Market Measure Business Day
The following definition shall supersede and replace the definition of a
Market Measure Business Day set forth in product supplement EQUITY INDICES LIRN-1 dated March 28, 2013.
A Market Measure
Business Day means a day on which:
(A) the New York Stock Exchange and NASDAQ Stock Market, Inc. (as to the
S&P 500
®
Index), the Eurex (as to the EURO STOXX 50
®
Index), and the London Stock
Exchange, Hong Kong Stock Exchange, São Paulo Stock Exchange and Korea Stock Exchange (as to the MSCI Emerging Markets Index) (or any successor to the foregoing exchanges) are open for trading; and
(B) the Basket Components or any successors thereto are calculated and published.
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Leveraged Index Return Notes
®
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TS-7
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Leveraged Index Return Notes
®
Linked to a Global Equity Basket, due August 26, 2016
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The Global Equity Basket
The Basket is designed to allow investors to participate in the percentage changes in the levels of the Basket Components from the Starting Value to the Ending Value of the Basket. The Basket Components are
described in the section The Basket Components below. Each Basket Component was assigned an initial weight on the pricing date, as set forth in the table below.
For more information on the calculation of the value of the Basket, please see the section entitled Description of LIRNs Basket Market Measures beginning on page PS-20 of product supplement
EQUITY INDICES LIRN-1.
On the pricing date, for each Basket Component, the Initial Component Weight, the closing level, the Component Ratio and the
initial contribution to the Basket value were as follows:
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Basket Component
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Bloomberg
Symbol
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Initial
Component
Weight
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Closing
Level
(1)
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Component
Ratio
(2)
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Initial Basket
Value
Contribution
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S&P 500
®
Index
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SPX
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33.33
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1,638.17
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0.02034587
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33.33
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EURO STOXX 50
®
Index
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SX5E
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33.34
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2,758.31
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0.01208711
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33.34
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MSCI Emerging Markets
Index
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MXEF
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33.33
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920.84
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0.03619521
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33.33
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Starting Value
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100.00
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(1)
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These were the closing levels of the Basket Components on the pricing date.
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(2)
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Each Component Ratio equals the Initial Component Weight of the relevant Basket
Component (as a percentage) multiplied by 100, and then divided by the closing level of that Basket Component on the pricing date and rounded to eight decimal places.
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The calculation agent will calculate the value of the Basket by summing the products of the closing level for each Basket Component on each calculation day during the Maturity Valuation Period and the Component
Ratio applicable to such Basket Component. If a Market Disruption Event occurs as to any Basket Component on any scheduled calculation day, the closing level of that Basket Component will be determined as more fully described beginning on page PS-17
of product supplement EQUITY INDICES LIRN-1 in the section Description of LIRNs The Starting Value and the Ending Value Ending Value.
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Leveraged Index Return Notes
®
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TS-8
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Leveraged Index Return Notes
®
Linked to a Global Equity Basket, due August 26, 2016
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While actual historical information on the Basket did not exist before the pricing date, the following graph
sets forth the hypothetical historical performance of the Basket from January 2008 through July 2013. The graph is based upon actual month-end historical levels of the Basket Components, hypothetical Component Ratios determined as of
December 31, 2007, and a Basket value of 100.00 as of that date. This hypothetical historical data on the Basket is not necessarily indicative of the future performance of the Basket or what the value of the notes may be. Any historical upward
or downward trend in the value of the Basket during any period set forth below is not an indication that the value of the Basket is more or less likely to increase or decrease at any time over the term of the notes.
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Leveraged Index Return Notes
®
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TS-9
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Leveraged Index Return Notes
®
Linked to a Global Equity Basket, due August 26, 2016
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The Basket Components
All disclosures contained in this term sheet regarding the Basket Components, including, without limitation, their make-up, method of calculation, and changes in their components, have been derived from publicly
available sources. The information reflects the policies of, and is subject to change by applicable index sponsor. Each index sponsor has no obligation to continue to publish, and may discontinue publication of, any Basket Component. The
consequences of an index sponsor discontinuing publication of a Basket Component are discussed in the section of product supplement EQUITY INDICES LIRN-1 entitled Description of the Notes Discontinuance of an Index on page PS-19
of product supplement EQUITY INDICES LIRN-1. None of us, the calculation agent, or the selling agent accepts any responsibility for the calculation, maintenance, or publication of any Basket Component or any successor index.
The S&P 500
®
Index
The S&P 500
®
Index is intended to provide an indication of
the pattern of common stock price movement. The calculation of the level of the S&P 500
®
Index is based on the relative value of the aggregate market value of the
common stocks of 500 companies as of a particular time compared to the aggregate average market value of the common stocks of 500 similar companies during the base period of the years 1941 through 1943.
S&P Dow Jones Indices LLC (the S&P 500
®
Index
sponsor) chooses companies for inclusion in the S&P 500
®
Index with the aim of achieving a distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of its Stock Guide Database of over 10,000 companies, which the S&P 500
®
Index sponsor uses as an
assumed model for the composition of the total market. Relevant criteria employed by the S&P 500
®
Index sponsor include the viability of the particular company, the
extent to which that company represents the industry group to which it is assigned, the extent to which the market price of that companys common stock generally is responsive to changes in the affairs of the respective industry and the market
value and trading activity of the common stock of that company. Ten main groups of companies constitute the S&P 500
®
Index, with the approximate percentage of the
market capitalization of the S&P 500
®
Index included in each group as of July 31, 2013 indicated in parentheses: Consumer Discretionary (12.2%); Consumer Staples
(10.4%); Energy (10.6%); Financials (16.7%); Health Care (13.%); Industrials (10.3%); Information Technology (17.7%); Materials (3.3%); Telecommunication Services (2.5%); and Utilities (3.3%). The S&P 500
®
Index sponsor may from time to time, in its sole discretion, add companies to, or delete companies from, the S&P 500
®
Index to achieve the objectives stated above.
The
S&P 500
®
Index sponsor calculates the index by reference to the prices of the constituent stocks of the index without taking account of the value of dividends paid on
those stocks. As a result, the return on the notes will not reflect the return you would realize if you actually owned the index constituent stocks and received the dividends paid on those stocks.
Computation of the S&P 500
®
Index
While the S&P 500
®
Index sponsor currently employs the
following methodology to calculate the index, no assurance can be given that the S&P 500
®
Index sponsor will not modify or change this methodology in a manner that
may affect the Redemption Amount.
Historically, the market value of any component stock of the S&P 500
®
Index was calculated as the product of the market price per share and the number of then outstanding shares of such component stock. In March 2005, the S&P 500
®
Index sponsor began shifting the index halfway from a market capitalization weighted formula to a float-adjusted formula, before moving the index to full float adjustment on
September 16, 2005. The S&P 500
®
Index sponsors criteria for selecting stocks for the index did not change with the shift to float adjustment. However, the
adjustment affects each companys weight in the S&P 500
®
Index.
Under float adjustment, the share counts used in calculating the S&P 500
®
Index reflect only those shares that are available to
investors, not all of a companys outstanding shares. Float adjustment excludes shares that are closely held by control groups, other publicly traded companies or government agencies.
In September 2012, all shareholdings representing more than 5% of a stocks outstanding shares, other than holdings by block
owners, were removed from the float for purposes of calculating the S&P 500
®
Index. Generally, these control holders will include officers and
directors, private equity, venture capital and special equity firms, other publicly traded companies that hold shares for control, strategic partners, holders of restricted shares, ESOPs, employee and family trusts, foundations associated with the
company, holders of unlisted share classes of stock, government entities at all levels (other than government retirement/pension funds) and any individual person who controls a 5% or greater stake in a company as reported in regulatory filings.
However, holdings by block owners, such as depositary banks, pension funds, mutual funds and ETF providers, 401(k) plans of the company, government retirement/pension funds, investment funds of insurance companies, asset managers and investment
funds, independent foundations and savings and investment plans, will ordinarily be considered part of the float.
Treasury stock, stock options,
restricted shares, equity participation units, warrants, preferred stock, convertible stock, and rights are not part of the float. Shares held in a trust to allow investors in countries outside the country of domicile, such as depositary shares and
Canadian exchangeable shares are normally part of the float unless those shares form a control block. If a company has multiple classes of stock outstanding, shares in an unlisted or non-traded class are treated as a control block.
For each stock, an investable weight factor (IWF) is calculated by dividing the available float shares by the total shares outstanding. As of
September 21, 2012, available float shares are defined as the total shares outstanding less shares held by control holders. This
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Leveraged Index Return Notes
®
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TS-10
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Leveraged Index Return Notes
®
Linked to a Global Equity Basket, due August 26, 2016
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calculation is subject to a 5% minimum threshold for control blocks. For example, if a companys officers and directors hold 3% of the companys shares, and no other control group holds
5% of the companys shares, the S&P 500
®
Index sponsor would assign that company an IWF of 1.00, as no control group meets the 5% threshold. However, if a
companys officers and directors hold 3% of the companys shares and another control group holds 20% of the companys shares, the S&P 500
®
Index
sponsor would assign an IWF of 0.77, reflecting the fact that 23% of the companys outstanding shares are considered to be held for control. For companies with multiple classes of stock, the S&P 500
®
Index sponsor calculates the weighted average IWF for each stock using the proportion of the total company market capitalization of each share class as weights.
The S&P 500
®
Index is calculated using a base-weighted
aggregate methodology. The level of the S&P 500
®
Index reflects the total market value of all 500 component stocks relative to the base period of the years 1941
through 1943. An indexed number is used to represent the results of this calculation in order to make the level easier to work with and track over time. The actual total market value of the component stocks during the base period of the years 1941
through 1943 has been set to an indexed level of 10. This is often indicated by the notation 1941- 43 = 10. In practice, the daily calculation of the S&P 500
®
Index
is computed by dividing the total market value of the component stocks by the index divisor. By itself, the index divisor is an arbitrary number. However, in the context of the calculation of the S&P 500
®
Index, it serves as a link to the original base period level of the S&P 500
®
Index. The
index divisor keeps the S&P 500
®
Index comparable over time and is the manipulation point for all adjustments to the index, which is index maintenance.
S&P 500
®
Index Maintenance
S&P 500
®
Index maintenance includes monitoring and
completing the adjustments for company additions and deletions, share changes, stock splits, stock dividends, and stock price adjustments due to company restructuring or spinoffs. Some corporate actions, such as stock splits and stock dividends,
require changes in the common shares outstanding and the stock prices of the companies in the S&P 500
®
Index, and do not require index divisor adjustments.
To prevent the level of the S&P 500
®
Index from
changing due to corporate actions, corporate actions which affect the total market value of the S&P 500
®
Index require an index divisor adjustment. By adjusting the
index divisor for the change in market value, the level of the S&P 500
®
Index remains constant and does not reflect the corporate actions of individual companies in
the S&P 500
®
Index. Index divisor adjustments are made after the close of trading and after the calculation of the S&P 500
®
Index closing level.
Changes in a companys
shares outstanding of 5.00% or more due to mergers, acquisitions, public offerings, tender offers, Dutch auctions, or exchange offers are made as soon as reasonably possible. All other changes of 5.00% or more (due to, for example, company stock
repurchases, private placements, redemptions, exercise of options, warrants, conversion of preferred stock, notes, debt, equity participation units, at-the-market offerings, or other recapitalizations) are made weekly and are announced on Wednesdays
for implementation after the close of trading on the following Wednesday. Changes of less than 5.00% due to a companys acquisition of another company in the S&P
500
®
Index are made as soon as reasonably possible. All other changes of less than 5.00% are accumulated and made quarterly on the third Friday of March, June, September,
and December, and are usually announced two to five days prior.
Changes in IWFs of more than five percentage points caused by corporate actions (such
as merger and acquisition activity, restructurings, or spinoffs) will be made as soon as reasonably possible. Other changes in IWFs will be made annually when IWFs are reviewed.
|
|
|
Leveraged Index Return Notes
®
|
|
TS-11
|
|
|
|
|
|
Leveraged Index Return Notes
®
Linked to a Global Equity Basket, due August 26, 2016
|
|
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|
|
The following graph shows the historical performance of the S&P 500
®
Index in the period from January 2008 through July 2013. We obtained this historical data from Bloomberg L.P. We have not independently verified the accuracy or completeness
of the information obtained from Bloomberg L.P. On the pricing date, the closing level of the S&P 500
®
Index was 1,638.17.
This historical data on the S&P 500
®
Index is not necessarily indicative of the future performance of the S&P 500
®
Index or
what the value of the notes may be. Any historical upward or downward trend in the level of the S&P 500
®
Index during any period set forth above is not an indication
that the level of the S&P 500
®
Index is more or less likely to increase or decrease at any time over the term of the notes.
Before investing in the notes, you should consult publicly available sources for the levels and trading pattern of the S&P 500
®
Index.
License Agreement
S&P
®
is a registered trademark of Standard &
Poors Financial Services LLC (S&P) and Dow Jones
®
is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones). These
trademarks have been licensed for use by S&P Dow Jones Indices LLC. Standard & Poors
®
, S&P 500
®
and S&P
®
are trademarks of S&P. These trademarks have been
sublicensed for certain purposes by our subsidiary, MLPF&S. The S&P 500
®
Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been
licensed for use by MLPF&S.
The notes are not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow
Jones, S&P or any of their respective affiliates (collectively, S&P Dow Jones Indices). S&P Dow Jones Indices make no representation or warranty, express or implied, to the holders of the notes or any member of the
public regarding the advisability of investing in securities generally or in the notes particularly or the ability of the Index to track general market performance. S&P Dow Jones Indices only relationship to MLPF&S with respect to
the S&P 500
®
Index is the licensing of the S&P 500
®
Index and certain trademarks,
service marks and/or trade names of S&P Dow Jones Indices and/or its third party licensors. The S&P 500
®
Index is determined, composed and calculated by
S&P Dow Jones Indices without regard to us, MLPF&S, or the notes. S&P Dow Jones Indices have no obligation to take our needs or the needs of MLPF&S or holders of the notes into consideration in determining, composing or calculating
the S&P 500
®
Index. S&P Dow Jones Indices are not responsible for and have not participated in the determination of the prices, and amount of the notes or
the timing of the issuance or sale of the notes or in the determination or calculation of the equation by which the notes are to be converted into cash. S&P Dow Jones Indices have no obligation or liability in connection with the
administration, marketing or trading of the notes. There is no assurance that investment products based on the S&P 500
®
Index will accurately track index
performance or provide positive investment returns. S&P Dow Jones Indices LLC and its subsidiaries are not investment advisors. Inclusion of a security or futures contract within an index is not a recommendation by S&P Dow Jones
Indices to buy, sell, or hold such security or futures contract, nor is it considered to be investment advice. Notwithstanding the foregoing, CME Group Inc. and its affiliates may independently issue and/or sponsor financial products unrelated
to the notes currently being issued by us, but which may be similar to and competitive with the notes. In addition, CME Group Inc. and its affiliates may trade financial products which are linked to the performance of the S&P 500
®
Index. It is possible that this trading activity will affect the value of the notes.
S&P DOW JONES INDICES DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P 500
®
INDEX OR ANY
DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW
|
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Leveraged Index Return Notes
®
|
|
TS-12
|
|
|
|
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Leveraged Index Return Notes
®
Linked to a Global Equity Basket, due August 26, 2016
|
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JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY US, MLPF&S, HOLDERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR WITH RESPECT TO ANY DATA
RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS,
TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS
BETWEEN S&P DOW JONES INDICES AND MLPF&S, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
The EURO STOXX 50
®
Index
The Index was created by STOXX Limited (STOXX), a
joint venture between Deutsche Börse AG and SIX Group AG. Publication of the Index began in February 1998, based on an initial Index level of 1,000 at December 31, 1991. On March 1, 2010, STOXX announced the removal of the Dow
Jones prefix from all of its indices, including the Index.
Index Composition and Maintenance
The EURO STOXX 50
®
Index is composed of 50 component stocks of
market sector leaders from within the 19 EURO STOXX
®
Supersector indices, which represent the Eurozone portion of the STOXX Europe 600
®
Supersector indices. Set forth below are the country weightings and market sector weightings of the securities included in the EURO STOXX 50
®
Index as of July 31, 2013:
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Country Weightings
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Sector Weightings
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France
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37.5%
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Banks
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14.9%
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Germany
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31.6%
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Chemicals
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9.8%
|
Spain
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11.8%
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Insurance
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9.5%
|
Netherlands
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7.3%
|
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Oil & Gas
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8.9%
|
Italy
|
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7.3%
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Industrial Goods & Services
|
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8.5%
|
Belgium
|
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3.2%
|
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Food & Beverage
|
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8.1%
|
Ireland
|
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0.7%
|
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Health Care
|
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6.8%
|
Luxembourg
|
|
0.6%
|
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Automobiles & Parts
|
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6.0%
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|
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|
Utilities
|
|
5.8%
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|
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Telecommunications
|
|
5.0%
|
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Technology
|
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4.6%
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Personal & Household Goods
|
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4.0%
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Construction & Materials
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2.8%
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Retail
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2.1%
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Media
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1.2%
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Real Estate
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1.0%
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Basic Resources
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0.6%
|
The composition of the EURO STOXX
50
®
Index is reviewed annually, based on the closing stock data on the last trading day in August. The component stocks are announced on the first trading day in
September. Changes to the component stocks are implemented on the third Friday in September and are effective the following trading day. Changes in the composition of the EURO STOXX 50
®
Index are made to ensure that the EURO STOXX 50
®
Index includes the 50 market sector leaders
from within the EURO STOXX
®
Index.
The free float factors for each
component stock used to calculate the Index, as described below, are reviewed, calculated, and implemented on a quarterly basis and are fixed until the next quarterly review.
The Index is also reviewed on an ongoing basis. Corporate actions (including initial public offerings, mergers and takeovers, spin-offs, delistings, and bankruptcy) that affect the Index composition are immediately
reviewed. Any changes are announced, implemented, and effective in line with the type of corporate action and the magnitude of the effect.
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Leveraged Index Return Notes
®
|
|
TS-13
|
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Leveraged Index Return Notes
®
Linked to a Global Equity Basket, due August 26, 2016
|
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EURO STOXX
50
®
Index Calculation
The EURO STOXX 50
®
Index is calculated with the Laspeyres formula, which measures the aggregate price changes in the component stocks against a fixed base quantity weight. The
formula for calculating the EURO STOXX 50
®
Index value can be expressed as follows:
The free float market capitalization of the Index is equal to the sum of the products of the
closing price, market capitalization, and free float factor for each component stock as of the time the EURO STOXX 50
®
Index is being calculated.
The EURO STOXX 50
®
Index is also subject to a divisor, which is
adjusted to maintain the continuity of the Index values across changes due to corporate actions, such as the deletion and addition of stocks, the substitution of stocks, stock dividends, and stock splits.
Neither we nor any of our affiliates, including the selling agent, accepts any responsibility for the calculation, maintenance, or publication
of, or for any error, omission, or disruption in, the Index or any successor to the Index. STOXX does not guarantee the accuracy or the completeness of the EURO STOXX 50
®
Index or any data included in the EURO STOXX 50
®
Index. STOXX assumes no liability for any errors, omissions, or disruption in the calculation and dissemination of the
EURO STOXX 50
®
Index. STOXX disclaims all responsibility for any errors or omissions in the calculation and dissemination of the EURO STOXX 50
®
Index or the manner in which the EURO STOXX 50
®
Index is applied in determining the amount
payable on the notes at maturity.
The following graph shows the historical performance of the EURO STOXX 50
®
Index in the period from January 2008 through July 2013. We obtained this historical data from Bloomberg L.P. We have not independently verified the accuracy or completeness
of the information obtained from Bloomberg L.P. On the pricing date, the closing level of the EURO STOXX 50
®
Index was 2,758.31.
This historical data on the EURO STOXX 50
®
Index is not necessarily indicative of the future performance of the EURO STOXX 50
®
Index or
what the value of the notes may be. Any historical upward or downward trend in the level of the EURO STOXX 50
®
Index during any period set forth above is not an
indication that the level of the EURO STOXX 50
®
Index is more or less likely to increase or decrease at any time over the term of the notes.
Before investing in the notes, you should consult publicly available sources for the levels and trading pattern of the EURO STOXX 50
®
Index.
|
|
|
Leveraged Index Return Notes
®
|
|
TS-14
|
|
|
|
|
|
Leveraged Index Return Notes
®
Linked to a Global Equity Basket, due August 26, 2016
|
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License Agreement
We have entered into a non-exclusive license agreement with STOXX providing for the license to us and certain of our affiliated or subsidiary companies, in exchange for a fee, of the right to use indices owned and
published by STOXX (including the EURO STOXX 50
®
Index) in connection with certain securities, including the notes.
The license agreement between us and STOXX requires that the following language be stated in this term sheet:
STOXX has no relationship to us, other than the licensing of the EURO STOXX 50
®
Index and the related trademarks for use in connection with the notes. STOXX does not:
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sponsor, endorse, sell, or promote the notes;
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§
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recommend that any person invest in the notes or any other securities;
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§
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have any responsibility or liability for or make any decisions about the timing, amount, or pricing of the notes;
|
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§
|
|
have any responsibility or liability for the administration, management, or marketing of the notes; or
|
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§
|
|
consider the needs of the notes or the holders of the notes in determining, composing, or calculating the EURO STOXX 50
®
Index, or have any obligation to do so.
|
STOXX will not
have any liability in connection with the notes. Specifically:
|
§
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|
STOXX does not make any warranty, express or implied, and disclaims any and all warranty concerning:
|
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§
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the results to be obtained by the notes, the holders of the notes or any other person in connection with the use of the Index and the data included in the
EURO STOXX 50
®
Index;
|
|
§
|
|
the accuracy or completeness of the EURO STOXX 50
®
Index and its data;
|
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§
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the merchantability and the fitness for a particular purpose or use of the EURO STOXX
50
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Index and its data;
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STOXX will have no liability for any errors, omissions, or interruptions in the EURO STOXX 50
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Index or its data; and
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Under no circumstances will STOXX be liable for any lost profits or indirect, punitive, special, or consequential damages or losses, even if STOXX knows that
they might occur.
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The licensing agreement between us and STOXX is solely for their benefit and our benefit, and not for the
benefit of the holders of the notes or any other third parties.
The MSCI Emerging Markets Index
The MSCI Emerging Markets Index is intended to measure equity market performance in the global emerging markets. The MSCI Emerging Markets Index is a free
floatadjusted market capitalization index with a base date of December 31, 1987 and an initial value of 100. The MSCI Emerging Markets Index is calculated daily in U.S. dollars and published in real time every 60 seconds during market
trading hours. The MSCI Emerging Markets Index currently consists of the following 21 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Malaysia, Mexico, Morocco, Peru, Philippines,
Poland, Russia, South Africa, South Korea, Taiwan, Thailand, and Turkey. As of July 31, 2013, the five largest country weights were China (18.8%), South Korea (15%), Taiwan (11.7%), Brazil (11.0%), and South Africa (7.3%) and the five
largest sector weights were Financials (27.4%), Information Technology (14.5%), Energy (11.7%), Materials (9.6%), and Consumer Staples (9.2%).
The MSCI
Emerging Markets Index is part of the MSCI Regional Equity Indices series and is an MSCI Global Investable Market Index, which is a family within the MSCI International Equity Indices.
General MSCI Indices
MSCI provides global equity indices intended to measure equity performance in
international markets and the MSCI International Equity Indices are designed to serve as global equity performance benchmarks. In constructing these indices, MSCI applies its index construction and maintenance methodology across developed, emerging
and frontier markets.
MSCI enhanced the methodology used in its MSCI International Equity Indices. The MSCI Standard and MSCI Small Cap Indices, along
with the other MSCI equity indices based on them, transitioned to the global investable market indices methodology described below. The transition was completed at the end of May 2008. The Enhanced MSCI Standard Indices are composed of the MSCI
Large Cap and Mid Cap Indices. The MSCI Global Small Cap Index transitioned to the MSCI Small Cap Index resulting from the Global Investable Market Indices methodology and contains no overlap with constituents of the transitioned MSCI Standard
Indices. Together, the relevant MSCI Large Cap, Mid Cap, and Small Cap Indices will make up the MSCI investable market index for each country, composite, sector, and style index that MSCI offers.
Constructing the MSCI Global Investable Market Indices
. MSCI undertakes an index construction process, which involves:
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defining the equity universe;
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determining the market investable equity universe for each market;
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determining market capitalization size segments for each market;
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Leveraged Index Return Notes
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TS-15
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Leveraged Index Return Notes
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applying index continuity rules for the MSCI Standard Index;
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creating style segments within each size segment within each market; and
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classifying securities under the Global Industry Classification Standard (the GICS).
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Defining the Equity Universe
. The equity universe is defined by:
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Identifying Eligible Equity Securities
: the equity universe initially looks at securities listed in any of the countries in the MSCI Global Index Series,
which will be classified as either Developed Markets (DM) or Emerging Markets (EM). All listed equity securities, or listed securities that exhibit characteristics of equity securities, except mutual funds, ETFs, equity
derivatives, limited partnerships, and most investment trusts, are eligible for inclusion in the equity universe. Real Estate Investment Trusts (REITs) in some countries are also eligible for inclusion.
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Classifying Eligible Securities into the Appropriate Country
: each company and its securities (i.e., share classes) are classified in only one country.
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Determining the Market Investable Equity Universes
. A market investable equity universe for a market is derived by applying
investability screens to individual companies and securities in the equity universe that are classified in that market. A market is equivalent to a single country, except in DM Europe.
The investability screens used to determine the investable equity universe in each market are as follows:
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Equity Universe Minimum Size Requirement:
this investability screen is applied at the company level. In order to be included in a market investable equity
universe, a company must have the required minimum full market capitalization.
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Equity Universe Minimum Free Float-Adjusted Market Capitalization Requirement
: this investability screen is applied at the individual security level. To
be eligible for inclusion in a market investable equity universe, a security must have a free float-adjusted market capitalization equal to or higher than 50% of the equity universe minimum size requirement.
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EM Minimum Liquidity Requirement
: this investability screen is applied at the individual security level. To be eligible for inclusion in a market
investable equity universe, a security must have adequate liquidity. The twelve-month and three-month Annual Traded Value Ratio (ATVR), a measure that screens out extreme daily trading volumes and takes into account the free
float-adjusted market capitalization size of securities, together with the three-month frequency of trading are used to measure liquidity. In the calculation of the ATVR, the trading volumes in depository receipts associated with that security, such
as ADRs or GDRs, are also considered. A minimum liquidity level of 20% of three- and twelve-month ATVR and 80% of three-month frequency of trading over the last four consecutive quarters are required for inclusion of a security in a market
investable equity universe of an EM.
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Global Minimum Foreign Inclusion Factor Requirement
: this investability screen is applied at the individual security level. To be eligible for inclusion
in a market investable equity universe, a securitys Foreign Inclusion Factor (FIF) must reach a certain threshold. The FIF of a security is defined as the proportion of shares outstanding that is available for purchase in the
public equity markets by international investors. This proportion accounts for the available free float of and/or the foreign ownership limits applicable to a specific security (or company). In general, a security must have an FIF equal to or larger
than 0.15 to be eligible for inclusion in a market investable equity universe.
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Minimum Length of Trading Requirement
: this investability screen is applied at the individual security level. For an initial public offering
(IPO) to be eligible for inclusion in a market investable equity universe, the new issue must have started trading at least four months before the implementation of the initial construction of the index or at least three months before
the implementation of a semi-annual index review (as described below). This requirement is applicable to small new issues in all markets. Large IPOs are not subject to the minimum length of trading requirement and may be included in a market
investable equity universe and the Standard Index outside of a Quarterly or Semi-Annual Index Review.
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Defining Market
Capitalization Size Segments for Each Market
. Once a market investable equity universe is defined, it is segmented into the following size-based indices:
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Investable Market Index (Large + Mid + Small);
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Standard Index (Large + Mid);
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Creating the size segment
indices in each market involves the following steps:
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defining the market coverage target range for each size segment;
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determining the global minimum size range for each size segment;
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determining the market size-segment cutoffs and associated segment number of companies;
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Leveraged Index Return Notes
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TS-16
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Leveraged Index Return Notes
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assigning companies to the size segments; and
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applying final size-segment investability requirements.
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Index Continuity Rules for the Standard Indices
. In order to achieve index continuity, as well as to provide some basic level of diversification within a market index, and notwithstanding the effect of other
index construction rules described in this section, a minimum number of three constituents will be maintained for an EM Standard Index.
Creating
Style Indices within Each Size Segment
. All securities in the investable equity universe are classified into value or growth segments using the MSCI Global Value and Growth methodology.
Classifying Securities under the Global Industry Classification Standard
. All securities in the global investable equity universe are
assigned to the industry that best describes their business activities. To this end, MSCI has designed, in conjunction with Standard & Poors
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, the GICS.
Under the GICS, each company is assigned to one sub-industry according to its principal business activity. Therefore, a company can belong to only one industry grouping at each of the four levels of the GICS.
Index Maintenance
The MSCI global investable market indices
are maintained with the objective of reflecting the evolution of the underlying equity markets and segments on a timely basis, while seeking to achieve index continuity, continuous investability of constituents and replicability of the indices, and
index stability, and low index turnover. In particular, index maintenance involves:
(i) Semi-Annual Index Reviews (SAIRs) in
May and November of the Size Segment and Global Value and Growth Indices which include:
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updating the indices on the basis of a fully refreshed equity universe;
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taking buffer rules into consideration for migration of securities across size and style segments; and
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updating FIFs and Number of Shares (NOS).
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(ii) Quarterly Index Reviews (QIRs) in February and August of the Size Segment Indices aimed at:
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including significant new eligible securities (such as IPOs that were not eligible for earlier inclusion) in the index;
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allowing for significant moves of companies within the Size Segment Indices, using wider buffers than in the SAIR; and
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reflecting the impact of significant market events on FIFs and updating NOS.
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(iii) Ongoing Event-Related Changes: changes of this type are generally implemented in the indices as they occur. Significantly large IPOs are
included in the indices after the close of the companys tenth day of trading.
None of us, the calculation agent, the selling agent, or our
respective affiliates accepts any responsibility for the calculation, maintenance, or publication of, or for any error, omission, or disruption in, the Index or any successor to the Index.
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Leveraged Index Return Notes
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TS-17
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Leveraged Index Return Notes
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Linked to a Global Equity Basket, due August 26, 2016
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The following graph shows the historical performance of the MSCI Emerging Markets Index in the period from
January 2008 through July 2013. We obtained this historical data from Bloomberg L.P. We have not independently verified the accuracy or completeness of the information obtained from Bloomberg L.P. On the pricing date, the closing level of the MSCI
Emerging Markets Index was 920.84.
This historical data on the MSCI Emerging Markets Index is not necessarily indicative of the future performance of the MSCI
Emerging Markets Index or what the value of the notes may be. Any historical upward or downward trend in the level of the MSCI Emerging Markets Index during any period set forth above is not an indication that the level of the MSCI Emerging Markets
Index is more or less likely to increase or decrease at any time over the term of the notes.
Before investing in the notes, you should consult
publicly available sources for the levels and trading pattern of the MSCI Emerging Markets Index.
License Agreement
Our right to use the MSCI Emerging Markets Index in connection with the notes is subject to a license agreement between MLPF&S and MSCI. In connection with that
license, please note the following:
THE NOTES ARE NOT SPONSORED, ENDORSED, SOLD, OR PROMOTED BY MSCI, ANY OF ITS AFFILIATES, ANY OF ITS INFORMATION
PROVIDERS, OR ANY OTHER THIRD PARTY INVOLVED IN, OR RELATED TO, COMPILING, COMPUTING, OR CREATING THE MSCI EMERGING MARKETS INDEX (COLLECTIVELY, THE MSCI PARTIES). THE MSCI EMERGING MARKETS INDEX IS THE EXCLUSIVE PROPERTY OF MSCI. MSCI
AND THE MSCI EMERGING MARKETS INDEX ARE SERVICE MARKS OF MSCI OR ITS AFFILIATES AND HAVE BEEN LICENSED TO US FOR USE FOR CERTAIN PURPOSES. THE NOTES HAVE NOT BEEN PASSED ON BY ANY OF THE MSCI PARTIES AS TO THEIR LEGALITY OR SUITABILITY WITH RESPECT
TO ANY PERSON OR ENTITY AND NONE OF THE MSCI PARTIES MAKES ANY WARRANTIES OR BEARS ANY LIABILITY WITH RESPECT TO THE NOTES. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, NONE OF THE MSCI PARTIES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, TO US OR OWNERS OF THE NOTES OR ANY OTHER PERSON OR ENTITY REGARDING THE ADVISABILITY OF INVESTING IN ANY SECURITIES GENERALLY OR IN THIS OFFERING PARTICULARLY OR THE ABILITY OF THE MSCI EMERGING MARKETS INDEX TO TRACK CORRESPONDING STOCK
MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE THE LICENSORS OF CERTAIN TRADEMARKS, SERVICE MARKS, AND TRADE NAMES AND OF THE MSCI EMERGING MARKETS INDEX, WHICH ARE DETERMINED, COMPOSED, AND CALCULATED BY MSCI WITHOUT REGARD TO THE NOTES, TO US, TO
THE OWNERS OF THE NOTES, OR TO ANY OTHER PERSON OR ENTITY. NONE OF THE MSCI PARTIES HAS ANY OBLIGATION TO TAKE THE NEEDS OF US OR OWNERS OF THE NOTES OR ANY OTHER PERSON OR ENTITY INTO CONSIDERATION IN DETERMINING, COMPOSING, OR CALCULATING THE MSCI
EMERGING MARKETS INDEX. NONE OF THE MSCI PARTIES IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES OF THE NOTES TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE AMOUNT THAT MAY BE PAID
AT MATURITY ON THE NOTES. NONE OF THE MSCI PARTIES HAS ANY OBLIGATION OR LIABILITY TO US OR TO OWNERS OF THE NOTES OR ANY OTHER PERSON OR ENTITY IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR, OFFERING OF THE NOTES.
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Leveraged Index Return Notes
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TS-18
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Leveraged Index Return Notes
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Linked to a Global Equity Basket, due August 26, 2016
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ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE MSCI EMERGING MARKETS
INDEX FROM SOURCES THAT MSCI CONSIDERS RELIABLE, NONE OF THE MSCI PARTIES WARRANTS OR GUARANTEES THE ORIGINALITY, ACCURACY, AND/OR COMPLETENESS OF THE MSCI EMERGING MARKETS INDEX, OR ANY DATA INCLUDED THEREIN OR THE RESULTS TO BE OBTAINED BY US,
OWNERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF THE MSCI EMERGING MARKETS INDEX, OR ANY DATA INCLUDED THEREIN AND NONE OF THE MSCI PARTIES SHALL HAVE ANY LIABILITY TO ANY PERSON OR ENTITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS OF OR IN CONNECTION WITH THE MSCI EMERGING MARKETS INDEX, OR ANY DATA INCLUDED THEREIN. FURTHER, NONE OF THE MSCI PARTIES MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF ANY KIND AND THE MSCI PARTIES HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES
(INCLUDING, WITHOUT LIMITATION AND FOR PURPOSES OF EXAMPLE ONLY, ALL WARRANTIES OF TITLE, SEQUENCE, AVAILABILITY, ORIGINALITY, ACCURACY, COMPLETENESS, TIMELINESS, NON-INFRINGEMENT, MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE AND ALL
IMPLIED WARRANTIES ARISING FROM TRADE USAGE, COURSE OF DEALING, AND COURSE OF PERFORMANCE) WITH RESPECT TO THE MSCI EMERGING MARKETS INDEX AND ALL DATA INCLUDED THEREIN. WITHOUT LIMITING THE GENERALITY OF ANY OF THE FOREGOING, IN NO EVENT SHALL ANY
OF THE MSCI PARTIES HAVE ANY LIABILITY TO ANY PERSON OR ENTITY FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, CONSEQUENTIAL (INCLUDING, WITHOUT LIMITATION, LOSS OF USE, LOSS OF PROFITS OR REVENUES, OR OTHER ECONOMIC LOSS),
AND WHETHER IN TORT (INCLUDING, WITHOUT LIMITATION, STRICT LIABILITY, AND NEGLIGENCE), CONTRACT, OR OTHERWISE, EVEN IF IT MIGHT HAVE ANTICIPATED, OR WAS ADVISED OF, THE POSSIBILITY OF SUCH DAMAGES.
No purchaser, seller, or holder of the notes, or any other person or entity, should use or refer to any MSCI trade name, trademark, or service mark to sponsor,
endorse, market, or promote the notes without first contacting MSCI to determine whether MSCIs permission is required. Under no circumstances may any person or entity claim any affiliation with MSCI without the prior written permission of
MSCI.
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Leveraged Index Return Notes
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TS-19
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Leveraged Index Return Notes
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Linked to a Global Equity Basket, due August 26, 2016
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