RISK FACTORS
The ETNs are unsecured promises of Barclays Bank PLC and are not secured debt. The ETNs are riskier than ordinary unsecured debt securities. The return
on the ETNs is linked to the performance of the underlying Index. Investing in the ETNs of any series is not equivalent to investing directly in the VIX Index. See The IndicesGeneral Information as well as the Index-specific
sections in this pricing supplement for more information.
This section describes the most significant risks relating to an investment
in the ETNs.
We urge you to read the following information about these risks, together with the other information in this pricing supplement and the accompanying prospectus and prospectus supplement, before investing in the ETNs.
You should also consider the tax consequences of investing in the ETNs, significant aspects of which are uncertain. See Material U.S. Federal
Income Tax Considerations in this pricing supplement.
Even If the Level of the Underlying Index at Maturity or Upon Redemption Is
Greater than it Was on the Inception Date, You May Receive Less than the Principal Amount of Your ETNs
Since the investor fee reduces the
amount of your return at maturity or upon redemption, and the investor fee and the redemption charge reduce the amount of your return upon early redemption, the Index underlying your ETNs will need to increase significantly in order for you to
receive at least the principal amount of your investment at maturity or upon redemption. Because the investor fee is calculated and subtracted from the closing indicative value on a daily basis, the net effect of the fee accumulates over time and is
subtracted at the rate of 0.89% per year. Therefore, if the Index level does not increase or the increase in the level of the Index underlying your ETNs is insufficient to offset the negative effect of the investor fee (and, in the case of
early redemption, the redemption charge), or the level of the Index underlying your ETNs decreases, you will receive less than the principal amount of your investment at maturity or upon redemption.
You Will Not Benefit from any Increase in the Level of the Underlying Index if Such Increase Is Not Reflected in the Index on the Applicable Valuation
Date
If the positive effect of any increase in the level of the Index underlying your ETNs is insufficient to offset the negative effect
of the investor fee (and in the case of early redemption, the redemption charge) between the inception date and the applicable valuation date (including the final valuation date), we will pay you less than the principal amount of your ETNs at
maturity or upon redemption. This will be true even if the level of the Index underlying your ETNs as of some date or dates prior to the applicable valuation date would have been sufficiently high to offset the negative effect of the investor fee
and redemption charge.
You Will Not Receive Interest Payments on the ETNs or Have Rights in Respect of Any of the Futures Contracts
Included in the Index
You will not receive any periodic interest payments on your ETNs. As an owner of a series of
the ETNs, you will not have rights that investors in the index components included in the Index underlying your ETNs may have. Your ETNs will be paid in cash, and you will have no right to receive delivery of any equity securities comprising the
S&P 500
®
, of any dividends or distributions relating to such securities, of payment or delivery of amounts
in respect of the options used to calculate the level of the VIX Index or of payment or delivery of amounts in respect of the futures contracts included in the Index underlying your ETNs.
The VIX Index Is a Theoretical Calculation and Is Not a Tradable Index
The VIX Index is a
theoretical calculation and cannot be traded on a spot price basis. The settlement price at maturity of the VIX futures contained in the Index is based on this theoretically derived calculation. As a result the behavior of the futures
contracts may be different from futures contracts whose settlement price is based on a tradable asset.
PS-10
There Are Restrictions on the Minimum Number of ETNs You May Redeem and on the Dates on Which You May
Redeem Them
You must redeem at least 25,000 ETNs of the same series at one time and pay a redemption charge in order to exercise your
right to redeem your ETNs on any redemption date. You may only redeem your ETNs on a redemption date if we receive a notice of redemption from you by no later than 4:00 p.m., New York City time, and a confirmation of redemption by no later than
5:00 p.m., New York City time, on the business day prior to the applicable valuation date. If we do not receive your notice of redemption by 4:00 p.m., New York City time, or your confirmation of redemption by 5:00 p.m., New York City
time, on the business day prior to the applicable valuation date, your notice will not be effective and we will not redeem your ETNs on the applicable redemption date. Your notice of redemption and confirmation of redemption will not be effective
until we confirm receipt. See Specific Terms of the ETNsRedemption Procedures in this pricing supplement for more information.
The Market Value of the ETNs May Be Influenced by Many Unpredictable Factors
The market
value of your ETNs may fluctuate between the date you purchase them and the applicable valuation date. You may also sustain a significant loss if you sell your ETNs in the secondary market. We expect that generally the value of the index components
and Index will affect the market value of the ETNs more than any other factor. Several other factors, many of which are beyond our control, will influence the market value of the ETNs. Factors that may influence the market value of the ETNs include:
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prevailing market prices and forward volatility levels of the U.S. stock markets, the equity securities included in the S&P 500
®
and the S&P 500
®
, and prevailing market prices of options on the S&P 500
®
, the VIX Index, options on the VIX Index, relevant futures contracts on the VIX Index, or any other financial instruments related to the S&P 500
®
and the VIX Index;
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supply and demand for the ETNs, including inventory positions with Barclays Capital Inc. or any market maker;
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the time remaining to the maturity of the ETNs;
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economic, financial, political, regulatory, geographical, biological or judicial events that affect the level of the underlying Index or the market
price or forward volatility of the U.S. stock markets, the equity securities included in the S&P 500
®
, the
S&P 500
®
, the VIX Index or the relevant futures contracts on the VIX Index;
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the perceived creditworthiness of Barclays Bank PLC;
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supply and demand in the listed and over-the-counter equity derivative markets; or
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supply and demand as well as hedging activities in the equity-linked structured product markets.
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These factors interrelate in complex ways, and the effect of one factor on the market value of your ETNs may offset or enhance the effect of another
factor.
Your ETN Is Not Linked to the VIX Index and the Value of Your ETN May Be Less Than It Would Have Been Had Your ETN Been Linked to
the VIX Index
The value of your ETNs will be linked to the value of the underlying Index, and your ability to benefit from any rise or
fall in the level of the VIX Index is limited. The Index underlying your ETNs is based upon holding a rolling long position in futures on the VIX Index. These futures will not necessarily track the performance of the VIX Index. Your ETNs may not
benefit from increases in the level of the VIX Index because such increases will not necessarily cause the level of VIX Index futures to rise. Accordingly, a hypothetical investment that was linked directly to the VIX Index could generate a higher
return than your ETNs.
PS-11
The VIX Index Is A Measure of Forward Volatility of the S&P 500
®
and Your ETN Is Not Linked to the Options Used to Calculate the VIX Index, to the Actual Volatility of the S&P
500
®
or the Equity Securities Included in the S&P 500
®
, Nor Will the Return on Your ETN Be a Participation in the Actual Volatility of the S&P 500
®
The VIX Index measures the 30-day
forward volatility of the S&P 500
®
as calculated based on the prices of certain put and call options on the
S&P 500
®
. The actual volatility of the S&P 500
®
may not conform to a level predicted by the VIX Index or to the prices of the put and call options included in the calculation of the VIX Index. The value of your
ETNs is based on the value of the relevant futures on the VIX Index included in the Index underlying your ETNs. Your ETNs are not linked to the realized volatility of the S&P 500
®
and will not reflect the return you would realize if you owned the equity securities underlying the S&P 500
®
or if you traded the put and call options used to calculate the level of the VIX Index.
Changing Prices of the Futures Contracts Included in the Index May Result in a Reduced Amount Payable at Maturity or Upon Redemption
Each underlying Index is composed of futures contracts on the VIX Index. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, futures contracts normally specify a
certain date for delivery of the underlying asset or for settlement in cash based on the level of the underlying asset. As the futures contracts that comprise the Indices approach expiration, they are replaced by similar contracts that have a later
expiration. Thus, for example, a futures contract purchased and held in August may specify an October expiration. As time passes, the contract expiring in October may be replaced by a contract for delivery in November. This process is referred to as
rolling. If the market for these contracts is (putting aside other considerations) in backwardation, which means that the prices are lower in the distant delivery months than in the nearer delivery months, the sale of the
October contract would take place at a price that is higher than the price of the November contract, thereby creating a roll yield. The actual realization of a potential roll yield will be dependent upon the level of the related VIX
Index price relative to the unwind price of the relevant VIX Index futures contract at the time of hypothetical sale of the contract. The contracts included in the Indices have not historically exhibited consistent periods of backwardation, and
backwardation will most likely not exist at many, if not most times. Moreover, many of the contracts included in the Indices have historically traded in contango markets. Contango markets are those in which the prices of contracts are
higher in the distant delivery months than in the nearer delivery months. VIX futures have frequently exhibited very high contango in the past, resulting in a significant cost to roll the futures. The existence of contango in the futures
markets could result in negative roll yields, which could adversely affect the value of the Index underlying your ETNs and, accordingly, decrease the payment you receive at maturity or upon redemption.
The Level of the VIX Index Has Historically Reverted to a Long-Term Mean Level and Any Increase in the Spot Level of the VIX Index Will Likely
Continue To Be Constrained
In the past, the level of the VIX Index has typically reverted over the longer term to a historical mean, and
its absolute level has been constrained within a band. It is likely that spot level of the VIX Index will continue to do so in the future, especially when the current economic uncertainty recedes. If this happens, the value of futures contracts on
the VIX Index will likely decrease, reflecting the market expectation of reduced volatility in the future, and the potential upside of your investment in your ETNs will correspondingly be limited as a result.
The Policies of the Index Sponsor and the CBOE and Changes That Affect the Composition and Valuation of the S&P 500
®
, the VIX Index or the Underlying Indices Could Affect the Amount Payable on Your ETNs and Their Market Value
The policies of the Index sponsor and the CBOE concerning the calculation of the level of the S&P 500
®
, the VIX Index and the underlying Indices, respectively, and any additions, deletions or substitutions of equity
securities or options contracts and the manner in which changes affecting the equity securities, options contracts or futures contracts are reflected in the S&P 500
®
, the VIX Index or the underlying Indices, respectively, could affect the value of the underlying Indices and, therefore, the amount payable on your ETNs at maturity
or upon redemption and the market value of your ETNs prior to maturity.
PS-12
S&P Dow Jones Indices can add, delete or substitute the equity securities
underlying the S&P 500
®
or make other methodological changes that could change the level of the S&P 500
®
. S&P Dow Jones Indices can also add, delete or substitute the futures contracts underlying the underlying
Indices or make other methodological changes that could change the level of the Indices. The changing of equity securities included in the S&P 500
®
may affect the S&P 500
®
,
as a newly added equity security may perform significantly better or worse than the equity security or securities it replaces. Such a change may also affect the value of the put and call options used to calculate the level of the VIX Index. The
changing of the futures contracts underlying the Indices may affect the performance of the Indices in similar ways. Additionally, S&P Dow Jones Indices may alter, discontinue or suspend calculation or dissemination of the S&P 500
®
or any of the Indices. Any of these actions could adversely affect the value of your ETNs. S&P Dow Jones Indices
has no obligation to consider your interests in calculating or revising the S&P 500
®
or the Indices. See
The S&P 500
®
and The Indices below.
The CBOE can make methodological changes to the calculation of the VIX Index that could affect the value of futures contracts on the VIX Index and,
consequently, the value of your ETNs. There can be no assurance that the CBOE will not change the VIX Index calculation methodology in a way which may affect the value of your ETNs. Additionally, the CBOE may alter, discontinue or suspend
calculation or dissemination of the VIX Index and/or the exercise settlement value. Any of these actions could adversely affect the value of your ETNs. The CBOE has no obligation to consider your interests in calculating or revising the VIX Index or
in calculating the exercise settlement value. See The VIX Index below.
If events such as these occur, or if the value of any
underlying Index is not available or cannot be calculated because of a market disruption event or for any other reason, the calculation agent may be required to make a good faith estimate in its sole discretion of the value of such Index. The
circumstances in which the calculation agent will be required to make such a determination are described more fully under Modification To The IndicesMarket Disruption and Force Majeure Events Relating to the ETNs and
Role of Calculation Agent.
If a Market Disruption Event or Force Majeure Event Has Occurred or Exists on a Valuation
Date, the Calculation Agent Can Postpone the Determination of the Closing Indicative Value or the Maturity Date or a Redemption Date
The
determination of the value of an ETN on a valuation date, including the final valuation date, may be postponed if the calculation agent determines that a market disruption or force majeure event has occurred or is continuing on such valuation date.
In no event, however, will a valuation date for any series of ETNs be postponed by more than five trading days. As a result, the maturity date or a redemption date for a series of ETNs could also be postponed, although not by more than five trading
days. If a valuation date is postponed until the fifth trading day following the scheduled valuation date but a market disruption event occurs or is continuing on such day, that day will nevertheless be the valuation date and the calculation agent
will make a good faith estimate in its sole discretion of the value of the relevant Index for such day. See Modification To The IndicesMarket Disruption and Force Majeure Events Relating to the ETNs in this pricing supplement.
Postponement of a Valuation Date May Result in a Reduced Amount Payable at Maturity or Upon Redemption
As the payment at maturity or upon redemption is a function of, among other things, the applicable daily index factor on the final valuation date or
applicable valuation date, as the case may be, the postponement of any valuation date may result in the application of a different applicable daily index factor and, accordingly, decrease the payment you receive at maturity or upon redemption.
PS-13
The Indices May in the Future Include Contracts That Are Not Traded on Regulated Futures Exchanges
The Indices are currently based solely on futures contracts traded on regulated futures exchanges (referred to in the United States as
designated contract markets). If these exchange-traded futures cease to exist, any Index may also cease to exist or may in the future include over-the-counter contracts (such as swaps and forward contracts) traded on trading facilities
that are subject to lesser degrees of regulation or, in some cases, no substantive regulation. As a result, trading in such contracts, and the manner in which prices and volumes are reported by the relevant trading facilities, may not be subject to
the provisions of, and the protections afforded by, the U.S. Commodity Exchange Act of 1936, or other applicable statutes and related regulations, that govern trading on regulated U.S. futures exchanges, or similar statutes and regulations that
govern trading on regulated U.K. futures exchanges. In addition, many electronic trading facilities have only recently initiated trading and do not have significant trading histories. As a result, the trading of contracts on such facilities, and the
inclusion of such contracts in an Index, may be subject to certain risks not presented by U.S. or U.K. exchange-traded futures contracts, including risks related to the liquidity and price histories of the relevant contracts.
The Indices and VIX Index Futures Have Limited Historical Information
The Indices underlying the ETNs were created in December 2008 and the index sponsor has published limited information about how the Indices would have performed had they been calculated in the past. In
addition, futures on the VIX Index have only traded freely since March 26, 2004, and not all futures of all relevant maturities have traded at all times since that date.
Because the Indices and the VIX Index futures that underlie them are of recent origin and limited or no historical performance data exists with respect to them, your investment in the ETNs may involve a
greater risk than investing in alternate securities linked to one or more indices with an established record of performance. A longer history of actual performance may have been helpful in providing more reliable information on which to assess the
validity of the proprietary methodology that each Index makes use of as the basis for an investment decision.
Historical Levels of
Comparable Indices Should Not Be Taken as an Indication of the Future Performance of any Index During the Term of the ETNs
It is
impossible to predict whether any Index underlying the ETNs will rise or fall. The actual performance of the Indices over the term of their respective series of ETNs, as well as the amount payable at maturity or upon redemption, may bear little
relation to the historical levels of comparable indices, which in most cases have been highly volatile.
Changes in the Treasury Bill Rate
of Interest May Affect the Value of the Indices and Your ETNs
Because the value of each the Indices is linked, in part, to the rate of
interest that could be earned on reinvestment into the Index of the return on the notional value of the Index based on specified Treasury Bill rate, changes in the Treasury Bill rate of interest may affect the amount payable on your ETNs at maturity
or upon redemption and, therefore, the market value of your ETNs. Assuming the trading prices of the index components included in the Index to which your ETNs are linked remain constant, an increase in the Treasury Bill rate of interest will
increase the value of each Index and, therefore, the value of your ETNs. A decrease in the Treasury Bill rate of interest will adversely impact the value of each Index and, therefore, the value of your ETNs.
Changes in Our Credit Ratings May Affect the Market Value of Your ETNs
Our credit ratings are an assessment of our ability to pay our obligations, including those on the ETNs. Consequently, actual or anticipated changes in our credit ratings may affect the market value of
your ETNs. However, because the return on your ETNs is dependent upon certain factors in addition to our ability to pay our obligations on your ETNs, an improvement in our credit ratings will not reduce the other investment risks related to your
ETNs.
PS-14
There May Not Be an Active Trading Market in the ETNs; Sales in the Secondary Market May Result in
Significant Losses
Although we have listed all series of ETNs on NYSE Arca and TSX, a trading market for either such series of ETNs may
not exist at any time. Even if there is a secondary market for the ETNs, it may not provide enough liquidity to trade or sell your ETNs easily. In addition, although certain affiliates of Barclays Bank PLC may engage in limited purchase and resale
transactions in the ETNs, they are not required to do so, and if they decide to engage in such transactions, they may stop at any time. We are not required to maintain any listing of the ETNs on any securities exchange.
The Liquidity of the Market for the ETNs May Vary Materially Over Time
As stated on the cover of this pricing supplement, we sold a portion of each series of ETNs on their respective inception dates, and the remainder of the ETNs will be offered and sold from time to time
through Barclays Capital Inc., our affiliate, as agent. Also, the number of ETNs of any series outstanding or held by persons other than our affiliates could be reduced at any time due to early redemptions of the ETNs. Accordingly, the liquidity of
the market for any series of ETNs could vary materially over the term of the ETNs. While you may elect to redeem your ETNs prior to maturity, early redemption is subject to the conditions and procedures described elsewhere in this pricing
supplement, including the conditions that you must pay a redemption charge and redeem at least 25,000 ETNs of the same series at one time in order to exercise your right to redeem your ETNs on any redemption date.
The Policies of the Index Sponsor and Changes That Affect the Index Methodology or the Futures Contracts Underlying an Index Could Affect the Amount
Payable on the ETNs and Their Market Value
The policies of the index sponsor concerning the calculation of the level of each Index could
affect the value of the Index and, therefore, the amount payable on the ETNs at maturity or upon redemption and the market value of the ETNs prior to maturity.
As described in Modifications to the Indices in this pricing supplement, the index sponsor may modify the methodology for calculating the value of any Index or make certain other changes to
the way in which an Index is calculated. The index sponsor may also discontinue or suspend calculation or publication of an Index, in which case it may become difficult to determine the market value of such Index. Any such changes could adversely
affect the value of your ETNs.
If events such as these occur, or if the value of the Index is not available or cannot be calculated because
of a market disruption event or force majeure event, or for any other reason, the calculation agent may be required to make a good faith estimate in its sole discretion of the value of the Index. The circumstances in which the calculation agent will
be required to make such a determination are described more fully under Modification To The IndicesMarket Disruption Events and Force Majeure Events Relating to the ETNs and Specific Terms of the ETNsRole of Calculation
Agent.
Trading and Other Transactions by Barclays Bank PLC or Its Affiliates in Instruments Linked to the
Equity Securities Underlying the S&P 500
®
or Instruments Linked to the Indices, the VIX Index, the S&P
500
®
, or the Equity Securities Underlying the S&P 500
®
May Impair the Market Value of the ETNs
As described below under Use of Proceeds and Hedging in this pricing supplement, we or one or more of our affiliates may hedge our obligations under any series of ETNs by purchasing or selling
equity securities underlying the S&P 500
®
or listed or over-the-counter options, futures, swaps or other
derivative financial instruments linked to the Indices, the VIX Index (including the VIX futures which are used to calculate the Index), the S&P 500
®
(including the put and call options used to calculate the level of the VIX Index) and the equity securities underlying the S&P 500
®
, and we may adjust these hedges by, among other things, purchasing or selling any of the foregoing. Although they
are not expected to, any of these hedging activities may adversely affect the market price of those items and, therefore, the market value of the ETNs. It is possible that we or one or more of our affiliates could receive substantial returns from
these hedging activities while the market value of the ETNs declines.
PS-15
We or one or more of our affiliates may also engage in trading in equity securities
underlying the S&P 500
®
or listed or over-the-counter options, futures, swaps or other derivative financial
instruments linked to the Indices, the VIX Index (including the VIX futures which are used to calculate the Index), the S&P
500
®
(including the put and call options used to calculate the level of the VIX Index) and the equity securities
underlying the S&P 500
®
on a regular basis as part of our general broker-dealer and other businesses, for
proprietary accounts, for other accounts under management or to facilitate transactions for customers. Any of these activities could adversely affect the market price of those items and, therefore, the market value of the ETNs. We or one or more of
our affiliates may also issue or underwrite other securities or financial or derivative instruments with returns linked or related to changes in the performance of any of the foregoing. By introducing competing products into the marketplace in this
manner, we or one or more of our affiliates could adversely affect the market value of the ETNs. With respect to any of the activities described above, neither Barclays Bank PLC nor its affiliates has any obligation to take the needs of any buyer,
seller or holder of the ETNs into consideration at any time.
Our Business Activities May Create Conflicts of Interest
We and our affiliates expect to play a variety of roles in connection with the issuance of the ETNs.
As noted above, we and our affiliates expect to engage in trading activities related to equity securities underlying the S&P 500
®
or listed or over-the-counter options, futures, swaps or other derivative financial instruments linked to the
Indices, the VIX Index (including the VIX futures which are used to calculate the Index), the S&P 500
®
(including the put and call options used to calculate the level of the VIX Index) and the equity securities underlying the S&P 500
®
that are not for the account of holders of the ETNs or on their behalf. These trading activities may present a conflict between the holders interest in the ETNs
and the interests that we and our affiliates will have in our and our affiliates proprietary accounts, in facilitating transactions, including options and other derivatives transactions, for our and our affiliates customers and in
accounts under our and our affiliates management. These trading activities, if they influence the level of the Indices, the VIX Index, the S&P 500
®
or any financial instrument linked thereto, could be adverse to the interests of the holders of the ETNs.
Moreover, we and our affiliates may have published and in the future may publish research reports with respect to equity securities
underlying the S&P 500
®
or listed or over-the-counter options, futures, swaps or other derivative financial
instruments linked to the Indices, the VIX Index (including the VIX futures which are used to calculate the Index), the S&P
500
®
(including the put and call options used to calculate the level of the VIX Index) and the equity securities
underlying the S&P 500
®
. This research is modified from time to time without notice and may express opinions
or provide recommendations that are inconsistent with purchasing or holding the ETNs. The research should not be viewed as a recommendation or endorsement of the ETNs in any way and investors must make their own independent investigation of the
merits of this investment.
Any of these activities by us or our affiliates may affect the market price of equity
securities underlying the S&P 500
®
or listed or over-the-counter options, futures, swaps or other derivative
financial instruments linked to the Indices, the VIX Index (including the VIX futures which are used to calculate the Index), the S&P 500
®
(including the put and call options used to calculate the level of the VIX Index) and the equity securities underlying the S&P 500
®
and, therefore, the market value of the ETNs. With respect to any of the activities described above, neither
Barclays Bank PLC nor its affiliates has any obligation to take the needs of any buyer, seller or holder of the ETNs into consideration at any time.
There Are Potential Conflicts of Interest Between You and the Calculation Agent
Currently,
Barclays Bank PLC serves as the calculation agent. We will, among other things, decide the amount of the return paid out to you on the ETNs of any series at maturity or upon redemption of that series. For a more detailed description of the
calculation agents role. See Specific Terms of the ETNsRole of Calculation Agent in this pricing supplement.
PS-16
If the index sponsor were to discontinue or suspend calculation or publication of any given Index, it may
become difficult to determine the market value of the ETNs of the relevant series. If events such as these occur, or if the value of the relevant Index is not available or cannot be calculated because of a market disruption event or force majeure
event, or for any other reason, the calculation agent may be required to make a good faith estimate in its sole discretion of the value of the relevant Index. The circumstances in which the calculation agent will be required to make such a
determination are described more fully under Specific Terms of the ETNsRole of Calculation Agent in this pricing supplement.
The calculation agent will exercise its judgment when performing its functions. For example, the calculation agent may have to determine whether a market
disruption event or force majeure event affecting the Index has occurred or is continuing on a valuation date, including the final valuation date. This determination may, in turn, depend on the calculation agents judgments as to whether the
event has materially interfered with our ability to unwind our or our affiliates hedge positions. Since these determinations by the calculation agent may affect the market value of the ETNs of any series, the calculation agent may have a
conflict of interest if it needs to make any such decision.
The Tax Consequences Are Uncertain
The U.S. federal income tax treatment of the ETNs is uncertain and the Internal Revenue Service could assert that the ETNs should be taxed in a manner
that is different than described in this pricing supplement. As discussed further below, 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 ETNs and whether all or part of the gain you may recognize upon the sale, early redemption or maturity of an instrument such as the ETNs should 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 ETNs (and while any such guidance may be issued on a prospective basis only), such guidance could be applied retroactively and could in any case increase the
likelihood that you will be required to accrue income over the term of an instrument such as the ETNs even though you will not receive any payments with respect to the ETNs until maturity. The outcome of this process is uncertain. Similarly, in
2007, legislation was introduced in Congress that, if enacted, would have required holders that acquired instruments such as the ETNs after the bill was enacted to accrue interest income on a current basis. It is not possible to predict whether a
similar or identical bill will be enacted in the future, or whether any such bill would affect the tax treatment of your ETNs.
Moreover, it
is possible that the Internal Revenue Service could seek to tax your ETNs by reference to your deemed ownership of the Index components. In such a case, it is possible that Section 1256 of the Internal Revenue Code could apply to your ETNs, in
which case any gain or loss that you recognize with respect to the ETNs that is attributable to the regulated futures contracts represented in the applicable Index could be treated as 60% long-term capital gain or loss and 40% short-term capital
gain or loss, without regard to your holding period in the ETNs. Under this approach, you could also be required to mark such portion of the ETNs to market at the end of each taxable year (i.e., recognize gain, and possibly recognize loss, as if the
relevant portion of your ETNs had been sold for fair market value). Under this alternative treatment, you could also be required to (i) recognize gain or loss, at least some of which could be short-term capital gain or loss, each time the
applicable Index rebalances or each time a futures contract tracked by the applicable Index rolls, and (ii) currently accrue ordinary interest income in respect of the notional interest component of the applicable Index.
For a discussion of the U.S. federal income tax treatment applicable to your ETNs as well as other potential alternative characterizations for your ETNs,
please see the discussion under Material U.S. Federal Income Tax Considerations below. You should consult your tax advisor as to the possible alternative treatments in respect of the ETNs.
PS-17
THE INDICESGENERAL INFORMATION
We have derived the following description of the Indices from the S&P U.S. Index Committee Rules, which governs the management
and calculation of the Indices and is published by the index sponsor. We have also derived certain information about the Indices, the S&P 500
®
and the VIX Index from public sources without independent verification.
Each Index seeks to provide investors with exposure to one or more maturities of futures contracts on the VIX Index, which reflects forward implied volatility of the S&P 500
®
at various points along the volatility forward curve. The VIX Index is calculated based on the prices of put and
call options on the S&P 500
®
. Each Index is intended to reflect the returns that are potentially available
through an unleveraged investment in the relevant futures contract or contracts on the VIX Index plus the rate of interest that could be earned on reinvestment into the Index of the return on the notional value of the Index based on the 3-month U.S.
Treasury rate. Specifically, the S&P 500 VIX Short-Term Futures Index TR measures the return from a daily rolling long position in the first and second month VIX futures contracts, and the S&P 500 VIX Mid-Term Futures Index TR
measures the return from a daily rolling long position in the fourth, fifth, sixth and seventh month VIX futures contracts. The total return feature of each Index is based upon interest accrual and reinvestment into the return of the notional value
of the relevant Index based on the 3-month U.S. Treasury rate.
Information contained on certain websites mentioned below is not incorporated
by reference in, and should not be considered part of, this index supplement or the accompanying prospectus supplement and prospectus.
Publication of Index Values
The level of each of the Indices is calculated in accordance
with the method described in Composition of the Indices below. The value of each Index in real time and at the close of trading on each index business day will be published by Bloomberg L.P. or a successor under the following
ticker symbols:
|
|
|
Index
|
|
Ticker
|
S&P 500 VIX Short-Term Futures Index TR
|
|
SPVXSTR
|
S&P 500 VIX Mid-Term Futures Index TR
|
|
SPVXMTR
|
Each Index is calculated as described below under Composition of the Indices and
Calculation of the Indices. We will first describe the S&P 500
®
and the VIX Index and
provide an overview of the futures markets generally before describing the Indices in detail.
The
S&P 500
®
The index sponsor publishes the S&P 500
®
. The S&P 500
®
is intended to provide a broad performance benchmark for the U.S. equity markets. The daily calculation of the value
of the S&P 500
®
is based on the relative value of the aggregate market value of the common stocks of 500
companies as of a particular time compared to the aggregate average market value of the common stocks of 500 similar companies during the base period of the years 1941 through 1943. The 500 companies are not the 500 largest companies listed on the
New York Stock Exchange and not all 500 companies are listed on such exchange.
The index sponsor chooses companies for
inclusion in the S&P 500
®
with the objective of achieving a distribution by broad industry groupings that
approximates the distribution of these groupings in the common stock population of the U.S. equity market. The index sponsor may from time to time, in its sole discretion, add companies to, or delete companies from, the S&P 500
®
to achieve the objectives stated above. Relevant criteria employed by the index sponsor include the viability of the
particular company, the extent to which that company represents the industry group to which it is assigned, the extent to which the companys common stock is widely held and the market value and trading activity of the common stock of that
company.
PS-18
The VIX Index
We have derived all information contained in this pricing supplement regarding the VIX 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, the CBOE. We make no representation or warranty as to the accuracy or completeness of such information. The VIX Index was developed by the CBOE and is
calculated, maintained and published by the CBOE. The CBOE has no obligation to continue to publish, and may discontinue the publication of, the VIX Index. The VIX Index is reported by Bloomberg L.P. under the ticker symbol VIX.
The VIX Index is a benchmark index designed to measure the market price of volatility in large cap U.S. stocks over 30
days in the future, and calculated based on the prices of certain put and call options on the S&P 500
®
. The
VIX Index measures the premium paid by investors for certain options linked to the level of the S&P 500
®
.
During periods of market instability, the implied level of volatility of the S&P 500
®
typically increases
and, consequently, the prices of options linked to the S&P 500
®
typically increase (assuming all other
relevant factors remain constant or have negligible changes). This, in turn, causes the level of the VIX Index to increase. Because the VIX Index may increase in times of uncertainty, the VIX Index is known as the fear gauge of the broad
U.S. equities market. The VIX Index has historically had negative correlations to the S&P 500
®
.
The calculation of the VIX Index involves a formula that uses the prices of a weighted series of out-of-the money put and call
options on the level of the S&P 500
®
(
SPX Options
) with two adjacent expiry terms to
derive a constant 30-day forward measure of market volatility. The VIX Index is calculated independent of any particular option pricing model and in doing so seeks to eliminate any biases which may otherwise be included in using options pricing
methodology based on certain assumptions.
Although the VIX Index measures the 30-day forward volatility of the S&P
500
®
as implied by the SPX Options, 30-day options are only available once a month. To arrive at the VIX Index
level, a broad range of out-of-the money SPX Options expiring on the two closest nearby months (near term options and next term options, respectively) are selected in order to bracket a 30-day calendar period. SPX Options
having a maturity of less than eight days are excluded at the outset and, when the near term options have eight days or less left to expiration, the VIX Index rolls to the second and third contract months in order to minimize pricing anomalies that
occur close to expiration. The model-free implied volatility using prices of the near term options and next term options are then calculated on a strike price weighted average basis in order to arrive at a single average implied volatility value for
each month. The results of each of the two months are then interpolated to arrive at a single value with a constant maturity of 30 days to expiration.
Futures on the VIX Index were first launched for trading by the CBOE in 2004. VIX Index futures have expirations ranging from the front month consecutively out to the tenth month. Futures on the VIX Index
allow investors the ability to invest in forward market volatility based on their view of the future direction or movement of the VIX Index. Investors that believe the implied volatility of the S&P 500
®
will increase may buy VIX futures, expecting that the level of the VIX Index will increase. Conversely, investors
that believe that the implied volatility of the S&P 500
®
will decline may sell VIX futures, expecting that
the level of the VIX Index will fall.
VIX Index futures are reported by Bloomberg L.P. under the ticker symbol VX.
Futures Markets
Each of
the Indices is composed of one or more futures contracts on the VIX Index. Futures contracts on the VIX Index are traded on regulated futures exchanges, in the over-the-counter market and on various types of electronic trading facilities and
markets. At present, all of the contracts included in the Indices are exchange-traded futures contracts. An exchange-traded futures contract provides for the purchase and sale of a specified type and quantity of an underlying asset or financial
instrument during a stated delivery month for a fixed price. Because the VIX Index is not a tangible item that can be purchased and sold directly, a futures contract on the VIX Index provides for the payment and receipt of cash based on the level of
the VIX Index at settlement or liquidation of the contract. A futures contract provides for a specified settlement month in which the cash settlement is made or in which the underlying asset or financial instrument is to be delivered by the seller
(whose position is therefore described as short) and acquired by the purchaser (whose position is therefore described as long).
PS-19
There is no purchase price paid or received on the purchase or sale of a futures contract. Instead, an
amount of cash or cash equivalents must be deposited with the broker as initial margin. This amount varies based on the requirements imposed by the exchange clearing houses, but may be lower than 5% of the notional value of the contract.
This margin deposit provides collateral for the obligations of the parties to the futures contract.
By depositing margin, which may vary in
form depending on the exchange, with the clearing house or broker involved, a market participant may be able to earn interest on its margin funds, thereby increasing the total return that it may realize from an investment in futures contracts. The
market participant normally makes to, and receives from, the broker subsequent daily payments as the price of the futures contract fluctuates. These payments are called variation margin and are made as the existing positions in the
futures contract become more or less valuable, a process known as marking to the market.
Futures contracts are traded on
organized exchanges, known as designated contract markets in the United States. At any time prior to the expiration of a futures contract, subject to the availability of a liquid secondary market, a trader may elect to close out its
position by taking an opposite position on the exchange on which the trader obtained the position. This operates to terminate the position and fix the traders profit or loss. Futures contracts are cleared through the facilities of a
centralized clearing house and a brokerage firm, referred to as a futures commission merchant, which is a member of the clearing house. The clearing house guarantees the performance of each clearing member that is a party to a futures
contract by, in effect, taking the opposite side of the transaction. Clearing houses do not guarantee the performance by clearing members of their obligations to their customers.
Unlike equity securities, futures contracts, by their terms, have stated expirations and, at a specified point in time prior to expiration, trading in a futures contract for the current delivery month
will cease. As a result, a market participant wishing to maintain its exposure to a futures contract on a particular asset or financial instrument with the nearest expiration must close out its position in the expiring contract and establish a new
position in the contract for the next delivery month, a process referred to as rolling. For example, a market participant with a long position in November VIX Index futures that wishes to maintain a position in the nearest delivery month
will, as the November contract nears expiration, sell November futures, which serves to close out the existing long position, and buy December futures. This will roll the November position into a December position, and, when the November
contract expires, the market participant will still have a long position in the nearest delivery month.
Futures exchanges and clearing houses
in the United States are subject to regulation by the Commodities Futures Trading Commission. Exchanges may adopt rules and take other actions that affect trading, including imposing speculative position limits, maximum price fluctuations and
trading halts and suspensions and requiring liquidation of contracts in certain circumstances. Futures markets outside the United States are generally subject to regulation by comparable regulatory authorities. The structure and nature of trading on
non-U.S. exchanges, however, may differ from this description.
Composition of the Indices
The S&P 500 VIX Short-Term Futures Index TR and the S&P 500 VIX Mid-Term Futures Index TR are indices composed of futures contracts
on the VIX Index with a daily rolling long position in contracts of specified maturities and are intended to reflect the returns that are potentially available through (1) an unleveraged investment in those contracts plus (2) the rate of
interest that could be earned on the return on the notional value of the Index at the specified Treasury Bills rate, which is then reinvested in the Index.
The Indices are rolling Indices, each of which rolls on a daily basis. One of the effects of daily rolling is to maintain a constant weighted average maturity for the underlying futures contracts. The
Indices are composed of futures contracts on the VIX Index. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, futures contracts normally specify a certain date for the delivery of the underlying asset or
financial instrument or, in the case of futures contracts relating to indices such as the VIX Index, a certain date for payment in
PS-20
cash of an amount determined by the level of the underlying index. As described in more detail below, the Indices operate by selling futures contracts on the VIX Index on a daily basis,
specifying cash settlement on a nearby date and purchasing futures contracts on the VIX Index on a daily basis specifying cash settlement on a later date. The roll for each contract occurs on each index business day according to a pre-determined
schedule that has the effect of keeping constant the weighted average maturity of the relevant futures contracts. This process is known as
rolling
a futures position, and each Index is a
rolling index
. The
constant weighted average maturity for the futures underlying the S&P 500 VIX Short-Term Futures Index TR is one month and for the futures underlying the S&P 500 VIX Mid-Term Futures Index TR is five months.
Calculation of the Indices
The Indices
model returns from a long VIX futures position that is rolled continuously throughout the period between futures expiration dates. The total return version of the Indices incorporates interest accrual on the return of the notional value of the
Indices and reinvestment of returns and interest into the Indices. Interest accrues based on the 3-month U.S. Treasury rate. The S&P 500 VIX Short-Term Futures Index measures the return from a rolling long position in the first and second
month VIX futures contracts. The Index rolls continuously throughout each month from the first month VIX futures contract into the second month VIX futures contract. The S&P 500 VIX Mid-Term Futures Index measures the return from a rolling
long position in the fourth, fifth, sixth and seventh month VIX futures contracts. The Index rolls continuously throughout each month from the fourth month contract into the seventh month contract while maintaining positions in the fifth month and
sixth month contracts. The ETNs are linked to the total return version of the Indices, which includes interest accrual on the return on the notional value of the relevant Index based on the 3-month U.S. Treasury rate and reinvestment into the
relevant Index as shown in more detail below.
On any S&P 500 VIX Futures Business Day,
t
, each Index is calculated as follows:
IndexTR
t
=
IndexTR
t-1
* (1+
CDR
t
+
TBR
t
)
where:
IndexTR
t-1
= The Index TR on the preceding business day, defined as any date on which the Index is calculated.
CDR
t
= Contract Daily Return, as determined by the following formula:
where:
t-1
= the
preceding business day.
TWDO
t
Total Dollar Weight Obtained on t, as determined by the
following formula for each of the indices:
TWDI
t-1
Total Dollar Weight Obtained on t-1, as determined by the
following formula for each of the indices:
where:
CRW
i,t
= Contract Roll Weight of the
i
th
VIX Futures Contract on date t.
DCRP
i,t
= Daily
Contract Reference Price of the
i
th
VIX Futures
Contract on date t.
m
= For the S&P 500 VIX Short-Term Futures Index m=1. For the S&P 500 VIX
Mid-Term Futures Index m=4.
n
= For the S&P 500 VIX Short-Term Futures Index n=2. For the S&P 500
VIX Mid-Term Futures Index n=7.
TBR
t
= Treasury Bill Return, as determined by the following
formula:
PS-21
where:
Delta
t
= the number of calendar days between the current and
previous business days.
TBAR
t-1
= the most recent weekly high discount rate for 91-day US
Treasury bills effective on the preceding business day. Generally the rates are announced by the US Treasury on each Monday. On Mondays that are bank holidays, Fridays rates will apply. The Bloomberg ticker is USB3MTA.
Contract Rebalancing
The Roll Period
starts on the Tuesday prior to the monthly CBOE VIX Futures Settlement Date (the Wednesday falling 30 calendar days before the S&P 500 option expiration for the following month), and runs through the Tuesday prior to the subsequent months
CBOE VIX Futures Settlement Date. Thus, the indices are rolling on a continual basis. On the business date after the current Roll Period ends the following Roll Period will begin. In calculating the Total Return of each of the indices, the Contract
Roll Weights (CRWi,t) of each of the contracts in the index, on a given day, t, are determined as follows:
S&P 500 VIX Short-Term
Futures Index
where:
dt
=
|
The total number of business days in the current Roll Period beginning with and including, the starting CBOE VIX Futures Settlement Date and ending with, but excluding,
the following CBOE VIX Futures Settlement Date. The number of business days stays constant in cases of a new holiday introduced intra-month or an unscheduled market closure.
|
dr =
|
The total number of business days within a roll period beginning with, and including the following business day and ending with, but excluding, the following
CBOE VIX Futures Settlement Date. The number of business days includes a new holiday introduced intra-month up to the business day preceding such a holiday.
|
At the close on the Tuesday, corresponding to the start of the Roll Period, all of the weight is allocated to the first month contract. Then on each subsequent business day a fraction of the first month
VIX futures holding is sold and an equal notional amount of the second month VIX futures is bought. The fraction, or quantity, is proportional to the number of first month VIX futures contracts as of the previous index roll day, and inversely
proportional to the length of the current Roll Period. In this way the initial position in the first month contract is progressively moved to the second month contract over the course of the month, until the following Roll Period starts when the old
second month VIX futures contract becomes the new first month VIX futures contract.
In addition to the transactions described above, the
weight of each index component is also adjusted every day to ensure that the change in total dollar exposure for the index is only due to the price change of each contract and not due to using a different weight for a contract trading at a higher
price.
S&P 500 VIX Mid-Term Futures Index
At the close on the Tuesday, corresponding to the start of the Roll Period, an equal weight is allocated to the
fourth, fifth and sixth month contracts. Then on each subsequent business day a fraction of the fourth month VIX futures holding is sold and an equal notional amount of the seventh month VIX futures is bought. The fraction, or quantity, is
proportional to the number of fourth month VIX futures contracts as of the previous index roll day, and inversely proportional to the length of the current Roll Period. In this way the initial position in the fourth month contract is progressively
moved to the seventh month contract over the course of the month, until the following Roll Period start when the old fifth month VIX futures contract becomes the new fourth month VIX futures contract.
PS-22
In addition to the transactions described above, the weight of each index component is also adjusted every
day to ensure that the change in total dollar exposure for the index is only due to the price change of each contract and not due to using a different weight for a contract trading at a higher price.
Base Dates
The base dates of the
S&P 500 VIX Short-Term Futures Index and the S&P 500 VIX Mid-Term Futures Index are December 20, 2005 at base values of 100,000.
Historical Assumptions
Prior to April 2008, not all consecutive first to seventh month VIX
futures were listed. For the purpose of historical Index calculations, the following assumptions have been made in interpolating VIX futures contract prices from near-by listed contracts.
When
i
th
future was not listed, but
i
th
+1
and
i
th
-1
futures were listed, the following interpolation has been assumed:
When
i
th
and
i
th
+1
futures were not listed, but
i
th
+2
and
i
th
-1
futures were listed, the following interpolation has been assumed:
When
i
th
,
i
th
+1
and
i
th
+2
futures were not listed, the following interpolation has been assumed:
where:
Ti
= Expiration of the
i
th
VIX Futures contract
BDays =
Number of Business days between VIX Futures Expiration Days
Index Governance
The
S&P 500 VIX Futures Index Committee maintains the Indices. The Index Committee meets regularly. At each meeting, the Index Committee reviews any significant market events. In addition, the Index Committee may revise Index policy for timing of
rebalancings or other matters.
The index sponsor considers information about changes to its indices and related matters to be potentially
market moving and material.
Therefore, all Index Committee discussions are confidential.
Historical Performance of the Indices
The following graphs illustrate the performance of each Index since December 20, 2005. Data from that date to each index commencement date represents hypothetical values as if the relevant Index had
been established on December 20, 2005 and calculated according to the methodology described above since that date. Data for dates from and including the index commencement dates represent the actual values of the Index as calculated on such
dates.
The historical performance of each Index shown below should not be taken as an indication of future performance, and no assurance can
be given that the value of each such Index will increase sufficiently to cause holders of the relevant ETNs to receive a payment at maturity or upon redemption equal to or in excess of the principal amount of such ETNs.
PS-23
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
PS-24
LICENSE AGREEMENT
The S&P 500 VIX Futures Indices are products of S&P Dow Jones Indices LLC (SPDJI). S&P
®
, S&P 500
®
, S&P 500 VIX Short-Term Futures and S&P 500 VIX Mid-Term Futures are trademarks of Standard & Poors Financial Services LLC
(SPFS). VIX
®
is a registered trademark of Chicago Board Options Exchange, Incorporated
(CBOE). These trademarks have been licensed to S&P Dow Jones Indices LLC (SPDJI) and its affiliates, and sublicensed to Barclays Bank PLC for certain purposes.
The ETNs are not sponsored, endorsed, sold or promoted by SPDJI, SPFS, CBOE, or any of their respective affiliates (collectively, S&P Dow Jones Indices). S&P Dow Jones Indices does not
make any representation or warranty, express or implied, to the owners of the ETNs or any member of the public regarding the advisability of investing in securities generally or in the ETNs particularly or the ability of the S&P 500 VIX Futures
Indices to track general market performance. S&P Dow Jones Indices only relationship to Barclays Bank PLC with respect to the S&P 500 VIX Futures Indices are the licensing of the S&P 500 VIX Futures Indices and certain trademarks,
service marks and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P 500 VIX Futures Indices are determined, composed and calculated by SPDJI without regard to Barclays Bank PLC or the ETNs. SPDJI has no obligation to take
the needs of Barclays Bank PLC or the owners of the ETNs into consideration in determining, composing or calculating the S&P 500 VIX Futures Indices. S&P Dow Jones Indices is not responsible for and has not participated in the determination
of the prices, and amount of the ETNs or the timing of the issuance or sale of the ETNs or in the determination or calculation of the equation by which the ETNs are to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow
Jones Indices has no obligation or liability in connection with the administration, marketing or trading of the ETNs. There is no assurance that investment products based on the S&P 500 VIX Futures Indices will accurately track the performance
of the index or provide positive investment returns. SPDJI is not an investment advisor. Inclusion of a security within the S&P 500 VIX Futures Indices are not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such
security, nor is it considered to be investment advice. In addition, CME Group Inc. and its affiliates may trade financial products which are linked to the performance of the S&P 500 VIX Futures Indices. It is possible that this trading activity
will affect the value of the S&P 500 VIX Futures Indices and the ETNs.
S&P DOW JONES INDICES DOES NOT GUARANTEE THE ADEQUACY,
ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P 500 VIX FUTURES INDICES OR ANY DATA RELATED THERETO OR ANY COMMUNICATION (INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS)) WITH RESPECT
THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY BARCLAYS BANK PLC, OWNERS OF THE ETNS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 VIX FUTURES INDICES OR WITH RESPECT TO ANY DATA
RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING
LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW
JONES INDICES AND BARCLAYS BANK PLC, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
MODIFICATIONS TO THE INDICES
The index sponsor may revise Index policy for timing of rebalancings or other matters as described above under The IndicesIndex Governance. The effect of any such changes is described
below under Specific Terms of the ETNsDiscontinuance or Modification of an Index. The index sponsor or the calculation agent may also make determinations relating to market disruption and force majeure events as described below.
PS-25
Market Disruption and Force Majeure Events Relating to the Indices
If the index sponsor determines, in its sole discretion, that an exchange is forced to close early due to unforeseen events, such as computer or electric
power failures, weather conditions or other events, the index sponsor will calculate the value of each Index based on the most recent prior closing futures prices published by the CBOE and the roll of each Index for that day will be carried to the
next CBOE business day as described above under Composition of the IndicesContract Rebalancing. If an exchange fails to open due to unforeseen circumstances, the index sponsor may determine not to publish an Index for that day.
If an exchange introduces a holiday during the month of an Index calculation, the Index will not be published on that holiday and the roll
for that day will be carried to the next CBOE business day as described above under Composition of the IndicesContract Rebalancing.
Market Disruption and Force Majeure Events Relating to the ETNs
If an Index is not
published on an index business day, or if a market disruption event or a force majeure event (each as defined below) has occurred or is occurring, and such event affects any Index, any futures contract underlying any Index and/or the ability to
hedge any Index, the calculation agent may (but is not required to) make determinations and/or adjustments to the affected Index or method of calculating the affected Index. The determination of the value of an ETN on a valuation date, including the
final valuation date, may be postponed if the calculation agent determines that a market disruption or force majeure event has occurred or is continuing on such valuation date. In no event, however, will a valuation date for any series of ETNs be
postponed by more than five trading days. If a valuation date is postponed until the fifth trading day following the scheduled valuation date but a market disruption event occurs or is continuing on such day, that day will nevertheless be the
valuation date and the calculation agent will make a good faith estimate in its sole discretion of the value of the relevant Index for such day. All determinations and adjustments to be made by the calculation agent may be made in the calculation
agents sole discretion. See Risk Factors in this pricing supplement for a discussion of certain conflicts of interest which may arise with respect to the calculation agent.
The occurrence or existence of any of the following, as determined by the calculation agent in its sole discretion, will constitute a market disruption event:
|
|
the index sponsor does not publish the level of an Index on any index business day;
|
|
|
a suspension, absence or material limitation of trading of equity securities then constituting 20% or more of the level of the S&P 500
®
on the relevant exchanges (as defined below) for such securities for more than two hours of trading (one hour on any
day that is an index roll date for purposes of calculation the VIX Index or the relevant successor index) during, or during the one hour period preceding the close of, the principal trading session on such relevant exchange
|
|
|
a breakdown or failure in the price and trade reporting systems of any relevant exchange for the S&P 500
®
as a result of which the reported trading prices for equity securities then constituting 20% or more of the level of
the S&P 500
®
are materially inaccurate (i) during the one hour preceding the close of the principal
trading session on such relevant exchange or (ii) during any one hour period of trading on such relevant exchange on any day that is an index roll date for purpose of calculating the VIX Index or the relevant successor index;
|
|
|
a suspension, absence or material limitation of trading on any relevant exchange for the VIX Index (or any relevant successor index) for more than two
hours of trading (one hour on any day that is an index roll date for purposes of calculation the VIX Index or the relevant successor index) during, or during the one hour period preceding the close of, the principal trading session on
such relevant exchange;
|
|
|
a breakdown or failure in the price and trade reporting systems of the relevant exchange for the VIX Index (or the relevant successor index) as a
result of which the reported trading prices for SPX Options or futures on the VIX Index (or futures on the relevant successor index) during the one
|
PS-26
|
hour period preceding, and including, the scheduled time at which the value of SPX Options is calculated for purposes of the VIX Index (or the relevant successor index) are materially inaccurate;
|
|
|
a decision to permanently discontinue trading in SPX Options or futures on the VIX Index (or futures on the relevant successor index);
|
|
|
on any index business day, the occurrence or existence of a lack of, or a material decline in, the liquidity in the market for trading in any futures
contract underlying an Index;
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|
any event or any condition (including without limitation any event or condition that occurs as a result of the enactment, promulgation, execution,
ratification, interpretation or application of, or any change in or amendment to, any law, rule or regulation by an applicable governmental authority) that results in an illiquid market for trading in any futures contract underlying an Index; and
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the declaration or continuance of a general moratorium in respect of banking activities in any relevant city.
|
A force majeure event includes any event or circumstance (including, without limitation, a systems failure, natural or man-made disaster, act of God,
armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance) that the calculation agent determines to be beyond the calculation agents reasonable control and to materially affect any Index, any futures
contract underlying any Index, or the calculation of the VIX Index.
For purposes of determining whether a market disruption event has
occurred:
|
|
a limitation on the hours or number of days of trading will not constitute a market disruption event if it results from an announced change in the
regular business hours of the relevant exchange for the S&P 500
®
or the VIX Index (or the relevant successor
index);
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|
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limitations pursuant to the rules of any relevant exchange similar to NYSE Rule 80B (or any applicable rule or regulation enacted or promulgated by any
other self-regulatory organization or any government agency of scope similar to NYSE Rule 80B as determined by the index sponsor) on trading during significant market fluctuations will constitute a suspension, absence or material limitation of
trading;
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|
a suspension of trading in an SPX Option or a futures contract on the VIX Index (or futures contract on the relevant successor index) by the relevant
exchange for the VIX Index (or the relevant successor index) by reason of:
|
|
|
|
a price change exceeding limits set by such relevant exchange,
|
|
|
|
an imbalance of orders relating to such options, or
|
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a disparity in bid and ask quotes relating to such options
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will, in each such case, constitute a suspension, absence or material limitation of trading on such relevant exchange; and
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a suspension, absence or material limitation of trading on any relevant exchange will not include any time when such relevant exchange is
itself closed for trading under ordinary circumstances.
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Relevant exchange
means,
with respect to the S&P 500
®
, the primary exchange or market of trading for any equity security (or any
combination thereof) then included in the S&P 500
®
or, with respect to the VIX Index or any relevant
successor index, the primary exchange or market for SPX Options or futures on the VIX Index (or futures on the relevant successor index).
VALUATION OF THE ETNS
The market value
of the ETNs will be affected by several factors, many of which are beyond our control. Factors that may influence the market value of the ETNs include, but are not limited to, prevailing market prices and forward volatility levels of the U.S. stock
markets, the equity securities included in the S&P 500
®
and the S&P 500
®
, and prevailing market prices of options on the S&P 500
®
, the VIX Index, options on the VIX Index, relevant futures contracts on the VIX Index or any other financial instruments related to the S&P 500
®
and the VIX Index; supply and demand for the ETNs including inventory positions with Barclays Capital Inc. or any
market maker; interest rates; economic, financial, political, regulatory, geographical or judicial events that affect the level of the
PS-27
underlying Index or the market price or forward volatility of the U.S. stock markets, the equity securities included in the S&P 500
®
, the S&P 500
®
, the VIX
Index or the relevant futures contracts on the VIX Index; the perceived creditworthiness of Barclays Bank PLC; supply and demand in the listed and over-the-counter equity derivative markets; or supply and demand as well as hedging activities in the
equity-linked structured product markets. See Risk Factors in this pricing supplement for a discussion of the factors that may influence the market value of the ETNs prior to maturity.
Intraday Indicative Value
An intraday indicative value meant to approximate the intrinsic economic value of the ETNs of any series will be calculated and published by
Bloomberg L.P. or a successor via the facilities of the Consolidated Tape Association under the following ticker symbols:
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ETNs
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Ticker
Symbol
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iPath
®
S&P 500 VIX Short-Term Futures ETN
|
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VXX.IV
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iPath
®
S&P 500 VIX Mid-Term Futures ETN
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VXZ.IV
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In connection with your ETNs, we use the term indicative value to refer to the value at a given time
determined based on the following equation:
Indicative Value = Closing Indicative Value on the immediately preceding calendar day ×
Current Index Factor - Current Investor Fee
where:
Closing Indicative Value = The closing indicative value of the ETNs of any series as described in this pricing supplement.
Current Index Factor = The most recent published level of the Index as reported by the index sponsor / the closing level of the Index on the immediately preceding index business day.
Current Investor Fee = The most recent daily calculation of the investor fee with respect to your ETNs, determined as described in this pricing
supplement (which, during any trading day, will be the investor fee determined on the preceding calendar day).
Bloomberg L.P. is not
affiliated with Barclays Bank PLC and does not approve, endorse, review or recommend Barclays Bank PLC or the ETNs.
The indicative value will
be derived from sources deemed reliable, but Bloomberg L.P. and its suppliers do not guarantee the correctness or completeness of the indicative value or other information furnished in connection with the ETNs of any series. Bloomberg L.P. makes no
warranty, express or implied, as to results to be obtained by Barclays Bank PLC, Barclays Bank PLCs customers, holders of the ETNs, or any other person or entity from the use of the indicative value or any data included therein. Bloomberg L.P.
makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose with respect to the indicative value or any data included therein.
Bloomberg L.P., its employees, subcontractors, agents, suppliers and vendors shall have no liability or responsibility, contingent or otherwise, for any
injury or damages, whether caused by the negligence of Bloomberg L.P., its employees, subcontractors, agents, suppliers or vendors or otherwise, arising in connection with the indicative value or the ETNs, and shall not be liable for any lost
profits, losses, punitive, incidental or consequential damages. Bloomberg L.P. shall not be responsible for or have any liability for any injuries or damages caused by errors, inaccuracies, omissions or any other failure in, or delays or
interruptions of, the indicative value, from whatever cause. Bloomberg L.P. is not responsible for the selection of or use of any Index or the ETNs of any series, the accuracy and adequacy of any Index or information used by Barclays Bank PLC and
the resultant output thereof.
The indicative value calculation will be provided for reference purposes only. It is not intended as a price or
quotation, or as an offer or solicitation for the purchase, sale, redemption or termination of your ETNs, nor will it reflect hedging or transaction costs, credit considerations, market liquidity or bid-offer spreads. Published Index levels from the
index sponsor may occasionally be subject to delay or postponement. Any such delays or postponements will affect the current Index level and therefore the indicative value of your ETNs. The actual trading price of the ETNs of any series may be
different from their indicative value.
PS-28
As discussed in Specific Terms of the ETNsPayment Upon Redemption, you may, subject to certain restrictions, choose to redeem your ETNs on any redemption date during the term of
the ETNs. If you redeem your ETNs on a particular redemption date, you will receive a cash payment per ETN equal to the closing indicative value on the applicable valuation date minus the redemption charge. You must redeem at least 25,000 ETNs of
the same series at one time in order to exercise your right to redeem your ETNs on any redemption date. The daily redemption feature is intended to induce arbitrageurs to counteract any trading of the ETNs of any series at a discount to their
indicative value, though there can be no assurance that arbitrageurs will employ the redemption feature in this manner.
Split or Reverse Split of the ETNs
Should the closing indicative value on any business day be above $400.00, we may, but are not obligated, to initiate a 4 for 1 split of your ETNs. Should the closing indicative value on any
business day be below $25.00, we may, but are not obligated, to initiate a 1 for 4 reverse split of your ETNs. If the closing indicative value of the ETNs is greater than $400.00 or below $25.00 on any business day, and we decide to initiate a split
or reverse split, as applicable, such date shall be deemed to be the
announcement date
, and we will issue a notice to holders of the relevant ETNs and press release announcing the split or reverse split, specifying the effective
date of the split or reverse split.
If the ETNs undergo a split, we will adjust the terms of the ETNs
accordingly. If the ETNs undergo a 4:1 split, every investor who holds an ETN via DTC on the relevant record date will, after the split, hold four ETNs, and adjustments will be made as described below. The record date for the split will be the
9
th
business day after the announcement date. The closing
indicative value on such record date will be divided by 4 to reflect the 4:1 split of your ETNs. Any adjustment of closing indicative value will be rounded to 8 decimal places. The split will become effective at the opening of trading of the ETNs on
the business day immediately following the record date.
In the case of a reverse split, we reserve the right to address
odd numbers of ETNs (commonly referred to as partials) in a manner determined by us in our sole discretion. If the ETNs undergo a 1:4 reverse split, every investor who holds 4 ETNs via DTC on the relevant record date will, after the
reverse split, hold only one ETN and adjustments will be made as described below. The record date for the reverse split will be on the 9
th
business day after the announcement date. The closing indicative value on such record date will be multiplied by four
to reflect the 1:4 reverse split of your ETNs. Any adjustment of closing indicative value will be rounded to 8 decimal places. The reverse split will become effective at the opening of trading of the ETNs on the business day immediately following
the record date.
Holders who own a number of ETNs on the record date which is not evenly divisible by 4 will receive the
same treatment as all other holders for the maximum number of ETNs they hold which is evenly divisible by 4, and we will have the right to compensate holders for their remaining or partial ETNs in a manner determined by us in our sole
discretion. Our current intention is to provide holders with a cash payment for their partials on the 17
th
business day following the announcement date in an amount equal to the appropriate percentage of the closing indicative value of the reverse split- adjusted ETNs on the 14
th
business day following the announcement date. For example, a holder
who held 23 ETNs via DTC on the record date would receive 5 post reverse split ETNs on the immediately following business day, and a cash payment on the 17
th
business day following the announcement date that is equal to 3/4ths of the closing indicative value of the reverse
split-adjusted ETNs on the 14
th
business day following the
announcement date.
On October 26, 2010, Barclays Bank PLC announced that it intended to implement a reverse split
of the iPath
®
S&P 500 VIX Short-Term Futures ETN in accordance with the procedures described above.
The record date for the reverse split was November 8, 2010 and the reverse split became effective on November 9, 2010. The amount of cash payment due on any partials following the reverse split was determined based on the closing
indicative value of the iPath
®
S&P 500 VIX Short-Term Futures ETN on November 16, 2010 and such
cash payment was made on November 19, 2010.
PS-29
On September 21, 2012, Barclays Bank PLC announced that it intended to implement a
further reverse split of the iPath
®
S&P 500 VIX Short-Term Futures ETN in accordance with the
procedures described above. The record date for the reverse split was October 4, 2012 and the reverse split became effective on October 5, 2012. The amount of cash payment due on any partials following the reverse split was determined
based on the closing indicative value of the iPath
®
S&P 500 VIX Short-Term Futures ETN on
October 12, 2012 and such cash payment was made on October 17, 2012.
SPECIFIC TERMS
OF THE ETNS
In this section, references to holders mean those who own the ETNs of any series registered in their own names,
on the books that we or the trustee maintain for this purpose, and not those who own beneficial interests in the ETNs registered in street name or in the ETNs issued in book-entry form through The Depository Trust Company or another depositary.
Owners of beneficial interests in the ETNs of any series should read the section entitled Description of Debt Securities Legal Ownership; Form of Debt Securities in the accompanying prospectus.
The ETNs of all series are part of a series of debt securities entitled Global Medium-Term Notes, Series A (the
medium-term
notes
) that we may issue under the indenture, dated September 16, 2004, between Barclays Bank PLC and The Bank of New York Mellon, as trustee, from time to time. This pricing supplement summarizes specific financial and other terms
that apply to the ETNs. Terms that apply generally to all medium-term notes are described in Description of Medium-Term Notes and Terms of the Notes in the accompanying prospectus supplement, and terms that apply generally to
all index-linked notes are described in Reference AssetsIndices in the accompanying prospectus supplement. The terms described here (i.e., in this pricing supplement) supplement those described in the accompanying prospectus,
prospectus supplement and any related free writing prospectuses and, if the terms described here are inconsistent with those described in those documents, the terms described here are controlling.
Please note that the information about the price to the public and the proceeds to Barclays Bank PLC on the front cover of this pricing supplement
relates only to the initial sale of the ETNs of each series. If you have purchased the ETNs of any series in a market-making transaction after the initial sale, information about the price and date of sale to you will be provided in a separate
confirmation of sale.
We describe the terms of the ETNs in more detail below.
Inception and Issuance
The ETNs were first issued on February 3, 2009, and each will be due on January 30, 2019.
Coupon
We will not pay
you interest during the term of the ETNs.
Denomination
We will offer the iPath
®
S&P 500 VIX Short-Term
Futures
TM
ETN in denominations of $1,600.00 and the iPath
®
S&P 500 VIX Mid-Term Futures
TM
ETN in denominations of $100.00.
Payment at Maturity
If you hold your ETNs to maturity, you will receive a cash payment
per ETN in that series equal to the closing indicative value for that series on the applicable final valuation date.
The
closing indicative value
for a series of ETNs on any calendar day will be calculated in the following manner: The closing indicative value on the inception date will equal $100. On each subsequent calendar day until maturity or
early redemption, the closing indicative value will equal (1) the closing indicative value for that series on the immediately preceding calendar day
times
(2) the daily index factor for that series on such calendar day
(or, if such day is not an index business day, one)
minus
(3) the investor fee for that series on such calendar day.
The iPath
®
S&P 500 VIX Short-Term Futures ETN underwent a
1 for 4 reverse split, effective November 9, 2010. The closing indicative value of the iPath
®
S&P 500
VIX Short-Term Futures ETN on November 8, 2010 was $11.32. Such value will be multiplied by 4 to reflect the 1 for 4 reverse split, and rounded up to 8 decimal places and will be used to calculate the closing indicative value on
November 9, 2010.
PS-30
The iPath
®
S&P 500 VIX Short-Term Futures ETN underwent a further 1 for 4 reverse split, effective October 5, 2012. The closing indicative value of the iPath
®
S&P 500 VIX Short-Term Futures ETN on October 4, 2012 was $8.61. Such value will be multiplied by 4
to reflect the 1 for 4 reverse split, and rounded up to 8 decimal places and will be used to calculate the closing indicative value on October 5, 2012.
If the ETNs undergo any splits or subsequent reverse splits, the closing indicative value will similarly be adjusted accordingly.
The
daily index factor
for a series of ETNs on any index business day will equal (1) the closing level of the Index for that series on such index business day
divided by
(2) the closing level of the Index for that series on the immediately preceding index business day.
The
investor
fee
for a series of ETNs is 0.89% per year
times
the applicable closing indicative value
times
the applicable daily index factor, calculated on a daily basis in the following manner. The
investor fee on the inception date will equal zero. On each subsequent calendar day until maturity or early redemption, the investor fee will be equal to (1) 0.89%
times
(2) the closing indicative value for that series
on the immediately preceding calendar day
times
(3) the daily index factor for that series on that day (or, if such day is not an index business day, one)
divided by
(4) 365. Because the investor
fee is calculated and subtracted from the closing indicative value on a daily basis, the net effect of the fee accumulates over time and is subtracted at the rate of 0.89% per year.
The
final valuation date
is January 29, 2019.
A
trading day
for a series of ETNs is a day on which (1) it is a business day in New York, (2) trading is generally conducted on NYSE Arca and (3) trading is
generally conducted on the CBOE, in each case as determined by the calculation agent in its sole discretion.
An
index
business day
is a day on which (1) it is a business day in New York and (2) the CBOE is open.
Valuation Date
A
valuation date is each business day from January 29, 2009 to January 29, 2019 inclusive (or, if such date is not a trading day, the next succeeding trading day), unless the calculation agent determines that a market disruption event occurs
or is continuing on that day. In that event, the valuation date will be the first following trading day on which the calculation agent determines that a market disruption event does not occur and is not continuing. In no event, however, will any
valuation date be postponed by more than five trading days.
Maturity Date
If the maturity date stated on the cover of this pricing supplement is not a business day, the maturity date will be the next following business day. If
the fifth business day before this day does not qualify as a valuation date (as described below), then the maturity date will be the fifth business day following the final valuation date.
In the event that payment at maturity is deferred beyond the stated maturity date, penalty interest will not accrue or be payable with respect to that deferred payment.
Payment Upon Redemption
Prior to maturity, you may, subject to certain restrictions, redeem your ETNs on any redemption date during the term of the ETNs of the relevant series,
provided that you present at least 25,000 ETNs of the same series for redemption, or your broker or other financial intermediary (such as a bank or other financial institution not required to register as a broker-dealer to engage in securities
transactions) bundles your ETNs for redemption with those of other investors to reach this minimum. If you choose to redeem your ETNs on a redemption date, you will receive a cash payment per ETN on such date equal to the closing indicative value
for that series on the related valuation date minus the redemption charge.
The
closing indicative value
for a
series of ETNs on any calendar day will be calculated in the following manner. The closing indicative value on the inception date will equal $100. On each subsequent calendar day until maturity or early redemption, the closing indicative value will
equal (1) the closing indicative value for that series on the immediately preceding calendar day
times
(2) the daily index factor for that series on such calendar day (or, if such day is not an index business day, one)
minus
(3) the investor fee for that series on such calendar day. If the ETNs undergo a split or reverse split, the closing indicative value will be adjusted accordingly.
The
daily index factor
for a series of ETNs on any index business day will equal (1) the closing level of the Index for that
series on such index business day
divided by
(2) the closing level of the Index for that series on the immediately preceding index business day.
PS-31
The
investor fee
for a series of ETNs is 0.89% per year
times
the applicable closing indicative value
times
the applicable daily index factor, calculated on a daily basis in the following manner. The investor fee on the inception date will equal zero. On each
subsequent calendar day until maturity or early redemption, the investor fee will be equal to (1) 0.89%
times
(2) the closing indicative value for that series on the immediately preceding calendar day
times
(3) the daily index factor for that series on that day (or, if such day is not an index business day, one)
divided by
(4) 365. Because the investor fee is calculated and subtracted from the
closing indicative value on a daily basis, the net effect of the fee accumulates over time and is subtracted at the rate of 0.89% per year.
The
redemption charge
is a one-time charge imposed upon early redemption and is equal to 0.05%
times
the daily closing indicative value on the valuation date. The redemption
charge is intended to allow us to recoup the brokerage and other transaction costs that we will incur in connection with redeeming the ETNs. The proceeds we receive from the redemption charge may be more or less than such costs.
A
valuation date
is each business day from January 29, 2009 to January 29, 2019, inclusive (subject to the occurrence
of a market disruption event), or, if such date is not a trading day, the next succeeding trading day, not to exceed five business days.
A
redemption date
for each series of ETNs is the third business day following each valuation date (other than the final valuation date). The final redemption date will be the
third business day following the valuation date that is immediately prior to the final valuation date.
In the event that payment upon
redemption is deferred beyond the original redemption date, penalty interest will not accrue or be payable with respect to that deferred payment.
Redemption Procedures
You may, subject to the minimum redemption amount described above,
elect to redeem your ETNs on any redemption date. To redeem your ETNs, you must instruct your broker or other person through whom you hold your ETNs to take the following steps:
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deliver a notice of redemption, which is attached as Annex A, to us via email by no later than 4:00 p.m., New York City time, on the business day
prior to the applicable valuation date. If we receive your notice by the time specified in the preceding sentence, we will respond by sending you a form of confirmation of redemption, which is attached as Annex B;
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deliver the signed confirmation of redemption to us via facsimile in the specified form by 5:00 p.m., New York City time, on the same day. We or
our affiliate must acknowledge receipt in order for your confirmation to be effective;
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instruct your DTC custodian to book a delivery vs. payment trade with respect to your ETNs on the valuation date at a price equal to the applicable
daily closing indicative value minus the redemption charge, facing Barclays DTC 5101; and
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cause your DTC custodian to deliver the trade as booked for settlement via DTC at or prior to 10:00 a.m., New York City time, on the applicable
redemption date (the third business day following the valuation date).
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Different brokerage firms may have different
deadlines for accepting instructions from their customers. Accordingly, you should consult the brokerage firm through which you own your interest in the ETNs in respect of such deadlines. If we do not receive your notice of redemption by
4:00 p.m., New York City time, or your confirmation of redemption by 5:00 p.m., New York City time, on the business day prior to the applicable valuation date, your notice will not be effective and we will not redeem your ETNs on the
applicable redemption date. Any redemption instructions for which we (or our affiliate) receive a valid confirmation in accordance with the procedures described above will be irrevocable.
Default Amount on Acceleration
If an event of default occurs and the maturity of a series of ETNs is accelerated, we will pay the default amount in respect of the principal of that series of ETNs at maturity. We describe the default
amount below under Default Amount.
PS-32
For the purpose of determining whether the holders of our medium-term notes, of which each series of ETNs is
a part, are entitled to take any action under the indenture, we will treat the stated principal amount of each ETN outstanding as the principal amount of that ETN. Although the terms of the ETNs may differ from those of the other medium-term notes,
holders of specified percentages in principal amount of all medium-term notes, together in some cases with other series of our debt securities, will be able to take action affecting all the medium-term notes, including the ETNs. This action may
involve changing some of the terms that apply to the medium-term notes, accelerating the maturity of the medium-term notes after a default or waiving some of our obligations under the indenture. We discuss these matters in the attached prospectus
under Description of Debt SecuritiesModification and Waiver and Senior Events of Default; Subordinated Events of Default and Defaults; Limitations of Remedies.
Default Amount
The default amount for a
series of ETNs on any day will be an amount, determined by the calculation agent in its sole discretion, equal to the cost of having a qualified financial institution, of the kind and selected as described below, expressly assume all our payment and
other obligations with respect to that series of ETNs as of that day and as if no default or acceleration had occurred, or to undertake other obligations providing substantially equivalent economic value to you with respect to such ETNs. That cost
will equal:
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the lowest amount that a qualified financial institution would charge to effect this assumption or undertaking, plus
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the reasonable expenses, including reasonable attorneys fees, incurred by the holders of such ETNs in preparing any documentation necessary for
this assumption or undertaking.
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During the default quotation period for a series of ETNs, which we describe below, the
holders of such ETNs and/or we may request a qualified financial institution to provide a quotation of the amount it would charge to effect this assumption or undertaking. If either party obtains a quotation, it must notify the other party in
writing of the quotation. The amount referred to in the first bullet point above will equal the lowestor, if there is only one, the onlyquotation obtained, and as to which notice is so given, during the default quotation period. With
respect to any quotation, however, the party not obtaining the quotation may object, on reasonable and significant grounds, to the assumption or undertaking by the qualified financial institution providing the quotation and notify the other party in
writing of those grounds within two business days after the last day of the default quotation period, in which case that quotation will be disregarded in determining the default amount.
Default Quotation Period
The default quotation period is the period beginning on the day
the default amount first becomes due and ending on the third business day after that day, unless:
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no quotation of the kind referred to above is obtained, or
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every quotation of that kind obtained is objected to within five business days after the due date as described above.
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If either of these two events occurs, the default quotation period will continue until the third business day after the first business day on which
prompt notice of a quotation is given as described above. If that quotation is objected to as described above within five business days after that first business day, however, the default quotation period will continue as described in the prior
sentence and this sentence.
In any event, if the default quotation period and the subsequent two business day objection period have not ended
before the final valuation date, then the default amount will equal the principal amount of the series of ETNs.
Qualified Financial
Institutions
For the purpose of determining the default amount at any time, a qualified financial institution must be a financial
institution organized under the laws of any jurisdiction in the United States of America or Europe, which at that time has outstanding debt obligations with a stated maturity of one year or less from the date of issue and rated either:
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A-1 or higher by Standard & Poors Ratings Services, or any successor, or any other comparable rating then used by that rating agency, or
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P-1 or higher by Moodys Investors Service, or any successor, or any other comparable rating then used by that rating agency.
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PS-33
Further Issuances
We may, without your consent, create and issue additional securities having the same terms and conditions as any series of ETNs. If there is substantial demand for a series of ETNs, we may issue
additional ETNs frequently. We may consolidate the additional securities to form a single class with the outstanding ETNs.
Discontinuance or Modification of an Index
If the index sponsor discontinues publication of any Index and any other person or entity publishes an index that the calculation agent determines is comparable to that Index and the calculation agent
approves such index as a successor index, then the calculation agent will determine the value of that Index on the applicable valuation date and the amount payable at maturity or upon redemption by reference to such successor index.
If the calculation agent determines that the publication of any Index is discontinued and there is no successor index, or that the closing value of that
Index is not available for any reason, on the date on which the value of that Index is required to be determined, the calculation agent will determine the amount payable by a computation methodology that the calculation agent determines will as
closely as reasonably possible replicate that Index.
If the calculation agent determines that any Index or the method of calculating any
Index has been changed at any time in any respect, including whether the change is made by the index sponsor under its existing policies or following a modification of those policies, is due to the publication of a successor index, or is due to any
other reason, then the calculation agent will be permitted (but not required) to make such adjustments to that Index or method of calculating that Index as it believes are appropriate to ensure that the value of that Index used to determine the
amount payable on the maturity date or upon redemption is equitable.
All determinations and adjustments to be made by the calculation agent
may be made in the calculation agents sole discretion. See Risk Factors in this pricing supplement for a discussion of certain conflicts of interest which may arise with respect to the calculation agent.
Manner of Payment and Delivery
Any payment on or delivery of a series of ETNs at maturity will be made to accounts designated by you and approved by us, or at the office of the trustee in New York City, but only when the ETNs are
surrendered to the trustee at that office. We also may make any payment or delivery in accordance with the applicable procedures of the depositary.