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EQUITY RESEARCH Equity Linked Strategies | Convertibles Research | May 14, 2009

CONVERTIBLES
The CWB Convertible ETF
Summary
Recently, the first convertible ETF was launched - the newly launched SPDR Barclays Venu Krishna, CFA
Capital Convertible Bond ETF (Bloomberg Ticker: CWB US Equity). It is offered by State Head of EQ-Linked Strategies
+1 212 526 7328
Street Global Advisors with the aim of providing access to the convertible bond market venu.krishna@barcap.com
to a broad base of investors. The Fund is designed to track the performance of the BCI, New York
Barclays Capital U.S. Convertible $500MM+ Index. It first started trading on April 16 and
currently has a market cap of $31 million. Manoj Shivdasani, CFA
Convertible Research
+1 212 526 5995
In this report we provide an overview of the basic aspects of CWB, including ETF
manoj.shivdasani@barcap.com
mechanisms regarding purchase and redemption of Creation Units, Fund BCI, New York
characteristics and holdings, as well as its performance relative to the Barclays Capital
U.S. Convertible $500MM+ Index. Peng Cheng
Convertible Research
We find that based on its net asset value (NAV) returns, since inception, CWB has a +1 212 526 8432
peng.cheng1@barcap.com
correlation of 0.88 with the Barclays Capital U.S. Convertible $500MM+ Index. We also
BCI, New York
conduct back test based on the current fund holdings over 1 year history and find the
hypothetical correlation to be 0.96.

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result, investors should be aware that the firm may have a conflict of interest that could affect the
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Customers of Barclays Capital in the United States can receive independent, third-party research on the
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PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 9.


Barclays Capital | Convertibles Research

Introduction
The purpose of this report is to provide an overview of the newly launched SPDR Barclays
Capital Convertible Bond ETF (Bloomberg Ticker: CWB US Equity). It is offered by State
Street Global Advisors with the aim of providing access to the convertible bond market to a
broad base of investors. The Fund is designed to track the performance of the Barclays
Capital U.S. Convertible $500MM+ Index. It first started trading on April 16 and currently has
a market cap of $31 million.

Barclays Capital U.S. Convertible Indices


Launched in January 2003, the Barclays Capital U.S. Convertible Indices are designed to
provide investors with a comprehensive, unbiased performance tool to assist them in
portfolio management and benchmarking goals, and relevant statistics regarding the
convertible universe.

The Barclays Capital U.S. Convertible $500MM+ Index is a member of the U.S. Convertible
Indices and includes securities that fit the following criteria:

1. Minimum of $500 million size outstanding (or accreted face value for Zeros/OID)

2. Non-called, non-defaulted securities

3. At least 31 days until maturity, and

4. U.S. dollar denominated 144A or Registered convertible tranches.

At any point in time, the Barclays Capital U.S. Convertible $500MM+ Index contains two
separate universes of data: Returns and Statistics. The returns universe is set at the
beginning of each month and remains static for the entire month. If a security falls out of
the Barclays Capital U.S. Convertible $500MM+ Index during the month (falls below
minimum size outstanding, defaults, is called, etc.), it will still contribute to returns for the
existing month but will be absent from the following month’s returns.

On the other hand, the statistics universe is based on a dynamic set of securities that
change according to index criteria. If a security fails to meet the minimum index criteria, it
will drop out of the statistics universe (but will still contribute to end of month returns data).
Also, securities that meet the minimum index criteria, including new issues, may enter the
Statistics universe during the month but will not contribute to returns for that month.
Therefore, the number of securities comprising the statistics universe will often differ
slightly from the returns universe.

As of 05/12/2009, the Barclays Capital U.S. Convertible $500MM+ Index contains 134
issues and all four major classes of convertible securities (i.e. cash pay bonds, zeros/OIDs,
preferreds and mandatories) with a market value of around $110B. Index data is updated on
a daily basis. All returns are market value weighted. Total return will be the sum of price
return plus coupon return. Year to date, the Barclays Capital U.S. Convertible $500MM+
Index has delivered a total return of 16.75% compared with the S&P 500 YTD total return of
1.57%.

Figure 1 and 2 below show the proportion of Barclays Capital U.S. Convertible $500MM+
Index relative to the Barclays Capital U.S. Convertible Composite Index (a proxy for the
whole U.S. convert market). The securities in the Barclays Capital U.S. Convertible $500MM+
Index represent 20% of the Composite Index in terms of number of securities, but 54% in
May 13, 2009 2
Barclays Capital | Convertibles Research

terms of market value. Figure 3 demonstrates the strong performance of many outright
funds YTD, as well as Barclays Capital U.S. Convertible Composite and $500MM+ Indices.

Figure 1: Barclays Capital 500M+ U.S. Convertible Index Figure 2: Barclays Capital 500M+ U.S. Convertible Index
Securities vs. Composite Index Market Value vs. Composite Index

Barclays Capital U.S. Barclays Capital Barclays Capital U.S. Barclays Capital U.S.
Convertible Composite U.S. Convertible 500M+ as % of Convertible Composite Convertible 500M+ 500M+ as % of
Securities 500M+ Securities Composite Values Values Composite
Cash Pay 554 94 17% Cash Pay 156.49 79.324 51%
Mandatories 23 13 57% Mandatories 11.94 10.025 84%
Preferreds 78 23 29% Preferreds 25.69 18.023 70%
Zero/OID 27 3 11% Zero/OID 6.62 2.01 30%
Total 682 133 20% Total 200.74 109.382 54%

Source: Barclays Capital Source: Barclays Capital

Figure 3: Outright Convert Funds Top Performers % Returns YTD (Assets at least $200M)

Ticker Name YTD % Assets ($M)


FCVSX Fidelity Convertible Secs 21.8 1,586
PCONX Putnam Convrt Inc Grw Trst 19.5 513
RPFCX Davis App & Income Fund 17.4 363
FISCX Franklin Convertible Sec 15.8 525
MCOAX Mainstay Convertible Fund 14.5 346
VCVSX Vanguard Convertible Sec-Inv 14.5 1,308
ACHBX Van Kampen Harbor Fund 13.0 228
CCVIX Calamos Convertible Fund 12.3 1,438
PACIX Columbia Conv Securities 11.9 405
RCVAX Oppenheimer Convert Secs 11.6 263
Barclays Capital U.S. Convertible Composite 15.7 200,738
Barclays Capital U.S. Convertible 500M+ 16.8 109,393
Source: Barclays Capital, Bloomberg

A link to the Barclays Capital U.S. Convertible $500MM+ Index can be found on Barclays
Capital Live by selecting the Equities tab, then “Convertible Bonds”, and then “U.S. Convert
Index”. Alternatively, it may be accessed by selecting the Indices tab, then “Benchmark
Indices”, followed by “U.S. Convertibles”.

May 13, 2009 3


Barclays Capital | Convertibles Research

CWB Convert ETF Mechanisms


Outstanding shares of an ETF can be traded freely on the exchange. However, creating new
shares requires dealing in Creation Units. Each Creation Unit is a large specified number of
ETF shares. In the case of CWB, it is 200,000 shares. The mechanism of purchasing and
redeeming Creation Units has an important feature which distinguishes it from buying and
selling existing ETF shares. That is, the mechanism is often times an in-kind exchange,
although cash settlement is also possible. In addition, the purchase and redemption are
transacted through “Authorized Participants”, i.e. market makers of the Fund.

In other words, to create (i.e. purchase) Creation Units, the investor must deliver to the
Authorized Participants a specified portfolio of securities, instead of cash. The content of the
portfolio is at the discretion of the Fund and need not be similar to the Fund holdings. For
CWB, it should be a substantial replication of the Fund holdings, according to the
Prospectus. In order to redeem, the investor can aggregate ETF shares into Creation Units,
then exchange for the portfolio of underlying securities. The underlying securities of the
Creation Units are published daily to the Authorized Participants before market open.

Figure 4: ETF Redemption and Creation Mechanisms

Redemption Creation

Investor B Investor A

Underlyings Underlyings
Creation Units

Authorized Authorized
Participant B Participant A

CWB

Publish Underlying Securities of Creation Units

Source : Barclays Capital

Since the Net Asset Value (NAV) of the Fund is determined daily, and the creation and
redemption can occur as frequently, any large discount or premium of the fund value and
NAV should not be sustained, otherwise arbitrage is possible. If the ETF price is higher than
the NAV, one can buy the underlying securities, deposit them in exchange for the Creation
Units, then sell the ETF shares in the open market. On the other hand, if the ETF price is
lower, one can buy the ETF shares, aggregate them into Creation Units, redeem them for

May 13, 2009 4


Barclays Capital | Convertibles Research

underlying securities, and sell the underlying securities at NAV. In practice, however, the
liquidity of the underlying securities may also cause some differences in the NAV and ETF
price to persist.

SPDR Barclays Capital Convertible Bond ETF


The ETF (Bloomberg Ticker: CWB US Equity) was launched in April 2009 by State Street
Global Advisors. According to the Prospectus, the Fund seeks a correlation of 0.95 or better
between the Fund’s performance and the Barclays Capital U.S. Convertible $500MM+ Index.
The Fund uses a sampling method. Therefore, it does not own all securities in the Barclays
Capital U.S. Convertible $500MM+ Index, but rather selects a number of representative
bonds. Figure 5 shows the % holdings as of 04/20/2009.

The portfolio consisted of 38 securities or about 29% of the total securities in the Barclays
Capital U.S. Convertible $500MM+ Index. However, they represent about 44% of the market
value of the universe. Figures 2 and 3 break down the percentages by security types. We
believe it is reasonable to expect that as the size of the Fund grows, the holdings will also
expand going forward.

The Fund also provided breakdown by quality and maturity. See Figures 6 and 7 for the
information and comparison with the Barclays Capital U.S. Convertible $500MM+ Index. As
the figures show, the Fund closely matches both the credit quality and maturity of the
Barclays Capital U.S. Convertible $500MM+ Index.

The goal of the Fund is to mirror as closely as possible the total return of the returns
universe (recall differences may exist between returns and statistics universe of the Barclays
Capital U.S. Convertible $500MM+ Index). As per our understanding, adjustments to the
portfolio will be made throughout the month as needed, given cash uses/needs, trading
liquidity, and other factors. Since the Barclays Capital U.S. Convertible $500MM+ Index
returns universe is rebalanced every month, we believe it is reasonable to expect the Fund to
rebalance at least monthly.

Further information and fund literature can be found on the SPDR website
http://www.spdrs.com.

May 13, 2009 5


Barclays Capital | Convertibles Research

Figure 5: Fund Holdings (as of 04/20/2009)

Issuer Ticker Coupon Maturity Weight % Market Value


EMC EMC 1.750 12/01/2013 6.10 $725,759
Transocean RIG 1.500 12/15/2037 5.60 666,679
Amgen AMGN 0.125 02/01/2011 5.46 649,444
Bank of America BAC 7.250 Perpetual 5.12 609,125
Prudential PRU 0.000 12/15/2037 4.54 539,955
Nabors NBR 0.940 05/15/2011 4.17 495,864
Vornado VNO 2.850 04/01/2027 4.10 488,474
Mylan MYL 6.500 11/15/2010 3.94 469,255
Medtronics MDT 1.625 04/15/2013 3.77 448,885
Cephalon CEPH 2.000 06/01/2015 3.68 438,473
Archer Daniels ADM 0.875 02/15/2014 3.48 414,186
Liberty Media TWX 3.125 03/30/2023 3.40 405,311
Prologis PLD 2.250 04/01/2037 3.40 404,250
Wells Fargo WFC 7.500 Perpetual 3.26 388,232
Hologic HOLX 2.000 12/15/2037 2.99 356,000
Newmont Mining NEM 1.250 07/15/2014 2.80 332,890
Teva TEVA 1.750 02/01/2026 2.73 325,174
Symantec SYMC 0.750 06/15/2011 2.66 316,928
Qwest Communications Q 3.500 11/15/2025 2.61 311,259
Nextel Communications S 5.250 01/15/2010 2.51 298,222
Peabody Energy BTU 4.750 12/15/2041 2.43 289,530
Intel INTC 2.950 12/15/2035 2.19 260,348
Gilead Sciences GILD 0.625 05/01/2013 2.08 247,710
Microchip MCHP 2.125 12/15/2037 1.98 235,871
Virgin Media VMED 6.500 11/15/2016 1.86 221,477
Watson Pharmaceuticals WPI 1.750 03/15/2023 1.83 218,385
Freeport-McMoran FCX 6.750 05/01/2010 1.76 209,640
Micron Technology MU 1.875 06/01/2014 1.48 176,188
AMD AMD 6.000 05/01/2015 1.46 173,333
Intl Game Technology IGT 2.600 12/15/2036 1.44 171,782
Chesapeake Energy CHK 2.500 05/15/2037 1.28 152,413
Sandisk SNDK 1.000 05/15/2013 1.05 124,869
Alliance Data Systems ADS 1.750 08/01/2013 0.97 115,678
Massey Energy MEE 3.250 08/01/2015 0.94 111,516
L-3 Comms LLL 3.000 08/01/2035 0.84 99,547
Citigroup C 6.500 Perpetual 0.72 85,625
Linear Technology LLTC 3.000 05/01/2027 0.71 84,408
Boston Properties BXP 2.875 02/15/2037 0.53 62,639
Cash -1.86 -221,144
Total Net Asset $11,904,180

Source: State Street Global Advisors

Figure 6: CWB Securities vs. Barclays Capital $500M+ U.S. Figure 7: CWB Market Value vs. Barclays Capital $500M+ U.S.
Convertible Index Convertible Index

Barclays Capital Barclays Capital


U.S. Convertible Securities as Securities as U.S. Convertible Value as % Value as %
$500MM+ Index % of Index CWB % of CWB CWB as % $500MM+ Index of Index CWB Value of CWB CWB as %
Securities Total Securities Total of Index Value ($M) Total ($M) Total of Index
Cash Pay 94 71% 33 87% 35% Cash Pay 78,428 75% 35,464 76% 45%
Mandatories 13 10% 2 5% 15% Mandatories 10,380 10% 3,760 8% 36%
Preferreds 23 17% 3 8% 13% Preferreds 14,206 14% 7,366 16% 52%
Zero/OID 3 2% 0 0% 0% Zero/OID 1,948 2% 0 0% 0%
Total 133 100% 38 100% 29% Total 104,961 100% 46,590 100% 44%

Source: Barclays Capital, State Street Global Advisors Source: Barclays Capital, State Street Global Advisors

May 13, 2009 6


Barclays Capital | Convertibles Research

Figure 8: Quality Breakdown Figure 9: Maturity Breakdown

Barclays Capital U.S. Convertible Barclays Capital U.S. Convertible


Quality $500MM+ Index CWB Maturity $500MM+ Index CWB
Aaa 0% 1% 0-1 1% 2%
A 21% 22% 1-2 13% 11%
Baa 28% 28% 2-3 10% 7%
Below Baa 37% 38% 3-5 18% 18%
Not Rated 15% 12% 5-7 4% 10%
7 - 10 1% 2%
10 - 15 6% 5%
15 - 20 10% 10%
20 - 30 25% 24%
30+ 12% 11%
Source: Barclays Capital, State Street Global Advisors Source: Barclays Capital, State Street Global Advisors

The Fund currently has a market cap of $31 million. The size of the Fund has grown rapidly,
driven primarily by the increase in shares outstanding. There are 1,000,000 shares
outstanding as of 05/12/2009, compared to the 200,000 shares at inception.

Figure 10: Price and Shares Outstanding Figure 11: Cumulative Returns Since Inception

31.5 1000 6.0%


900 5.0%
31
800
4.0%
700
30.5
3.0%
600
30 500 2.0%
400 1.0%
29.5
300
0.0%
200
4/16
4/17
4/20
4/21
4/22
4/23
4/24
4/27
4/28
4/29
4/30

5/11
5/12
5/1
5/4
5/5
5/6
5/7
29 5/8
-1.0%
100
28.5 0 -2.0%
4/16 4/20 4/22 4/24 4/28 4/30 5/4 5/6 5/8 5/12
-3.0%

Shares Out (x000) CWB NAV CWB NAV Index Tracking Error

Source: Bloomberg Source: Barclays Capital, Bloomberg

The performance of the Fund can be evaluated against its stated objective of achieving a
correlation of at least 0.95 with the Barclays Capital U.S. Convertible $500MM+ Index. We
look at the NAV of the Fund instead of the price, since the price may be subject to market
conditions outside of the Fund’s control. Based on the 18 daily return data points since
inception, the correlation of the Fund NAV and the Barclays Capital U.S. Convertible
$500MM+ Index is about 0.88.

May 13, 2009 7


Barclays Capital | Convertibles Research

Figure 12: Fund NAV Daily Returns vs. Index Returns Since Inception

2.00

1.50

1.00

NAV Returns (%)


0.50

0.00
-4 -3 -2 -1 -0.50 0 1 2

-1.00

-1.50

-2.00

-2.50
Index Returns (%)

Source: Barclays Capital, Bloomberg

The existing time series is not sufficiently long to accurately measure the correlation. Still,
we can rely on historical data for back testing purposes, subject to some simplifying
assumptions. We assume that we initiated a portfolio with the same members and
weighting as Figure 5 a year before inception (04/16/2008). Assuming the portfolio was
static for one year with no rebalancing, the correlation of daily returns turns out to be 0.96,
as Figure 13 shows. Interestingly, even if only the top 10 holdings were taken to the back
test, the correlation still comes out to be about 0.90. We believe the estimate is conservative
because the portfolio was completely indifferent to index changes and movements. If the
portfolio was actively managed, as in the case of the Fund, we would expect the correlation
to be at least as high. Nonetheless, results from back testing may not accurately predict
future performance.

Figure 13: Back Test Fund Returns vs. Index Returns

2
NAV Returns (%)

0
-8 -6 -4 -2 0 2 4 6

-2

-4

-6

-8
Index Returns (%)

Source: Barclays Capital

May 13, 2009 8


Analyst Certification: 
We, Venu Krishna and Manoj Shivdasani, hereby certify (1) that the views expressed in this research report accurately reflect our personal views about 
any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or indirectly 
related to the specific recommendations or views expressed in this research report.  
Important Disclosures 
Barclays Capital does and seeks to do business with companies covered in its research reports.  As a result, investors should be aware that the firm may 
have a conflict of interest that could affect the objectivity of this report. 
 
Investors should consider this communication as only a single factor in making their investment decision. 
 
The analysts responsible for preparing this report have received compensation based upon various factors including the Firm's total revenues, a portion of 
which is generated by investment banking activities. 
 
For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays Capital 
Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to the firm's disclosure website at www.lehman.com/disclosures.  On 
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spread and volatility metrics. Material changes in any of these variables can have a significant impact on valuation. Upside/downside analysis takes into 
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+/‐ 25% change in the common stock’s price over a one‐year investment horizon. A material change in the company’s financial situation can significantly 
alter this assessment. 
 
Please note that the convertible recommendations in this report may not correlate to the fundamental ratings applied to the stocks by Barclays Capital 
equity research analysts. 
 
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relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry sector (“the sector coverage 
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Stock Rating 
1‐Overweight ‐ The stock is expected to outperform the unweighted expected total return of the sector coverage universe over a 12‐month investment 
horizon. 
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investment horizon. 
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2‐Neutral  ‐  sector coverage universe fundamentals are steady, neither improving nor deteriorating.  
3‐Negative ‐  sector coverage universe fundamentals are deteriorating. 
 
 
Distribution of Ratings: 
Barclays Capital Equity Research has 1203 companies under coverage. 
 
36% have been assigned a 1‐Overweight rating which, for purposes of mandatory disclosures, is classified as a Buy rating,  
38% of companies with this rating are investment banking clients of the Firm. 
 
47% have been assigned a 2‐Equal weight rating which, for purposes of mandatory disclosures,is classified as a Hold rating,  
31% of companies with this rating are investment banking clients of the Firm. 
 
14% have been assigned a 3‐Underweight rating which, for purposes of mandatory disclosures, is classified as a Sell rating,  
23% of companies with this rating are investment banking clients of the Firm. 

May 14, 2009 9


 
 
 
Barclays Capital offices involved in the production of Equity Research: 
 
London 
Barclays Capital, the investment banking division of Barclays Bank Plc (Barclays Capital, London) 
 
New York 
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Tokyo 
Barclays Capital Japan Limited (BCJL, Tokyo) 
 
São Paulo  
Banco Barclays S.A. (BBSA, São Paulo) 
 
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underwriter of a public offering or otherwise, in the capacity of principal or agent, deal in, hold or act as market‐makers or advisors, brokers or 
commercial and/or investment bankers in relation to the securities or related derivatives which are the subject of this publication.  
The analyst recommendations in this report reflect solely and exclusively those of the author(s), and such opinions were prepared independently of any 
other interests, including those of Barclays Capital and/or its affiliates. 
Neither Barclays Capital, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any 
direct or consequential loss arising from any use of this publication or its contents. The securities discussed in this publication may not be suitable for all 
investors. Barclays Capital recommends that investors independently evaluate each issuer, security or instrument discussed in this publication and consult 
any independent advisors they believe necessary. The value of and income from any investment may fluctuate from day to day as a result of changes in 
relevant economic markets (including changes in market liquidity). The information in this publication is not intended to predict actual results, which may 
differ substantially from those reflected. Past performance is not necessarily indicative of future results. 
This communication is being made available in the UK and Europe to persons who are investment professionals as that term is defined in Article 19 of the 
Financial Services and Markets Act 2000 (Financial Promotion Order) 2005. It is directed at, and therefore should only be relied upon by, persons who 
have professional experience in matters relating to investments. The investments to which it relates are available only to such persons and will be entered 
into only with such persons. Barclays Capital is authorized and regulated by the Financial Services Authority (‘FSA’) and member of the London Stock 
Exchange. 
Barclays Capital Inc., US registered broker/dealer and member of FINRA (www.finra.org), is distributing this material in the United States and, in 
connection therewith accepts responsibility for its contents. Any U.S. person wishing to effect a transaction in any security discussed herein should do so 
only by contacting a representative of Barclays Capital Inc. in the U.S. at 745 Seventh Avenue, New York, New York 10019. 
Subject to the conditions of this publication as set out above, ABSA CAPITAL, the Investment Banking Division of ABSA Bank Limited, an authorised 
financial services provider (Registration No.: 1986/004794/06), is distributing this material in South Africa. Any South African person or entity wishing to 
effect a transaction in any security discussed herein should do so only by contacting a representative of ABSA Capital in South Africa, 15 ALICE LANE, 
SANDTON, JOHANNESBURG, GAUTENG, 2196. ABSA CAPITAL IS AN AFFILIATE OF BARCLAYS CAPITAL. 
Non‐U.S. persons should contact and execute transactions through a Barclays Bank PLC branch or affiliate in their home jurisdiction unless local 
regulations permit otherwise. 
In Japan, this report is being distributed by Barclays Capital Japan Limited to institutional investors only. Barclays Capital Japan Limited is a joint‐stock 
company incorporated in Japan with registered office of 2‐2‐2, Otemachi, Chiyoda‐ku, Tokyo 100‐0004, Japan. It is a subsidiary of Barclays Bank PLC and a 
registered financial instruments firm regulated by the Financial Services Agency of Japan. Registered Number: Kanto Zaimukyokucho (kinsho) No. 143. 
Barclays Bank PLC Frankfurt Branch is distributing this material in Germany under the supervision of Bundesanstalt für Finanzdienstleistungsaufsicht 
(BaFin). 
IRS Circular 230 Prepared Materials Disclaimer: Barclays Capital and its affiliates do not provide tax advice and nothing contained herein should be 
construed to be tax advice. Please be advised that any discussion of U.S. tax matters contained herein (including any attachments) (i) is not intended or 
written to be used, and cannot be used, by you for the purpose of avoiding U.S. tax‐related penalties; and (ii) was written to support the promotion or 
marketing of the transactions or other matters addressed herein. Accordingly, you should seek advice based on your particular circumstances from an 
independent tax advisor. 
 
© Copyright Barclays Bank PLC (2009). All rights reserved. No part of this publication may be reproduced in any manner without the prior written 
permission of Barclays Capital or any of its affiliates. Barclays Bank PLC is registered in England No. 1026167. Registered office 1 Churchill Place, London, 
E14 5HP. Additional information regarding this publication will be furnished upon request. 
 
 

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