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 Index. Investing in ETNs is not equivalent to investing directly in the relevant Long Bond futures contract underlying the Index. See The Index 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.
The Long Bond Yield May Increase or Remain Unchanged Over the Term of Your ETNs, Which May Adversely Affect the Value of Your ETNs
The Index employs a strategy that seeks to capture returns that are potentially available from an increase or decrease, as applicable, in the yields
available to investors purchasing long-dated bonds (which are U.S. Treasury bonds with a remaining term to maturity of 15 years or more). The Index seeks to achieve this strategy by tracking the returns of a notional investment in a weighted
long position in relation to U.S. Treasury bond futures contracts. This strategy of obtaining exposure to U.S. Treasury yields through an investment linked to Treasury futures contracts is premised on the historical pattern of Treasury
futures contracts generally increasing or decreasing in price as a result of a proportional decrease or increase, respectively, in the prevailing yield of the then current CTD bond underlying the relevant Treasury futures contract. Specifically, we
expect that a decrease in the Long Bond yield will generally correspond with a proportional increase in the price of the relevant Long Bond futures contract underlying the Index and, therefore, result in an increase in the Index level. Even if this
historical pattern is observed over the term of your ETNs, changes in the Long Bond yield are affected by a number of unpredictable factors (as described in further detail below under The Market Value of the ETNs May Be Influenced by
Many Unpredictable Factors), and such factors may cause the Long Bond yield to increase or remain unchanged, rather than decrease, over the term of your ETNs. Specifically, if the Long Bond yield does not decrease, the level of the Index is
designed to decline, which may adversely affect the payment you receive at maturity or upon redemption and may also adversely affect the market value of your ETNs.
Your ETNs are Not Linked Directly to Any Long-dated Benchmark U.S. Treasury Yield
The
performance of the Index tracks the returns of a notional investment in Long Bond futures contracts, each of which provides for the delivery upon maturity of one U.S. Treasury bond among a basket of eligible-to-deliver bonds. These futures
contracts, and therefore the Index, may not necessarily track the value of any long-dated benchmark U.S. Treasury yield, the changes in the Long Bond yield, or the performance of an investment in any long-dated U.S. Treasury bond itself.
Accordingly, there is no assurance that the Index will outperform an alternative investment that uses a different strategy to reflect long-dated benchmark U.S. Treasury yields. It is also possible that an alternative investment in long-dated U.S.
Treasury bonds themselves, or in one or more of the eligible-to-deliver bonds underlying the relevant Long Bond futures contract, could potentially generate a higher return than your ETNs.
There is No Guarantee that the Index Level Will Increase or Decrease by 1.00 Point For Every 0.01% Decrease or Increase, Respectively, in the Long Bond Yield
The level of the Index is designed to increase by approximately 1.00 point for every 0.01% decrease in the Long Bond yield (i.e., a 0.01% decrease in the
yield of the current CTD bond underlying the relevant Long Bond futures contract) and to decrease by approximately 1.00 point for every 0.01% increase in the Long Bond yield. Moreover, before taking into account the negative effect of the daily
investor fee and the index rolling cost and the positive effect of the accrued interest, the ETNs are designed to produce a $0.10 gain or a $0.10 loss per ETN for every 1.00 point increase or decrease, respectively, in the level of the Index.
However, for the reasons described below, there is no
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guarantee that the Index level will increase or decrease, as applicable, by 1.00 point for every 0.01% change in the Long Bond yield. Accordingly, the Index level could increase by less than 1.00
point (with an associated gain of less than $0.10 per ETN) for every 0.01% decrease in the Long Bond yield, and the Index level could decrease by more than 1.00 point (with an associated loss of more than $0.10 per ETN) for every 0.01% increase in
the Long Bond yield. For a graph illustrating the historical performance of the Index compared to the corresponding changes in the Long Bond yield over the same period, see The IndexHistorical Performance of the Index.
The Index only approximates, and does not guarantee, a 1.00 point increase or decrease for every 0.01% change in the Long Bond yield due to several
factors, including the following:
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Market prices for Long Bond futures contracts may not capture precisely the underlying changes in the Long Bond yield.
The Indexs strategy
of obtaining exposure to U.S. Treasury yields through a notional investment in Treasury futures contracts is premised on the historical pattern of Treasury futures contracts generally increasing or decreasing in price as a result of a proportional
decrease or increase, respectively, in the prevailing yield of the then current CTD bond underlying the relevant Treasury futures contract. However, certain market factors could prevent Treasury futures contract prices from capturing precisely the
changes in the yields of the CTD bonds underlying such Treasury futures contracts. For example, while certain market participants engage in arbitrage activities that help cause futures contract prices to reflect closely the prices of the CTD bonds
underlying such futures contracts, such activities do not always have such effect, in part due to the transaction and replication costs that such arbitrage activities can entail.
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The Index calculation methodology uses the mathematical approximation of modified duration, which has certain limitations in approximating the
relationship between U.S. Treasury bond prices and yields.
As described in more detail under U.S. Treasury Bonds and Futures ContractsModified Duration, modified duration provides a general indication of the expected change in
the price of a bond in response to a given change in yield. For example, a modified duration of 20 implies that if the yield of a bond increases by 0.01%, one would expect a 0.20% decrease in the price of such bond. The Index is calculated, in part,
by using the modified duration of the relevant CTD bond underlying the relevant Long Bond futures contract in order to approximate the change in yield of such bond relative to the changes in price of such Long Bond futures contract. However,
modified duration serves only as an approximation of the expected change in the price of a CTD bondand, by extension, an approximation of the expected change in price of the relevant Long Bond futures contractin response to a
corresponding change in the CTD bonds yield. Modified duration only provides an approximation because it is calculated on the basis of a ratio between changes in a bonds price and an arbitrarily small change in its corresponding yield,
and assumes that the relationship between a bonds price and its yield is linear. However, the relationship between a bonds price and its corresponding yield tends to be convex, meaning that bond prices are not
likely to change linearly for each change in yield. Rather, such prices will change over some curved function of bond yields. For example, while a 0.01% increase in the yield of a bond may result in a 0.20% decrease in the corresponding bond price
(as in the example above), a more significant change in yield such as a yield increase of 1.0% may result in a greater than 20.0% decrease in the corresponding bond price. These inherent limitations of modified duration, therefore, render the Index
unable to guarantee that a certain change in the price of a Long Bond futures contractand, therefore, a certain change in the Index levelmay be achieved as a result of any changes in the Long Bond yield.
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The Long Bond weighting is rebalanced on a monthly basis only and such weighting may not be optimal on any given index business day.
The Long
Bond weighting reflected in the Index is rebalanced monthly in order to seek to enable the Index to
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maintain approximately its target exposure of a 1.00 point change for every 0.01% change in the Long Bond yield. The Long Bond weighting is based on the available market data on each rebalancing
date relating to the applicable Long Bond futures contract price and modified duration of the then current CTD bond underlying the relevant Long Bond futures contract. However, the Long Bond weighting used to calculate the Index level may not be
optimal on a given index business day during the period between monthly rebalancing dates, and accordingly the target exposure of the Index may not be achieved on such index business day. The weighting may not be optimal as a result of, among other
factors:
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a change in market conditions between rebalancing dates may occur that causes the Long Bond futures contract price and/or the modified duration of the
applicable CTD bond used to calculate the relevant Long Bond weighting as of the previous rebalancing date to not reflect sufficiently the actual price of the relevant Long Bond futures contract or the actual modified duration of the applicable CTD
bond, as the case may be, on the relevant calculation date;
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the modified duration of the relevant CTD bond used to calculate the Long Bond weighting as of the previous rebalancing date may fail to reflect
accurately the change in the price of the relevant CTD bond in response to a change in the corresponding yield; or
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the CTD bond underlying the relevant Long Bond futures contract may be replaced by another eligible-to-deliver bond that becomes the CTD bond between
rebalancing dates, and such subsequent CTD bond may bear different specifications and characteristics than the CTD bond used for purposes of the rebalancing date.
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The Yields Available for Long-dated Bonds Have Historically Reverted to a Long-Term Mean Level, and Any Decrease in the Long Bond Yield May Be Constrained
Historically, the yields available to investors purchasing long-dated bonds have, over the long-term, tended to move within a historical mean range. If
this trend continues over the term of your ETNs, any short-term decrease in the Long Bond yield may not be sustained and, in the long-term, the Long Bond yield may remain within its historical mean range. As a result, the potential for any long-term
increase in the level of the Index, and therefore, the value of your ETNs, may be constrained by this trend.
Historical U.S. Treasury
Yield Patterns May Not Provide an Accurate Prediction as to Future Movements in the Long Bond Yield
Changes in the yields available for
long-dated bonds generally tend to reflect shifting market expectations about the direction of U.S. monetary policy and inflationary expectations in the economy, as well as supply and demand factors impacting long-dated bonds, among other factors.
For example, market expectations of a relatively contractionary U.S. monetary policy may result in a reduction in the yields available for
longer- term U.S. Treasury securities, including the Long Bond yield. Conversely, market expectations of an expansionary U.S. monetary policy may result in an increase in the yields available for longer-term U.S. Treasury securities, including the
Long Bond yield.
As another example, market expectations of a decrease in the future rate of inflation may lead investors to accept
relatively lower yields on longer-term U.S. Treasury securities, including the Long Bond yield. Conversely, investors that expect the future rate of inflation to increase might demand higher yields on longer-term U.S. Treasury securities, including
the Long Bond yield.
Furthermore, excess supply of, and demand for, long-dated bonds could lead to changes in the yields for such securities.
For example, unusually high demand in the market for long-dated bonds would generally lead to an increase in priceand a resulting decrease in the yieldfor long-dated bonds, including the Long Bond yield. Conversely, excess supply in the
market for long-dated bonds would generally lead to a decrease in priceand a resulting increase in the yieldfor long-dated bonds, including the Long Bond yield.
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However, despite these historically-observed relationships between the prices of U.S. Treasury bonds and
monetary policy expectations, the rate of inflation and the supply of and demand for U.S. Treasury securities, there can be no assurance that such trends will occur during the term of the ETNs. In particular, it is possible that the Long Bond yield
may in fact increase or remain unchanged during periods where investors are expecting, for example, a contractionary U.S. monetary policy and a decrease in the future rate of inflation. Conversely, it is possible that the Long Bond yield may
decrease during periods where investors are anticipating, for example, an expansionary U.S. monetary policy and an increase in the future rate of inflation. See The Market Value of the ETNs May Be Influenced by Many Unpredictable
Factors below for a description of some of the additional factors that may affect the Long Bond yield and, in turn, affect the Index level, the market value of your ETNs and the payment you receive at maturity or upon redemption.
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 prices of Long Bond futures contracts will affect the Index, and thus the market value of the ETNs and the payment you receive at maturity or upon redemption, more than any other factor. Several other factors, many of which
are beyond our control, and many of which could themselves affect the price of the relevant Long Bond futures contract underlying the Index, will influence the market value of the ETNs and the payment you receive at maturity or upon redemption,
including the following:
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the prevailing prices and yields for U.S. Treasury securities of variable maturities in general;
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the prices and yields of the eligible-to-deliver U.S. Treasury bonds underlying Long Bond futures contracts in particular and, at any given time, which
bond constitutes the cheapest-to-deliver bond;
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the prevailing spread between U.S. Treasury yields and the yields on investable fixed income securities and equity securities;
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prevailing market and futures prices for U.S. Treasury securities, or any other financial instruments related to U.S. government debt;
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market expectations of short-term and long-term interest rates on U.S. Treasury securities and the Federal Funds rate;
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market expectations of the future rate of inflation in the United States;
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market expectations of macroeconomic trends including economic cycles of growth and recession in the United States;
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supply and demand for U.S. Treasury securities of different yields and maturities and for U.S. Treasury futures contracts;
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the prevailing yields for 28-day U.S. Treasury bills;
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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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economic, financial, political, regulatory, geographical or judicial events that affect the level of the Index or prevailing market and futures prices
for U.S. Treasury securities, or any other financial instruments related to U.S. government debt;
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the time remaining to maturity of the ETNs;
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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 rates derivative markets; or
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supply and demand as well as hedging activities in the rates-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.
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As a Result of the Index Multiplier, Any Changes in the Value on Your ETNs Will Not Occur at the Same
Rate as the Corresponding Changes in the Value of the Index
The ETNs apply an index multiplier for purposes of calculating the closing
indicative note value on each calendar day. As a result of the index multiplier, and without taking into account the positive effect of the accrued interest and the negative effect of the daily investor fee and the index rolling cost, each ETN will
record a $0.10 gain or loss for every 1.00 point increase or decrease, respectively, in the level of the Index. The effect of the index multiplier is to decrease the rate at which the value of the ETNs changes in response to changes in the
underlying Index level. Therefore, the value of the ETNs may not increase at the same rate as would a comparable investment in the Index that did not contain such an index multiplier. Furthermore, because the daily investor fee and the index rolling
cost reduce the amount of your return at maturity or upon redemption, the level of the Index will need to increase significantly in order for you to receive at least the principal amount of your investment at maturity or upon redemption. If the
increase in the level of the Index and the positive effect of the accrued interest are insufficient to offset the negative effect of the daily investor fee and the index rolling cost, or if the Index level decreases, you will receive less than the
principal amount of your investment at maturity or upon redemption.
Future Prices of Long Bond Futures Contracts That Are Different
Relative to Their Current Prices May Result in a Reduced Amount Payable at Maturity or Upon Redemption
The Index is composed of Long Bond
futures contracts rather than long-dated U.S. Treasury bonds. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, U.S. Treasury futures contracts normally specify a certain date for delivery of their
underlying eligible-to-deliver bonds. As the exchange-traded futures contracts that comprise the Index approach expiration, they are replaced by similar contracts that provide for a later expiration. Thus, for example, a Long Bond 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 that expires 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 comparatively 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 positive roll yield. The actual realization of a potential roll yield will be dependent upon the level of the related spot price relative to the
unwind price of the Long Bond futures contract at the time of sale of the contract. Although backwardation may not exist at all times during the term of the ETNs, the Long Bond futures contracts underlying the Index have historically
exhibited consistent periods of backwardation. In addition, the Long Bond futures contracts included in the Index have traded in contango markets during certain periods in the past. Contango markets are those in which the prices of
contracts are comparatively higher in the distant delivery months than in the nearer delivery months, thereby creating a negative roll yield. As the Index is designed to track the returns of a notional investment in a weighted
long position in relation to Long Bond futures contracts, the effect of a contango trading environment on the relevant Long Bond futures contract underlying the Index could contribute to a decrease in the Index level and, accordingly,
decrease the payment you receive at maturity or upon redemption.
Your Payment at Maturity or Upon Redemption Will Be Significantly Reduced
by the Daily Investor Fee and the Index Rolling Cost Regardless of the Performance of the Index and Your Notes Are Not Principal Protected
Your payment at maturity or upon redemption will be significantly reduced by the daily investor fee and the index rolling cost. The daily investor fee
will accrue throughout the term of the ETNs regardless of the performance of the Index, resulting in a cumulative fee rate of 0.75% per year. The index rolling cost is subtracted at a rate of $0.005 per ETN on each index roll day. As such, the
level of the Index must increase significantly in order to offset the daily investor fee and the index rolling cost. If the level of the Index does not increase sufficiently, your return
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at maturity or upon redemption may be less than that of a comparable investment in the Index with lower investor fees and a lower or no index rolling cost, and may also be less than the principal
amount of your investment in the ETNs.
Moreover, the ETNs are not principal protected. As there is no minimum limit to the level of the
Index, and the Index level could become negative, a decrease in the level of the Index could cause you to lose up to your entire investment in the ETNs.
You Will Not Benefit from Any Increase in the Level of the Index if Such Increase Is Not Reflected in the Index on the Applicable Valuation Date
If the positive effect of the accrued interest and any increase in the level of the Index are insufficient to offset the negative effect of the daily
investor fee and the index rolling cost 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 Index level as of some date or dates prior to the applicable valuation date would have been sufficiently high to offset the negative effect of the daily investor fee and the index rolling cost.
You Will Not Receive Interest Payments on the ETNs or Have Rights in Respect of Any of the Treasury Futures Contracts Included in the Index
You will not receive any periodic interest payments on your ETNs. As an owner of the ETNs, you will not have rights that investors in
Long Bond futures contracts or 28-day U.S. Treasury bills may have. Your ETNs will be paid in cash, and you will have no right to receive delivery of any Long Bond futures contracts or 28-day Treasury bills, or of any underlying U.S. Treasury bonds,
coupons or distributions relating to such securities or of payment or delivery of amounts in respect of the Long Bond futures contracts included in the Index.
The Closing Price of the Relevant Long Bond Futures Contract Underlying the Index May Not Be Readily Available
As described in the section entitled The Index in this pricing supplement, the closing price of the relevant Long Bond futures contract underlying the Index is calculated and published by the
CBOT. The closing price of the relevant Treasury futures contract is used to calculate the level of the Index. Any disruption in CBOT trading of the relevant Treasury futures contract could delay the release or availability of the closing price.
This may delay or prevent the calculation of the Index.
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 50,000 ETNs at one time in order to exercise your right to redeem your ETNs
on any early redemption date. You may only redeem your ETNs on an early 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 early 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.
If a Note Market Disruption Event Has Occurred or Exists on a Valuation Date, the Calculation Agent Can Postpone the Determination of the Closing Indicative Note Value or the Maturity Date or an Early
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 note market disruption has occurred or is continuing on such valuation date. In no event, however, will a valuation date for the ETNs be postponed by more than five trading days. As a result, the maturity date or
an early redemption date for the 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
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valuation date but a note 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 level of the Index for such day.
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 change in
Index level 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 change in Index level and, accordingly, decrease the payment you
receive at maturity or upon redemption.
The Index May in the Future Include Contracts That Are Not Traded on Regulated Futures Exchanges
The Index is currently based solely on futures contracts traded on the CBOT, a regulated futures exchange (referred to in the United
States as a designated contract market). If these exchange-traded futures contracts cease to exist, the 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 CBOT, 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. 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 the Index, may be subject to certain risks not presented by U.S.
exchange-traded futures contracts, including risks related to the liquidity and price histories of the relevant contracts.
Historical
Levels of the Index Should Not Be Taken as an Indication of the Future Performance of the Index During the Term of the ETNs
It is
impossible to predict whether the level of the Index will rise or fall. The actual performance of the Index over the term of the ETNs, as well as the amount payable at maturity or upon redemption, may bear little relation to the historical level of
the Index.
Changes in the 28-Day U.S. Treasury Bill Rate May Affect the Value of Your ETNs
The value of the ETNs is linked, in part, to the rate of interest that could be earned on an investment of the value of the ETNs at the T-Bill rate,
which comprises the weekly investment rate for 28-day U.S. Treasury bills (as described in further detail under Specific Terms of the ETNs). Changes in the prevailing weekly investment rate for 28-day U.S. Treasury bills, and therefore
the T-Bill rate, may affect the amount payable on your ETNs at maturity or upon redemption and, therefore, the market value of your ETNs. Any decrease in T-Bill rate will decrease the daily interest and the closing indicative note value and will,
therefore, adversely affect the amount payable on your ETNs at maturity or upon redemption.
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.
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 the ETNs on NYSE Arca, a
trading market for the 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
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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, sold a portion of the ETNs on the inception date, 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 outstanding or held by persons other than our affiliates could be reduced at any time due to redemptions of the ETNs.
Accordingly, the liquidity of the market for the ETNs could vary materially over the term of the ETNs. While you may elect to redeem your ETNs prior to maturity, such redemption is subject to the conditions and procedures described elsewhere in this
pricing supplement, including the conditions that you must redeem at least 50,000 ETNs at one time in order to exercise your right to redeem your ETNs on any early redemption date.
As Index Sponsor, Barclays Bank PLC Will Have the Authority To Make Determinations That Could Materially Affect Your ETNs in Various Ways and Create Conflicts of Interest
Barclays Bank PLC is the index sponsor. The index sponsor is responsible for the composition, calculation and maintenance of the Index. As discussed in
the section entitled The IndexModifications to the Index in this pricing supplement, the index sponsor has the discretion in a number of circumstances to make judgments and take actions in connection with the composition,
calculation and maintenance of the Index, and any such judgments or actions may adversely affect the value of the ETNs.
The role played by
Barclays Bank PLC, as index sponsor, and the exercise of the kinds of discretion described above and in the section entitled The IndexModifications to the Index in this pricing supplement could present it with significant conflicts
of interest in light of the fact that Barclays Bank PLC is the issuer of the ETNs. The index sponsor has no obligation to take the needs of any buyer, seller or holder of the ETNs into consideration at any time.
The Policies of the Index Sponsor and Changes That Affect the Composition and Valuation of the Index Could Affect the Amount Payable on the ETNs and
Their Market Value
The policies of the index sponsor, which is a division of Barclays Bank PLC, concerning the calculation of the level
of the Index could affect the level 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.
The index sponsor may modify the methodology for calculating the level of the Index. In addition, as described in The IndexModifications to the Index in this pricing supplement, under a
number of circumstances the index sponsor may make certain changes to the way in which the Index is calculated. The index sponsor may also discontinue or suspend calculation or publication of the Index, in which case it may become difficult to
determine the market value of the Index. Any such changes could adversely affect the value of your ETNs.
If events such as these occur, or if
the level of the Index is not available or cannot be calculated for any reason, the calculation agent may be required to make a good faith estimate in its sole discretion of the level of the 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 ETNsDiscontinuance or Modification of the Index and Role of Calculation Agent.
Trading and Other Transactions by Barclays Bank PLC or Its Affiliates in Treasury Futures Contracts or Related Interest Rate Futures or Related
Instruments 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 the ETNs by purchasing futures or options on interest rates or the Index, or other derivative instruments with returns linked to interest rates or the Index, and we may
adjust these hedges by, among other things,
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purchasing or selling any of the foregoing. Any of these hedging activities may adversely affect the prevailing price for the relevant underlying Long Bond futures contract and the level of the
Index 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.
We or one or more of our affiliates may also engage in trading in futures or options on interest rates or the Index, or other derivative instruments with
returns linked to interest rates or the Index 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 may adversely affect the prevailing price for the relevant underlying Long Bond futures contract and the level of the Index 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 any of 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
In addition to the role of Barclays Bank PLC as index sponsor as described under As Index Sponsor, Barclays Bank PLC Will Have the Authority
To Make Determinations That Could Materially Affect Your ETNs in Various Ways and 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 futures or options on interest rates or the Index, or other
derivative instruments with returns linked to futures, interest rates or the Index that are not for the accounts 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 Index, could be adverse to the interests of the holders of the ETNs.
Moreover, we and our affiliates have published, and in the future expect to publish, research reports with respect to U.S. Treasury futures contracts and interest rates. 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, Barclays Capital Inc. or our other affiliates may affect the prevailing prices of U.S. Treasury futures contracts and the level of the Index
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 at maturity or upon redemption. For a more detailed description of the calculation agents role, see Specific Terms of the ETNsRole of Calculation
Agent in this pricing supplement.
If the index sponsor were to discontinue or suspend calculation or publication of the Index, it may
become difficult to determine the market value of the ETNs. If events such as these occur, or if the level of the Index is not available or cannot be calculated because of an index market disruption event or a force majeure event, or for any other
reason, the calculation
PS-19
agent may be required to make a good faith estimate in its sole discretion of the level of the 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 note
market disruption 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, 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 could be treated as ordinary income. Similarly, the Internal Revenue Service and
the Treasury Department have current projects open with regard to the tax treatment of pre-paid forward contracts, contingent notional principal contracts and other derivative 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 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 Index rebalances or each time a futures
contract tracked by the Index rolls, and (ii) currently accrue ordinary interest income in respect of the notional interest component of your ETNs.
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-20
U.S. TREASURY BONDS AND FUTURES CONTRACTS
We have derived certain information in this section from publicly available information. We have not independently verified this information and we make
no representation or warranty as to its accuracy or completeness.
U.S. Treasury bonds are coupon-bearing U.S. government debt instruments
with maturities of more than ten years. U.S. Treasury bond futures contracts are legally binding agreements for the buying or selling of U.S. Treasury bonds at a fixed price for physical settlement on a future date. U.S. Treasury bond futures
contracts permit the delivery in satisfaction of a maturing contract of any one of a pre-specified basket of eligible U.S. Treasury bonds.
Long Bond futures contracts have a face value of $100,000 and require the delivery of a U.S. Treasury bond with a remaining term to maturity or first
call of at least 15 years from the first day of the delivery month. From and including the Long Bond futures contract expiring in March 2011, each Long Bond futures contract will require the delivery of a U.S. Treasury bond with a remaining term to
maturity or first call of at least 15 years, but less than 25 years, from the first day of the delivery month. Long Bond futures contracts are traded on the CBOT. The closing prices of Long Bond futures contracts are calculated by CBOT and reported
on Bloomberg under symbol US.
Price/Yield Relationship
As described in further detail below, the price of a Long Bond futures contract will generally increase or decrease in response to a corresponding
increase or decrease in the market price of its relevant underlying U.S. Treasury bond. The market price of any U.S. Treasury bond is inversely related to its yield-to-maturity, or yield. A bonds yield is calculated as the internal
rate of return that would cause the sum of the expected future cash flows generated by the bond (including the interest payments and the principal amount due on the bond), discounted to present value, to equal the bonds current purchase price.
As the dollar amount of the remaining cash flows payable on a U.S. Treasury bond until its maturity (i.e., interest payments and principal) do not change, a bonds yield will increase when the market price of the bond decreases, and vice versa.
The prevailing yield for a U.S. Treasury bond is reported as an annual percentage rate.
The current yields for U.S. Treasury bonds are
published by common data providers such as Bloomberg based on their reported trading prices. Aggregate yields for 15-year and 30-year U.S. Treasury bonds are published on Bloomberg pages USGG15YR and USGG30YR, respectively.
U.S. Treasury Yields and Their Relationship to Broader Market Factors
U.S. Treasury yields tends to indicate the markets expectations about the direction of U.S. monetary policy and inflationary expectations in the economy, as well as supply and demand factors
impacting U.S. Treasury bonds of different maturities, among other factors.
For example, market expectations of a relatively contractionary
U.S. monetary policy may result in a reduction in the yields available for longer-term U.S. Treasury securities, including the Long Bond yield. Conversely, market expectations of an expansionary U.S. monetary policy may result in an increase in the
yields available for longer-term U.S. Treasury securities, including the Long Bond yield.
As another example, market expectations of a
decrease in the future rate of inflation may lead investors to accept relatively lower yields on longer-term U.S. Treasury securities, including the Long Bond yield. Conversely, investors that expect the future rate of inflation to increase might
demand higher yields on longer-term U.S. Treasury securities, including the Long Bond yield.
Furthermore, excess supply of, and demand for,
long-dated bonds could lead to changes in the yields for such securities. For example, unusually high demand in the market for long-dated bonds would generally lead to an increase in priceand a resulting decrease in the yieldfor
long-dated bonds, including the Long Bond yield. Conversely, excess supply in the market for long-dated bonds would generally lead to a decrease in priceand a resulting increase in the yieldfor long-dated bonds, including the Long Bond
yield.
PS-21
However, as described under Risk FactorsHistorical U.S. Treasury Yield Patterns May Not
Provide an Accurate Prediction as to Future Movements in the Long Bond Yield, U.S. Treasury yield movements are highly unpredictable and may deviate, even significantly, from the trends described above. Investors must make their independent
assessments as to the future direction of the Long Bond yield. The trends described above are illustrative only and there is no guarantee that these trends will be observed during the term of the ETNs.
Modified Duration
The
concept of modified duration relates to the expected percentage change, or sensitivity, in a bonds price for a given change in yield. In general, as yields increase, modified duration decreases; as yields decline, modified duration
increases. Modified duration approximates the expected percentage change in the price of the bond for a small change in yield through the following formula:
For example, a 30-year bond with a modified duration of 20 implies that if its yield were to increase by 0.01% (for
example, due to a 0.01% increase in the prevailing 30-year interest rate), one would expect a 0.20% decrease in the price of such note. Modified duration, therefore, provides a useful indication of the price volatility of a U.S. Treasury bond.
Moreover, the modified duration of a CTD bond underlying a particular U.S. Treasury futures contract may also provide a useful indication of the expected change in price of that Treasury futures contract for a given change in the CTD bond yield.
However, as described in Risk FactorsThere is No Guarantee that the Index Level Will Increase or Decrease by 1.00 Point For Every 0.01% Decrease or Increase, Respectively, in the Long Bond Yield, modified duration serves only as an
approximation of the expected change in the price of a bond in response to a corresponding change in yield, and its accuracy and reliability decrease as the relevant change in yield increases.
A longer-maturity note or bond will generally tend to demonstrate greater price sensitivity to changes in yields than a shorter-maturity note or bond
with the same coupon rate, since the implications of yield movements are felt over longer periods of time. Therefore, the modified duration of notes or bonds with longer maturities (such as 10-year U.S. Treasury notes or 20-year U.S. Treasury bonds)
will generally exceed the modified duration of notes or bonds with shorter maturities (such as, for example, 2-year or 5-year U.S. Treasury notes).
The modified duration of the CTD bond (as described below) underlying the relevant Long Bond futures contract is published on http://www.barcap.com/indices and can also be accessed on Bloomberg as
follows: (a) access the Bloomberg page for the relevant Long Bond futures contract; (b) apply the DLV function, which will indicate the CTD bond for the relevant Long Bond futures contract as the first in a list of the current
eligible-to-deliver bonds for that Long Bond futures contract; (c) access the relevant CTD bonds Bloomberg page; and (d) apply the YA function, which will indicate the current modified duration of the relevant CTD bond
under the heading Adj/Mod Duration.
Cheapest-to-Deliver Bonds
By their terms, U.S. Treasury bond futures contracts permit the delivery in satisfaction of a maturing futures contract of any one of a pre-specified
basket of eligible U.S. Treasury bonds. Because of the broadly defined delivery specifications, a significant number of securities, varying in terms of coupon and maturity, may be eligible for delivery at the time of settlement.
The varied pricing terms available in the basket of eligible-to-deliver bonds are reflected in the Treasury futures contract by making an adjustment to
the invoice price due at the time of settlement. Treasury futures contracts utilize a conversion factor to calculate the invoice price in order to properly reflect the value of the security that is tendered. The objective of the
conversion factor is to eliminate any potential gain or loss that the seller might otherwise incur by choosing to deliver one particular security at the time of settlement over another eligible-to-deliver bond (which, as described above, may bear
different coupon and maturity specifications than the relevant bond selected for delivery). However, even after application of the conversion factor, some discrepancies in the market prices of the eligible-to-deliver
PS-22
U.S. Treasury bonds and the adjusted settlement price of the futures contract are likely to remain. As a result, one of the U.S. Treasury bonds eligible for delivery will be the
cheapest-to-deliver i.e., its market price relative to the adjusted settlement price for the futures contract is such that its delivery will result in the greatest gain or smallest loss to the seller.
Relationship Between Yields and Futures Prices
The change in price of a U.S. Treasury futures contract is related directly to two components: (1) the change in price of the current cheapest-to-deliver U.S. Treasury bond underlying the relevant
Treasury futures contract (the
CTD bond
) and (2) the changes in the prices of the other eligible-to-deliver bonds, as they become more or less likely to take the role of CTD bond upon the maturity of the futures contract. The
market price of a Treasury futures contract will generally increase in response to an increase in the price of its underlying CTD bond, since the owner of the futures contract would receive a more valuable bond upon maturity of the relevant Treasury
futures contract. In contrast, the market price of a Treasury futures contract will generally decrease in response to a decrease in the price of its underlying CTD bond, since the owner of the futures contract would receive a less valuable bond upon
maturity of the relevant Treasury futures contract.
Price quotations for Long Bond futures contracts
Market prices of Long Bond futures contracts are quoted as a percentage of the par value of the relevant futures contract to the nearest 1/32nd of 1.00%
of par. For example, a Long Bond futures contract quoted at 134-16 equates to a value of 134% of par plus 16/32nds, with a decimal equivalent of 134.50 and a dollar value of $134,500.00. For purposes of calculating the Index, the relevant Long Bond
futures contract price is calculated using the decimal equivalent of its publicly quoted price.
THE INDEX
The Barclays Long Bond US Treasury Futures Targeted Exposure Index (the
Index
) tracks the returns of a notional investment in a weighted long position in relation to
Long Bond futures contracts, as traded on the CBOT.
For purposes of the Index, a long position in relation to Long Bond futures
contracts reflects a commitment to purchase a given number of such futures contracts at a specified price on a particular date in the future with the objective of benefitting from any increase in the market price of the Long Bond futures contracts
over the specified price on the given purchase date. If the market price of the Long Bond futures contracts is higher than the specified price on such later date, the holder of the long position will be able to purchase the Long Bond futures
contracts at the specified price and sell them at the higher, market price. The payment obligations under the position are not due prior to the applicable purchase or delivery date.
The Index seeks to produce returns that track movements in response to an increase or decrease, as applicable, in the yields available to investors purchasing long-dated U.S. Treasury bonds (which are
U.S. Treasury bonds with a remaining term to maturity of 15 years or more) (
long-dated bonds
). Specifically, the level of the Index is expected to increase in response to a decrease in long-dated bond yields and to decrease in
response to an increase in long-dated bond yields. The Index targets a fixed level of sensitivity to changes in the yield of the current cheapest-to-deliver bond (
CTD bond
) underlying the relevant Long Bond futures
contract (the
Long Bond yield
) at a given point in time. The Index seeks to achieve its target sensitivity through the allocation of a weighting to the relevant Long Bond futures contract underlying the Index (the
Long
Bond weighting
).
The Long Bond weighting is rebalanced on a monthly basis according to the prevailing price of the relevant Long
Bond futures contract underlying the Index at the time the weighting is allocated, and the modified duration of the current CTD bond underlying the relevant Long Bond futures contract at such time. This monthly rebalancing process seeks to enable
the Index to maintain approximately its target level of sensitivity to changes in the Long Bond yield throughout the term of the ETNs. Specifically, the Long Bond weighting is designed to produce, but is not guaranteed to deliver, a 1.00 point
increase in the level of the Index for every 0.01% decrease in the Long Bond yield, and a 1.00 point decrease in the level of the Index for every 0.01% increase in the Long Bond yield.
PS-23
At any given time, the relevant Long Bond futures contract underlying the Index constitutes either the
contract closest to expiration (the
front Long Bond contract
), or the next futures contract scheduled to expire immediately following the front Long Bond contract (the
front next Long Bond contract
). Every
quarter, the Index maintains its position in relation to the Long Bond futures contracts by rolling into the front next Long Bond contracts over a three-day period.
This strategy of obtaining exposure to U.S. Treasury yields through an investment linked to U.S. Treasury futures contracts is premised on the historical pattern of Treasury futures contracts generally
increasing or decreasing in price as a result of a proportional decrease or increase, respectively, in the prevailing yield of the then current CTD bond underlying the relevant Treasury futures contract. Specifically, we expect that a decrease in
the Long Bond yield will generally correspond with a proportional increase in the price of the relevant Long Bond futures contract underlying the Index and, therefore, result in an increase in the Index level. Conversely, we expect that an increase
in the Long Bond yield will generally correspond with a proportional decrease in the price of the relevant Long Bond futures contract underlying the Index and, therefore, result in a decrease in the Index level. In addition, the Index uses modified
duration (as described further herein) to calculate the relative weight of the relevant Long Bond futures contract underlying the Index because modified duration provides a general indication of the relationship between the price and the yield of a
particular U.S. Treasury bond.
The Index was created by, and is maintained and calculated by, Barclays Bank PLC (the
index
sponsor
) and is denominated in U.S. dollars. The index sponsor calculates the closing level of the Index at the close of business, New York City time, on each index business day and publishes it on http://www.barcap.com/indices shortly
thereafter. The level of the Index is also reported on Bloomberg page BXIITEUS.
Index Construction
The Index uses U.S. Treasury futures contracts to create a fixed level of sensitivity to the relative changes in the yield of the CTD bond for the
relevant Long Bond futures contract underlying the Index.
The level of exposure of the Index to changes in the Long Bond yield is determined
by a weighting mechanism applied to the Long Bond futures contract according to:
|
(1)
|
the prevailing price of the Long Bond futures contract and the modified duration of the current CTD bond underlying the Long Bond futures contract at the time the
weighting is allocated;
|
|
(2)
|
a monthly rebalancing process whereby any changes in the price of the Long Bond futures contract, any changes in the modified duration of the current CTD bond
underlying the Long Bond futures contract, or any changes in the applicable CTD bond itself, are identified; and
|
|
(3)
|
the quarterly rolling of the Long Bond futures contract as the expiration of the relevant front Long Bond contract approaches.
|
Futures Roll Mechanism
As futures
contracts, by their terms, have stated expiration dates, the Index maintains its exposure to the Long Bond futures contract by closing out its position in relation to the expiring front Long Bond contract on a quarterly basis and establishing an
equivalent position in the front next Long Bond contract, a process referred to as rolling. During each month immediately preceding a delivery month (i.e., February, May, August and November, and each, a
roll month
),
rolls occur over three consecutive index business days, commencing two index business days before the
rebalancing date
, which in every month is the index business day immediately preceding the last index business day of the month.
These three index business days are referred to as
roll days
(and, together, a
roll period
), comprising a first roll day, a second roll day and a third roll day (each as
defined below).
|
|
At the close of the second index business day before the rebalancing date in the relevant roll month (the
first roll day
), one-third
of the weighting in the Long Bond futures contract is transferred from the front Long Bond contract to the front next Long
|
PS-24
|
Bond contract, such that on the index business day immediately following the first roll day (the
second roll day
) the Index level is calculated using a weighted return
comprising:
|
|
|
|
Two-thirds: the change in the price of the front Long Bond contract from the close of business on the index business day immediately preceding the
first roll day to the close of business on the first roll day; and
|
|
|
|
One-third: the change in the price of the front next Long Bond contract from the close of business on the index business day immediately preceding the
first roll day to the close of business on the first roll day.
|
|
|
At the close of the second roll day, an additional one-third of the weighting in the Long Bond futures contract is transferred from the front Long Bond
contract to the front next Long Bond contract, such that on the index business day immediately following the second roll day (the
third roll day
, which is also a rebalancing date) the Index level is calculated using a weighted
return comprising:
|
|
|
|
One-third: the change in the price of the front Long Bond contract from the close of business on the first roll day to the close of business on the
second roll day; and
|
|
|
|
Two-thirds: the change in the price of the front next Long Bond contract from the close of business on the first roll day to the close of business on
the second roll day.
|
|
|
At the close of the third roll day, the remaining one-third of the weighting in the Long Bond futures contract is transferred from the front Long Bond
contract to the front next Long Bond contract, such that on the final index business day of the relevant roll month, the Index level is calculated using a weighted return comprised entirely of the change in the price of the front next Long Bond
contract from the close of business on the third roll day to the close of business on the that final index business day of the roll month. The applicable front next Long Bond contract becomes the front Long Bond contract when the current front Long
Bond contract expires.
|
All Treasury futures contracts prices shall be the relevant closing prices on the CBOT.
Weighting and Futures Rebalancing Mechanism
The Long Bond futures contract underlying the Index is weighted in a manner designed to maintain a fixed level of sensitivity (referred to as the Target Exposure in the Long Bond weighting
calculation formulas below) to changes in the yields of its underlying CTD bond. The Index rebalances the weight of its position in relation to the Long Bond futures contract on a monthly basis at the close of business on the rebalancing date
(which, in each roll month, is also the third roll day). The rebalanced Long Bond weighting is used to calculate the level of the Index starting from the index business day immediately following the rebalancing date (i.e., the final index business
day of the relevant month) until the close of business of the next rebalancing date.
The Long Bond weighting expresses the relative weight in
the Index of the position in relation to the applicable Long Bond futures contract. It is equal to:
Where:
W
LB
= the Long Bond weighting on the applicable rebalancing date;
Target Exposure = 100 (which represents the target 1.00 change in
the level of the Index for each 0.01% decrease or increase in the Long Bond yield); and
F
LB
= the closing price on the CBOT of the relevant Long Bond futures
contract as at the close of the index business day immediately preceding the rebalancing date, as published on the CBOT website (www.cmegroup.com) or successor website and, if such price is not available, as published on the relevant Bloomberg or
Reuters pages, as determined in the index sponsors sole discretion;
D
LB
= the modified duration of the CTD bond for the relevant Long
Bond futures contract as of the close of the index business day immediately preceding the rebalancing date as published on Bloomberg (see U.S. Treasury Bonds and Futures ContractsModified Duration for instructions on accessing this
value); and
PS-25
T
LB
= the number of months between the next rebalancing date and the middle of the delivery month of the relevant Long
Bond futures contract, rounded to the nearest half month.
The value
is intended to approximate the price sensitivity of the Long Bond futures contract relative to changes in the underlying Long Bond yield over the one month period between the current rebalancing date and the next
rebalancing date.
For more information regarding the concepts of modified duration and CTD bonds, see U.S. Treasury Bonds
and Futures ContractsModified Duration and Cheapest-to-Deliver Bonds, respectively.
The following graph
indicates the historical Long Bond weighting used to calculate the Index over the period from April 29, 1999 through September 28, 2012. Neither the historical Long Bond weighting, nor the historical patterns of increase or decrease in the
Long Bond weighting, should be taken as an indication of future performance.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
PS-26
Calculation of the Index
The Index is calculated at the close of business, New York City time, on each index business day and is equal to:
Where:
I
t
=
the level of the Index at the close of the relevant index business day for which the level of the Index is being calculated (day
t
);
I
t-1
= the level of the Index at the close of the index business day immediately preceding day
t
(day
t-1
);
W
LB
= the Long Bond weighting, as calculated on the immediately preceding rebalancing date. Where day
t
is also a rebalancing date, W
LB
shall equal the Long Bond weighting calculated on the immediately
preceding rebalancing date; and
P
LB
= the change in the price of the relevant Long Bond futures contract from the close of business on
day
t-
1 to the close of business on day
t
, except:
On the second roll day, P
LB
is (a) (i) two-thirds
times
(ii) the change in
the price of the front Long Bond contract from the close of business on the first roll day to the close of business on the second roll day,
plus
(b) (i) one-third
times
(ii) the change in the price of the front next Long
Bond contract from the close of business on the first roll day to the close of business on the second roll day.
On the
third roll day, P
LB
is (a) (i) one-third
times
(ii) the change in the price of the front Long Bond contract from the close of business on the second roll day to the close of business on the third roll day,
plus
(b) (i) two-thirds
times
(ii) the
change in the price of the front next Long Bond contract from the close of business on the second roll day to the close of business on the third roll day.
Historical Examples of the Index Calculation
Calculation of the Index on
September 30, 2009
Set forth below is an illustration of how the level of the Index was calculated on a particular index business
day (September 30, 2009) based on the calculation methodology described above, as well as how the relevant increase of the Index level on that day corresponded with a steepening of the yield curve.
Step #1: Identifying the level of the Index as of the immediately preceding index business day
The first step in calculating the level of the Index on September 30, 2009 (day
t
) is to identify the level of the Index at the close of the
immediately preceding index business day, September 29, 2009 (day
t-1
). On September 29, 2009, the closing level of the Index was 418.2425.
Therefore,
Index
t 1
= 418.2425
For purposes of comparison, the prevailing Long Bond yield on September 29,
2009 (day
t-1
) was 3.8952%.
Step #2: Calculating the Long Bond weighting
The second step is to identify the Long Bond weighting for the relevant Long Bond futures contract underlying the Index. The weighting is determined as
of the immediately preceding rebalancing date, which was September 29, 2009.
At the close of the index business day
immediately preceding the last rebalancing date (September 28, 2009), the CBOT price for the relevant Long Bond futures contract underlying the Index was 121.4375 and the modified duration of the CTD note underlying that Long Bond futures contract
was 10.1536. There were also
1
1
/
2
months between the next rebalancing date (October 28, 2009) and the middle of the delivery month of the relevant Long Bond futures contract (December 2009). Based on these values, the weighting for
the Long Bond futures contract underlying the Index can be calculated as follows:
PS-27
Step #3: Identifying the change in the price of the relevant Long Bond futures contract underlying the
Index
The third step is to identify the change in the price of the relevant Long Bond futures contract from the close of the
immediately preceding index business day, September 29, 2009 (day
t-1
), to the close on September 30, 2009 (day
t
).
The closing prices for the Long Bond futures contract on September 29, 2009 and September 30, 2009 were 121.625 and 121.375, respectively.
Therefore,
P
LB
= -0.25.
Step #4: Calculating the level of the Index
Based on the values identified and
calculated in Steps 1-3 above, the level of the Index on September 30, 2009 can be calculated as follows:
For purposes of comparison, this 2.05 point decrease in the Index level between September 29, 2009 and
September 30, 2009 compared to a 0.016% (1.6 basis points) increase in the Long Bond yield.
Calculation of the Index on
October 1, 2009
Set forth below is an illustration of how the level of the Index was calculated on the immediately following index
business day (October 1, 2009), as well as how the performance of the Index on that day compared to the underlying movement in the Long Bond yield. Since the Index level and the closing price for the Long Bond futures contract on the immediately
preceding index business day (September 29, 2009) are provided in the above example, and the Long Bond weighting for the Long Bond futures contract included in the Index remained constant between September 30, 2009 and October 1, 2009,
only two additional steps are required to calculate the Index level on October 1, 2009:
Step #1: Identifying the change in the
price of the relevant Long Bond futures contract underlying the Index
The closing price for the Long Bond futures contract on
October 1, 2009 was 122.6563, representing a 1.2813 increase in the Long Bond futures contract price.
Therefore,
P
LB
= 1.2813.
Step #2: Calculating the level of the Index
Based on the values provided above in Calculation of the Index on September 30, 2009, the level of the Index on October 1, 2009 can
be calculated as follows:
For purposes of comparison, this 10.52 point increase in the Index level between September 30, 2009 and
October 1, 2009 compared to a 0.099% (9.9 basis points) decrease in the Long Bond yield.
See Risk FactorsThere is No
Guarantee that the Index Level Will Increase or Decrease by 1.00 Point For Every 0.01% Decrease or Increase, Respectively, in the Long Bond Yield for a description of some of the factors that may prevent the Index from increasing or decreasing
1.00 point for every 0.01% change in the Long Bond yield.
Historical Performance of the Index
The level of the Index is deemed to have been 0.0000 on April 29, 1999, which is referred to as the
index commencement date
. The
index sponsor began calculating the Index on April July 2, 2010. Therefore, the historical information for the period from April 29, 1999 until July 1, 2010, is hypothetical and is provided as an illustration of how the Index would
have performed during the period had the index sponsor begun calculating the Index on the index commencement date using the methodology it currently uses. This data does not reflect actual performance, nor was a contemporaneous investment model run
of the Index. Historical information for the period from and after July 2, 2010 is based on the actual performance of the Index.
All
calculations of historical information are based on information obtained from various third party independent and public sources. The index sponsor has not independently verified the information extracted from these sources.
The following table illustrates the annual performance of the Index based on the daily closing levels of the Index from the index commencement date
through September 28, 2012. The estimated historical performance of the Index shown below should not be taken as
PS-28
an indication of future performance, and no assurance can be given that the level of the Index will increase sufficiently to cause holders of the ETNs to receive any return on their initial
investment at maturity or upon redemption of such ETNs.
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Date
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Level of the Index
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|
April 29, 1999
|
|
|
0.0000
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|
December 31, 1999
|
|
|
-110.7192
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December 29, 2000
|
|
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22.9418
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|
December 31, 2001
|
|
|
19.6580
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December 31, 2002
|
|
|
147.8149
|
|
December 31, 2003
|
|
|
160.4794
|
|
December 31, 2004
|
|
|
227.1081
|
|
December 30, 2005
|
|
|
258.2702
|
|
December 29, 2006
|
|
|
232.9047
|
|
December 31, 2007
|
|
|
281.4560
|
|
December 31, 2008
|
|
|
495.1811
|
|
December 31, 2009
|
|
|
373.6790
|
|
December 31, 2010
|
|
|
471.7410
|
|
December 30, 2011
|
|
|
677.0188
|
|
September 28, 2012
|
|
|
716.1503
|
|
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
The following graph compares the historical performance of the Index to the corresponding changes in the Long Bond yield over the period from
April 29, 1999 through September 28, 2012. We obtained the daily closing levels of the Index from Bloomberg page BXIITEUS, and the Long Bond yield values from the index sponsor. We make no representation or warranty as to the accuracy or
completeness of the information obtained from Bloomberg, L.P. and from the index sponsor.
Neither the historical levels of the Index nor the
historical movements in the Long Bond yield, as each are illustrated below, should be taken as an indication of future performance. No assurance can be given that the yields available for long-dated bonds will decrease during the term of the ETNs,
or that the level of the Index will increase sufficiently to cause holders of the ETNs to receive any return on their initial investment at maturity or upon redemption of such ETNs. See Risk FactorsThere is No Guarantee that the Index
Level Will Increase or Decrease by 1.00 Point For Every 0.01% Decrease or Increase, Respectively, in the Long Bond Yield for a description of certain factors that may cause the Index level to deviate, even significantly, from the underlying
movements in the Long Bond yield.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
PS-29
Modifications to the Index
The index sponsor does not presently intend to modify the Index as described above. However, under certain circumstances described in this section, the index sponsor may, in its sole discretion and in a
commercially reasonable manner, make modifications to the Index. The index sponsor will promptly publish any such modifications on http://www.barcap.com/ indices/.
Index Disruption and Force Majeure Events
If, on any index business day, an index
disruption event occurs that, in the sole discretion of the index sponsor, affects the Index, the index sponsor may:
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make, in its sole discretion, such determinations and/or adjustments in relation to (a) the methodology used to calculate the Index level as the
index sponsor considers necessary in order to maintain the objectives of the Index, or (b) the Index level as the index sponsor considers appropriate;
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|
defer publication of the Index level and any other information relating to the Index until it determines, in its sole discretion, that no index
disruption event is occurring;
|
|
|
replace the Long Bond futures contracts with successor reference assets that the index sponsor considers appropriate for the purposes of continuing the
Index;
|
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|
defer or suspend publication of the Index in its sole discretion at any time; and/or
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|
discontinue supporting the Index or terminate the calculation of the Index level and the publication of the Index level.
|
Any of the following will be an
index disruption event
:
|
|
a material limitation, suspension or disruption in the trading of Long Bond futures contracts (including, but not limited to, the occurrence or
announcement of a day on which there is a limitation on, or suspension of, the trading of Long Bond futures contracts imposed by the CBOT by reason of movements exceeding limit up or limit down levels permitted by the CBOT)
that results in a failure by the CBOT to report the closing price of Long Bond futures contracts on any index business day;
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the index sponsor determines, in its sole discretion, that Long Bond futures contracts have ceased (or will cease) to be liquid, traded and/or publicly
quoted for any reason in a manner acceptable to the index sponsor;
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the index sponsor determines, in its sole discretion, that (a) a change in the quality, construction, composition, or calculation methodology of
the closing price of Long Bond futures contracts has occurred, and/or (b) any event or measure that results in Long Bond futures contracts being changed or altered has occurred;
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the index sponsor deems it necessary, at any time and in its sole discretion, to replace Long Bond futures contracts with an appropriate successor in
order to maintain the objectives of the Index;
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|
the index sponsor determines, at any time, that as a result of a change in taxation (including, but not limited to, any tax imposed on the index
sponsor or its affiliates), it is necessary to change the Long Bond futures contracts or the methodology used to compose or calculate the Index level;
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an index force majeure event, as defined below, that lasts for at least 20 consecutive calendar days; and/or
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any other event that would make the calculation of the Index impossible or infeasible, technically or otherwise, or that makes the Index
non-representative of market prices or undermines the objectives of the Index or the reputation of the Index as a fair and tradable benchmark.
|
The following event will not be an index disruption event:
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|
a limitation on the hours or numbers of days of trading on the CBOT, but only if the limitation results from an announced change in the regular
business hours of the CBOT.
|
If, on any index business day, an index force majeure event occurs that, in the
sole discretion of the index sponsor, affects the Index, the index sponsor may:
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|
make, in its sole discretion, such determinations and/or adjustments in relation to (a) the methodology used to calculate the Index level as the
index sponsor considers necessary in order to maintain the objectives of the Index, or (b) the Index level as the index sponsor considers appropriate; and/or
|
PS-30
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|
defer publication of the Index level and any other information relating to the Index until it determines, in its sole discretion, that no index force
majeure event is occurring.
|
An
index force majeure event
means an 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 is beyond the reasonable control of the index sponsor and that
the index sponsor determines affects the Index and/or Long Bond futures contracts.
Change in Methodology
While the index sponsor currently employs the methodology described in this pricing supplement to calculate the Index level, from time to time it may be
necessary to modify the methodology (including the information or inputs on which the Index is based). The index sponsor reserves the right, in its sole discretion, to make such modifications to the methodology in a commercially reasonable manner.
Where the index sponsor elects to make a modification or change in the methodology, the index sponsor will make reasonable efforts to ensure that such modifications will result in a methodology that is consistent with the methodology described
above.
Termination
The
index sponsor may, in its sole discretion, at any time and without notice, terminate the calculation and publication of the Index level.
Errors
The index sponsor reserves the
right to make adjustments to correct errors contained in previously published information relating to the Index, including but not limited to the Index level, and to publish the corrected information, but is under no obligation to do so and shall
have no liability in respect of any errors or omissions contained in any subsequent publication. Notwithstanding the above, the index sponsor will not adjust or correct any previously published Index level other than in cases of manifest error.
Adjustments
The index
sponsor may, at any time and without notice, change the name of the Index, the place and time of the publication of the Index level and the frequency of publication of the Index level.
Roll/Rebalancing Adjustments
If, on any roll day, a roll/rebalancing adjustment
event occurs, then the contract weight for the relevant front Long Bond contract will not decrease by one-third, and the portion of the roll that would otherwise have taken place on such index business day (the
deferred
portion
) will roll on the next index business day on which no roll/rebalancing adjustment event is occurring. If roll/rebalancing adjustment events occur on successive roll days, then all deferred portions will roll on the next index
business day on which no roll/rebalancing adjustment event is occurring. If such next index business day is also a roll day, then both the deferred portion(s) and the portion scheduled to roll on such roll day will roll on such next index business
day. If the roll of the front Long Bond contract into the front next Long Bond contract is not completed during the roll period as a result of the occurrence of one or more roll/rebalancing adjustment events on one or more roll days, then the
deferred portion(s) will roll on the first index business day after the roll period on which no roll/rebalancing adjustment event is occurring.
If, on any rebalancing date, a roll/rebalancing adjustment event occurs, then the rebalancing that would otherwise have taken place on such rebalancing
date will take place on the next index business day on which no roll/rebalancing adjustment event is occurring.
Any of the following will
constitute a
roll/rebalancing adjustment event
:
|
|
the CBOT or other price source is not open for trading;
|
|
|
a failure by the CBOT or other price source to announce or publish the closing price of Long Bond futures contracts;
|
|
|
a material limitation, suspension, or disruption of trading in Long Bond futures contracts;
|
PS-31
|
|
the closing price of Long Bond futures contracts is a limit price, which means that the closing price has increased or decreased from the
previous days closing price by the maximum amount permitted under the CBOT rules; or
|
|
|
any other event that the index sponsor determines may materially interfere with the proper functioning of the CBOT, including the ability of
participants on the CBOT to acquire, establish, re-establish, substitute, maintain, unwind or dispose of positions in the Long Bond futures contracts.
|
Changes in the Availability of Information Relating to CTD Bonds
As described above under
The IndexIndex ConstructionWeighting and Futures Rebalancing Mechanism, the Index requires information relating to the CTD bond for the relevant Long Bond futures contract underlying the Index in order to rebalance the Index.
Such information includes the identification of the CTD bond for the relevant Long Bond futures contract and the information required to calculate the modified duration for each such CTD bond. If this CTD bond information is unavailable on the
applicable rebalancing date, the index sponsor may use the most recent publicly available information relating to the relevant CTD bond as an alternative source or any other information that the index sponsor, in its sole discretion, acting in good
faith and in a commercially reasonable manner, determines is a reasonable and fair approximation of the CTD bond information required to calculate the Index.
Trademarks
The Barclays Long Bond US Treasury Futures Targeted Exposure Index is a
trademark of Barclays Bank PLC.
Disclaimer
The index sponsor does not guarantee the accuracy and/or completeness of the Index, any data included therein, or any data from which it is based, and the index sponsor shall have no liability for any
errors, omissions, or interruptions therein.
The index sponsor makes no warranty, express or implied, as to the results to be obtained from
the use of the Index. The index sponsor makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Index or any data included therein. Without
limiting any of the foregoing, in no event shall the index sponsor have liability for any special, punitive, indirect or consequential damages, lost profits, loss of opportunity or other financial loss, even if notified of the possibility of such
damages.
Neither the index sponsor nor any of its affiliates or subsidiaries or any of their respective directors, officers, employees,
representatives, delegates or agents shall have any responsibility to any person (whether as a result of negligence or otherwise) for any determination made or anything done (or omitted to be determined or done) in respect of the Index or
publication of the level of the Index (or failure to publish such value) and any use to which any person may put the Index or the level of the Index. In addition, although the index sponsor reserves the right to make adjustments to correct
previously incorrectly published information, including but not limited to the level of the Index, the index sponsor is under no obligation to do so and shall have no liability in respect of any errors or omissions.
Nothing in this disclaimer shall exclude or limit liability to the extent such exclusion or limitation is not permitted by law.
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 the
prevailing prices and yields for U.S. Treasury securities of variable maturities in general; the prices and yields of the eligible-to-deliver U.S. Treasury bonds underlying Long Bond futures contracts in particular and, at any given time, which bond
constitutes the cheapest-to-deliver bond; the prevailing spread between U.S. Treasury yields and the yields on investable fixed income securities and equity securities; prevailing market and futures prices for U.S. Treasury securities, or any other
financial instruments related to U.S. government debt; market expectations of short-term and long-term interest rates on U.S. Treasury securities and
PS-32
the Federal Funds rate; market expectations of the future rate of inflation in the United States; market expectations of macroeconomic trends including economic cycles of growth and recession in
the United States; supply and demand for U.S. Treasury securities of different yields and maturities and for U.S. Treasury futures contracts; the prevailing yields for 28-day U.S. Treasury bills; supply and demand for the ETNs, including inventory
positions with Barclays Capital Inc. or any market maker; economic, financial, political, regulatory, geographical or judicial events that affect the level of the Index or prevailing market and futures prices for U.S. Treasury securities, or any
other financial instruments related to U.S. government debt; the time remaining to maturity of the ETNs; the perceived creditworthiness of Barclays Bank PLC; supply and demand in the listed and over-the-counter rates derivative markets; or supply
and demand as well as hedging activities in the rates-linked structured product markets.
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. 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 Note Values
An intraday indicative note value meant to approximate the intrinsic economic value of the ETNs will be calculated and published by NYSE Arca on each trading day under the following ticker
symbol:
|
|
|
|
|
ETNs
|
|
Ticker Symbol
|
|
iPath
®
US
Treasury Long Bond Bull ETN
|
|
|
DLBL.IV
|
|
In connection with the ETNs, we use the term intraday indicative note value to refer to the value at a given
time on any trading day determined based on the following equation:
Intraday Indicative Note Value = (1) the closing indicative note
value on the calendar day immediately preceding such trading day
plus
(2) the then current intraday index performance amount;
provided that
if such calculation results in a negative value, the intraday indicative note value will
be $0;
where, for purposes of calculating the intraday indicative note value:
Closing Indicative Note Value = The closing indicative note value of the ETNs as described in this pricing supplement;
Intraday Index Performance Amount = (1) the index multiplier
times
(2) the difference of (a) the most recently published level of the Index on such trading day
minus
(b) the closing level of the Index on the index business day immediately preceding such trading day; and
Index Multiplier = The index
multiplier as described in this pricing supplement.
The intraday indicative note 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. Furthermore, as the intraday indicative note value is calculated using the closing indicative note value on the immediately preceding calendar day, the intraday indicative note value published at any time during a given trading day will not
reflect the daily interest or the daily investor fee that may have accrued over the course of such trading day. 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 intraday indicative note value of your ETNs. The actual trading price of the ETNs may be different from their intraday indicative note value.
Split or Reverse Split of the ETNs
Should the closing indicative note value on any business day be above $100.00, we may, but are not obligated to, initiate a 2 for 1 split of your ETNs. Should the closing indicative note value on any
business day be below $25.00, we may, but are not obligated to, initiate a 1 for 2 reverse split of your ETNs. If the closing indicative note value is greater than $100.00 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 a press release announcing the split or reverse split, specifying the effective
date of the split or reverse split.
PS-33
If the ETNs undergo a split, we will adjust the terms of the ETNs accordingly. If the ETNs undergo a 2:1
split, every investor who holds an ETN via DTC on the relevant record date will, after the split, hold two ETNs, and adjustments will be made as described below. The record date for the split will be the 9th business day after the announcement date.
The closing indicative note value on such record date will be divided by 2 to reflect the 2:1 split of your ETNs. Any adjustment of the closing indicative note 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 1:2 reverse split, every investor who holds 2 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 9th business day after the announcement date. The closing indicative note value on such record date will be
multiplied by two to reflect the 1:2 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 are not evenly divisible by 2 will receive
the same treatment as all other holders for the maximum number of ETNs they hold which is evenly divisible by 2, 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 17th business day following the record date in an amount equal to the appropriate percentage of the closing indicative value of the reverse
split-adjusted ETNs on the 14th business day following the announcement date. For example, a holder who held 23 ETNs via DTC on the record date would receive 11 post reverse split ETNs on the immediately following business day, and a cash payment on
the 17th business day following the announcement date that is equal to one-half of the closing indicative value of the reverse split-adjusted ETNs on the 14th business day following the announcement date.
SPECIFIC TERMS OF THE ETNS
In this section, references to holders mean those who own the ETNs registered in their own names, on the books that we or the Trustee (as defined below), or any successor trustee, as
applicable, 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 (
DTC
) or another depositary.
Owners of beneficial interests in the ETNs should read the section entitled Description of Debt SecuritiesLegal Ownership; Form of Debt Securities in the accompanying prospectus.
The ETNs 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 (the
Indenture
), dated September 16, 2004, between Barclays Bank PLC and The Bank of New York Mellon, as trustee (the
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. If you have purchased the ETNs 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.
PS-34
We describe the terms of the ETNs in more detail below.
Inception, Issuance and Maturity
The ETNs were first sold on August 9, 2010, which we refer to as the inception date. The ETNs were first issued on August 12, 2010, and will be due on August 13, 2020.
Coupon
We will not pay
you interest during the term of the ETNs.
Denomination
We will offer the ETNs in denominations of $50.
Payment at Maturity
If you hold your ETNs to maturity, you will receive a cash payment per ETN equal to the closing indicative note value on the final
valuation date.
The
closing indicative note value
for each ETN on the inception date will equal $50. On each subsequent
calendar day until maturity or redemption, the closing indicative note value for each ETN will equal (1) the closing indicative note value on the immediately preceding calendar day
plus
(2) the daily index performance amount
plus
(3) the daily interest
minus
(4) the daily investor fee;
provided
that if such calculation results in a negative value, the closing indicative note value will be $0. If the ETNs undergo a split or reverse split, the
closing indicative note value will be adjusted accordingly.
The
daily index performance amount
for each ETN on the initial
valuation date and on any calendar day that is not an index business day will equal $0. On any other index business day, the daily index performance amount for each ETN will equal (1) the product of (a) the index multiplier
times
(b) the difference of (i) the closing level of the Index on such index business day
minus
(ii) the closing level of the index on the immediately preceding index business day
minus
(2) the index rolling cost on such
index business day.
The
index multiplier
is $0.10.
The
index rolling cost
for each ETN on any calendar day that is not a roll day will equal $0. On any roll day, the index rolling cost for each ETN will equal $0.005. Roll days occur
over three consecutive index business days, commencing three index business days before the last index business day in each of the months of February, May, August and November in any given year. The net effect of the index rolling cost accumulates
over time and is subtracted at the rate of $0.06 per year, or 0.12% of the principal amount of each ETN per year.
The index rolling
cost seeks to represent and approximate a prorated daily amount of costs that holders of a long position in relation to Long Bond futures contracts might expect to incur as part of the roll process during each quarterly roll
period.
The
daily interest
for each ETN on the initial valuation date will equal $0. On each subsequent calendar day until
maturity or redemption, the daily interest for each ETN will equal (1) the closing indicative note value on the immediately preceding calendar day
times
(2) the T-Bill rate
divided
by (3) 360.
The daily interest seeks to represent the amount of interest that holders of a long position in relation to Long Bond futures
contracts might receive if, on any calendar day, they were to invest the value of the ETNs in an interest-bearing bank account while their payment obligations on the relevant long positions in the Treasury futures contracts were pending.
The
T-Bill rate
will equal the most recent weekly investment rate for 28-day U.S. Treasury bills effective on the immediately
preceding business day in New York City. The weekly investment rate for 28-day U.S. Treasury bills is generally announced by the U.S. Treasury on each Monday; on any Monday that is not a business day in New York City, the rate prevailing on the
immediately preceding business day in New York City will apply. The most recent weekly investment rate for 28-day U.S. Treasury bills is published by the U.S. Treasury on http://www.treasurydirect.gov and is also available on Bloomberg under the
ticker symbol USB4WIR. The T-Bill rate is expressed as a percentage.
PS-35
The
daily investor fee
for each ETN on the initial valuation date will equal $0. On each
subsequent calendar day until maturity or redemption, the daily investor fee for each ETN will equal (1) the closing indicative note value on the immediately preceding calendar day
times
(2) the fee rate
divided by
(3) 365. Because the daily investor fee is calculated and subtracted from the closing indicative note value on a daily basis, the net effect of the daily investor fee accumulates over time and is subtracted at the rate of 0.75% per year.
The
fee rate
for the ETNs is 0.75%.
The
intraday indicative note value
for the ETNs on any trading day will equal (1) the closing indicative note value on the immediately preceding calendar day
plus
(2) the then current intraday index performance amount;
provided that
if such calculation results in a negative value, the intraday indicative note value will be $0. The intraday indicative note value will be published by NYSE Arca every
15 seconds on each trading day under the ticker symbol DLBL.IV. As the intraday indicative note value is calculated using the closing indicative note value on the immediately preceding calendar day, the intraday indicative note value
published at any time during a given trading day will not reflect the daily interest or the daily investor fee that may have accrued over the course of such trading day.
The
intraday index performance amount
on any index business day will equal (1) the index multiplier
times
(2) the difference of (a) the most recently published
level of the Index on such index business day
minus
(b) the closing level of the Index on the immediately preceding index business day.
An
index business day
is a day on which the CBOT is open for business.
A
business day
is a Monday, Tuesday, Wednesday, Thursday or Friday that is not a day on which banking institutions in New York City or London generally are authorized or obligated by law, regulation or executive order to close.
A
trading day
for the ETNs is a day on which (1) it is an index business day, (2) trading is generally conducted
on the NYSE Arca and (3) it is a business day in New York City, in each case as determined by the calculation agent in its sole discretion.
A
valuation date
is each trading day from August 9, 2010 to August 10, 2020, inclusive, subject to postponement due to the occurrence of a note market disruption event, such
postponement not to exceed five trading days.
The
initial valuation date
for the ETNs is August 9, 2010.
The
final valuation date
for the ETNs is August 10, 2020.
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 above), then
the maturity date will be the fifth business day following the final valuation date. The calculation agent may postpone the final valuation dateand therefore the maturity dateof the ETNs if a note market disruption event occurs or is
continuing on a day that would otherwise be the final valuation date or if the level of the Index is not available or cannot be calculated.
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.
Note Market Disruption Events
A valuation date may be postponed and thus the determination of the Index levels may be postponed if the calculation agent determines that, on the respective date, a market disruption event has occurred
or is continuing in respect of the Index.
Any of the following will be a market disruption event with respect to the Index:
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a suspension, absence or limitation of trading in Treasury futures contracts constituting 20% or more, by weight, of the Index;
|
|
|
a suspension, absence or limitation of trading in futures or options contracts relating to the Index on their respective markets;
|
PS-36
|
|
any event that disrupts or impairs, as determined by the calculation agent, the ability of market participants to (1) effect transactions in, or
obtain market values for, Treasury futures contracts constituting 20% or more, by weight, of the Index, or (2) effect transactions in, or obtain market values for, futures or options contracts relating to the Index on their respective markets;
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|
the closure on any day of the primary market for futures or options contracts relating to the Index or Treasury futures contracts constituting 20% or
more, by weight, of the Index on a scheduled trading day prior to the scheduled weekday closing time of that market (without regard to after hours or any other trading outside of the regular trading session hours) unless such earlier closing time is
announced by the primary market at least one hour prior to the earlier of (1) the actual closing time for the regular trading session on such primary market on such scheduled trading day for such primary market and (2) the submission
deadline for orders to be entered into the relevant exchange system for execution at the close of trading on such scheduled trading day for such primary market;
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any scheduled trading day on which (1) the primary markets for Treasury futures contracts constituting 20% or more, by weight, of the Index or
(2) the exchanges or quotation systems, if any, on which futures or options contracts on the Index are traded, fails to open for trading during its regular trading session; or
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any other event, if the calculation agent determines that the event interferes with our ability or the ability of any of our affiliates to unwind all
or a portion of a hedge with respect to the securities that we or our affiliates have effected or may effect as described below under Use of Proceeds and Hedging in the accompanying prospectus supplement;
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and, in any of these events, the calculation agent determines that the event was material.
Scheduled trading day means any day on which (a) the value of the Index is published, and (b) trading is generally conducted on the markets on which the Treasury futures contracts
are traded, in each case as determined by the calculation agent in its sole discretion.
The following events will not be market disruption
events:
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a limitation on the hours or number of days of trading on which any Treasury futures contract is traded, but only if the limitation results from an
announced change in the regular business hours of the relevant market; or
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a decision to permanently discontinue trading in futures or options contracts relating to the Index.
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For this purpose, an absence of trading on an exchange or market will not include any time when the relevant exchange or market is itself
closed for trading under ordinary circumstances.
In contrast, a suspension or limitation of trading in futures or options contracts related
to the Index, if available, in the primary market for those contracts, by reason of any of:
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a price change exceeding limits set by that market,
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an imbalance of orders relating to those contracts, or
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a disparity in bid and ask quotes relating to those contracts,
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will constitute a suspension or material limitation of trading in futures or options contracts related to the Index in the primary market for those contracts.
If the calculation agent determines that a market disruption event occurs or is continuing on any valuation date, the valuation date will be the first
following scheduled 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 the valuation date be postponed by more than five scheduled trading days. If
the calculation agent determines that a market disruption event occurs or is continuing on the fifth scheduled trading day, the calculation agent will make an estimate of the closing level for the Index that would have prevailed on that fifth
scheduled trading day in the absence of the market disruption event.
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Payment Upon Redemption
Prior to maturity, you may, subject to certain restrictions, redeem your ETNs on any early redemption date during the term of the ETNs, provided that you present at least 50,000 ETNs 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 an early redemption date, you will receive a cash payment per ETN on such date equal to the closing indicative note value on the related valuation date. The early redemption feature is intended to induce
arbitrageurs to counteract any trading of the ETNs at a discount to their closing indicative note value, though there can be no assurance that arbitrageurs will employ the redemption feature in this manner.
An
early redemption date
for the ETNs is the third business day following each valuation date (other than the final valuation date).
The final early 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 early 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 early 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 e-mail 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
closing indicative note value, 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
early redemption date (the third business day following the relevant 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 early 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 the ETNs is accelerated, we will pay the default amount in respect of the principal of the ETNs at maturity. We describe the default amount below under
Default Amount.
For the purpose of determining whether the holders of our medium-term notes, of which the ETNs is a part,
are entitled to take any action under the Indenture, we will treat the stated principal amount of the ETNs outstanding as their principal amount. 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
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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; Limitation of Remedies.
Default Amount
The default amount for the 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 the 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 the 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 the ETNs in preparing any documentation necessary for
this assumption or undertaking.
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During the default quotation period for the 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 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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Further Issuances
We may, without your consent, create and issue additional securities having the same terms and conditions as the ETNs. If there is substantial demand for the ETNs, we may issue additional ETNs frequently.
We may consolidate the additional securities to form a single class with the outstanding ETNs.
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Discontinuance or Modification of the Index
If the index sponsor discontinues publication of the Index and any other person or entity publishes an index that the calculation agent determines is
comparable to the Index and the calculation agent approves such index as a successor index, then the calculation agent will determine the value of the 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 the 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
the Index or the method of calculating the 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 the Index or method of calculating the Index as it believes are appropriate to ensure that
the value of the 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 the 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.
Role of Calculation Agent
Currently, we serve as the calculation agent. We may change the
calculation agent without notice. The calculation agent will, in its sole discretion, make all determinations regarding the value of the ETNs, including at maturity or upon redemption, note market disruption events, business days, index business
days, trading days, valuation dates, the closing indicative note value, the daily interest and accrued interest, the daily investor fee, the index rolling cost, the maturity date, early redemption dates, the default amount, the amount payable in
respect of your ETNs at maturity or upon redemption and any other calculations or determinations to be made by the calculation agent as specified herein in a commercially reasonable manner by reference to such factors as the calculation agent deems
appropriate. Absent manifest error, all determinations of the calculation agent will be final, conclusive, and binding on you and us, without any liability on the part of the calculation agent. You will not be entitled to any compensation from us
for any loss suffered as a result of any of the above determinations by the calculation agent.
The calculation agent reserves the right to
make adjustments to correct errors contained in previously published information and to publish the corrected information, but is under no obligation to do so and shall have no liability in respect of any errors or omissions contained in any
subsequent publication.
CLEARANCE AND SETTLEMENT
DTC participants that hold the ETNs through DTC on behalf of investors will follow the settlement practices applicable to equity securities in DTCs
settlement system with respect to the primary distribution of the ETNs and secondary market trading between DTC participants.