Filed Pursuant to Rule 424(b)(2)
File No. 333-202840
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Title of Each Class of
Securities Offered |
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Maximum Aggregate Offering Price |
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Amount of Registration Fee(1) |
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Medium Term Notes, Series K, Principal at Risk Securities Linked to the SPDR®
S&P 500® ETF Trust due November 6, 2020 |
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$2,384,000 |
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$277.02 |
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(1) |
The total filing fee of $277.02 is calculated in accordance with Rule 457(r) of the Securities Act of 1933 (the Securities Act) and will be paid by wire transfer within the time required by Rule 456(b) of
the Securities Act. |
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PRICING SUPPLEMENT No. 496 dated April 30, 2015 (To Product
Supplement No. 2 dated March 18, 2015, Market Measure Supplement dated March 18, 2015,
Prospectus Supplement dated March 18, 2015 and Prospectus dated March 18,
2015) |
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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 the SPDR® S&P 500® ETF Trust due November 6, 2020
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n |
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Linked to the SPDR® S&P 500® ETF Trust |
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n |
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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 Fund from its starting price to its ending price. The payment at
maturity will reflect the following terms: |
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If the value of the Fund increases, you will receive the original offering price plus 150% participation in the upside performance of the Fund,
subject to a maximum total return at maturity of 58.50% of the original offering price |
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If the value of the Fund decreases but the decrease is not more than 20%, you will be repaid the original offering price |
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If the value of the Fund decreases by more than 20%, you will receive less than the original offering price and have 1-to-1 downside exposure to the
decrease in the value of the Fund in excess of 20% |
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Investors may lose up to 80% of the original offering price |
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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 Fund or any securities held by the Fund for payment; if Wells Fargo & Company defaults on its obligations, you could lose some or all of your investment |
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No periodic interest payments or dividends |
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No exchange listing; designed to be held to maturity |
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On the date of this pricing supplement, the estimated value of the securities is $942.59 per security. The estimated
value of the securities was determined for us by Wells Fargo Securities, LLC using its proprietary pricing models. It is not an indication of actual profit to us or to Wells Fargo Securities, LLC or any of our other affiliates, nor is it an
indication of the price, if any, at which Wells Fargo Securities, LLC or any other person may be willing to buy the securities from you at any time after issuance. See Investment Description in this pricing supplement.
The securities have complex features and investing in the securities involves risks not associated with an investment in conventional debt securities.
See Selected Risk Considerations herein on page PRS-10 and Risk Factors in the accompanying product supplement.
The
securities are unsecured obligations of Wells Fargo & Company and all payments on the securities are subject to the credit risk of Wells Fargo & Company. The securities are not deposits or other obligations of a depository
institution and are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund or any other governmental agency of the United States or any other jurisdiction.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if
this pricing supplement or the accompanying product supplement, market measure supplement, prospectus supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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Original Offering Price |
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Agent Discount(1) |
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Proceeds to Wells Fargo |
Per Security |
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$1,000.00 |
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$16.20 |
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$983.80 |
Total |
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$2,384,000.00 |
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$38,620.80 |
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$2,345,379.20 |
(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 the SPDR® S&P 500® ETF Trust due November 6, 2020
The Principal at Risk Securities Linked to the SPDR®
S&P 500® ETF Trust due November 6, 2020 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 SPDR® S&P 500® ETF Trust (the Fund) from its starting price to its ending price. The securities provide:
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(i) |
the possibility of a leveraged return at maturity if the value of the Fund 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 58.50% of the original offering price; |
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(ii) |
repayment of principal if, and only if, the ending price of the Fund is not less than the starting price by more than 20%; and
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(iii) |
exposure to decreases in the value of the Fund if and to the extent the ending price is less than the starting price by more than 20%.
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If the ending price is less than the starting price by more than 20%, you will receive less, and possibly 80% 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 Fund 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.
You should read this
pricing supplement together with product supplement no. 2 dated March 18, 2015, the market measure supplement dated March 18, 2015, the prospectus supplement dated March 18, 2015 and the prospectus dated March 18, 2015 for
additional information about the securities. Information included in this pricing supplement supersedes information in the product supplement, market measure 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, market measure 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):
SPDR® and S&P 500® are trademarks of Standard & Poors Financial Services LLC (S&P Financial). The
securities are not sponsored, endorsed, sold or promoted by the SPDR® S&P 500® ETF Trust (the SPDR Trust) or
S&P Financial. Neither the SPDR Trust nor S&P Financial makes any representations or warranties to the holders of the securities or any member of the public regarding the advisability of investing in the securities. Neither the SPDR Trust
nor S&P Financial will have any obligation or liability in connection with the registration, operation, marketing, trading or sale of the securities or in connection with Wells Fargo & Companys use of information about the SPDR
Trust.
PRS-2
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the SPDR® S&P 500® ETF Trust due November 6, 2020
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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 is 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 is set forth on the
cover page of this 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-3
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the SPDR® S&P 500® ETF Trust due November 6, 2020
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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 6-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 6-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-4
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the SPDR® S&P 500® ETF Trust due November 6, 2020
We have designed the securities for investors who:
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seek 150% leveraged exposure to the upside performance of the Fund if the ending price is greater than the starting price, subject to the maximum
total return at maturity of 58.50% of the original offering price; |
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desire to limit downside exposure to the Fund through the 20% buffer; |
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understand that if the ending price is less than the starting price by more than 20%, they will receive less, and possibly 80% less, than the
original offering price per security at maturity; |
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are willing to forgo interest payments on the securities and dividends on shares of the Fund; and |
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are willing to hold the securities until maturity. |
The securities are not designed for, and may not be a suitable investment for, investors who:
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seek a liquid investment or are unable or unwilling to hold the securities to maturity; |
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are unwilling to accept the risk that the ending price of the Fund may decrease by more than 20% from the starting price; |
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seek uncapped exposure to the upside performance of the Fund; |
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seek full return of the original offering price of the securities at stated maturity; |
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are unwilling to purchase securities with an estimated value as of the pricing date that is lower than the original offering price, as set forth on
the cover page; |
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are unwilling to accept the risk of exposure to the large capitalization segment of the U.S. equity market; |
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seek exposure to the Fund but are unwilling to accept the risk/return trade-offs inherent in the payment at stated maturity for the securities;
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are unwilling to accept the credit risk of Wells Fargo to obtain exposure to the Fund generally, or to the exposure to the Fund that the securities
provide specifically; or |
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prefer the lower risk of fixed income investments with comparable maturities issued by companies with comparable credit ratings.
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PRS-5
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the SPDR® S&P 500® ETF Trust due November 6, 2020
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Market Measure: |
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SPDR® S&P 500® ETF Trust |
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Pricing Date: |
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April 30, 2015
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Issue Date: |
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May 7, 2015. (T+5)
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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. |
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Redemption
Amount: |
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The redemption amount per security will equal:
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if the ending price is greater than the starting price: the lesser of:
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(i) $1,000 plus:
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$1,000 |
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ending price starting price |
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x participation rate |
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; and |
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starting price |
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(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:
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$1,000 |
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threshold price ending price |
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starting price |
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If the ending price is less than the
threshold price, you will receive less, and possibly 80% less, than the original offering price of your securities at maturity. |
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Stated Maturity
Date: |
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November 6, 2020. If the calculation day
is postponed, the stated maturity date will be the later of (i) November 6, 2020 and (ii) the third business day after the calculation day as postponed.
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Starting Price: |
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$208.52, the fund closing price of the
Fund on the pricing date. |
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Ending Price: |
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The ending price will
be the fund closing price of the Fund on the calculation day. |
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Capped Value: |
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The capped value is
158.50% of the original offering price per security ($1,585.00 per security). As a result of the capped value, the maximum total return at maturity of the securities will be 58.50% of the original offering price.
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PRS-6
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the SPDR® S&P 500® ETF Trust due November 6, 2020
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Terms of the Securities (Continued) |
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Threshold Price: |
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$166.816, which is equal to 80% of the starting
price. |
Participation Rate: |
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150%
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Calculation Day: |
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October 30, 2020. If such day is not a trading day,
the calculation day will be postponed to the next succeeding trading day. The calculation day is also subject to postponement due to the occurrence of a market disruption event.
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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 tax
consequences of the ownership and disposition of the securities, see United States Federal Tax Considerations. |
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 less a concession not in excess of $15.00 per security. Such securities dealers may include
Wells Fargo Advisors, LLC, 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. |
Denominations: |
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$1,000 and any integral multiple of $1,000.
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CUSIP: |
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94986RWP2
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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 SPDR® S&P 500® ETF Trust due November 6, 2020
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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 SPDR® S&P 500® ETF Trust due November 6, 2020
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Hypothetical Payout Profile |
The following profile is based on a capped value of 158.50% or $1,585.00 per security, a participation rate of
150% and a threshold price equal to 80% of the starting price. This graph has been prepared for purposes of illustration only. Your actual return will depend on the actual ending 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 SPDR® S&P 500® ETF Trust due November 6, 2020
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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 80% 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 is 80% of the starting price. As a result, you may receive less, and possibly 80% 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, Is 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 is 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. |
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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 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-10
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the SPDR® S&P 500® ETF Trust due November 6, 2020
|
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 6-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 6-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 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 and dividend yields on the securities included in the Fund. 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. |
|
|
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 Fund 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 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 SPDR® S&P 500® ETF Trust due November 6, 2020
|
Selected Risk Considerations (Continued) |
|
|
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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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. |
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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
|
PRS-12
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the SPDR® S&P 500® ETF Trust due November 6, 2020
|
Selected Risk Considerations (Continued) |
|
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. |
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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 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 participation
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. |
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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. 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 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 |
PRS-13
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the SPDR® S&P 500® ETF Trust due November 6, 2020
|
Selected Risk Considerations (Continued) |
|
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 suppement 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 SPDR® S&P 500® ETF Trust due November 6, 2020
The following table illustrates, for a range of hypothetical ending prices of the Fund:
|
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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 |
|
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the hypothetical pre-tax annualized rate of return. |
|
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|
|
|
|
|
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) |
$364.91 |
|
75.00% |
|
$1,585.00 |
|
58.50% |
|
8.54% |
$312.78 |
|
50.00% |
|
$1,585.00 |
|
58.50% |
|
8.54% |
$291.93 |
|
40.00% |
|
$1,585.00 |
|
58.50% |
|
8.54% |
$289.84 |
|
39.00% |
|
$1,585.00 |
|
58.50% |
|
8.54% |
$250.22 |
|
20.00% |
|
$1,300.00 |
|
30.00% |
|
4.82% |
$229.37 |
|
10.00% |
|
$1,150.00 |
|
15.00% |
|
2.55% |
$218.95 |
|
5.00% |
|
$1,075.00 |
|
7.50% |
|
1.32% |
$208.52 (2) |
|
0.00% |
|
$1,000.00 |
|
0.00% |
|
0.00% |
$198.09 |
|
-5.00% |
|
$1,000.00 |
|
0.00% |
|
0.00% |
$187.67 |
|
-10.00% |
|
$1,000.00 |
|
0.00% |
|
0.00% |
$177.24 |
|
-15.00% |
|
$1,000.00 |
|
0.00% |
|
0.00% |
$166.816 |
|
-20.00% |
|
$1,000.00 |
|
0.00% |
|
0.00% |
$164.73 |
|
-21.00% |
|
$990.00 |
|
-1.00% |
|
-0.18% |
$156.39 |
|
-25.00% |
|
$950.00 |
|
-5.00% |
|
-0.93% |
$104.26 |
|
-50.00% |
|
$700.00 |
|
-30.00% |
|
-6.37% |
$52.13 |
|
-75.00% |
|
$450.00 |
|
-55.00% |
|
-13.99% |
$0.00 |
|
-100.00% |
|
$200.00 |
|
-80.00% |
|
-27.19% |
(1) |
The annualized rates of return are calculated on a semi-annual bond equivalent basis with compounding. |
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.
PRS-15
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the SPDR® S&P 500® ETF Trust due November 6, 2020
|
Hypothetical Payments at Stated Maturity |
Set forth below are four examples of payment at stated maturity calculations (rounded to two decimal places),
assuming hypothetical ending prices as indicated in the examples.
Example 1. Redemption amount is greater than the original offering price but
less than the capped value:
Starting price: $208.52
Hypothetical ending price: $250.22
Since the hypothetical ending price is greater than the starting price, the redemption amount would equal:
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$1,000 + |
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$1,000 x |
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250.22 208.52 |
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x 150% |
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= $1,300.00 |
|
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|
|
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208.52 |
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On the stated maturity date you would receive $1,300.00 per security.
Example 2. Redemption amount is equal to the capped value:
Starting price: $208.52
Hypothetical ending price: $312.78
The redemption amount would be equal to the capped value since the capped value is less than:
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$1,000 + |
|
|
|
$1,000 x |
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|
|
312.78 208.52 |
|
|
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x 150% |
|
|
|
= $1,750.00 |
|
|
|
|
|
|
208.52 |
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|
On the stated maturity date you would receive $1,585.00 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 139.00% of the starting price since your return on the securities for any ending price greater than 139.00% of the starting price will be limited to the capped value.
Example 3. Redemption amount is equal to the original offering price:
Starting price: $208.52
Hypothetical ending price: $198.09
Threshold price: $166.816, which is 80% of the starting price
Since the hypothetical ending price is less than the starting price, but not by more than 20%, 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 SPDR® S&P 500® ETF Trust due November 6, 2020
|
Hypothetical Payments at Stated Maturity (Continued) |
Example 4. Redemption amount is less than the original offering price:
Starting price: $208.52
Hypothetical ending price: $104.26
Threshold price: $166.816, which is 80% of the starting price
Since the hypothetical ending price is less than the starting price by more than 20%, you would lose a portion of the original
offering price of your securities and receive the redemption amount equal to:
|
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|
|
|
|
|
|
|
|
$1,000 |
|
|
|
$1,000 x |
|
166.816 104.26 |
|
|
|
= $700.00 |
|
|
|
|
208.52 |
|
|
|
On the stated maturity date you would receive $700.00 per security.
To the extent that the ending price differs 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 SPDR® S&P 500® ETF Trust due November 6, 2020
|
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 Description of Exchange Traded FundsThe SPDR® S&P 500 ETF Trust in the accompanying market measure supplement for additional information about the SPDR S&P 500 ETF Trust.
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, 2005 to April 30, 2015. The closing price on April 30, 2015 was $208.52. 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 SPDR® S&P 500® ETF Trust due November 6, 2020
|
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 Fund for each quarter in the period from January 1, 2005 through March 31, 2015 and for the period from April 1, 2015 to April 30, 2015.
|
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High |
|
Low |
|
Last |
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 |
PRS-19
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the SPDR® S&P 500® ETF Trust due November 6, 2020
|
The SPDR® S&P 500® ETF Trust
(Continued) |
|
|
|
|
|
|
|
|
|
High |
|
Low |
|
Last |
2014 |
|
|
|
|
|
|
First Quarter |
|
$188.26 |
|
$174.15 |
|
$187.04 |
Second Quarter |
|
$196.48 |
|
$181.48 |
|
$195.72 |
Third Quarter |
|
$201.82 |
|
$190.99 |
|
$197.02 |
Fourth Quarter |
|
$208.72 |
|
$186.27 |
|
$205.50 |
2015 |
|
|
|
|
|
|
First Quarter |
|
$211.99 |
|
$198.97 |
|
$206.43 |
April 1, 2015 to April 30, 2015 |
|
$211.67 |
|
$205.70 |
|
$208.52 |
PRS-20
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the SPDR® S&P 500® ETF Trust due November 6, 2020
|
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.
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. There is uncertainty regarding this treatment, and the IRS or a court might not agree with it.
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 Internal Revenue Code of 1986, as amended (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. |
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.
Under current law, 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.
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. If withholding tax applies to the securities, we will not be required to pay any additional amounts with respect to amounts so withheld.
PRS-21
Market Linked SecuritiesLeveraged Upside Participation
to a Cap and Fixed Percentage Buffered Downside
Principal at Risk Securities Linked to the SPDR® S&P 500® ETF Trust due November 6, 2020
|
United States Federal Tax Considerations (Continued) |
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 also 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-22
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