 |
May 2015 Preliminary Terms No. 258 Registration Statement No. 333-190038 Dated May 22, 2015 Filed pursuant to Rule 433 |
STRUCTURED INVESTMENTS
Opportunities in U.S. Equities
Discretionary Callable Trigger Securities Based on the Value of the Financial Select Sector SPDR® Fund due June 2, 2017
Principal at Risk Securities
Unlike conventional debt securities, the Discretionary Callable Trigger Securities, which we refer to as the securities, will pay no interest and do not guarantee any return of principal at maturity. On the early redemption date, we will have the right to redeem the securities at our discretion for a cash payment of at least $11.60 per security, or at least 116% of the stated principal amount. Any early redemption of the securities will be at our discretion and will not automatically occur based on the performance of the underlier. If the securities are not redeemed prior to maturity and the final underlier value is greater than the initial underlier value, at maturity investors will receive the stated principal amount of their investment plus leveraged upside performance of the underlier. If the securities are not redeemed prior to maturity and the final underlier value is less than or equal to the initial underlier value but greater than or equal to the trigger value, at maturity investors will receive the stated principal amount of their investment. However, if the securities are not redeemed prior to maturity and the final underlier value is less than the trigger value, at maturity investors will lose 1% of the stated principal amount of their investment for every 1% that the final underlier value is less than the initial underlier value. Under these circumstances, the amount investors receive will be less than 90% of the stated principal amount and could be zero. The securities are for investors who seek an equity exchange-traded-fund-based return and who are willing to risk their principal and forgo current income in exchange for the leverage feature, which applies only if the securities are not redeemed and the final underlier value is greater than or equal to the initial underlier value, and the limited protection against loss that applies only if the final underlier value is greater than or equal to the trigger value, subject to early redemption at our discretion. Investors may lose their entire initial investment in the securities. The securities are unsecured and unsubordinated debt obligations of Barclays Bank PLC. Any payment on the securities, including any repayment of principal, is subject to the creditworthiness of Barclays Bank PLC and is not guaranteed by any third party. If Barclays Bank PLC were to default on its payment obligations or become subject to the exercise of any U.K. Bail-in Power (as described on page 4 of this document) by the relevant U.K. resolution authority, you might not receive any amounts owed to you under the securities. See “Risk Factors” and “Consent to UK Bail-in Power” in this document and “Risk Factors” in the accompanying prospectus addendum.
| SUMMARY TERMS | ||||
| Issuer: | Barclays Bank PLC | |||
| Underlier: | Financial Select Sector SPDR® Fund (Bloomberg ticker symbol “XLF<Index>”) | |||
| Aggregate principal amount: | $ | |||
| Stated principal amount: | $10 per security | |||
| Initial issue price: | $10 per security (see “Commissions and initial issue price” below) | |||
| Pricing date†: | May 29, 2015 | |||
| Original issue date†: | June 3, 2015 (3 business days after the pricing date) | |||
| Early redemption notice date†: | June 6, 2016, subject to postponement | |||
| Early redemption date†: | June 13, 2016, subject to postponement | |||
| Valuation date†: | May 30, 2017, subject to postponement | |||
| Maturity date†: | June 2, 2017, subject to postponement | |||
| Interest: | None | |||
| Optional early redemption: | On the early redemption date, we will have the right to redeem the securities, in whole, but not in part, at our discretion for the early redemption payment. If we decide to redeem the securities, we will give you notice on or before the early redemption notice date. Any early redemption of the securities will be at our discretion and will not automatically occur based on the performance of the underlier. No further payments will be made on the securities after they have been redeemed. In addition, if the securities are redeemed prior to maturity, you will not benefit from the leverage feature that applies to the payment at maturity if the final underlier value is greater than the initial underlier value. Moreover, the early redemption payment may be significantly less than the payment at maturity you would have received had the securities not been redeemed and instead remained outstanding until maturity. | |||
| Early redemption payment: | At least $11.60 per security (at least 116% of the stated principal amount). The actual early redemption payment will be determined on the pricing date. | |||
| Payment
at maturity (per security): |
· If the securities are not redeemed prior to maturity and the final underlier value is greater than the initial underlier value: $10 + leveraged upside payment · If the securities are not redeemed prior to maturity and the final underlier value is less than or equal to the initial underlier value but greater than or equal to the trigger value: $10 · If the securities are not redeemed prior to maturity and the final underlier value is less than the trigger value: $10 × underlier performance factor This amount will be less than the stated principal amount of $10 and will represent a loss of at least 10%, and possibly all, of an investor’s initial investment. Investors may lose their entire initial investment in the securities. Any payment on the securities, including any repayment of principal, is not guaranteed by any third party and is subject to (a) the creditworthiness of Barclays Bank PLC and (b) the risk of exercise of any U.K. Bail-in Power by the relevant U.K. resolution authority. | |||
| U.K. Bail-in Power acknowledgment: | By acquiring the securities, you acknowledge, agree to be bound by and consent to the exercise of, any U.K. Bail-in Power. See “Consent to U.K. Bail-in Power” on page 4 of this document. | |||
| Leveraged upside payment: | $10 × leverage factor × underlier return | |||
| Leverage factor: | At least 112%. The actual leverage factor will be determined on the pricing date. The leverage factor will be applicable only if the securities are not redeemed and the final underlier value is greater than or equal to the initial underlier value. | |||
| Underlier return: | (final underlier value – initial underlier value) / initial underlier value | |||
| (terms continued on the next page) | ||||
| Commissions and initial issue price: | Initial issue price(1) | Price to public(1) | Agent’s commissions | Proceeds to issuer |
| Per security | $10 | $10 |
$0.23(2) $0.02(3) |
$9.75 |
| Total | $ | $ | $ | $ |
| (1) | Our estimated value of the securities on the pricing date, based on our internal pricing models, is expected to be between $9.400 and $9.590 per security. The estimated value is expected to be less than the initial issue price of the securities. See “Additional Information Regarding Our Estimated Value of the Securities” on page 3 of this document. |
| (2) | Morgan Stanley Wealth Management and its financial advisors will collectively receive from the agent, Barclays Capital Inc., a fixed sales commission of $0.23 for each security they sell. See “Supplemental Plan of Distribution” in this document. |
| (3) | Reflects a structuring fee payable to Morgan Stanley Wealth Management by the agent or its affiliates of $0.02 for each security. |
One or more of our affiliates may purchase up to 15% of the aggregate principal amount of the securities and hold such securities for investment for a period of at least 30 days. Accordingly, the total principal amount of the securities may include a portion that was not purchased by investors on the original issue date. Any unsold portion held by our affiliate(s) may affect the supply of securities available for secondary trading and, therefore, could adversely affect the price of the securities in the secondary market. Circumstances may occur in which our interests or those of our affiliates could be in conflict with your interests.
Investing in the securities involves risks not associated with an investment in conventional debt securities. See “Risk Factors” beginning on page 11 of this document, on page S-6 of the prospectus supplement and on page PA-1 of the prospectus addendum. You should read this document together with the related prospectus, prospectus supplement, prospectus addendum and index supplement, each of which can be accessed via the hyperlinks below, before you make an investment decision.
The securities will not be listed on any U.S. securities exchange or quotation system. Neither the U.S. Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of the securities or determined that this document is truthful or complete. Any representation to the contrary is a criminal offense.
The securities constitute our unsecured and unsubordinated obligations and are not deposit liabilities of Barclays Bank PLC and are not insured by the U.S. Federal Deposit Insurance Corporation or any other governmental agency of the United States, the United Kingdom or any other jurisdiction.
| Prospectus dated July 19, 2013 | Prospectus Supplement dated July 19, 2013 | Prospectus Addendum dated February 3, 2015 | Index Supplement dated July 19, 2013 |
Barclays Bank PLC has filed a registration statement (including a prospectus) with the SEC for the offering to which this document relates. Before you invest, you should read the prospectus dated July 19, 2013, the prospectus supplement dated July 19, 2013, the prospectus addendum dated February 3, 2015, the index supplement dated July 19, 2013 and other documents Barclays Bank PLC has filed with the SEC for more complete information about Barclays Bank PLC and this offering. You may get these documents and other documents Barclays Bank PLC has filed for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, Barclays Bank PLC or any agent or dealer participating in this offering will arrange to send you each of these documents if you request them by calling your Barclays Bank PLC sales representative, such dealer or toll-free 1-888-227-2275 (Extension 2-3430). A copy of each of these documents may be obtained from Barclays Capital Inc., 745 Seventh Avenue—Attn: US InvSol Support, New York, NY 10019.
| Terms continued from previous page: | |
| Underlier performance factor: | final underlier value / initial underlier value |
| Trigger value: | $ , which is 90% of the initial underlier value (rounded to two decimal places) |
| Initial underlier value: | $ , which is the closing price of the underlier on the pricing date |
| Final underlier value: | The closing price of the underlier on the valuation date |
| CUSIP/ISIN: | 06743P285 / US06743P2855 |
| Listing: | We do not intend to list the securities on any securities exchange. |
| Selected dealer: | Morgan Stanley Wealth Management (“MSWM”) |
| † | Expected. In the event that we make any change to the pricing date or the original issue date, the early redemption notice date, the early redemption date, the valuation date and/or the maturity date may be changed so that the stated term of the securities remains the same. In addition, the early redemption notice date, the early redemption date, the valuation date and the maturity date are subject to postponement. See “Additional Information about the Securities—Additional provisions—Postponement of early redemption notice date and valuation date,” “Additional Information about the Securities—Additional provisions—Postponement of early redemption date and maturity date” and “Additional Information about the Securities—Additional provisions—Market disruption events and adjustments.” |
| Barclays Capital Inc. | |
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Principal at Risk Securities
Additional Terms of the Securities
You should read this document together with the prospectus dated July 19, 2013, as supplemented by the prospectus supplement dated July 19, 2013, the prospectus addendum dated February 3, 2015 and the index supplement dated July 19, 2013 relating to our Global Medium-Term Notes, Series A, of which the securities are a part. This document, together with the documents listed below, contains the terms of the securities and supersedes all prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures, brochures or other educational materials of ours. You should carefully consider, among other things, the matters set forth in “Risk Factors” in the prospectus supplement, the prospectus addendum and the index supplement, as the securities involve risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisors before you invest in the securities.
You may access these documents on the SEC website at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
Prospectus dated July 19, 2013:
http://www.sec.gov/Archives/edgar/data/312070/000119312513295636/d570220df3asr.htm
Prospectus supplement dated July 19, 2013:
http://www.sec.gov/Archives/edgar/data/312070/000119312513295715/d570220d424b3.htm
Prospectus addendum dated February 3, 2015:
http://www.sec.gov/Archives/edgar/data/312070/000119312515031134/d864437d424b3.htm
Index supplement dated July 19, 2013:
http://www.sec.gov/Archives/edgar/data/312070/000119312513295727/d570220d424b3.htm
Our SEC file number is 1-10257 and our Central Index Key, or CIK, on the SEC website is 0000312070. As used in this document, “we,” “us” and “our” refer to Barclays Bank PLC.
In connection with this offering, Morgan Stanley Wealth Management is acting in its capacity as a selected dealer.
Additional Information Regarding Our Estimated Value of the Securities
Our internal pricing models take into account a number of variables and are based on a number of subjective assumptions, which may or may not materialize, typically including volatility, interest rates and our internal funding rates. Our internal funding rates (which are our internally published borrowing rates based on variables, such as market benchmarks, our appetite for borrowing and our existing obligations coming to maturity) may vary from the levels at which our benchmark debt securities trade in the secondary market. Our estimated value on the pricing date is based on our internal funding rates. Our estimated value of the securities might be lower if such valuation were based on the levels at which our benchmark debt securities trade in the secondary market.
Our estimated value of the securities on the pricing date is expected to be less than the initial issue price of the securities. The difference between the initial issue price of the securities and our estimated value of the securities is expected to result from several factors, including any sales commissions expected to be paid to Barclays Capital Inc. or another affiliate of ours, any selling concessions, discounts, commissions or fees expected to be allowed or paid to non-affiliated intermediaries, the estimated profit that we or any of our affiliates expect to earn in connection with structuring the securities, the estimated cost that we may incur in hedging our obligations under the securities, and estimated development and other costs that we may incur in connection with the securities.
Our estimated value on the pricing date is not a prediction of the price at which the securities may trade in the secondary market, nor will it be the price at which Barclays Capital Inc. may buy or sell the securities in the secondary market. Subject to normal market and funding conditions, Barclays Capital Inc. or another affiliate of ours intends to offer to purchase the securities in the secondary market but it is not obligated to do so.
Assuming that all relevant factors remain constant after the pricing date, the price at which Barclays Capital Inc. may initially buy or sell the securities in the secondary market, if any, and the value that we may initially use for customer account statements, if we provide any customer account statements at all, may exceed our estimated value on the pricing date for a temporary period expected to be approximately three months after the initial issue date of the securities because, in our discretion, we may elect to effectively reimburse to investors a portion of the estimated cost of hedging our obligations under the securities and other costs in connection with the securities that we will no longer expect to incur over the term of the securities. We made such discretionary election and determined this temporary reimbursement period on the basis of a number of factors, including the tenor of the securities and any agreement we may have with the distributors of the securities. The amount of our estimated costs that we effectively reimburse to investors in this way may not be allocated ratably throughout the reimbursement period, and we may discontinue such reimbursement at any time or
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Principal at Risk Securities
revise the duration of the reimbursement period after the initial issue date of the securities based on changes in market conditions and other factors that cannot be predicted.
We urge you to read “Risk Factors” beginning on page 11 of this document.
You may revoke your offer to purchase the securities at any time prior to the pricing date. We reserve the right to change the terms of, or reject any offer to purchase, the securities prior to their pricing date. In the event of any changes to the terms of the securities, we will notify you and you will be asked to accept such changes in connection with your purchase. You may also choose to reject such changes in which case we may reject your offer to purchase.
Consent to U.K. Bail-in Power
Under the U.K. Banking Act 2009, as recently amended, the relevant U.K. resolution authority may exercise a U.K. Bail-in Power under certain conditions which, in summary, include that such authority determines that: (i) a relevant entity (such as the Issuer) is failing or is likely to fail, (ii) it is not reasonably likely that (ignoring the other stabilization powers under the U.K. Banking Act) any other action will be taken to avoid the entity’s failure, (iii) the exercise of the stabilization powers are necessary taking into account certain public interest considerations such as the stability of the U.K. financial system, public confidence in the U.K. banking system and the protection of depositors and (iv) the objectives of the resolution measures would not be met to the same extent by the winding up of the entity. Notwithstanding these conditions, there remains uncertainty regarding how the relevant U.K. resolution authority would assess these conditions in deciding whether to exercise any U.K. Bail-in Power. The U.K. Bail-in Power includes any statutory write-down and conversion power, which allows for the cancellation of all, or a portion, of any amounts payable on the securities, including any repayment of principal and/or the conversion of all, or a portion, of any amounts payable on the securities, including the repayment of principal, into shares or other securities or other obligations of ours or another person, including by means of a variation to the terms of the securities. Accordingly, if any U.K. Bail-in Power is exercised you may lose all or a part of the value of your investment in the securities or receive a different security, which may be worth significantly less than the securities and which may have significantly fewer protections than those typically afforded to debt securities. Moreover, the relevant U.K. resolution authority may exercise its authority to implement the U.K. Bail-in Power without providing any advance notice to the holders of the securities.
By your acquisition of the securities, you acknowledge, agree to be bound by and consent to the exercise of, any U.K. Bail-in Power by the relevant U.K. resolution authority.
This is only a summary. For more information, please see “Risk Factors—You may lose some or all of your investment if any U.K. bail-in power is exercised by the relevant U.K. resolution authority” in this document and the full definition of “U.K. Bail-in Power” as well as the risk factors in the accompanying prospectus addendum.
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Investment Summary
Discretionary Callable Trigger Securities
Principal at Risk Securities
The Discretionary Callable Trigger Securities Based on the Value of the Financial Select Sector SPDR® Fund due June 2, 2017 (the “securities”) can be used:
| § | As an alternative to direct exposure to the underlier that, if the securities are not redeemed prior to maturity, enhances returns for any positive performance of the underlier |
| § | If the securities are not redeemed prior to maturity, to enhance returns and outperform the underlier in a bullish scenario |
| § | If the securities are not redeemed prior to maturity, to achieve similar levels of upside exposure to the underlier as a direct investment while using fewer dollars by taking advantage of the leverage factor |
| § | If the securities are not redeemed prior to maturity, to provide limited protection against a loss of principal in the event of a decline of the underlier from the pricing date to the valuation date, but only if the final underlier value is greater than or equal to the trigger value |
On the early redemption date, we will have the right to redeem the securities at our discretion for an amount per security equal to early redemption payment. Any early redemption of the securities will be at our discretion and will not automatically occur based on the performance of the underlier. If the securities are redeemed prior to maturity, you will not benefit from the leverage feature that applies to the payment at maturity if the final underlier value is greater than the initial underlier value. Moreover, the early redemption payment may be significantly less than the payment at maturity you would have received had the securities not been redeemed and instead remained outstanding until maturity.
If the final underlier value is less than the trigger value, the securities are exposed on a 1:1 basis to the negative performance of the underlier.
| Maturity: | Approximately 2 years (unless redeemed earlier) |
| Early redemption payment: | At least $11.60 (at least 116% of the stated principal amount) per security. The actual early redemption payment will be determined on the pricing date. Any early redemption of the securities will be at our discretion and will not automatically occur based on the performance of the underlier. |
| Leverage factor: | At least 112% (applicable only if the final underlier value is greater than the initial underlier value and the securities are not redeemed prior to maturity). The actual leverage factor will be determined on the pricing date. |
| Trigger value: | 90% of the initial underlier value |
| Minimum payment at maturity: | None. Investors may lose their entire initial investment in the securities. |
| Interest: | None |
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Key Investment Rationale
On the early redemption date, we will have the right to redeem the securities at our discretion for an amount per security equal to at least $11.60, or at least 116% of the stated principal amount. The actual early redemption payment will be determined on the pricing date. Any early redemption of the securities will be at our discretion and will not automatically occur based on the performance of the underlier. If the securities are not redeemed prior to maturity, the securities offer leveraged exposure to any positive performance of the underlier. In exchange for enhanced performance of at least 112% of any appreciation of the underlier if the securities are not redeemed prior to maturity, investors are exposed to the risk of loss of some or all of their investment due to the trigger feature. The actual leverage factor will be determined on the pricing date. If the securities are not redeemed prior to maturity and the final underlier value is greater than the initial underlier value, investors will receive the stated principal amount of their investment plus leveraged upside performance of the underlier at maturity. If the securities are not redeemed prior to maturity and the final underlier value is less than or equal to the initial underlier value but greater than or equal to the trigger value, investors will receive the stated principal amount of their investment at maturity. However, if the securities are not redeemed prior to maturity and the final underlier value is less than the trigger value, at maturity investors will lose 1% of the stated principal amount of their investment for every 1% that the final underlier value is less than the initial underlier value. Under these circumstances, the amount investors receive will be less than 90% of the stated principal amount and could be zero. Investors may lose their entire initial investment in the securities. In addition, if the securities are redeemed prior to maturity, you will not benefit from the leverage feature that applies to the payment at maturity if the final underlier value is greater than the initial underlier value. Moreover, the early redemption payment may be significantly less than the payment at maturity you would have received had the securities not been redeemed and instead remained outstanding until maturity.
| Early Redemption Feature (at the option of the issuer) |
On the early redemption date, we will have the right to redeem the securities at our discretion for an amount per security equal to the early redemption payment. If the securities are redeemed prior to maturity, you will not benefit from the leverage feature that applies to the payment at maturity if the final underlier value is greater than the initial underlier value. Moreover, the early redemption payment may be significantly less than the payment at maturity you would have received had the securities not been redeemed and instead remained outstanding until maturity.
Any early redemption of the securities will be at our discretion and will not automatically occur based on the performance of the underlier. It is more likely that we will redeem the securities when it would otherwise be advantageous for you to continue to hold the securities. As such, we will be more likely to redeem the securities when the value of the underlier has appreciated significantly. On the other hand, we will be less likely to exercise our redemption right when the value of the underlier has appreciated only moderately or has declined. Therefore, if we do not exercise our redemption right, you may receive a payment at maturity that is less than the early redemption payment and you may suffer a significant loss at maturity.
In addition, no further payments will be made on the securities after they have been redeemed, and there is no guarantee that you would be able to reinvest the proceeds from an investment in the securities in a comparable investment with a similar level of risk.
|
| Leveraged Performance | If the securities are not redeemed prior to maturity, the securities offer investors an opportunity to capture enhanced returns for any positive performance of the underlier relative to a direct investment in the underlier. |
| Trigger Feature | At maturity, even if the value of the underlier has declined over the term of the securities, investors will receive their stated principal amount, but only if the final underlier value is greater than or equal to the trigger value. |
| Upside Scenario | The securities are not redeemed prior to maturity and the final underlier value is greater than the initial underlier value. In this case, at maturity, the securities pay the stated principal amount of $10 plus at least 112% of the underlier return. The actual leverage factor will be determined on the pricing date. |
| Par Scenario | The securities are not redeemed prior to maturity and the final underlier value is less than or equal to the initial underlier value but greater than or equal to the trigger value. In this case, at maturity, the securities pay the stated principal amount of $10 per security even though the value of the underlier has declined. |
| Downside Scenario | The securities are not redeemed prior to maturity and the final underlier value is less than the trigger value. In this case, at maturity, the securities pay less than 90% of the stated principal amount and the loss of the stated principal amount will be proportionate to the percentage decrease in the final underlier value from the initial underlier value. For example, if the final underlier value is 55% less than the initial underlier value, the securities will pay $4.50 per security, or 45% of the stated principal amount, for a loss of 55% of the stated principal amount. There is no minimum payment at maturity on the securities. Accordingly, investors could lose their entire investment in the securities. |
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How the Discretionary Callable Trigger Securities Work
The following diagrams and scenarios illustrate the payment upon early redemption at our option or at maturity on the securities based on the following terms:
| Stated principal amount: | $10 per security |
| Hypothetical early redemption payment: | $11.60 per security (116% of the stated principal amount). The actual early redemption payment will be determined on the pricing date. Any early redemption of the securities will be at our discretion and will not automatically occur based on the performance of the underlier. |
| Hypothetical leverage factor: | 112%. The actual leverage factor will be determined on the pricing date. |
| Trigger value: | 90% of the initial underlier value |
| Minimum payment at maturity: | None. You could lose your entire initial investment in the securities. |
Diagram #1: Early redemption date
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Diagram #2: Payment at Maturity If Not Previously Redeemed at Our Option
Scenario Analysis
| § | Early Redemption Scenario (at the Option of the Issuer). If we elect to redeem the securities on the early redemption date, under the hypothetical terms of the securities, investors will receive the early redemption payment of $11.60 per security, or 116% of the stated principal amount. Any early redemption of the securities will be at our discretion and will not automatically occur based on the performance of the underlier. It is more likely that we will redeem the securities when it would otherwise be advantageous for you to continue to hold securities. If the securities are redeemed prior to maturity, you will not benefit from the leverage feature that applies to the payment at maturity if the final underlier value is greater than the initial underlier value. Moreover, the early redemption payment may be significantly less than the payment at maturity you would have received had the securities not been redeemed and instead remained outstanding until maturity. |
| § | Upside Scenario. If the securities are not redeemed prior to maturity and the final underlier value is greater than the initial underlier value, at maturity investors will receive the $10 stated principal amount plus at least 112% of the appreciation of the underlier from the initial underlier value to the final underlier value. |
| § | For example, under the hypothetical terms of the securities, if the underlier appreciates by 3.00%, at maturity investors would receive a 3.36% return, or $10.336 per security. |
| § | Under the hypothetical terms of the securities, if the underlier appreciates by 30%, investors would receive a 33.60% return, or $13.36 per security, at maturity. This is significantly more than the early redemption payment the investor would have received if we redeemed the securities on the early redemption date. |
| § | Par Scenario. If the securities are not redeemed prior to maturity and the final underlier value is less than or equal to the initial underlier value but greater than or equal to the trigger value, at maturity investors will receive the stated principal amount of $10 per security. |
| § | For example, if the underlier depreciates by 5%, at maturity investors would receive the $10 stated principal amount per security. |
| § | Downside Scenario. If the securities are not redeemed prior to maturity and the final underlier value is less than the trigger value, at maturity investors will receive an amount that is less than 90% of the $10 stated principal amount and that will reflect a 1% loss of principal for each 1% decline in the underlier. Investors may lose their entire initial investment in the securities. |
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| § | For example, if the underlier depreciates 50%, investors would lose 50% of their principal and receive only $5.00 per security at maturity, or 50% of the stated principal amount. |
If Not Redeemed Prior to Maturity, What Is the Total Return on the Securities at Maturity, Assuming a Range of Performances for the Underlier?
The following table and examples illustrate the hypothetical payment at maturity and hypothetical total return at maturity on the securities, assuming the securities are not redeemed prior to maturity. The “total return” as used in this document is the number, expressed as a percentage, that results from comparing the payment at maturity per $10 stated principal amount to $10.00. The table and examples set forth below assume a hypothetical initial underlier value of $100.00, a hypothetical trigger value of $90.00 (or 90% of the hypothetical initial underlier value) and a hypothetical leverage factor of 112%. The hypothetical initial underlier value of $100.00 has been chosen for illustrative purposes only and may not represent a likely actual initial underlier value. Please see “Financial Select Sector SPDR® Fund Overview” below for recent actual values of the underlier. The actual initial underlier value, trigger value and leverage factor will be determined on the pricing date. Each hypothetical payment at maturity or total return set forth below is for illustrative purposes only and may not be the actual payment at maturity or total return applicable to a purchaser of the securities. The numbers appearing in the following table and examples have been rounded for ease of analysis. The table and examples below do not take into account any tax consequences from investing in the securities.
| Final Underlier Value | Underlier Return | Underlier Performance Factor | Payment at Maturity | Total Return on Securities |
| $150.00 | 50.00% | N/A | $15.60 | 56.00% |
| $140.00 | 40.00% | N/A | $14.48 | 44.80% |
| $130.00 | 30.00% | N/A | $13.36 | 33.60% |
| $120.00 | 20.00% | N/A | $12.24 | 22.40% |
| $110.00 | 10.00% | N/A | $11.12 | 11.20% |
| $105.00 | 5.00% | N/A | $10.56 | 5.60% |
| $102.50 | 2.50% | N/A | $10.28 | 2.80% |
| $100.00 | 0.00% | N/A | $10.00 | 0.00% |
| $95.00 | -5.00% | 95.00% | $10.00 | 0.00% |
| $90.00 | -10.00% | 90.00% | $10.00 | 0.00% |
| $80.00 | -20.00% | 80.00% | $8.00 | -20.00% |
| $70.00 | -30.00% | 70.00% | $7.00 | -30.00% |
| $60.00 | -40.00% | 60.00% | $6.00 | -40.00% |
| $50.00 | -50.00% | 50.00% | $5.00 | -50.00% |
| $40.00 | -60.00% | 40.00% | $4.00 | -60.00% |
| $30.00 | -70.00% | 30.00% | $3.00 | -70.00% |
| $20.00 | -80.00% | 20.00% | $2.00 | -80.00% |
| $10.00 | -90.00% | 10.00% | $1.00 | -90.00% |
| $0.00 | -100.00% | 0.00% | $0.00 | -100.00% |
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Principal at Risk Securities
Hypothetical Examples of Amount Payable at Maturity
The following examples illustrate how the payment at maturity and total return in different hypothetical scenarios are calculated.
Example 1: The securities are not redeemed prior to maturity and the value of the underlier increases from the initial underlier value of $100.00 to a final underlier value of $150.00.
Because the final underlier value is greater than the initial underlier value and the underlier return is 50%, the investor receives a payment at maturity of $15.60 per $10 stated principal amount, calculated as follows:
$10 + leveraged upside payment
$10 + ($10 × leverage factor × underlier return)
$10 + ($10 × 112% × 50%) = $15.60
The total return on the securities is 56.00%.
Example 2: The securities are not redeemed prior to maturity and the value of the underlier decreases from the initial underlier value of $100.00 to a final underlier value of $90.00.
Because the final underlier value is less than or equal to the initial underlier value but greater than or equal to the trigger value, the payment at maturity is equal to the stated principal amount of $10.00 per security.
The total return on the securities is 0.00%.
Example 3: The securities are not redeemed prior to maturity and the value of the underlier decreases from the initial underlier value of $100.00 to a final underlier value of $50.00.
Because the final underlier value is less than the trigger value, the payment at maturity is equal to $5.00 per security, calculated as follows:
($10 × underlier performance factor)
= $10 × (final underlier value / initial underlier value)
= $10 × ($50 / $100) = $5.00
The total return on the securities is -50.00%.
| May 2015 | Page 10 |
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Principal at Risk Securities
Risk Factors
An investment in the securities involves significant risks. We also urge you to consult your investment, legal, tax, accounting and other advisors before you invest in the securities. Investing in the securities is not equivalent to investing directly in the underlier or any of the securities held by the underlier or composing the index tracked by the underlier (the “tracked index”). The following is a non-exhaustive list of certain key risk factors for investors in the securities. For further discussion of these and other risks, you should read the sections entitled “Risk Factors” in the prospectus supplement, the prospectus addendum and the index supplement, including the risk factors discussed under the following headings of the prospectus supplement (unless otherwise noted):
| · | “Risk Factors—Risks Relating to All Securities”; |
| · | “Risk Factors—Additional Risks Relating to Notes Which Are Not Characterized as Being Fully Principal Protected or Are Characterized as Being Partially Protected or Contingently Protected”; |
| · | “Risk Factors—Additional Risks Relating to Notes Which Pay No Interest or Pay Interest at a Low Rate”; |
| · | “Risk Factors—Additional Risks Relating to Securities with a Barrier Percentage or a Barrier Level”; |
| · | “Risk Factors—Additional Risks Relating to Securities Which Contain a Multiplier”; |
| · | “Risk Factors—Additional Risks Relating to Securities Which We May Call or Redeem (Automatically or Otherwise)”; |
| · | “Risk Factors—Additional Risks Relating to Securities with Reference Assets That Are Equity Securities or Shares or Other Interests in Exchange-Traded Funds, That Contain Equity Securities or Shares or Other Interests in Exchange-Traded Funds or That Are Based in Part on Equity Securities or Shares or Other Interests in Exchange-Traded Funds”; and |
| · | “Risk Factors—Under the terms of the notes, you have agreed to be bound by the exercise of any U.K. Bail-in Power by the relevant U.K. resolution authority” (in the accompanying prospectus addendum). |
| § | The trigger feature provides protection only for a limited range of negative performance of the underlier, and the securities do not pay interest or guarantee return of principal. The terms of the securities differ from those of ordinary debt securities in that the securities do not pay interest or guarantee payment of the principal amount at maturity. If the securities are not redeemed prior to maturity and the final underlier value is less than the trigger value (which is 90% of the initial underlier value), the payment at maturity will be an amount in cash that is significantly less than the $10 stated principal amount of each security by an amount proportionate to the decrease in the final underlier value from the initial underlier value. There is no minimum payment at maturity on the securities and, accordingly, if the securities are not redeemed prior to maturity, you could lose your entire initial investment in the securities. |
| § | The optional early redemption feature may limit the appreciation potential of the securities. At our option, we may redeem the securities, in whole, but not in part, on the early redemption date, regardless of the performance of the underlier. If we decide to redeem the securities, the appreciation potential of the securities will be limited to the early redemption payment of at least $11.60 per security (at least 116% of the stated principal amount) regardless of the actual appreciation of the underlier, and no further payments will be made on the securities once they have been redeemed. The actual early redemption payment will be determined on the pricing date. |
| § | Early redemption risk. If the securities are redeemed prior to maturity, you will not benefit from the leverage feature that applies to the payment at maturity if the final underlier value is greater than the initial underlier value. Moreover, the early redemption payment may be significantly less than the payment at maturity you would have received had the securities not been redeemed and instead remained outstanding until maturity. Any early redemption of the securities will be at our discretion and will not automatically occur based on the performance of the underlier. It is more likely that we will redeem the securities when it would otherwise be advantageous for you to continue to hold the securities. As such, we will be more likely to redeem the securities when the value of the underlier has appreciated significantly. On the other hand, we will be less likely to exercise our redemption right when the value of the underlier has appreciated only moderately or has declined. Therefore, if we do not exercise our redemption right, you may receive a payment at maturity that is less than the early redemption payment and you may suffer a significant loss at maturity. In addition, no further payments will be made on the securities after they have been redeemed, and there is no guarantee that you would be able to reinvest the proceeds from an investment in the securities in a comparable investment with a similar level of risk. The term of your investment in the securities may be limited to as short as approximately one year by the optional early redemption feature of the securities. |
| § | Credit of issuer. The securities are unsecured and unsubordinated debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of any third party. Any payment to be made on the securities, including any repayment of principal, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due and is not guaranteed by any third party. As a result, the actual and perceived creditworthiness of Barclays Bank PLC may affect the market value of the securities and, in the event Barclays Bank PLC were to default on its obligations, you might not receive any amount owed to you under the terms of the securities. |
| § | You may lose some or all of your investment if any U.K. Bail-in Power is exercised by the relevant U.K. resolution authority. Under the U.K. Banking Act 2009, as recently amended, the relevant U.K. resolution authority may exercise a U.K. Bail- |
| May 2015 | Page 11 |
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in Power under certain conditions which, in summary, include that such authority determines that: (i) a relevant entity (such as the Issuer) is failing or is likely to fail, (ii) it is not reasonably likely that (ignoring the other stabilization powers under the U.K. Banking Act) any other action will be taken to avoid the entity’s failure, (iii) the exercise of the stabilization powers are necessary taking into account certain public interest considerations such as the stability of the U.K. financial system, public confidence in the U.K. banking system and the protection of depositors and (iv) the objectives of the resolution measures would not be met to the same extent by the winding up of the entity. Notwithstanding these conditions, there remains uncertainty regarding how the relevant U.K. resolution authority would assess these conditions in deciding whether to exercise any U.K. Bail-in Power. The U.K. Bail-in Power includes any statutory write-down and conversion power, which allows for the cancellation of all, or a portion, of any amounts payable on the securities, including any repayment of principal and/or the conversion of all, or a portion, of any amounts payable on the securities, including the repayment of principal, into shares or other securities or other obligations of ours or another person, including by means of a variation to the terms of the securities. Accordingly, if any U.K. Bail-in Power is exercised you may lose all or a part of the value of your investment in the securities or receive a different security, which may be worth significantly less than the securities and which may have significantly fewer protections than those typically afforded to debt securities. Moreover, the relevant U.K. resolution authority may exercise its authority to implement the U.K. Bail-in Power without providing any advance notice to the holders of the securities.
By your acquisition of the securities, you acknowledge, agree to be bound by and consent to the exercise of, any U.K. Bail-in Power by the relevant U.K. resolution authority. The exercise of any U.K. Bail-in Power by the relevant U.K. resolution authority with respect to the securities will not be a default or an Event of Default (as each term is defined in the indenture) and the trustee will not be liable for any action that the trustee takes, or abstains from taking, in either case, in accordance with the exercise of the U.K. Bail-in Power by the relevant U.K. resolution authority with respect to the securities. Accordingly, your rights as a holder of the securities are subject to, and will be varied, if necessary, so as to give effect to, the exercise of any U.K. Bail-in Power by the relevant U.K. resolution authority. Please see “Consent to U.K. Bail-in Power” in this document and the risk factors in the accompanying prospectus addendum for more information.
| § | Owning the securities is not equivalent to owning the underlier, the securities held by the underlier or the securities composing the tracked index. The return on your securities may not reflect the return you would realize if you actually owned the underlier, the securities held by the underlier or the securities composing the tracked index. For example, as a holder of the securities, you will not have voting rights, rights to receive dividends or other distributions or any other rights with respect to the underlier, the securities held by the underlier or the securities composing the tracked index. |
| § | The securities will not be listed on any securities exchange, and secondary trading may be limited. Barclays Capital Inc. and other affiliates of Barclays Bank PLC intend to offer to purchase the securities in the secondary market but are not required to do so and may cease any such market making activities at any time, without notice. Even if a secondary market develops, it may not provide enough liquidity to allow you to trade or sell the securities easily. Because other dealers are not likely to make a secondary market for the securities, the price, if any, at which you may be able to trade your securities is likely to depend on the price, if any, at which Barclays Capital Inc. and other affiliates of Barclays Bank PLC are willing to buy the securities. In addition, Barclays Capital Inc. or one or more of our other affiliates may at any time hold an unsold portion of the securities (as described on the cover page of this document), which may inhibit the development of a secondary market for the securities . The securities are not designed to be short-term trading instruments. Accordingly, you should be willing and able to hold your securities to maturity. |
| § | Potential conflicts. We and our affiliates play a variety of roles in connection with the issuance of the securities, including acting as calculation agent and hedging our obligations under the securities. In performing these duties, the economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor in the securities. The calculation agent will determine the initial underlier value, the trigger value and the final underlier value and whether the securities will be redeemed, and will calculate the amount of cash, if any, you will receive at maturity. Determinations made by the calculation agent, including with respect to the occurrence or non-occurrence of market disruption events and the selection of a successor index or calculation of the final underlier value in the event of a discontinuance of the underlier, may adversely affect the payment to you at maturity. |
| § | Suitability of the securities for investment. You should reach a decision to invest in the securities only after carefully considering, with your advisors, the suitability of the securities in light of your investment objectives and the specific information set out in this document, the prospectus addendum, the prospectus supplement and the prospectus. Neither the issuer nor Barclays Capital Inc. makes any recommendation as to the suitability of the securities for investment. |
| § | If the securities are not redeemed prior to maturity, the payment at maturity on the securities is not based on the value of the underlier at any time other than on the valuation date. If the securities are not redeemed prior to maturity, the payment at maturity is not based on the value of the underlier at any time other than on the valuation date and will be based solely on the final underlier value as compared to the initial underlier value. Therefore, the payment at maturity, if any, that you will receive for your securities may be significantly less than if the payment at maturity were linked to the value of the underlier at any time other than the valuation date. |
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| § | Certain features of exchange-traded funds will impact the value of the securities. The performance of the underlier will not fully replicate the performance of the tracked index, and the underlier may hold securities not included in the tracked index. The value of the underlier is subject to: |
| o | Management risk. This is the risk that the investment strategy for the underlier, the implementation of which is subject to a number of constraints, may not produce the intended results. |
| o | Derivatives risk. The underlier may invest in derivatives, including forward contracts, futures contracts, options on futures contracts, options and swaps. A derivative is a financial contract, the value of which depends on, or is derived from, the value of an underlying asset such as a security or an index. Compared to conventional securities, derivatives can be more sensitive to changes in interest rates or to sudden fluctuations in market prices. |
| o | Transaction costs and fees. Unlike the tracked index, the underlier will reflect transaction costs and fees that will reduce its performance relative to the tracked index. |
Generally, the longer the time remaining to maturity, the more the market price of the notes will be affected by the other factors described above. In addition, the underlier may diverge significantly from the performance of the tracked index due to the temporary unavailability of certain securities in the secondary market, differences in trading hours between the underlier and the securities composing the tracked index or other circumstances. Because the securities are linked to the performance of the underlier and not the tracked index, the return on your PLUS may be less than that of an alternative investment linked directly to the tracked index.
| § | Adjustments to the underlier or to its tracked index could adversely affect the value of the securities. The investment adviser to the underlier seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the tracked index. Pursuant to its investment strategy or otherwise, an investment adviser may add, delete or substitute the components of the underlier. Any of these actions could adversely affect the value of the underlier and, consequently, the value of the securities. |
In addition, the publisher of the tracked index is responsible for calculating and maintaining the tracked index. The tracked index publisher may add, delete or substitute the securities composing that tracked index or make other methodological changes required by certain corporate events relating to the securities composing the tracked index, such as stock dividends, stock splits, spin-offs, rights offerings and extraordinary dividends, that could change the value of the tracked index. The tracked index publisher may also discontinue or suspend calculation or publication of the tracked index at any time. If this discontinuance or suspension occurs, following the termination of the underlier, the calculation agent will have the sole discretion to substitute a successor fund that is comparable to the discontinued underlier, or if the calculation agent determines that no successor fund is available, to accelerate the maturity date of the securities. Any of these actions could adversely affect the value of the underlier and, consequently, the value of the securities.
For a description of the actions that may be taken by the calculation agent in the event that the publisher of the tracked index discontinues or suspends calculation of the tracked index or the underlier is liquidated or otherwise terminated, see “Reference Assets—Exchange-Traded Funds—Adjustments Relating to Securities with the Reference Asset Comprised of an Exchange-Traded Fund or Exchange-Traded Funds” in the prospectus supplement.
| § | The equity securities held by the underlier are concentrated in the financial services sector. Each of the equity securities held by the underlier has been issued by a company whose business is associated with the financial services sector. Because the value of the securities is determined by the performance of the underlier, an investment in these securities will be concentrated in this industry. As a result, the value of the securities may be subject to greater volatility and be more adversely affected by a single positive or negative economic, political or regulatory occurrence affecting this industry than a different investment linked to PLUS of a more broadly diversified group of issuers. |
| § | The calculation agent has discretion to make antidilution adjustments. For certain events affecting the underlier, the calculation agent may make adjustments to the amounts payable on the securities. However, the calculation agent will not make such adjustments in response to all events that could affect the underlier. If an event occurs that does not require the calculation agent to make such adjustments, the value of the securities may be materially and adversely affected. In addition, all determinations and calculations concerning any such adjustments will be made in the sole discretion of the calculation agent, which will be binding on you absent manifest error. You should be aware that the calculation agent may make any such adjustment, determination or calculation in a manner that differs from that discussed in the prospectus supplement as necessary to achieve an equitable result. |
| § | Hedging and trading activity by the issuer and its affiliates could potentially adversely affect the value of the securities. The hedging or trading activities of the issuer’s affiliates and of any other hedging counterparty with respect to the securities on or prior to the pricing date and prior to maturity could adversely affect the value of the underlier and, as a result, could decrease the |
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amount an investor may receive on the securities at maturity. Any of these hedging or trading activities on or prior to the pricing date could potentially increase the initial underlier value and, if the securities are not redeemed prior to maturity, could increase the trigger value, which is the value at or above which the underlier must close on the valuation date so that the investor does not suffer a loss on their initial investment in the securities. Additionally, such hedging or trading activities during the term of the securities, including on the valuation date, could potentially affect the value of the underlier on the valuation date and, accordingly, the amount of cash an investor will receive at maturity, if any.
| § | The market price of the securities will be influenced by many unpredictable factors. Several factors will influence the value of the securities in the secondary market and the price at which Barclays Capital Inc. and other affiliates of Barclays Bank PLC may be willing to purchase or sell the securities in the secondary market. Although we expect that generally the value of the underlier on any day will affect the value of the securities more than any other single factor, other factors that may influence the value of the securities include: |
| o | the value and volatility (frequency and magnitude of changes in value) of the underlier and the securities held by the underlier; |
| o | dividend rates on the underlier and on the securities held by the underlier; |
| o | interest and yield rates in the market; |
| o | time remaining until the securities mature; |
| o | supply and demand for the securities; |
| o | geopolitical conditions and economic, financial, political, regulatory and judicial events that affect the securities held by the underlier and that may affect the final underlier value; and |
| o | any actual or anticipated changes in our credit ratings or credit spreads. |
The value of the underlier may be, and has recently been, volatile, and we can give you no assurance that the volatility will lessen. See “Financial Select Sector SPDR® Fund Overview” below. You may receive less, and possibly significantly less, than the stated principal amount per security if you try to sell your securities prior to maturity.
| § | The estimated value of your securities is expected to be lower than the initial issue price of your securities. The estimated value of your securities on the pricing date is expected to be lower, and may be significantly lower, than the initial issue price of your securities. The difference between the initial issue price of your securities and the estimated value of the securities is expected as a result of certain factors, such as any sales commissions expected to be paid to Barclays Capital Inc. or another affiliate of ours, any selling concessions, discounts, commissions or fees expected to be allowed or paid to non-affiliated intermediaries, the estimated profit that we or any of our affiliates expect to earn in connection with structuring the securities, the estimated cost that we may incur in hedging our obligations under the securities, and estimated development and other costs that we may incur in connection with the securities. |
| § | The estimated value of your securities might be lower if such estimated value were based on the levels at which our debt securities trade in the secondary market. The estimated value of your securities on the pricing date is based on a number of variables, including our internal funding rates. Our internal funding rates may vary from the levels at which our benchmark debt securities trade in the secondary market. As a result of this difference, the estimated values referenced above might be lower if such estimated values were based on the levels at which our benchmark debt securities trade in the secondary market. |
| § | The estimated value of the securities is based on our internal pricing models, which may prove to be inaccurate and may be different from the pricing models of other financial institutions. The estimated value of your securities on the pricing date is based on our internal pricing models, which take into account a number of variables and are based on a number of subjective assumptions, which may or may not materialize. These variables and assumptions are not evaluated or verified on an independent basis. Further, our pricing models may be different from other financial institutions’ pricing models and the methodologies used by us to estimate the value of the securities may not be consistent with those of other financial institutions that may be purchasers or sellers of securities in the secondary market. As a result, the secondary market price of your securities may be materially different from the estimated value of the securities determined by reference to our internal pricing models. |
| § | The estimated value of your securities is not a prediction of the prices at which you may sell your securities in the secondary market, if any, and such secondary market prices, if any, will likely be lower than the initial issue price of your securities and may be lower than the estimated value of your securities. The estimated value of the securities will not be a prediction of the prices at which Barclays Capital Inc., other affiliates of ours or third parties may be willing to purchase the securities from you in secondary market transactions (if they are willing to purchase, which they are not obligated to do). The price at which you may be able to sell your securities in the secondary market at any time will be influenced by many factors that cannot be predicted, such as market conditions, and any bid and ask spread for similar sized trades, and may be substantially less than |
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our estimated value of the securities. Further, as secondary market prices of your securities take into account the levels at which our debt securities trade in the secondary market, and do not take into account our various costs related to the securities such as fees, commissions, discounts, and the costs of hedging our obligations under the securities, secondary market prices of your securities will likely be lower than the initial issue price of your securities. As a result, the price, at which Barclays Capital Inc., other affiliates of ours or third parties may be willing to purchase the securities from you in secondary market transactions, if any, will likely be lower than the price you paid for your securities, and any sale prior to the maturity date could result in a substantial loss to you.
| § | The temporary price at which we may initially buy the securities in the secondary market and the value we may initially use for customer account statements, if we provide any customer account statements at all, may not be indicative of future prices of your securities. Assuming that all relevant factors remain constant after the pricing date, the price at which Barclays Capital Inc. may initially buy or sell the securities in the secondary market (if Barclays Capital Inc. makes a market in the securities, which it is not obligated to do) and the value that we may initially use for customer account statements, if we provide any customer account statements at all, may exceed our estimated value of the securities on the pricing date, as well as the secondary market value of the securities, for a temporary period after the initial issue date of the securities. The price at which Barclays Capital Inc. may initially buy or sell the securities in the secondary market and the value that we may initially use for customer account statements may not be indicative of future prices of your securities. |
| § | We and our affiliates may engage in various activities or make determinations that could materially affect your securities in various ways and create conflicts of interest. We and our affiliates establish the offering price of the securities for initial sale to the public, and the offering price is not based upon any independent verification or valuation. Additionally, the role played by Barclays Capital Inc., as a dealer in the securities, could present it with significant conflicts of interest with the role of Barclays Bank PLC, as issuer of the securities. For example, Barclays Capital Inc. or its representatives may derive compensation or financial benefit from the distribution of the securities and such compensation or financial benefit may serve as an incentive to sell these securities instead of other investments. We may pay dealer compensation to any of our affiliates acting as agents or dealers in connection with the distribution of the securities. Furthermore, we and our affiliates make markets in and trade various financial instruments or products for their own accounts and for the account of their clients and otherwise provide investment banking and other financial services with respect to these financial instruments and products. These financial instruments and products may include securities, instruments or assets that may serve as the underliers, basket underliers or constituents of the underliers of the securities. Such market making, trading activities, other investment banking and financial services may negatively impact the value of the securities. Furthermore, in any such market making, trading activities, and other services, we or our affiliates may take positions or take actions that are inconsistent with, or adverse to, the investment objectives of the holders of the securities. We and our affiliates have no obligation to take the needs of any buyer, seller or holder of the securities into account in conducting these activities. |
| § | The U.S. federal income tax consequences of an investment in the securities are uncertain. There is no direct legal authority regarding the proper U.S. federal income tax treatment of the securities, and we do not plan to request a ruling from the Internal Revenue Service (the “IRS”). Consequently, significant aspects of the tax treatment of the securities are uncertain, and the IRS or a court might not agree with the treatment of the securities as prepaid forward contracts. If the IRS were successful in asserting an alternative treatment for the securities, the tax consequences of ownership and disposition of the securities could be materially and adversely affected. |
Even if the treatment of the securities is respected, the IRS may assert that the securities constitute “constructive ownership transactions” within the meaning of Section 1260 of the Internal Revenue Code of 1986, as amended (the “Code”), in which case gain recognized in respect of the securities that would otherwise be long-term capital gain and that was in excess of the “net underlying long-term capital gain” (as defined in Section 1260) would be treated as ordinary income, and a notional interest charge would apply as if that income had accrued for tax purposes at a constant yield over the term of the securities. Our special tax counsel has not expressed an opinion with respect to whether the “constructive ownership” rules apply to the securities.
In addition, as described below under “Additional provisions—Tax considerations,” in 2007 the U.S. Treasury Department and the IRS released a notice requesting comments on various issues regarding the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. Any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. You should review carefully the sections of the accompanying prospectus supplement entitled “Certain U.S. Federal Income Tax Considerations—Certain Notes Treated as Forward Contracts or Derivative Contracts” and, if you are a non-U.S. holder, “—Tax Treatment of Non-U.S. Holders,” and consult your tax advisor regarding the U.S. federal tax consequences of an investment in the securities (including the potential application of the constructive ownership rules, possible alternative treatments and the issues presented by the 2007 notice), as well as tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
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Financial Select Sector SPDR® Fund Overview
The underlier seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the financial services sector, as represented by the Financial Select Sector Index. For more information about the underlier, see “Annex—The Financial Select Sector SPDR® Fund” below.
Information about the underlier as of market close on May 20, 2015:
| Bloomberg Ticker Symbol: | XLF | 52 Week High: | $25.04 |
| Current Closing Price: | $24.91 | 52 Week Low: | $21.87 |
| 52 Weeks Ago (5/21/2014): | $21.87 |
The following table sets forth the published high, low and period-end closing prices of the underlier for each quarter for the period of January 2, 2008 through May 20, 2015. The associated graph shows the closing prices of the underlier for each day in the same period. The closing price of the underlier on May 20, 2015 was $24.91. We obtained the closing prices below from Bloomberg, L.P., without independent verification. Historical performance of the underlier should not be taken as an indication of future performance. Future performance of the underlier may differ significantly from historical performance, and no assurance can be given as to the closing price of the underlier during the term of the PLUS, including on the valuation date. We cannot give you assurance that the performance of the underlier will result in the return of any of your initial investment. The closing prices below may have been adjusted to reflect certain corporate actions, such as stock splits and reverse stock splits.
| Financial Select Sector SPDR® Fund | High | Low | Period End |
| 2008 | |||
| First Quarter | $29.50 | $23.40 | $24.85 |
| Second Quarter | $27.67 | $20.20 | $20.20 |
| Third Quarter | $22.64 | $17.18 | $19.96 |
| Fourth Quarter | $20.58 | $9.39 | $12.62 |
| 2009 | |||
| First Quarter | $12.69 | $6.20 | $8.81 |
| Second Quarter | $13.02 | $9.06 | $11.97 |
| Third Quarter | $15.34 | $11.10 | $14.94 |
| Fourth Quarter | $15.71 | $14.02 | $14.39 |
| 2010 | |||
| First Quarter | $16.02 | $13.66 | $15.97 |
| Second Quarter | $17.05 | $13.81 | $13.81 |
| Third Quarter | $15.08 | $13.44 | $14.35 |
| Fourth Quarter | $16.01 | $14.34 | $15.95 |
| 2011 | |||
| First Quarter | $17.20 | $15.91 | $16.41 |
| Second Quarter | $16.70 | $14.71 | $15.33 |
| Third Quarter | $15.65 | $11.53 | $11.83 |
| Fourth Quarter | $14.05 | $11.28 | $13.00 |
| 2012 | |||
| First Quarter | $15.97 | $13.30 | $15.78 |
| Second Quarter | $15.91 | $13.37 | $14.62 |
| Third Quarter | $16.28 | $14.22 | $15.60 |
| Fourth Quarter | $16.69 | $15.16 | $16.40 |
| 2013 | |||
| First Quarter | $18.47 | $16.85 | $18.19 |
| Second Quarter | $20.17 | $17.83 | $19.49 |
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| Third Quarter | $20.87 | $19.41 | $19.92 |
| Fourth Quarter | $21.86 | $19.57 | $21.86 |
| 2014 | |||
| First Quarter | $22.48 | $20.53 | $22.34 |
| Second Quarter | $22.90 | $21.28 | $22.74 |
| Third Quarter | $23.81 | $22.16 | $23.17 |
| Fourth Quarter | $25.04 | $22.04 | $24.73 |
| 2015 | |||
| First Quarter | $24.73 | $23.01 | $24.11 |
| Second Quarter (through May 20, 2015) | $24.98 | $24.09 | $24.91 |
| Underlier Historical Performance— January 2, 2008 to May 20, 2015 |
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Past performance is not indicative of future results.
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Additional Information about the Securities
Please read this information in conjunction with the terms on the cover page of this document.
| Additional provisions: | |
| Postponement of early redemption date and maturity date: | The early redemption date or the maturity date will be postponed if the early redemption notice date or valuation date, as applicable, is postponed due to the occurrence or continuance of a market disruption event with respect to the underlier on the early redemption notice date or valuation date, as applicable. In such a case, the early redemption date or the maturity date, as the case may be, will be postponed by the same number of business days from but excluding the originally scheduled early redemption notice date or valuation date, as applicable. See “Terms of the Notes—Maturity Date” in the accompanying prospectus supplement and “Market disruption events and adjustments” below. |
| Postponement of early redemption notice date and valuation date: | The early redemption notice date is a “valuation date” for purposes of the accompanying prospectus supplement and the early redemption notice date and the valuation date may be postponed due to the occurrence or continuance of a market disruption event on such date. See “Market disruption events and adjustments” below. Notwithstanding anything to the contrary in the accompanying prospectus supplement, the valuation date may be postponed by up to five scheduled trading days due to the occurrence or continuance of a market disruption event on such date. |
| Market disruption events and adjustments: |
The calculation agent may adjust any variable described in this document, including but not limited to the early redemption notice date, the early redemption date, the valuation date, the maturity date, the initial underlier value, the trigger value and the final underlier value (and any combination thereof) as described in the following sections of the accompanying prospectus supplement:
· For a description of what constitutes a market disruption event as well as the consequences of that market disruption event, see “Reference Assets—Exchange-Traded Funds—Market Disruption Events for Securities with the Reference Asset Comprised of Shares or Other Interests in an Exchange-Traded Fund or Exchange-Traded Funds Comprised of Equity Securities”; and
· For a description of further adjustments that may affect the underlier and events that may result in the acceleration of the maturity date, see “Reference Assets—Exchange-Traded Funds—Adjustments Relating to Securities with the Reference Asset Comprised of an Exchange-Traded Fund or Exchange-Traded Funds.”
|
| Minimum ticketing size: | $1,000 / 100 securities |
| Tax considerations: |
You should review carefully the sections entitled “Certain U.S. Federal Income Tax Considerations—Certain Notes Treated as Forward Contracts or Derivative Contracts” and, if you are a non-U.S. holder, “—Tax Treatment of Non-U.S. Holders,” in the accompanying prospectus supplement. The following discussion, when read in combination with those sections, constitutes the full opinion of our special tax counsel, Davis Polk & Wardwell LLP, regarding the material U.S. federal income tax consequences of owning and disposing of the securities. The following discussion supersedes the discussion in the accompanying prospectus supplement to the extent it is inconsistent therewith.
Based on current market conditions, in the opinion of our special tax counsel, the securities should be treated for U.S. federal income tax purposes as prepaid forward contracts with respect to the underlier. Assuming this treatment is respected, upon a sale or exchange of the securities (including redemption upon a call or at maturity), you should recognize capital gain or loss equal to the difference between the amount realized on the sale or exchange and your tax basis in the securities, which should equal the amount you paid to acquire the securities. Subject to the possible application of the constructive ownership rules, this gain or loss should be treated as long-term capital gain or loss if you hold your securities for more than a year, whether or not you are an initial purchaser of securities at the original issue price. The securities could be treated as constructive ownership transactions within the meaning of Section 1260 of the Code, in which case any gain recognized in respect of the securities that would otherwise be long-term capital gain and that was in excess of the “net underlying long-term capital gain” (as defined in Section 1260) would be treated as ordinary income, and a notional interest charge
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would apply as if that income had accrued for tax purposes at a constant yield over the term of the securities. Our special tax counsel has not expressed an opinion with respect to whether the constructive ownership rules apply to the securities. Accordingly, U.S. holders should consult their tax advisors regarding the potential application of the constructive ownership rules.
The IRS or a court may not respect the treatment of the securities described above, in which case the timing and character of any income or loss on the securities could be materially and adversely affected. In addition, in 2007 the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in particular on whether to require investors in these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; the relevance of factors such as the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject to the constructive ownership regime described above. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. You should consult your tax advisor regarding the U.S. federal income tax consequences of an investment in the securities, including the potential application of the constructive ownership rules, possible alternative treatments and the issues presented by this notice.
Non-U.S. Holders—Additional Tax Consideration
Non-U.S. holders should note that recently proposed Treasury regulations could impose a 30% (or lower treaty rate) withholding tax on amounts paid or deemed paid after December 31, 2015 that are treated as attributable to U.S.-source dividends on equities underlying financial instruments such as the securities. While it is not clear whether or in what form these regulations will be finalized, under recent Treasury guidance, these regulations would not apply to the securities. Non-U.S. holders should consult their tax advisors regarding the potential application of these proposed regulations.
| |
| Trustee: | The Bank of New York Mellon |
| Calculation agent: | Barclays Bank PLC |
| Use of proceeds and hedging: |
The net proceeds we receive from the sale of the securities will be used for various corporate purposes as set forth in the prospectus and prospectus supplement and, in part, in connection with hedging our obligations under the securities through one or more of our subsidiaries. We, through our subsidiaries or others, hedge our anticipated exposure in connection with the securities by taking positions in futures and options contracts on the underlier or the tracked index and any other securities or instruments we may wish to use in connection with such hedging. Trading and other transactions by us or our affiliates could affect the value of the underlier, the market value of the securities or any amounts payable on your securities. For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the prospectus supplement.
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| ERISA: | See “Employee Retirement Income Security Act” starting on page S-120 in the accompanying prospectus supplement. |
| Contact: | Morgan Stanley Wealth Management clients may contact their local Morgan Stanley branch office or Morgan Stanley’s principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866) 477-4776). All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured Investment Sales at (800) 233-1087. |
This document represents a summary of the terms and conditions of the securities. We encourage you to read the accompanying prospectus, prospectus supplement, prospectus addendum and index supplement for this offering, which can be accessed via the hyperlinks on the cover page of this document.
Supplemental Plan of Distribution
Morgan Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”) and its financial advisors will collectively receive from the agent, Barclays Capital Inc., a fixed sales commission of $0.23 for each security they sell. In addition, Morgan Stanley Wealth Management will receive a structuring fee of $0.02 for each security.
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Annex
The Financial Select Sector SPDR® Fund
We have derived all information contained in this document regarding the Financial Select Sector SPDR® Fund from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by the Select Sector SPDR® Trust (the “Select Sector Trust”) and SSgA Funds Management, Inc. (“SSgA FM”). The Financial Select Sector SPDR® Fund is an investment portfolio managed by SSgA FM, the investment adviser to the Financial Select Sector SPDR® Fund. The Financial Select Sector SPDR® Fund is an exchange-traded fund that trades on the NYSE Arca, Inc. under the ticker symbol “XLF.”
The Select Sector Trust is a registered investment company that consists of nine separate investment portfolios (each, a “Select Sector SPDR® Fund”), including the Financial Select Sector SPDR® Fund. Each Select Sector SPDR® Fund is an index fund that invests in a particular sector or group of industries represented by a specified Select Sector Index (as defined below). The companies included in each Select Sector Index are selected on the basis of general industry classifications from a universe of companies defined by the S&P 500® Index. The Select Sector Indices upon which the Select Sector SPDR® Funds are based together comprise all of the companies in the S&P 500® Index. The investment objective of each Select Sector SPDR® Fund is to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in a particular sector or group of industries, as represented by a specified market sector index.
Information provided to or filed with the SEC by the Select Sector Trust pursuant to the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, can be located by reference to SEC file numbers 333-57791 and 811-08837, respectively, through the SEC’s website at http://www.sec.gov. For additional information regarding the Select Sector Trust or the Financial Select Sector SPDR® Fund, please see the Financial Select Sector SPDR® Fund’s prospectus. In addition, information about the Select Sector Trust, SSgA FM and the Financial Select Sector SPDR® Fund may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents and the Select Sector Trust website at http://www.sectorspdrs.com. Information contained in the Select Sector Trust website is not incorporated by reference in, and should not be considered a part of, this document.
Investment Objective
The Financial Select Sector SPDR® Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the financial services sector, as represented by the Financial Select Sector Index. For more information about the Financial Select Sector Index, please see “The Financial Select Sector Index” below.
Holdings Information
As of May 20, 2015, the Financial Select Sector SPDR® Fund included 89 securities. The following table summarizes the Financial Select Sector SPDR® Fund’s top holdings in individual securities as of that date.
Top Holdings in Individual Securities as of May 20, 2015
|
Security
|
Percentage of Total Holdings
| |
| Berkshire Hathaway Inc. | 8.65% | |
| Wells Fargo & Company | 8.55% | |
| JP Morgan Chase & Co. | 8.06% | |
| Bank of America Corp. | 5.73% | |
| Citigroup Inc. | 5.41% | |
| Goldman Sachs Group Inc. | 2.70% | |
| American International Group Inc. | 2.68% | |
| U.S. Bancorp Inc. | 2.55% | |
| American Express Company | 2.31% | |
| MetLife, Inc. | 1.94% |
The information above was compiled from the Select Sector Trust website, without independent verification. Information contained in the Select Sector Trust website is not incorporated by reference in, and should not be considered a part of, this document.
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Investment Strategy — Replication
The Financial Select Sector SPDR® Fund employs a replication strategy in seeking to track the performance of the Financial Select Sector Index. This means that the Financial Select Sector SPDR® Fund typically invests in substantially all of the securities represented in the Financial Select Sector Index in approximately the same proportions as the Financial Select Sector Index. SSgA FM may sell securities that are represented in the Financial Select Sector Index, or purchase securities that are not yet represented in the Financial Select Sector Index, in anticipation of their removal from or addition to the Financial Select Sector Index. Further, SSgA FM may choose to overweight securities in the Financial Select Sector Index, purchase or sell securities not in the Financial Select Sector Index or utilize various combinations of other available techniques in seeking to track the Financial Select Sector Index. Under normal market conditions, the Financial Select Sector SPDR® Fund generally invests substantially all, but at least 95%, of its total assets in the securities composing the Financial Select Sector Index. In addition, the Financial Select Sector SPDR® Fund may invest in cash and cash equivalents or money market instruments, such as repurchase agreements and money market funds (including money market funds advised by SSgA FM). Swaps, options and futures contracts, convertible securities and structured notes may be used by the Financial Select Sector SPDR® Fund in seeking performance that corresponds to the Financial Select Sector Index and in managing cash flows. SSgA FM anticipates that, under normal circumstances, it may take several business days for additions and deletions to the Financial Select Sector Index to be reflected in the portfolio composition of the Financial Select Sector SPDR® Fund. The Board of Trustees of the Select Sector Trust may change the Financial Select Sector SPDR® Fund’s investment strategy and certain other policies without shareholder approval.
There may, however, be instances where SSgA FM will utilize a sampling strategy. Sampling means that SSgA FM will use quantitative analysis to select securities, including securities in the Financial Select Sector Index, outside of the Financial Select Sector Index and derivatives, that have a similar investment profile as the Financial Select Sector Index in terms of key risk factors, performance attributes and other characteristics. These include industry weightings, market capitalization, and other financial characteristics of securities.
Correlation
The Financial Select Sector Index is a theoretical financial calculation, while the Financial Select Sector SPDR® Fund is an actual investment portfolio. The performance of the Financial Select Sector SPDR® Fund’s return may not match or achieve a high degree of correlation with the return of the Financial Select Sector Index due to operating expenses, transaction costs, cash flows, regulatory requirements and operational inefficiencies.
Disclaimer
The PLUS are not sponsored, endorsed, sold or promoted by Select Sector Trust or SSgA FM. Neither the Select Sector Trust nor SSgA FM makes any representations or warranties to the owners of the PLUS or any member of the public regarding the advisability of investing in the PLUS. Neither the Select Sector Trust nor SSgA FM has any obligation or liability in connection with the operation, marketing, trading or sale of the PLUS.
The Financial Select Sector Index
We have derived all information contained in this document regarding the Financial Select Sector Index, including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, S&P Dow Jones Indices LLC or BofA Merrill Lynch Research, as index compilation agent (the “Index Compilation Agent”). For further information about the S&P 500® Index, please see “Non-Proprietary Indices—Equity Indices—S&P 500® Index” in the accompanying index supplement.
In July 2012, The McGraw-Hill Companies, Inc. (“McGraw-Hill”), the owner of the S&P Indices business, and CME Group Inc. (“CME Group”), the 90% owner of the CME Group and Dow Jones & Company, Inc. joint venture that owns the Dow Jones Indexes business, formed a new joint venture, S&P Dow Jones Indices LLC, which owns the S&P Indices business and the Dow Jones Indexes business, including the Select Sector Indices.
The constituents included in the Select Sector Indices are selected by the Index Compilation Agent in consultation with S&P Dow Jones Indices LLC from the universe of companies represented by the S&P 500® Index. The composition and weighting of the components included in the Select Sector Indices can be expected to differ from the composition and weighting of components included in any similar S&P 500® sector index that is published and disseminated by S&P Dow Jones Indices LLC. S&P Dow Jones Indices LLC acts as the index calculation agent in connection with the calculation and dissemination of the Select Sector Indices. S&P Dow Jones Indices LLC’s only relationship to the Index Compilation Agent is the licensing of certain trademarks and trade names of S&P and of the S&P 500® Index which is determined, composed and calculated by S&P Dow Jones Indices LLC without regard to the Index Compilation Agent.
The Financial Select Sector Index is a modified market capitalization-based index, intended to provide an indication of the pattern of common stock price movements of companies that are components of the S&P 500® Index and are involved in the financial services sector. Companies in the Financial Select Sector Index include a wide array of diversified financial services firms whose business lines
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range from investment management to commercial and business banking. The Financial Select Sector Index is one of the nine Select Sector sub-indices of the S&P 500® Index, each of which we refer to as a “Select Sector Index.”
Construction and Maintenance
The Select Sector Indices are developed, maintained and calculated in accordance with the following criteria:
| · | Each of the component stocks in the Select Sector Indices (the “Component Stocks”) is a constituent company of the S&P 500® Index. |
| · | Each stock in the S&P 500® Index is allocated to one and only one of the Select Sector Indices. |
| · | The Index Compilation Agent assigns each constituent stock of the S&P 500® Index to a Select Sector Index. The Index Compilation Agent, after consultation with S&P Dow Jones Indices LLC, assigns a particular company’s stock to a Select Sector Index based on that company’s classification under the Global Industry Classification Standard (GICS). |
| · | The Select Sector Indices are calculated using the same methodology utilized by S&P Dow Jones Indices LLC in calculating the S&P 500® Index. See “Non-Proprietary Indices—Equity Indices—S&P 500® Index” in the accompanying index supplement. The daily calculation of a Select Sector Index is computed by dividing the total market value of the companies in that Select Sector Index by a number called the index divisor. |
| · | The Select Sector Indices are calculated by S&P Dow Jones Indices LLC using a modified “market capitalization” methodology subject to a capping methodology that implements Internal Revenue Code diversification requirements that are applicable to exchange-traded funds. For reweighting purposes, the Select Sector Indices are rebalanced quarterly after the close of business on the second to last calculation day of March, June, September and December using the following procedures: |
| 1. | The rebalancing reference date is two business days prior to the last calculation day of March, June, September and December. |
| 2. | With prices reflected on the rebalancing reference date, and membership, shares outstanding, and other metrics as of the rebalancing effective date, each company is weighted using the modified market capitalization methodology. Modifications are made as described below. |
| 3. | The Select Sector Indices are first evaluated based on their companies’ modified market capitalization weights to ensure none of the Select Sector Indices breach the maximum allowable limits defined in paragraphs 4 and 7 below. If a Select Sector Index breaches any of the allowable limits, the companies are reweighted based on their float-adjusted market capitalization weights calculated using the prices as of the rebalancing reference date, and membership, shares outstanding and other metrics as of the rebalancing effective date. |
| 4. | If any company has a weight greater than 24%, that company has its float-adjusted market capitalization weight capped at 23%. The cap is set to 23% to allow for a 2% buffer. This buffer is needed to ensure that no company exceeds 25% as of the quarter end diversification requirement date. |
| 5. | All excess weight is equally redistributed to all uncapped companies within the relevant Select Sector Capped Index. |
| 6. | After this redistribution, if the float-adjusted market capitalization weight of any other company then breaches 23%, the process is repeated iteratively until no company breaches the 23% weight cap. |
| 7. | The sum of the companies with weight greater than 4.8% cannot exceed 50% of the total index weight. These caps are set to allow for a buffer below the 5% limit. |
| 8. | If the rule in paragraph 7 is breached, all the companies are ranked in descending order of their float-adjusted market capitalization weights and the first stock that causes the 50% limit to be breached is identified. The weight of this company is, then, reduced to 4.6%. |
| 9. | This excess weight is equally redistributed to all companies with weights below 4.6%. This process is repeated iteratively until paragraph 7 is satisfied. |
| 10. | Index share amounts are assigned to each constituent to arrive at the weights calculated above. Since index shares are assigned based on prices one business day prior to rebalancing, the actual weight of each constituent at the rebalancing differs somewhat from these weights due to market movements. |
If necessary, the reweighting process may take place more than once prior to the close on the last business day of March, June, September or December to ensure the Select Sector Indices conform to all diversification requirements.
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