REX: Risk Considerations
Investors should carefully consider the risks of the Reverse
Exchangeable Securities and whether the securities are suited
to their particular circumstances before deciding to purchase
them. It is important that prior to investing in any securities
investors read the prospectus related to such securities to understand
the actual terms of and the risks associated with the securities.
In addition, we urge investors to consult with their investment,
legal, accounting, tax and other advisors with respect to any
investment in the securities.
The securities are issued by ABN AMRO Bank N.V. and guaranteed
by ABN AMRO Holding N.V., ABN AMRO’s parent. As a result,
investors assume the credit risk of ABN AMRO Bank N.V. and that
of ABN AMRO Holding N.V. in the event that ABN AMRO defaults
on its obligations under the securities. Any obligations or
securities sold, offered, or recommended are not deposits on
ABN AMRO Bank N.V. and are not endorsed or guaranteed by any
bank or thrift, nor are they insured by the FDIC or any governmental
Reverse Exchangeable Securities are not ordinary debt securities:
they are not principal protected. In addition, investors in
REXs will be exposed to any decline in the price of the underlying
stock below the closing price of the underlying stock on the
date the securities were priced. Accordingly, investors may
lose some or all of their initial investment in the securities.
The amount payable under the securities will never exceed
the original principal amount of the securities plus the aggregate
fi xed coupon payment investors earn during the term of the
securities. This means that investors will not benefi t from
any price appreciation in the underlying stock nor will they
receive dividends paid on the underlying stock, if any. Accordingly,
investors will never receive at maturity an amount greater than
a predetermined amount per security, regardless of how much
the price of the underlying stock increases during the term
of the securities or on the determination date. The return of
the securities may be significantly less than the return of
a direct investment in the underlying stock during the term
of the security.
ABN AMRO does not intend to list the securities on any securities
exchange. Accordingly, there may be little or no secondary market
for the securities and information regarding independent market
pricing of the securities may be limited. The value of the securities
in the secondary market, if any, will be subject to many unpredictable
factors, including then prevailing market conditions. It is
important to note that many factors will contribute to the secondary
market value of the Reverse Exchangeable Securities, and investors
may not receive their full principal back if the securities
are sold prior to maturity. Such factors include, but are not
limited to, time to maturity, the price of the underlying stock,
volatility and interest rates. In addition, the price, if any,
at which we or another party are willing to purchase securities
in secondary market transactions will likely be lower than the
issue price, since the issue price included, and secondary market
prices are likely to exclude, commissions, discounts or markups
paid with respect to the securities, as well as the cost of
hedging our obligations under the securities.
Pursuant to the terms of the Reverse Exchangeable Securities,
we and every investor agree to characterize the securities as
consisting of a Put Option and a Deposit of cash with the issuer.
Under this characterization, a portion of the stated interest
payments on each security is treated as interest on the Deposit,
and the remainder is treated as attributable to a sale by the
investor of the Put Option to ABN AMRO (referred to as Put Premium).
Receipt of the Put Premium will not be taxable upon receipt.
If the Put Option expires unexercised (i.e., a cash payment
of the principal amount of the securities is made to the investor
at maturity), the investor will recognize short-term capital
gain equal to the total Put Premium received. If the Put Option
is exercised (i.e., the final payment on the securities is paid
in underlying shares), the investor will not recognize any gain
or loss in respect of the Put Option, but the investor’s
tax basis in the shares received will be reduced by the Put
Premium received. Signifi cant aspects of the U.S. federal income
tax treatment of the securities are uncertain, and no assurance
can be given that the Internal Revenue Service will accept,
or a court will uphold, the tax treatment described above. This
summary is limited to the federal tax issues addressed herein.
Additional issues may exist that are not addressed in this summary
and that could affect the federal tax treatment of the transaction.
This tax summary was written in connection with the promotion
or marketing by ABN AMRO Bank N.V. and the placement agent of
the Reverse Exchangeable Securities, and it cannot be used by
any investor for the purpose of avoiding penalties that may
be asserted against the investor under the Internal Revenue
Code. Investors should seek their own advice based on their
particular circumstances from an independent tax advisor.
ABN AMRO has filed a registration statement (including a prospectus)
with the SEC for the offering to which this communication relates.
Before you invest, you should read the prospectus in that registration
statement and other documents ABN AMRO has filed with the SEC
for more complete information about ABN AMRO and the offering
of the securities.
You may get these documents for free by visiting EDGAR on the
SEC web site at www.sec. gov. Alternatively, ABN AMRO, any underwriter
or any dealer participating in the offering will arrange to send
you the prospectus if you request it by calling toll free (888)