What are the tax consequences of the Notes?
The following discussion (in conjunction with the discussion in the prospectus supplement) summarizes certain of the material U.S. federal income tax consequences of the purchase, beneficial ownership, and disposition of
Notes. This summary supplements the section “Certain U.S. Federal Income Tax Considerations” in the prospectus supplement and supersedes it to the extent inconsistent therewith.
We intend to treat the Notes as contingent payment debt instruments subject to taxation as described under the heading “Certain U.S. Federal Income Tax Considerations—U.S. Federal Income Tax Treatment of the
Notes as Indebtedness for U.S. Federal Income Tax Purposes—Contingent Payment Debt Instruments” in the prospectus supplement. As a result, you may be required to include original issue discount (“OID”) in income during your
ownership of the Notes in excess of any cash payments made with respect to the Notes during one or more taxable years. We intend to treat the excess of any non-contingent payments on the Notes (i.e., the initial 8.00% interest rate) in an accrual period
over the product of the comparable yield of the Notes and their adjusted issue price as a nontaxable return of principal which, in turn, will reduce the “adjusted issue price” of the Notes. Additionally, any gain recognized on a sale, upon
maturity, or on any other disposition of the Notes will be treated as ordinary income. Pursuant to the terms of the Notes, you agree to treat the Notes consistent with our treatment for all U.S. federal income tax purposes.
You may obtain the comparable yield and the projected payment schedule of the Notes by requesting them from Director –Structuring, Investor Solutions Americas, at (212) 412-1101. The comparable yield and the projected
payment schedule are neither predictions nor guarantees of the actual yield on the Notes.
Because there are no statutory provisions, regulations, published rulings or judicial decisions addressing the characterization for U.S. federal income tax purposes of securities with terms that are substantially the same
as those of the Notes, other characterizations and treatments are possible. As a result, the timing and character of income in respect of the Notes might differ from the treatment described above.
3.8% Medicare Tax On “Net Investment Income”
U.S. holders that are individuals, estates, and certain trusts are subject to an additional 3.8% tax on all or a portion of their “net investment income,” which may include the interest payments, any OID, and
any gain realized with respect to the Notes, to the extent that their net investment income, when added to their other modified adjusted gross income, exceeds $200,000 for an unmarried individual, $250,000 for a married taxpayer filing a joint return (or
a surviving spouse), or $125,000 for a married individual filing a separate return. U.S. holders should consult their advisors with respect to their consequences with respect to the 3.8% Medicare tax.
Information Reporting
Holders that are individuals (and, to the extent provided in future regulations, entities) may be subject to certain foreign financial asset reporting obligations with respect to their Notes if the aggregate value of their
Notes and their other “specified foreign financial assets” exceeds $50,000. Significant penalties can apply if a holder fails to disclose its specified foreign financial assets. We urge you to consult your tax advisor with respect to this and
other reporting obligations with respect to your Notes.
Non-U.S. Holders
Barclays currently does not withhold on interest payments to non-U.S. holders in respect of instruments such as the Notes. 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 such payments at a 30% rate, unless non-U.S. holders have provided to Barclays an appropriate and valid Internal Revenue Service Form W-8. 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.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL, AND OTHER
TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES.
Hypothetical Interest Rate and Interest Payment Calculations
As described above, the Initial Interest Rate of 8.00% per annum is payable for each Interest Period up to and excluding April 9, 2014. After the initial Interest Periods for which the Initial Interest Rate is payable, the
Notes provide for a potential interest payment on each Interest Payment Date at a per annum interest rate calculated based on the CMS Spread minus the Fixed Percentage Amount. The following illustrates the process by which the interest rate and interest
payment amount are determined for any such Interest Periods after the Fixed Interest Rate Period.
For purposes of these examples, we assume that the Notes are not being redeemed on the applicable Interest Payment Date pursuant to the Redemption at the Option of the Issuer provisions above. If we exercise our redemption
option, you will receive on the Early Redemption Date the Early Redemption Price applicable to that Early Redemption Date, calculated as described above. The examples below are based on the Minimum Interest Rate of 0.00% per annum, the Maximum Interest
Rate of 8.00% per annum and assume a Fixed Percentage Amount of 0.48%.
Interest Rate Calculation
Step 1: Calculate the Reference Rate.
For each Interest Period commencing on or after April 9, 2014, a value for the Reference Rate is determined by calculating the CMS Spread, which is the difference between the 30 Year CMS Rate and the 5 Year CMS Rate on the
Interest Determination Date for that Interest Period (that is, two New York Business Days prior to the first day of the Interest Period) minus the Fixed Percentage Amount. If the value of the 30 Year CMS Rate is not sufficiently greater than the 5 Year
CMS Rate, the subtraction of the 5 Year CMS Rate and the Fixed Percentage Amount from the 30 Year CMS Rate will result in a negative Reference Rate.
Step 2: Calculate the per annum interest rate for each Interest Payment Date.
For each Interest Period commencing on or after April 9, 2014, the per annum interest rate is determined by multiplying the Multiplier by the Reference Rate, determined on the Interest Determination Date applicable to the
relevant Interest Period as described above, subject to the Minimum Interest Rate and the Maximum Interest Rate. Because the Minimum Interest Rate on the Notes is equal to 0%, if the Reference Rate on any Interest Determination Date is equal to or less
than zero, you would receive no interest payment on the related Interest Payment Date. See “Selected Risk Factors—Reference Rate / Interest Payment Risk”. The per annum interest rate may also be limited to any Maximum Interest Rate
specified on the cover page hereof.
Step 3: Calculate the interest payment amount payable for each Interest Payment Date.
For each Interest Period, once the Calculation Agent has determined the applicable interest rate per annum, the Calculation Agent will calculate the effective interest rate for the Interest Period by multiplying the annual
interest rate determined for that Interest Period by the applicable day count fraction (90/360 in light of the quarterly Interest Payment Dates). The resulting effective interest rate is then multiplied by the relevant principal amount of the Notes to
determine the actual interest amount payable on the related Interest Payment Date. No adjustments to the amount of interest calculated will be made in the event an Interest Payment Date is not a Business Day.
Example Interest Rate and Interest Payment Calculations
The following examples illustrate how the
per annum
interest rate and interest payment amounts would be calculated for a given Interest Period commencing on or after April 9, 2014 under scenarios for the CMS Rates
and the Reference Rate. These examples are based on the applicable Reference Rate for the Notes, which is equal to the difference of the 30 Year CMS Rate
minus
5 Year CMS Rate
minus
the Fixed Percentage Amount of 0.48%, the Multiplier of
4.00, the Minimum Interest Rate of 0.00% and the Maximum Interest Rate of 8.00% per annum (2.00% for each Interest Period). The examples are also based on the Notes having quarterly Interest Payment Dates, and that interest payments will be calculated
using a 30/360 day count basis (such that the applicable day count fraction for the quarterly interest payment for the Interest Period will be 90/360).
The selected hypothetical values and assumptions below have been chosen arbitrarily for the purpose of these examples, and should not be taken as indicative of the terms of any particular Notes or the future performance of
the relevant CMS Rates or the Reference Rate. The specific terms for each issuance of Notes will be determined at the time such Notes are priced. Numbers in the table below have been rounded for ease of analysis. These examples assume that the Notes are
held until maturity, have not been earlier redeemed at the option of the Issuer and do not take into account any tax consequences from investing in the Notes.
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30 Year CMS Rate
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5 Year CMS Rate
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Reference Rate
1
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Interest Rate
(per annum)
2
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Effective
Interest Rate
5
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Interest Payment
Amount
(per $1,000 Note)
6
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3.00%
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4.20%
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–1.68%
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0.00%
3
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0.00%
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$0.00
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4.00%
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4.60%
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–1.08%
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0.00%
3
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0.00%
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$0.00
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5.00%
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5.00%
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-0.48%
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0.00%
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0.00%
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$0.00
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6.00%
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5.30%
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0.22%
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0.88%
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0.22%
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$2.20
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8.00%
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5.60%
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1.92%
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7.68%
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1.92%
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$19.20
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9.00%
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5.70%
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2.82%
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8.00%
4
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2.00%
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$20.00
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1.
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For the Interest Period, the value of the Reference Rate is equal to the CMS Spread
(the 30 Year CMS Rate
minus
the 5 Year CMS Rate)
minus
the Fixed Percentage Amount, as determined on the related
Interest Determination Date.
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2.
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The interest rate per annum is equal to the product of the Multiplier (4) and the
Reference Rate for that Interest Period, subject to the Minimum Interest Rate (0.00%) and the Maximum Interest Rate (8.00%).
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3.
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The interest rate per annum for any Interest Period shall not be less than the Minimum
Interest Rate, in this case 0.00%.
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4.
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The interest rate per annum for any Interest Period shall not be greater than the
Maximum Interest Rate, in this case 8.00% per annum.
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5.
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The effective interest rate for any Interest Period equals the applicable interest
rate per annum multiplied by the day count fraction (90/360).
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6.
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The interest payment amount for an Interest Payment Date equals the principal amount
times the effective interest rate for the related Interest Period.
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Example 1:
If on the Interest Determination Date for the relevant Interest Period the value of the 30 Year CMS Rate is 6.00% and the 5 Year CMS Rate is 5.30%, the Reference Rate for the Interest Period would
be 0.22% (equal to the 30 Year CMS Rate minus the 5 Year CMS Rate minus the Fixed Percentage Amount of 0.48%). In this case, the per annum interest rate for that Interest Period would be 0.88% (equal to the Reference Rate times the Multiplier of 4), and
you would receive an interest payment of $2.20 per $1,000 principal amount of Notes on the related quarterly Interest Payment Date, calculated as follows:
Effective Interest Rate = 0.88% x (90/360) = 0.22%
Interest Payment = $1,000 x 0.22% = $2.20
Example 2:
If on the Interest Determination Date for the relevant Interest Period the value of the 30 Year CMS Rate is 4.00% and the 5 Year CMS Rate is 4.60%, the Reference Rate for the Interest Period would
be –1.08% (equal to the 30 Year CMS Rate minus the 5 Year CMS Rate minus the Fixed Percentage Amount of 0.48%). Because the value of the Reference Rate times the Multiplier of 4 results in a per annum interest rate of –4.32%, which is less
than the Minimum Interest Rate of 0.00%, the per annum interest rate for that Interest Period would be 0.00% (the Minimum Interest Rate), and you would receive no interest payment on the related quarterly Interest Payment Date (the interest payment would
be $0).
Example 3:
If on the Interest Determination Date for the relevant Interest Period the value of the 30 Year CMS Rate is 9.00% and the 5 Year CMS Rate is 5.70%, the Reference Rate for the Interest Period would
be 2.82% (equal to the 30 Year CMS Rate minus the 5 Year CMS Rate minus the Fixed Percentage Amount of 0.48%). Because the value of the Reference Rate times the Multiplier of 4 results in a per annum interest rate of 11.28%, which is greater than the
Maximum Interest Rate of 8.00%, the per annum interest rate for that Interest Period would be equal to the Maximum Interest Rate of 8.00% per annum, and you would receive an interest payment of $20.00 per $1,000 principal amount of Notes on the related
quarterly Interest Payment Date, calculated as follows:
Effective Interest Rate = 8.00% x (90/360) = 2.00%
Interest Payment = $1,000 x 2.00% = $20.00
Key Risks
An investment in the Notes involves significant risks not associated with an investment in conventional floating rate or fixed rate medium term notes. You should read the risks summarized below in connection with, and
the risks summarized below are qualified by reference to, the risks described in more detail in the “Risk Factors” section beginning on page S-6 of the prospectus supplement. We urge you to consult your investment, legal, tax, accounting and
other advisers and to invest in the Notes only after you and your advisors have carefully considered the suitability of an investment in the Notes in light of your particular circumstances.
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Reference Rate / Interest Payment Risk
— Investing in the Notes is not
equivalent to investing in securities directly linked to the relevant CMS Rates or the Reference Rate. Instead, the amount of
interest payable on the Notes (after the initial Interest Periods for which the Initial Interest Rate is payable) is determined
by
multiplying
the (a) applicable Multiplier by (b) the
difference between
the CMS Rates of the two maturities identified
on the cover page hereof (the “CMS Spread”)
minus
the Fixed Percentage Amount (the “Reference Rate”),
as determined on the Interest Determination Date applicable to the relevant Interest Period, subject to the Minimum Interest Rate
and the Maximum Interest Rate. Accordingly, the amount of interest payable on the Notes is dependent on whether, and the extent
to which, the Reference Rate is greater than zero on the Interest Determination Date. If the CMS Spread on any Interest Determination
Date is not sufficiently positive and, after taking the Fixed Percentage Amount into consideration, the resulting Reference Rate
is equal to or less than zero, you would receive no interest payment on the related Interest Payment Date (i.e., the interest
rate for that Interest Payment Date would be equal to the Minimum Interest of 0.00%). If the Reference Rate is equal to or less
than zero on every Interest Determination Date throughout the term of the Notes, then you would receive no interest payments on
your Notes throughout their term (regardless of the value of the Reference Rate on other dates throughout the term of the Notes).
As a result, your return on the Notes may be less than the return you could earn on other fixed income investments with a comparable
maturity.
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Maximum Interest Rate
— The interest rate on the Notes after the Fixed
Interest Rate Period is capped at the Maximum Interest Rate of 8.00% per annum (2.00% per Interest Period). Interest rates may
change significantly over the term of the Notes, and it is impossible to predict what interest rates will be at any point in the
future. Although the interest rate on the Notes (for each Interest Period commencing on or after April 9, 2014) will be based
on the levels of the CMS Rates, the interest that will apply during each such Interest Period may be more or less than other prevailing
market interest rates at such time and in any event will never exceed the applicable Maximum Interest Rate regardless of the levels
of the CMS Rates on any relevant Interest Determination Date. In addition, if the product of the Reference Rate and the Multiplier
of 4.00 is less than the Maximum Interest Rate for any Interest Period after the Fixed Interest Rate Period, the cumulative interest
rate for such year will be less than the Maximum Interest Rate. As a result, the amount of interest you receive on the Notes may
be less than the return you could earn on other traditional fixed income investments with a comparable maturity or investments
that do not cap returns to a maximum interest rate.
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Issuer Credit Risk
— The Notes are our unsecured debt obligations, and
are not, either directly or indirectly, an obligation of any third party. Any payment to be made on the Notes, including any repayment
of principal provided at maturity, depends on our ability to satisfy our obligations as they come due. As a result, the actual
and perceived creditworthiness of Barclays Bank PLC may affect the market value of the Notes and, in the event we were to default
on our obligations, you may not receive any amounts owed to you under the terms of the Notes and could lose your entire investment.
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Early Redemption
— We may redeem the Notes prior to the Maturity Date
on any Interest Payment Date, beginning on April 9, 2014. If you intend to purchase the Notes, you must be willing to have your
Notes redeemed early. We are generally more likely to redeem the Notes during periods when we expect that interest will accrue
on the Notes at a rate that is greater than that which we would pay on our traditional interest-bearing deposits or debt securities
having a maturity equal to the remaining term of the Notes. In general, the more that the 30 Year CMS Rate exceeds 5 Year CMS
Rate—that is, the higher the expected interest payments on the Notes (subject to the Maximum Interest Rate)—the more
likely it will be that we will elect to redeem the Notes. In contrast, we are generally less likely to redeem the Notes during
periods when we expect interest to accrue on the Notes at a rate that is less than that which we would pay on those instruments.
If we redeem the Notes prior to the Maturity Date, accrued interest will be paid on the Notes prior to such early redemption,
but you will not receive any future interest payments from the Notes redeemed and you may be unable to reinvest your proceeds
from the redemption in an investment with a return that is comparable to the Notes if they had not been redeemed.
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Certain Built-In Costs Are Likely to Adversely Affect the Value of the Notes Prior
to Maturity
— The Notes are intended to be held to maturity. Although you will not receive less than the principal amount
of the Notes if you hold the Notes to maturity (subject to Issuer credit risk), the Original Issue Price of the Notes includes
the Agent’s commission and the cost of hedging our obligations under the Notes through one or more of our affiliates. As
a result, assuming no change in market conditions or any other relevant factor, the price, if any, at which Barclays Capital Inc.
and other affiliates of Barclays Bank PLC will be willing to purchase Notes from you in secondary market transactions will likely
be lower than the Original Issue Price, and any sale prior to the Maturity Date could result in a substantial loss to you. You
will only receive the full principal amount of the Notes if you hold the Notes to maturity or upon Early Redemption.
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Lack of Liquidity
— The Notes will not be listed on any securities exchange.
Barclays Capital Inc. and other affiliates of Barclays Bank PLC intend to make a secondary market for the Notes but are not required
to do so, and may discontinue any such secondary market making at any time, without notice. Even if there is a secondary market,
it may not provide enough liquidity to allow you to trade or sell the Notes easily. Barclays Bank PLC or its affiliates may hold
inventory in the Notes, which may further impair the development of a secondary market. Because other dealers are not likely to
make a secondary market for the Notes, the price at which you may be able to trade your Notes 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 Notes. The Notes are not
designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your Notes to maturity.
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Potential Conflicts
— We and our affiliates play a variety of roles in
connection with the issuance of the Notes, including acting as calculation agent, determining whether to redeem the Notes after
one year, determining the payment of any interest amount and your payment at maturity and hedging our obligations under the Notes.
In performing these duties, the economic interests of the calculation agent and other affiliates of ours are potentially adverse
to your interests as an investor in the Notes.
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Historical Levels Are Not Indicative of Future Performance
— In the past,
the levels of the CMS Rates have experienced significant fluctuations. You should note that historical levels, fluctuations and
trends of the CMS Rates are not necessarily indicative of future levels. Any historical upward or downward trend in the CMS Rates
is not an indication that the CMS Rates are more or less likely to increase or decrease at any time after the Fixed Interest Rate
Period. Changes in the levels of CMS Rates will affect the value of the Notes, but neither we nor you can predict the future performances
of the CMS Rates based on their historical performances. The actual performances of the CMS Rates after the Fixed Interest Rate
Interest Period, as well as the interest payable on each such Interest Payment Date, may bear little or no relation to the hypothetical
levels of the CMS Rates or to the hypothetical examples shown in this pricing supplement.
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Many Economic and Market Factors Will Impact the Value of the Notes
—
In addition to the level of the Reference Rate on any day, the value of the Notes will be affected by a number of economic and
market factors that may either offset or magnify each other, including:
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the difference between the 30 Year CMS Rate and the 5
Year CMS Rate. In general, the value of the Notes will increase when the CMS Spread increases and the value of the Notes will
decrease when the CMS Spread decreases. Note that the Fixed Percentage Amount will be deducted from the CMS Spread when calculating
the Reference Rate. Because short-term interest rates are more sensitive than long-term interest rates, a decreasing interest
rate environment may increase the value of the Notes (by widening the spread between the short-term and long-term rates) while
an increasing interest rate environment may decrease the value of the Notes (by narrowing the spread between the short-term and
long-term rates);
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the volatility (i.e., the frequency and magnitude of changes
in the level) of the difference between the CMS Rates, which may have an adverse impact on the value of the Notes;
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the time
to maturity of the Notes. As a result of a “time premium,” the Notes may have a value above that which would be expected
based on the levels of interest rates and the levels of the CMS Rates at such time the longer the time remaining to maturity.
A “time premium” results from expectations concerning the levels of the CMS Rates during the period prior to maturity
of the Notes. As the time remaining to the maturity of the Notes decreases, this time premium will likely decrease and, depending
on the levels of the CMS Rates at such time, may adversely affect the value of the Notes;
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Interest and yield rates in the market generally;
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the fluctuations of the CMS Rates and the possibility
that the interest rate on the Notes will decrease so that only the Minimum Interest Rate will be paid during the term of the Notes
following the first year (meaning no interest will be paid);
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our right to redeem the Notes;
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a variety of economic, financial, political, regulatory
or judicial events; and
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our creditworthiness, whether actual or perceived, including
actual or anticipated downgrades in our credit ratings.
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Historical Levels of CMS Rates
We have provided the following historical information to help you evaluate the behavior of the CMS Rates in various periods. The historical difference between the CMS Rates should not be taken as an indication of the future
difference between the CMS Rates or the performance of the Notes. Fluctuations in the CMS Rates make the interest rate on the Notes difficult to predict and can result in an interest rate to investors that is lower than anticipated. Fluctuations in the
CMS Rates and interest rate trends that have occurred in the past are not necessarily indicative of fluctuations that may occur in the future, which may be wider or narrower than those that have occurred historically.
We cannot guarantee that the difference between the CMS Rates will be maintained or will increase or that 30 Year CMS Rate will be greater than 5 Year CMS Rate over the term of the Notes so that you will receive a rate of
interest greater than the Minimum Interest Rate of 0% for any Interest Period over the term of the Notes. The actual interest rate on the Notes for any Interest Period commencing on or after April 9, 2014 will depend on the actual CMS Rates on the
applicable Interest Determination Dates.
The following table and graph show historical month-end differences between the CMS Rates from January 2008 through April 4, 2013 based on the CMS Rates as published by Bloomberg L.P. We have not independently verified the
accuracy or completeness of the historical data in the table and graph below. The Calculation Agent will determine the actual interest rate on the Notes for any Interest Periods commencing on or after April 9, 2014 by reference to the CMS Rates as
published on the ISDAFIX1 Page.
Historical Difference between 30 Year CMS Rate and 5 Year CMS Rate
(1)
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2008
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2009
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2010
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2011
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2012
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2013
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January
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0.82700%
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0.45300%
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1.29100%
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1.68600%
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1.22900%
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1.54000%
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February
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1.01600%
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0.29900%
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1.37200%
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1.49700%
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1.20500%
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2.00700%
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March
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0.88100%
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0.58600%
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1.34800%
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1.43700%
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1.28300%
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2.013%
(2)
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April
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0.55400%
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0.56400%
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1.23400%
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1.5500%
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1.25500%
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May
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0.44200%
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0.88300%
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1.15800%
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1.58200%
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0.90800%
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June
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0.24700%
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0.76000%
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1.21400%
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1.61800%
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1.06500%
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July
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0.37800%
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0.85800%
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1.47700%
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1.72900%
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1.10000%
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August
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0.31600%
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0.87800%
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1.14300%
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1.48500%
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1.25100%
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September
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0.16800%
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0.82100%
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1.37000%
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1.00900%
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1.35000%
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October
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0.12700%
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1.03200%
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1.76600%
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1.22800%
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1.33900%
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November
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-0.22100%
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1.23900%
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1.61800%
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0.97300%
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1.34700%
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December
|
0.14300%
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1.09800%
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1.50200%
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0.90800%
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1.45700%
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(1)
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The Reference Rate will be an amount determined by the Calculation Agent equal to
the CMS Spread, which is 30 Year CMS Rate minus 5 Year CMS Rate minus the Fixed Percentage Amount.
Note that the figures above
do not deduct the Fixed Percentage Amount, which will be deducted when calculating the Reference Rate.
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(2)
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As measured on April 4, 2013.
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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 Notes 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 Notes. UBS Financial Services Inc. may allow a concession not in excess of the underwriting discount set forth on the cover of
this 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 Notes 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 Notes 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 Notes.