PS-2
incur a loss if the value of the assets does not increase sufficiently to cover payment of the interest charges.
In order to seek to replicate a leveraged “long” investment strategy in the Index, the terms of the notes
provide that, on each Exchange Business Day, an amount equal to the closing Indicative Note Value on the
immediately preceding Exchange Business Day (“$x”) is leveraged through a notional loan of an amount equal to
the Financing Level on the immediately preceding Exchange Business Day (“$y”). Investors are thus considered
to have notionally borrowed $y, which, together with the initial $x investment, represents a notional investment of
$x + $y (represented by the Long Index Amount) in the Index on the Exchange Business Day. During the term of
the notes, the leveraged portion of the notional investment, $y (represented by the Financing Level), accrues a
Daily Financing Charge for the benefit of the Issuer, the cumulative effect of which is reflected, together with the
applicable Daily Investor Fee, in the applicable Financing Level. The Daily Financing Charge seeks to represent
the amount of interest, calculated by reference to the applicable Financing Rate, that leveraged investors might
incur if they sought to borrow funds at a similar rate from a third party lender. A portion of the Financing Level
also reflects the incremental cost attributable to the Daily Investor Fee. Upon maturity, call or redemption, the
investment in the Index is notionally sold at the then current value of the Index, and the investor then notionally
repays the Issuer an amount equal to the principal of the notional loan plus accrued interest and investor fees. The
payment at maturity, call or redemption under the notes, therefore, generally represents the profit or loss that the
investor would receive by applying a leveraged “long” investment strategy, after taking into account, and making
assumptions for, the accrued financing charges that are commonly present in such leveraged “long” investment
strategies, as well as applicable investor fees.
The notes provide a daily long leveraged exposure to the performance of the Index. The return on the notes is
three times leveraged. Because the return is leveraged, if the Index level increases on any day the notes will
increase by three times the daily return of the Index (before taking into account the Daily Investor Fee, the Daily
Financing charge and any Redemption Fee Amount). However, any decrease in the level of the Index will result in
a significantly greater decrease in the Cash Settlement Amount, Call Settlement Amount or Redemption Amount,
as applicable (before taking into account any the Daily Investor Fee, the Daily Financing Charge and any
Redemption Fee Amount), and you may receive less than your original investment in the notes at maturity, call or
upon redemption, or if you sell your notes in the secondary market. Moreover, because the Daily Investor Fee, the
Daily Financing Charge and any Redemption Fee Amount may substantially reduce the amount of your return at
maturity, call or upon redemption, or if you sell your notes, the level of the Index must increase significantly in
order for you to receive at least the principal amount of your investment at maturity, call or upon redemption. If
the level of the Index decreases or does not increase sufficiently to offset the cumulative negative effect of the
Daily Investor Fee, the Daily Financing Charge and any Redemption Fee Amount, you will receive less than the
principal amount of your investment at maturity, call or upon redemption, or if you sell your notes.
The returns on the notes are path dependent. The notes are designed to reflect a leveraged exposure to
the performance of the Index on a daily basis; their returns over different periods of time can, and most
likely will, differ significantly from three times the performance of the Index over such other periods of
time. The notes are very sensitive to changes in the level of the Index, and returns on the notes may be
negatively affected in complex ways by the volatility of the Index on a daily or intraday basis. Also, the
Index is potentially volatile as it includes only a small number of constituents (10, as of the date of this
pricing supplement); any Index volatility would be magnified by the leverage. Accordingly, the notes
should be purchased only by knowledgeable investors who understand the potential consequences of
investing in the Index and of seeking daily compounding leveraged investment results. The notes are not
intended to be “buy and hold” investments. The notes are intended to be daily trading tools for
sophisticated investors, and are not intended to be held to maturity. It is possible that you will suffer
significant losses in the notes even if the long-term performance of the Index is flat or positive (before
taking into account the negative effect of the Daily Investor Fee and the Daily Financing Charge, and the
Redemption Fee Amount, if applicable). Investors should actively and continuously monitor their
investments in the notes.
The Daily Investor Fee accrues at a rate of 0.95% per annum. Because the Daily Investor Fee is calculated as
part of the Financing Level through which it is subtracted from the closing Indicative Note Value on a daily basis,
the net effect of the Daily Investor Fee accumulates over time and is subtracted at a rate per year equal to the Fee
Rate. Because the net effect of the Daily Investor Fee is a fixed percentage of the value of the notes, the aggregate
effect of the Daily Investor Fee will increase or decrease in a manner directly proportional to the value of the notes
and the amount of notes that are held.