|
The information in this preliminary pricing supplement
is not complete and may be changed. This preliminary pricing supplement and the accompanying prospectus and prospectus supplement
do not constitute an offer to sell the securities and we are not soliciting an offer to buy the securities in any state where the
offer or sale is not permitted.
Subject to Completion. Dated May
25, 2017
|
|
May 2017
Registration Statement No. 333-212571
Pricing Supplement dated May , 2017
Filed pursuant to Rule 424(b)(2)
|
STRUCTURED INVESTMENTS
Buffered Jump Securities Based on the 10-Year U.S.
Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
Unlike conventional debt
securities, the securities will pay no interest and do not guarantee any return of principal in excess of the minimum payment
at maturity of 15% of the stated principal amount. Instead, the securities provide for a payment at maturity based on the
percentage change in the 10-Year U.S. Dollar ICE Swap Rate (the “swap rate”) from the initial swap rate of 2.200%
to the final swap rate (the swap rate on the valuation date). The swap rate, at any given time, generally indicates the fixed
rate of interest (paid annually) that a counterparty in the swaps market would have to pay for a fixed-for-floating U.S.
dollar interest rate swap transaction with a 10-year maturity in order to receive a floating rate (paid quarterly) equal
to three-month USD London Interbank Offered Rate (“three month USD LIBOR”) for that same maturity. The swap rate
is one of the market-accepted indicators of longer term interest rates. If the final swap rate is greater than or equal to
85% of the initial swap rate, which we refer to as the threshold swap rate, at maturity investors will receive the
stated principal amount plus a percentage return equal to the fixed percentage of 6.05%. However, if the final swap rate is
less than the threshold swap rate, at maturity investors will lose an amount that is proportionate to the percentage decrease
in the final swap rate to the extent it is below the threshold swap rate, subject to the minimum payment at maturity of 15%
of the stated principal amount.
An investment in the securities is highly risky. Because the payment at maturity is based
on the percentage change of the swap rate from the initial swap rate to the final swap rate, a very small absolute change in
the swap rate can result in a significant loss on the securities.
For example, given the initial swap rate of 2.200%, you
will lose some, and may lose up to 85%, of the stated principal amount if the final swap rate is less than the threshold swap
rate of 1.870% (85% of the initial swap rate), which represents a decrease of only 0.330 percentage points from the initial
swap rate. If the final swap rate were to decline by only 1.540 percentage points to 0.660%, while the absolute change in the
swap rate is only 1.540%, that movement actually represents a 70% decline from the initial swap rate to the final swap rate,
and you would lose 55% of the stated principal amount.
If the final swap rate is zero or negative, you will lose 85% of
the stated principal amount at maturity
. The securities are for investors who are willing and able to risk most of their
principal and forgo current income in exchange for the opportunity to receive a return equal to the fixed percentage if the
final swap rate is greater than or equal to the threshold swap rate.
Any positive return on the securities will be limited
to the fixed percentage, and you will not participate in any increase in the swap rate above the fixed percentage, which may
be significant. The securities are unsecured and unsubordinated debt obligations of Barclays Bank PLC. Any payment on the
securities, including any repayment of principal, is subject to the creditworthiness of Barclays Bank PLC and is not
guaranteed by any third party. If Barclays Bank PLC were to default on its payment obligations or become subject to the
exercise of any U.K. Bail-in Power (as described on page 4 of this document) by the relevant U.K. resolution authority, you
might not receive any amounts owed to you under the securities. See “Risk Factors” and “Consent to U.K.
Bail-in Power” in this document and “Risk Factors” in the accompanying prospectus supplement.
|
SUMMARY TERMS
|
|
|
Issuer:
|
Barclays Bank PLC
|
|
Reference asset:
|
10-Year U.S. Dollar ICE Swap Rate determined as set forth under “Supplemental Terms of the Securities” in this document (the “swap rate”)
|
|
Aggregate principal amount:
|
$
|
|
Stated principal amount:
|
$1,000 per security
|
|
Initial issue price:
|
$1,000 per security (see “Commissions and initial issue price” below)
|
|
Pricing date:
|
May 26, 2017
|
|
Original issue date:
|
June 2, 2017
|
|
Valuation date
†
:
|
June 28, 2018
|
|
Maturity date
†
:
|
July 2, 2018
|
|
Interest:
|
None
|
|
Payment at maturity:
|
You will receive on the maturity date a cash payment per security
determined as follows:
§
If the final swap rate is
greater than or equal to
the threshold swap rate
(i.e., the swap rate has increased or has
not decreased by more than the buffer amount)
:
$1,000 + ($1,000 × fixed percentage)
§
If the final swap rate is
less than
the threshold swap rate
(i.e., the swap rate has decreased by more than the buffer
amount)
:
($1,000 × swap rate performance
factor) + $150
Under these circumstances, the
payment at maturity will be less than the stated principal amount of $1,000 but will be at least $150.00.
Investors may lose up to 85% of their initial
investment in the securities. Any payment on the securities, including any repayment of principal, is not guaranteed by any third
party and is subject to (a) the creditworthiness of Barclays Bank PLC and (b) the risk of exercise of any U.K. Bail-in Power by
the relevant U.K. resolution authority.
|
|
U.K. Bail-in Power acknowledgment:
|
Notwithstanding any other agreements, arrangements or understandings between Barclays Bank PLC and any holder of the securities, by acquiring the securities, each holder of the securities acknowledges, accepts, agrees to be bound by and consents to the exercise of, any U.K. Bail-in Power by the relevant U.K. resolution authority. See “Consent to U.K. Bail-in Power” on page
4
of this document.
|
|
Fixed percentage:
|
6.05%
|
|
Minimum payment at maturity:
|
$150.00 per security (15% of the stated principal amount)
|
|
Swap rate performance factor:
|
final swap rate / initial swap rate.
In no event, however, will the swap rate performance factor be less than 0%.
|
|
Initial swap rate:
|
2.200%.
The initial swap rate is not the swap rate on the pricing date.
|
|
Final swap rate:
|
The swap rate on the valuation date
|
|
Threshold swap rate:
|
1.870%, which is 85% of the initial swap rate (rounded to three decimal places)
|
|
Buffer amount:
|
15%
|
|
CUSIP/ISIN:
|
06741VWQ1 / US06741VWQ12
|
|
Listing:
|
The securities will not be listed on any securities exchange.
|
|
Selected dealer:
|
Morgan Stanley Wealth Management (“MSWM”)
|
|
Commissions and initial issue price:
|
Initial issue price
(1)
|
Price to public
(1)
|
Agent’s commissions
|
Proceeds to issuer
|
|
Per security
|
$1,000
|
$1,000
|
$10.00
(2)
$5.00
(3)
|
$985.00
|
|
Total
|
$
|
$
|
$
|
$
|
|
|
|
|
|
|
|
|
|
(1)
|
Our estimated value of the securities on the pricing date, based on our internal pricing models, is expected to be between
$960.00 and $980.00 per security. The estimated value is expected to be less than the initial issue price of the securities. See
“Additional Information Regarding Our Estimated Value of the Securities” on page
3
of this document.
|
|
|
(2)
|
Morgan Stanley Wealth Management and its financial advisors will collectively receive from the agent, Barclays Capital Inc.,
a fixed sales commission of $10.00 for each security they sell. See “Supplemental Plan of Distribution” in this document.
|
|
|
(3)
|
Reflects a structuring fee payable to Morgan Stanley Wealth Management by the agent or its affiliates of $5.00 for each
security.
|
†
The
valuation date may be postponed if the valuation date is not a swap business day as described under “Supplemental Terms of
the Securities” in this document. In addition, the maturity date will be postponed if that day is not a business day or if
the valuation date is postponed as described under “Terms of the Notes—Payment Dates” in the accompanying prospectus
supplement.
One or more of our affiliates
may purchase up to 15% of the aggregate principal amount of the securities and hold such securities for investment for a period
of at least 30 days. Accordingly, the total principal amount of the securities may include a portion that was not purchased by
investors on the original issue date. Any unsold portion held by our affiliate(s) may affect the supply of securities available
for secondary trading and, therefore, could adversely affect the price of the securities in the secondary market. Circumstances
may occur in which our interests or those of our affiliates could be in conflict with your interests.
Investing in the securities involves risks not
associated with an investment in conventional debt securities. See “Risk Factors” beginning on page 9 of this document
and on page S-7 of the prospectus supplement. You should read this document together with the related prospectus and prospectus
supplement, each of which can be accessed via the hyperlinks below, before you make an investment decision.
The securities will not be listed on any U.S. securities exchange
or quotation system. Neither the U.S. Securities and Exchange Commission (the “SEC”) nor any state securities commission
has approved or disapproved of the securities or determined that this document is truthful or complete. Any representation to the
contrary is a criminal offense.
The securities constitute our unsecured and unsubordinated obligations.
The securities are not deposit liabilities of Barclays Bank PLC and are not covered by the U.K. Financial Services Compensation
Scheme or insured by the U.S. Federal Deposit Insurance Corporation or any other governmental agency or deposit insurance agency
of the United States, the United Kingdom or any other jurisdiction.
Barclays Capital Inc
.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
Additional Terms of the Securities
You should read this document together with the prospectus dated
July 18, 2016, as supplemented by the prospectus supplement dated July 18, 2016 relating to our Global Medium-Term Notes, Series
A, of which the securities are a part. This document, together with the documents listed below, contains the terms of the securities
and supersedes all prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative
pricing terms, correspondence, trade ideas, structures for implementation, sample structures, brochures or other educational materials
of ours. You should carefully consider, among other things, the matters set forth in “Risk Factors” in the prospectus
supplement, as the securities involve risks not associated with conventional debt securities. We urge you to consult your investment,
legal, tax, accounting and other advisors before you invest in the securities.
You may access these documents on the SEC website at www.sec.gov
as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
Prospectus dated July 18, 2016:
http://www.sec.gov/Archives/edgar/data/312070/000119312516650074/d219304df3asr.htm
Prospectus supplement dated July 18, 2016:
http://www.sec.gov/Archives/edgar/data/312070/000110465916132999/a16-14463_21424b3.htm
Our SEC file number is 1-10257 and our Central Index Key, or
CIK, on the SEC website is 0000312070. As used in this document, “we,” “us” and “our” refer
to Barclays Bank PLC.
In connection with this offering, Morgan Stanley Wealth Management
is acting in its capacity as a selected dealer.
Supplemental Terms of the Securities
The following definitions and provisions apply to the securities,
notwithstanding anything to the contrary in the accompanying prospectus supplement:
Swap Rate:
The swap rate is the 10-Year U.S. Dollar ICE
Swap Rate, which is, on any swap business day, the fixed rate of interest payable on a U.S. dollar interest rate swap with a 10-year
maturity as reported on Reuters page ICESWAP1 (or such other page as may replace that page on such service) as of 11:00 a.m. New
York City time on that swap business day.
Swap Rate Fall Back Provisions:
If the swap rate is not
displayed by approximately 11:00 a.m., New York City time, on Reuters page ICESWAP1 on any day on which the swap rate must be
determined, the swap rate on that day will be determined on the basis of the mid-market, semi-annual swap rate quotations provided
to the calculation agent by five leading swap dealers in the New York City interbank market (the “reference banks”)
at approximately 11:00 a.m., New York City time, on that day. For this purpose, the semi-market annual swap rate means the mean
of the bid and offered rates for the semi-annual fixed leg, calculated on a 30/360 day count basis, of a fixed-for-floating U.S.
dollar interest rate swap transaction with a 10-year term, commencing on that day with an acknowledged dealer of good credit in
the swap market, where the floating leg, calculated on an actual/360 day count basis, is equivalent to three-month U.S. Dollar
London Interbank Offered Rate (ICE Benchmark Administration). The calculation agent will request the principal New York City offices
of each of the reference banks to provide a quotation of its rate. If at least three quotations are provided, the swap rate for
that day will be the arithmetic mean of the quotations, eliminating the highest quotation (or, in the event of equality, one of
the highest) and the lowest quotation (or, in the event of equality, one of the lowest). If fewer than three quotations are provided
as requested, the swap rate will be determined by the calculation agent in good faith and in a commercially reasonable manner.
Postponement
of Valuation Date:
The valuation date will be postponed if such date is not a swap business day, in which case the valuation
date will be the first following day that is a swap business day. In no event, however, will the valuation date be postponed by
more than five business days. If the last possible valuation date is not a swap business day, that day will nevertheless be the
valuation date, in which case the swap rate will be determined as described under “—Swap Rate Fall Back Provisions”
above.
Swap Business Day:
A swap business day means any day except
for a Saturday, Sunday or a day on which the Securities Industry and Financial Markets Association recommends that the fixed income
department of its members be closed for the entire day for purposes of trading in U.S. government securities.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
Additional Information Regarding Our Estimated
Value of the Securities
Our internal pricing models take into account a number of variables
and are based on a number of subjective assumptions, which may or may not materialize, typically including volatility, interest
rates and our internal funding rates. Our internal funding rates (which are our internally published borrowing rates based on variables,
such as market benchmarks, our appetite for borrowing and our existing obligations coming to maturity) may vary from the levels
at which our benchmark debt securities trade in the secondary market. Our estimated value on the pricing date is based on our internal
funding rates. Our estimated value of the securities might be lower if such valuation were based on the levels at which our benchmark
debt securities trade in the secondary market.
Our estimated value of the securities on the pricing date is
expected to be less than the initial issue price of the securities. The difference between the initial issue price of the securities
and our estimated value of the securities is expected to result from several factors, including any sales commissions expected
to be paid to Barclays Capital Inc. or another affiliate of ours, any selling concessions, discounts, commissions or fees expected
to be allowed or paid to non-affiliated intermediaries, the estimated profit that we or any of our affiliates expect to earn in
connection with structuring the securities, the estimated cost that we may incur in hedging our obligations under the securities,
and estimated development and other costs that we may incur in connection with the securities.
Our estimated value on the pricing date is not a prediction of
the price at which the securities may trade in the secondary market, nor will it be the price at which Barclays Capital Inc. may
buy or sell the securities in the secondary market. Subject to normal market and funding conditions, Barclays Capital Inc. or another
affiliate of ours intends to offer to purchase the securities in the secondary market but it is not obligated to do so.
Assuming that all relevant factors remain constant after the
pricing date, the price at which Barclays Capital Inc. may initially buy or sell the securities in the secondary market, if any,
and the value that we may initially use for customer account statements, if we provide any customer account statements at all,
may exceed our estimated value on the pricing date for a temporary period expected to be approximately 40 days after the initial
issue date of the securities because, in our discretion, we may elect to effectively reimburse to investors a portion of the estimated
cost of hedging our obligations under the securities and other costs in connection with the securities that we will no longer expect
to incur over the term of the securities. We made such discretionary election and determined this temporary reimbursement period
on the basis of a number of factors, which may include the tenor of the securities and/or any agreement we may have with the distributors
of the securities. The amount of our estimated costs that we effectively reimburse to investors in this way may not be
allocated
ratably throughout the reimbursement period, and we may discontinue such reimbursement at any time or revise the duration of the
reimbursement period after the initial issue date of the securities based on changes in market conditions and other factors that
cannot be predicted.
We urge you to
read
“Risk Factors” beginning on page
9
of this document.
You may revoke your offer to purchase the securities at any
time prior to the pricing date. We reserve the right to change the terms of, or
reject
any offer to purchase, the securities prior to their pricing date. In the event of any changes to the terms of the securities,
we will notify you and you will be asked to accept such changes in connection with your purchase. You may also choose to reject
such changes in which case we may reject your offer to purchase.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
Consent
to U.K. Bail-in Power
Notwithstanding any
other agreements, arrangements or understandings between us and any holder of the securities, by acquiring the securities, each
holder of the securities acknowledges, accepts, agrees to be bound by and consents to the exercise of, any U.K. Bail-in Power by
the relevant U.K. resolution authority.
Under the U.K. Banking
Act 2009, as amended, the relevant U.K. resolution authority may exercise a U.K. Bail-in Power in circumstances in which the relevant
U.K. resolution authority is satisfied that the resolution conditions are met. These conditions include that a U.K. bank or investment
firm is failing or is likely to fail to satisfy the Financial Services and Markets Act 2000 (the “FSMA”) threshold
conditions for authorization to carry on certain regulated activities (within the meaning of section 55B FSMA) or, in the case
of a U.K. banking group company that is an European Economic Area (“EEA”) or third country institution or investment
firm, that the relevant EEA or third country relevant authority is satisfied that the resolution conditions are met in respect
of that entity.
The U.K. Bail-in Power
includes any write-down, conversion, transfer, modification and/or suspension power, which allows for (i) the reduction or cancellation
of all, or a portion, of the principal amount of, interest on, or any other amounts payable on, the securities; (ii) the conversion
of all, or a portion, of the principal amount of, interest on, or any other amounts payable on, the securities into shares or other
securities or other obligations of Barclays Bank PLC or another person (and the issue to, or conferral on, the holder of the securities
such shares, securities or obligations); and/or (iii) the amendment or alteration of the maturity of the securities, or amendment
of the amount of interest or any other amounts due on the securities, or the dates on which interest or any other amounts become
payable, including by suspending payment for a temporary period; which U.K. Bail-in Power may be exercised by means of a variation
of the terms of the securities solely to give effect to the exercise by the relevant U.K. resolution authority of such U.K. Bail-in
Power. Each holder of the securities further acknowledges and agrees that the rights of the holders of the securities are subject
to, and will be varied, if necessary, solely to give effect to, the exercise of any U.K. Bail-in Power by the relevant U.K. resolution
authority. For the avoidance of doubt, this consent and acknowledgment is not a waiver of any rights holders of the securities
may have at law if and to the extent that any U.K. Bail-in Power is exercised by the relevant U.K. resolution authority in breach
of laws applicable in England.
For more information,
please see “Risk Factors—You may lose some or all of your investment if any U.K. bail-in power is exercised by the
relevant U.K. resolution authority” in this document as well as “U.K. Bail-in Power,” “Risk Factors—Risks
Relating to the Securities Generally—Regulatory action in the event a bank or investment firm in the Group is failing or
likely to fail could materially adversely affect the value of the securities” and “Risk Factors—Risks Relating
to the Securities Generally—Under the terms of the securities, you have agreed to be bound by the exercise of any U.K. Bail-in
Power by the relevant U.K. resolution authority” in the accompanying prospectus supplement.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
Selected Purchase Considerations
The securities are not suitable
for all investors. The securities
may
be a suitable investment for you if all of the following statements are true:
|
|
§
|
You do not seek an investment that produces periodic interest or coupon payments or other sources
of current income.
|
|
|
§
|
You seek a return equal to the fixed percentage if the final swap rate is greater than or equal
to the threshold swap rate, which is equal to 85% of the initial swap rate.
|
|
|
§
|
You do not anticipate that the final swap rate will be less than the threshold swap rate, and
you are willing and able to accept the risk that, if it is, you will lose some, and may lose up to 85%, of the stated principal
amount.
|
|
|
§
|
You understand that a very small percentage point decrease in the swap rate from the initial
swap rate to the final swap rate can result in a significant loss on the securities and that an investment in the securities is
highly risky.
|
|
|
§
|
You understand that any positive return on the securities will be limited to the fixed percentage,
and you will not participate in any increase in the swap rate above the fixed percentage, which may be significant.
|
|
|
§
|
You are willing and able to accept the risks associated with an investment linked to the performance
of the swap rate, as explained in more detail in the “Risk Factors” and “10-Year U.S. Dollar ICE Swap Rate Overview”
sections of this document.
|
|
|
§
|
You are familiar with the swap rate and understand the factors that influence the swap rate and
interest rates generally.
|
|
|
§
|
You do not seek an investment for which there will be an active secondary market and you are
willing and able to hold the securities to maturity.
|
|
|
§
|
You are willing and able to assume our credit risk for all payments on the securities.
|
|
|
§
|
You are willing and able to consent to the exercise of any U.K. Bail-in Power by any relevant
U.K. resolution authority.
|
The securities
may
not
be a suitable investment for you if
any
of the following statements are true:
|
|
§
|
You seek an investment that produces periodic interest or coupon payments or other sources of
current income.
|
|
|
§
|
You seek an investment that provides for the full repayment of principal at maturity.
|
|
|
§
|
You anticipate that the final swap rate will be less than the threshold swap rate, or you are
unwilling or unable to accept the risk that, if it is, you will lose some, and may lose up to 85%, of the stated principal amount.
|
|
|
§
|
You do not seek an investment on which a very small percentage point decrease in the swap rate
can result in a significant loss on the securities or an investment that is highly risky.
|
|
|
§
|
You seek an investment that provides for participation in any upside performance of the swap
rate above the fixed percentage.
|
|
|
§
|
You are unwilling or unable to accept the risks associated with an investment linked to the performance
of the swap rate, as explained in more detail in the “Risk Factors” and “10-Year U.S. Dollar ICE Swap Rate Overview”
sections of this document.
|
|
|
§
|
You are not familiar with the swap rate or you do not understand the factors that influence the
swap rate or interest rates generally.
|
|
|
§
|
You seek an investment for which there will be an active secondary market and/or you are unwilling
or unable to hold the securities to maturity.
|
|
|
§
|
You are unwilling or unable to assume our credit risk for all payments on the securities.
|
|
|
§
|
You are unwilling or unable to consent to the exercise of any U.K. Bail-in Power by any relevant
U.K. resolution authority.
|
You must rely on your own evaluation of the merits of an
investment in the securities
.
You should reach a decision whether to invest in the securities after carefully considering,
with your advisors, the suitability of the securities in light of your investment objectives and the specific information set forth
in this document, the prospectus and the prospectus supplement. Neither the issuer nor Barclays Capital Inc. makes any recommendation
as to the suitability of the securities for investment.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
How the Buffered Jump Securities Work
Payoff Diagram
The payoff diagram below illustrates the payment at maturity
on the securities based on the following terms:
|
Stated principal amount:
|
$1,000 per security
|
|
Fixed percentage:
|
6.05%
|
|
Initial swap rate:
|
2.200%
|
|
Threshold swap rate:
|
1.870%, which is equal to 85% of the initial swap rate
|
|
Buffer amount:
|
15%
|
|
Minimum payment at maturity:
|
$150.00 per security
|
As indicated in the payoff diagram below, a very small absolute
change in the swap rate can result in a significant loss on the securities and an investment in the securities is highly risky.
For example, based on the initial swap rate of 2.200%, if the final swap rate were to decline by 1.540 percentage points to 0.660%,
while the absolute change in the swap rate is only 1.540%, that movement actually represents a 70% decline from the initial swap
rate, and investors would lose 55% of the stated principal amount.
Investors may lose up to 85% of the stated principal amount
of the securities.
|
Buffered Jump Securities Payoff Diagram
|
|
Scenario Analysis
|
|
§
|
Upside Scenario.
If the final swap
rate is
greater than or equal to
the threshold swap rate, at maturity investors will receive the $1,000 stated principal
amount
plus
a percentage return equal to the fixed percentage of 6.05%.
|
|
|
§
|
For example, if the swap rate decreases by 5%, at maturity investors would receive a return equal
to the fixed percentage of 6.05%, or $1,060.50 per security.
|
|
|
§
|
If the swap rate increases by 50%, at maturity investors would receive a return equal to the
fixed percentage of 6.05%, or $1,060.50 per security, even though the swap rate has increased by more than the fixed
percentage.
|
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
|
|
§
|
Downside Scenario.
If the final swap
rate is less than the threshold swap rate, at maturity investors will receive an amount that is less than the $1,000 stated principal
amount and that will reflect a loss equal to an amount that is proportionate to the percentage decrease in the final swap rate
to the extent it is below the threshold swap rate.
A very small absolute change in the swap rate can result in a significant
loss on the securities.
Investors may lose up to 85% of their initial investment in the securities.
|
|
|
§
|
For example, if the final swap rate were to decline by 1.100 percentage points to 1.100%, which
represents a 50% decline from the initial swap rate, investors would lose 35% of their principal and receive only $650.00 per security
at maturity, or 65% of the stated principal amount.
|
What Is the Total Return on the Securities
at Maturity, Assuming a Range of Performances for the Swap Rate?
The following table and
examples illustrate the hypothetical payment at maturity and hypothetical total return at maturity on the securities. The “total
return” as used in this document is the number, expressed as a percentage, that results from comparing the payment at maturity
per $1,000 stated principal amount to $1,000.00. The table and examples set forth below reflect the initial swap rate of 2.200%
and the threshold swap rate of 1.870% (equal to 85% of the initial swap rate) which represents a decrease of only 0.330 percentage
points from the initial swap rate.
Accordingly, a very small absolute change in the swap rate can result in a significant
loss on the securities, and an investment in the securities is highly risky.
The table and examples
also reflect the fixed percentage of 6.05%. Each
hypothetical payment at maturity or total return set forth below is for illustrative purposes only and may not be the actual payment
at maturity or total return applicable to a purchaser of the securities. The numbers appearing in the following table and examples
have been rounded for ease of analysis. The table and examples below do not take into account any tax consequences from investing
in the securities.
|
Final
Swap Rate
|
Swap
Rate Increase / Decline
|
Swap
Rate
Performance Factor
(1)
|
Payment
at Maturity
|
Total
Return on Securities
|
|
3.300%
|
50.00%
|
N/A
|
$1,060.50
|
6.05%
|
|
3.080%
|
40.00%
|
N/A
|
$1,060.50
|
6.05%
|
|
2.860%
|
30.00%
|
N/A
|
$1,060.50
|
6.05%
|
|
2.640%
|
20.00%
|
N/A
|
$1,060.50
|
6.05%
|
|
2.420%
|
10.00%
|
N/A
|
$1,060.50
|
6.05%
|
|
2.333%
|
6.05%
|
N/A
|
$1,060.50
|
6.05%
|
|
2.310%
|
5.00%
|
N/A
|
$1,060.50
|
6.05%
|
|
2.255%
|
2.50%
|
N/A
|
$1,060.50
|
6.05%
|
|
2.222%
|
1.00%
|
N/A
|
$1,060.50
|
6.05%
|
|
2.200%
|
0.00%
|
N/A
|
$1,060.50
|
6.05%
|
|
2.090%
|
-5.00%
|
N/A
|
$1,060.50
|
6.05%
|
|
1.980%
|
-10.00%
|
N/A
|
$1,060.50
|
6.05%
|
|
1.870%
|
-15.00%
|
N/A
|
$1,060.50
|
6.05%
|
|
1.760%
|
-20.00%
|
80.00%
|
$950.00
|
-5.00%
|
|
1.540%
|
-30.00%
|
70.00%
|
$850.00
|
-15.00%
|
|
1.320%
|
-40.00%
|
60.00%
|
$750.00
|
-25.00%
|
|
1.100%
|
-50.00%
|
50.00%
|
$650.00
|
-35.00%
|
|
0.880%
|
-60.00%
|
40.00%
|
$550.00
|
-45.00%
|
|
0.660%
|
-70.00%
|
30.00%
|
$450.00
|
-55.00%
|
|
0.440%
|
-80.00%
|
20.00%
|
$350.00
|
-65.00%
|
|
0.220%
|
-90.00%
|
10.00%
|
$250.00
|
-75.00%
|
|
0.000%
|
-100.00%
|
0.00%
|
$150.00
|
-85.00%
|
|
-0.220%
|
-110.00%
|
0.00%
|
$150.00
|
-85.00%
|
|
-0.440%
|
-120.00%
|
0.00%
|
$150.00
|
-85.00%
|
|
-1.100%
|
-150.00%
|
0.00%
|
$150.00
|
-85.00%
|
|
|
(1)
|
The swap rate performance factor will not be less than 0.00%, even if the final swap rate is negative.
|
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
Hypothetical Examples of Amount Payable
at Maturity
The following examples illustrate how the payment at maturity
and total return in different hypothetical scenarios are calculated.
Example 1: The swap rate increases by 1.100 percentage points
from the initial swap rate of 2.200% to a final swap rate of 3.300%, which represents a 50.00% increase from the initial swap rate.
Because the final swap rate is greater than or equal to the threshold
swap rate, the payment at maturity is equal to $1,060.50 per security, calculated as follows:
$1,000 + ($1,000 × fixed percentage)
$1,000 + ($1,000 × 6.05%) = $1,060.50
Even though the swap rate increased by 50.00% from its initial
swap rate to its final swap rate in this example, your return is limited to the fixed percentage of 6.05%. The total return on
the securities is 6.05%, which is equal to the fixed percentage.
Example 2: The swap rate decreases by 0.220 percentage points
from the initial swap rate of 2.200% to a final swap rate of 1.980%, which represents a 10.00% decrease from the initial swap rate.
Because the final swap rate is greater than or equal to the threshold
swap rate, the payment at maturity is equal to $1,060.50 per security, calculated as follows:
$1,000 + ($1,000 × fixed percentage)
$1,000 + ($1,000 × 6.05%) = $1,060.50
Although the swap rate decreased by 10.00% from its initial swap
rate to its final swap rate in this example, because the swap rate has not decreased by more than the buffer amount of 15.00%,
the total return on the securities is 6.05%, which is equal to the fixed percentage.
Example 3: The swap rate decreases by 1.100 percentage points
from the initial swap rate of 2.200% to a final swap rate of 1.100%, which represents a 50.00% decrease from the initial swap rate.
Because the final swap rate is less than the threshold swap rate,
the payment at maturity is equal to $650.00 per security, calculated as follows:
($1,000 × swap rate performance factor)
+ $150.00
= [$1,000 × (final swap rate / initial
swap rate)] + $150.00
= [$1,000 × (1.100% / 2.200%)] + $150.00
= ($1,000 × 50%) + $150
= $650.00
The total return on the securities is -35.00%.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
Risk Factors
An investment in the securities involves significant risks.
We urge you to consult your investment, legal, tax, accounting and other advisors before you invest in the securities. Investing
in the securities is not equivalent to investing directly in the swap rate. The following is a non-exhaustive list of certain key
risk factors for investors in the securities. For further discussion of these and other risks, you should read the section
entitled “Risk Factors—Risks Relating to the Securities Generally” in the prospectus supplement.
|
|
§
|
The securities do not guarantee the return of principal in excess of the minimum payment at
maturity of 15% of your principal.
The terms of the securities differ from those of ordinary debt securities in that the securities
do not guarantee any return of principal in excess of the minimum payment at maturity of 15% of the stated principal amount. Instead,
the securities provide for a payment at maturity based on the percentage change in the swap rate from the initial swap rate to
the final swap rate (the swap rate on the valuation date). If the final swap rate is less than the threshold swap rate (equal to
85% of the initial swap rate), the payment at maturity will be an amount in cash that is less than the $1,000 stated principal
amount of each security by an amount proportionate to the percentage decrease in the final swap rate to the extent is it is below
the threshold swap rate.
Furthermore, because the payment at maturity is based on the percentage change of the swap rate from
the initial swap rate to the final swap rate, a very small absolute change in the swap rate can result in a significant loss on
the securities and an investment in the securities is highly risky.
For example, based on the initial swap rate of 2.200%,
if the final swap rate were to decline by only 1.540 percentage points to 0.660%, while the absolute change in the swap rate is
only 1.540%, that movement actually represents a 70% decline from the initial swap rate to the final swap rate, and investors would
lose 55% of the stated principal amount.
Investors may lose up to 85% of the stated principal amount.
|
|
|
§
|
Your return on the securities is based on the performance of the swap rate, which may decline
significantly during the term of the securities, or may become negative.
The swap rate may decline significantly during the
term of the securities, or may become negative, as a result of the factors described under “—The swap rate will be
affected by a number of factors and may be volatile” below.
An investment in the securities is highly risky. You should
not invest in the securities if you do not understand the swap rate or longer-term interest rates in the United States
.
|
|
|
§
|
The potential return on the securities is limited to the fixed percentage.
Any positive
return on your securities will not exceed the fixed percentage, regardless of any increase in the swap rate, which may be significant.
If the swap rate has increased since the pricing date by more than the fixed percentage, you will receive a lower return on the
securities than you would have received if you had invested directly in the swap rate.
|
|
|
§
|
The fixed percentage provides an enhanced return only for a limited range of performance of
the swap rate.
The fixed percentage enhances returns only when the final swap rate is greater than or equal to the threshold
swap rate and the swap rate has not increased by more than the fixed percentage. Accordingly, if the swap rate declines below the
threshold swap rate or if the swap rate increases by more than the fixed percentage from the pricing date to the valuation date,
the fixed percentage will not enhance the return on the securities.
|
|
|
§
|
The securities will not bear interest.
As a holder of the securities, you will not receive
interest payments based on the swap rate or otherwise.
|
|
|
§
|
Credit of issuer.
The securities are unsecured and unsubordinated debt obligations of
the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of any third party. Any payment to be
made on the securities, including any repayment of principal, is subject to the ability of Barclays Bank PLC to satisfy its obligations
as they come due and is not guaranteed by any third party. As a result, the actual and perceived creditworthiness of Barclays Bank
PLC may affect the market value of the securities and, in the event Barclays Bank PLC were to default on its obligations, you might
not receive any amount owed to you under the terms of the securities.
|
|
|
§
|
You may lose some or all of your investment if any U.K. Bail-in Power is exercised by the
relevant U.K. resolution authority.
Notwithstanding any other agreements, arrangements or understandings between Barclays Bank
PLC and any holder of the securities, by acquiring the securities, each holder of the securities acknowledges, accepts, agrees
to be bound by, and consents to the exercise of, any U.K. Bail-in Power by the relevant U.K. resolution authority as set forth
under “Consent to U.K. Bail-in Power” in this document. Accordingly, any U.K. Bail-in Power may be exercised in such
a manner as to result in you and other holders of the securities losing all or a part of the value of your investment in the securities
or receiving a different security from the securities, which may be worth significantly less than the securities and which may
have significantly fewer protections than those typically afforded to debt securities. Moreover, the relevant U.K. resolution authority
may exercise the U.K. Bail-in Power without providing any advance notice to, or requiring the consent of, the holders of the securities.
The exercise of any U.K. Bail-in Power by the relevant U.K. resolution authority with respect to the securities will not be a default
or an Event of Default (as each term is defined in the indenture) and the trustee will not be liable for any action that the trustee
takes, or abstains from taking, in either case, in accordance with the exercise of the U.K. Bail-in Power by the relevant U.K.
resolution authority with respect to the securities. See “Consent to U.K. Bail-in Power” in this document as well as
“U.K. Bail-in Power,” “Risk Factors—Risks Relating to
|
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
the Securities Generally—Regulatory action
in the event a bank or investment firm in the Group is failing or likely to fail could materially adversely affect the value of
the securities” and “Risk Factors—Risks Relating to the Securities Generally—Under the terms of the securities,
you have agreed to be bound by the exercise of any U.K. Bail-in Power by the relevant U.K. resolution authority” in the accompanying
prospectus supplement.
|
|
§
|
The securities will not be listed on any securities exchange, and secondary trading may be
limited.
Barclays Capital Inc. and other affiliates of Barclays Bank PLC intend to offer to purchase the securities in the
secondary market but are not required to do so and may cease any such market making activities at any time, without notice. Even
if a secondary market develops, it may not provide enough liquidity to allow you to trade or sell the securities easily. Because
other dealers are not likely to make a secondary market for the securities, the price, if any, at which you may be able to trade
your securities is likely to depend on the price, if any, at which Barclays Capital Inc. and other affiliates of Barclays Bank
PLC are willing to buy the securities. In addition, Barclays Capital Inc. or one or more of our other affiliates may at any time
hold an unsold portion of the securities (as described on the cover page of this document), which may inhibit the development of
a secondary market for the securities. The securities are not designed to be short-term trading instruments. Accordingly, you should
be willing and able to hold your securities to maturity.
|
|
|
§
|
The final swap rate is not based on the swap rate at any time other than the valuation date.
The final swap rate will be based solely on the swap rate on the valuation date and the payment at maturity will be based solely
on the final swap rate as compared to the initial swap rate. Therefore, if the swap rate has declined as of the valuation date,
the payment at maturity may be significantly less than it would otherwise have been had the final swap rate been determined at
a time prior to such decline or after the swap rate has recovered. Although the swap rate on the maturity date or at other times
during the term of your securities may be higher than swap rate on the valuation date, you will not benefit from the swap rate
at any time other than on the valuation date.
|
|
|
§
|
The swap rate will be affected by a number of factors and may be volatile
— Many
factors may affect the swap rate including, but not limited to:
|
|
|
o
|
changes in, or perceptions about, the future swap rate;
|
|
|
o
|
the economic, financial, political, regulatory and judicial events that affect financial markets generally and prevailing interest
rates;
|
|
|
o
|
sentiment regarding the U.S. and global economies;
|
|
|
o
|
policies of the Federal Reserve Board regarding interest rates;
|
|
|
o
|
expectations regarding the level of price inflation;
|
|
|
o
|
sentiment regarding credit quality in the U.S. and global credit markets; and
|
|
|
o
|
performance of capital markets.
|
These and other factors may have
a negative impact on the payment at maturity and on the value of the securities in the secondary market. As a result of these factors,
the swap rate may be volatile, and even a very small absolute change in the swap rate can result in a significant loss on the securities.
Accordingly, volatility of the swap rate may adversely affect your return on the securities.
|
|
§
|
The historical swap rates are not an indication of future swap rates.
In the past, the
swap rate has experienced significant fluctuations. Historical swap rates, fluctuations and trends are not necessarily indicative
of future swap rates. Any historical upward or downward trend in the swap rate is not an indication that the swap rate is more
or less likely to increase or decrease at any time during the term of the securities, and you should not take the historical swap
rates as an indication of future swap rates. There can be no assurance that the swap rate will not decline to below the threshold
swap rate, in which case you will lose up to 85% of the stated principal amount at maturity.
|
|
|
§
|
The swap rate and the manner in which it is calculated may change in the future
.
There can be no assurance that the method by which the swap rate is calculated will continue in its
current form. Any changes in the method of calculation could reduce the swap rate and thus have a negative impact on the payment
at maturity and on the value of the securities in the secondary market.
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|
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§
|
The swap rate may be calculated based on dealer quotations or by the calculation agent in
good faith and in a commercially reasonable manner.
If, on the valuation date, the swap rate cannot be determined by reference
to Reuters page ICESWAP1 (or any successor page), then the swap rate on that day will be determined on the basis of the mid-market,
semi-annual swap rate quotations provided to the calculation agent by five leading swap dealers in the New York City interbank
market at approximately 11:00 a.m., New York City time, on that day. If fewer than three quotations are provided as requested,
the swap rate will be determined by the calculation agent in good faith and in a commercially reasonable manner. The swap rate
determined in this manner and used in the determination of the payment at maturity on the securities may be different from the
swap rate that would have been published on the Reuters page and may be different from other published rates, or other estimated
rates, of the 10-Year U.S. Dollar ICE Swap Rate.
|
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
|
|
§
|
Hedging and trading activity by the issuer and its affiliates could potentially adversely
affect the value of the securities.
The hedging or trading activities of the issuer’s affiliates and of any other hedging
counterparty with respect to the securities on or prior to the pricing date and prior to maturity could adversely affect the swap
rate and, as a result, could decrease the amount an investor may receive on the securities at maturity. Any of these hedging or
trading activities on or prior to the pricing date could potentially increase the initial swap rate and, as a result, the threshold
swap rate, which is the rate at or above which the swap rate must close on the valuation date so that the investor does not suffer
a loss on their initial investment in the securities. Additionally, such hedging or trading activities during the term of the securities,
including on the valuation date, could potentially affect the swap rate on the valuation date and, accordingly, the amount of cash
an investor will receive at maturity.
|
|
|
§
|
The market price of the
securities will be influenced by many unpredictable factors.
Several factors will influence the value of the securities in
the secondary market and the price at which Barclays Capital Inc. and other affiliates of Barclays Bank PLC may be willing to purchase
or sell the securities in the secondary market. Although we expect that generally the swap rate on any day will affect the value
of the securities more than any other single factor, other factors that may influence the value of the securities include:
|
|
|
o
|
the volatility (frequency and magnitude of changes in value) of the swap rate;
|
|
|
o
|
interest and yield rates in the market;
|
|
|
o
|
time
remaining
until the securities mature;
|
|
|
o
|
supply and
demand
for the securities;
|
|
|
o
|
geopolitical conditions and economic, financial, political, regulatory and judicial events
that affect the swap rate; and
|
|
|
o
|
any
actual
or anticipated changes in our
credit ratings or credit spreads.
|
The swap rate
may be, and has recently been, volatile, and we can give you no assurance that the volatility will lessen. See “10-Year U.S.
Dollar ICE Swap Rate Overview” below. You may receive less, and possibly significantly less, than the stated principal amount
per security if you try to sell your securities prior to maturity.
|
|
§
|
The estimated value of your securities is expected to be lower than the initial issue price
of your securities.
The estimated value of your securities on the pricing date is expected to be lower, and may be significantly
lower, than the initial issue price of your securities. The difference between the initial issue price of your securities and the
estimated value of the securities is expected as a result of certain factors, such as any sales commissions expected to be paid
to Barclays Capital Inc. or another affiliate of ours, any selling concessions, discounts, commissions or fees expected to be allowed
or paid to non-affiliated intermediaries, the estimated profit that we or any of our affiliates expect to earn in connection with
structuring the securities, the estimated cost that we may incur in hedging our obligations under the securities, and estimated
development and other costs that we may incur in connection with the securities.
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§
|
The estimated value of your securities might be lower if such estimated value were based on
the levels at which our debt securities trade in the secondary market.
The estimated value of your securities on the pricing
date is based on a number of variables, including our internal funding rates. Our internal funding rates may vary from the levels
at which our benchmark debt securities trade in the secondary market. As a result of this difference, the estimated values referenced
above might be lower if such estimated values were based on the levels at which our benchmark debt securities trade in the secondary
market.
|
|
|
§
|
The estimated value of the securities is based on our internal pricing models, which may prove
to be inaccurate and may be different from the pricing models of other financial institutions.
The estimated value of your
securities on the pricing date is based on our internal pricing models, which take into account a number of variables and are based
on a number of subjective assumptions, which may or may not materialize. These variables and assumptions are not evaluated or verified
on an independent basis. Further, our pricing models may be different from other financial institutions’ pricing models and
the methodologies used by us to estimate the value of the securities may not be consistent with those of other financial institutions
that may be purchasers or sellers of securities in the secondary market. As a result, the secondary market price of your securities
may be materially different from the estimated value of the securities determined by reference to our internal pricing models.
|
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
|
|
§
|
The estimated value of your securities is not a prediction of the prices at which you may
sell your securities in the secondary market, if any, and such secondary market prices, if any, will likely be lower than the initial
issue price of your securities and may be lower than the estimated value of your securities
. The estimated value of the securities
will not be a prediction of the prices at which Barclays Capital Inc., other affiliates of ours or third parties may be willing
to purchase the securities from you in secondary market transactions (if they are willing to purchase, which they are not obligated
to do). The price at which you may be able to sell your securities in the secondary market at any time will be influenced by many
factors that cannot be predicted, such as market conditions, and any bid and ask spread for similar sized trades, and may be substantially
less than our estimated value of the securities. Further, as secondary market prices of your securities take into account the levels
at which our debt securities trade in the secondary market, and do not take into account our various costs related to the securities
such as fees, commissions, discounts, and the costs of hedging our obligations under the securities, secondary market prices of
your securities will likely be lower than the initial issue price of your securities. As a result, the price at which Barclays
Capital Inc., other affiliates of ours or third parties may be willing to purchase the securities from you in secondary market
transactions, if any, will likely be lower than the price you paid for your securities, and any sale prior to the maturity date
could result in a substantial loss to you.
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|
|
§
|
The temporary price at which we may initially buy the securities in the secondary market and
the value we may initially use for customer account statements, if we provide any customer account statements at all, may not be
indicative of future prices of your securities.
Assuming that all relevant factors remain constant after the pricing date,
the price at which Barclays Capital Inc. may initially buy or sell the securities in the secondary market (if Barclays Capital
Inc. makes a market in the securities, which it is not obligated to do) and the value that we may initially use for customer account
statements, if we provide any customer account statements at all, may exceed our estimated value of the securities on the pricing
date, as well as the secondary market value of the securities, for a temporary period after the initial issue date of the securities.
The price at which Barclays Capital Inc. may initially buy or sell the securities in the secondary market and the value that we
may initially use for customer account statements may not be indicative of future prices of your securities.
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§
|
We and our affiliates, and any dealer participating in the distribution
of the securities, may engage in various activities or make determinations that could materially affect your securities in various
ways and create conflicts of interest.
We and our affiliates play a variety of roles in connection with the issuance of the
securities, as described below. In performing these roles, our and our affiliates’ economic interests are potentially adverse
to your interests as an investor in the securities.
|
In connection
with our normal business activities and in connection with hedging our obligations under the securities, we and our affiliates
make markets in and trade various financial instruments or products for our accounts and for the account of our clients and otherwise
provide investment banking and other financial services with respect to these financial instruments and products. These financial
instruments and products may include securities, derivative instruments or assets that may relate to the swap rate. In any such
market making, trading and hedging activity, investment banking and other financial services, we or our affiliates may take positions
or take actions that are inconsistent with, or adverse to, the investment objectives of the holders of the securities. We and our
affiliates have no obligation to take the needs of any buyer, seller or holder of the securities into account in conducting these
activities. Such market making, trading and hedging activity, investment banking and other financial services may negatively impact
the value of the securities.
In addition,
the role played by Barclays Capital Inc., as the agent for the securities, could present significant conflicts of interest with
the role of Barclays Bank PLC, as issuer of the securities. For example, Barclays Capital Inc. or its representatives may derive
compensation or financial benefit from the distribution of the securities and such compensation or financial benefit may serve
as an incentive to sell the securities instead of other investments. Furthermore, we and our affiliates establish the offering
price of the securities for initial sale to the public, and the offering price is not based upon any independent verification or
valuation.
Furthermore,
if any dealer participating in the distribution of the securities or any of its affiliates conducts hedging activities for us in
connection with the securities, that participating dealer or its affiliates will expect to realize a projected profit from such
hedging activities, and this projected profit will be in addition to any selling concession that the participating dealer realizes
for the sale of the securities to you. This additional projected profit may create a further incentive for the participating dealer
to sell the securities to you.
In addition
to the activities described above, we will also act as the calculation agent for the securities. As calculation agent, we will
determine any values of the swap rate and make any other determinations necessary to calculate any payments on the securities.
In making these determinations, we may be required to make discretionary judgments, such as selecting dealer quotations or determining
the swap rate when the swap rate is otherwise unavailable, as described under the risk factor titled “—The swap rate
may be calculated based on dealer quotations or by the calculation agent in good faith and in a commercially reasonable manner”
above. In making these discretionary judgments, our economic interests are potentially adverse to your interests as an investor
in the securities, and any of these determinations may adversely affect any payments on the securities.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
|
|
§
|
The U.S. federal income tax consequences of an investment in the securities are uncertain.
There is no direct legal authority regarding the proper U.S. federal income tax treatment of the securities, and we do not
plan 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 prepaid
forward contracts. If the IRS were successful in asserting an alternative treatment for the securities, the tax consequences of
the ownership and disposition of the securities could be materially and adversely affected. In addition, as described below under
“Additional provisions—Tax considerations,” in 2007 the U.S. Treasury Department and the IRS released a notice
requesting comments on various issues regarding the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. 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 review
carefully the sections of the accompanying prospectus supplement entitled “Material U.S. Federal Income Tax Consequences—Tax
Consequences to U.S. Holders—Notes Treated as Prepaid Forward or Derivative Contracts” and, if you are a non-U.S. holder,
“—Tax Consequences to Non-U.S. Holders,” and consult your tax advisor regarding the U.S. federal tax consequences
of an investment in the securities (including possible alternative treatments and the issues presented by the 2007 notice), as
well as tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
|
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
10-Year U.S. Dollar ICE Swap Rate Overview
The swap rate is the 10-Year U.S. Dollar
ICE Swap Rate, which is, on any swap business day, the fixed rate of interest payable on a U.S. dollar interest rate swap with
a 10-year maturity as reported on Reuters page ICESWAP1 (or such other page as may replace that page on such service) as of 11:00
a.m. New York City time on that swap business day.
A U.S. dollar interest rate swap rate, at any given time, generally
indicates the fixed rate of interest (paid annually) that a counterparty in the swaps market would have to pay for a given maturity
in order to receive a floating rate (paid quarterly) equal to three-month USD London Interbank Offered Rate (“three month
USD LIBOR”) for that same maturity. Three-month USD LIBOR reflects the rate at which banks lend U.S. dollars to each other
for a term of three months in the London interbank market. The 10-Year U.S. Dollar ICE Swap Rate is one of the market-accepted
indicators of longer term interest rates.
Please see “Supplemental Terms of the Securities”
above for information regarding the procedures that will be applied by the calculation agent if the swap rate cannot be determined
in the manner described above on the valuation date.
Information about the swap rate as of market close on May 23,
2017:
|
Current Swap Rate:
|
2.181%
|
52 Week High:
|
2.563%
|
|
52 Weeks Ago (5/24/2016):
|
1.730%
|
52 Week Low:
|
1.279%
|
The following
table sets forth the published high, low and period-end swap rates for each quarter for the period of January 3, 2012 through May
23, 2017. The associated graph shows the swap rates for each day in the same period. The swap rate on May 23, 2017 was 2.181%.
The initial swap rate is equal to 2.200% and is not the swap rate on the pricing date.
We obtained the swap rates from Bloomberg
Professional
®
service, without independent verification.
The swap rate on the valuation date, which will be used in the calculation of the payment at maturity, will be the swap rate as
reported on Reuters page ICESWAP1. Historical performance of the swap rate should not be taken as an indication of future performance.
Future performance of the swap rate may differ significantly from historical performance, and no assurance can be given as to the
swap rate during the term of the securities, including on the valuation date. We cannot give you assurance that the performance
of the swap rate will result in the return of any of your initial investment.
|
10-Year U.S. Dollar ICE Swap Rate
|
High
|
Low
|
Period End
|
|
2012
|
|
|
|
|
First Quarter
|
2.434%
|
1.929%
|
2.234%
|
|
Second Quarter
|
2.338%
|
1.661%
|
1.772%
|
|
Third Quarter
|
1.954%
|
1.541%
|
1.672%
|
|
Fourth Quarter
|
1.861%
|
1.627%
|
1.785%
|
|
2013
|
|
|
|
|
First Quarter
|
2.139%
|
1.848%
|
2.006%
|
|
Second Quarter
|
2.857%
|
1.820%
|
2.713%
|
|
Third Quarter
|
3.159%
|
2.685%
|
2.788%
|
|
Fourth Quarter
|
3.086%
|
2.630%
|
3.086%
|
|
2014
|
|
|
|
|
First Quarter
|
3.072%
|
2.743%
|
2.859%
|
|
Second Quarter
|
2.925%
|
2.502%
|
2.624%
|
|
Third Quarter
|
2.775%
|
2.479%
|
2.635%
|
|
Fourth Quarter
|
2.622%
|
2.209%
|
2.306%
|
|
2015
|
|
|
|
|
First Quarter
|
2.349%
|
1.815%
|
2.032%
|
|
Second Quarter
|
2.554%
|
1.943%
|
2.458%
|
|
Third Quarter
|
2.522%
|
2.007%
|
2.007%
|
|
Fourth Quarter
|
2.271%
|
1.925%
|
2.183%
|
|
2016
|
|
|
|
|
First Quarter
|
2.165%
|
1.522%
|
1.666%
|
|
Second Quarter
|
1.786%
|
1.342%
|
1.369%
|
|
Third Quarter
|
1.550%
|
1.279%
|
1.436%
|
|
Fourth Quarter
|
2.540%
|
1.473%
|
2.348%
|
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
|
10-Year U.S. Dollar ICE Swap Rate
|
High
|
Low
|
Period End
|
|
2017
|
|
|
|
|
First Quarter
|
2.563%
|
2.190%
|
2.401%
|
|
Second Quarter (through May 23, 2017)
|
2.337%
|
2.151%
|
2.181%
|
When reviewing the historical performance of the swap rate in
the below graph, it is important to understand that
a very small absolute change in the swap rate can result in a significant
loss on the securities.
Based on the initial swap rate of 2.200%, you will lose up to 85% of the stated principal amount if
the final swap rate is less than the threshold swap rate of 1.870% (85% of the initial swap rate), which represents a decrease
of only 0.330 percentage points from the initial swap rate.
If the final swap rate is zero or negative, you will lose 85% of
the stated principal amount of the securities.
Swap Rate Historical Performance*—
January 3, 2012 to May 23, 2017
|
|
|
* The dotted line indicates the threshold swap rate of 85% of the initial swap rate.
|
Past
performance is not indicative of future results.
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
Additional Information about the Securities
Please read this information in conjunction with the terms
on the cover page of this document.
|
Additional provisions:
|
|
Minimum ticketing size:
|
$1,000 / 1 security
|
|
Tax considerations:
|
You should review carefully the sections
entitled “Material U.S. Federal Income Tax Consequencess—Tax Consequesnces to U.S. Holders—Notes Treated as Prepaid
Forward or Derivative Contracts” and, if you are a non-U.S. holder, “—Tax Consequences to Non-U.S. Holders,”
in the accompanying prospectus supplement. The following discussion, when read in combination with those sections, constitutes
the full opinion of our special tax counsel, Davis Polk & Wardwell LLP, regarding the material U.S. federal income tax consequences
of owning and disposing of the securities. The following discussion supersedes the discussion in the accompanying prospectus supplement
to the extent it is inconsistent therewith.
Based on current market conditions,
in the opinion of our special tax counsel, the securities should be treated for U.S. federal income tax purposes as prepaid financial
contracts with respect to the swap rate. Assuming this treatment is respected, upon a sale or exchange of the securities (including
redemption at maturity), you should recognize gain or loss equal to the difference between the amount realized on the sale or exchange
and your tax basis in the securities, which should equal the amount you paid to acquire the securities. Although not free from
doubt, this gain or loss should be treated as capital gain or loss and should be long-term capital gain or loss if you hold your
securities for more than a year, whether or not you are an initial purchaser of securities at the original issue price. However,
the IRS or a court may not respect this treatment, in which case the timing and character of any income or loss on the securities
could be materially and adversely affected. In addition, 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;
the relevance of factors such as the nature of the underlying property to which the instruments are linked; the degree, if any,
to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and 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. While the notice requests
comments on appropriate transition rules and effective dates, 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 advisor regarding the U.S. federal income tax consequences of an investment in the securities,
including possible alternative treatments and the issues presented by this notice.
|
|
Trustee:
|
The Bank of New York Mellon
|
|
Calculation agent:
|
Barclays Bank PLC
|
|
Use of proceeds and hedging:
|
The net proceeds we receive from the sale of the securities will
be used for various corporate purposes as set forth in the prospectus and prospectus supplement and, in part, in connection with
hedging our obligations under the securities through one or more of our subsidiaries.
We, through our subsidiaries or others, hedge our anticipated
exposure in connection with the securities by taking positions in futures and options contracts on the swap rate and any other
securities or instruments we may wish to use in connection with such hedging. Trading and other transactions by us or our
affiliates could affect the swap rate, the market value of the securities or any amounts payable on your securities. For further
information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the prospectus supplement.
|
Buffered Jump Securities Based on the 10-Year U.S. Dollar ICE Swap Rate due July 2, 2018
Principal at Risk Securities
|
ERISA:
|
See “Benefit Plan Investor Considerations” in the accompanying prospectus supplement.
|
|
Contact:
|
Morgan Stanley Wealth Management clients may contact their local Morgan Stanley branch office or Morgan Stanley’s principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776). All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087.
|
This document represents a summary of the terms
and conditions of the securities. We encourage you to read the accompanying prospectus and prospectus supplement for this offering,
which can be accessed via the hyperlinks on the cover page of this document.
Supplemental
Plan of Distribution
Morgan Stanley Smith Barney LLC (“Morgan Stanley
Wealth Management”) and its financial advisors will collectively receive from the agent, Barclays Capital Inc., a fixed sales
commission of $10.00 for each security they sell. In addition, Morgan Stanley Wealth Management will receive a structuring fee
of $5.00 for each security.
We will deliver the securities against payment therefor
in New York, New York on June 2, 2017, which is the fourth scheduled business day following the pricing date. Under Rule 15c6-1
of the Securities Exchange Act of 1934, as amended, 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 securities on any
date prior to three business days before delivery will be required, by virtue of the fact that the securities will initially settle
in four business days (T+4), to specify alternative settlement arrangements to prevent a failed settlement.