On each quarterly contingent coupon payment date, you will either receive a contingent coupon payment or you
will not receive a contingent coupon payment, depending on the fund closing price of the Fund on the related quarterly calculation day, as follows:
On the stated maturity date, if the securities have not been automatically called prior to the stated
maturity date, you will receive (in addition to the final contingent coupon payment, if any) a cash payment per security (the redemption amount) calculated as follows:
The following profile illustrates the potential payment at stated maturity on the securities (excluding the
final contingent coupon payment, if any), assuming the securities have not been automatically called prior to the stated maturity date. This graph has been prepared for purposes of illustration only. Your actual return will depend on the actual
ending price and whether you hold your securities to stated maturity.
The U.S. Federal Tax Consequences Of An Investment In The Securities Are Unclear.
There is no direct legal authority as to the proper U.S. federal tax treatment of the securities, and we do not intend to request a ruling from
the Internal Revenue Service (the
IRS
). Consequently, significant aspects of the tax treatment of the securities are uncertain, and the IRS or a court might not agree with the treatment of the securities as described in this
pricing supplement under United States Federal Tax Considerations. If the IRS were successful in asserting an alternative treatment, the tax consequences of ownership and disposition of the securities might be materially and adversely
affected.
Non-U.S.
holders should note that persons having withholding responsibility in
respect of the securities may withhold on any coupon payment paid to a
non-U.S.
holder, generally at a rate of 30%. To the extent that we have withholding responsibility in respect of the securities, we intend
to so withhold.
In addition, Section 871(m) of the Internal Revenue Code of 1986, as amended (the
Code
),
imposes a withholding tax of up to 30% on dividend equivalents paid or deemed paid to
non-U.S.
investors in respect of certain financial instruments linked to U.S. equities. In light of IRS
regulations providing a general exemption for financial instruments issued in 2017 that do not have a delta of one, the securities should not be subject to withholding under Section 871(m). However, the IRS could challenge this
conclusion.
We will not be required to pay any additional amounts with respect to amounts withheld.
You should read carefully the discussion under United States Federal Tax Considerations in this pricing supplement and consult your
tax adviser regarding the U.S. federal tax consequences of an investment in the securities.
PRS-17
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
If the securities are automatically called:
If the securities are automatically called prior to stated maturity, you will receive the original offering price of your securities plus a
final contingent coupon payment on the call settlement date. In the event the securities are automatically called, your total return on the securities will equal any contingent coupon payments received prior to the call settlement date and the
contingent coupon payment received on the call settlement date.
If the securities are not automatically called:
If the securities are not automatically called prior to stated maturity, the following table illustrates, for a range of hypothetical ending
prices of the Fund:
|
|
|
the hypothetical percentage change from the starting price to the hypothetical ending price; and
|
|
|
|
the hypothetical redemption amount payable at stated maturity per security (excluding the final contingent
coupon payment, if any).
|
|
|
|
|
|
Hypothetical
ending price
|
|
Hypothetical percentage change from
the starting price to the hypothetical
ending price
|
|
Hypothetical payment at stated
maturity per security
|
$56.32
|
|
75.00%
|
|
$1,000.00
|
$51.49
|
|
60.00%
|
|
$1,000.00
|
$48.27
|
|
50.00%
|
|
$1,000.00
|
$45.05
|
|
40.00%
|
|
$1,000.00
|
$41.83
|
|
30.00%
|
|
$1,000.00
|
$38.62
|
|
20.00%
|
|
$1,000.00
|
$35.40
|
|
10.00%
|
|
$1,000.00
|
$32.18
(1)
|
|
0.00%
|
|
$1,000.00
|
$28.96
|
|
-10.00%
|
|
$1,000.00
|
$25.74
|
|
-20.00%
|
|
$1,000.00
|
$24.135
|
|
-25.00%
|
|
$1,000.00
|
$23.81
|
|
-26.00%
|
|
$740.00
|
$22.53
|
|
-30.00%
|
|
$700.00
|
$19.31
|
|
-40.00%
|
|
$600.00
|
$16.09
|
|
-50.00%
|
|
$500.00
|
$12.87
|
|
-60.00%
|
|
$400.00
|
$8.05
|
|
-75.00%
|
|
$250.00
|
The above figures do not take into account contingent coupon payments, if any, received during the term of the securities. As evidenced above,
in no event will you have a positive rate of return based solely on the redemption amount received at maturity; any positive return will be based solely on the contingent coupon payments, if any, received during the term of the securities.
The above figures are for purposes of illustration only and may have been rounded for ease of analysis. If the securities are not
automatically called prior to stated maturity, the actual amount you will receive at stated maturity will depend on the actual ending price.
PRS-18
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
|
Hypopthetical Payment at Stated Maturity
|
Set forth below are three examples of calculations of the redemption amount at stated maturity (rounded to two
decimal places), assuming that the securities have not been automatically called prior to stated maturity and assuming the hypothetical ending prices indicated in the examples.
Example 1. Ending price is greater than the starting price, and the redemption amount is equal to the original offering price of your
securities at maturity:
Starting price: $32.18
Hypothetical ending price: $48.27
Threshold price:$24.135, which is 75% of the starting price
Since the hypothetical ending price is greater than the threshold price, the redemption amount would equal the original
offering price. Although the hypothetical ending price is significantly greater than the starting price in this scenario, the redemption amount will not exceed the original offering price.
In addition to any contingent coupon payments received during the term of the securities, on the stated maturity date you would
receive $1,000 per security as well as a final contingent coupon payment.
Example 2. Ending price is less than the starting price
but greater than the threshold price, and the redemption amount is equal to the original offering price of your securities at maturity:
Starting price: $32.18
Hypothetical ending price: $28.96
Threshold price: $24.135, which is 75% of the starting price
Since the hypothetical ending price is less than the starting price, but not by more than 25%, you would be repaid the original
offering price of your securities at maturity.
In addition to any contingent coupon payments received during the term of
the securities, on the stated maturity date you would receive $1,000 per security as well as a final contingent coupon payment.
Example
3. Ending price is less than the threshold price, and the redemption amount is less than the original offering price of your securities at maturity:
Starting price: $32.18
Hypothetical ending price: $16.09
Threshold price: $24.135, which is 75% of the starting price
Since the hypothetical ending price is less than the starting price by more than 25%, you would lose a portion of the original
offering price of your securities and receive the redemption amount equal to:
|
|
|
|
|
|
|
|
|
|
|
$1,000
|
|
|
|
$1,000 ×
|
|
$32.18 $16.09
|
|
|
|
= $500.00
|
|
|
|
|
$32.18
|
|
|
|
In addition to any contingent coupon payments received during the term of the securities, on
the stated maturity date you would receive $500.00 per security, but no final contingent coupon payment.
These examples illustrate that
you will not participate in any appreciation of the Fund, but will be fully exposed to a decrease in the Fund if the ending price is less than the threshold price.
To the extent that the ending price differs from the values assumed above, the results indicated above would be different.
PRS-19
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
|
Additional Terms of the Securities
|
Wells Fargo will issue the securities as part of a series of senior unsecured debt securities entitled
Medium-Term Notes, Series K, which is more fully described in the prospectus supplement. Information included in this pricing supplement supersedes information in the prospectus supplement and prospectus to the extent that it is
different from that information.
Certain Definitions
A
trading day
means a day, as determined by the calculation agent, on which the relevant stock exchange and each related
futures or options exchange with respect to the Fund or any successor thereto, if applicable, are scheduled to be open for trading for their respective regular trading sessions.
The
relevant stock exchange
for the Fund means the primary exchange or quotation system on which shares (or other applicable
securities) of the Fund are traded, as determined by the calculation agent.
The
related futures or options exchange
for
the Fund means each exchange or quotation system where trading has a material effect (as determined by the calculation agent) on the overall market for futures or options contracts relating to the Fund.
Calculation Agent
Wells Fargo Securities,
LLC, one of our subsidiaries, will act as calculation agent for the securities and may appoint agents to assist it in the performance of its duties. Pursuant to a calculation agent agreement, we may appoint a different calculation agent without your
consent and without notifying you.
The calculation agent will determine whether the securities are automatically called prior to stated
maturity, the amount of the payment you receive upon automatic call or at stated maturity and the contingent coupon payments, if any. In addition, the calculation agent will, among other things:
|
●
|
|
determine whether a market disruption event has occurred;
|
|
●
|
|
determine the fund closing price of the Fund under certain circumstances;
|
|
●
|
|
determine if adjustments are required to the fund closing price of the Fund under various circumstances; and
|
|
●
|
|
if the Fund undergoes a liquidation event, select a successor fund (as defined below) or, if no successor fund
is available, determine the fund closing price.
|
All determinations made by the calculation agent will be at the sole
discretion of the calculation agent and, in the absence of manifest error, will be conclusive for all purposes and binding on us and you. The calculation agent will have no liability for its determinations.
Market Disruption Events
A
market disruption event
means any of the following events as determined by the calculation agent in its sole discretion:
|
(A)
|
The occurrence or existence of a material suspension of or limitation imposed on trading by the relevant stock
exchange or otherwise relating to the shares (or other applicable securities) of the Fund or any successor fund on the relevant stock exchange at any time during the
one-hour
period that ends at the close of
trading on such day, whether by reason of movements in price exceeding limits permitted by such relevant stock exchange or otherwise.
|
|
(B)
|
The occurrence or existence of a material suspension of or limitation imposed on trading by any related
futures or options exchange or otherwise in futures or options contracts relating to the shares (or other applicable securities) of the Fund or any successor fund on any related futures or options exchange at any time during the
one-hour
period that ends at the close of trading on that day, whether by reason of movements in price exceeding limits permitted by the related futures or options exchange or otherwise.
|
|
(C)
|
The occurrence or existence of any event, other than an early closure, that materially disrupts or impairs the
ability of market participants in general to effect transactions in, or obtain market values for, shares (or other applicable securities) of the Fund or any successor fund on the relevant stock exchange at any time during the
one-hour
period that ends at the close of trading on that day.
|
|
(D)
|
The occurrence or existence of any event, other than an early closure, that materially disrupts or impairs the
ability of market participants in general to effect transactions in, or obtain market values for, futures or options contracts relating to shares (or other applicable securities) of the Fund or any successor fund on any related futures or options
exchange at any time during the
one-hour
period that ends at the close of trading on that day.
|
PRS-20
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
|
Additional Terms of the Securities (Continued)
|
|
(E)
|
The closure of the relevant stock exchange or any related futures or options exchange with respect to the Fund
or any successor fund prior to its scheduled closing time unless the earlier closing time is announced by the relevant stock exchange or related futures or options exchange, as applicable, at least one hour prior to the earlier of (1) the
actual closing time for the regular trading session on such relevant stock exchange or related futures or options exchange, as applicable, and (2) the submission deadline for orders to be entered into the relevant stock exchange or related
futures or options exchange, as applicable, system for execution at the close of trading on that day.
|
|
(F)
|
The relevant stock exchange or any related futures or options exchange with respect to the Fund or any
successor fund fails to open for trading during its regular trading session.
|
For purposes of determining whether a
market disruption event has occurred:
|
(1)
|
close of trading
means the scheduled closing time of the relevant stock exchange with
respect to the Fund or any successor fund; and
|
|
(2)
|
the
scheduled closing time
of the relevant stock exchange or any related futures or options
exchange on any trading day for the Fund or any successor fund means the scheduled weekday closing time of such relevant stock exchange or related futures or options exchange on such trading day, without regard to after hours or any other trading
outside the regular trading session hours.
|
If a market disruption event occurs or is continuing on any calculation day,
then such calculation day will be postponed to the first succeeding trading day on which a market disruption event has not occurred and is not continuing; however, if such first succeeding trading day has not occurred as of the eighth trading day
after the originally scheduled calculation day, that eighth trading day shall be deemed to be the calculation day. If the calculation day has been postponed eight trading days after the originally scheduled calculation day and a market disruption
event occurs or is continuing with respect to the Fund on such eighth trading day, the calculation agent will determine the closing price of the Fund on such eighth trading day based on its good faith estimate of the value of the shares (or other
applicable securities) of the Fund as of the close of trading on such eighth trading day.
Anti-dilution Adjustments Relating to the Fund; Alternate
Calculation
Anti-dilution Adjustments
The calculation agent will adjust the adjustment factor as specified below if any of the events specified below occurs with respect to the Fund
and the effective date or
ex-dividend
date, as applicable, for such event is after the pricing date and on or prior to the final calculation day.
The adjustments specified below do not cover all events that could affect the Fund, and there may be other events that could affect the Fund
for which the calculation agent will not make any such adjustments, including, without limitation, an ordinary cash dividend. Nevertheless, the calculation agent may, in its sole discretion, make additional adjustments to any terms of the securities
upon the occurrence of other events that affect or could potentially affect the market price of, or shareholder rights in, the Fund, with a view to offsetting, to the extent practical, any such change, and preserving the relative investment risks of
the securities. In addition, the calculation agent may, in its sole discretion, make adjustments or a series of adjustments that differ from those described herein if the calculation agent determines that such adjustments do not properly reflect the
economic consequences of the events specified in this pricing supplement or would not preserve the relative investment risks of the securities. All determinations made by the calculation agent in making any adjustments to the terms of the
securities, including adjustments that are in addition to, or that differ from, those described in this pricing supplement, will be made in good faith and a commercially reasonable manner, with the aim of ensuring an equitable result. In determining
whether to make any adjustment to the terms of the securities, the calculation agent may consider any adjustment made by the Options Clearing Corporation or any other equity derivatives clearing organization on options contracts on the Fund.
For any event described below, the calculation agent will not be required to adjust the adjustment factor unless the adjustment would result in
a change to the adjustment factor then in effect of at least 0.10%. The adjustment factor resulting from any adjustment will be rounded up or down, as appropriate, to the nearest
one-hundred
thousandth.
|
(A)
|
Stock Splits and Reverse Stock Splits
|
If a stock split or reverse stock split has occurred, then once such split has become effective, the adjustment factor will be
adjusted to equal the
product
of the prior adjustment factor and the number of securities which a holder of one share (or other applicable security) of the Fund before the effective date of such stock split or reverse stock split would have
owned or been entitled to receive immediately following the applicable effective date.
PRS-21
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
|
Additional Terms of the Securities (Continued)
|
If a dividend or distribution of shares (or other applicable securities) to which the securities are linked has been made by
the Fund ratably to all holders of record of such shares (or other applicable security), then the adjustment factor will be adjusted on the
ex-dividend
date to equal the prior adjustment factor plus the
product
of the prior adjustment factor and the number of shares (or other applicable security) of the Fund which a holder of one share (or other applicable security) of the Fund before the
ex-dividend
date would have owned or been entitled to receive immediately following that date; provided, however, that no adjustment will be made for a distribution for which the number of securities of the Fund paid or distributed is based on a fixed cash
equivalent value.
|
(C)
|
Extraordinary Dividends
|
If an extraordinary dividend (as defined below) has occurred, then the adjustment factor will be adjusted on the
ex-dividend
date to equal the
product
of the prior adjustment factor and a fraction, the numerator of which is the closing price per share (or other applicable security) of the Fund on the trading day
preceding the
ex-dividend
date, and the denominator of which is the amount by which the closing price per share (or other applicable security) of the Fund on the trading day preceding the
ex-dividend
date exceeds the extraordinary dividend amount (as defined below).
For
purposes of determining whether an extraordinary dividend has occurred:
|
(1)
|
extraordinary dividend
means any cash dividend or distribution (or portion thereof) that
the calculation agent determines, in its sole discretion, is extraordinary or special; and
|
|
(2)
|
extraordinary dividend amount
with respect to an extraordinary dividend for the securities
of the Fund will equal the amount per share (or other applicable security) of the Fund of the applicable cash dividend or distribution that is attributable to the extraordinary dividend, as determined by the calculation agent in its sole discretion.
|
A distribution on the securities of the Fund described below under the section entitled
Reorganization Events below that also constitutes an extraordinary dividend will only cause an adjustment pursuant to that Reorganization Events section.
If the Fund declares or makes a distribution to all holders of the shares (or other applicable security) of the Fund of any
non-cash
assets, excluding dividends or distributions described under the section entitled Stock Dividends above, then the calculation agent may, in its sole discretion, make such adjustment (if
any) to the adjustment factor as it deems appropriate in the circumstances. If the calculation agent determines to make an adjustment pursuant to this paragraph, it will do so with a view to offsetting, to the extent practical, any change in the
economic position of a holder of the securities that results solely from the applicable event.
|
(E)
|
Reorganization Events
|
If the Fund, or any successor fund, is subject to a merger, combination, consolidation or statutory exchange of securities
with another exchange traded fund, and the Fund is not the surviving entity (a
reorganization event
), then, on or after the date of such event, the calculation agent shall, in its sole discretion, make an adjustment to the
adjustment factor or the method of determining the redemption amount, whether the securities are automatically called prior to stated maturity, whether a contingent coupon payment will be made or any other terms of the securities as the calculation
agent determines appropriate to account for the economic effect on the securities of such event, and determine the effective date of that adjustment. If the calculation agent determines that no adjustment that it could make will produce a
commercially reasonable result, then the calculation agent may deem such event a liquidation event (as defined below).
Liquidation Events
If the Fund is
de-listed,
liquidated or otherwise terminated (a
liquidation event
),
and a successor or substitute exchange traded fund exists that the calculation agent determines, in its sole discretion, to be comparable to the Fund, then, upon the calculation agents notification of that determination to the trustee and
Wells Fargo, any subsequent fund closing price for the Fund will be determined by reference to the fund closing price of such successor or substitute exchange traded fund (such exchange traded fund being referred to herein as a
successor
fund
), with such adjustments as the calculation agent determines are appropriate to account for the economic effect of such substitution on holders of the securities.
PRS-22
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
|
Additional Terms of the Securities (Continued)
|
If the Fund undergoes a liquidation event prior to, and such liquidation event is continuing
on, the date that any fund closing price of the Fund is to be determined and the calculation agent determines that no successor fund is available at such time, then the calculation agent will, in its discretion, calculate the fund closing price for
the Fund on such date by a computation methodology that the calculation agent determines will as closely as reasonably possible replicate the Fund, provided that if the calculation agent determines in its discretion that it is not practicable to
replicate the Fund (including but not limited to the instance in which the underlying index sponsor discontinues publication of the underlying index), then the calculation agent will calculate the fund closing price for the Fund in accordance with
the formula last used to calculate such fund closing price before such liquidation event, but using only those securities that were held by the Fund immediately prior to such liquidation event without any rebalancing or substitution of such
securities following such liquidation event.
If a successor fund is selected or the calculation agent calculates the fund closing price as
a substitute for the Fund, such successor fund or fund closing price will be used as a substitute for the Fund for all purposes, including for purposes of determining whether a market disruption event exists. Notwithstanding these alternative
arrangements, a liquidation event with respect to the Fund may adversely affect the value of the securities.
If any event is both a
reorganization event and a liquidation event, such event will be treated as a reorganization event for purposes of the securities unless the calculation agent makes the determination referenced in the last sentence of the section entitled
Anti-dilution AdjustmentsReorganization Events above.
Alternate Calculation
If at any time the method of calculating the Fund or a successor fund, or the underlying index, is changed in a material respect, or if the
Fund or a successor fund is in any other way modified so that the Fund does not, in the opinion of the calculation agent, fairly represent the price of the securities of the Fund or such successor fund had such changes or modifications not been
made, then the calculation agent may, at the close of business in New York City on the date that any fund closing price is to be determined, make such calculations and adjustments as, in the good faith judgment of the calculation agent, may be
necessary in order to arrive at a closing price of the Fund comparable to the Fund or such successor fund, as the case may be, as if such changes or modifications had not been made, and calculate the fund closing price and the redemption amount and
determine whether the securities are automatically called prior to stated maturity and whether a contingent coupon payment will be made with reference to such adjusted closing price of the Fund or such successor fund, as applicable.
Events of Default and Acceleration
If an
event of default with respect to the securities has occurred and is continuing, the amount payable to a holder of a security upon any acceleration permitted by the securities, with respect to each security, will be equal to the redemption amount,
calculated as provided herein, plus a portion of a final contingent coupon payment, if any. The redemption amount and any final contingent coupon payment will be calculated as though the date of acceleration were the final calculation day. The final
contingent coupon payment, if any, will be prorated from and including the immediately preceding contingent coupon payment date to but excluding the date of acceleration.
PRS-23
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
|
The SPDR
®
S&P
®
Oil & Gas Exploration &
Production ETF
|
The Fund is issued by The SPDR Series Trust, a registered
open-end
management investment company. The Fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P
®
Oil &
Gas Exploration & Production Select Industry Index. For a description of the S&P Oil & Gas Exploration & Production Select Industry Index, please see
S&P
®
Oil & Gas Exploration & Production Select Industry Index below.
Information provided to or filed with the Securities and Exchange Commission (the
SEC
) by the Fund under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, can be located by reference to SEC file
numbers 333-57793
and
811-08839
and can be
inspected and copied at the public reference facilities maintained by the SEC or through the SECs website at www.sec.gov. In addition, information may be obtained from other sources including, but not limited to, press releases, newspaper
articles and other publicly disseminated documents. None of such publicly available information is incorporated by reference into this pricing supplement. The Fund is listed on the NYSE Arca, Inc. under the ticker symbol
XOP
.
This pricing supplement relates only to the securities offered hereby and does not relate to the Fund. We have derived all disclosures
contained in this pricing supplement regarding the Fund from the publicly available documents described in the preceding paragraph. In connection with the offering of the securities, neither we nor the agent has participated in the preparation of
such documents or made any due diligence inquiry with respect to the Fund. Neither we nor the agent has independently verified the accuracy or completeness of any information with respect to the Fund in connection with the offer and sale of the
securities. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described in the preceding paragraph) that
would affect the trading price of the Fund (and therefore the price of the Fund at the time we price the securities) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future
events concerning the Fund could affect the payment at maturity with respect to the securities and therefore the trading prices of the securities.
We and/or our affiliates may presently or from time to time engage in business with the Fund. In the course of such business, we and/or our
affiliates may acquire
non-public
information with respect to the Fund, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more of our affiliates
may publish research reports with respect to the Fund. The statements in the preceding two sentences are not intended to affect the rights of investors in the securities under the securities laws.
The S&P
®
Oil & Gas Exploration & Production Select Industry Index
We obtained all information contained in this pricing supplement regarding the S&P Oil & Gas Exploration & Production
Select Industry Index, including, without limitation, its
make-up,
method of calculation, and changes in its components, from publicly available information. That information reflects the policies of, and is
subject to change by, S&P Dow Jones Indices LLC (
S&P Dow Jones Indices
), the sponsor of the S&P Oil & Gas Exploration & Production Select Industry Index. S&P Dow Jones has no obligation to
continue to publish, and may discontinue publication of, the S&P Oil & Gas Exploration & Production Select Industry Index at any time. Neither we nor the agent has independently verified the accuracy or completeness of any
information with respect to the S&P Oil & Gas Exploration & Production Select Industry Index in connection with the offer and sale of the securities.
On July 2, 2012, The McGraw-Hill Companies, Inc. (
McGraw-Hill
), which owned the S&P Indices business, and CME
Group, Inc., which is a 90% owner of the joint venture that owned the Dow Jones Indexes business, announced the launch of a new joint venture, S&P Dow Jones Indices LLC. S&P Dow Jones Indices LLC owns the S&P Indices business and the Dow
Jones Indexes business, including the S&P Oil & Gas Exploration & Production Select Industry Index.
General
The S&P Oil & Gas Exploration & Production Select Industry Index (the
S&P Oil
& Gas
Index
) is an equally-weighted index that is designed to measure the performance of the following
sub-industry
groups of the S&P
®
Total Market Index (the
S&P TM Index
): integrated oil & gas, oil & gas exploration & production and oil & gas refining & marketing.
The S&P TM Index is a benchmark that measures the performance of the United States equity market. The S&P TM Index offers broad market exposure to companies of all market capitalizations, including all common equities listed on the New York
Stock Exchange, the NYSE MKT, the NASDAQ Global Select Market, the NASDAQ Select Market and the NASDAQ Capital Market. Only United States companies are eligible for inclusion in the S&P TM Index. The S&P Oil & Gas Index is one of
the 21 S&P Select Industry Indices (collectively, the
Select Industry Indices
and each, a
Select Industry Index
), each designed to measure the performance of a
sub-industry
or group of
sub-industries
based on the Global Industry Classification Standards (
GICS
). The S&P Oil & Gas Index includes
companies in the following
sub-industries:
integrated oil & gas, oil & gas exploration & production and oil & gas refining & marketing. Each of the component stocks
in the S&P Oil & Gas Index is a constituent company within the oil & gas exploration & production industry of the S&P TM Index.
PRS-24
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
|
The SPDR
®
S&P
®
Oil & Gas Exploration &
Production ETF (Continued)
|
Index Inclusion Criteria
To be eligible for inclusion in a Select Industry Index, including the S&P Oil & Gas Index, companies must be in the S&P TM
Index, must be included in the relevant GICS
sub-industry
(e.g., homebuilding) and must satisfy one of the two following combined size and liquidity criteria:
|
●
|
|
float-adjusted market capitalization above $500 million and float-adjusted liquidity ratio
(
FALR
) above 90%; or
|
|
●
|
|
float-adjusted market capitalization above $400 million and FALR above 150%.
|
All companies satisfying the above requirements are included in the applicable Select Industry Index. The total number of companies in each
Select Industry Index should be at least 35. If there are fewer than 35 stocks in a Select Industry Index, stocks from a supplementary list of highly correlated
sub-industries,
that meet the market
capitalization and liquidity thresholds above, are included in order of their float-adjusted market capitalization to reach 35 constituents. Minimum market capitalization requirements may be relaxed to ensure there are at least 22 companies in each
Select Industry Index as of each rebalancing effective date. Existing index constituents are removed at the quarterly rebalancing effective date if either their float-adjusted market capitalization falls below $300 million or their FALR falls
below 50%.
Eligibility Factors
Market Capitalization.
Float-adjusted market capitalization should be at least $400 million for index inclusion.
Existing index components must have a float-adjusted market capitalization of $300 million to remain in the index at each rebalancing.
Liquidity.
The liquidity measurement used is a liquidity ratio, defined by dollar value traded over the previous 12
months divided by float-adjusted market capitalization as of the index-rebalancing date. Stocks having a float-adjusted market capitalization above $500 million must have a liquidity ratio greater than 90% to be eligible for addition to a
Select Industry Index. Stocks having a float-adjusted market capitalization between $400 and $500 million must have a liquidity ratio greater than 150% to be eligible for addition to a Select Industry Index. Existing index constituents must
have a liquidity ratio greater than 50% to remain in a Select Industry Index at the quarterly rebalancing. The length of time to evaluate liquidity is reduced to the available trading period for IPOs or spin-offs that do not have 12 months of
trading history.
Domicile.
Only U.S. companies are eligible for inclusion in the Select Industry Indices.
Takeover Restrictions.
At the discretion of S&P, constituents with shareholder ownership restrictions defined in
company bylaws may be deemed ineligible for inclusion in a Select Industry Index. Ownership restrictions preventing entities from replicating the index weight of a company may be excluded from the eligible universe or removed from the applicable
Select Industry Index.
Turnover.
S&P believes turnover in index membership should be avoided when possible. At
times a company may appear to temporarily violate one or more of the addition criteria. However, the addition criteria are for addition to a Select Industry Index, not for continued membership. As a result, an index constituent that appears to
violate criteria for addition to a Select Industry Index will not be deleted unless ongoing conditions warrant a change in the composition of the applicable Select Industry Index.
Sector Classification.
A Select Industry Index includes companies in the applicable GICS
sub-industries.
Index Construction and Calculations
The Select Industry Indices are equally-weighted, with adjustments to constituent weights to ensure concentration and liquidity requirements,
and calculated by the divisor methodology. The initial divisor is set to have a base index value of 1000 on December 17, 1999. The index value is simply the index market value divided by the index divisor. In order to maintain index series
continuity, it is necessary to adjust the divisor at each rebalancing.
Constituent Weightings
At each quarterly rebalancing, stocks are initially equally-weighted using closing prices as of the second Friday of the last month of quarter
as the reference price. Adjustments are then made to ensure that there are no stocks whose weight in the applicable Select Industry Index is more than can be traded in a single day for a $500 million portfolio.
S&P calculates a maximum basket liquidity weight for each stock in the applicable Select Industry Index using the ratio of its three-month
average daily value traded to $500 million. Each stocks weight in the applicable Select Industry Index is, then, compared to its maximum basket liquidity weight and is set to the lesser of its maximum basket liquidity weight or its
initial equal weight. All excess weight is redistributed across the applicable Select Industry Index to the uncapped stocks. If necessary, a final adjustment is made to ensure that no stock in the applicable Select Industry Index has a weight
greater than 4.5%. This step of the iterative weighting process
PRS-25
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
|
The SPDR
®
S&P
®
Oil & Gas Exploration &
Production ETF (Continued)
|
may force the weight of those stocks limited to their maximum basket liquidity weight to exceed that weight. In such cases, S&P will make no further adjustments.
Timing of Changes
Additions.
Companies are added between rebalancings only if a deletion in the applicable Select Industry Index causes
the stock count to fall below 22. In those cases, each stock deletion is accompanied with a stock addition. The new company will be added to the applicable Select Industry Index at the weight of the deleted constituent. In the case of mergers
involving at least one index constituent, the merged company will remain in the applicable Select Industry Index if it meets all of the eligibility requirements. The merged company will be added to the applicable Select Industry Index at the weight
of the
pre-merger
index constituent. If both companies involved in a merger are index constituents, the merged company will be added at the weight of the company deemed the acquirer in the transaction. In the
case of spin-offs, the applicable Select Industry Index will follow the S&P TM Indexs treatment of the action. If the S&P TM Index treats the
pre-
and post-spun company as a deletion/addition
action, using the stocks when-issued price, the applicable Select Industry Index will treat the
spin-off
this way as well.
Deletions.
A company is deleted from the applicable Select Industry Index if the S&P TM Index drops the constituent.
If a constituent deletion causes the number of companies in the relevant index to fall below 22, each stock deletion is accompanied with a stock addition. In case of GICS changes, where a company does not belong to a qualifying
sub-industry
after the classification change, it is removed from the applicable Select Industry Index at the next rebalancing.
Index Maintenance
The membership of the
Select Industry Indices is reviewed quarterly. Rebalancings occur after the closing on the third Friday of the quarter ending month. The reference date for additions and deletions is after the closing of the last trading date of the previous month.
Closing prices as of the second Friday of the last month of the quarter are used for setting index weights.
The tables below summarize the
types of index maintenance adjustments and indicate whether or not an index adjustment is required.
S&P TM Index Actions
|
|
|
|
|
S&P TM Index Action
|
|
Adjustment Made to index
|
|
Divisor Adjustment?
|
Constituent deletion
|
|
If the constituent is a member of the applicable Select Industry Index, it is dropped.
|
|
Yes
|
|
|
|
Constituent addition
|
|
Only in cases where the deletion causes the component count to fall below 22 stocks, then the dropped stock is
accompanied by an add assuming the weight of the dropped stock.
For equal and modified market cap weighted indices, when a stock is removed
from an index at a price of $0.00, the stocks replacement will be added to the index at the weight using the previous days closing value, or the most immediate prior business day that the deleted stock was not valued at $0.00.
|
|
No, except in the case of stocks removed at $0.00
|
|
|
|
Share changes between quarterly share
adjustments
|
|
None.
|
|
No
|
|
|
|
Quarterly share changes
|
|
There is no direct adjustment, however, on the same date the applicable Select Industry Index rebalancing will take place.
|
|
Only because of the index rebalancing.
|
|
|
|
GICS change
|
|
None. If, after the GICS change, a company no longer qualifies to belong to the applicable Select Industry Index, it is removed at the next rebalancing.
|
|
No
|
PRS-26
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
|
The SPDR
®
S&P
®
Oil & Gas Exploration &
Production ETF (Continued)
|
Corporate Actions
|
|
|
|
|
Corporate Action
|
|
Adjustment Made to index
|
|
Divisor Adjustment?
|
Spin-off
|
|
In general, both the parent company and
spin-off
companies will remain in the index until the next index rebalancing, regardless of whether they conform to the theme of the
index. When there is no market-determined price available for the spin, the spin is added to the index at zero price at the close of the day before the
ex-date.
|
|
No
|
|
|
|
Rights Offering
|
|
The price is adjusted to the price of the parent company minus (the price of the rights subscription/rights ratio). Index shares change so that the companys weight remains the same as its weight before the
rights offering.
|
|
No
|
|
|
|
Stock Dividend, Stock Split, Reverse Stock Split
|
|
Index shares are multiplied by and price is divided by the split factor.
|
|
No
|
|
|
|
Share Issuance, Share Repurchase, Equity Offering or Warrant Conversion
|
|
None.
|
|
No
|
|
|
|
Special Dividends
|
|
Price of the stock making the special dividend payment is reduced by the per share special dividend amount after the close of trading on the day before the dividend
ex-date.
|
|
Yes
|
Historical Information
We obtained the closing prices of the Fund listed below from Bloomberg Financial Markets, without independent verification.
The following graph sets forth daily closing prices of the Fund for the period from January 1, 2007 to September 19, 2017. The
closing price on September 19, 2017 was $32.18. The historical performance of the Fund should not be taken as an indication of the future performance of the Fund during the term of the securities.
PRS-27
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
|
The SPDR
®
S&P
®
Oil & Gas Exploration &
Production ETF (Continued)
|
The following table sets forth the high and low closing prices, as well as
end-of-period
closing prices, of the Fund for each quarter in the period from January 1, 2007 through June 30, 2017 and for the period from July 1, 2017 to
September 19, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Last
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
$40.98
|
|
|
|
$35.39
|
|
|
|
$40.58
|
|
Second Quarter
|
|
|
$48.98
|
|
|
|
$40.94
|
|
|
|
$45.71
|
|
Third Quarter
|
|
|
$48.36
|
|
|
|
$41.66
|
|
|
|
$46.98
|
|
Fourth Quarter
|
|
|
$53.28
|
|
|
|
$47.66
|
|
|
|
$52.06
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
$55.83
|
|
|
|
$44.79
|
|
|
|
$53.73
|
|
Second Quarter
|
|
|
$71.31
|
|
|
|
$54.44
|
|
|
|
$70.15
|
|
Third Quarter
|
|
|
$70.93
|
|
|
|
$42.68
|
|
|
|
$44.83
|
|
Fourth Quarter
|
|
|
$43.38
|
|
|
|
$22.97
|
|
|
|
$29.64
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
$33.48
|
|
|
|
$23.41
|
|
|
|
$26.60
|
|
Second Quarter
|
|
|
$38.25
|
|
|
|
$27.54
|
|
|
|
$31.72
|
|
Third Quarter
|
|
|
$39.61
|
|
|
|
$28.51
|
|
|
|
$38.62
|
|
Fourth Quarter
|
|
|
$43.36
|
|
|
|
$36.91
|
|
|
|
$41.21
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
$44.07
|
|
|
|
$39.22
|
|
|
|
$42.13
|
|
Second Quarter
|
|
|
$45.82
|
|
|
|
$38.57
|
|
|
|
$38.99
|
|
Third Quarter
|
|
|
$42.85
|
|
|
|
$38.05
|
|
|
|
$42.26
|
|
Fourth Quarter
|
|
|
$52.71
|
|
|
|
$42.18
|
|
|
|
$52.69
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
$64.50
|
|
|
|
$52.75
|
|
|
|
$64.50
|
|
Second Quarter
|
|
|
$64.97
|
|
|
|
$54.71
|
|
|
|
$58.78
|
|
Third Quarter
|
|
|
$65.24
|
|
|
|
$42.80
|
|
|
|
$42.80
|
|
Fourth Quarter
|
|
|
$57.56
|
|
|
|
$39.99
|
|
|
|
$52.69
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
$61.34
|
|
|
|
$52.67
|
|
|
|
$56.91
|
|
Second Quarter
|
|
|
$57.85
|
|
|
|
$45.20
|
|
|
|
$50.40
|
|
Third Quarter
|
|
|
$59.35
|
|
|
|
$48.73
|
|
|
|
$55.69
|
|
Fourth Quarter
|
|
|
$57.38
|
|
|
|
$50.69
|
|
|
|
$54.07
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
$62.10
|
|
|
|
$55.10
|
|
|
|
$60.49
|
|
Second Quarter
|
|
|
$62.61
|
|
|
|
$54.71
|
|
|
|
$58.18
|
|
Third Quarter
|
|
|
$66.47
|
|
|
|
$58.62
|
|
|
|
$65.89
|
|
Fourth Quarter
|
|
|
$72.74
|
|
|
|
$65.02
|
|
|
|
$68.53
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
$71.83
|
|
|
|
$64.04
|
|
|
|
$71.83
|
|
Second Quarter
|
|
|
$83.45
|
|
|
|
$71.19
|
|
|
|
$82.28
|
|
Third Quarter
|
|
|
$82.08
|
|
|
|
$68.83
|
|
|
|
$68.83
|
|
Fourth Quarter
|
|
|
$66.84
|
|
|
|
$42.75
|
|
|
|
$47.86
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
$53.94
|
|
|
|
$42.55
|
|
|
|
$51.66
|
|
Second Quarter
|
|
|
$55.63
|
|
|
|
$46.43
|
|
|
|
$46.66
|
|
Third Quarter
|
|
|
$45.22
|
|
|
|
$31.71
|
|
|
|
$32.84
|
|
Fourth Quarter
|
|
|
$40.53
|
|
|
|
$28.64
|
|
|
|
$30.22
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
$30.96
|
|
|
|
$23.60
|
|
|
|
$30.35
|
|
Second Quarter
|
|
|
$37.50
|
|
|
|
$29.23
|
|
|
|
$34.81
|
|
Third Quarter
|
|
|
$39.12
|
|
|
|
$32.75
|
|
|
|
$38.46
|
|
Fourth Quarter
|
|
|
$43.42
|
|
|
|
$34.73
|
|
|
|
$41.42
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
$42.21
|
|
|
|
$35.17
|
|
|
|
$37.44
|
|
Second Quarter
|
|
|
$37.89
|
|
|
|
$30.17
|
|
|
|
$31.92
|
|
July 1, 2017 to September 19, 2017
|
|
|
$32.91
|
|
|
|
$29.09
|
|
|
|
$32.18
|
|
PRS-28
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
|
Benefit Plan Investor Considerations
|
Each fiduciary of a pension, profit-sharing or other employee benefit plan to which Title I of the Employee
Retirement Income Security Act of 1974 (
ERISA
) applies (a
plan
), should consider the fiduciary standards of ERISA in the context of the plans particular circumstances before authorizing an investment in
the securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the
plan. When we use the term
holder
in this section, we are referring to a beneficial owner of the securities and not the record holder.
Section 406 of ERISA and Section 4975 of the Code prohibit plans, as well as individual retirement accounts and Keogh plans to which
Section 4975 of the Code applies (also
plans
), from engaging in specified transactions involving plan assets with persons who are parties in interest under ERISA or disqualified persons
under the Code (collectively,
parties in interest
) with respect to such plan. A violation of those prohibited transaction rules may result in an excise tax or other liabilities under ERISA and/or Section 4975 of
the Code for such persons, unless statutory or administrative exemptive relief is available. Therefore, a fiduciary of a plan should also consider whether an investment in the securities might constitute or give rise to a prohibited transaction
under ERISA and the Code.
Employee benefit plans that are governmental plans, as defined in Section 3(32) of ERISA, certain church
plans, as defined in Section 3(33) of ERISA, and foreign plans, as described in Section 4(b)(4) of ERISA (collectively,
Non-ERISA
Arrangements
), are not subject to the requirements
of ERISA, or Section 4975 of the Code, but may be subject to similar rules under other applicable laws or regulations (
Similar Laws
).
We and our affiliates may each be considered a party in interest with respect to many plans. Special caution should be exercised, therefore,
before the securities are purchased by a plan. In particular, the fiduciary of the plan should consider whether statutory or administrative exemptive relief is available. The U.S. Department of Labor has issued five prohibited transaction class
exemptions (
PTCEs
) that may provide exemptive relief for direct or indirect prohibited transactions resulting from the purchase or holding of the securities. Those class exemptions are:
|
●
|
|
PTCE
96-23,
for specified transactions determined by
in-house
asset managers;
|
|
●
|
|
PTCE
95-60,
for specified transactions involving insurance company
general accounts;
|
|
●
|
|
PTCE
91-38,
for specified transactions involving bank collective
investment funds;
|
|
●
|
|
PTCE
90-1,
for specified transactions involving insurance company
separate accounts; and
|
|
●
|
|
PTCE
84-14,
for specified transactions determined by independent
qualified professional asset managers.
|
In addition, Section 408(b)(17) of ERISA and Section 4975(d)(20) of the
Code provide an exemption for transactions between a plan and a person who is a party in interest (other than a fiduciary who has or exercises any discretionary authority or control with respect to investment of the plan assets involved in the
transaction or renders investment advice with respect thereto) solely by reason of providing services to the plan (or by reason of a relationship to such a service provider), if in connection with the transaction of the plan receives no less, and
pays no more, than adequate consideration (within the meaning of Section 408(b)(17) of ERISA).
Any purchaser or holder of
the securities or any interest in the securities will be deemed to have represented by its purchase and holding that either:
|
●
|
|
no portion of the assets used by such purchaser or holder to acquire or purchase the securities constitutes
assets of any plan or
Non-ERISA
Arrangement; or
|
|
●
|
|
the purchase and holding of the securities by such purchaser or holder will not constitute a
non-exempt
prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or similar violation under any Similar Laws.
|
Due to the complexity of these rules and the penalties that may be imposed upon persons involved in
non-exempt
prohibited transactions, it is particularly important that fiduciaries or other persons considering purchasing the securities on behalf of or with plan assets of any plan consult with
their counsel regarding the potential consequences under ERISA and the Code of the acquisition of the securities and the availability of exemptive relief.
The securities are contractual financial instruments. The financial exposure provided by the securities is not a substitute or proxy for, and
is not intended as a substitute or proxy for, individualized investment management or advice for the benefit of any purchaser or
PRS-29
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
|
Benefit Plan Investor Considerations (Continued)
|
holder of the securities. The securities have not been designed and will not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder of
the securities.
Each purchaser or holder of the securities acknowledges and agrees that:
|
(i)
|
the purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or
holder and the purchaser or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser or holder with respect to (a) the design and terms of the securities, (b) the
purchaser or holders investment in the securities, or (c) the exercise of or failure to exercise any rights we have under or with respect to the securities;
|
|
(ii)
|
we and our affiliates have acted and will act solely for our own account in connection with (a) all
transactions relating to the securities and (b) all hedging transactions in connection with our obligations under the securities;
|
|
(iii)
|
any and all assets and positions relating to hedging transactions by us or our affiliates are assets and
positions of those entities and are not assets and positions held for the benefit of the purchaser or holder;
|
|
(iv)
|
our interests may be adverse to the interests of the purchaser or holder; and
|
|
(v)
|
neither we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with
any such assets, positions or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
|
Purchasers of the securities have the exclusive responsibility for ensuring that their purchase, holding and subsequent disposition of the
securities does not violate the fiduciary or prohibited transaction rules of ERISA, the Code or any Similar Law. Nothing herein shall be construed as a representation that an investment in the securities would be appropriate for, or would meet any
or all of the relevant legal requirements with respect to investments by, plans or
Non-ERISA
Arrangements generally or any particular plan or
Non-ERISA
Arrangement.
PRS-30
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
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United States Federal Tax Considerations
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The following is a discussion of the material U.S. federal income and certain estate tax consequences of the
ownership and disposition of the securities. It applies to you only if you purchase a security for cash at its stated principal amount and hold it as a capital asset within the meaning of Section 1221 of the Code. This discussion does not
address all of the tax consequences that may be relevant to you in light of your particular circumstances or if you are a holder subject to special rules, such as:
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a financial institution;
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a regulated investment company;
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a real estate investment trust;
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a
tax-exempt
entity, including an individual retirement
account or Roth IRA;
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a dealer or trader subject to a
mark-to-market
method of tax accounting with respect to the securities;
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a person holding a security as part of a straddle or conversion transaction or who has entered
into a constructive sale with respect to a security;
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a U.S. holder (as defined below) whose functional currency is not the U.S. dollar; or
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an entity classified as a partnership for U.S. federal income tax purposes.
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If an entity that is classified as a partnership for U.S. federal income tax purposes holds the securities, the U.S. federal income tax
treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partnership holding the securities or a partner in such a partnership, you should consult your tax adviser as to your
particular U.S. federal tax consequences of holding and disposing of the securities.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date of this pricing supplement, changes to any of which subsequent to the date of this pricing supplement may affect the tax consequences
described herein, possibly with retroactive effect. This discussion does not address the effects of any applicable state, local or
non-U.S.
tax laws, any alternative minimum tax consequences or the potential
application of the Medicare tax on investment income. You should consult your tax adviser concerning the application of the U.S. federal income and estate tax laws to your particular situation (including the possibility of alternative treatments of
the securities), as well as any tax consequences arising under the laws of any state, local or
non-U.S.
jurisdiction.
Tax Treatment of the Securities
Due to
the absence of statutory, judicial or administrative authorities that directly address the treatment of the securities or instruments that are similar to the securities for U.S. federal income tax purposes, no assurance can be given that the IRS or
a court will agree with the tax treatment described herein. We intend to treat a security for U.S. federal income tax purposes as a prepaid derivative contract that provides for a coupon that will be treated as gross income to you at the time
received or accrued in accordance with your regular method of tax accounting. In the opinion of our counsel, Davis Polk & Wardwell LLP, this treatment of the securities is reasonable under current law; however, our counsel has advised us
that it is unable to conclude affirmatively that this treatment is more likely than not to be upheld, and that alternative treatments are possible.
You should consult your tax adviser regarding the U.S. federal tax consequences of an investment in the securities. Unless otherwise stated,
the following discussion is based on the treatment of the securities as described in the previous paragraph.
Tax Consequences to U.S. Holders
This section applies only to U.S. holders. You are a
U.S. holder
if you are a beneficial owner of a security that
is, for U.S. federal income tax purposes:
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a citizen or individual resident of the United States;
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a corporation created or organized in or under the laws of the United States, any state thereof or the
District of Columbia; or
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PRS-31
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
|
United States Federal Tax Considerations (Continued)
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an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
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Tax Treatment of Coupon Payments
. Any coupon payments on the securities should be taxable as ordinary income to
you at the time received or accrued in accordance with your regular method of accounting for U.S. federal income tax purposes.
Sale,
Exchange or Retirement of the Securities
. Upon a sale, exchange or retirement of the securities, you should recognize gain or loss equal to the difference between the amount realized on the sale, exchange or retirement and your tax basis in the
securities that are sold, exchanged or retired. For this purpose, the amount realized does not include any coupon paid at retirement and may not include sale proceeds attributable to an accrued coupon, which may be treated as a coupon payment. Your
tax basis in the securities should equal the amount you paid to acquire them. This gain or loss should be long-term capital gain or loss if you have held the securities for more than one year at the time of the sale, exchange or retirement, and
should be short-term capital gain or loss otherwise. The ordinary income treatment of the coupon payments, in conjunction with the capital loss treatment of any loss recognized upon the sale, exchange or settlement of the securities, could result in
adverse tax consequences to holders of the securities because the deductibility of capital losses is subject to limitations.
Possible
Alternative Tax Treatments of an Investment in the Securities
. Alternative U.S. federal income tax treatments of the securities are possible that, if applied, could materially and adversely affect the timing and/or character of income, gain or
loss with respect to them. It is possible, for example, that the securities could be treated as debt instruments governed by Treasury regulations relating to the taxation of contingent payment debt instruments. In that event, (i) regardless of
your regular method of tax accounting, in each year that you held the securities you would be required to accrue income, subject to certain adjustments, based on our comparable yield for similar
non-contingent
debt, determined as of the time of issuance of the securities, and (ii) any gain on the sale, exchange or retirement of the securities would be treated as ordinary income. Even if the securities are treated for U.S. federal income tax purposes
as prepaid derivative contracts rather than debt instruments, the IRS could treat the timing and character of income with respect to coupon payments in a manner different from that described above.
Other possible U.S. federal income tax treatments of the securities could also affect the timing and character of income or loss with respect
to the securities. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of prepaid forward contracts and similar instruments. The notice focuses in particular on
whether to require investors in these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether
short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments are linked; whether these
instruments are or should be subject to the constructive ownership regime, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose a notional interest charge; and appropriate
transition rules and effective dates. While it is not clear whether the securities would be viewed as similar to the typical prepaid forward contract described in the notice, any Treasury regulations or other guidance promulgated after consideration
of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. You should consult your tax adviser regarding the possible alternative treatments of an investment in
the securities and the issues presented by this notice.
Tax Consequences to
Non-U.S.
Holders
This section applies only to
non-U.S.
holders. You are a
non-U.S.
holder
if you are a beneficial owner of a security that is, for U.S. federal income tax purposes:
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an individual who is classified as a nonresident alien;
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a foreign corporation; or
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a foreign trust or estate.
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You are not a
non-U.S.
holder for purposes of this discussion if you are (i) an individual who is
present in the United States for 183 days or more in the taxable year of disposition of a security, (ii) a former citizen or resident of the United States or (iii) a person for whom income or gain in respect of the securities is
effectively connected with the conduct of a trade or business in the United States. If you are or may become such a person during the period in which you hold a security, you should consult your tax adviser regarding the U.S. federal tax
consequences of an investment in the securities.
PRS-32
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
|
United States Federal Tax Considerations (Continued)
|
Because significant aspects of the tax treatment of the securities are uncertain, persons
having withholding responsibility in respect of the securities may withhold on any coupon payment paid to you, generally at a rate of 30%. To the extent that we have (or an affiliate of ours has) withholding responsibility in respect of the
securities, we intend to so withhold. In order to claim an exemption from, or a reduction in, the 30% withholding, you may need to comply with certification requirements to establish that you are not a U.S. person and are eligible for such an
exemption or reduction under an applicable tax treaty. You should consult your tax adviser regarding the tax treatment of the securities, including the possibility of obtaining a refund of any amounts withheld and the certification requirement
described above.
Possible Withholding Under Section
871(m) of the Code.
Section 871(m) of the Code and
Treasury regulations promulgated thereunder (
Section
871(m)
) generally impose a 30% withholding tax on dividend equivalents paid or deemed paid to
non-U.S.
holders with
respect to certain financial instruments linked to U.S. equities (
U.S. underlying equities
) or indices that include U.S. underlying equities. Section 871(m) generally applies to instruments that substantially replicate the
economic performance of one or more U.S. underlying equities, as determined based on tests set forth in the applicable Treasury regulations (a
specified security
). However, the regulations exempt financial instruments issued in
2017 that do not have a delta of one. Based on the terms of the securities and representations provided by us, our counsel is of the opinion that the securities should not be treated as transactions that have a delta of one
within the meaning of the regulations with respect to any U.S. underlying equity and, therefore, should not be specified securities subject to withholding tax under Section 871(m).
A determination that the securities are not subject to Section 871(m) is not binding on the IRS, and the IRS may disagree with this
treatment. Moreover, Section 871(m) is complex and its application may depend on your particular circumstances. For example, if you enter into other transactions relating to a U.S. underlying equity, you could be subject to withholding tax or
income tax liability under Section 871(m) even if the securities are not specified securities subject to Section 871(m) as a general matter. You should consult your tax adviser regarding the potential application of Section 871(m) to
the securities.
In the event withholding applies, we will not be required to pay any additional amounts with respect to amounts withheld.
U.S. Federal Estate Tax
If you are
an individual
non-U.S.
holder or an entity the property of which is potentially includible in such an individuals gross estate for U.S. federal estate tax purposes (for example, a trust funded by such an
individual and with respect to which the individual has retained certain interests or powers), you should note that, absent an applicable treaty exemption, a security may be treated as U.S.-situs property subject to U.S. federal estate tax. If you
are such an individual or entity, you should consult your tax adviser regarding the U.S. federal estate tax consequences of investing in the securities.
Information Reporting and Backup Withholding
Amounts paid on the securities, and the proceeds of a sale, exchange or other disposition of the securities, may be subject to information
reporting and, if you fail to provide certain identifying information (such as an accurate taxpayer identification number if you are a U.S. holder) or meet certain other conditions, may also be subject to backup withholding at the rate specified in
the Code. If you are a
non-U.S.
holder that provides an appropriate IRS Form
W-8,
you will generally establish an exemption from backup withholding. Amounts withheld
under the backup withholding rules are not additional taxes and may be refunded or credited against your U.S. federal income tax liability, provided the relevant information is timely furnished to the IRS.
FATCA
Legislation commonly referred to as
FATCA generally imposes a withholding tax of 30% on payments to certain
non-U.S.
entities (including financial intermediaries) with respect to certain financial instruments, unless various U.S.
information reporting and due diligence requirements have been satisfied. An intergovernmental agreement between the United States and the
non-U.S.
entitys jurisdiction may modify these requirements.
This legislation applies to certain financial instruments that are treated as paying U.S.-source interest, dividends or dividend equivalents or other U.S.-source fixed or determinable annual or periodical income (
FDAP
income
). If required under FATCA, withholding applies to payments of FDAP income and, after 2018, to payments of gross proceeds of the disposition (including upon retirement) of certain financial instruments treated as paying U.S.-source
interest or dividends. While the treatment of the securities is unclear, you should assume that the securities will be subject to the FATCA rules, at least with respect to coupon payments. If withholding applies to the securities, we will not be
required to pay any additional amounts with respect to amounts withheld. If you are a
non-U.S.
holder, or a U.S. holder holding securities through a
non-U.S.
intermediary, you should consult your tax adviser regarding the potential application of FATCA to the securities.
PRS-33
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019
|
United States Federal Tax Considerations (Continued)
|
THE TAX CONSEQUENCES OF OWNING AND DISPOSING OF THE SECURITIES ARE UNCLEAR. YOU SHOULD
CONSULT YOUR TAX ADVISER REGARDING THE TAX CONSEQUENCES OF OWNING AND DISPOSING OF THE SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
NON-U.S.
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN U.S. FEDERAL OR OTHER TAX LAWS.
The preceding discussion constitutes the full opinion of Davis Polk & Wardwell
LLP regarding the material U.S. federal tax consequences of owning and disposing of the securities.
PRS-34
Market Linked SecuritiesAuto-Callable with Contingent Coupon
and Contingent Downside
Principal at Risk Securities Linked to the SPDR
®
S&P
®
Oil & Gas Exploration & Production ETF
due September 24, 2019