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 September 4, 2014 PRICING SUPPLEMENT No. 453 dated September , 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 October 7, 2019
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n | Linked to a Global ETF Basket comprised of the SPDR® S&P 500® ETF Trust (50%); the SPDR® S&P MidCap 400® ETF Trust (11%); the iShares® Russell 2000 ETF (11%); the iShares® MSCI EAFE ETF (11%); the iShares® MSCI Emerging Markets ETF (11%); and the Vanguard® REIT ETF (6%) |
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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 increases, you will receive the original offering price plus 140% participation in the upside performance of the basket, subject to a maximum total return at maturity of 50.00% to 55.00% (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 15%, you will be repaid the original offering price |
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n | If the value of the basket decreases by more than 15%, 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 15% |
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n | Investors may lose up to 85% 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 $949.58 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 $937.08 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-11 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 | $16.20 | $983.80 | |||
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 October 7, 2019
Investment Description |
The Principal at Risk Securities Linked to a Global ETF Basket due October 7, 2019 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 50.00% to 55.00% 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 15%; 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 15%. |
If the ending price is less than the starting price by more than 15%, you will receive less, and possibly 85% 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 six 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 SPDR® S&P MidCap 400® ETF Trust (11%), an exchange traded fund that seeks to track the S&P MidCap 400 Index (an equity index that is intended to provide an indication of the pattern of common stock price movement in the mid-sized capitalization segment of the United States equity market); |
| the iShares® Russell 2000 ETF (11%), 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 (11%), 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); |
| the iShares® MSCI Emerging Markets ETF (11%), 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); and |
| the Vanguard REIT ETF (6%), an exchange traded fund that seeks to track the MSCI US REIT Index, an equity index that aims to represent the performance of the equity real estate investment trust (REIT) investment universe in the United States. |
SPDR®, S&P 500® and S&P MidCap 400® 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® S&P MidCap 400® ETF Trust (the SPDR Trusts) or S&P Financial. Neither the SPDR Trusts 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 Trusts 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 Trusts.
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.
Vanguard® is a registered mark of The Vanguard Group, Inc. (Vanguard). The securities are not sponsored, endorsed, sold or promoted by Vanguard or Vanguard Specialized Funds. Vanguard and Vanguard Specialized Funds do not make any representations or warranties to the holders of the securities or any member of the public regarding the advisability of investing in the securities. Vanguard and Vanguard Specialized Funds will not 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 Vanguard® REIT 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 October 7, 2019
Investment Description (Continued) |
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: |
| Prospectus Supplement dated April 13, 2012 and Prospectus dated April 13, 2012 filed with the SEC on April
13, 2012: |
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 October 7, 2019
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. As noted above, we determine the economic terms of the securities based upon an assumed funding rate that is generally lower than our secondary market rates. In contrast, in determining the estimated value of the securities, we value the debt component using a reference interest rate that generally tracks our secondary market rates. Because the reference interest rate is generally higher than the assumed funding rate, using the reference interest rate to value the debt component generally results in a lower estimated value for the debt component, which we believe more closely approximates a market valuation of the debt component than if we had used the assumed funding rate.
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 Our Economic Interests And Those Of Any Dealer Participating In The Offering Are Potentially Adverse To Your Interests.
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 October 7, 2019
Investment Description (Continued) |
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 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 makes a secondary market in the securities at any time up to the issue date or during the 5-month period following the issue date, the secondary market price offered by WFS or any of its affiliates 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 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 5-month period. If you hold the securities through an account at WFS or any of its affiliates, we expect that this increase will also be reflected in the value indicated for the securities on your brokerage account statement.
If WFS or any of its affiliates makes a secondary market in the securities, WFS expects to provide those secondary market prices to any unaffiliated broker-dealers through which the securities are held and to commercial pricing vendors. If you hold your securities through an account at a broker-dealer other than WFS or any of its affiliates, that broker-dealer may obtain market prices for the securities from WFS (directly or indirectly), but could also obtain such market prices from other sources, and may be willing to purchase the securities at any given time at a price that differs from the price at which WFS or any of its affiliates is willing to purchase the securities. As a result, if you hold your securities through an account at a broker-dealer other than WFS or any of its affiliates, the value of the securities on your brokerage account statement may be different than if you held your securities at WFS or any of its affiliates.
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-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 October 7, 2019
Investor Considerations |
We have designed the securities for investors who:
n | seek 140% 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 50.00% to 55.00% (to be determined on the pricing date) of the original offering price; |
n | desire to limit downside exposure to the Basket through the 15% buffer; |
n | understand that if the ending price is less than the starting price by more than 15%, they will receive less, and possibly 85% less, than the original offering price at maturity; |
n | are willing to forgo interest payments on the securities and dividends on shares of the basket components; and |
n | are willing to hold the securities until maturity. |
The securities are not designed for, and may not be a suitable investment for, investors who:
n | seek a liquid investment or are unable or unwilling to hold the securities to maturity; |
n | are unwilling to accept the risk that the ending price of the Basket may decrease by more than 15% from the starting price; |
n | seek uncapped exposure to the upside performance of the Basket; |
n | seek full return of the original offering price of the securities at stated maturity; |
n | 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; |
n | seek current income; |
n | are unwilling to accept the risk of exposure to the equity markets, including foreign developed equity markets, foreign emerging equity markets and the U.S. real estate equity market; |
n | 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; |
n | 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 |
n | prefer the lower risk of fixed income investments with comparable maturities issued by companies with comparable credit ratings. |
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 October 7, 2019
Terms of the Securities |
Market Measure: | 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 SPDR S&P MidCap 400 ETF Trust (11%); the iShares Russell 2000 ETF (11%); the iShares MSCI EAFE ETF (11%); the iShares MSCI Emerging Markets ETF (11%); and the Vanguard REIT ETF (6%).
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Pricing Date:
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September 30, 2014.* | |||||||||||||||||||
Issue Date:
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October 3, 2014.* (T+3) | |||||||||||||||||||
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: | ||||||||||||||||||||
$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 85% less, than the original offering price of your securities at maturity. | ||||||||||||||||||||
All calculations with respect to the redemption amount will be rounded to the nearest one hundred-thousandth, with five one-millionths rounded upward (e.g., .000005 would be rounded to .00001); and the redemption amount will be rounded to the nearest cent, with one-half cent rounded upward.
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Stated Maturity Date:
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October 7, 2019*. If the calculation day is postponed for any basket component, the stated maturity date will be the later of (i) October 7, 2019* and (ii) the third business day after the final postponed calculation day. | |||||||||||||||||||
Calculation Day: | September 30, 2019*. 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. |
* | 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-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 October 7, 2019
Terms of the Securities (Continued) |
Ending Price: | 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) 11% of the component return of the SPDR S&P MidCap 400 ETF Trust; (C) 11% of the component return of the iShares Russell 2000 ETF; (D) 11% of the component return of the iShares MSCI EAFE ETF; (E) 11% of the component return of the iShares MSCI Emerging Markets ETF; and (F) 6% of the component return of the Vanguard REIT ETF.
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Component Return: | The component return of a basket component will be equal to: | |||
final component price initial component price initial component price | ||||
where, | ||||
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the initial component price will be the fund closing price of such basket component on the pricing date; and | |||
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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 150.00% to 155.00% of the original offering price per security ($1,500.00 to $1,550.00 per security). As a result of the capped value, the maximum total return at maturity of the securities will be 50.00% to 55.00% of the original offering price.
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Threshold Price:
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85, which is equal to 85% of the starting price. | |||
Participation Rate:
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140% | |||
Calculation Agent:
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Wells Fargo Securities, LLC | |||
Material Tax Consequences:
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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. | |||
Agent: | Wells Fargo Securities, LLC, a wholly owned subsidiary of Wells Fargo & Company. 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 $15.00 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 $1.20 per security of the agents discount to WFA as a distribution expense fee for each security sold by WFA.
The agent or another affiliate of ours expects to realize hedging profits projected by its proprietary pricing models to the extent it assumes the risks inherent in hedging our obligations under the securities. If any dealer participating in the distribution of the securities or any of its affiliates conducts hedging activities for us in connection with the securities, that dealer or its affiliate will expect to realize a profit projected by its proprietary pricing models from such hedging activities. Any such projected profit will be in addition to the discount, concession or distribution expense fee received in connection with the sale of the securities to you.
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Denominations:
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$1,000 and any integral multiple of $1,000. | |||
CUSIP:
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94986RUV1 |
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 October 7, 2019
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-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 October 7, 2019
Hypothetical Payout Profile |
The following profile is based on a hypothetical capped value of 152.50% or $1,525.00 per security (the midpoint of the specified range for the capped value), a participation rate of 140% and a threshold price equal to 85% 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-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 October 7, 2019
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 85% 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 85% of the starting price. As a result, you may receive less, and possibly 85% 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. No periodic payments of interest will be made on the securities. However, if the agreed-upon tax treatment is successfully challenged by the Internal Revenue Service (the IRS), you may be required to recognize taxable income over the term of the securities. You should review the section of this pricing supplement entitled United States Federal Tax Considerations. |
| 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. The price, if any, at which WFS or any of its affiliates may purchase the securities in the secondary market 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 such 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 |
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 October 7, 2019
Selected Risk Considerations (Continued) |
any related hedging transactions. Unless the factors described in the next risk consideration change significantly in your favor, any such secondary market price for the securities is likely to be less than the original offering price. |
If WFS or any of its affiliates makes a secondary market in the securities at any time up to the issue date or during the 5-month period following the issue date, the secondary market price offered by WFS or any of its affiliates 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 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 5-month period. If you hold the securities through an account at WFS or any of its affiliates, we expect that this increase will also be reflected in the value indicated for the securities on your brokerage account statement. If you hold your securities through an account at a broker-dealer other than WFS or any of its affiliates, the value of the securities on your brokerage account statement may be different than if you held your securities at WFS or any of its affiliates, as discussed above under Investment Description.
| 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; currency exchange rates; 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. |
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 October 7, 2019
Selected Risk Considerations (Continued) |
| 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. |
| 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.
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 October 7, 2019
Selected Risk Considerations (Continued) |
| 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. |
| 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. |
| An Investment In The Securities Will Be Subject To Risks Associated With The Real Estate Industry. The Vanguard REIT ETF, because it is concentrated in REITs, may be more susceptible to any single economic, market, political or regulatory occurrence affecting the real estate industry. Investment in the real estate industry is subject to many of the same risks associated with the direct ownership of real estate such as: the availability of financing for real estate; employment levels and job growth; interest rates; leverage, property, management and liquidity risks; consumer confidence; the availability of suitable undeveloped land; federal, state and local laws and regulations concerning the development of land and construction; home and commercial real estate sales; financing and environmental protection; and competition among companies which engage in the real estate business. |
| Risks Associated With Real Estate Investment Trusts Will Affect The Value Of The Securities. The Vanguard REIT ETF is composed of securities of REITs. REITs invest primarily in income producing real estate or real estate related loans or interests. Investments in REITs, though not direct investments in real estate, are still subject to the risks associated with investing in real estate. The following are some of the conditions that might impact the structure of and cash flow generated by REITs and, consequently, the value of REITs and, in turn, the Vanguard REIT ETF: a decline in the value of real estate properties; extended vacancies of properties; increases in property and operating taxes; increased competition or overbuilding; a lack of available mortgage funds or other limits on accessing capital; tenant bankruptcies and other credit problems; limitation on rents, including decreases in market rates for rents; changes in zoning laws and governmental regulations; costs resulting from the clean-up of, and legal liability to third parties for damages resulting from environmental problems; investments in developments that are not completed or that are subject to delays in completion; risks associated with borrowing; changes in interest rates; casualty and condemnation losses; and uninsured damages from floods, earthquakes or other natural disasters. |
| The Stated Maturity Date May Be Postponed If The Calculation Day Is Postponed. The calculation day with respect to a basket component will be postponed if the originally scheduled calculation day is not a trading day with respect to that basket component or if the calculation agent determines that a market disruption event has occurred or is continuing with respect to that basket component on the calculation day. If such a postponement occurs, the stated maturity date will be the later of (i) the initial stated maturity date and (ii) three business days after the final postponed calculation day. |
| Our Economic Interests And Those Of Any Dealer Participating In The Offering Are Potentially Adverse To Your Interests. You should be aware of the following ways in which our economic interests and those of any dealer participating in the distribution of the securities, which we refer to as a participating dealer, are potentially adverse to your interests as an investor in the securities. In engaging in certain of the activities described below, our affiliates or any participating dealer or its affiliates may take actions that may adversely affect the value of and your return on the securities, and in so doing they will have no obligation to consider your interests as an investor in the securities. Our affiliates or any participating dealer or its affiliates may realize a profit from these activities even if investors do not receive a favorable investment return on the securities. |
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 October 7, 2019
Selected Risk Considerations (Continued) |
| The calculation agent is our affiliate and may be required to make discretionary judgments that affect the return you receive on the securities. WFS, which is our affiliate, will be the calculation agent for the securities. As calculation agent, WFS will determine the fund closing prices of the basket components on the calculation day and may be required to make other determinations that affect the return you receive on the securities at maturity. In making these determinations, the calculation agent may be required to make discretionary judgments, including determining whether a market disruption event has occurred with respect to a basket component on the scheduled calculation day, which may result in postponement of the calculation day with respect to that basket component; determining the fund closing price of a basket component if the calculation day is postponed with respect to that basket component to the last day to which it may be postponed and a market disruption event occurs on that day; adjusting the adjustment factor and other terms of the securities in certain circumstances; if a basket component undergoes a liquidation event, selecting a successor basket component or, if no successor basket component is available, determining the fund closing price of such basket component; and determining whether to adjust the fund closing price of a basket component on the calculation day in the event of certain changes in or modifications to such basket component or its underlying index. In making these discretionary judgments, the fact that WFS is our affiliate may cause it to have economic interests that are adverse to your interests as an investor in the securities, and WFSs determinations as calculation agent may adversely affect your return on the securities. |
| The estimated value of the securities was calculated by our affiliate and is therefore not an independent third-party valuation. WFS calculated the estimated value of the securities set forth on the cover page of this pricing supplement, which involved discretionary judgments by WFS, as described under Selected Risk ConsiderationsThe Estimated Value Of The Securities Is Determined By Our Affiliates Pricing Models, Which May Differ From Those Of Other Dealers above. Accordingly, the estimated value of the securities set forth on the cover page of this pricing supplement is not an independent third-party valuation. |
| Research reports by our affiliates or any participating dealer or its affiliates may be inconsistent with an investment in the securities and may adversely affect the prices of the basket components. Our affiliates or any dealer participating in the offering of the securities or its affiliates may, at present or in the future, publish research reports on one or more of 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, at present or in the future, express opinions or provide recommendations that are inconsistent with purchasing or holding the securities. Any research reports on one or more of the basket components or the underlying indices or the companies whose securities are included in the basket components or the underlying indices could adversely affect the prices of the applicable basket components and, therefore, adversely affect the value of and your return on the securities. You are encouraged to derive information concerning the basket components from multiple sources and should not rely on the views expressed by us or our affiliates or any participating dealer or its affiliates. In addition, any research reports on one or more of the basket components or the underlying indices or the companies whose securities are included in the basket components or the underlying indices published on or prior to the pricing date could result in an increase in the prices of the basket components on the pricing date, which would adversely affect investors in the securities by increasing the prices at which the basket components must close on the calculation day in order for investors in the securities to receive a favorable return. |
| Business activities of our affiliates or any participating dealer or its affiliates with the companies whose securities are included in the basket components may adversely affect the prices of the basket components. Our affiliates or any participating dealer or its 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, including making loans to those companies (including exercising creditors remedies with respect to such loans), making equity investments in those companies or providing investment banking, asset management or other advisory services to those companies. These business activities could adversely affect the prices of the basket components and, therefore, adversely affect the value of and your return on the securities. In addition, in the course of these business activities, our affiliates or any participating dealer or its affiliates may acquire non-public information about one or more of the companies whose securities are included in the basket components or the underlying indices. If our affiliates or any participating dealer or its affiliates do acquire such non-public information, we and they are not obligated to disclose such non-public information to you. |
| Hedging activities by our affiliates or any participating dealer or its affiliates may adversely affect the prices of the basket components. We expect to hedge our obligations under the securities through one or more hedge counterparties, which may include our affiliates or any participating dealer or its affiliates. Pursuant to such hedging activities, our hedge counterparties may acquire shares of the basket components, securities included in the basket components or the underlying indices or listed |
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 October 7, 2019
Selected Risk Considerations (Continued) |
or over-the-counter derivative or synthetic instruments related to the basket components or such securities. Depending on, among other things, future market conditions, the aggregate amount and the composition of such positions are likely to vary over time. To the extent that our hedge counterparties have a long hedge position in shares of the basket components or any of the securities included in the basket components or the underlying indices, or derivative or synthetic instruments related to the basket components or such securities, they may liquidate a portion of such holdings at or about the time of the calculation day or at or about the time of a change in the securities included in the basket components or the underlying indices. These hedging activities could potentially adversely affect the prices of the shares of the basket components and, therefore, adversely affect the value of and your return on the securities. |
| Trading activities by our affiliates or any participating dealer or its affiliates may adversely affect the prices of the basket components. Our affiliates or any participating dealer or its affiliates may engage in trading in the shares of the basket components or the securities included in the basket components or the underlying indices and other instruments relating to the basket components or such securities on a regular basis as part of their general broker-dealer and other businesses. Any of these trading activities could potentially adversely affect the prices of the shares of the basket components and, therefore, adversely affect the value of and your return on the securities. |
| A participating dealer or its affiliates may realize hedging profits projected by its proprietary pricing models in addition to any selling concession and/or distribution expense fee, creating a further incentive for the participating dealer to sell the securities to you. If any participating dealer or any of its affiliates conducts hedging activities for us in connection with the securities, that participating dealer or its affiliates will expect to realize a projected profit from such hedging activities and this projected profit will be in addition to the concession and/or distribution expense fee that the participating dealer realizes for the sale of the securities to you. This additional projected profit may create a further incentive for the participating dealer to sell the securities to you. |
| 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 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 potentially adverse 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-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 October 7, 2019
Hypothetical Returns |
The following table illustrates, for a hypothetical capped value of 152.50% or $1,525.00 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% | $1,525.00 | 52.50% | 8.60% | ||||
150.00 | 50.00% | $1,525.00 | 52.50% | 8.60% | ||||
140.00 | 40.00% | $1,525.00 | 52.50% | 8.60% | ||||
137.50 | 37.50% | $1,525.00 | 52.50% | 8.60% | ||||
130.00 | 30.00% | $1,420.00 | 42.00% | 7.12% | ||||
120.00 | 20.00% | $1,280.00 | 28.00% | 4.98% | ||||
115.00 | 15.00% | $1,210.00 | 21.00% | 3.84% | ||||
110.00 | 10.00% | $1,140.00 | 14.00% | 2.63% | ||||
105.00 | 5.00% | $1,070.00 | 7.00% | 1.35% | ||||
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% | ||||
85.00 | -15.00% | $1,000.00 | 0.00% | 0.00% | ||||
84.00 | -16.00% | $990.00 | -1.00% | -0.20% | ||||
80.00 | -20.00% | $950.00 | -5.00% | -1.02% | ||||
70.00 | -30.00% | $850.00 | -15.00% | -3.22% | ||||
60.00 | -40.00% | $750.00 | -25.00% | -5.66% | ||||
50.00 | -50.00% | $650.00 | -35.00% | -8.41% | ||||
25.00 | -75.00% | $400.00 | -60.00% | -17.47% |
(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-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 October 7, 2019
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 152.50% or $1,525.00 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 |
SPDR S&P MidCap 400 ETF Trust |
iShares Russell 2000 ETF |
iShares MSCI EAFE ETF |
iShares MSCI Emerging Markets ETF |
Vanguard REIT ETF | |||||||
Initial Component Price |
200.61 | 262.50 | 117.23 | 66.84 | 44.99 | 77.19 | ||||||
Final Component Price |
250.76 | 315.00 | 143.02 | 80.21 | 54.89 | 96.49 | ||||||
Component Return |
25.00% | 20.00% | 22.00% | 20.00% | 22.00% | 25.00% |
Based on the component returns set forth above, the hypothetical ending price would equal:
100 x [1 + (50% x 25.00%) + (11% x 20.00%) + (11% x 22.00%) + (11% x 20.00%) + (11% x 22.00%) + (6% x 25.00%)] = 123.24
Since the hypothetical ending price is greater than the starting price, the redemption amount would equal:
$1,000 + | $1,000 x | 123.24 100.00 | x 140% |
= $1,325.36 | ||||||||||||
100.00 |
On the stated maturity date you would receive $1,325.36 per security.
Example 2. Redemption amount is equal to the capped value:
SPDR S&P 500 ETF Trust |
SPDR S&P MidCap 400 ETF Trust |
iShares Russell 2000 |
iShares MSCI EAFE ETF |
iShares MSCI Emerging Markets ETF |
Vanguard REIT ETF | |||||||
Initial Component Price |
200.61 | 262.50 | 117.23 | 66.84 | 44.99 | 77.19 | ||||||
Final Component Price |
310.95 | 354.38 | 158.26 | 96.92 | 65.24 | 111.93 | ||||||
Component Return |
55.00% | 35.00% | 35.00% | 45.00% | 45.00% | 45.00% |
Based on the component returns set forth above, the hypothetical ending price would equal:
100 x [1 + (50% x 55.00%) + (11% x 35.00%) + (11% x 35.00%) + (11% x 45.00%) + (11% x 45.00%) + (6% x 45.00%)] = 147.80
The redemption amount would be equal to the capped value since the capped value is less than:
$1,000 + | $1,000 x | 147.80 100.00 | x 140% |
= $1,669.20 | ||||||||||||
100.00 |
On the stated maturity date you would receive $1,525.00 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 140% up to a certain point. However, the effect of the participation rate will be progressively reduced for ending prices that are greater than 137.50% of the starting price (assuming a capped value of 152.50% or $1,525.00 per security, the midpoint of the specified range for the capped value) since your return on the securities for any ending price greater than 137.50% of the starting price will be limited to the capped value.
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 October 7, 2019
Hypothetical Payments at Stated Maturity (Continued) |
Example 3. Redemption amount is equal to the original offering price:
SPDR S&P 500 ETF Trust |
SPDR S&P MidCap 400 ETF Trust |
iShares Russell 2000 ETF |
iShares MSCI EAFE ETF |
iShares MSCI Emerging Markets ETF |
Vanguard REIT ETF | |||||||
Initial Component Price |
200.61 | 262.50 | 117.23 | 66.84 | 44.99 | 77.19 | ||||||
Final Component Price |
150.46 | 283.50 | 126.61 | 73.52 | 49.49 | 84.91 | ||||||
Component Return |
-25.00% | 8.00% | 8.00% | 10.00% | 10.00% | 10.00% |
Based on the component returns set forth above, the hypothetical ending price would equal:
100 x [1 + (50% x -25.00%) + (11% x 8.00%) + (11% x 8.00%) + (11% x 10.00%) + (11% x 10.00%) + (6% x 10.00%)] = 92.06
In this example, the 25.00% 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 15%, 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 |
SPDR S&P MidCap 400 ETF Trust |
iShares Russell 2000 ETF |
iShares MSCI EAFE ETF |
iShares MSCI Emerging Markets ETF |
Vanguard REIT ETF | |||||||
Initial Component Price |
200.61 | 262.50 | 117.23 | 66.84 | 44.99 | 77.19 | ||||||
Final Component Price |
130.40 | 196.88 | 87.92 | 60.16 | 40.49 | 69.47 | ||||||
Component Return |
-35.00% | -25.00% | -25.00% | -10.00% | -10.00% | -10.00% |
Based on the component returns set forth above, the hypothetical ending price would equal:
100 x [1 + (50% x -35.00%) + (11% x -25.00%) + (11% x -25.00%) + (11% x -10.00%) + (11% x -10.00%) + (6% x -10.00%)] = 74.20
Since the hypothetical ending price is less than the starting price by more than 15%, 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 | 85.00 74.20 | = $892.00 | |||||||||
100.00 |
On the stated maturity date you would receive $892.00 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-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 October 7, 2019
Hypothetical Historical Performance of the Basket |
The Basket will represent a weighted portfolio of the following six basket components, with the return of each basket component having the weighting noted parenthetically: the SPDR S&P 500 ETF Trust (50%); the SPDR S&P MidCap 400 ETF Trust (11%); the iShares Russell 2000 ETF (11%); the iShares MSCI EAFE ETF (11%); the iShares MSCI Emerging Markets ETF (11%); and the Vanguard REIT ETF (6%). 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 SPDR S&P MidCap 400 ETF Trust, The iShares Russell 2000 ETF, The iShares MSCI EAFE ETF, The iShares MSCI Emerging Markets ETF and The Vanguard REIT 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 September 29, 2004 to September 2, 2014 assuming that the Basket was constructed on September 29, 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.
Global ETF Basket
Hypothetical Historical Performance
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 October 7, 2019
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 September 2, 2014. The closing price on September 2, 2014 was $200.61. The historical performance of the SPDR S&P 500 ETF Trust should not be taken as an indication of the future performance of the SPDR S&P 500 ETF Trust during the term of the securities.
SPDR S&P 500 ETF Trust Daily Closing Prices
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 October 7, 2019
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 June 30, 2014 and for the period from July 1, 2014 to September 2, 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 |
||||||
First Quarter |
$188.26 | $174.15 | $187.04 | |||
Second Quarter |
$196.48 | $181.48 | $195.72 | |||
July 1, 2014 to September 2, 2014 |
$200.71 | $190.99 | $200.61 |
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 October 7, 2019
The SPDR S&P MidCap 400 ETF |
The SPDR S&P MidCap 400 ETF Trust is an exchange traded fund that seeks to track the S&P MidCap 400 Index, an equity index that is intended to provide an indication of the pattern of common stock price movement in the mid-sized capitalization segment of the United States equity market. See The SPDR S&P MidCap 400 ETF Trust in Annex A to the product supplement for additional information about the SPDR S&P MidCap 400 ETF Trust.
We obtained the closing prices listed below from Bloomberg without independent verification. You can obtain the value of the SPDR S&P MidCap 400 ETF Trust at any time from Bloomberg under the symbol MDY 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 MidCap 400 ETF Trust for the period from January 1, 2004 to September 2, 2014. The closing price on September 2, 2014 was $262.50. The historical performance of the SPDR S&P MidCap 400 ETF Trust should not be taken as an indication of the future performance of the SPDR S&P MidCap 400 ETF Trust during the term of the securities.
SPDR S&P MidCap 400 ETF Trust Daily Closing Prices
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 October 7, 2019
The SPDR S&P MidCap 400 ETF (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 MidCap 400 ETF Trust for each quarter in the period from January 1, 2004 through June 30, 2014 and for the period from July 1, 2014 to September 2, 2014.
High | Low | Last | ||||
2004 |
||||||
First Quarter |
$113.02 | $105.86 | $110.33 | |||
Second Quarter |
$112.95 | $103.00 | $111.10 | |||
Third Quarter |
$109.75 | $100.71 | $108.46 | |||
Fourth Quarter |
$121.26 | $106.80 | $121.00 | |||
2005 |
||||||
First Quarter |
$124.96 | $115.45 | $120.44 | |||
Second Quarter |
$126.78 | $114.74 | $125.10 | |||
Third Quarter |
$132.42 | $126.09 | $130.90 | |||
Fourth Quarter |
$137.26 | $122.40 | $134.68 | |||
2006 |
||||||
First Quarter |
$144.76 | $136.79 | $144.76 | |||
Second Quarter |
$149.07 | $130.85 | $139.40 | |||
Third Quarter |
$140.62 | $129.97 | $137.60 | |||
Fourth Quarter |
$149.92 | $136.24 | $146.38 | |||
2007 |
||||||
First Quarter |
$158.46 | $145.43 | $154.51 | |||
Second Quarter |
$168.36 | $154.89 | $162.98 | |||
Third Quarter |
$167.97 | $149.51 | $161.00 | |||
Fourth Quarter |
$166.65 | $148.94 | $155.01 | |||
2008 |
||||||
First Quarter |
$154.18 | $135.77 | $141.27 | |||
Second Quarter |
$163.31 | $145.13 | $148.76 | |||
Third Quarter |
$149.99 | $127.11 | $131.83 | |||
Fourth Quarter |
$131.03 | $76.20 | $97.18 | |||
2009 |
||||||
First Quarter |
$101.54 | $73.63 | $88.65 | |||
Second Quarter |
$109.15 | $89.82 | $105.31 | |||
Third Quarter |
$128.56 | $99.39 | $125.28 | |||
Fourth Quarter |
$134.20 | $119.54 | $131.76 | |||
2010 |
||||||
First Quarter |
$145.22 | $125.76 | $143.16 | |||
Second Quarter |
$154.03 | $129.16 | $129.16 | |||
Third Quarter |
$145.59 | $126.93 | $145.59 | |||
Fourth Quarter |
$165.71 | $144.46 | $164.68 | |||
2011 |
||||||
First Quarter |
$179.55 | $165.05 | $179.55 | |||
Second Quarter |
$184.61 | $169.01 | $177.40 | |||
Third Quarter |
$183.58 | $140.96 | $142.13 | |||
Fourth Quarter |
$166.06 | $135.39 | $159.54 | |||
2012 |
||||||
First Quarter |
$182.84 | $160.84 | $180.67 | |||
Second Quarter |
$182.28 | $162.51 | $171.30 | |||
Third Quarter |
$187.35 | $166.37 | $179.92 | |||
Fourth Quarter |
$188.05 | $172.52 | $185.71 | |||
2013 |
||||||
First Quarter |
$209.72 | $190.72 | $209.72 | |||
Second Quarter |
$221.19 | $201.00 | $210.38 | |||
Third Quarter |
$229.36 | $212.91 | $226.33 | |||
Fourth Quarter |
$244.20 | $222.40 | $244.20 | |||
2014 |
||||||
First Quarter |
$253.00 | $230.30 | $250.57 | |||
Second Quarter |
$260.56 | $239.77 | $260.56 | |||
July 1, 2014 to September 2, 2014 |
$262.60 | $248.33 | $262.50 |
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 October 7, 2019
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 September 2, 2014. The closing price on September 2, 2014 was $117.23. The historical performance of the iShares Russell 2000 ETF should not be taken as an indication of the future performance of the iShares Russell 2000 ETF during the term of the securities.
iShares Russell 2000 ETF Daily Closing Prices
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 October 7, 2019
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 June 30, 2014 and for the period from July 1, 2014 to September 2, 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 |
||||||
First Quarter |
$119.83 | $108.64 | $116.34 | |||
Second Quarter |
$118.81 | $108.88 | $118.81 | |||
July 1, 2014 to September 2, 2014 |
$120.02 | $110.68 | $117.23 |
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 October 7, 2019
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 has been removed from 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 September 2, 2014. The closing price on September 2, 2014 was $66.84. The historical performance of the iShares MSCI EAFE ETF should not be taken as an indication of the future performance of the iShares MSCI EAFE ETF during the term of the securities.
iShares MSCI EAFE ETF Daily Closing Prices
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 October 7, 2019
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 June 30, 2014 and for the period from July 1, 2014 to September 2, 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 |
||||||
First Quarter |
$68.03 | $62.31 | $67.17 | |||
Second Quarter |
$70.67 | $66.26 | $68.37 | |||
July 1, 2014 to September 2, 2014 |
$69.25 | $64.90 | $66.84 |
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 October 7, 2019
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 MSCI Emerging Markets Index Fund to the iShares MSCI Emerging Markets ETF and (ii) Greece, Qatar and United Arab Emirates are 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 September 2, 2014. The closing price on September 2, 2014 was $44.99. The historical performance of the iShares MSCI Emerging Markets ETF should not be taken as an indication of the future performance of the iShares MSCI Emerging Markets ETF during the term of the securities.
iShares MSCI Emerging Markets ETF Daily Closing Prices
PRS-29
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due October 7, 2019
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 June 30, 2014 and for the period from July 1, 2014 to September 2, 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 |
||||||
First Quarter |
$40.99 | $37.09 | $40.99 | |||
Second Quarter |
$43.95 | $40.82 | $43.23 | |||
July 1, 2014 to September 2, 2014 |
$45.58 | $43.32 | $44.99 |
PRS-30
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due October 7, 2019
The Vanguard REIT ETF |
The Vanguard® REIT ETF is issued by Vanguard Specialized Funds, a registered open-end management investment company. The Vanguard REIT ETF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI US REIT Index. Information provided to or filed with the Securities and Exchange Commission (the SEC) under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, can be located by reference to SEC file numbers 002-88116 and 811-03916 and can be inspected and copied at the public reference facilities maintained by the SEC or through the SECs website at www.sec.gov. In addition, information may be obtained from other sources including, but not limited to, press releases, newspaper articles, and other publicly disseminated documents. None of such publicly available information is incorporated by reference into this pricing supplement. The Vanguard REIT ETF is listed on the NYSE Arca, Inc. under the ticker symbol VNQ.
This pricing supplement relates only to the securities offered hereby and does not relate to the Vanguard REIT ETF. We have derived all disclosures contained in this pricing supplement regarding the Vanguard REIT ETF from the publicly available documents described in the preceding paragraph. In connection with the offering of the securities, neither we nor the agent has participated in the preparation of such documents or made any due diligence inquiry with respect to the Vanguard REIT ETF. Neither we nor the agent has independently verified the accuracy or completeness of any information with respect to the Vanguard REIT ETF in connection with the offer and sale of the securities. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described in the preceding paragraph) that would affect the trading price of the Vanguard REIT ETF (and therefore the price of the Vanguard REIT ETF at the time we price the securities) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning the Vanguard REIT ETF could affect the payment at maturity with respect to the securities and therefore the trading prices of the securities.
We and/or our affiliates may presently or from time to time engage in business with the Vanguard REIT ETF. In the course of such business, we and/or our affiliates may acquire non-public information with respect to the Vanguard REIT ETF, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more of our affiliates may publish research reports with respect to the Vanguard REIT ETF. The statements in the preceding two sentences are not intended to affect the rights of investors in the securities under the securities laws.
The MSCI US REIT Index
We obtained all information contained in this pricing supplement regarding the MSCI US REIT Index, including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information. That information reflects the policies of, and is subject to change by, MSCI, Inc., the index sponsor (MSCI). MSCI has no obligation to continue to publish, and may discontinue publication of, the MSCI US REIT Index at any time. Neither we nor the agent has independently verified the accuracy or completeness of any information with respect to the MSCI US REIT Index in connection with the offer and sale of the securities.
The MSCI US REIT Index is a free float-adjusted market capitalization index compiled by MSCI that aims to represent the performance of the equity REIT investment universe in the United States (the US). The MSCI US REIT Index consists of REIT securities that belong to the MSCI US Investable Market 2500 Index and covers approximately 85% of the US REIT universe.
Constructing the MSCI US REIT Index
MSCI undertakes an index construction process, which involves: (i) defining the US Equity Universe and the investable market segment, (ii) defining REITs and the MSCI US REIT Index eligible REITs, (iii) free float-adjusting constituent weights, and (iv) screening securities for investability.
Defining the US Equity Universe and the Investable Market Segment
MSCI includes in the eligible US equity universe all listed equity securities of US incorporated companies listed on the New York Stock Exchange, NYSE Arca, AMEX, and the NASDAQ, except investment trusts (other than REITs), preferred REITs, mutual funds (other than Business Development Companies), equity derivatives, limited partnerships, limited liability companies and business trusts that are structured to be taxed as limited partnerships, and royalty trusts. When appropriate, some non-US incorporated companies may also be considered for inclusion in the MSCI US equity universe based on an analysis and interpretation of a number of factors.
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The Vanguard REIT ETF (Continued) |
Some of these factors include the companys main equity trading markets, shareholder base, and geographical distribution of operations (in terms of assets and production).
MSCI segregates the eligible US equity universe into three market capitalization segments:
| the investable market segment, |
| the micro cap segment, and |
| the lower micro cap segment. |
The investable market segment includes all eligible securities with reasonable size, liquidity, and investability that can cost effectively be represented in institutional and pooled retail portfolios of reasonable size. The investment performance characteristics of this investable market segment is represented and measured by the MSCI US Investable Market 2500 Index.
The MSCI US Investable Market 2500 Index is an aggregation of the MSCI US Large Cap 300, Mid Cap 450, and Small Cap 1750 Indices, which together comprise the 2500 largest companies by full market capitalization in the investable market segment and represent approximately 98% of the capitalization of the US equity market.
Defining REITs and the MSCI US REIT Index Eligible REITs
(i) Defining REITs: A REIT, or real estate investment trust, is a company that in most cases owns and operates income-producing real estate assets. Some REITs provide loans to the owners and operators of real estate. To qualify as a REIT under the Internal Revenue Code of 1986, as amended, a REIT is required to distribute at least 90% of its taxable income to shareholders annually and receive at least 75% of that income from rents, mortgages, and sales of property.
(ii) Sub-Industry Classification of REIT Securities: MSCI classifies REITs securities into one of the seven REIT Sub-Industries within the Global Industry Classification Standard (GICS) structure. The REIT Sub-Industries are part of the Real Estate Industry, Real Estate Industry Group, and the Financials Sector. The seven REIT Sub-Industries aim to represent REITs with the following property type profiles:
| Diversified REITs |
| Industrial REITs |
| Mortgage REITs |
| Office REITs |
| Residential REITs |
| Retail REITs |
| Specialized REITs |
(iii) Identifying Eligible REITs: A REIT is eligible for inclusion in the MSCI US REIT Index if it is included in the MSCI US Investable Market 2500 Index, with the exception of:
| REITs classified in the Mortgage REITs Sub-Industry, and |
| REITs classified in the Specialized REITs Sub-Industry that do not generate a majority of their revenue and income from real estate rental and related leasing operations. |
Companies classified under the GICS Real Estate Management & Development Sub-Industry are not eligible for inclusion in the MSCI US REIT Index.
PRS-32
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to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due October 7, 2019
The Vanguard REIT ETF (Continued) |
Free Float-Adjusting Constituent Weights
The market capitalization of the MSCI US REIT Index constituents is adjusted for free float in order to reflect the availability of shares from the perspective of US domestic investors. MSCI free float-adjusts the market capitalization of each security using an adjustment factor, referred to as the Domestic Inclusion Factor (DIF).
MSCI defines the domestic free float of a security as the proportion of shares outstanding that are deemed available for purchase in the public equity markets by US domestic investors. Therefore, domestic free float excludes strategic investments in a company, such as stakes held by federal, state, and local governments and their agencies, controlling shareholders, and their families, the companys management, or another company. No foreign ownership limit is applied in the domestic free float calculation.
Screening Securities for Investability
The assessment of a securitys investability is determined by applying the following investability screens. A security must pass all the screens in order to be considered for index inclusion in the MSCI US Investable Market 2500 Index. Given that the MSCI US REIT Index is a sub-set of the MSCI US Investable Market 2500 Index, constituents of the MSCI US REIT Index must also pass all the investability screens.
(i) Liquidity: Based on the stock price (securities with stock prices above $5,000 fail the liquidity screening) and a relative liquidity measure known as the Annualized Traded Value Ratio (ATVR). Securities that belong to the top 99.5% of the cumulative security full market capitalization of the US equity universe in descending order of ATVR, after excluding those securities trading above $5,000, are eligible for inclusion in the MSCI US Investable Market 2500 Index.
(ii) Length of Trading: A seasoning period of at least three calendar months is required for all new issues of small companies at the time of the eligible US equity universe creation.
(iii) Company and Security Free Float: Securities of companies with an overall and/or security free float of less than 15% across all share classes are generally not eligible for inclusion.
(iv) Relative Security Free Float-Adjusted Market Capitalization: In general, all securities that are considered for inclusion in the MSCI US Investable Market 2500 Index should have a free float-adjusted security market capitalization representing at least 10% of the company full market capitalization.
Maintenance of the MSCI US REIT Index
The MSCI US REIT Index is fully reviewed on a semi-annual basis, at the end of May and November (Semi-Annual Index Review), and partially reviewed at the end of February and August (Quarterly Index Review). In addition, consistent with the index methodology employed in maintaining MSCI equity indices, MSCI reflects corporate events in the indices as they occur.
Semi-Annual Index Review
The Semi-Annual Index Review involves a comprehensive review of the US Investable Market 2500 Index, and consequently of the MSCI US REIT Index. During the review, changes in the investability of constituents and non-constituents are also assessed.
During each Semi-Annual Index Review, a new US equity universe is identified and companies and their securities are assigned to the appropriate market capitalization index. As such, constituents of the MSCI US REIT Index migrating out of the MSCI US Investable Market 2500 Index will be deleted from the MSCI US REIT Index. In contrast, eligible equity REITs migrating to the MSCI US Investable Market 2500 Index will be added to the MSCI US REIT Index.
Semi-Annual Index Reviews may also result in changes in DIFs or updates in number of shares. During the May Semi-Annual Index Review, a detailed review of the shareholder information used to estimate free float for constituent and non-constituent securities is conducted. The review is comprehensive, covering all aspects of shareholder information.
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to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due October 7, 2019
The Vanguard REIT ETF (Continued) |
Quarterly Index Review
Quarterly Index Reviews may result in changes in DIFs or updates in number of shares. There are no new additions to or deletions from the MSCI US REIT Index at the Quarterly Index review, unless due to a corporate event or early additions coinciding with the Quarterly Index Review or deletions that result from corrections to the MSCI US REIT Index eligible universe. Also, if an existing constituent of the US Investable Market 2500 Index changes its GICS classification to one of the eligible REIT Sub-Industries defined above, it may be considered for inclusion in the MSCI US REIT Index at the next index review.
Index Calculation
The MSCI US REIT Index is calculated using Laspeyress principle of a weighted arithmetic average together with the concept of chain-linking. The MSCI US REIT Index is calculated and disseminated in US Dollars on a real time basis (price-only index) during market trading hours.
Corporate Events
In addition to the index maintenance described above, maintaining the MSCI US REIT Index also includes monitoring and completing adjustments for certain corporate events, including mergers and acquisitions, tender offers, share changes, stock splits, stock dividends, and stock price adjustments due to company restructurings or spin-offs. The adjustments for certain corporate events are described more fully below.
Mergers and Acquisitions
As a general principle, MSCI implements mergers and acquisitions as of the close of the last trading day of the acquired entity or merging entities (last offer day for tender offers), regardless of the status of the securities (index constituents or non-index constituents) involved in the event. MSCI uses market prices for implementation. This principle applies if all necessary information is available prior to the completion of the event and if the liquidity of the relevant constituent(s) is not expected to be significantly diminished on the day of implementation. Otherwise, MSCI will determine the most appropriate implementation method and announce it prior to the changes becoming effective.
For US mergers and acquisitions, where the delisting date for the acquired security is not available in advance and the completion of the transaction may be delayed due, for example, to the existence of financing conditions, MSCI will wait until the official announcement of the completion of the deal to delete the security and will give clients advance notice before the deletion. However, if the delisting date for the acquired security is not available in advance, and the transaction is not subject to any financing conditions, MSCI will delete such securities shortly after the relevant shareholders approvals, provided that all other conditions required for completion of the transaction have been met.
If the deletion of securities after the official announcement of the completion of a deal results in deleting securities after they have ceased trading, MSCI will use the following deletion prices:
| the last traded price before the delisting if the acquisition is for cash; or |
| a calculated price based on the terms of the acquisition and the market share price of the acquirer if the acquisition is for shares or cash and shares. |
Tender Offers
In tender offers, the acquired or merging security is generally deleted from the applicable MSCI Indices at the end of the initial offer period, when the offer is likely to be successful and/or if the free float of the security is likely to be substantially reduced (this rule is applicable even if the offer is extended), or once the results of the offer have been officially communicated and the offer has been successful and the securitys free float has been substantially reduced, if all required information is not available in advance or if the offers outcome is uncertain. The main factors considered by MSCI when assessing the outcome of a tender offer (not in order of importance) are: the announcement of the offer as friendly or hostile, a comparison of the offer price to the acquired securitys market price, the recommendation by the acquired companys board of directors, the major shareholders stated intention whether to tender their shares, the required level of acceptance, the existence of pending regulatory approvals, market perception of the transaction, official preliminary results if any, and other additional conditions for the offer.
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to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to a Global ETF Basket due October 7, 2019
The Vanguard REIT ETF (Continued) |
If a security is deleted from an MSCI index, the security will not be reinstated immediately after its deletion even when the tender offer is subsequently declared unsuccessful and/or the free float of the security is not substantially reduced. It may be reconsidered for MSCI index inclusion at the following regularly scheduled index review. MSCI uses market prices for implementation.
Late Announcements of Completion of Mergers and Acquisitions
When the completion of an event is announced too late to be reflected as of the close of the last trading day of the acquired or merging entities, implementation occurs as of the close of the following day or as soon as practicable thereafter. In these cases, MSCI uses a calculated price for the acquired or merging entities. The calculated price is determined using the terms of the transaction and the price of the acquiring or merged entity, or, if not appropriate, using the last trading days market price of the acquired or merging entities.
Conversions of Share Classes
Conversions of a share class into another share class resulting in the deletion and/or addition of one or more classes of shares are implemented as of the close of the last trading day of the share class to be converted.
Spin-Offs
On the ex-date of a spin-off, a price adjustment factor (PAF) is applied to the price of the security of the parent company. The PAF is calculated based on the terms of the transaction and the market price of the spun-off security. If the spun-off entity qualifies for inclusion, it is included as of the close of its first trading day. In order to decide whether the spun-off entity qualifies for inclusion, the full company market capitalization of the spun-off entity is estimated by MSCI prior to the spin-off being effective. These estimates are typically based on public information provided by the parent company, including amongst others the spin-off prospectus and estimates from brokers.
In cases of spin-offs of partially-owned companies, the post-event free float of the spun-off entity is calculated using a weighted average of the existing shares and the spun-off shares, each at their corresponding free float. Any resulting changes to DIFs are implemented as of the close of the ex-date.
When the spun-off security does not trade on the ex-date, a detached security is created to avoid a drop in the free float-adjusted market capitalization of the parent entity, regardless of whether the spun-off security is added or not. The detached security is included until the spun-off security begins trading, and is deleted thereafter. Generally, the value of the detached security is equal to the difference between the price on the day prior to the ex-date and the ex-price of the parent security.
Corporate Actions
Corporate actions such as splits, bonus issues, and rights issues, which affect the price of a security, require a price adjustment. In general, the PAF is applied on the ex-date of the event to ensure that security prices are comparable between the ex-date and the day prior to the ex-date. To do so, MSCI adjusts for the value of the right and/or the value of the special assets that are distributed and the changes in number of shares, if any, are reflected as of the close of the ex-date. In general, corporate actions do not impact the free float of the securities because the distribution of new shares is carried out on a pro rata basis to all existing shareholders. Therefore, MSCI will generally not implement any pending number of shares and/or free float updates simultaneously with the event.
If a security does not trade for any reason on the ex-date of the corporate action, the event will be generally implemented on the day the security resumes trading.
Share Placements and Offerings
Changes in number of shares resulting from primary equity offerings representing at least 5% of the securitys number of shares are generally implemented as of the close of the first trading day of the new shares, if all necessary information is available at that time. Otherwise, the event is implemented as soon as practicable after the relevant information is made available. A primary equity offering involves the issuance of new shares by a company. Changes in number of shares resulting from primary equity offerings representing less than 5% of the securitys number of shares are implemented at the next regularly scheduled index review following the completion of the event. Block sales or large market transactions involving changes in strategic ownership, which are publicly announced, made by way of immediate book-building and/or in the absence of an offer prospectus, that result in significant changes in free float estimates will generally be reflected at the following regularly scheduled index review. For public secondary offerings of existing constituents representing at least 5% of the securitys number of shares, where possible, MSCI will announce these changes
PRS-35
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to a Cap and Fixed Percentage Buffered Downside
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The Vanguard REIT ETF (Continued) |
and reflect them shortly after the results of the subscription are known. Secondary public offerings that, given lack of sufficient notice, were not reflected immediately will be implemented at the following regularly scheduled index review.
Debt-to-Equity Swaps
In general, large debt-to-equity swaps involve the conversion of debt into equity originally not convertible at the time of issue. In this case, changes in numbers of shares and subsequent DIF changes are implemented as of the close of the first trading day of the newly issued shares, or shortly thereafter if all necessary information is available at the time of the swap. In general, shares issued in debt-to-equity swaps are assumed to be issued to strategic investors. As such, the post event free float is calculated on a pro forma basis assuming that all these shares are non-free float. Changes in numbers of shares and subsequent DIF changes due to conversions of convertible bonds or other convertible instruments, including periodical conversions of preferred stocks and small debt-to-equity swaps are implemented at a following regularly scheduled index review.
Suspensions and Bankruptcies
MSCI will remove from the MSCI Equity Indices as soon as practicable companies that file for bankruptcy, companies that file for protection from their creditors, and companies that fail stock exchange listing requirements upon announcement of delisting.
MSCI will delete from the MSCI Equity Indices after 40 business days of suspension, where feasible, securities of companies facing financial difficulties (e.g., liquidity issues, debt repayment issues, companies under legal investigation, etc.) with at least two business days advance notice. Subsequently, if and when these securities resume normal trading, they may be considered as a potential addition to the MSCI Indices at the next scheduled Semi-Annual Index Review. In certain cases, when the financial situation of companies may not be transparent to the public, after 40 business days of suspension, MSCI may retain these companies in the indices and may evaluate them at a subsequent index review.
Securities of companies suspended due to pending corporate events (e.g., merger, acquisition, etc.), will continue to be included in the MSCI Indices until they resume trading regardless of the duration of the suspension period. When the primary exchange price is not available, MSCI will delete securities at an over the counter or equivalent market price when such a price is available and deemed relevant. If no over the counter or equivalent price is available, the security will be deleted at the smallest price (unit or fraction of the currency) at which a security can trade on a given exchange.
Historical Information of the Vanguard REIT ETF
We obtained the closing prices listed below from Bloomberg without independent verification. You can obtain the value of the Vanguard REIT ETF at any time from Bloomberg under the symbol VNQ.
The following graph sets forth daily closing prices of the Vanguard REIT ETF for the period from September 29, 2004 to September 2, 2014. The closing price on September 2, 2014 was $77.19. The historical performance of the Vanguard REIT ETF should not be taken as an indication of the future performance of the Vanguard REIT ETF during the term of the securities.
PRS-36
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The Vanguard REIT ETF (Continued) |
Vanguard REIT ETF Daily Closing Prices
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The Vanguard REIT ETF (Continued) |
The following table sets forth the high and low closing prices, as well as end-of-period closing prices, of the Vanguard REIT ETF for each quarter in the period from September 29, 2004 through June 30, 2014 and for the period from July 1, 2014 to September 2, 2014.
High | Low | Last | ||||
2004 |
||||||
September 29, 2004 to September 30, 2004 |
$50.25 | $49.85 | $50.25 | |||
Fourth Quarter |
$57.60 | $51.10 | $56.55 | |||
2005 |
||||||
First Quarter |
$55.89 | $51.24 | $51.82 | |||
Second Quarter |
$59.91 | $51.50 | $58.70 | |||
Third Quarter |
$63.30 | $57.77 | $60.45 | |||
Fourth Quarter |
$62.16 | $55.64 | $59.56 | |||
2006 |
||||||
First Quarter |
$69.68 | $60.76 | $67.92 | |||
Second Quarter |
$66.75 | $62.23 | $66.30 | |||
Third Quarter |
$73.11 | $66.28 | $71.89 | |||
Fourth Quarter |
$80.77 | $71.86 | $77.00 | |||
2007 |
||||||
First Quarter |
$87.27 | $75.79 | $79.35 | |||
Second Quarter |
$81.30 | $69.80 | $70.95 | |||
Third Quarter |
$73.48 | $63.55 | $71.46 | |||
Fourth Quarter |
$76.69 | $60.86 | $61.46 | |||
2008 |
||||||
First Quarter |
$64.98 | $55.08 | $62.39 | |||
Second Quarter |
$68.49 | $58.34 | $58.42 | |||
Third Quarter |
$64.97 | $54.15 | $60.80 | |||
Fourth Quarter |
$59.33 | $24.21 | $36.45 | |||
2009 |
||||||
First Quarter |
$36.37 | $21.15 | $24.28 | |||
Second Quarter |
$34.53 | $24.15 | $31.01 | |||
Third Quarter |
$44.28 | $28.57 | $41.45 | |||
Fourth Quarter |
$46.14 | $38.54 | $44.74 | |||
2010 |
||||||
First Quarter |
$49.86 | $41.04 | $48.81 | |||
Second Quarter |
$54.04 | $46.25 | $46.49 | |||
Third Quarter |
$54.63 | $44.43 | $52.08 | |||
Fourth Quarter |
$57.29 | $52.03 | $55.37 | |||
2011 |
||||||
First Quarter |
$59.86 | $54.89 | $58.47 | |||
Second Quarter |
$62.68 | $57.39 | $60.10 | |||
Third Quarter |
$63.18 | $48.88 | $50.87 | |||
Fourth Quarter |
$58.80 | $48.47 | $58.00 | |||
2012 |
||||||
First Quarter |
$63.65 | $57.49 | $63.65 | |||
Second Quarter |
$66.18 | $60.57 | $65.43 | |||
Third Quarter |
$68.76 | $64.79 | $64.97 | |||
Fourth Quarter |
$66.43 | $62.06 | $65.80 | |||
2013 |
||||||
First Quarter |
$70.53 | $66.61 | $70.53 | |||
Second Quarter |
$78.15 | $65.68 | $68.72 | |||
Third Quarter |
$72.55 | $63.50 | $66.14 | |||
Fourth Quarter |
$71.05 | $64.20 | $64.56 | |||
2014 |
||||||
First Quarter |
$71.79 | $64.57 | $70.62 | |||
Second Quarter |
$76.41 | $70.47 | $74.84 | |||
July 1, 2014 to September 2, 2014 |
$77.49 | $74.44 | $77.19 |
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Principal at Risk Securities Linked to a Global ETF Basket due October 7, 2019
United States Federal Tax Considerations |
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 your particular U.S. federal tax consequences of holding and disposing of the securities.
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 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, you agree (in the absence of an administrative determination or judicial ruling to the contrary) to this treatment.
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.
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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 October 7, 2019
United States Federal Tax Considerations |
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 components 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 of the Code 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 of the Code, our counsel is not able to opine as to whether or how Section 1260 of the Code 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 that 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 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
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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 October 7, 2019
United States Federal Tax Considerations |
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 possible alternative treatments of an investment in the securities 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, you generally should not be subject to U.S. federal income or withholding 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 and the discussion below regarding FATCA, 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 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, you should consult your tax adviser 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.
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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 October 7, 2019
United States Federal Tax Considerations |
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.
FATCA Legislation
Legislation commonly referred to as FATCA generally imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect to certain financial instruments, unless various U.S. information reporting and due diligence requirements have been satisfied. An intergovernmental agreement between the United States and the non-U.S. entitys jurisdiction may modify these requirements. Pursuant to Treasury regulations and guidance from the U.S. Treasury Department, this legislation generally will apply to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source fixed or determinable annual or periodical income (FDAP income). Withholding (if applicable) will apply to payments of U.S.-source FDAP income and, if made after December 31, 2016, to payments of gross proceeds of the sale, exchange or retirement of certain financial instruments treated as providing for U.S.-source interest or dividends. If the securities were recharacterized as debt instruments, this legislation would apply to the securities. If withholding applies to the securities, we will not be required to pay any additional amounts with respect to amounts withheld. If you are a non-U.S. holder, or a U.S. holder holding securities through a foreign intermediary, you should consult your tax adviser regarding the potential application of FATCA to the securities.
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.
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