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Preliminary Pricing Supplement
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Filed Pursuant to Rule 424(b)(2)
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(To the Prospectus dated August 31, 2010, and
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Registration No. 333-169119
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the Prospectus Supplement dated May 27, 2011)
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The information in this preliminary pricing supplement is not complete and may be changed. This
preliminary pricing supplement and the accompanying prospectus and prospectus supplement do not constitute an offer to sell these securities, and we are not soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
Subject to completion
Preliminary Pricing Supplement dated June 6, 2013
B
ARCLAYS
B
ANK
PLC
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Barclays Reverse Convertible Notes
SM
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All Asset Classes and Structures Under One Roof
SM
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Terms used in this preliminary pricing supplement are described or defined in the prospectus supplement. The reverse
convertible notes (the Notes) offered will have the terms described in the prospectus supplement and the prospectus, as supplemented by this preliminary pricing supplement.
THE NOTES DO NOT GUARANTEE ANY RETURN OF PRINCIPAL AT
MATURITY.
The reference asset below is in the form of a linked share and represents the Note offering. The purchaser of a Note will
acquire a security linked to a single linked share. The following terms relate to the Note offering:
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Issuer
: Barclays Bank PLC
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Issue date
: June 11, 2013
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Initial valuation date
: June 6, 2013
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Final valuation date
: December 6, 2013 (subject to postponement in the event of a Market Disruption Event)
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Maturity date
: December 11, 2013 (subject to postponement in the event of a Market Disruption Event)
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Initial price
: $29.93, the closing price of the linked share on June 5, 2013.
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Final price
: The closing price of the linked share on the final valuation date
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Protection price
: $23.94, the protection level multiplied by the initial price, rounded to the nearest cent as appropriate
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Interest payment dates
: Paid monthly in arrears on the same day of the month as the issue date and calculated on a 30/360 basis, commencing on
the month following the issue date.
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Public Offering Price
: 100%
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Tax allocation of coupon rate:
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Deposit income*
: TBD
Put premium
: The coupon rate minus the
deposit income.
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Linked Share
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Initial Price
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Page Number
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Ticker Symbol*
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Coupon Rate**
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Protection
Level
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Note Issuance#
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CUSIP/ISIN
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Shares of the Market Vectors
®
Gold Miners ETF (the ETF)
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$
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29.93
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PPS-9
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GDX UP <Equity>
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11.40
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%
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80.00
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%
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E-7977
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06741J2S7 / US06741J2S76
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*
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The closing price of the linked share on any day will be the official closing price per share reported on the applicable Bloomberg Professional
®
service page noted in the table above, subject to adjustment as described under Reference
AssetsExchange-Traded FundsMarket 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 in the prospectus
supplement.
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Any payment due on
the Notes is subject to the creditworthiness of the Issuer and is not guaranteed by any third party.
The Notes will not be listed
on any U.S. securities exchange or quotation system. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined that this preliminary pricing supplement is
truthful or complete. Any representation to the contrary is a criminal offense.
We may use this pricing supplement in the initial
sale of Notes. In addition, Barclays Capital Inc. or another of our affiliates may use this pricing supplement in market resale transactions in any Notes after their initial sale.
Unless we or our agent informs you otherwise in the
confirmation of sale, this pricing supplement is being used in a market resale transaction.
The Notes constitute our
direct, unconditional, 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.
Investing in the Notes involves a number of risks. See Risk Factors beginning on
page S-6 of the prospectus supplement and
Risk Factors
beginning on page PS-3 of this preliminary pricing supplement.
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Initial Issue Price
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Price to Public
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Agents Commission*
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Proceeds to Barclays
Bank PLC
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Per Note
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$1,000
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100%
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2.50%
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97.50%
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Total
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$TBD
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$TBD
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$TBD
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$TBD
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*
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Barclays Capital Inc. will receive commissions from the Issuer equal to 2.50% of the principal amount of the Notes, or $25.00 per $1,000 principal amount, and may
retain all or a portion of these commissions or use all or a portion of these commissions to pay selling concessions or fees to other dealers.
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Our estimated value of the Notes on the initial valuation date, based on our internal pricing models, is expected to be between $933.00 and $961.50 per Note. The estimated value is expected to be less
than the initial issue price of the Notes. See Additional Information Regarding Our Estimated Value of the Notes on the following page of this preliminary pricing supplement.
GENERAL TERMS FOR THE NOTES OFFERING
This preliminary pricing supplement relates to a Note offering, linked to a linked share. The purchaser of a Note will acquire a security linked to
the single individual linked share identified on the cover page.
Although the Note offering relates to the individual linked share identified on the cover page, you should not construe that fact as a recommendation as to the merits of acquiring
an investment linked to the linked share or as to the suitability of an investment in the Notes.
You should read this document together with
the prospectus and prospectus supplement. You should carefully consider, among other things, the matters set forth in Risk Factors in the prospectus supplement, as the Notes involve risks not associated with conventional debt securities.
We urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the Notes. The prospectus and prospectus supplement may be accessed on the SEC website at www.sec.gov as follows:
Prospectus dated August
31, 2010:
http://www.sec.gov/Archives/edgar/data/312070/000119312510201448/df3asr.htm
Prospectus Supplement dated May 27, 2011:
http://www.sec.gov/Archives/edgar/data/312070/000119312511152766/d424b3.htm
ADDITIONAL INFORMATION REGARDING OUR ESTIMATED VALUE OF THE NOTES
The final terms for the Notes will be determined on the date the Notes are initially priced for sale to the public, which we refer to as the Initial Valuation Date, based on prevailing market conditions
on the Initial Valuation Date, and will be communicated to investors either orally or in a final pricing supplement.
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 Initial Valuation Date is based on our internal funding rates. Our estimated
value of the Notes may 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 notes on the Initial Valuation Date is expected to be less than the initial issue price of the Notes. The difference between the initial issue price of the Notes and our
estimated value of the Notes 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 Notes, the estimated cost which we may incur in hedging our obligations under the Notes, and
estimated development and other costs which we may incur in connection with the Notes.
Our estimated value on the Initial Valuation Date is
not a prediction of the price at which the Notes may trade in the secondary market, nor will it be the price at which Barclays Capital Inc. may buy or sell the Notes 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 Notes in the secondary market but it is not obligated to do so.
Assuming that all relevant factors remain constant after the Initial Valuation Date, the price at which Barclays Capital Inc. may initially buy or sell
the Notes 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 Initial Valuation Date for a temporary
period expected to be approximately 3 months after the initial issue date of the Notes because, in our discretion, we may elect to effectively reimburse to investors a portion of the estimated cost of hedging our obligations under the Notes and
other costs in connection with the Notes which we will no longer expect to incur over the term of the Notes. We made such discretionary election and determined this temporary reimbursement period on the basis of a number of factors, including the
tenor of the Notes and any agreement we may have with the distributors of the Notes. The amount of our estimated costs which 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 revise the duration of the reimbursement period after the initial issue date of the Notes based on changes in market conditions and other factors that cannot be predicted.
PPS-2
We urge you to read the Risk Factors section set forth below.
You may revoke your offer to purchase the Notes at any time prior to the Initial Valuation Date. We reserve the right to change the terms of, or reject
any offer to purchase, the Notes prior to their Initial Valuation Date. In the event of any changes to the terms of the Notes, 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.
RISK FACTORS
We urge you to read the section Risk Factors beginning on page S-6 of the prospectus supplement as the following
highlights some, but not all, of the risk considerations relevant to investing in the Notes. In particular we urge you to read the risk factors discussed under the following headings:
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Risk FactorsRisks Relating to All Securities;
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Risk FactorsAdditional 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;
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Risk FactorsAdditional Risks Relating to Notes Which Are Not Characterized as Being Fully Principal Protected or Are Characterized as Being
Partially Protected or Contingently Protected; and
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Risk FactorsAdditional Risks Relating to Securities with a Barrier Percentage or a Barrier Level.
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Credit of IssuerThe Notes are senior unsecured 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 Notes depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. In the event Barclays Bank PLC were to default on its obligations, you may not receive any
amounts owed to you under the terms of the Notes.
Suitability of Notes for InvestmentYou should reach a decision to invest in the Notes
after carefully considering, with your advisors, the suitability of the Notes in light of your investment objectives and the specific information set out in this preliminary pricing supplement, the applicable pricing supplement, the prospectus
supplement and the prospectus. Neither the Issuer nor any dealer participating in the offering makes any recommendation as to the suitability of the Notes for investment.
No Principal ProtectionThe principal amount of your investment is not protected and you may receive less, and possibly significantly less, than the amount you invest.
Single Equity RiskThe price of the linked share can rise or fall sharply due to factors specific to the linked share, such as stock price
volatility, industry and regulatory developments, investment management changes and decisions and other events, as well as general market factors, such as general stock market volatility and levels, interest rates and economic and political
conditions. We urge you to review financial and other information filed periodically with the SEC by the issuer of the linked share.
Certain
Features of Exchange-Traded Funds Will Impact the Value of the Notes:
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Management risk. This is the risk that the respective investment strategies for the ETF, the implementation of which is subject to a number of
constraints, may not produce the intended results. An investment in the ETF involves risks similar to those of investing in any fund traded on an exchange, such as market fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. However, because the ETF is not actively managed, it generally does not take defensive positions in declining markets. Therefore, the performance of the ETF could be
lower than other types of mutual funds that may actively shift their portfolio assets to take advantage of market opportunities or to lessen the impact of a market decline.
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Derivatives risk
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The ETF may invest in futures contracts, options on futures contracts, other types of options and swaps and other derivatives.
A derivative is a financial contract, the value of which depends on, or is derived from, the value of an underlying asset. Compared to conventional securities, derivatives can be more sensitive to changes in interest rates or to sudden fluctuations
in market prices, and thus the ETFs losses, and, as a consequence, the losses of your Notes, may be greater than if the ETF invested only in conventional securities.
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PPS-3
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The ETF May Underperform its Underlying IndexThe performance of the ETF may not replicate the performance of, and may underperform, the NYSE ARCA
Gold Miners Index, its underlying index. The ETF will reflect transaction costs and fees that will reduce its relative performances. Moreover, it is also possible that the ETF may not fully replicate or may, in certain circumstances, diverge
significantly from the performance of its underlying index. Because the return on your Notes is linked to the performance of the ETF and not the underlying index, the return on your Notes may be less than that of an alternative investment linked
directly to the underlying index of the ETF or the stocks comprising the underlying index.
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Liquidity RiskAlthough the ETF is listed for trading on NYSE Arca, Inc. (the NYSE Arca) and a number of similar products have been
traded on the NYSE Arca or other securities exchanges for varying period of time, there is no assurance that an active trading market will continue for the linked share or that there will be liquidity in the trading market.
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Return Limited to CouponYour return is limited to the coupon payments. You will not participate in any appreciation
in the price of the linked share.
Lack of LiquidityThe Notes will not be listed on any securities exchange. Barclays Capital Inc. and
other affiliates of Barclays Bank PLC intend to make a secondary market for the Notes but are not required to do so, and may discontinue any such secondary market making at any time, without notice. Barclays Capital Inc. may at any time hold unsold
inventory, which may inhibit the development of a secondary market for the Notes. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the Notes easily. Because other dealers are not likely to make a
secondary market for the Notes, the price at which you may be able to trade your Notes is likely to depend on the price, if any, at which Barclays Capital Inc. and other affiliates of Barclays Bank PLC are willing to buy the Notes. The Notes are not
designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your Notes to maturity.
No Dividend
Payments or Voting RightsAs a holder of the Notes, you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of the linked share would have.
Market Disruption Events and AdjustmentsThe calculation agent may adjust any variable described in this preliminary pricing supplement, including
but not limited to the final valuation date, the initial price, the final price, the protection level, the protection price, the physical delivery amount and any combination thereof as described in the following sections of the accompanying
prospectus supplement.
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For a description of what constitutes a market disruption event and the consequences thereof, see Reference AssetsExchange-Traded
FundsMarket 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
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For a description of further adjustments that may affect the linked share, see Reference AssetsExchange-Traded FundsAdjustments
Relating to Securities with the Reference Asset Comprised of an Exchange-Traded Fund or Exchange-Traded Funds.
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TaxesWe intend to treat each Note as a put option written by you in respect of the reference asset and a deposit with us of cash in an amount equal
to the principal amount of the Note to secure your potential obligation under the put option. Pursuant to the terms of the Notes, you agree to treat the Notes in accordance with this characterization for all U.S. federal income tax purposes.
However, because there are no regulations, published rulings or judicial decisions addressing the characterization for U.S. federal income tax purposes of securities with terms that are substantially the same as those of the Notes, other
characterizations and treatments are possible. See Certain U.S. Federal Income Tax Considerations below.
The Estimated Value of
Your Notes Might be Lower if such Estimated Value Were Based on the Levels at Which Our Debt Securities Trade in the Secondary marketThe estimated value of your Notes on the Initial Valuation 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 may be lower if such
estimated values were based on the levels at which our benchmark debt securities trade in the secondary market.
PPS-4
The Estimated Value of Your Notes is Expected to be Lower Than the Initial Issue Price of Your
NotesThe estimated value of your Notes on the Initial Valuation Date is expected to be lower, and may be significantly lower, than the initial issue price of your Notes. The difference between the initial issue price of your Notes and the
estimated value of the Notes 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 Notes, the estimated cost which we may incur in hedging our obligations under the Notes, and
estimated development and other costs which we may incur in connection with the Notes.
The Estimated Value of Your Notes is Based on Our
Internal Pricing Models, Which May Prove to be Inaccurate and May be Different from the Pricing Models of Other Financial InstitutionsThe estimated value of your Notes on the Initial Valuation 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 Notes may not be consistent with those of other financial institutions which may be purchasers or sellers of Notes
in the secondary market. As a result, the secondary market price of your Notes may be materially different from the estimated value of the Notes determined by reference to our internal pricing models.
The Estimated Value of Your Notes is Not a Prediction of the Prices at Which You May Sell Your Notes in the Secondary Market, if any, and such Secondary
Market Prices, if Any, Will Likely be Lower than the Initial Issue Price of Your Notes and may be Lower than the Estimated Value of Your NotesThe estimated value of the Notes 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 Notes 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
Notes 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 our estimated value of the
Notes. Further, as secondary market prices of your Notes 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 Notes such as fees, commissions,
discounts, and the costs of hedging our obligations under the Notes, secondary market prices of your Notes will likely be lower than the initial issue price of your Notes. As a result, the price, at which Barclays Capital Inc., other affiliates of
ours or third parties may be willing to purchase the Notes from you in secondary market transactions, if any, will likely be lower than the price you paid for your Notes, 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 Notes 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 NotesAssuming that all relevant factors remain constant after the Initial Valuation Date, the price at which Barclays
Capital Inc. may initially buy or sell the Notes in the secondary market (if Barclays Capital Inc. makes a market in the Notes, 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 Notes on the Initial Valuation Date, as well as the secondary market value of the Notes, for a temporary period after the initial issue date of the Notes. The price at
which Barclays Capital Inc. may initially buy or sell the Notes 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 Notes.
We and Our Affiliates May Engage in Various Activities or Make Determinations That Could Materially Affect Your Notes in Various Ways and Create
Conflicts of InterestWe and our affiliates establish the offering price of the Notes 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 Notes, could present it with significant conflicts of interest with the role of Barclays Bank PLC, as issuer of the Notes. For example, Barclays Capital Inc. or its representatives may derive compensation or
financial benefit from the distribution of the Notes and such compensation or financial benefit may serve as an incentive to sell these Notes instead of other investments. We may pay dealer compensation to any of our affiliates acting as
PPS-5
agents or dealers in connection with the distribution of the Notes. 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 Notes. Such market making, trading activities, other investment banking and financial services may negatively impact the value of the Notes.
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 Notes. We and our
affiliates have no obligation to take the needs of any buyer, seller or holder of the Notes into account in conducting these activities.
SUMMARY
Principal Payment at Maturity
A $1,000 investment in the Notes will pay $1,000 at maturity unless: (a) the final price of the linked share is lower than the initial price of the
linked share; and (b) between the initial valuation date and the final valuation date, inclusive, the closing price of the linked share on any day is below the protection price.
If the conditions described in (a) and (b) are both true, at maturity you will receive, at our election, instead of the full principal amount of your Notes, either (i) the physical delivery
amount (fractional shares to be paid in cash in an amount equal to the fractional shares multiplied by the final price), or (ii) a cash amount equal to the principal amount of your Notes reduced by the percentage decrease in the price of the
linked share from the initial price to the final price.
If you receive shares of the linked share in lieu of the principal amount of your
Notes at maturity, the value of your investment will approximately equal the market value of the shares of the linked share you receive, which could be substantially less than the value of your original investment.
You may lose some or all of
your principal if you invest in the Notes
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Interest
The Notes will bear interest, if any, from the issue date specified in the applicable pricing supplement at the coupon rate specified on the front cover
of this preliminary pricing supplement. The interest paid, if any, will include interest accrued from the issue date or the prior interest payment date, as the case may be, to, but excluding, the relevant interest payment date or maturity date. No
interest will accrue and be payable on your Notes after the maturity date specified on the front cover if such maturity date is extended or if the final valuation date is extended. A business day is any day that is a Monday, Tuesday,
Wednesday, Thursday or Friday that is not a day on which the banking institutions in New York City or London, generally, are authorized or obligated by law, regulation or executive order to close. See generally Interest Mechanics in the
prospectus supplement.
Physical Delivery Amount
The physical delivery amount will be calculated by the calculation agent by dividing the principal amount of your Notes by the initial price of the linked share. The physical delivery amount, the initial
price of the linked share and other amounts may change due to stock splits or other corporate actions. See Reference AssetsExchange-Traded FundsAdjustments Relating to Securities with the Reference Asset Comprised of an
Exchange-Traded Fund or Exchange-Traded Funds in the accompanying prospectus supplement.
CERTAIN U.S. FEDERAL INCOME
TAX CONSIDERATIONS
You should carefully consider, among other things, the matters set forth under the heading Certain U.S. Federal
Income Tax Considerations in the prospectus supplement. The following discussion summarizes certain of the material U.S. federal income tax consequences of the purchase, beneficial ownership, and disposition of Notes.
In the opinion of our counsel, Cadwalader, Wickersham & Taft LLP, it would be reasonable to treat your Notes as described below. However, the
U.S. federal income tax treatment of the Notes is uncertain. We do not plan to request a ruling from the Internal Revenue Service (the IRS) regarding the tax treatment of the Notes, and the IRS or a court may not agree with the tax
treatment described in this pricing supplement. We urge you to consult with your tax advisor as to the tax consequences of your investment in the Notes.
PPS-6
U.S. Holders
There are no statutory provisions, regulations, published rulings or judicial decisions addressing the characterization for U.S. federal income tax purposes of securities with terms that are substantially
the same as those of the Notes. Under one reasonable approach, each Note should be treated as a put option written by you (the Put Option) that permits us to (1) sell the reference asset to you at maturity for an amount equal to the
Deposit (as defined below), plus any accrued and unpaid interest, acquisition discount and/or original issue discount on the Deposit, or (2) cash settle the Put Option (i.e., require you to pay to us at maturity the difference
between the Deposit (plus any accrued and unpaid interest, acquisition discount, and/or original issue discount on the Deposit) and the value of the reference asset at such time), and a deposit with us of cash in an amount equal to the issue
price or purchase price of your Note (the Deposit) to secure your potential obligation under the Put Option. We intend to treat the Notes consistent with this approach. However, other reasonable approaches are possible. Pursuant to
the terms of the Notes, you agree to treat the Notes as cash deposits and put options with respect to the reference asset for all U.S. federal income tax purposes. Because the term of the Notes is not more than one year, we intend to treat the
Deposits as short-term debt instruments for U.S. federal income tax purposes. Please see the discussion under the heading Certain U.S. Federal Income Tax ConsiderationsU.S. Federal Income Tax Treatment of the Notes as
Indebtedness for U.S. Federal Income Tax PurposesShort-Term Obligations in the accompanying prospectus supplement for certain U.S. federal income tax considerations applicable to short-term obligations.
On the cover page we have determined the yield on the Deposit and the Put Premium with respect to each Note, which are treated as described in the
section of the accompanying prospectus supplement called Certain U.S. Federal Income Tax ConsiderationsCertain Notes Treated as Deposits and Put Options. If the IRS were successful in asserting an alternative characterization for
the Notes, the timing and character of income on the Notes might differ.
On December 7, 2007, the IRS released a notice that may affect
the taxation of U.S. holders of certain notes (which may include the Notes). According to the notice, the IRS and the Treasury Department are actively considering whether a U.S. holder of such notes should be required to accrue ordinary income on a
current basis, and they are seeking comments on the subject. It is not possible to determine what guidance they will ultimately issue, if any.
It is possible, however, that under such guidance, U.S. holders of such notes will ultimately be required to accrue income currently and this could be
applied on a retroactive basis. The IRS and the Treasury Department are also considering other relevant issues, including whether gain or loss from such instruments should be treated as ordinary or capital and whether the special constructive
ownership rules of Section 1260 of the Internal Revenue Code (which are discussed further in the prospectus supplement) might be applied to such instruments. It is unclear whether any regulations or other guidance would apply to the Notes
(possibly on a retroactive basis). Prospective investors are urged to consult their tax advisors regarding the notice and the possible effect to them of the issuance of regulations or other guidance that affects the U.S. federal income tax treatment
of the Notes.
U.S. holders who are individuals (and, to the extent provided in future regulations, entities) may be required to disclose
information about their Notes on IRS Form 8938Statement of Specified Foreign Financial Assets if the aggregate value of their Notes and their other specified foreign financial assets exceeds $50,000. Significant
penalties can apply if a U.S. holder fails to disclose its specified foreign financial assets. We urge you to consult your tax advisor with respect to this and other reporting obligations with respect to your Notes.
U.S. holders that are individuals, estates and certain trusts are subject to an additional 3.8% Medicare tax on all or a portion of their
net investment income, which may include the coupon payments and any gain realized with respect to the Notes, to the extent of their net investment income that, when added to their other modified adjusted gross income, exceeds $200,000
for an unmarried individual, $250,000 for a married taxpayer filing a joint return (or a surviving spouse), or $125,000 for a married individual filing a separate return. U.S. holders should consult their advisors with respect to the 3.8% Medicare
tax.
Non-U.S. Holders
We
currently do not withhold for tax on coupon payments made to non-U.S. holders of the Notes. However, if we determine that there is a material risk that we will be required to withhold on any such payments, we may withhold on such payments at a 30%
rate, or require an appropriate and valid IRS Form W-8 from non-U.S. holders to avoid withholding for tax.
Non-U.S. holders also are subject
to the general rules regarding information reporting and backup withholding described under the heading Certain U.S. Federal Income Tax ConsiderationsInformation Reporting and Backup Withholding in the accompanying prospectus.
PPS-7
LINKED SHARE INFORMATION
We urge you to read the following section in the accompanying prospectus supplement: Reference AssetsEquity-Traded FundsReference Asset Investment Company and Reference Asset
Information. Investment Companies with securities registered under the Securities Act of 1933, as amended, which is commonly referred to as the Securities Act, and the Investment Company Act of 1940, as amended, which is commonly
referred to as the 40 Act, are required to periodically file certain financial and other information specified by the SEC. Information provided to or filed with the SEC electronically can be accessed through a website maintained by
the SEC. The address of the SECs website is http://www.sec.gov. Information provided to or filed with the SEC pursuant to the Securities Act or the 40 Act by the adviser to the ETF can be located by reference to the SEC file number
specified below.
We have derived all information contained in this preliminary pricing supplement regarding the ETF, including, without
limitation, its make-up, method of calculation and changes in its components, from the ETFs prospectus, dated May 1, 2013, and other publicly available information. Such information reflects the policies of, and is subject to change by,
Van Eck Associates Corporation (Van Eck), the adviser to the ETF.
The summary information contained below is not designed to be,
and should not be interpreted as, an effort to present information regarding the financial prospects of any fund or any trends, events or other factors that may have a positive or negative influence on those prospects or as an endorsement of any
particular fund.
Description of Hypothetical Examples
The Table of Hypothetical Values at Maturity below, based on the assumptions outlined for the linked share, demonstrates the return that you would have earned from (i) an investment in the Notes
compared to (ii) a direct investment in the linked share, based on certain percentage changes between the initial price and final price of the linked share (prior to the deduction of any applicable brokerage fees or charges).
In the Table of Hypothetical Values at Maturity some amounts are rounded and actual returns may be different. The following is a general description of
how the hypothetical values in the table were determined.
On the final valuation date, the final price of the linked share is determined.
If the final price of the linked share is at or above its initial price, you will receive a payment at maturity of $1,000, regardless of
whether the protection price was ever reached or breached during the term of the Notes.
If the final price of the linked share is below its
initial price but the closing price of the linked share never fell below the protection price during the term of the Notes, you will receive a payment at maturity of $1,000.
If the final price of the linked share is below its initial price and the closing price of the linked share fell below the protection price during the term of the Notes, you will receive, at our election,
either (a) a number of shares equal to the physical delivery amount, plus a cash amount equal to the fractional shares multiplied by the final price or (b) the cash amount equal to the principal amount of your Notes reduced by the
percentage decrease in the price of the linked share from the initial price to the final price.
In any case, you would also have received the
applicable interest payments during the term of the Notes. Since the reinvestment rate for each coupon payment is assumed to be 0.00%, assuming no change in the price of the linked share from the initial price to the final price, if the coupon yield
on the Notes exceeds the dividend yield on the linked share, the total return on the Notes would be higher relative to the total return of an investment in the linked share (subject to any differences attributable to potentially different tax
consequences arising from investing in the Notes as opposed to investing directly in the linked share).
If you had invested directly in the
linked share for the same period, you would have received total cash payments representing the number of shares of the linked share you could have purchased with your $1,000 investment on the initial valuation date (assuming you could invest in
fractional shares) multiplied by the final price of the linked share. In addition, investors will realize a payment in respect of dividends which will equal the dividend yield multiplied by the $1,000 investment. Investors should realize that for
purposes of these calculations the dividend yield is calculated as of the initial valuation date and is held constant regardless of the final price of the linked share.
Since the reinvestment rate for any dividend payment is assumed to be 0.00%, assuming no change in the price of the linked share from the initial price to the final price, if the coupon yield on the Notes
was less than
PPS-8
the dividend yield on the linked share, the total return on the Notes would be lower relative to the total return of an investment in the linked share (subject to any differences attributable to
potentially different tax consequences arising from investing in the Notes as opposed to investing directly in the linked share).
In each
instance, the percentage gain or loss from an investment in the Notes and a direct investment in the linked share is set forth below in the Table of Hypothetical Values at Maturity.
SUPPLEMENTAL PLAN OF DISTRIBUTION
We will agree to sell to Barclays Capital Inc. (the
Agent
), and the Agent will agree to purchase from us, the principal amount of the Notes, and at the price, specified on the cover of
the related pricing supplement, the document that will be filed pursuant to Rule 424(b) containing the final pricing terms of the Notes. The Agent will commit to take and pay for all of the Notes, if any are taken.
PPS-9
Market Vectors
®
Gold Miners ETF
Market Vectors
®
ETF Trust (the Trust) is a registered investment company that consists of numerous separate investment
portfolios, including the ETF. Information provided to or filed with the SEC by the 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 number
333-123257 or CIK number 0001137360. In addition, information about the Trust and the ETF may be obtained from other sources, including, but not limited to, press releases, newspaper articles and other publicly disseminated documents and Van
Ecks website at www.vaneck.com.
We have not undertaken any independent review or due diligence of the SEC filings related to the ETF,
any information contained on Van Ecks website, or of any other publicly available information about the ETF. Information contained in outside sources is not incorporated by reference in, and should not be considered a part of, this preliminary
pricing supplement.
Investment Objective and Strategy of the ETF
The Market Vectors
®
Gold Miners ETF (the ETF) is an exchange-traded fund that seeks to replicate as closely as possible, before fees and expenses, the price and yield
performance of the NYSE Arca Gold Minders Index (the ETF Underyling Index), which includes the common stocks and American Depositary Receipts (ADRs) of companies involved in the gold mining industry. For more information
about the ETF Underyling Index, see ETF Underlying Index below.
The ETF uses a passive or indexing investment
approach where it attempts to approximate the investment performance of the ETF Underyling Index by investing in a portfolio of securities that generally replicates the ETF Underyling Index. The ETF normally invests at least 80% of its total assets
in securities that comprise the ETF Underyling Index. The ETF may also utilize convertible securities and participation notes to seek performance that corresponds to the ETF Underyling Index.
Correlation
The ETF Underyling Index is a theoretical financial calculation while the ETF
is an actual investment portfolio. The performance of the ETF and the ETF Underyling Index may vary due to transaction costs, non-U.S. currency valuation, asset valuations, corporate actions (such as mergers and spin-offs), timing variances and
differences between the ETFs portfolio and the ETF Underyling Index resulting from legal restrictions (such as diversification requirements) that apply to the ETF but not to the ETF Underyling Index or to the use of passive indexing.
Tracking error is the difference between the performance (return) of the ETFs portfolio and that of the ETF Underyling Index. Van Eck expects that, over time, the correlation between the ETFs portfolio and that of the ETF
Underyling Index before fees and expenses will be 95% or better.
Industry Concentration Policy
The ETF may concentrate its investments in a particular industry or group of industries to the extent that the ETF Underyling Index concentrates on an
industry or group of industries.
Holdings Information
The holding information for the ETF is updated on a daily basis. As of June 4, 2013, the ETFs top ten holdings by weight were the stocks of Goldcorp Inc. (12.03%), Barrick Gold Corporation
(10.57%), Newmont Mining Corp. (8.60%), Randgold Resources Limited (5.47%), Yamana Gold Inc. (5.19%), Kinross Gold Corp. (5.11%), Silver Wheaton Corp. (4.86%), Eldorado Gold Corp. (4.78%), Agnico-Eagle Mines Ltd. (4.68%) and AngloGold Ashanti
Ltd. (4.58%). For more information about the ETFs holdings, please consult the ETFs prospectus and other publicly available information regarding the ETF.
The ETF Underyling Index
All disclosures contained in this preliminary pricing supplement
regarding the ETF Underyling Index, including, without limitation, its make up, method of calculation, and changes in its components, have been derived from publicly available sources. The information reflects the policies of, and is subject to
change by, NYSE Arca, the sponsor of the ETF Underyling Index. NYSE Arca, which owns the copyright and all other rights to the ETF Underyling Index, has no obligation to continue to publish, and may discontinue publication of, the ETF Underyling
Index.
The ETF Underyling Index is a modified market capitalization weighted index comprised of securities issued by publicly traded
companies involved primarily in the mining of gold or silver. The ETF Underyling Index was initially launched and published in October 2004.
PPS-10
Eligibility Criteria for Index Components
The ETF Underyling Index includes common stocks or ADRs of selected companies that are involved in mining for gold and silver and that are listed for trading on the New York Stock Exchange, the NYSE Amex
Stock Exchange or quoted on the NASDAQ Global Market. Only companies with a market capitalization of greater than $100 million that have an average daily trading volume of at least 50,000 shares or ADRs over the past six months are eligible for
inclusion in the ETF Underyling Index. NYSE Arca has the discretion to not include all companies that meet the minimum criteria for inclusion.
Calculation of the ETF Underyling Index
The ETF Underyling Index is calculated by NYSE Arca on a price return basis. The calculation is based on the current modified market capitalization
divided by a divisor. The divisor was determined on the initial capitalization base of the ETF Underyling Index and the base level and may be adjusted as a result of corporate actions and composition changes, as described below. The level of the ETF
Underyling Index was set at 500.00 on December 20, 2002, which is the index base date. The ETF Underyling Index is calculated using the following formula:
Where:
t = day of calculation;
N = number of constituent equities in the ETF Underyling Index;
Qi,t = number of shares of equity
i on day t;
Mi,t = multiplier of equity i;
Ci,t = price of equity i on day t; and
DIV = current index divisor on day t.
Index Maintenance
The ETF Underyling
Index is reviewed quarterly to ensure that at least 90% of the ETF Underyling Index weight is accounted for by index components that continue to meet the initial eligibility requirements. NYSE Arca may at any time and from time to time change the
number of securities comprising the group by adding or deleting one or more securities, or replacing one or more securities contained in the group with one or more substitute securities of its choice, if in NYSE Arcas discretion such addition,
deletion or substitution is necessary or appropriate to maintain the quality and/or character of the ETF Underyling Index. Components will be removed from the ETF Underyling Index during the quarterly review if the market capitalization falls below
$50 million or the traded average daily shares for the previous six months is lower than 25,000 shares.
At the time of the quarterly
rebalance, the component security weights (also referred to as the multiplier or share weight of each component security) will be modified to conform to the following asset diversification requirements:
(1) the weight of any single component security may not account for more than 20% of the total value of the ETF Underyling Index;
(2) the component securities are split into two subgroupslarge and small, which are ranked by market capitalization weight in the ETF Underyling
Index. Large securities are defined as having a starting Index weight greater than or equal to 5%. Small securities are defined as having a starting Index weight below 5%; and
(3) the aggregate weight of those component securities which individually represent more than 4.5% of the total value of the ETF Underyling Index may not account for more than 50% of the total Index
value.
The weights of the components securities (taking into account expected component changes and share adjustments) are modified in
accordance with the ETF Underyling Indexs diversification rules.
Diversification Rule 1: If any component stock exceeds 20% of the
total value of the ETF Underyling Index, then all stocks greater than 20% of the ETF Underyling Index are reduced to represent 20% of the value of the ETF Underyling Index. The aggregate amount by which all component stocks are reduced is
redistributed proportionately across the remaining stocks that represent less than 20% of the ETF Underyling Index value. After this redistribution, if any other stock then exceeds 20%, the stock is set to 20% of the ETF Underyling Index value and
the redistribution is repeated.
Diversification Rule 2: The components are sorted into two groups, large are components with a starting index
weight of 5% or greater and small are those that are under 5% (after any adjustments for Diversification Rule 1). Each group in aggregate will represent 50% of the final index weight. The weight of each of the large stocks will be scaled down
proportionately (with a floor of 5%) so that the aggregate weight of the large components will be reduced to represent 50% of the ETF Underyling Index. If any large component stock falls below a weight equal to the product of 5% and the proportion
by which the stocks were scaled down
PPS-11
following this distribution, then the weight of the stock is set equal to 5% and the components with weights greater than 5% will be reduced proportionately. The weight of each of the small
components will be scaled up proportionately from the redistribution of the large components. If any small component stock exceeds a weight equal to the product of 4.5% and the proportion by which the stocks were scaled down following this
distribution, then the weight of the stock is set equal to 4.5%. The redistribution of weight to the remaining stocks is repeated until the entire amount has been redistributed.
Changes to the ETF Underyling Index composition and/or the component security weights in the ETF Underyling Index are determined and announced prior to taking effect, which typically occurs after the
close of trading on the third Friday of each calendar quarter month in connection with the quarterly Index rebalance. The share weight of each component security in the ETF Underyling Index portfolio remains fixed between quarterly reviews except in
the event of certain types of corporate actions such as stock splits, reverse stock splits, stock dividends, or similar events. The share weights used in the ETF Underyling Index calculation are not typically adjusted for shares issued or
repurchased between quarterly reviews. However, in the event of a merger between two components, the share weight of the surviving entity may be adjusted to account for any stock issued in the acquisition. NYSE Arca may substitute securities or
change the number of securities included in the ETF Underyling Index, based on changing conditions in the industry or in the event of certain types of corporate actions, including mergers, acquisitions, spin-offs, and reorganizations. In the event
of component or share weight changes to the ETF Underyling Index portfolio, the payment of dividends other than ordinary cash dividends, spin-offs, rights offerings, re-capitalization, or other corporate actions affecting a component security of the
ETF Underyling Index, the ETF Underyling Index divisor may be adjusted to ensure that there are no changes to the ETF Underyling Index level as a result of nonmarket forces.
Historical Performance of the Linked Share
The following table sets forth the high
and low intraday prices, as well as end-of-quarter closing prices, during the periods indicated below. We obtained the historical trading price information set forth below from Bloomberg, L.P., without independent verification.
The historical
performance of the linked share should not be taken as an indication of the future performance of the share during the term of the Notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter/Period Ending
|
|
Quarterly
High
|
|
|
Quarterly
Low
|
|
|
Quarterly
Close
|
|
March 31, 2008
|
|
$
|
56.87
|
|
|
$
|
44.88
|
|
|
$
|
47.75
|
|
June 30, 2008
|
|
$
|
51.43
|
|
|
$
|
41.61
|
|
|
$
|
48.52
|
|
September 30, 2008
|
|
$
|
51.83
|
|
|
$
|
27.36
|
|
|
$
|
34.08
|
|
December 31, 2008
|
|
$
|
35.49
|
|
|
$
|
15.83
|
|
|
$
|
33.88
|
|
March 31, 2009
|
|
$
|
38.93
|
|
|
$
|
27.15
|
|
|
$
|
36.88
|
|
June 30, 2009
|
|
$
|
45.10
|
|
|
$
|
30.81
|
|
|
$
|
37.76
|
|
September 30, 2009
|
|
$
|
48.40
|
|
|
$
|
34.05
|
|
|
$
|
45.29
|
|
December 31, 2009
|
|
$
|
55.40
|
|
|
$
|
40.92
|
|
|
$
|
46.21
|
|
March 31, 2010
|
|
$
|
51.16
|
|
|
$
|
39.48
|
|
|
$
|
44.41
|
|
June 30, 2010
|
|
$
|
54.83
|
|
|
$
|
45.36
|
|
|
$
|
51.96
|
|
September 30, 2010
|
|
$
|
56.86
|
|
|
$
|
46.80
|
|
|
$
|
55.93
|
|
December 31, 2010
|
|
$
|
64.62
|
|
|
$
|
53.68
|
|
|
$
|
61.47
|
|
March 31, 2011
|
|
$
|
62.02
|
|
|
$
|
52.46
|
|
|
$
|
60.06
|
|
June 30, 2011
|
|
$
|
64.14
|
|
|
$
|
51.11
|
|
|
$
|
54.59
|
|
September 30, 2011
|
|
$
|
66.97
|
|
|
$
|
53.03
|
|
|
$
|
55.19
|
|
December 31, 2011
|
|
$
|
63.70
|
|
|
$
|
49.22
|
|
|
$
|
51.43
|
|
March 31, 2012
|
|
$
|
57.93
|
|
|
$
|
48.05
|
|
|
$
|
49.57
|
|
June 30, 2012
|
|
$
|
50.76
|
|
|
$
|
39.08
|
|
|
$
|
44.77
|
|
September 30, 2012
|
|
$
|
55.25
|
|
|
$
|
40.41
|
|
|
$
|
53.71
|
|
December 31, 2012
|
|
$
|
54.64
|
|
|
$
|
44.17
|
|
|
$
|
46.39
|
|
March 31, 2013
|
|
$
|
47.52
|
|
|
$
|
35.57
|
|
|
$
|
37.85
|
|
June 4, 2013*
|
|
$
|
37.88
|
|
|
$
|
26.25
|
|
|
$
|
29.76
|
|
*
|
High, low and closing prices are for the period starting April 1, 2013 and ending June 4, 2013.
|
Hypothetical Examples
The
following Table of Hypothetical Values at Maturity demonstrates the hypothetical amount payable at maturity based on the assumptions outlined below. Some amounts are rounded and actual returns may be different. See section Description of
Hypothetical Examples above.
Assumptions:
|
|
Investor purchases $1,000 principal amount of Notes on the initial valuation date at the initial public offering price and holds the Notes to maturity.
|
|
|
No market disruption events, no change in or affecting the ETF, any of the underlier stocks or the policies of the ETFs investment advisor or the
method by which the ETF Underlying Index sponsor calculates the ETF Underlying Index occur during the term of the Notes.
|
Linked share: GDX
Initial price: $29.93
Protection level: 80.00%
Protection
price: $23.94
Physical delivery amount: 33 ($1,000/Initial price)
Fractional shares: 0.411293
Coupon: 11.40% per annum
Maturity: December 11, 2013
Dividend
yield: 1.55% per annum
Coupon amount monthly: $9.50
PPS-12
Table of Hypothetical Values at Maturity
|
|
|
|
|
|
|
|
|
6-Month Total Return
|
Final Price
(% Change)
|
|
Investment in the
Notes
|
|
Direct Investment in
the Linked Shares
|
+ 100%
|
|
5.70%
|
|
100.78%
|
+ 90%
|
|
5.70%
|
|
90.78%
|
+ 80%
|
|
5.70%
|
|
80.78%
|
+ 70%
|
|
5.70%
|
|
70.78%
|
+ 60%
|
|
5.70%
|
|
60.78%
|
+ 50%
|
|
5.70%
|
|
50.78%
|
+ 40%
|
|
5.70%
|
|
40.78%
|
+ 30%
|
|
5.70%
|
|
30.78%
|
+ 20%
|
|
5.70%
|
|
20.78%
|
+ 10%
|
|
5.70%
|
|
10.78%
|
+ 5%
|
|
5.70%
|
|
5.78%
|
|
|
|
|
|
0%
|
|
5.70%
|
|
0.78%
|
|
|
|
|
|
|
|
|
|
|
Protection Price Ever
Breached?
|
|
|
|
|
NO
|
|
YES
|
|
|
- 5%
|
|
5.70%
|
|
0.70%
|
|
-4.22%
|
- 10%
|
|
5.70%
|
|
-4.30%
|
|
-9.22%
|
- 20%
|
|
5.70%
|
|
-14.30%
|
|
-19.22%
|
- 30%
|
|
N/A
|
|
-24.30%
|
|
-29.22%
|
- 40%
|
|
N/A
|
|
-34.30%
|
|
-39.22%
|
- 50%
|
|
N/A
|
|
-44.30%
|
|
-49.22%
|
- 60%
|
|
N/A
|
|
-54.30%
|
|
-59.22%
|
- 70%
|
|
N/A
|
|
-64.30%
|
|
-69.22%
|
- 80%
|
|
N/A
|
|
-74.30%
|
|
-79.22%
|
- 90%
|
|
N/A
|
|
-84.30%
|
|
-89.22%
|
- 100%
|
|
N/A
|
|
-94.30%
|
|
-99.22%
|
PPS-13