Market Measure Business Day
The provisions of this section supersede and replace the definition of “Market Measure Business Day” set forth in product supplement EQUITY INDICES SUN-2.
A “Market Measure Business Day” means a day on which:
(A) each of the NASDAQ Stock Market, Inc. (as to the NASDAQ-100 Index
®
) and the Eurex (as to the EURO STOXX 50
®
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.
Autocallable Market-Linked Step Up Notes
|
TS-9
|
Autocallable Market-Linked Step Up Notes
Linked to an Equity Index Basket, due March 31, 2017
The 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 will be 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 the Notes – Basket Market Measures” beginning on page PS-23 of product supplement EQUITY INDICES SUN-2.
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:
Basket Component
|
|
Bloomberg
Symbol
|
|
Initial
Component
Weight
|
|
Closing
Level
(1)
|
|
Component
Ratio
(2)
|
|
Initial Basket
Value
Contribution
|
NASDAQ-100 Index
®
|
|
NDX
|
|
50.00
|
|
3,563.134
|
|
0.01403259
|
|
50.00
|
EURO STOXX 50
®
Index
|
|
SX5E
|
|
50.00
|
|
3,133.75
|
|
0.01595533
|
|
50.00
|
|
|
|
|
|
|
|
|
Starting Value
|
|
100.00
|
|
(1)
|
These were the closing levels of the Basket Components on the pricing date.
|
|
(2)
|
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.
|
The calculation agent will calculate the value of the Basket on each Observation Date and the calculation day by summing the products of (i) the closing level for each Basket Component on such day and (ii) the Component Ratio applicable to such Basket Component. If a Market Disruption Event occurs as to either Basket Component on the scheduled Observation Date or the calculation day, the closing level of that Basket Component will be determined as more fully described beginning on page PS-24 of product supplement EQUITY INDICES SUN-2 in the section “Description of the Notes--Basket Market Measures –Observation Level or Ending Value of the Basket.”
Autocallable Market-Linked Step Up Notes
|
TS-10
|
Autocallable Market-Linked Step Up Notes
Linked to an Equity Index Basket, due March 31, 2017
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 February 2014. 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.
Hypothetical Historical Performance of the Basket
Autocallable Market-Linked Step Up Notes
|
TS-11
|
Autocallable Market-Linked Step Up Notes
Linked to an Equity Index Basket, due March 31, 2017
The Basket Components
The EURO STOXX 50
®
Index
All disclosures contained in this term sheet regarding the
EURO STOXX 50
®
Index, including, without limitation, its make up, method of calculation, and changes in its components, have been derived from publicly available sources. The information reflects the policies of, and is subject to change by, STOXX Limited (“STOXX” or “Index sponsor”). The Index sponsor, which licenses the copyright and all other rights to the
EURO STOXX 50
®
Index, has no obligation to continue to publish, and may discontinue publication of, the
EURO STOXX 50
®
Index. The consequences of the Index sponsor discontinuing publication of the
EURO STOXX 50
®
Index are discussed in the section entitled
“Description of the Notes—Discontinuance of an Index” beginning on page PS-22 of product supplement EQUITY INDICES SUN-2
. None of us, the calculation agent, or MLPF&S accepts any responsibility for the calculation, maintenance or publication of the
EURO STOXX 50
®
Index or any successor index.
The
EURO STOXX 50
®
Index is composed of 50 component stocks of market sector leaders from within the EURO STOXX
®
Supersector indices in terms of free float market capitalization, which represent the Eurozone portion of the STOXX Europe 600
®
Supersector indices. The STOXX Europe 600
®
Supersector indices contain the 600 largest stocks traded on the major exchanges of 18 European countries. The
EURO STOXX 50
®
Index was created by STOXX Limited, a joint venture between Deutsche Börse AG and SIX Group AG. Publication of the Index began on February 26, 1998, based on an initial index level of 1,000 at December 31, 1991. The
EURO STOXX 50
®
Index is published in
The Wall Street Journal
and disseminated on the STOXX Limited website, which sets forth, among other things, the country and industrial sector weightings of the securities included in the
EURO STOXX 50
®
Index, and updates these weightings at the end of each quarter. The
EURO STOXX 50
®
Index is reported by Bloomberg under the ticker symbol “SX5E.”
On March 1, 2010, STOXX Limited announced the removal of the “Dow Jones” prefix from all of its indices, including the
EURO STOXX 50
®
Index.
Methodology of the EURO STOXX 50
®
Index
The composition of the
EURO STOXX 50
®
Index is reviewed annually in September, 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 in the composition of the
EURO STOXX 50
®
Index are made to ensure that the
EURO STOXX 50
®
Index includes 50 market sector leaders from within the
EURO STOXX 50
®
Index. Changes to the component stocks are implemented on the third Friday in September and are effective the following trading day.
The Euro STOXX 50
®
Index is calculated in euro.
The composition of the
EURO STOXX 50
®
Index is also reviewed monthly to ensure that component stocks still remain eligible for inclusion. The announcement will be on the first trading day of the month after close of the relevant markets. Any resulting changes from the monthly review are implemented on the close of the fifth trading day following the monthly review and are effective the next trading day. All stocks on the latest selection lists and initial public offering (IPO) stocks are reviewed for a fast-track addition on a quarterly basis. The announcement will be on the first trading day of the month after market close. The implementation is effected together with that of the STOXX Total Market Indices. A current list of the issuers that comprise the
EURO STOXX 50
®
Index is available on the STOXX Limited website. Information contained in the STOXX Limited website is not incorporated by reference in, and should not be considered a part of, this term sheet.
The free float factors for each component stock used to calculate the
EURO STOXX 50
®
Index, as described below, are reviewed, calculated and implemented on a quarterly basis and are fixed until the next quarterly review. Each component’s weight is capped at 10% of the index’s total free float market capitalization.
The
EURO STOXX 50
®
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
EURO STOXX 50
®
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.
Computation of the EURO STOXX 50
®
Index
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:
Index =
|
free float market capitalization of the Index
|
|
divisor of the Index
|
The “free float market capitalization of the Index” is equal to the sum of the product of the price, number of shares outstanding and free float factor for each component stock as of the time the
EURO STOXX 50
®
Index is being calculated. The free float factor reduces the number of shares outstanding to the actual amount available on the market. All fractions of the total number of shares that are larger than 5% and whose holding is of a long-term nature are excluded from the index calculation. The free float factor typically excludes cross-ownership (stock owned either by the company itself or other companies), government ownership, private ownership, and
Autocallable Market-Linked Step Up Notes
|
TS-12
|
Autocallable Market-Linked Step Up Notes
Linked to an Equity Index Basket, due March 31, 2017
restricted shares that cannot be traded during a certain period or have a foreign ownership restriction. Block ownership is not applied for holdings of custodian nominees, trustee companies, mutual funds, investment companies with short-term investment strategies, pension funds and similar entities.
The
EURO STOXX 50
®
Index is also subject to a divisor, which is adjusted to maintain the continuity of EURO STOXX 50
®
Index values despite changes due to corporate actions. All corporate actions and dividends are implemented at the effective date (ex-date);
i.e.
, with corporate actions where cash or other corporate assets are distributed to shareholders, the price of the stock will decrease on the ex-date. The following is a summary of the adjustments to any component stock made for corporate actions and the effect of such adjustment on the divisor, where shareholders of the component stock will receive “B” number of shares for every “A” share held (where applicable). If the new shares have a dividend disadvantage —
i.e.
, the new shares have a different dividend from that paid on the old shares — the price for these new shares will be adjusted according to the gross dividend amount. The divisor may increase, decrease or be held constant.
DIVISOR:
|
Decrease
|
A) Cash dividend (applies to return indices only)
adjusted price (net return) = closing price − announced dividend * (1 − withholding tax)
adjusted price (gross return) = closing price − announced dividend
|
DIVISOR:
|
Decrease
|
B) Special Cash dividend (applies to price and return indices)
adjusted price = closing price − announced dividend * (1 − withholding tax if applicable)
|
DIVISOR:
|
Constant
|
C) Split and Reverse Split
adjusted price = closing price * A / B
new number of shares = old number of shares * B / A
|
DIVISOR:
|
Increase
|
D) Rights Offering
adjusted price = (closing price * A + subscription price * B) / (A + B)
new number of shares = old number of shares * (A + B) / A
|
DIVISOR:
|
Constant
|
E) Stock Dividend
adjusted price = closing price * A / (A + B)
new number of shares = old number of shares * (A + B) / A
|
|
Decrease
|
F) Stock Dividend (from treasury stock)
If treated as regular cash dividend, only the return indices are adjusted.
adjusted price = closing price – closing price * B / (A + B)
If treated as extraordinary dividend, the price and the return indices are adjusted.
adjusted price = closing price – closing price * B / (A + B)
|
DIVISOR:
|
Decrease
|
G) Stock Dividend of a Different Company Security
adjusted price = (closing price * A − price of the different company security * B) / A
|
DIVISOR:
|
Decrease
|
H) Return of Capital and Share Consolidation
adjusted price = (closing price − capital return announced by company *
(1 − withholding tax)) * A / B
new number of shares = old number of shares * B / A
|
DIVISOR:
|
Decrease
|
I) Repurchase Shares-Self-Tender
adjusted price = ((price before tender * old number of shares) − (tender price * number of tendered shares)) / (old number of shares − number of tendered shares)
new number of shares = old number of shares − number of tendered shares
|
DIVISOR:
|
Decrease
|
J) Spinoff
adjusted price = (closing price * A − price of spun-off shares * B) / A
|
DIVISOR:
|
|
K) Combination Stock Distribution (Dividend or Split) and Rights Offering
Shareholders receive B new shares from the distribution and C new shares from the rights offering for every A shares held:
|
|
Increase
|
●
If rights are applicable after stock distribution (one action applicable to other)
|
Autocallable Market-Linked Step Up Notes
|
TS-13
|
Autocallable Market-Linked Step Up Notes
Linked to an Equity Index Basket, due March 31, 2017
|
|
adjusted price = [closing price * A + subscription price * C * (1 + B / A)] / [(A + B) * (1 + C / A)]
new number of shares = old number of shares * [(A + B) * (1 + C / A)] / A
|
|
Increase
|
●
If stock distribution is applicable after rights (one action applicable to other)
adjusted price = [closing price * A + subscription price * C] / [(A + C) * (1 + B / A)]
new number of shares = old number of shares * [(A + C) * (1 + B / A)] / A
|
DIVISOR:
|
Increase
|
●
Stock distribution and rights (neither action is applicable to the other)
adjusted price = [closing price * A + subscription price * C] / [A + B + C]
new number of shares = old number of shares * [A + B + C] / A
|
|
|
L) Addition/Deletion of a Company
No price adjustments are made. The net change in market capitalization determines the divisor adjustment.
|
|
|
M) Free float and Share Changes
No price adjustments are made. The net change in market capitalization determines the divisor adjustment.
|
The following graph shows the historical performance of the EURO STOXX 50
®
Index in the period from January 2008 through February 2014. 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 3,133.75.
Historical Performance of the EURO STOXX 50
®
Index
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.
Autocallable Market-Linked Step Up Notes
|
TS-14
|
Autocallable Market-Linked Step Up Notes
Linked to an Equity Index Basket, due March 31, 2017
License Agreement
We have entered into an agreement with STOXX Limited providing us and certain of our affiliates or subsidiaries identified in that agreement with a non-exclusive license and, for a fee, with the right to use the EURO STOXX 50
®
Index
, which is owned and published by STOXX Limited, in connection with certain securities, including the notes.
STOXX Limited and its licensors (the “Licensors”) have 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 Limited and its Licensors do not sponsor, endorse, sell or promote the notes; recommend that any person invest in the notes; have any responsibility or liability for or make any decisions about the timing, amount or pricing of the notes; have any responsibility or liability for the administration, management or marketing of the notes; or consider the needs of the notes or the owners of the notes in determining, composing or calculating the EURO STOXX 50
®
Index
or have any obligation to do so.
STOXX Limited and its Licensors will not have any liability in connection with the notes. Specifically, STOXX Limited and its Licensors do not make any warranty, express or implied and disclaim any and all warranty about: the results to be obtained by the notes, the owners of the notes or any other person in connection with the use of the EURO STOXX 50
®
Index
and the data included in the EURO STOXX 50
®
Index
; the accuracy or completeness of the Index and its data; and the merchantability and the fitness for a particular purpose or use of the EURO STOXX 50
®
Index
and its data. STOXX Limited and its Licensors will have no liability for any errors, omissions or interruptions in the EURO STOXX 50
®
Index
or its data. Under no circumstances will STOXX Limited or its Licensors be liable for any lost profits or indirect, punitive, special or consequential damages or losses, even if STOXX Limited or its Licensors knows that they might occur.The licensing agreement between us and STOXX Limited is solely for our benefit and the benefit of STOXX Limited and not for the benefit of the owners of the notes or any other third parties.
The NASDAQ-100 Index
®
The NASDAQ-100 Index
®
includes securities of 100 of the largest domestic and international non-financial companies listed on The NASDAQ Stock Market based on market capitalization. It does not include financial companies including investment companies. The NASDAQ-100 Index
®
was developed by, and is calculated, maintained and published by NASDAQ. Current information regarding the market value of the NASDAQ-100 Index
®
is available from NASDAQ as well as numerous market information services.
Methodology of the NASDAQ-100 Index
®
The NASDAQ-100 Index
®
is a modified market capitalization weighted index. The value of the NASDAQ-100 Index
®
equals the aggregate value of the NASDAQ-100 Index
®
share weights of each of the component securities of the NASDAQ-100 Index
®
, multiplied by each such security’s last sale price, and divided by the divisor of the NASDAQ-100 Index
®
. The divisor serves the purpose of scaling the aggregate value to a lower order of magnitude which is more desirable for index reporting purposes. The NASDAQ-100 Index
®
share weights of the component securities of the NASDAQ-100 Index
®
at any time are based upon the total shares outstanding in each of those securities and are additionally subject, in certain cases, to rebalancing. Accordingly, each underlying stock’s influence on the level of the NASDAQ-100 Index
®
is directly proportional to the value of its NASDAQ-100 Index
®
share weight. If trading in a component security is halted on its primary listing market, the last traded price for that security is used for all index computations until trading in such security resumes. If trading is halted on its primary listing market before the market is open, the previous day’s last sale price is used. The NASDAQ-100 Index
®
began on January 31, 1985 at a base value of 125.00, as adjusted. The price return version of the NASDAQ-100 Index
®
is reported by Bloomberg under ticker symbol “NDX.”
The formula for the NASDAQ-100 Index
®
value is as follows:
|
Aggregate Adjusted Market Value
Divisor
|
|
The NASDAQ-100 Index
®
is ordinarily calculated without regard to cash dividends on the component securities but does reflect extraordinary cash distributions. The NASDAQ-100 Index
®
is calculated during the trading day based on the Last Sale Price and is disseminated once per second.
Underlying Stock Eligibility Criteria
Index eligibility is limited to specific types of securities, including foreign and domestic common stocks, ordinary shares, and ADRs. The following types of securities and companies are not eligible for inclusion in the NASDAQ-100 Index
®
: closed-end funds, convertible debentures, exchange traded funds, limited liability companies, limited partnership interests, preferred stocks, rights, shares or units of beneficial interest, warrants, units and other derivative securities. Securities of investment companies are not eligible for inclusion in the NASDAQ-100 Index
®
.
For the purposes of the NASDAQ-100 Index
®
eligibility criteria, if the security is a depositary receipt representing a security of a non-U.S. issuer, then references to the “issuer” are references to the issuer of the underlying security.
Autocallable Market-Linked Step Up Notes
|
TS-15
|
Autocallable Market-Linked Step Up Notes
Linked to an Equity Index Basket, due March 31, 2017
Initial Eligibility Criteria
To be eligible for initial inclusion in the NASDAQ-100 Index
®
, a security must be listed on The NASDAQ Stock Market and meet the following criteria:
|
·
|
the security’s U.S. listing must be exclusively on the NASDAQ Global Market or the NASDAQ Global Select Market (unless the security was dually listed on another U.S. market prior to January 1, 2004 and has continuously maintained that listing);
|
|
·
|
the security must be of a non-financial company;
|
|
·
|
the security may not be issued by an issuer currently in bankruptcy proceedings;
|
|
·
|
the security must have an average daily trading volume of at least 200,000 shares;
|
|
·
|
if the security is of a foreign issuer (a foreign issuer is determined based on its country of incorporation), such security must have listed options on a recognized options market in the United States or be eligible for listed-options trading on a recognized options market in the United States;
|
|
·
|
only one class of security per issuer is allowed;
|
|
·
|
the issuer of the security may not have entered into a definitive agreement or other arrangement which would likely result in the security no longer being NASDAQ-100 Index
®
eligible;
|
|
·
|
the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn; and
|
|
·
|
the security must have “seasoned” on the NASDAQ, NYSE or NYSE Amex (generally, a company is considered to be seasoned if it has been listed on a market for at least three full months – excluding the first month of its initial listing).
|
Continued Eligibility Criteria
To be eligible for continued inclusion in the NASDAQ-100 Index
®
, a security must meet the following criteria:
|
·
|
the security’s U.S. listing must be exclusively on the NASDAQ Global Select Market or the NASDAQ Global Market (unless the security was dually listed on another U.S. market prior to January 1, 2004 and has continuously maintained that listing);
|
|
·
|
the security must be of a non-financial company;
|
|
·
|
the security may not be issued by an issuer currently in bankruptcy proceedings;
|
|
·
|
the security must have an average daily trading volume of at least 200,000 shares as measured annually during the ranking review process;
|
|
·
|
if the security is of a foreign issuer, then such security must have listed options on a recognized options market in the U.S. or be eligible for listed-options trading, as measured annually during the Ranking Review process (see below);
|
|
·
|
the security must have an adjusted market capitalization equal to or exceeding 0.10% of the aggregate adjusted market capitalization of the NASDAQ-100 Index
®
at each month end. In the event a company does not meet this criterion for two consecutive month ends, it will be removed from the index effective after the close of trading on the third Friday of the following month; and
|
|
·
|
the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn.
|
Annual Ranking Review
The NASDAQ-100 Index
®
securities are evaluated on an annual basis, except under extraordinary circumstances which may result in an interim evaluation, as follows (this evaluation is referred to herein as the “Ranking Review”). Securities which meet the applicable eligibility criteria are ranked by market value. Index-eligible securities which are already in the NASDAQ-100 Index
®
and which are ranked in the top 100 eligible securities (based on market capitalization) are retained in the NASDAQ-100 Index
®
. A security that is ranked 101 to 125 is also retained,
provided
that such security was ranked in the top 100 eligible securities as of the previous Ranking Review or was added to the NASDAQ-100 Index
®
subsequent to the previous Ranking Review. Securities not meeting such criteria are replaced. The replacement securities chosen are those NASDAQ-100 Index
®
-eligible securities not currently in the NASDAQ-100 Index
®
that have the largest market capitalization. The data used in the ranking includes end of October NASDAQ market data and is updated for total shares outstanding submitted in a publicly filed SEC document via EDGAR through the end of November.
Generally, the list of annual additions and deletions is publicly announced via a press release in the early part of December, and replacements are made effective after the close of trading on the third Friday in December. Moreover, if at any time during the year a NASDAQ-100 Index
®
security is no longer traded on the NASDAQ, or is otherwise determined by the NASDAQ to become ineligible for continued inclusion in the NASDAQ-100 Index
®
, the security will be replaced with the largest market capitalization security not currently in the NASDAQ-100 Index
®
and meeting the Initial Eligibility Criteria listed above. Ordinarily, a security will be removed from the NASDAQ-100 Index
®
at its last sale price. If, however, at the time of its removal the security is halted from trading on its primary listing market and an official closing price cannot readily be determined, the security may, in NASDAQ’s discretion, be removed at a zero price. The zero price will be applied to the security after the close of the market but prior to the time the official closing value of the NASDAQ-100 Index
®
is disseminated, which is ordinarily 17:16:00 ET.
Autocallable Market-Linked Step Up Notes
|
TS-16
|
Autocallable Market-Linked Step Up Notes
Linked to an Equity Index Basket, due March 31, 2017
Maintenance of the NASDAQ-100 Index
®
In addition to the Ranking Review, the securities in the NASDAQ-100 Index
®
are also monitored every day. Changes in the price and/or total shares outstanding arising from corporate events such as stock dividends, stock splits and certain spin-offs and rights issuances are adjusted on the ex-date. If the change in total shares outstanding arising from other corporate actions is greater than or equal to 10.0%, the change is made as soon as practicable. Otherwise, if the change in total shares outstanding is less than 10.0%, then all those changes are accumulated and made effective at one time on a quarterly basis after the close of trading on the third Friday in each of March, June, September and December. In either case, the NASDAQ-100 Index
®
share weights for those underlying stocks are adjusted by the same percentage amount by which the total shares outstanding have changed in those NASDAQ-100 Index
®
securities.
A special dividend, announced by the listing exchange, will result in an adjustment to the last sale price of a security in the NASDAQ-100 Index
®
prior to market open on the ex-date for the special amount distributed. A special dividend may also be referred to as extra, extraordinary, non-recurring, one-time, unusual, etc.
Ordinarily, whenever there is a change in shares of the NASDAQ-100 Index
®
, a change in component security or a change to the price of an component security due to spin-off, rights issuances or special cash dividends, the divisor is adjusted to ensure that there is no discontinuity in the value of the NASDAQ-100 Index
®
, which might otherwise be caused by any such change. All changes are announced in advance and will be reflected in the NASDAQ-100 Index
®
prior to market open on the NASDAQ-100 Index
®
effective date.
The divisor is determined as follows:
Divisor after Adjustments =
|
Market Value after Adjustments
Market Value before Adjustments
|
× Divisor before Adjustments
|
Rebalancing of the NASDAQ-100 Index
®
The NASDAQ-100 Index
®
is calculated under a modified capitalization-weighted methodology, which is a hybrid between equal weighting and conventional capitalization weighting. This methodology is expected to: (1) retain in general the economic attributes of capitalization weighting; (2) promote portfolio weight diversification (thereby limiting domination of the NASDAQ-100 Index
®
by a few large stocks); (3) reduce NASDAQ-100 Index
®
performance distortion by preserving the capitalization ranking of companies; and (4) reduce market impact on the smallest NASDAQ-100 Index
®
securities from necessary weight rebalancings.
Under the methodology employed, on a quarterly basis coinciding with the NASDAQ’s quarterly scheduled weight adjustment procedures, the NASDAQ-100 Index
®
securities are categorized as either Large Stocks or Small Stocks depending on whether their current percentage weights (after taking into account scheduled weight adjustments due to stock repurchases, secondary offerings or other corporate actions) are greater than, or less than or equal to, the average percentage weight in the NASDAQ-100 Index
®
(
i.e.
, as a 100-stock index, the average percentage weight in the NASDAQ-100 Index
®
is 1.0%).
This quarterly examination will result in a NASDAQ-100 Index
®
rebalancing if either one or both of the following two weight distribution requirements are not met: (1) the current weight of the single largest market capitalization Index security must be less than or equal to 24.0% and (2) the collective weight of those NASDAQ-100 Index
®
securities whose individual current weights are in excess of 4.5%, when added together, must be less than or equal to 48.0%. In addition, the NASDAQ may conduct a special rebalancing if it is determined necessary to maintain the integrity of the NASDAQ-100 Index
®
. If either one or both of these weight distribution requirements are not met upon quarterly review, or NASDAQ determines that a special rebalancing is required, a weight rebalancing will be performed. First, relating to weight distribution requirement (1) above, if the current weight of the single largest NASDAQ-100 Index
®
security exceeds 24.0%, then the weights of all Large Stocks will be scaled down proportionately towards 1.0% by enough for the adjusted weight of the single largest NASDAQ-100 Index
®
security to be set to 20.0%. Second, relating to weight distribution requirement (2) above, for those NASDAQ-100 Index
®
securities whose individual current weights or adjusted weights in accordance with the preceding step are in excess of 4.5%, if their collective weight exceeds 48.0%, then the weights of all Large Stocks will be scaled down proportionately towards 1.0% by just enough for the collective weight, so adjusted, to be set to 40.0%.
The aggregate weight reduction among the Large Stocks resulting from either or both of the above rescalings will then be redistributed to the Small Stocks in the following iterative manner. In the first iteration, the weight of the largest Small Stock will be scaled upwards by a factor which sets it equal to the average NASDAQ-100 Index
®
weight of 1.0%. The weights of each of the smaller remaining Small Stocks will be scaled up by the same factor reduced in relation to each stock’s relative ranking among the Small Stocks such that the smaller the NASDAQ-100 Index
®
security in the ranking, the less the scale-up of its weight. This is intended to reduce the market impact of the weight rebalancing on the smallest component securities in the NASDAQ-100 Index
®
.
In the second iteration, the weight of the second largest Small Stock, already adjusted in the first iteration, will be scaled upwards by a factor which sets it equal to the average NASDAQ-100 Index
®
weight of 1.0%. The weights of each of the smaller remaining Small Stocks will be scaled up by this same factor reduced in relation to each stock’s relative ranking among the Small Stocks such that, once again, the smaller the stock in the ranking, the less the scale-up of its weight.
Additional iterations will be performed until the accumulated increase in weight among the Small Stocks exactly equals the aggregate weight reduction among the Large Stocks from rebalancing in accordance with weight distribution requirement (1) and/or weight distribution requirement (2).
Autocallable Market-Linked Step Up Notes
|
TS-17
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Autocallable Market-Linked Step Up Notes
Linked to an Equity Index Basket, due March 31, 2017
Then, to complete the rebalancing procedure, once the final percent weights of each of the NASDAQ-100 Index
®
securities are set, the NASDAQ-100 Index
®
share weights will be determined anew based upon the last sale prices and aggregate capitalization of the NASDAQ-100 Index
®
at the close of trading on the last day in February, May, August and November. Changes to the NASDAQ-100 Index
®
share weights will be made effective after the close of trading on the third Friday in March, June, September and December, and an adjustment to the NASDAQ-100 Index
®
divisor will be made to ensure continuity of the index.
Ordinarily, new rebalanced weights will be determined by applying the above procedures to the current NASDAQ-100 Index
®
share weights. However, the NASDAQ may from time to time determine rebalanced weights, if necessary, by instead applying the above procedure to the actual current market capitalization of the NASDAQ-100 Index
®
components. In those instances, the NASDAQ would announce the different basis for rebalancing prior to its implementation.
The following graph shows the historical performance of the NASDAQ -100 Index
®
in the period from January 2008 through February 2014. 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 NASDAQ -100 Index
®
was 3,563.134.
Historical Performance of the
NASDAQ
-100 Index
®
This historical data on the
NASDAQ
-100 Index
®
is not necessarily indicative of the future performance of the NASDAQ -100 Index
®
or what the value of the notes may be. Any historical upward or downward trend in the level of the NASDAQ -100 Index
®
during any period set forth above is not an indication that the level of the NASDAQ -100 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 NASDAQ-100 Index
®
.
Autocallable Market-Linked Step Up Notes
|
TS-18
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Autocallable Market-Linked Step Up Notes
Linked to an Equity Index Basket, due March 31, 2017
License Agreement
We have entered into an agreement with NASDAQ providing us and certain of our affiliates or subsidiaries identified in that agreement with a non-exclusive license and, for a fee, with the right to use the NASDAQ-100 Index
®
which is owned and published by NASDAQ, in connection with certain securities.
The notes are not sponsored, endorsed, sold or promoted by NASDAQ (NASDAQ along with its affiliates, the “Corporations”). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the notes. The Corporations make no representation or warranty, express or implied to the owners 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 NASDAQ-100 Index
®
, to track general stock market performance. The Corporations’ only relationship to us is in the licensing of the NASDAQ-100 Index
®
trademarks or service marks, and certain trade names of the Corporations and the use of the NASDAQ-100 Index
®
which are determined, composed and calculated by NASDAQ without regard to us or the notes. NASDAQ has no obligation to take the needs of us or the owners of the notes into consideration in determining, composing or calculating the NASDAQ-100 Index
®
. The Corporations are not responsible for and have not 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 equation by which the notes are to be converted into cash. The Corporations have no liability in connection with the administration, marketing or trading of the notes.
THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE NASDAQ-100 INDEX
®
OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE NASDAQ-100 INDEX
®
OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE NASDAQ-100 INDEX
®
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. NASDAQ
®
, NASDAQ 100
®
AND NASDAQ 100 INDEX
®
ARE TRADE OR SERVICE MARKS OF THE CORPORATIONS AND ARE LICENSED FOR USE BY US. THE NOTES HAVE NOT BEEN PASSED ON BY THE CORPORATIONS AS TO THEIR LEGALITY OR SUITABILITY. THE NOTES ARE NOT ISSUED, ENDORSED, SOLD OR PROMOTED BY THE CORPORATIONS. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE NOTES.
Autocallable Market-Linked Step Up Notes
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TS-19
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Autocallable Market-Linked Step Up Notes
Linked to an Equity Index Basket, due March 31, 2017
Supplement to the Plan of Distribution
Under our distribution agreement with MLPF&S, MLPF&S will purchase the notes from us as principal at the public offering price indicated on the cover of this term sheet, less the indicated underwriting discount.
We will deliver the notes against payment therefor in New York, New York on a date that is greater than three business days following the pricing date. Under Rule 15c6-1 of the Securities Exchange Act of 1934, trades in the secondary market generally are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the notes more than three business days prior to the original issue date will be required to specify alternative settlement arrangements to prevent a failed settlement.
The notes will not be listed on any securities exchange. In the original offering of the notes, the notes will be sold in minimum investment amounts of 100 units. If you place an order to purchase the notes, you are consenting to MLPF&S acting as a principal in effecting the transaction for your account.
MLPF&S has advised us as follows: They or their affiliates may repurchase and resell the notes, with repurchases and resales being made at prices related to then-prevailing market prices or at negotiated prices determined by reference to their pricing models and at their discretion, and these prices will include MLPF&S’s trading commissions and mark-ups. MLPF&S may act as principal or agent in these market-making transactions; however, it is not obligated to engage in any such transactions. MLPF&S has informed us that at MLPF&S’s discretion and for your benefit, assuming no changes in market conditions from the pricing date, MLPF&S may offer to buy the notes in the secondary market at a price that may exceed the initial estimated value of the notes for a short initial period after the issuance of the notes. Any price offered by MLPF&S for the notes will be based on then-prevailing market conditions and other considerations, including the performance of the Basket and the remaining term of the notes. However, none of us, MLPF&S, or any of our respective affiliates is obligated to purchase your notes at any price or at any time, and we cannot assure you that we, MLPF&S, or any of our respective affiliates will purchase your notes at a price that equals or exceeds the initial estimated value of the notes.
MLPF&S has informed us that, as of the date of this term sheet, it expects that if you hold your notes in a MLPF&S account, the value of the notes shown on your account statement will be based on MLPF&S’s estimate of the value of the notes if MLPF&S or another of its affiliates were to make a market in the notes, which it is not obligated to do; and that estimate will be based upon the price that MLPF&S may pay for the notes in light of then-prevailing market conditions and other considerations, as mentioned above, and will include transaction costs. Any such price may be higher than or lower than the initial estimated value of the notes.
The distribution of the Note Prospectus in connection with these offers or sales will be solely for the purpose of providing investors with the description of the terms of the notes that was made available to investors in connection with their initial offering. Secondary market investors should not, and will not be authorized to, rely on the Note Prospectus for information regarding Credit Suisse or for any purpose other than that described in the immediately preceding sentence.
The notes are our debt securities, the return on which is linked to the performance of the Basket. As is the case for all of our debt securities, including our market-linked notes, the economic terms of the notes reflect our actual or perceived creditworthiness at the time of pricing. In addition, because market-linked notes result in increased operational, funding and liability management costs to us, the internal funding rate we use in pricing market-linked notes is typically lower than a rate reflecting the yield on our conventional debt securities of similar maturity in the secondary market. Because we use our internal funding rate to determine the value of the theoretical bond component, if on the pricing date our internal funding rate is lower than our secondary market credit rates, the initial estimated value of the notes will be higher than if the initial estimated value was based our secondary market credit rates.
Payments on the notes, including the amount you receive at maturity or upon an automatic call, will be calculated based on the $10 principal amount per unit and will depend on the performance of the Basket. In order to meet these payment obligations, at the time we issue the notes, we may choose to enter into certain hedging arrangements (which may include call options, put options or other derivatives) with MLPF&S or one of its affiliates. The terms of these hedging arrangements are determined by seeking bids from market participants, including MLPF&S and its affiliates, and take into account a number of factors, including our creditworthiness, interest rate movements, the volatility of the Basket Components, the tenor of the notes and the tenor of the hedging arrangements. The economic terms of the notes and their initial estimated value depend in part on the terms of these hedging arrangements.
MLPF&S has advised us that the hedging arrangements will include a hedging related charge of approximately $0.075 per unit, reflecting an estimated profit to be credited to MLPF&S from these transactions. Since hedging entails risk and may be influenced by unpredictable market forces, additional profits and losses from these hedging arrangements may be realized by MLPF&S or any third party hedge providers.
For further information, see “Risk Factors—General Risks Relating to the Notes” beginning on page PS-7 and “Supplemental Use of Proceeds and Hedging” on page PS-17 of product supplement EQUITY INDICES SUN-2.
Autocallable Market-Linked Step Up Notes
|
TS-20
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Autocallable Market-Linked Step Up Notes
Linked to an Equity Index Basket, due March 31, 2017
Material U.S. Federal Income Tax Considerations
The following discussion is a brief summary of material U.S. federal income tax consequences relating to an investment in the notes. The following summary is not complete and is both qualified and supplemented by the discussion under the section entitled “Material U.S. Federal Income Tax Consequences” beginning on page PS-29 of product supplement EQUITY INDICES SUN-2, which you should carefully review prior to investing in the notes.
There are no statutory provisions, regulations, published rulings, or judicial decisions addressing the characterization for U.S. federal income tax purposes of the notes or securities with terms that are substantially the same as those of the notes. Thus, the characterization of the notes is not certain. In the absence of an administrative or judicial ruling to the contrary and pursuant to the terms of the notes, you agree with us to treat the notes, for U.S. federal income tax purposes, as prepaid financial contracts, with respect to the Market Measure, that are eligible for open transaction treatment. The balance of this discussion assumes that the notes will be treated as prepaid financial contracts. You should be aware that such characterization of the notes is not certain, nor is it binding on the U.S. Internal Revenue Service (the “IRS”) or the courts. Thus, it is possible that the IRS would seek to characterize your notes in a manner that results in tax consequences to you that are different from those described below or in the accompanying product supplement. We are not responsible for any adverse consequences that you may experience as a result of any alternative characterization of the notes for U.S. federal income tax or other tax purposes. You should consult your tax advisor as to the tax consequences of such characterization and any possible alternative characterizations of the notes for U.S. federal income tax purposes.
If the notes are treated as prepaid financial contracts, a U.S. Holder (as defined in the accompanying product supplement) should generally recognize gain or loss upon the sale, exchange or maturity of its notes in an amount equal to the difference between the amount realized at such time and the U.S. Holder’s tax basis in its notes (generally the amount paid for the notes). Such gain or loss generally should be long-term capital gain or loss if the notes have been held for more than one year. For notes with a term of one year or less, such gain or loss will be short-term capital gain or loss.
Notes Held Through Foreign Entities
Pursuant to recently finalized regulations and IRS Notice 2013-43, and subject to certain exceptions, FATCA’s withholding regime generally will apply to (i) withholdable payments (other than certain gross proceeds) made after June 30, 2014 (other than certain payments made with respect to a “preexisting obligation,” as defined in the regulations); (ii) payments of certain gross proceeds with respect to a sale or disposition occurring after December 31, 2016; and (iii) foreign passthru payments made after the later of December 31, 2016, or the date that final regulations defining the term “foreign passthru payment” are published.
Substitute Dividend and Dividend Equivalent Payments
In Notice 2014-14, the IRS stated that it intends to limit specified ELIs, as defined in the proposed regulations under Code section 871(m), to ELIs issued on or after 90 days after the date the proposed regulations are finalized.
Proposed Legislation on Certain Financial Transactions
On February 26, 2014, the Chairman of the House Ways and Means Committee released in draft form certain proposed legislation relating to financial instruments. If enacted as proposed, the effect of that legislation generally would be to require instruments such as the notes acquired after December 31, 2014, or any notes held after December 31, 2019, to be marked to market on an annual basis with all gains and losses to be treated as ordinary, subject to certain exceptions. You are urged to consult your tax advisor regarding the draft legislation and its possible impact on you.
You should consult your tax advisor concerning the U.S. federal income tax and other tax consequences of your investment in the notes in your particular circumstances, including the application of state, local or other tax laws and the possible effects of changes in federal or other tax laws.
Where You Can Find More Information
We have filed a registration statement (including a product supplement, a prospectus supplement, and a prospectus) with the SEC for the offering to which this term sheet relates. Before you invest, you should read the Note Prospectus, including this term sheet, and the other documents that we have filed with the SEC, for more complete information about us and this offering. You may get these documents without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, we, any agent, or any dealer participating in this offering will arrange to send you these documents if you so request by calling MLPF&S toll-free at 1-866-500-5408.
Autocallable Market-Linked Step Up Notes
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TS-21
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