a higher Contingent Coupon Rate for that security.
However, while the Contingent Coupon Rate is a fixed percentage, the underlying equity’s volatility may change significantly
over the term of the Securities. The price of the underlying equity for your Securities could fall sharply, which could result
in a significant loss of principal.
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♦
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Taxes
— The U.S. federal income tax treatment
of the Securities is uncertain and the Internal Revenue Service could assert that the Securities should be taxed in a manner that
is different than described below. As discussed further in the accompanying prospectus supplement, the Internal Revenue Service
issued a notice in 2007 indicating that it and the Treasury Department are actively considering whether, among other issues, you
should be required to accrue interest over the term of an instrument such as the Securities at a rate that may exceed the contingent
coupon payments (if any) that you receive on the Securities and whether all or part of the gain you may recognize upon the sale,
redemption or maturity of an instrument such as the Securities could be treated as ordinary income. Similarly, the Internal Revenue
Service and the Treasury Department have current projects open with regard to the tax treatment of pre-paid forward contracts
and contingent notional principal contracts. While it is impossible to anticipate how any ultimate guidance would affect the tax
treatment of instruments such as the Securities (and while any such guidance may be issued on a prospective basis only), such
guidance could be applied retroactively and could in any case (i) increase the likelihood that you will be required to accrue
income even if you do not receive any payments with respect to the Securities until redemption or maturity and (ii) require you
accrue income in excess of any contingent coupon payments you receive on the Securities. The outcome of this process is uncertain.
In addition, any character mismatch arising from your inclusion of ordinary income in respect of the contingent coupon payments
and capital loss (if any) upon the sale or maturity of your Securities may result in adverse tax consequences to you because an
investor’s ability to deduct capital losses is subject to significant limitations. You should consult your tax advisor as
to the possible alternative treatments in respect of the Securities.
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♦
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Many economic and market factors will impact the value
of the Securities
— In addition to the price of the underlying equity on any day, the value of the Securities will be
affected by a number of economic and market factors that may either offset or magnify each other, including:
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o
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the expected volatility of the underlying equity, the
underlying index and securities comprising the underlying index;
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o
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the time to maturity of the Securities;
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o
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the dividend rate underlying the underlying equity;
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o
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interest and yield rates in the market generally;
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o
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a variety of economic, financial, political, regulatory
or judicial events;
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o
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the supply and demand for the Securities; and
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o
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our creditworthiness, including actual or anticipated
downgrades in our credit ratings
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♦
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Certain features of exchange-traded funds will impact
the value of the underlying equity and the value of the Securities
—
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o
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Management risk.
This is the risk that the investment
strategy for the underlying equity, the implementation of which is subject to a number of constraints, may not produce the intended
results. An investment in or linked to an exchange-traded fund involves risks similar to those of investing in any fund of equity
securities traded on an exchange, such as market fluctuations caused by such factors as economic and political developments, changes
in interest rates and perceived trends in security prices. However, because exchange-traded funds are not “actively”
managed, they generally do not take defensive positions in declining markets or would not sell a security because the security’s
issuer was in financial trouble. Therefore, the performance of an exchange-traded fund could be lower than other types of mutual
funds that may actively shift their portfolio assets to take advantage of market opportunities or to lessen the impact of a market
decline.
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o
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Derivatives risk.
Exchange-traded funds may invest
in futures contracts, options on futures contracts, other types of options and swaps and other derivatives. A derivative is a
financial contract, the value of which depends on, or is derived from, the value of an underlying asset. Compared to conventional
securities, derivatives can be more sensitive to changes in interest rates or to sudden fluctuations in market prices, and thus
an exchange-traded fund’s losses, and, as a consequence, the losses of your Securities, may be greater than if the exchange-traded
fund invested only in conventional securities.
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o
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The underlying equity may underperform the underlying
index
— The performance of the exchange-traded fund may not replicate the performance of, and may underperform, the
underlying index. Exchange-traded funds will reflect transaction costs and fees that will reduce their relative performances.
Moreover, it is also possible that the underlying equity may not fully replicate or may, in certain circumstances, diverge significantly
from the performance of their respective underlying assets or indices. Because the return on your Securities is linked to the
performance of the underlying equity and not its underlying assets, the return on your Securities may be less than that of an
alternative investment linked directly to the underlying assets of the Securities or the stocks comprising the underlying index.
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♦
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The stocks comprising the underlying equity are concentrated
in one industry
— As described herein, the underlying equity is designed to replicate, as closely as possible, before
fees and expenses, the total return of the S&P Metals & Mining Select Industry Index (referred to in this paragraph as
the “underlying index”). In order to achieve its objective, under normal market conditions, the underlying equity
generally invests substantially all of its total assets in the securities comprising the underlying index. All of the stocks included
in the underlying index are issued by companies in the metals and mining industry. As a result, the stocks that will, under normal
market conditions, determine the performance of the underlying equity are concentrated in one sector. Although an investment in
the Securities will not give holders any ownership or other direct interests in the stocks comprising the underlying equity, the
return on an investment in the Securities will be subject to certain risks associated with a direct equity investment in companies
in the metals and mining industry. Accordingly, by investing in the Securities, holders will not benefit from the diversification
that could result from an investment linked to companies that operate in multiple sectors, and the Securities could be more volatile
than an investment linked to a more diversified index fund.
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♦
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The performance of the underlying equity is generally
linked to the performance of the metals and mining industry
— Under normal market conditions, the underlying equity
invests substantially all of its assets in the stock of companies in the metals and mining industry. Any adverse developments
in the metals and mining industry resulting from such factors may have a negative effect on the value of your Securities. The
profitability of these companies depends on many complex and interrelated factors, including, among others, fluctuations in the
market prices of the metals or other commodities produced or sold by such companies, the availability of energy supplies and natural
resources and costs associated with compliance with numerous environmental laws and regulations. However, while the market price
of metals and other commodities will have an impact on the value of the underlying equity, the Securities are not directly linked
to the value of such metals and other commodities.
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Hypothetical Examples of how the Securities Perform
The examples below illustrate the payment upon a call or at maturity for a $10.00 Security based on certain hypothetical scenarios as set forth below,. The hypothetical scenarios set forth below are for illustrative purposes
only and may not represent the actual total returns applicable to a purchaser of the Securities. Numbers in the examples below have been rounded for ease of analysis:
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Principal Amount:
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$10.00
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Term:
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5 years
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Initial Price:
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$45.89
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Contingent Coupon Rate:
|
8.00% per annum (or 2.000% per quarter)
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Contingent Coupon:
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$0.20 per quarter
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Observation Dates:
|
Observation Dates will occur quarterly as set forth under “Final Terms” and
“Observation Dates/Coupon Payment Dates/Call Settlement Dates” in this pricing supplement and will be callable beginning on the fourth observation date.
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Coupon Barrier:
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$29.37 (which is 64% of the Initial Price)
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Trigger Price:
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$29.37 (which is 64% of the Initial Price)
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Example 1 — Securities are Called on the Fourth Observation Date
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Date
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Closing Price
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Payment (per Security)
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First Observation Date
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$55.00
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Closing price of underlying equity above Initial Price, Securities NOT
called; above Coupon Barrier, Issuer pays contingent coupon payment of $0.20 on first Coupon Payment Date.
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Second Observation Date
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$25.00
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Closing price of underlying equity below Initial Price, Securities NOT
called; below Coupon Barrier, Issuer DOES NOT pay contingent coupon payment on second Coupon Payment Date.
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Third Observation Date
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$35.00
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Closing price of underlying equity below Initial Price, Securities NOT
called; above Coupon Barrier, Issuer pays contingent coupon payment of $0.20 on third Coupon Payment Date.
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Fourth Observation Date
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$55.00
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Closing price of underlying equity at or above Initial Price, Securities are
called; Issuer repays principal plus pays contingent coupon payment of $0.20 on Call Settlement Date.
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Total Payment (per $10.00 Security):
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$10.60 (6.00% total return on the Securities)
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Because the closing price of the underlying equity is equal to or greater than the Initial Price on the fourth Observation Date (which is approximately 1 year after the trade date and is the first Observation Date on which the
Securities are callable), the Securities are called on the fourth Observation Date. The Issuer will pay you on the Call Settlement Date $10.20 per $10.00 principal amount Security, which is equal to your principal amount plus the contingent coupon
payment due in connection with the fourth Observation Date.
In addition, because the closing price of the underlying equity was equal to or greater than the Coupon Barrier on the first and third Observation Dates, the Issuer will pay the contingent coupon payment of $0.20 on the first
and third Coupon Payment Dates. However, because the closing price of the underlying equity was less than the Coupon Barrier on the second Observation Date, the Issuer will not pay any contingent coupon payment on the Coupon Payment Date following the
second Observation Date.
Example 2 — Securities are NOT Called and the Final Price is above the Trigger Price on the Final Valuation Date
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Date
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Closing Price
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Payment (per Security)
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First Observation Date
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$35.00
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Closing price of underlying equity below Initial Price, Securities NOT
called; above Coupon Barrier, Issuer pays contingent coupon payment of $0.20 on first Coupon Payment Date.
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Second Observation Date
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$20.00
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Closing price of underlying equity below Initial Price, Securities NOT
called; below Coupon Barrier, Issuer DOES NOT pay contingent coupon payment on second Coupon Payment Date.
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Third Observation Date
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$27.00
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Closing price of underlying equity below Initial Price, Securities NOT called; below Coupon
Barrier, Issuer DOES NOT pay contingent coupon payment on third Coupon Payment Date.
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Fourth to Nineteenth Observation Dates
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Various
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Closing price of underlying equity below Initial Price, Securities NOT
called; below Coupon Barrier, Issuer DOES NOT pay contingent coupon payment on any Coupon Payment Date from the fourth to
the nineteenth Observation Dates.
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Twentieth Observation Date(the Final Valuation Date)
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$45.00
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Closing price of underlying equity below Initial Price, Securities NOT
called; Final Price above Trigger Price and Coupon Barrier, Issuer repays principal plus pays contingent coupon payment of
$0.20 on Maturity Date.
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Total Payment (per $10.00 Security):
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$10.40 (4.00% total return on the Securities)
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Because the closing price of the underlying equity was less than the Initial Price on each Observation Date on and after the fourth Observation Date (which is approximately 1 year after the trade date and is the first
Observation Date on which the Securities are callable), the Securities are not called. Because the Final Price is equal to or greater than the Trigger Price and Coupon Barrier, at maturity, the Issuer will pay you $10.20 per $10.00 principal amount
Security, which is equal to your principal amount plus the contingent coupon payment due in connection with the twentieth Observation Date.
In addition, because the closing price of the underlying equity was equal to or greater than the Coupon Barrier on the first Observation Date, the Issuer will pay the contingent coupon payment of $0.20 on the first Coupon
Payment Date. However, because the closing price of the underlying equity was less than the Coupon Barrier on the second Observation Date, the third Observation Date and on the fourth through nineteenth Observation Dates, the Issuer will not pay any
contingent coupon payment on the Coupon Payment Dates following the second Observation Date, the third Observation Date and on the fourth through nineteenth Observation Dates.
Example 3— Securities are NOT Called and the Final Price is below the Trigger Price on the Final Valuation Date
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Date
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Closing Price
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Payment (per Security)
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First Observation Date
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$20.00
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Closing price of underlying equity below Initial Price, Securities NOT
called; below Coupon Barrier, Issuer DOES NOT pay contingent coupon payment on first Coupon Payment Date.
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Second Observation Date
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$25.00
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Closing price of underlying equity below Initial Price, Securities NOT
called; below Coupon Barrier, Issuer DOES NOT pay contingent coupon payment on second Coupon Payment Date.
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Third Observation Date
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$28.00
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Closing price of underlying equity below Initial Price, Securities NOT
called; below Coupon Barrier, Issuer DOES NOT pay contingent coupon payment on third Coupon Payment Date.
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Fourth to Nineteenth Observation Dates
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Various
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Closing price of underlying equity below Initial Price, Securities NOT
called; below Coupon Barrier, Issuer DOES NOT pay contingent coupon payment on any Coupon Payment Dates from the fourth to
the nineteenth Observation Dates.
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Twentieth Observation Date (the Final Valuation Date)
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$20.65
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Closing price of underlying equity below Initial Price, Securities NOT
called; below Coupon Barrier and Trigger Price, Issuer DOES NOT pay contingent coupon payment on Maturity Date, and Barclays
Bank PLC will repay less than the principal amount resulting in a loss proportionate to the decline of the underlying
equity.
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Total Payment (per $10.00 Security):
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$4.50 (a 55.00% loss on the Securities)
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Because the closing price of the underlying equity is less than the Initial Price on each Observation Date on and after the fourth Observation Date (which is approximately 1 year after the trade date and is the first
Observation Date on which the Securities are callable), the Securities are not called. Because the Final Price is less than the Trigger Price on the Final Valuation Date, at maturity, the Issuer will pay you a total of $4.50 per $10.00 principal amount,
calculated as follows:
$10.00 × (1 + Underlying Return) = $10.00 × (1 + -55.00%) = $4.50
In addition, because the closing price of the underlying equity is less than the Coupon Barrier on each Observation Date, the Issuer will not pay any contingent coupon payments over the term of the Securities.
What are the material tax consequences of the Securities?
The material tax consequences of your investment in the Securities are summarized below. The discussion below supplements the discussion under “Certain U.S. Federal Income Tax Considerations” in the accompanying
prospectus supplement. Except as noted under “Non-U.S. Holders” below, this section applies to you only if you are a U.S. holder (as defined in the accompanying prospectus supplement) and you hold your Securities as capital assets for tax
purposes and does not apply to you if you are a member of a class of holders subject to special rules or are otherwise excluded from the discussion in the prospectus supplement (for example, if you did not purchase your Securities in the initial issuance
of the Securities). In addition, this discussion does not apply to you if you purchase your Securities for less than the principal amount of the Securities.
The United States federal income tax consequences of your investment in the Securities are uncertain and the Internal Revenue Service could assert that the Securities should be taxed in a manner that is different than
described below. Pursuant to the terms of the Securities, Barclays Bank PLC and you agree, in the absence of a change in law or an administrative or judicial ruling to the contrary, to characterize your Securities as a contingent income bearing executory
contract with respect to the underlying equity.
If your Securities are properly treated as a contingent income-bearing executory contract, it would be reasonable (i) to treat any contingent coupon payments you receive on the Securities as items of ordinary income taxable in
accordance with your regular method of accounting for U.S. federal income tax purposes and (ii) to recognize capital gain or loss upon the sale, redemption or maturity of your Securities in an amount equal to the difference (if any) between the amount
you receive at such time (other than amounts attributable to a contingent coupon payment) and your basis in the Securities for U.S. federal income tax purposes. Such gain or loss should generally be long-term capital gain or loss if you have held your
Securities for more than one year. Any character mismatch arising from your inclusion of ordinary income in respect of the contingent coupon payments and capital loss (if any) upon the sale or maturity of your Securities may result in adverse tax
consequences to you because an investor’s ability to deduct capital losses is subject to significant limitations.
In the opinion of our special tax counsel, Sullivan & Cromwell LLP, it would be reasonable to treat your Securities in the manner described above. This opinion assumes that the description of the terms of the Securities in
this pricing supplement is materially correct.
NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW YOUR SECURITIES SHOULD
BE TREATED FOR U.S. FEDERAL INCOME TAX PURPOSES. AS A RESULT, THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF YOUR INVESTMENT IN
THE SECURITIES ARE UNCERTAIN. ACCORDINGLY, WE URGE YOU TO CONSULT YOUR TAX ADVISOR AS TO THE TAX CONSEQUENCES OF INVESTING IN
THE SECURITIES.
Alternative Treatments.
As discussed further in the accompanying prospectus supplement, the Treasury Department and the Internal Revenue Service are actively considering various alternative treatments that may apply to
instruments such as the Securities, possibly with retroactive effect. Other alternative treatments for your Securities may also be possible under current law. For example, it is possible that the Securities could be treated as a debt instrument that is
subject to the special tax rules governing contingent payment debt instruments. Under the contingent payment debt instrument rules, you generally would be required to accrue interest on a current basis in respect of the Securities over their term based
on the comparable yield and projected payment schedule for the Securities and pay tax accordingly, even though these amounts may exceed the contingent coupon payments (if any) that are made on the Securities. You would also be required to make
adjustments to your accruals if the actual amounts that you receive in any taxable year differ from the amounts shown on the projected payment schedule. In addition, any gain you may recognize on the sale, redemption or maturity of the Securities would
be taxed as ordinary interest income and any loss you may recognize on the sale, redemption or maturity of the Securities would generally be ordinary loss to the extent of the interest you previously included as income without an offsetting negative
adjustment and thereafter would be capital loss. You should consult your tax advisor as to the special rules that govern contingent payment debt instruments.
It is also possible that your Securities could be treated as an investment unit consisting of (i) a debt instrument that is issued to you by us and (ii) a put option in respect of the underlying equity that is issued by you to
us. You should consult your tax advisor as to the possible consequences of this alternative treatment
It is also possible that (i) you should not include the contingent coupon payments(if any) in income as you receive them and instead you should reduce your basis in your Securities by the amount of the contingent coupon
payments that you receive; (ii) you should not include the contingent coupon payments (if any) in income as you receive them and instead, upon the sale, redemption or maturity of your Securities, you should recognize short-term capital gain or loss in an
amount equal to the difference between (a) the amount of the contingent coupon payments made to you over the term of the Securities (including the contingent coupon payment received at redemption or maturity or the amount of cash that you receive upon a
sale that is attributable to the contingent coupon payments to be made on the Securities) and (b) the excess (if any) of (1) the amount you paid for your Securities over (2) the amount of cash you receive upon sale, redemption or maturity (excluding the
contingent coupon payment received at redemption or maturity or the amount of cash that you receive upon a sale that is attributable to the contingent coupon payments to be made on the Securities); or (iii) if a contingent coupon payment is made at
redemption or maturity, such contingent coupon payment should not separately be taken into account as ordinary income but instead should increase the amount of capital gain or decrease the amount of capital loss that you recognize at such time.
You should consult your tax advisor with respect to these possible alternative treatments.
For a further discussion of the tax treatment of your Securities as well as other possible alternative characterizations, please see the discussion under the heading “Certain U.S. Federal Income Tax
Considerations—Certain Notes Treated as Forward Contracts or Executory Contracts” in the accompanying prospectus supplement. You should consult your tax advisor as to the possible alternative treatments in respect of the Securities. For
additional, important considerations related to tax risks associated with investing in the Securities, you should also examine the discussion in “Key Risks—Taxes”, in this pricing supplement.
“Specified Foreign Financial Asset” Reporting.
Under legislation enacted in 2010, owners of “specified foreign financial assets” with an aggregate value in excess of $50,000 (and in some
circumstances, a higher threshold) may be required to file an information report with respect to such assets with their tax returns. “Specified foreign financial assets” generally include any financial accounts
maintained by foreign financial institutions, as well as any of the following (which may include your Securities), but only if they are not held in accounts maintained by financial institutions: (i) stocks and securities
issued by non-U.S. persons, (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties and (iii) interests in foreign entities. Holders are urged to consult their tax advisors regarding the application of
this legislation to their ownership of the Securities.
Non-U.S. Holders.
Barclays currently does not withhold on coupon payments to non-U.S. holders in respect of instruments such as the Securities. However, if Barclays determines that there is a material risk that it will
be required to withhold on any such payments, Barclays may withhold on any contingent coupon payments at a 30% rate, unless you have provided to Barclays (i) a valid Internal Revenue Service Form W-8ECI or (ii) a valid Internal Revenue Service Form
W-8BEN claiming tax treaty benefits that reduce or eliminate withholding. If Barclays elects to withhold and you have provided Barclays with a valid Internal Revenue Service Form W-8BEN claiming tax treaty benefits that reduce or eliminate withholding,
Barclays may nevertheless withhold up to 30% on payments it makes to you if there is any possible characterization of the payments that would not be exempt from withholding under the treaty. In addition, non-U.S. holders will be subject to the general
rules regarding information reporting and backup withholding as described under the heading “Certain U.S. Federal Income Tax Considerations— Information Reporting and Backup Withholding “ in the accompanying prospectus supplement.
In addition, the Treasury Department has issued proposed regulations under Section 871(m) of the Internal Revenue Code which could ultimately require us to treat all or a portion of any payment in respect of your Securities as
a “dividend equivalent” payment that is subject to withholding tax at a rate of 30% (or a lower rate under an applicable treaty). However, such withholding would potentially apply only to payments made after December 31, 2013. You could also
be required to make certain certifications in order to avoid or minimize such withholding obligations, and you could be subject to withholding (subject to your potential right to claim a refund from the Internal Revenue Service) if such certifications
were not received or were not satisfactory. You should consult your tax advisor concerning the potential application of these regulations to payments you receive with respect to the Securities when these regulations are finalized.
Information about the Underlying Equity
We urge you to read the following section in the accompanying prospectus supplement: “Reference Assets—Exchange-Traded Funds—Reference Asset Investment Company and Reference Asset Information”.
Companies with securities registered under the Securities Exchange Act of 1934, as amended, which is commonly referred to as the “Exchange Act”, and the Investment Company Act of 1940, as amended, which is commonly referred to as the
“40 Act”, are required to periodically file certain financial and other information specified by the SEC. Information provided to or filed with the SEC electronically can be accessed through a website maintained by the SEC. The address of the
SEC’s website is http://www.sec.gov. Information provided to or filed with the SEC by the issuer issuing the underlying equity can be located by reference to the SEC file numbers specified below.
The summary information below regarding the issuer issuing the underlying equity comes from the issuer’s SEC filings and has not been independently verified by us. We do not make any representations as to the accuracy or
completeness of such information or of any filings made by the issuer of the underlying equity with the SEC. You are urged to refer to the SEC filings made by the issuer and to other publicly available information (such as the issuer’s annual
report) to obtain an understanding of the issuer’s business and financial prospects. The summary information contained below is not designed to be, and should not be interpreted as, an effort to present information regarding the financial prospects
of any issuer or any trends, events or other factors that may have a positive or negative influence on those prospects or as an endorsement of any particular issuer.
THE SPDR
®
S&P
®
METALS & MINING ETF
We have derived all information contained in this pricing supplement regarding the SPDR
®
S&P
®
Metals & Mining ETF (the “Metals & Mining ETF”), including, without
limitation, its make-up, method of calculation and changes in its components, from publicly available information. Such information reflects the policies of, and is subject to change by SPDR
®
Series Trust and SSgA Funds Management, Inc.
(“SSFM”). We have not independently verified any of the information herein obtained from outside sources. The Metals & Mining ETF is an investment portfolio maintained and managed by SSFM. SSFM is the investment adviser to the Metals
& Mining ETF. The Metals & Mining ETF is an exchange-traded fund (“ETF”) that trades on the NYSE Arca under the ticker symbol “XME.” The inception date of the Metals & Mining ETF is June 19, 2006.
The SPDR
®
Series Trust consists of separate investment portfolios (each, a “SPDR
®
Series Fund”). Each SPDR
®
Series Fund is an index fund that invests in a particular
industry or group of industries represented by one of the S&P Select Industry Indices (the “Select Industry Indices” and each, a “Select Industry Index”). The companies included in each Select Industry Index are selected on
the basis of Global Industry Classification Standards (“GICS”) from a universe of companies defined by the S&P
®
Total Market Index (the “S&P TM Index”), a U.S. total market composite index. The investment
objective of each Select Industry SPDR
®
Fund is to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in a particular
industry or group of industries, as represented by the relevant Select Industry Index.
SPDR
®
Series Trust is a registered investment company that consists of numerous separate investment portfolios, including the Metals & Mining ETF. Information provided to or filed with the SEC by
SPDR
®
Series Trust pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to SEC file numbers 333-57793 and 811-08839, respectively, through the SEC’s website at http://www.sec.gov.
For additional information regarding SPDR
®
Series Trust, SSFM or the Metals & Mining ETF, please see the SPDR
®
Series Trust’s prospectus. In addition, information about SPDR
®
Series Trust, SSFM
and the Metals & Mining ETF may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents and the SPDR
®
Series Trust website at https://www.spdrs.com. We
have not independently verified any of the information herein obtained from outside sources. Information contained in the SPDR
®
Series Trust website is not incorporated by reference in, and should not be considered a part of, this pricing
supplement.
The Metals & Mining ETF seeks to replicate as closely as possible, before fees and expenses, the total return of the S&P Metals & Mining Select Industry Index (the “Metals & Mining Index”). The
Metals & Mining Index represents the metals and mining sub-industry portion of the U.S. equity market. As of September 30, 2012, the Metals & Mining ETF included 41 companies.
In seeking to track the performance of the Metals & Mining Index, the Metals & Mining ETF employs a “replication” strategy, which means that the Metals & Mining ETF typically invests in substantially
all of the securities represented in the Metals & Mining Index in approximately the same proportions as the Metals & Mining Index. Under normal market conditions, the Metals & Mining ETF generally invests substantially all, but at least 80%,
of its total assets in the securities included in the Metals & Mining Index. In addition, the Metals & Mining ETF may invest in equity securities that are not included in the Metals & Mining Index, cash and cash equivalents or money market
instruments, such as repurchase agreements and money market funds (including money market funds advised by SSFM).
THE S&P
®
METALS & MINING SELECT INDUSTRY INDEX
We have derived all information contained in this pricing supplement regarding the S&P
®
Metals & Mining Select Industry TR Index (the “Metals & Mining Index”), including, without
limitation, its make-up, method of calculation and changes in its components, from publicly available information. Such information reflects the policies of, and is subject to change by, S&P Dow Jones Indices LLC (“S&P”). We have not
independently verified such information. S&P has no obligation to continue to calculate and publish, and may discontinue calculation and publication of the Metals & Mining Index.
The Metals & Mining Index is an equal-weighted index that is designed to measure the performance of the metals & mining sub-industry portion of the S&P Total Market Index (“S&P TM Index”), a
benchmark that measures the performance of the U.S. equity market. The S&P TM Index includes all U.S. common equities listed on the New York Stock Exchange (including NYSE Arca), the NYSE Amex, the NASDAQ Global Select Market, the NASDAQ Select
Market and the NASDAQ Capital Market. Each of the component stocks in the Metals & Mining Index is a constituent company within the metals and mining sub-industry of the S&P TM Index. The Metals & Mining Index is reported by Bloomberg L.P.
under the ticker symbol “SPSIMMTR.” As of December 31, 2012, the Metals & Mining Index was comprised of 38 constituent stocks.
Index Eligibility
Membership is based on a company’s Global Industry Classification Standard (GICS
®
) classification, as well as liquidity and market cap requirements. For purposes of membership in a Select Industry Index,
S&P applies the inclusion and exclusion criteria separately.
Index Inclusion Criteria
To be eligible for inclusion in a Select Industry Index, companies must be in the S&P TM Index and must satisfy one of the two following combined size and liquidity criteria:
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1.
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float-adjusted market capitalization above US$500 million
and float-adjusted liquidity ratio (“FALR”) above 90%; or
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2.
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float-adjusted market capitalization above US$400 million
and float-adjusted liquidity ratio above 150%.
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All companies satisfying the above requirements are included in a 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.
Index Exclusion Criteria
Existing index constituents are removed at the quarterly rebalancing effective date if either their float-adjusted market capitalization falls below US$300 million or their FALR falls below 50%.
Eligibility Factors
Market Capitalization.
Float-adjusted market capitalization should be at least US$400 million for inclusion in a Select Industry Index. Existing index components must have a float-adjusted market capitalization of
US$300 million to remain in the applicable Select Industry Index at each rebalancing.
Liquidity.
The liquidity measurement used is a liquidity ratio, defined as dollar value traded over the previous 12-months divided by the float-adjusted market capitalization as of the applicable Select Industry Index
rebalancing reference date.
Stocks having a float-adjusted market capitalization above US$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 US$400 and US$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 the applicable
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.
U.S. companies only.
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.
The Metals & Mining Index includes companies classified in the following GICS sub-industries: Aluminum, Coal & Consumable Fuels, Diversified Metals & Mining, Gold, Precious Metals
& Minerals and Steel.
Timing of Changes
Index 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.
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 Index’s treatment of the action. If the S&P TM Index treats the
pre- and post-spun company as a deletion/addition action, using the stock’s 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 Construction and Calculations
The Select Industry Indices are equal-weighted, with adjustments to constituent weights to ensure concentration and liquidity requirements, and calculated by the divisor methodology used in all S&P equity
indices.
The value of a Select Industry Index is calculated as the
quotient
of (1) the
sum
of the
products
of (a) the float-adjusted market value for each common stock included in the Select Industry Index and (b)
the adjustment weight factor for each applicable common stock and (2) the index divisor.
The “float-adjusted market value” is calculated as the
product
of (1) the price of each common stock included in the Select Industry Index, (2) the total shares outstanding of each applicable common stock
and (3) the investable weight factor for each applicable common stock. The investable weight factor is calculated by
dividing
(1) the available float shares
by
(2) the total shares outstanding. Available float shares reflect float
adjustments made to the total shares outstanding.
The “adjustment weight factor” is calculated by
dividing
(1) the index specific constant
by
(2) the
product
of (a) the number of stocks in the index and (b) the float-adjusted market
value.
The initial divisor is set to have a base index value of 1000 on December 17, 1999. The index divisor is adjusted at each rebalancing such that the index value at an instant just prior to a change in base capital equals the
index value at an instant immediately following that change. Rebalancings occur after the close on the third Friday of the last month of each quarter.
The total return counterpart of a Select Industry Index assumes that dividends are reinvested in the Select Industry Index after the close on the ex-dividend date. The total return value of a Select Industry Index
(“Select Industry Total Return Index”) is calculated as the
product
of (1) the value of the Select Industry Total Return Index at the previous day’s close and (2) the total return multiplier. The “total return
multiplier” is equal to the
quotient
of (1) the
sum
of (a) the index dividend points and (b) the value of the corresponding Select Industry Index and (2) the value of such Select Industry Index at the previous day’s close.
The “index dividend points” are calculated as the
quotient
of (1) the
sum
of the
products
of (a) the index shares for each common stock included in the Select Industry Index and (b) the
ex-dividend amount for each applicable common stock and (2) the index divisor. The “index shares” refers to each stock’s share count used in the index calculation.
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 US$ 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 US$ 500 million. Each stock’s 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 that 4.5%. This step of the iterative weighting process 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. If a Select Industry Index contains exactly 22 companies as of the rebalancing effective date such index will be equally weighted
without basket liquidity constraints.
Index Maintenance
Index maintenance will follow the S&P TM Index and treatment of corporate actions should be the same as the S&P TM Index. In particular, treatment of spin-offs, special dividends and other corporate actions will be the
same.
Membership to 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.
Additional information about the Select Sector Indices and the S&P TM Index is available on the following website:
www.spindices.com
. Information contained in the S&P website is not incorporated by reference in,
and should not be considered part of, this pricing supplement.
Historical Information
The following table sets forth the quarterly high and low closing prices for the underlying equity, based on daily closing prices on the NYSE Arca, as reported by Bloomberg. The closing price of the underlying equity on
January 8, 2013 was $45.89. The historical performance of the underlying equity should not be taken as an indication of the future performance of the underlying equity during the term of the Securities.
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Quarter Begin
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Quarter End
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Quarterly High
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Quarterly Low
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Quarterly Close
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4/3/2006
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6/30/2006
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$49.48
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$45.32
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$49.48
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7/3/2006
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9/26/2006
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$50.73
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$39.71
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$41.67
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10/2/2006
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12/29/2006
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$53.18
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$39.67
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$49.14
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1/3/2007
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3/30/2007
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$57.49
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$47.01
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$57.21
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4/2/2007
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6/29/2007
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$67.10
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$58.10
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$62.53
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7/2/2007
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9/28/2007
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$67.76
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$52.97
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$63.70
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10/1/2007
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12/31/2007
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$71.40
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$61.21
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$69.48
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1/2/2008
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3/31/2008
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$77.53
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$57.85
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$70.01
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4/1/2008
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6/30/2008
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$94.24
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$71.36
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$94.24
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7/1/2008
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9/30/2008
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$92.77
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$43.99
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$47.08
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10/1/2008
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12/31/2008
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$44.44
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$17.37
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$27.79
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1/2/2009
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3/31/2009
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$32.49
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$20.79
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$25.14
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4/1/2009
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6/30/2009
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$43.00
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$26.36
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$37.01
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7/1/2009
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9/30/2009
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$49.62
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$32.87
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$45.64
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10/1/2009
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12/31/2009
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$53.55
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$42.35
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$51.61
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1/1/2010
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3/31/2010
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$58.73
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$45.48
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$56.81
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4/1/2010
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6/30/2010
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$59.95
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$45.69
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$45.69
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7/1/2010
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9/30/2010
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$53.81
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$44.73
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$53.48
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10/1/2010
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12/31/2010
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$69.01
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$53.09
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$68.78
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1/3/2011
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3/31/2011
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$74.28
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$65.53
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$74.28
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4/1/2011
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6/30/2011
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$76.48
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$62.77
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$69.41
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7/1/2011
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9/30/2011
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$71.80
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$44.82
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$44.82
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10/1/2011
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12/30/2011
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$58.99
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$41.88
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$48.99
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1/2/2012
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3/30/2012
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$56.78
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$48.69
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$49.70
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4/1/2012
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6/29/2012
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$50.58
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$38.40
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$41.44
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7/1/2012
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9/28/2012
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$47.70
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$37.25
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$43.52
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10/1/2012
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12/31/2012
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$46.80
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$40.56
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$45.14
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1/2/2013
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1/8/2013
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*
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$46.68
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$45.89
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$45.89
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*
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As of the date of this pricing supplement information for
the first calendar quarter of 2013 includes data for the period from January 2, 2013 through January 8, 2013. Accordingly the
“Quarterly High,” “Quarterly Low,” and “Quarterly Close” data indicated are for this shortened
period only and do not reflect complete data for the first quarter of 2013.
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The graph below illustrates the performance of the underlying equity from June 22, 2006 to January 8, 2013. The dotted line represents the Coupon Barrier and Trigger Price of $29.37, which is equal to 64% of the closing price
on January 8, 2013.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
The graph set forth above shows the historical performance of the underlying equity based on the daily closing price of the underlying equity. We obtained the closing prices above from Bloomberg. We have not independently
verified any of the information herein obtained from outside sources.
Historical performance of the underlying equity is not an indication of future performance. Future performance of the underlying equity may differ significantly from historical
performance, either positively or negatively. We cannot give you assurance that the performance of the underlying equity will result in the return of any of your initial investment.
Supplemental Plan of Distribution
We have agreed to sell to Barclays Capital Inc. and UBS Financial Services Inc., together the “Agents”, and the Agents have agreed to purchase, all of the Securities at the price indicated on the cover of this
pricing supplement, the document that has been filed pursuant to Rule 424(b)(2) and contains the final pricing terms of the Securities. UBS Financial Services Inc. may allow a concession not in excess of the underwriting discount set forth on the cover
of the pricing supplement to its affiliates.
We or our affiliates have entered or will enter into swap agreements or related hedge transactions with one of our other affiliates or unaffiliated counterparties in connection with the sale of the Securities and the Agents
and/or an affiliate may earn additional income as a result of payments pursuant to the swap, or related hedge transactions.
We have agreed to indemnify the Agents against liabilities, including certain liabilities under the Securities Act of 1933, as amended, or to contribute to payments that the Agents may be required to make relating to these
liabilities as described in the prospectus and the prospectus supplement. We have agreed that UBS Financial Services Inc. may sell all or a part of the Securities that it purchases from us to its affiliates at the price that is indicated on the cover of
this pricing supplement that is available in connection with the sale of the Securities.