Secenario 3 - Physical Delivery

Secenario 3 - Physical Delivery

Physical Delivery


Reference share closing price is below the initial price of the note at valuation date (4 days prior to maturity), and has closed below the downside Knock-in Level during the holding period. Investors receive Physical Delivery Amount, or shares of stock, at maturity. Predetermined number of shares delivered to the investor if closing price of reference shares below initial price.

Physical Delivery Amount = (Original Investment Amount / Initial Price of Underlying Asset),

Liquidity

* Generally created as a buy and hold investment.
* Issuers typically provide liquidity in the secondary market.
* The secondary market price may not immediately reflect changes in the underlying security.
* Liquidations prior to maturity may be less than the initial principal amount invested.

Trading

* Trade flat and accrue on a 30/360 basis.
* End of day pricing posted on Bloomberg and/or the internet.
* Pricing will fluctuate intraday.
* Reverse Convertibles are notes that are registered with the SEC

Ratings

* These are an unsecured debt obligation of the issuer, not the reference company thus it carries the rating of the issuer.
* The creditworthiness of the issuer does not affect or enhance the likely performance of the investment other than the ability of the issuer to meet its obligations.

Taxes

* For tax purposes Reverse Convertibles Notes are considered to have two components:
o A debt portion.
o A put option.
* At maturity, the option component is taxed as a short-term capital gain if the investor receives the cash settlement. In the case of physical delivery, the option component will reduce the tax basis of the Reference Shares delivered to their accounts.
* Investors should consult their own tax advisor prior to investing. Refer to the Note’s prospectus for more detailed information.

Investor Benefits

* Enhanced yield.
* Current income
* Downside protection, typically up to 10-30% on most Reverse Convertible offerings.
* The bid-ask spread is typically 1%.
* $1,000 minimum investment.

Risk to Consider

* Owners of the Reverse Convertible Notes may be exposed to the risk of the decline in the price of the reference shares during the term of the note.
* Investments in equity-linked notes may not be suitable for all investors.
* Investors selling notes prior to maturity may receive a market price which is at a premium or a discount to par and may not necessarily reflect any increase or decrease in the market price of the underlying equity to the date of such sale.
* Reverse Convertibles do NOT guarantee return of principal at maturity.
* In addition, Reverse Convertibles do not have the same price appreciation potential as the reference shares because at maturity the value of the note may not appreciate above the initial principal amount.
* The market price of the Reverse Convertibles may be influenced by unpredictable market factors.

Investor Suitability Profile

* High net worth clients seeking current income.
* Traditional Equity Customers.
o Trust accounts
o Money managers
o Qualified accounts
o Non-profit organizations
* Investors that believe the markets will be relatively flat.
* Current equity linked notes investors.
* Investors who own the underlying stock.
* Notes purchased at original issue will not subject to wash sale rules on the underlying stock