
If an entity that is classified as a partnership for U.S. federal income tax purposes holds the securities, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partnership holding the securities or a partner in such a partnership, you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing of the securities to you.
We will not attempt to ascertain whether any of the basket components is treated as a U.S. real property holding corporation (USRPHC) within the meaning of Section 897 of the Code. If any of the basket components were so treated, certain adverse U.S. federal income tax consequences might apply to you if you are a Non-U.S. Holder (as defined below), upon the sale, exchange or other disposition of the securities. You should refer to information filed with the Securities and Exchange Commission or another governmental authority by the basket components and consult your tax adviser regarding the possible consequences to you if any of the basket components is or becomes a USRPHC.
This discussion is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date of this pricing supplement, changes to any of which subsequent to the date of this pricing supplement may affect the tax consequences described herein, possibly with retroactive effect. This discussion does not address the effects of any applicable state, local or foreign tax laws or the potential application of the Medicare tax on investment income. You should consult your tax adviser concerning the application of U.S. federal income and estate tax laws to your particular situation (including the possibility of alternative treatments of the securities), as well as any tax consequences arising under the laws of any state, local or foreign jurisdiction.
Tax Treatment of the Securities
In the opinion of our counsel, Davis Polk & Wardwell LLP, which is based on current market conditions, a security should be treated as a prepaid derivative contract that is an open transaction for U.S. federal income tax purposes. By purchasing a security, a holder agrees (in the absence of an administrative determination or judicial ruling to the contrary) to this treatment.
PRS-26
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
United States Federal Tax Considerations (Continued) |
Due to the absence of statutory, judicial or administrative authorities that directly address the U.S. federal tax treatment of the securities or similar instruments, significant aspects of the treatment of an investment in the securities are uncertain. We do not plan to request a ruling from the IRS, and the IRS or a court might not agree with the treatment described below. Accordingly, you should consult your tax adviser regarding all aspects of the U.S. federal income and estate tax consequences of an investment in the securities and with respect to any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. Unless otherwise indicated, the following discussion is based on the treatment of the securities as prepaid derivative contracts that are open transactions.
Tax Consequences to U.S. Holders
This section applies only to U.S. Holders. You are a U.S. Holder if you are a beneficial owner of a security that is, for U.S. federal income tax purposes:
| a citizen or individual resident of the United States; |
| a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or |
| an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. |
Tax Treatment Prior to Maturity. You should not be required to recognize income over the term of the securities prior to maturity, other than pursuant to a sale, exchange or retirement as described below.
Sale, Exchange or Retirement of the Securities. Upon a sale, exchange or retirement of the securities, you should recognize gain or loss equal to the difference between the amount realized on the sale, exchange or retirement and your tax basis in the securities that are sold, exchanged or retired. Your tax basis in the securities should equal the amount you paid to acquire them. Subject to the discussion below concerning the potential application of Section 1260 of the Code, this gain or loss should be long-term capital gain or loss if at the time of the sale, exchange or retirement you held the securities for more than one year, and short-term capital gain or loss otherwise. Long-term capital gains recognized by non-corporate U.S. Holders are generally subject to taxation at reduced rates. The deductibility of capital losses is subject to certain limitations.
Potential Application of Section 1260 of the Code
Even if the treatment of the securities as prepaid derivative contracts that are open transactions is respected, there is a significant risk that your purchase of securities will be treated as entry into a constructive ownership transaction, within the meaning of Section 1260 of the Code, with respect to shares of the basket components (the Basket Component Shares). In that case, all or a portion of any long-term capital gain you would otherwise recognize in respect of your securities would be recharacterized as ordinary income to the extent such gain exceeded the net underlying long-term capital gain. Although the matter is unclear, the net underlying long-term capital gain may equal the amount of long-term capital gain you would have realized if on the issue date you had purchased Basket Component Shares with a value equal to the amount you paid to acquire your securities and subsequently sold those shares for their fair market value at the time your securities are sold, exchanged or retired (which would reflect the percentage increase, without any multiplier, in the value of the Basket Component Shares over the term of the securities). Alternatively, the net underlying long-term capital gain could be calculated using a number of Basket Component Shares that reflects the multiplier used to calculate the payment that you will receive on your security. Any long-term capital gain recharacterized as ordinary income under Section 1260 would be treated as accruing at a constant rate over the period you held your securities, and you would be subject to an interest charge in respect of the deemed tax liability on the income treated as accruing in prior tax years. Due to the lack of governing authority under Section 1260, our counsel is not able to opine as to whether or how Section 1260 applies to the securities.
Possible Alternative Tax Treatments of an Investment in the Securities
Alternative U.S. federal income tax treatments of the securities are possible that, if applied, could materially and adversely affect the timing and/or character of income, gain or loss with respect to them. It is possible, for example, that the securities could be treated as debt instruments issued by us. Under this treatment, the securities would be governed by Treasury regulations relating to the taxation of contingent payment debt instruments. In this case, regardless of your method of tax accounting for U.S. federal income tax purposes, you would be required to accrue income based on our comparable yield for similar non-contingent debt, determined as of
PRS-27
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
United States Federal Tax Considerations (Continued) |
the time of issuance of the securities, in each year that you held the securities, even though we are not required to make any payment with respect to the securities prior to maturity. In addition, any gain on the sale, exchange or retirement of the securities would be treated as ordinary income.
Other possible U.S. federal income tax treatments of the securities could also affect the timing and character of income or loss with respect to the securities. 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 holders of 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; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments are linked; and whether these instruments are or should be subject to the constructive ownership regime described above. 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 and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. You should consult your tax adviser regarding the U.S. federal income tax consequences of an investment in the securities, including possible alternative treatments and the issues presented by this notice.
Tax Consequences to Non-U.S. Holders
This section applies only to Non-U.S. Holders. You are a Non-U.S. Holder if you are a beneficial owner of a security that is, for U.S. federal income tax purposes:
| an individual who is classified as a nonresident alien; |
| a foreign corporation; or |
| a foreign estate or trust. |
You are not a Non-U.S. Holder for purposes of this discussion if you are (i) an individual who is present in the United States for 183 days or more in the taxable year of disposition and not otherwise a resident of the United States for U.S. federal income tax purposes or (ii) a former citizen or resident of the United States. If you are such a holder or may become such a holder during the period in which you hold a security, you should consult your tax adviser regarding the U.S. federal tax consequences of an investment in the securities.
Sale, Exchange or Retirement of the Securities. Subject to the possible application of Section 897 of the Code, as discussed above, you generally should not be subject to U.S. federal withholding or income tax in respect of amounts paid to you, provided that income in respect of the securities is not effectively connected with your conduct of a trade or business in the United States.
If you are engaged in a U.S. trade or business, and if income from the securities is effectively connected with the conduct of that trade or business, you generally will be subject to regular U.S. federal income tax with respect to that income in the same manner as if you were a U.S. Holder, unless an applicable income tax treaty provides otherwise. If you are such a holder and you are a corporation, you should also consider the potential application of a 30% (or lower treaty rate) branch profits tax.
Tax Consequences Under Possible Alternative Treatments. If all or any portion of a security were recharacterized as a debt instrument, subject to the possible application of Section 897 of the Code as discussed above, any payment made to you with respect to the security generally would not be subject to U.S. federal withholding or income tax, provided that: (i) income or gain in respect of the security is not effectively connected with your conduct of a trade or business in the United States, and (ii) you provide an appropriate IRS Form W-8 certifying under penalties of perjury that you are not a United States person.
Other U.S. federal income tax treatments of the securities are also possible. 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. Among the issues addressed in the notice is the degree, if any, to which any income with respect to instruments such as
PRS-28
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due November 7, 2017
United States Federal Tax Considerations (Continued) |
the securities should be subject to U.S. withholding tax. While the notice requests comments on appropriate transition rules and effective dates, it is possible that any Treasury regulations or other guidance promulgated after consideration of these issues might materially and adversely affect the withholding tax consequences of an investment in the securities, possibly with retroactive effect. If withholding applies to the securities, we will not be required to pay any additional amounts with respect to amounts withheld. Accordingly, Non-U.S. Holders should consult their tax advisers regarding the issues presented by the notice.
U.S. Federal Estate Tax
If you are an individual Non-U.S. Holder or an entity the property of which is potentially includible in such an individuals gross estate for U.S. federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained certain interests or powers), you should note that, absent an applicable treaty exemption, the securities may be treated as U.S. situs property subject to U.S. federal estate tax. If you are such an individual or entity, you should consult your tax adviser regarding the U.S. federal estate tax consequences of investing in the securities.
Information Reporting and Backup Withholding
Amounts paid on the securities, and the proceeds of a sale, exchange or other disposition of the securities, may be subject to information reporting and, if you fail to provide certain identifying information (such as an accurate taxpayer identification number if you are a U.S. Holder) or meet certain other conditions, may also be subject to backup withholding at the rate specified in the Code. If you are a Non-U.S. Holder that provides an appropriate IRS Form W-8, you will generally establish an exemption from backup withholding. Amounts withheld under the backup withholding rules are not additional taxes and may be refunded or credited against your U.S. federal income tax liability, provided the relevant information is timely furnished to the IRS.
Prospective investors in the securities should consult their tax advisers regarding all aspects of the U.S. federal income and estate tax consequences of an investment in the securities and any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.
PRS-29