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Terms of the Securities (Continued)
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Calculation Agent:
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Wells Fargo Securities, LLC
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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.
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Agent:
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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.
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 any discount or concession 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.
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CUSIP:
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94986R3Q2
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*
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To the extent that we make any change to the expected pricing date or expected issue date, the calculation day
and stated maturity date may also be changed in our discretion to ensure that the term of the securities remains the same.
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PRS-7
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the iShares
®
MSCI Emerging Markets ETF due January 31, 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-8
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the iShares
®
MSCI Emerging Markets ETF due January 31, 2019
|
Hypothetical Payout Profile
|
The following profile is based on a capped value of 114.00% or $1,140.00 per security, a participation rate of
150% and a hypothetical threshold price equal to 69.25% of the starting price (the midpoint of the specified range for the threshold price). This graph has been prepared for purposes of illustration only. Your actual return will depend on the actual
ending price, the actual threshold price and whether you hold your securities to maturity.
PRS-9
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the iShares
®
MSCI Emerging Markets ETF due January 31, 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 in 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 index underlying the Fund is sometimes referred to as the
underlying index
.
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If The Ending Price Is Less Than The Threshold Price, You Will Receive Less, And Possibly 67.00% to 71.50%
(To Be Determined On The Pricing Date) 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 Fund to the extent it is below the threshold price (expressed as a percentage of the starting price). The threshold price will be determined on the pricing date and will be within the range of 67.00%
to 71.50% of the starting price. As a result, you may receive less, and possibly 67.00% to 71.50% (to be determined on the pricing date) less, than the original offering price per security at maturity even if the value of the Fund is greater than or
equal to the starting price or the threshold price at certain times during the term of the securities.
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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
sections of this pricing supplement and the accompanying product supplement entitled United States Federal Tax Considerations.
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Your Return Will Be Limited By The Capped Value And May Be Lower Than The Return On A Direct Investment In
The Fund.
The opportunity to participate in the possible increases in the price of the Fund 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.
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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 Fund or any securities held by the Fund
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.
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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 (if any), (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.
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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.
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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
|
PRS-10
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the iShares
®
MSCI Emerging Markets ETF due January 31, 2019
|
Selected Risk Considerations (Continued)
|
|
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 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.
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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 3-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 3-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.
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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 Fund 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: Fund
performance; interest rates; volatility of the Fund; time remaining to maturity; dividend yields on the securities included in the Fund; and currency exchange rates. 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 price of the Fund may not result in a
comparable change in the value of the securities.
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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.
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The Amount You Receive On The Securities Will Depend Upon The Performance Of The Fund And Therefore The
Securities Are Subject To The Following Risks, As Discussed In More Detail In The Product Supplement:
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Your Return On The Securities Could Be Less Than If You Owned The Shares Of The Fund.
Your return on
the securities will not reflect the return you would realize if you actually owned the shares of the Fund because, among other reasons, the redemption amount will be determined by reference only to the closing price of a share of the Fund without
taking into consideration the value of dividends and other distributions paid on such share. In addition, the redemption amount will not be greater than the capped value.
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Historical Prices Of The Fund Or The Securities Included In The Fund Should Not Be Taken As An Indication
Of The Future Performance Of The Fund During The Term Of The Securities.
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Changes That Affect The Fund Or The Underlying Index May Adversely Affect The Value Of The Securities And
The Amount You Will Receive At Stated Maturity.
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We Cannot Control Actions By Any Of The Unaffiliated Companies Whose Securities Are Included In The Fund Or
The Underlying Index.
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We And Our Affiliates Have No Affiliation With The Sponsor Of The Fund Or The Sponsor Of The Underlying
Index And Have Not Independently Verified Their Public Disclosure Of Information.
|
PRS-11
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the iShares
®
MSCI Emerging Markets ETF due January 31, 2019
|
Selected Risk Considerations (Continued)
|
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An Investment Linked To The Shares Of The Fund Is Different From An Investment Linked To The Underlying
Index.
The performance of the shares of the Fund may not exactly replicate the performance of the underlying index because the Fund may not invest in all of the securities included in the underlying index and because the Fund will reflect
transaction costs and fees that are not included in the calculation of the underlying index. The Fund may also hold securities or derivative financial instruments not included in the underlying index. It is also possible that the Fund 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 the Fund are traded on a securities
exchange and are subject to market supply and investor demand, the value of a share of the Fund may differ from the net asset value per share of the Fund. As a result, the performance of the Fund may not correlate perfectly with the performance of
the underlying index, and the return on the securities based on the performance of the Fund will not be the same as the return on securities based on the performance of the underlying index.
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You Will Not Have Any Shareholder Rights With Respect To The Shares Of The Fund.
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Anti-dilution Adjustments Relating To The Shares Of The Fund Do Not Address Every Event That Could Affect
Such Shares.
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An Investment In The Securities Is Subject To Risks Associated With Foreign Securities Markets.
The
Fund includes 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.
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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, the Fund 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 the Fund 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 the Fund which could, in turn, adversely affect the value of the securities.
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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 the Fund is quoted in a currency other than U.S. dollars and, as per the Fund, 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.
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The Stated Maturity Date May Be Postponed If The Calculation Day Is Postponed.
The calculation day will
be postponed if the originally scheduled calculation day is not a trading day or if the calculation agent determines that a market disruption event has occurred or is continuing 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 postponed calculation day.
|
PRS-12
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the iShares
®
MSCI Emerging Markets ETF due January 31, 2019
|
Selected Risk Considerations (Continued)
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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.
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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 ending price of the Fund 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 on the
scheduled calculation day, which may result in postponement of the calculation day; determining the ending price of the Fund if the calculation day is postponed 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 the Fund undergoes a liquidation event, selecting a successor fund or, if no successor fund is available, determining the ending price of the
Fund; and determining whether to adjust the ending price of the Fund on the calculation day in the event of certain changes in or modifications to the Fund or the 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.
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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.
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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 price of the Fund.
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
the Fund or the underlying index or the companies whose securities are included in the Fund or the underlying index. 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 the Fund or the underlying index or the companies whose securities are included in the Fund or the underlying index could adversely affect the
price of the Fund and, therefore, adversely affect the value of and your return on the securities. You are encouraged to derive information concerning the Fund 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 the Fund or the underlying index or the companies whose securities are included in the Fund or the underlying index published on or prior to the pricing date could
result in an increase in the price of the Fund on the pricing date, which would adversely affect investors in the securities by increasing the price at which the Fund must close on the calculation day in order for investors in the securities to
receive a favorable return.
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Business activities of our affiliates or any participating dealer or its affiliates with the companies
whose securities are included in the Fund may adversely affect the price of the Fund.
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 Fund or the underlying index, 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 price of the Fund 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 Fund or the underlying index. 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.
|
PRS-13
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the iShares
®
MSCI Emerging Markets ETF due January 31, 2019
|
Selected Risk Considerations (Continued)
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Hedging activities by our affiliates or any participating dealer or its affiliates may adversely affect
the price of the Fund.
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 Fund, securities included in the Fund or the underlying index or listed or over-the-counter derivative or synthetic instruments related to the Fund 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 Fund or any of the securities included in the
Fund or the underlying index, or derivative or synthetic instruments related to the Fund 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 Fund or the underlying index. These hedging activities could potentially adversely affect the price of the shares of the Fund and, therefore, adversely affect the value of and your return on the securities.
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Trading activities by our affiliates or any participating dealer or its affiliates may adversely affect
the price of the Fund.
Our affiliates or any participating dealer or its affiliates may engage in trading in the shares of the Fund or the securities included in the Fund or the underlying index and other instruments relating to the Fund 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 price of the shares of the Fund and, therefore, adversely affect the value of and
your return on the securities.
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A participating dealer or its affiliates may realize hedging profits projected by its proprietary
pricing models in addition to any selling concession, 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. If a participating dealer receives a concession for the sale of the securities to you, this projected
hedging profit will be in addition to the concession, creating a further incentive for the participating dealer to sell the securities to you.
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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. In particular, due to the securities buffer feature, the IRS or a court could treat the securities as debt
instruments subject to Treasury regulations governing contingent payment debt instruments, in which case adverse consequences would apply. Because of this uncertainty, we urge you to 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. 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.
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Furthermore, Section 871(m) of the Internal Revenue Code of 1986, as amended (the
Code
), imposes a
withholding tax of up to 30% on dividend equivalents paid or deemed paid to non-U.S. investors in respect of certain financial instruments linked to U.S. equities. In light of an IRS notice providing a general exemption for
non-delta-one financial instruments issued in 2017, as of the date of this preliminary pricing supplement the securities should not be subject to withholding under Section 871(m). However, information about the application of
Section 871(m) to the securities will be updated in the final pricing supplement. Moreover, the IRS could challenge a conclusion that the securities should not be subject to withholding under Section 871(m). If withholding applies to the
securities, we will not be required to pay any additional amounts with respect to amounts withheld.
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 sections of this pricing supplement and the accompanying product supplement entitled United States Federal Tax
Considerations. 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-14
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the iShares
®
MSCI Emerging Markets ETF due January 31, 2019
The following table illustrates, for a hypothetical threshold price of 69.25% of the starting price (the
midpoint of the specified range for the threshold price) and a range of hypothetical ending prices of the Fund:
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the hypothetical percentage change from the hypothetical starting price to the hypothetical ending price;
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the hypothetical redemption amount payable at stated maturity per security;
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the hypothetical total pre-tax rate of return; and
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the hypothetical pre-tax annualized rate of return.
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Hypothetical
ending price
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Hypothetical
percentage change
from the hypothetical
starting price to the
hypothetical ending price
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Hypothetical
redemption amount
payable at
stated
maturity
per security
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Hypothetical
pre-tax total
rate of return
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Hypothetical
pre-tax
annualized
rate of return
(1)
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$63.96
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|
75.00%
|
|
$1,140.00
|
|
14.00%
|
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6.66%
|
$54.83
|
|
50.00%
|
|
$1,140.00
|
|
14.00%
|
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6.66%
|
$51.17
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|
40.00%
|
|
$1,140.00
|
|
14.00%
|
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6.66%
|
$47.52
|
|
30.00%
|
|
$1,140.00
|
|
14.00%
|
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6.66%
|
$43.86
|
|
20.00%
|
|
$1,140.00
|
|
14.00%
|
|
6.66%
|
$39.96
|
|
9.33%
|
|
$1,140.00
|
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14.00%
|
|
6.66%
|
$38.38
|
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5.00%
|
|
$1,075.00
|
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7.50%
|
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3.65%
|
$36.55
(2)
|
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0.00%
|
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$1,000.00
|
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0.00%
|
|
0.00%
|
$34.72
|
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-5.00%
|
|
$1,000.00
|
|
0.00%
|
|
0.00%
|
$32.90
|
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-10.00%
|
|
$1,000.00
|
|
0.00%
|
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0.00%
|
$29.24
|
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-20.00%
|
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$1,000.00
|
|
0.00%
|
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0.00%
|
$25.310875
|
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-30.75%
|
|
$1,000.00
|
|
0.00%
|
|
0.00%
|
$24.95
|
|
-31.75%
|
|
$990.00
|
|
-1.00%
|
|
-0.50%
|
$18.28
|
|
-50.00%
|
|
$807.50
|
|
-19.25%
|
|
-10.41%
|
$9.14
|
|
-75.00%
|
|
$557.50
|
|
-44.25%
|
|
-27.18%
|
$0.00
|
|
-100.00%
|
|
$307.50
|
|
-69.25%
|
|
-51.07%
|
(1)
|
The annualized rates of return are calculated on a semi-annual bond equivalent basis with compounding.
|
(2)
|
The hypothetical starting price. The actual starting price will be determined on the pricing date.
|
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 rate of return will depend on the actual starting price, ending price and threshold price.
PRS-15
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the iShares
®
MSCI Emerging Markets ETF due January 31, 2019
|
Hypothetical Payments at Stated Maturity
|
Set forth below are four examples of payment at stated maturity calculations, reflecting a hypothetical
threshold price equal to 69.25% of the starting price (the midpoint of the specified range for the threshold price) and assuming hypothetical starting prices and ending prices as indicated in the examples. These examples are for purposes of
illustration only and the values used in the examples may have been rounded for ease of analysis.
Example 1. Redemption amount is greater than the
original offering price but less than the capped value:
Hypothetical starting price: $36.55
Hypothetical ending price: $38.38
Since the hypothetical ending price is greater than the hypothetical starting price, the redemption amount would equal:
|
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|
|
|
|
|
|
|
|
|
|
|
|
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$1,000 +
|
|
|
|
$1,000 ×
|
|
|
|
38.38 36.55
|
|
|
|
× 150%
|
|
|
|
= $1,075.00
|
|
|
|
|
|
|
36.55
|
|
|
|
|
|
|
On the stated maturity date you would receive $1,075.00 per security.
Example 2. Redemption amount is equal to the capped value:
Hypothetical starting price: $36.55
Hypothetical ending price: $54.83
The redemption amount would be equal to the capped value since the capped value is less than:
|
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|
|
|
|
|
|
|
|
|
|
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|
$1,000 +
|
|
|
|
$1,000 ×
|
|
|
|
54.83 36.55
|
|
|
|
× 150%
|
|
|
|
= $1,750.00
|
|
|
|
|
|
|
36.55
|
|
|
|
|
|
|
On the stated maturity date you would receive $1,140.00 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 Fund at a rate of 150% up to a certain point. However, the effect of the participation rate will be progressively reduced for ending prices that are greater
than approximately 109.33% of the starting price since your return on the securities for any ending price greater than approximately 109.33% of the starting price will be limited to the capped value.
Example 3. Redemption amount is equal to the original offering price:
Hypothetical starting price: $36.55
Hypothetical ending price: $29.24
Hypothetical threshold price: $25.310875, which is 69.25% of the hypothetical starting price
Since the hypothetical ending price is less than the hypothetical starting price, but not by more than 30.75%, 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.
PRS-16
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the iShares
®
MSCI Emerging Markets ETF due January 31, 2019
|
Hypothetical Payments at Stated Maturity (Continued)
|
Example 4. Redemption amount is less than the original offering price:
Hypothetical starting price: $36.55
Hypothetical ending price: $18.28
Hypothetical threshold price: $25.310875, which is 69.25% of the hypothetical starting price
Since the hypothetical ending price is less than the hypothetical starting price by more than 30.75%, you would lose a portion
of the original offering price of your securities and receive the redemption amount equal to:
|
|
|
|
|
|
|
|
|
|
|
$1,000
|
|
|
|
$1,000 ×
|
|
25.310875 18.28
|
|
|
|
= $807.50
|
|
|
|
|
36.55
|
|
|
|
On the stated maturity date you would receive $807.50 per security.
To the extent that the starting price, ending price and threshold price differ from the values assumed above, the results indicated above would
be different.
PRS-17
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the iShares
®
MSCI Emerging Markets ETF due January 31, 2019
|
The iShares
®
MSCI Emerging Markets ETF
|
The iShares MSCI Emerging Markets ETF seeks investment results that correspond generally to the price and yield
performance, before fees and expenses, of the MSCI Emerging Markets Index, an equity index that is designed to measure equity market performance in global emerging markets. See Description of Exchange Traded FundsThe iShares
®
MSCI Emerging Markets ETF in the accompanying market measure supplement for additional information about the iShares MSCI Emerging Markets ETF.
MSCI, Inc. has announced that, effective with the November 2015 semi-annual index review, companies traded outside of their country of
classification (i.e., foreign listed companies) will become eligible for inclusion in the component country indices included in the MSCI Emerging Markets Index. In order for a component country index to be eligible to include foreign
listed companies, it must meet the Foreign Listing Materiality Requirement. To meet the Foreign Listing Materiality Requirement, the aggregate market capitalization of all securities represented by foreign listings should represent at least
(i) 5% of the free float-adjusted market capitalization of the relevant component country index and (ii) 0.05% of the free-float adjusted market capitalization of the MSCI ACWI Investable Market Index (an index that measures equity
performance in both the developed and emerging markets). In connection with the November 2015 semi-annual index review, one of the component country indices included in the MSCI Emerging Markets Index, the MSCI China Index, became eligible to
include foreign listed companies. The newly eligible foreign listed securities were added at half their free float-adjusted market capitalization as part of the November 2015 semi-annual index review, and their remaining free float-adjusted market
capitalization were added as part of the May 2016 semi-annual index review.
The information about the MSCI Emerging Markets Index
contained herein updates the information included in the accompanying market measure supplement. See Description of Equity IndicesThe MSCI Emerging Markets Index
SM
in the
accompanying market measure supplement for additional information about the MSCI Emerging Markets Index.
Historical Information
We obtained the closing prices listed below from Bloomberg Financial Markets without independent verification.
The following graph sets forth daily closing prices of the Fund for the period from January 1, 2007 to January 11, 2017. The closing
price on January 11, 2017 was $36.55. The historical performance of the Fund should not be taken as an indication of the future performance of the Fund during the term of the securities.
PRS-18
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the iShares
®
MSCI Emerging Markets ETF due January 31, 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 Fund for each quarter in the period from January 1, 2007 through December 31, 2016 and for the period from January 1, 2017 to January 11, 2017.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
Last
|
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
|
Third Quarter
|
|
|
$45.85
|
|
|
$41.56
|
|
$41.56
|
Fourth Quarter
|
|
|
$42.44
|
|
|
$37.73
|
|
$39.29
|
2015
|
|
|
|
|
|
|
First Quarter
|
|
|
$41.07
|
|
|
$37.92
|
|
$40.13
|
Second Quarter
|
|
|
$44.09
|
|
|
$39.04
|
|
$39.62
|
Third Quarter
|
|
|
$39.78
|
|
|
$31.32
|
|
$32.78
|
Fourth Quarter
|
|
|
$36.29
|
|
|
$31.55
|
|
$32.19
|
2016
|
|
|
|
|
|
|
First Quarter
|
|
|
$34.28
|
|
|
$28.25
|
|
$34.25
|
Second Quarter
|
|
|
$35.26
|
|
|
$31.87
|
|
$34.36
|
Third Quarter
|
|
|
$38.20
|
|
|
$33.77
|
|
$37.45
|
Fourth Quarter
|
|
|
$38.10
|
|
|
$34.08
|
|
$35.01
|
2017
|
|
|
|
|
|
|
January 1, 2017 to January 11, 2017
|
|
|
$36.55
|
|
|
$35.43
|
|
$36.55
|
PRS-19
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the iShares
®
MSCI Emerging Markets ETF due January 31, 2019
|
United States Federal Tax Considerations
|
You should read carefully the discussion under United States Federal Tax Considerations in the
accompanying product supplement and Selected Risk Considerations in this pricing supplement.
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. We intend to treat a security for U.S. federal income tax purposes as a prepaid derivative contract that is an
open transaction for U.S. federal income tax purposes. In the opinion of our counsel, Davis Polk & Wardwell LLP, which is based on current market conditions, we believe that this treatment of the securities is reasonable under
current law; however, our counsel has advised us that it is unable to conclude affirmatively that this treatment is more likely than not to be upheld. By purchasing a security, you agree (in the absence of an administrative determination or judicial
ruling to the contrary) to this treatment.
Assuming this treatment of the securities is respected and subject to the discussion in
United States Federal Tax Considerations in the accompanying product supplement, the following U.S. federal income tax consequences should result under current law:
|
|
|
You should not recognize taxable income over the term of the securities prior to maturity, other than pursuant
to a sale or exchange.
|
|
|
|
Upon a sale or exchange of a security (including retirement at maturity), you should recognize gain or loss
equal to the difference between the amount realized and your tax basis in the security. Subject to the discussion below concerning the potential application of the constructive ownership rules under Section 1260 of the Code, any
gain or loss recognized upon a sale, exchange or retirement of a security should be long-term capital gain or loss if you held the security for more than one year.
|
However, due to the securities buffer feature, there is a significant risk that the securities could be treated as debt instruments
subject to Treasury regulations governing contingent payment debt instruments, as described in the section of the accompanying product supplement under United States Federal Tax ConsiderationsTax Consequences to U.S.
HoldersPotential Alternative Tax Treatments of an Investment in the Securities, in which case (i) 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, and (ii) any gain recognized on the sale, exchange or retirement of the
securities would be treated as ordinary income. You should consult your tax adviser regarding the risk of recharacterization of the securities.
Even if the treatment of the securities as prepaid derivative contracts that are open transactions is respected, your purchase of a
security may be treated as entry into a constructive ownership transaction, within the meaning of Section 1260 of the Code, with respect to the shares of the Fund. 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 shares of the Fund 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 regard to the participation rate, in the value of the shares of the Fund over the term of the
securities). Alternatively, the net underlying long-term capital gain could be calculated using a number of shares of the Fund that reflects the participation rate used to calculate the payment that you will receive on your securities.
Any long-term capital gain recharacterized as ordinary income under Section 1260 would be treated as accruing at a constant rate over the period you held your securities, and you would be subject to an interest charge in respect of the deemed
tax liability on the income treated as accruing in prior tax years. Due to the lack of governing authority under Section 1260, our counsel is not able to opine as to whether or how Section 1260 applies to the securities. You should read
the section entitled United States Federal Tax ConsiderationsTax Consequences to U.S. HoldersPotential Application of Section 1260 of the Code in the accompanying product supplement for additional information and consult
your tax adviser regarding the potential application of the constructive ownership rule.
Subject to the discussion below, if
you are a non-U.S. holder (as defined in the accompanying product supplement) of the securities, you generally should not be subject to U.S. federal withholding or income tax in respect of any amount paid to you with respect to the securities,
provided that (i) income in respect of the securities is not effectively connected with your conduct of a trade or business in the United States, and (ii) you comply with the applicable certification requirements.
As discussed in the section of the accompanying product supplement entitled United States Federal Tax ConsiderationsFATCA
Legislation, withholding under legislation commonly referred to as FATCA might (if the securities were recharacterized as debt instruments) apply to amounts treated as interest paid with respect to the securities. However, under an
IRS notice, withholding under FATCA will apply to the payment of gross proceeds (other than any amount treated as interest) only with respect to a disposition of
PRS-20
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the iShares
®
MSCI Emerging Markets ETF due January 31, 2019
the securities after December 31, 2018. You should consult your tax adviser regarding the potential application of FATCA to the securities.
In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of
prepaid forward contracts and similar instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks for comments on a number of related
topics, including the character of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments and the
nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; 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, 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.
Possible Withholding Under Section 871(m) of the Code
.
Section 871(m) of the Code and Treasury regulations promulgated thereunder (
Section 871(m)
) generally impose a 30% withholding tax on dividend equivalents paid or deemed paid to non-U.S. holders with respect to certain
financial instruments linked to U.S. equities or indices that include U.S. equities (such equities and indices,
U.S. Underlying Equities
). Section 871(m) generally applies to instruments that substantially replicate the
economic performance of one or more U.S. Underlying Equities, as determined upon issuance, based on tests set forth in the applicable Treasury regulations (a
Specified Security
).
In Notice 2016-76 (the
Notice
), the U.S. Treasury Department and the IRS announced that revised regulations under
Section 871(m) would exempt financial instruments issued in 2017 that are not delta-one. Based on the terms of the securities and representations provided by us, our counsel is of the opinion that the securities should not be
delta-one transactions within the meaning of the Notice with respect to any U.S. Underlying Equity and, therefore, should not be Specified Securities subject to withholding tax under Section 871(m).
A determination that the securities are not subject to Section 871(m) is not binding on the IRS, and the IRS may disagree with this
treatment. Moreover, Section 871(m) is complex and its application may depend on your particular circumstances. For example, if you enter into other transactions relating to the underlier, you could be subject to withholding tax or income tax
liability under Section 871(m) even if the securities are not Specified Securities subject to Section 871(m) as a general matter. You should consult your tax adviser regarding the potential application of Section 871(m) to the
securities.
This information is indicative and will be supplemented and superseded in the final pricing supplement or as may otherwise be
updated by us in writing from time to time. Non-U.S. holders should be warned that Section 871(m) may apply to the securities based on circumstances at the time the securities are issued and, therefore, it is possible that the payments on the
securities will be subject to withholding tax under Section 871(m).
If withholding tax applies to the securities, we will not be
required to pay any additional amounts with respect to amounts so withheld.
You should read the section entitled United States
Federal Tax Considerations in the accompanying product supplement. The preceding discussion, when read in combination with that section, constitutes the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax
consequences of owning and disposing of the securities.
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 any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
PRS-21
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