Filed pursuant to Rule 424(b)(2)
Registration Nos. 333-216372 and 333-216372-01

 

UNDERLYING SUPPLEMENT NO. 6

(To the prospectus and prospectus supplement each dated April 7, 2017)

 

Citigroup Global Markets Holdings Inc.

 

Medium-Term Senior Notes, Series N

Payments Due from Citigroup Global Markets Holdings Inc.

Fully and Unconditionally Guaranteed by Citigroup Inc.

Securities Linked to one or more Indices or Exchange-Traded Funds  

 

Citigroup Global Markets Holdings Inc. may, from time to time, offer and sell securities linked to one or more indices (each, an “Index” and collectively, the “Indices”) or exchange-traded funds (each, a “Fund” and collectively, the “Funds”). This underlying supplement describes potential Indices and Funds to which the securities may be linked. This underlying supplement supplements the terms described in any pricing supplement that may reference it, any applicable product supplement and the accompanying prospectus supplement and prospectus. A separate pricing supplement will describe terms that apply to specific issuances of the securities, including any changes to the description of any relevant Index or Fund discussed below. If the terms described in the relevant pricing supplement are inconsistent with those described herein, the terms described in the relevant pricing supplement will control.

 

Investing in the securities involves risks not associated with an investment in conventional debt securities. See “Risk Factors” beginning on page 1 of this underlying supplement.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities or determined if this underlying supplement, any pricing supplement that may reference it, any applicable product supplement and the accompanying prospectus supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The securities are not deposits or savings accounts but are unsecured senior debt obligations of Citigroup Global Markets Holdings Inc. Any payments due on the securities are fully and unconditionally guaranteed by Citigroup Inc. The securities and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency or instrumenta lity.

 

April 7, 2017

 

TABLE OF CONTENTS

 

Page

 

Risk Factors US-1
Equity Index Descriptions US-21
The Dow Jones Industrial Average TM US-21
The EURO STOXX 50 ® Index US-23
The EURO STOXX ® Banks Index US-27
The STOXX ® Europe 600 Index US-31
The FTSE ® 100 Index US-35
The JPX-Nikkei Index 400 US-37
Hang Seng China Enterprises Index US-40
Hang Seng ® Index US-44
Korea Stock Price Index 200 US-48
The MSCI Indices US-52
The MSCI 25/50 Indices US-64
The NASDAQ-100 Index ® US-69
The Nikkei 225 Index US-74
The Russell Indices US-78
The S&P/ASX 200 Index US-88
The S&P Select Industry Indices US-92
The S&P Select Sector Indices US-98
The S&P U.S. Indices US-102
The TOPIX ® Index US-108
Commodity Index Descriptions US-111
The Bloomberg Commodity Indices US-111
The S&P GSCI ® Indices US-121
Fund Descriptions US-130
The iShares ® 20+ Year Treasury Bond ETF US-130
The iShares ® ETFs US-134
The Market Vectors Gold Miners ETF US-138
The Select Sector SPDR ® Funds US-141
The SPDR ® EURO STOXX 50 ® ETF US-143
The SPDR ® Gold Trust US-144
The SPDR ® S&P 500 ® ETF Trust US-145
The SPDR ® S&P ® Industry ETFs US-146
The United States Oil Fund, LP US-148
The Vanguard FTSE Emerging Markets ETF US-149
The Vanguard Total Stock Market ETF US-159
The WisdomTree Japan Hedged Equity Fund US-165

 

We are responsible for the information contained or incorporated by reference in this underlying supplement, the relevant pricing supplement, any relevant product supplement, the accompanying prospectus supplement and prospectus and in any related free writing prospectus we prepare or authorize. We have not authorized anyone to provide any other information with respect to the securities offered by the relevant pricing supplement or with respect to Citigroup Global Markets Holdings Inc. or Citigroup Inc. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. You should not assume that the information contained or incorporated by reference in this underlying supplement is accurate as of any date other than the date on the front of this document.

 

The relevant pricing supplement, this underlying supplement, any relevant product supplement and the accompanying prospectus supplement and prospectus do not constitute an offer to sell or a solicitation of an offer to buy the securities in any circumstances in which such offer or solicitation is unlawful.

 

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References in this underlying supplement, the relevant pricing supplement, any relevant product supplement and the accompanying prospectus supplement and prospectus, to “we,” “our” or “us” are to Citigroup Global Markets Holdings Inc., and not any of its subsidiaries, unless the context indicates otherwise.

 

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Risk Factors

 

Your investment in the securities will involve certain risks. Investing in the securities is not equivalent to investing in any of the indices or funds described herein or any of their component securities, commodities or commodity futures contracts. You should consider carefully the following discussion of risks as well as the discussion of risks included in the applicable pricing supplement and any applicable product supplement, together with the following discussion of additional risks, before you decide whether an investment in the securities is suitable for you.

 

Risks Relating to Certain Equity Indices

 

Citigroup Inc. is currently a component of the Russell 1000 ® Index, the Russell 3000 ® Index, the S&P 500 ® Index, the S&P 100 ® Index, MSCI World Index SM , the Financial Services Select Sector Index and the Financial Select Sector Index but, to our knowledge, unless otherwise specified in the relevant pricing supplement, we are not currently affiliated with any other company that is a component of an Index.

 

Citigroup Inc. is currently a component of the Russell 1000 ® Index, the Russell 3000 ® Index, the S&P 500 ® Index, the S&P 100 ® Index, MSCI World Index SM , the Financial Services Select Sector Index and the Financial Select Sector Index, but, to our knowledge, unless otherwise specified in the relevant pricing supplement, we are not currently affiliated with any other company that is a component of an Index. As a result, we will not have any ability to control the actions of the other issuers that are components of any Index, including actions that could affect the value of the equity securities underlying an Index and, accordingly, the value of your securities. None of the money you pay us will go to the sponsor of any Index or any of the other issuers of the equity securities included in any Index, and no such sponsor or issuer will be involved in the offering of the securities in any way. Neither those issuers nor we will have any obligation to consider your interests as a holder of the securities in taking any corporate actions that might affect the value of any Index or of your securities. Additional information about whether we or our affiliates are a component of an Index may be disclosed in the relevant pricing supplement.

 

In the event that we become affiliated with any issuers that are components of an Index, we will have no obligation to consider your interests as a holder of the securities in taking any action with respect to such issuer that might affect the value of your securities.

 

For securities linked in whole or in part to S&P MidCap 400 ® Index, an investment in the securities will be subject to risks associated with mid-capitalization stocks.

 

The stocks that constitute the S&P MidCap 400 ® Index are issued by mid-capitalization companies. Mid-capitalization companies may be less able to withstand adverse economic, market, trade and competitive conditions relative to larger companies. Mid-capitalization companies are less likely to pay dividends on their stocks, and the presence of a dividend payment could be a factor that limits downward stock price pressure under adverse market conditions.

 

For securities linked in whole or in part to the Russell 2000 ® Index or the S&P SmallCap 600 ® Index, an investment in the securities will be subject to risks associated with small-capitalization stocks.

 

The stocks that constitute the Russell 2000 ® Index and the S&P SmallCap 600 ® Index are issued by companies with relatively small market capitalization. The stock prices of smaller companies may be more volatile than stock prices of large-capitalization companies. Small-capitalization companies may be less able to withstand adverse economic, market, trade and competitive conditions relative to larger companies. These companies tend to be less well-established than large market capitalization companies. Small-capitalization companies are less likely to pay dividends on their stocks, and the presence of a dividend payment could be a factor that limits downward stock price pressure under adverse market conditions.

 

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For securities linked in whole or in part to indices composed of non-U.S. stocks, an investment in the securities will be subject to risks associated with the securities markets in those countries.

 

Investments in securities linked to the value of non-U.S. stocks involve risks associated with the securities markets in those countries, including risks of volatility in those markets, governmental intervention in those markets and cross shareholdings in companies in certain countries. Also, there is generally less publicly available information about companies in some of these jurisdictions than about U.S. companies that are subject to the reporting requirements of the Securities and Exchange Commission. Further, non-U.S. companies are generally subject to accounting, auditing and financial reporting standards and requirements and securities trading rules that are different from those applicable to U.S. reporting companies. The prices of securities in foreign markets may be affected by political, economic, financial and social factors in those countries, or global regions, including changes in government, economic and fiscal policies and currency exchange laws. Moreover, the economies in such countries may differ favorably or unfavorably from the economy of the United States in such respects as growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency.

 

For securities linked in whole or in part to the EURO STOXX 50 ® Index, the performance of the EURO STOXX 50 ® Index will not be adjusted for changes in the exchange rate between the Euro and the U.S. dollar.

 

The EURO STOXX 50 ® Index is composed of stocks traded in the Euro, the value of which may be subject to a high degree of fluctuation relative to the U.S. dollar. However, the performance of the EURO STOXX 50 ® Index and the value of your securities will not be adjusted for exchange rate fluctuations. If the Euro appreciates relative to the U.S. dollar over the term of the securities, such relative appreciation could adversely affect the value and/or one or more payments on securities linked to the EURO STOXX 50 ® Index.

 

Risks Relating to Certain Commodity Indices

 

We and our affiliates have no affiliation with S&P Dow Jones Indices LLC (“S&P Dow Jones”), UBS Securities LLC (“UBS”) or Bloomberg Finance L.P. (“Bloomberg”) and are not responsible for their public disclosure of information.

 

We and our affiliates are not affiliated with S&P Dow Jones, UBS or Bloomberg in any way (except for arrangements discussed below in “Commodity Index Descriptions — The S&P GSCI ® Indices — License Agreement” and “Commodity Index Descriptions — The Bloomberg Commodity Indices — License Agreement”) and have no ability to control S&P Dow Jones, UBS or Bloomberg, including any errors in or discontinuation of disclosure regarding its methods or policies relating to the calculation of the Bloomberg Commodity Indices (as defined under “Commodity Index Descriptions — The Bloomberg Commodity Indices” in this underlying supplement) or the S&P GSCI ® Indices (as defined under “Commodity Index Descriptions — The S&P GSCI ® Indices” in this underlying supplement). None of S&P Dow Jones, UBS or Bloomberg is under any obligation to continue to calculate any of the S&P GSCI ® Indices or Bloomberg Commodity Indices nor are they required to calculate any successor index. If any of S&P Dow Jones, UBS or Bloomberg discontinues or suspends the calculation of a relevant index, it may become difficult to determine the market value of the securities or the amount payable at maturity. The calculation agent may designate a successor index selected in its sole discretion. If the calculation agent determines in its sole discretion that no successor index comparable to such index exists, the amount you receive at maturity may be determined by the calculation agent in its sole discretion.

 

S&P Dow Jones or Bloomberg may be required to replace a contract underlying an S&P GSCI ® Index or a Bloomberg Commodity Index if the existing futures contract is terminated or replaced.

 

A futures contract known as a “Designated Contract” has been selected as the reference contract for the underlying physical commodity included in each S&P GSCI ® Index or Bloomberg Commodity Index. Data concerning this Designated Contract will be used to calculate each S&P GSCI ® Index and Bloomberg Commodity Index. The termination or replacement of a futures contract on an established exchange occurs infrequently; however, if one or more Designated Contracts were to be terminated or replaced by an exchange, a comparable futures contract would be selected by the S&P GSCI ® Index Committee or Bloomberg, as the case may be, if available, to replace each such Designated Contract. The termination or replacement of any Designated Contract may have an adverse impact on the level of the relevant S&P GSCI ® Index or Bloomberg Commodity Index.

 

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Suspension or disruptions of market trading in the commodity and related futures markets may adversely affect the value of the securities.

 

For securities linked in whole or in part to a Bloomberg Commodity Index, you may in the future have exposure to contracts that are not traded on regulated futures exchanges.

 

At present, the Bloomberg Commodity Indices are composed exclusively of regulated futures contracts; however, the Bloomberg Commodity Indices may in the future include over-the-counter contracts (such as swaps and forward contracts) traded on trading facilities that are subject to lesser degrees of regulation or, in some cases, no substantive regulation. As a result, trading in such contracts, and the manner in which prices and volumes are reported by the relevant trading facilities, may not be subject to the same provisions of, and the protections afforded by, the Commodity Exchange Act, as amended, or other applicable statutes and related regulations that govern trading on regulated futures exchanges. In addition, many electronic trading facilities have only recently initiated trading and do not have significant trading histories. As a result, the trading of contracts on such facilities and the inclusion of such contracts in a Bloomberg Commodity Index may expose you to certain risks not presented by most exchange-traded futures contracts, including risks related to the liquidity and price histories of the relevant contracts.

 

For securities linked to a Bloomberg Commodity Index, risks associated with that Bloomberg Commodity Index may adversely affect the market price of the securities.

 

Because the Bloomberg Commodity Index SM and the Bloomberg Commodity Index 3 Month Forward SM reflect the return on exchange-traded futures contracts on 20 different physical commodities and because the single-commodity sub-indices and the forward-month single-commodity sub-indices of Bloomberg Commodity Index SM each reflect the return on exchange-traded futures contract on a single physical commodity, securities linked to one or more of the Bloomberg Commodity Indices may be less diversified than other funds or investment portfolios investing in a broader range of products and, therefore, could experience greater volatility. Additionally, the annual composition of the Bloomberg Commodity Indices will be calculated in reliance upon historical price, liquidity and production data that are subject to potential errors in data sources or errors that may affect the weighting of components of the Bloomberg Commodity Indices. Any discrepancies that require revision are not applied retroactively but will be reflected in the weighting calculations of the Bloomberg Commodity Indices for the following year. However, Bloomberg may not discover every discrepancy. Furthermore, the annual weightings for the Bloomberg Commodity Indices are determined each year in the third or fourth quarter and announced as promptly as practicable following the calculation by Bloomberg under the supervision of the Bloomberg Commodity Index Oversight Committee, which has a significant degree of discretion in exercising its supervisory duties with respect to the Bloomberg Commodity Indices and has no obligation to take the needs of any parties to transactions involving the Bloomberg Commodity Indices into consideration when reweighting or making any other changes to the Bloomberg Commodity Indices. Finally, subject to the minimum/maximum diversification limits described in “Commodity Index Descriptions — The Bloomberg Commodity Indices — Diversification Rules,” the commodities underlying the exchange-traded futures contracts included in the Bloomberg Commodity Index SM and the Bloomberg Commodity Index 3 Month Forward SM from time to time are concentrated in a limited number of sectors, particularly energy and agriculture, and the single-commodity sub-indices and the forward-month single-commodity sub-indices of Bloomberg Commodity Index SM are each limited to a single commodity. An investment in the securities may therefore carry risks similar to a concentrated securities investment in a limited number of industries or sectors or in a single commodity.

 

For securities linked to a Bloomberg Commodity Index, trading and other transactions by UBS and its affiliates in the futures contracts constituting the Bloomberg Commodity Indices and the underlying commodities may affect the level of the Bloomberg Commodity Indices.

 

UBS and its affiliates actively trade futures contracts and options on futures contracts on the commodities underlying the Bloomberg Commodity Indices. UBS and its affiliates also actively enter into or trade market securities, swaps, options, derivatives, and related instruments that are linked to the performance of the Bloomberg Commodity Indices, the futures contracts underlying the Bloomberg Commodity Indices or the commodities underlying these futures contracts. Certain of UBS’s affiliates may underwrite or issue other securities or financial instruments indexed to the Bloomberg Commodity Indices and related indices, and UBS and certain of its affiliates may license the Bloomberg Commodity Indices for publication or for use by unaffiliated third parties.

 

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These activities could present conflicts of interest and could affect the levels of the Bloomberg Commodity Indices. For instance, a market maker in a financial instrument linked to the performance of a Bloomberg Commodity Index may expect to hedge some or all of its position in that financial instrument. Purchase (or selling) activity in the underlying components of a Bloomberg Commodity Index in order to hedge the market maker’s position in the financial instrument may affect the market price of the futures contracts included in such Bloomberg Commodity Index, which in turn may affect the level of such Bloomberg Commodity Index and the value of your securities. With respect to any of the activities described above, none of UBS or its respective affiliates has any obligation to take the needs of any buyers, sellers or holders of the securities into consideration at any time.

 

For securities linked to one or more S&P GSCI Component Indices, any such index may be more volatile and susceptible to price fluctuations of commodities than a broader commodities index.

 

Each of the S&P GSCI Component Indices (as defined under “Commodity Index Descriptions — The S&P GSCI ® Indices” in this underlying supplement) may be more volatile and susceptible to price fluctuations than a broader commodities index, such as the S&P GSCI™ or the Bloomberg Commodity Index SM . In contrast to the S&P GSCI™ and Bloomberg Commodity Index SM , which include contracts on the principal physical commodities that are actively traded, each of the S&P GSCI Component Indices is composed of contracts covering only a single physical commodity or only physical commodities in a single sector. As a result, price volatility in the contracts included in the S&P GSCI™ or the Bloomberg Commodity Index SM will likely have a greater impact on each S&P GSCI Component Index than it would on the broader S&P GSCI™ or Bloomberg Commodity Index SM , and each S&P GSCI Component Index individually will be more susceptible to fluctuations and declines in value of the physical commodities included in such index. In addition, the S&P GSCI Component Indices may be less representative of the economy and commodity markets as a whole and might therefore not serve as a reliable benchmark for commodity market performance generally.

 

For securities linked to a S&P GSCI ® Index, changes in the composition and valuation of the S&P GSCI™ may adversely affect the market value and/or the payment at maturity.

 

The composition of the S&P GSCI ® Indices may change over time, as additional futures contracts satisfy the eligibility criteria of the S&P GSCI™ or futures contracts currently included in the S&P GSCI™ fail to satisfy such criteria. Those changes could impact the composition and valuation of the S&P GSCI ® Indices. The weighting factors applied to each commodity included in the S&P GSCI™ change annually, based on changes in commodity production statistics. In addition, S&P Dow Jones may modify the methodology for determining the composition and weighting of the S&P GSCI™ and for calculating their value in order to assure that the S&P GSCI™ represents a measure of the performance over time of the markets for the underlying commodities represented by the S&P GSCI™ and its sub-indices. A number of modifications to the methodology for determining the contracts to be included in each S&P GSCI ® Index, and for valuing each S&P GSCI ® Index, have been made in the past several years and further modifications may be made in the future. Such changes could adversely affect the market value and/or the payment at maturity.

 

Risks Relating to Certain Funds

 

Citigroup Inc. is currently one of the issuers of equity securities held by the Financial Select Sector SPDR ® Fund and the SPDR ® S&P 500 ® ETF Trust, but, to our knowledge, unless otherwise specified in the relevant pricing supplement, we are not currently affiliated with any other company the equity securities of which are held by a Fund.

 

Citigroup Inc. is currently one of the companies that make up the Financial Select Sector SPDR ® Fund and the SPDR ® S&P 500 ® ETF Trust, but, unless otherwise specified in the relevant pricing supplement, to our knowledge, we are not currently affiliated with any other issuers the equity securities of which are held by a Fund. As a result, we will not have any ability to control the actions of the other issuers of such equity securities, including actions that could affect the value of the equity securities underlying an Index and, accordingly, your securities. None of the money you pay us will go to the investment adviser of any Fund or any of the other issuers of the equity securities held by any Fund, and none of those issuers will be involved in the offering of the securities in any way. Neither those issuers nor we will have any obligation to consider your interests as a holder of the securities in taking any

 

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corporate actions that might affect the value of your securities. Additional information about whether we or our affiliates are one of the companies held by a Fund may be disclosed in the relevant pricing supplement

 

In the event we become affiliated with any issuers the equity securities of which are held by a Fund, we will have no obligation to consider your interests as a holder of the securities in taking any action with respect to such issuer that might affect the price of the Fund or the value of your securities.

 

If the securities are linked in whole or in part to the iShares ® 20+ Year Treasury Bond ETF, the securities are subject to significant risks associated with fixed-income securities, including interest rate-related and credit-related risks.

 

Investing in the securities linked to the iShares ® 20+ Year Treasury Bond ETF differs significantly from investing directly in bonds to be held to maturity because the value of the iShares ® 20+ Year Treasury Bond ETF changes, at times significantly, during each trading day based upon the current market prices of its underlying bonds. The market prices of these bonds are volatile and significantly influenced by a number of factors, particularly the yields on these bonds as compared to current market interest rates and the actual or perceived credit quality of the issuer of these bonds.

 

In general, fixed-income securities are significantly affected by changes in current market interest rates. As interest rates rise, the price of fixed-income securities, including those underlying the iShares ® 20+ Year Treasury Bond ETF, is likely to decrease. Securities with longer durations tend to be more sensitive to interest rate changes, usually making them more volatile than securities with shorter durations. The eligibility criteria for the securities included in the index that underlies the iShares ® 20+ Year Treasury Bond ETF, which mandate that each security must have a minimum term remaining to maturity of greater than 20 years for continued eligibility, means that, at any time, only longer-term securities underlie the iShares ® 20+ Year Treasury Bond ETF, which thereby increases the risk of price volatility in the underlying securities and, consequently, the volatility in the value of the Index. As a result, rising interest rates may cause the value of the bonds underlying the iShares ® 20+ Year Treasury Bond ETF and the price of the iShares ® 20+ Year Treasury Bond ETF to decline, possibly significantly.

 

Interest rates are subject to volatility due to a variety of factors, including:

 

· sentiment regarding underlying strength in the U.S. economy and global economies;

 

· expectations regarding the level of price inflation;

 

· sentiment regarding credit quality in the U.S. and global credit markets;

 

· central bank policies regarding interest rates; and

 

· the performance of U.S. and foreign capital markets.

 

If the price of U.S. treasury notes falls, as a result of a general increase in interest rates or perceptions of reduced credit quality of the U.S. government or otherwise, the value of the bonds underlying the iShares ® 20+ Year Treasury Bond ETF will decline, which could have a negative impact on the return on your securities.

 

For securities linked in whole or in part to the iShares ® U.S. Real Estate ETF, risks associated with the real estate industry will affect the price of shares of the iShares ® U.S. Real Estate ETF and the value of the securities.

 

The real estate industry is cyclical and has from time to time experienced significant difficulties. The prices of the securities included in the Dow Jones U.S. Real Estate Index and held by the iShares ® U.S. Real Estate ETF and, in turn, the level of the Dow Jones U.S. Real Estate Index and the price of shares of the iShares ® U.S. Real Estate ETF, as applicable, will be affected by a number of factors that may either offset or magnify each other, including:

 

· employment levels and job growth;

 

· the availability of financing for real estate;

 

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· interest rates;

 

· consumer confidence;

 

· the availability of suitable undeveloped land;

 

· federal, state and local laws and regulations concerning the development of land, construction, home and commercial real estate sales, financing and environmental protection; and

 

· competition among companies that engage in the real estate business.

 

The factors described above could affect the real estate industry generally or regionally and could affect the value of the securities included in the Dow Jones U.S. Real Estate Index and held by the iShares ® U.S. Real Estate ETF and the level of the Dow Jones U.S. Real Estate Index and the price of shares of the iShares ® U.S. Real Estate ETF, as applicable, during the term of the securities.

 

For securities linked in whole or in part to the iShares ® U.S. Real Estate ETF, risks associated with Real Estate Investment Trusts will affect the value of the securities.

 

The Dow Jones U.S. Real Estate Index and the iShares ® U.S. Real Estate ETF are composed of a variety of real-estate-related stocks including real estate investment trusts (“REITs”). REITs invest primarily in income-producing real estate or real-estate-related loans or interests. Investments in REITs, though not direct investments in real estate, are still subject to the risks associated with investing in real estate. The following are some of the conditions that might impact the structure of and cash flow generated by REITs and, consequently, the value of REITs and, in turn, the Dow Jones U.S. Real Estate Index and the iShares ® U.S. Real Estate ETF:

 

· a decline in the value of real estate properties;

 

· extended vacancies of properties;

 

· increases in property and operating taxes;

 

· increased competition or overbuilding;

 

· a lack of available mortgage funds or other limits on accessing capital;

 

· tenant bankruptcies and other credit problems;

 

· limitation on rents, including decreases in market rates for rents;

 

· changes in zoning laws and governmental regulations;

 

· costs resulting from the clean-up of, and legal liability to third parties for, damages resulting from environmental problems;

 

· investments in developments that are not completed or that are subject to delays in completion;

 

· risks associated with borrowing;

 

· changes in interest rates;

 

· casualty and condemnation losses; and

 

· uninsured damages from floods, earthquakes or other natural disasters.

 

The factors above may either offset or magnify each other and negatively impact a REIT’s cash flow and cause a decline in the share price of a REIT, and, consequently, the level of the Dow Jones U.S. Real Estate Index and the price of shares of the iShares ® U.S. Real Estate ETF. In addition, some REITs have relatively small market

 

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capitalizations, which can increase the volatility of the market price of securities issued by those REITs. Furthermore, REITs are dependent upon specialized management skills, have limited diversification and are, as a result, subject to risks inherent in operating and financing a limited number of projects. To the extent that such risks increase the volatility of the market price of securities issued by REITs, they may also, consequently, increase the volatility of the Dow Jones U.S. Real Estate Index and the iShares ® U.S. Real Estate ETF.

 

For securities linked in whole or in part to the iShares ® U.S. Real Estate ETF, there will be no direct correlation between the value of the securities or the price of the iShares ® U.S. Real Estate ETF and residential housing prices.

 

There is no direct linkage between the price of shares of the iShares ® U.S. Real Estate ETF and residential housing prices in specific regions or residential housing prices in general. While residential housing prices may be one factor that could affect the prices of the securities held by the Real Estate Constituent and consequently the price of shares of the iShares ® U.S. Real Estate ETF, the price of shares of the iShares ® U.S. Real Estate ETF and therefore the value of the securities are not directly linked to movements of residential housing prices and may be affected by factors unrelated to such movements.

 

For securities linked in whole or in part to the iShares ® Russell 2000 ETF, an investment in the securities is subject to risks associated with small capitalization stocks.

 

The stocks that are held by the iShares ® Russell 2000 ETF are issued by companies with relatively small market capitalization. The stock prices of smaller companies may be more volatile than stock prices of large capitalization companies. These companies tend to be less well-established than large market capitalization companies. Small capitalization companies may be less able to withstand adverse economic, market, trade and competitive conditions relative to larger companies. Small capitalization companies are less likely to pay dividends on their stocks, and the presence of a dividend payment could be a factor that limits downward stock price pressure under adverse market conditions.

 

For securities linked in whole or in part to the iShares ® MSCI EAFE ETF or the iShares ® MSCI Emerging Markets ETF, an investment in the securities will be subject to currency exchange risk.

 

Because the price of any securities linked to the iShares ® MSCI EAFE ETF or iShares ® MSCI Emerging Markets ETF is related to the U.S. dollar value of stocks held by the iShares ® MSCI EAFE ETF or the iShares ® MSCI Emerging Markets ETF, holders of those securities will be exposed to currency exchange rate risk with respect to each of the currencies in which the stocks held by each of the iShares ® MSCI EAFE ETF and iShares ® MSCI Emerging Markets ETF trade. Exchange rate movements for a particular currency are volatile and are the result of numerous factors specific to that country including the supply of, and the demand for, those currencies, as well as government policy, intervention or actions, but are also influenced significantly from time to time by political or economic developments, and by macroeconomic factors and speculative actions related to each region. Your net exposure will depend on the extent to which the currencies of the component countries strengthen or weaken against the U.S. dollar and the relative weight of each currency. If, taking into account such weighting, the dollar strengthens against the respective currencies of the stocks held by the iShares ® MSCI EAFE ETF or the iShares ® MSCI Emerging Markets ETF, such strengthening could adversely affect the value and/or one or more payments on securities linked to the iShares ® MSCI EAFE ETF or the iShares ® MSCI Emerging Markets ETF.

 

Of particular importance to potential currency exchange risk are:

 

· existing and expected rates of inflation;

 

· existing and expected interest rate levels;

 

· the balance of payments; and

 

· the extent of governmental surpluses or deficits in the component countries and the United States of America.

 

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All of these factors are in turn sensitive to the monetary, fiscal and trade policies pursued by the governments of various component countries and the United States and other countries important to international trade and finance.

 

For securities linked in whole or in part to the iShares ® MSCI Emerging Markets ETF, an investment in the securities will be subject to risks associated with emerging markets equity securities.

 

The stocks composing the MSCI Emerging Markets Index, and that are generally tracked by the iShares ® MSCI Emerging Markets ETF, have been issued by companies in various emerging markets. Investments in securities that are linked to the value of foreign equity securities involve risks associated with the securities markets in those countries, including risks of volatility in those markets, governmental intervention in those markets and cross-shareholdings in companies in certain countries. In addition, there is generally less publicly available information about foreign companies than about U.S. companies that are subject to the reporting requirements of the Securities and Exchange Commission, and foreign companies are subject to accounting, auditing and financial reporting standards and requirements different from those applicable to U.S. reporting companies. The prices of securities in foreign markets may be affected by political, economic, financial and social factors in those countries, or global regions, including changes in government, economic and fiscal policies and currency exchange laws. Countries with emerging markets may have relatively unstable governments, present the risks of nationalization of businesses, have restrictions on foreign ownership and prohibitions on the repatriation of assets and have less protection of property rights than more developed countries. The economies of countries with emerging markets may be based on only a few industries, be highly vulnerable to changes in local or global trade conditions and suffer from extreme and volatile debt burdens or inflation rates. Local securities markets may trade a small number of securities and be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult or impossible at times. Moreover, the economies in such countries may differ favorably or unfavorably from the economy in the United States in such respects as growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency.

 

For securities linked in whole or in part to the Market Vectors Gold Miners ETF, risks associated with the gold and silver mining industries will affect the value of the securities.

 

The equity securities included in the NYSE Arca Gold Miners Index and that are generally tracked by the Market Vectors Gold Miners ETF are common stocks and American depositary receipts (“ADRs”) of companies primarily engaged in mining for gold and silver. The shares of the Market Vectors Gold Miners ETF may be subject to increased price volatility as they are linked to a single industry, market or sector and may be more susceptible to adverse economic, market, political or regulatory occurrences affecting that industry, market or sector.

 

Because the Market Vectors Gold Miners ETF invests primarily in common stocks and ADRs of companies that are involved in the gold mining industries, the shares of the Market Vectors Gold Miners ETF are subject to certain risks associated with such companies. Competitive pressures may have a significant effect on the financial condition of such companies in the gold mining industry. Also, gold mining companies are highly dependent on the price of gold. The price of gold is primarily affected by the global demand for and supply of gold. The market for gold bullion is global, and gold prices are subject to volatile price movements over short periods of time and are affected by numerous factors, including macroeconomic factors, such as the structure of and confidence in the global monetary system, expectations regarding the future rate of inflation, the relative strength of, and confidence in, the U.S. dollar (the currency in which the price of gold is usually quoted), interest rates, gold borrowing and lending rates and global or regional economic, financial, political, regulatory, judicial or other events. Gold prices may be affected by industry factors, such as industrial and jewelry demand as well as lending, sales and purchases of gold by the official sector, including central banks and other governmental agencies and multilateral institutions that hold gold. Additionally, gold prices may be affected by levels of gold production, production costs and short-term changes in supply and demand due to trading activities in the gold market. From time to time, above-ground inventories of gold may also influence the market. It is not possible to predict the aggregate effect of all or any combination of these factors. The price of gold has recently been, and may continue to be, extremely volatile.

 

The Market Vectors Gold Miners ETF invests to a lesser extent in common stocks and ADRs of companies involved in the silver mining industry. Silver mining companies are highly dependent on the price of silver. The price of silver is primarily affected by global demand for and supply of silver. Silver prices can fluctuate widely and may be affected by numerous factors. These include general economic trends, technical developments, substitution issues and regulation, as well as specific factors including industrial and jewelry demand, expectations with respect

 

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to the rate of inflation, the relative strength of the U.S. dollar (the currency in which the price of silver is generally quoted) and other currencies, interest rates, central bank sales, forward sales by producers, global or regional political or economic events and production costs and disruptions in major silver-producing countries, such as Mexico, China and Peru. The demand for and supply of silver affect silver prices, but not necessarily in the same manner as supply and demand affect the prices of other commodities. The supply of silver consists of a combination of new mine production and existing stocks of bullion and fabricated silver held by governments, public and private financial institutions, industrial organizations and private individuals. In addition, the price of silver has on occasion been subject to very rapid short-term changes due to speculative activities. From time to time, above-ground inventories of silver may also influence the market. The major end uses for silver include industrial applications, jewelry and silverware.

 

For securities linked in whole or in part to the Consumer Discretionary Select Sector SPDR ® Fund, risks associated with the consumer discretionary sector will affect the value of the securities.

 

All or substantially all of the equity securities held by the Consumer Discretionary Select Sector SPDR ® Fund are issued by companies whose primary line of business is directly associated with the consumer discretionary sector, including the following industries: media; retail (specialty, multiline, internet and catalog); hotels, restaurants and leisure; textiles, apparel and luxury goods; household durables; automobiles; auto components; distributors; leisure equipment and products; and diversified consumer services. The Consumer Discretionary Select Sector SPDR ® Fund is concentrated in the consumer discretionary sector, which means the Consumer Discretionary Select Sector SPDR ® Fund will be more affected by the performance of the consumer discretionary sector than a fund or index that was more diversified.

 

Market or economic factors impacting consumer discretionary companies and companies that rely heavily on Consumer Discretionary advances could have a major effect on the value of the Consumer Discretionary Select Sector SPDR ® Fund. The success of consumer product manufacturers and retailers is tied closely to the performance of the overall domestic and international economy, interest rates, competition and consumer confidence. Success depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer products and services in the marketplace.

 

The factors described above affect the consumer discretionary sector generally and could affect the value of the securities held by the Consumer Discretionary Select Sector SPDR ® Fund and thus the value of the Consumer Discretionary Select Sector SPDR ® Fund during the term of the securities, which may adversely affect the value of your securities.

 

For securities linked in whole or in part to the Consumer Staples Select Sector SPDR ® Fund, risks associated with the consumer staples sector will affect the value of the securities.

 

All or substantially all of the equity securities held by the Consumer Staples Select Sector SPDR ® Fund are issued by companies whose primary line of business is directly associated with the consumer staples sector, including the following industries: food and staples retailing; household products; food products; beverages; tobacco; and personal products. The Consumer Staples Select Sector SPDR ® Fund is concentrated in the consumer staples sector, which means the Consumer Staples Select Sector SPDR ® Fund will be more affected by the performance of the consumer staples sector than a fund or index that was more diversified.

 

Consumer staples companies are subject to government regulation affecting their products, which may negatively impact such companies’ performances. For instance, government regulations may affect the permissibility of using various food additives and production methods of companies that make food products, which could affect company profitability. Tobacco companies may be adversely affected by the adoption of proposed legislation and/or by litigation. Also, the success of food, beverage, household and personal products companies may be strongly affected by consumer interest, marketing campaigns and other factors affecting supply and demand, including performance of the overall domestic and international economy, interest rates, competition and consumer confidence and spending.

 

The factors described above affect the consumer staples sector generally and could affect the value of the securities held by the Consumer Staples

 

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Select Sector SPDR ® Fund and thus the value of the Consumer Staples Select Sector SPDR ® Fund during the term of the securities, which may adversely affect the value of your securities.

 

For securities linked in whole or in part to the Energy Select Sector SPDR ® Fund, risks associated with the energy sector will affect the value of the securities.

 

All or substantially all of the equity securities held by the Energy Select Sector SPDR ® Fund are issued by companies whose primary line of business is directly associated with the energy sector, including the following industries: oil, gas and consumable fuels; and energy equipment and services. The Energy Select Sector SPDR ® Fund is concentrated in the energy sector, which means the Energy Select Sector SPDR ® Fund will be more affected by the performance of the energy sector than a fund or index that was more diversified.

 

Issuers in energy-related industries can be significantly affected by fluctuations in energy prices and supply and demand of energy fuels. Markets for various energy-related commodities can have significant volatility, and are subject to control or manipulation by large producers or purchasers. Companies in the energy sector may need to make substantial expenditures, and to incur significant amounts of debt, in order to maintain or expand their reserves. Oil and gas exploration and production can be significantly affected by natural disasters as well as changes in exchange rates, interest rates, government regulation, world events and economic conditions. These companies may be at risk for environmental damage claims.

 

The factors described above affect the energy sector generally and could affect the value of the securities held by the Energy Select Sector SPDR ® Fund and thus the value of the Energy Select Sector SPDR ® Fund during the term of the securities, which may adversely affect the value of your securities.

 

For securities linked in whole or in part to the Financial Select Sector SPDR ® Fund, risks associated with the financial sector will affect the value of the securities.

 

All or substantially all of the equity securities held by the Financial Select Sector SPDR ® Fund are issued by companies whose primary line of business is directly associated with the financial sector, including companies from the following sub-industries: banks, thrifts and mortgage finance, diversified financial services, consumer finance, capital markets, mortgage REITs and insurance. The Financial Select Sector SPDR ® Fund is concentrated in the financial sector, which means the Financial Select Sector SPDR ® Fund will be more affected by the performance of the financial sector than a fund or index that was more diversified.

 

Financial services companies are subject to extensive government regulation which may limit both the amounts and types of loans and other financial commitments they can make, the interest rates and fees they can charge, the scope of their activities, the prices they can charge and the amount of capital they must maintain. Profitability is largely dependent on the availability and cost of capital funds, and can fluctuate significantly when interest rates change or due to increased competition. In addition, deterioration of the credit markets generally may cause an adverse impact in a broad range of markets, including U.S. and international credit and interbank money markets generally, thereby affecting a wide range of financial institutions and markets. Certain events in the financial sector may cause an unusually high degree of volatility in the financial markets, both domestic and foreign, and cause certain financial services companies to incur large losses. Securities of financial services companies may experience a dramatic decline in value when such companies experience substantial declines in the valuations of their assets, take action to raise capital (such as the issuance of debt or equity securities), or cease operations.

 

Credit losses resulting from financial difficulties of borrowers and financial losses associated with investment activities can negatively impact the sector. Insurance companies may be subject to severe price competition. Adverse economic, business or political developments affecting real estate could have a major effect on the value of mortgage REITs. Declining real estate values could adversely affect financial institutions engaging in mortgage finance or other lending or investing activities directly or indirectly connected with the value of real estate.

 

The factors described above affect the financial sector generally and could affect the value of the securities held by the Financial Select Sector SPDR ® Fund and thus the value of the Financial Select Sector SPDR ® Fund during the term of the securities, which may adversely affect the value of your securities.

 

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For securities linked in whole or in part to the Health Care Select Sector SPDR ® Fund, risks associated with the health care sector will affect the value of the securities.

 

All or substantially all of the equity securities held by the Health Care Select Sector SPDR ® Fund are issued by companies whose primary line of business is directly associated with the health care sector, including the following industries: pharmaceuticals; health care equipment and supplies; health care providers and services; biotechnology; life sciences tools and services; and health care technology. The Health Care Select Sector SPDR ® Fund is concentrated in the health care sector, which means the Health Care Select Sector SPDR ® Fund will be more affected by the performance of the health care sector than a fund or index that was more diversified.

 

Companies in the health care sector are subject to extensive government regulation and their profitability can be significantly affected by restrictions on government reimbursement for medical expenses, rising costs of medical products and services, pricing pressure (including price discounting), limited product lines and an increased emphasis on the delivery of healthcare through outpatient services. Companies in the health care sector are heavily dependent on obtaining and defending patents, which may be time consuming and costly, and the expiration of patents may adversely affect the profitability of these companies. Health care companies are also subject to extensive litigation based on product liability and similar claims. In addition, their products can become obsolete due to industry innovation, changes in technologies or other market developments. Many new products in the health care sector require significant research and development and may be subject to regulatory approvals, all of which may be time consuming and costly with no guarantee that any product will come to market.

 

The factors described above affect the health care sector generally and could affect the value of the securities held by the Health Care Select Sector SPDR ® Fund and thus the value of the Health Care Select Sector SPDR ® Fund during the term of the securities, which may adversely affect the value of your securities.

 

For securities linked in whole or in part to the Industrial Select Sector SPDR ® Fund, risks associated with the industrial sector will affect the value of the securities.

 

All or substantially all of the equity securities held by the Industrial Select Sector SPDR ® Fund are issued by companies whose primary line of business is directly associated with the industrial sector, including the following industries: aerospace and defense; industrial conglomerates; marine; transportation infrastructure; machinery; road and rail; air freight and logistics; commercial services and supplies; professional services; electrical equipment; construction and engineering; trading companies and distributors; airlines; and building products. The Industrial Select Sector SPDR ® Fund is concentrated in the industrial sector, which means the Industrial Select Sector SPDR ® Fund will be more affected by the performance of the industrial sector than a fund or index that was more diversified.

 

Market or economic factors impacting industrial companies and companies that rely heavily on industrial advances could have a major effect on the value of the Industrial Select Sector SPDR ® Fund. Industrial companies are affected by supply and demand both for their specific product or service and for industrial sector products in general. Government regulation, world events, exchange rates and economic conditions, technological developments and liabilities for environmental damage and general civil liabilities will likewise affect the performance of these companies. Aerospace and defense companies, a component of the industrial sector, can be significantly affected by government spending policies because companies involved in this industry rely, to a significant extent, on U.S. and foreign government demand for their products and services. Thus, the financial condition of, and investor interest in, aerospace and defense companies are heavily influenced by governmental defense spending policies which are typically under pressure from efforts to control the U.S. (and other) government budgets. Transportation securities, a component of the industrial sector, are cyclical and have occasional sharp price movements, which may result from changes in the economy, fuel prices, labor agreements and insurance costs.

 

The factors described above affect the industrial sector generally and could affect the value of the securities held by the Industrial Select Sector SPDR ® Fund and thus the value of the Industrial Select Sector SPDR ® Fund during the term of the securities, which may adversely affect the value of your securities.

 

For securities linked in whole or in part to the Materials Select Sector SPDR ® Fund, risks associated with the materials sector will affect the value of the securities.

 

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All or substantially all of the equity securities held by the Materials Select Sector SPDR ® Fund are issued by companies whose primary line of business is directly associated with the materials sector, including the following industries: chemicals; metals and mining; paper and forest products; containers and packaging; and construction materials. The Materials Select Sector SPDR ® Fund is concentrated in the materials sector, which means the Materials Select Sector SPDR ® Fund will be more affected by the performance of the materials sector than a fund or index that was more diversified.

 

Market or economic factors impacting materials companies and companies that rely heavily on materials could have a major effect on the value of the Materials Select Sector SPDR ® Fund. Many materials companies are significantly affected by the level and volatility of commodity prices, exchange rates, import controls, worldwide competition, environmental policies and consumer demand. At times, worldwide production of industrial materials has exceeded demand as a result of over-building or economic downturns, leading to poor investment returns or losses. Other risks may include liabilities for environmental damage and general civil liabilities, depletion of resources, and mandated expenditures for safety and pollution control. The materials sector may also be affected by economic cycles, technical progress, labor relations and government regulations.

 

The factors described above affect the materials sector generally and could affect the value of the securities held by the Materials Select Sector SPDR ® Fund and thus the value of the Materials Select Sector SPDR ® Fund during the term of the securities, which may adversely affect the value of your securities.

 

For securities linked in whole or in part to the Real Estate Select Sector SPDR ® Fund, risks associated with the real estate sector will affect the value of the securities.

 

All or substantially all of the equity securities held by the Real Estate Select Sector SPDR ® Fund are issued by companies whose primary line of business is directly associated with the real estate sector, including the following industries: real estate management and development and REITs, excluding mortgage REITs. The Real Estate Select Sector SPDR ® Fund is concentrated in the real estate sector, which means the Real Estate Select Sector SPDR ® Fund will be more affected by the performance of the real estate sector than a fund or index that was more diversified.

 

An investment in a real property company may be subject to risks similar to those associated with direct ownership of real estate, including, by way of example, the possibility of declines in the value of real estate, losses from casualty or condemnation, and changes in local and general economic conditions, supply and demand, interest rates, environmental liability, zoning laws, regulatory limitations on rents, property taxes and operating expenses. Some real property companies have limited diversification because they invest in a limited number of properties, a narrow geographic area, or a single type of property.

 

REITs are subject to the risks associated with investing in the securities of real property companies. In particular, REITs may be affected by changes in the values of the underlying properties that they own or operate. Further, REITs are dependent upon specialized management skills, and their investments may be concentrated in relatively few properties, or in a small geographic area or a single property type. REITs are also subject to heavy cash flow dependency and, as a result, are particularly reliant on the proper functioning of capital markets. A variety of economic and other factors may adversely affect a lessee’s ability to meet its obligations to a REIT. In the event of a default by a lessee, the REIT may experience delays in enforcing its rights as a lessor and may incur substantial costs associated in protecting its investments. In addition, a REIT could fail to qualify for favorable tax or regulatory treatment.

 

The factors described above affect the real estate sector generally and could affect the value of the securities held by the Real Estate Select Sector SPDR ® Fund and thus the value of the Real Estate Select Sector SPDR ® Fund during the term of the securities, which may adversely affect the value of your securities.

 

For securities linked in whole or in part to the Technology Select Sector SPDR ® Fund, risks associated with the technology sector will affect the value of the securities.

 

All or substantially all of the equity securities held by the Technology Select Sector SPDR ® Fund are issued by companies whose primary line of business is directly associated with the technology sector, including the following industries: technology hardware, storage, and peripherals; software; diversified telecommunication services;

 

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communications equipment; semiconductors and semiconductor equipment; internet software and services; information technology services; electronic equipment, instruments and components; and wireless telecommunication services. The Technology Select Sector SPDR ® Fund is concentrated in the technology sector, which means the Technology Select Sector SPDR ® Fund will be more affected by the performance of the technology sector than a fund or index that was more diversified.

 

Market or economic factors impacting technology companies and companies that rely heavily on technology advances could have a major effect on the value of the Technology Select Sector SPDR ® Fund. The value of stocks of technology companies and companies that rely heavily on technology is particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, government regulation and competition, both domestically and internationally, including competition from foreign competitors with lower production costs. Stocks of technology companies and companies that rely heavily on technology, especially those of smaller, less-seasoned companies, tend to be more volatile than the overall market. Technology companies are heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely affect profitability Additionally, companies in the technology sector may face dramatic and often unpredictable changes in growth rates and competition for the services of qualified personnel.

 

The factors described above affect the technology sector generally and could affect the value of the securities held by the Technology Select Sector SPDR ® Fund and thus the value of the Technology Select Sector SPDR ® Fund during the term of the securities, which may adversely affect the value of your securities.

 

For securities linked in whole or in part to the Utilities Select Sector SPDR ® Fund, risks associated with the utilities sector will affect the value of the securities.

 

All or substantially all of the equity securities held by the Utilities Select Sector SPDR ® Fund are issued by companies whose primary line of business is directly associated with the utilities sector, including the following industries: electric utilities; water utilities; multi-utilities; independent power producers and energy traders; and gas utilities. The Utilities Select Sector SPDR ® Fund is concentrated in the utilities sector, which means the Utilities Select Sector SPDR ® Fund will be more affected by the performance of the utilities sector than a fund or index that was more diversified.

 

The performance of companies in the utilities sector is affected by supply and demand, operating costs, government regulation, environmental factors, liabilities for environmental damage and general civil liabilities, and rate caps or rate charges. Although rate changes of a utility usually fluctuate in approximate correlation with financing costs due to political and regulatory factors, rate changes ordinarily occur only following a delay after the changes in financing costs. This factor will tend to favorably affect a regulated utility company’s earnings and dividends in times of decreasing costs, but conversely, will tend to adversely affect earnings and dividends when costs are rising. The value of regulated utility equity securities may tend to have an inverse relationship to the movement of interest rates. Certain utility companies have experienced full or partial deregulation in recent years. These utility companies are frequently more similar to industrial companies in that they are subject to greater competition and have been permitted by regulators to diversify outside of their original geographic regions and their traditional lines of business. These opportunities may permit certain utility companies to earn more than their traditional regulated rates of return. Some companies, however, may be forced to defend their core business and may be less profitable. In addition, natural disasters, terrorist attacks, government intervention or other factors may render a utility company’s equipment unusable or obsolete and negatively impact profitability.

 

Among the risks that may affect utility companies are the following: risks of increases in fuel and other operating costs; the high cost of borrowing to finance capital construction during inflationary periods; restrictions on operations and increased costs and delays associated with compliance with environmental and nuclear safety regulations; and the difficulties involved in obtaining natural gas for resale or fuel for generating electricity at reasonable prices. Other risks include those related to the construction and operation of nuclear power plants, the effects of energy conservation and the effects of regulatory changes

 

The factors described above affect the utilities sector generally and could affect the value of the securities held by the Utilities Select Sector SPDR ® Fund and thus the value of the Utilities Select Sector SPDR ® Fund during the term of the securities, which may adversely affect the value of your securities.

 

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For securities linked in whole or in part to the SPDR ® Gold Trust, t he price of gold is volatile and is affected by numerous factors.

 

The value of the SPDR ® Gold Trust is closely related to the price of gold. A decrease in the price of gold may have a material adverse effect on the value of the securities and your return on your investment in the securities. Gold is subject to the effect of numerous factors. The following describes some of the factors affecting gold.

 

The price of gold is primarily affected by the global demand for and supply of gold. The market for gold bullion is global, and gold prices are subject to volatile price movements over short periods of time and are affected by numerous factors, including macroeconomic factors, such as the structure of and confidence in the global monetary system, expectations regarding the future rate of inflation, the relative strength of, and confidence in, the U.S. dollar (the currency in which the price of gold is usually quoted), interest rates, gold borrowing and lending rates and global or regional economic, financial, political, regulatory, judicial or other events. Gold prices may be affected by industry factors, such as industrial and jewelry demand as well as lending, sales and purchases of gold by the official sector, including central banks and other governmental agencies and multilateral institutions that hold gold. Additionally, gold prices may be affected by levels of gold production, production costs and short-term changes in supply and demand due to trading activities in the gold market. From time to time, above-ground inventories of gold may also influence the market. It is not possible to predict the aggregate effect of all or any combination of these factors. The price of gold has recently been, and may continue to be, extremely volatile.

 

For securities linked in whole or in part to the SPDR ® Gold Trust, econo mic or political events or crises could result in large-scale purchases or sales of gold, which could affect the price of gold and may adversely affect the value of your securities.

 

Many investors, institutions, governments and others purchase and sell gold as a hedge against inflation, market turmoil or uncertainty or political events. Under such circumstances, significant large-scale purchases or sales of gold by market participants may affect the price of gold, which could adversely affect the value of your securities. Crises in the future may impair gold’s price performance which would, in turn, adversely affect the shares of the SPDR ® Gold Trust and your investment in the securities.

 

For securities linked in whole or in part to the SPDR ® Gold Trust, gold is traded on the London Bullion Market Association, so an investment in the securities may be subject to risks associated with the London Bullion Market Association.

 

The SPDR ® Gold Trust is closely related to its underlying commodity ( e.g. , gold), the price of which is determined by an independent service provider appointed by the London Bullion Market Association (the “LBMA”). Investments in securities indexed to the value of commodities the prices of which are determined by non-U.S. markets involve risks associated with the markets in those countries, including risks of volatility in those markets and governmental intervention in those markets.

 

The final price of gold will be determined by reference to fixing prices reported by an independent service provider appointed by the LBMA. The LBMA is a self-regulatory association of bullion market participants. Although all market-making members of the LBMA are supervised by the Bank of England and are required to satisfy a capital adequacy test, the LBMA itself is not a regulated entity. If the LBMA should cease operations, or if bullion trading should become subject to a value added tax or other tax or any other form of regulation currently not in place, the role of LBMA price fixings as a global benchmark for the value of gold may be adversely affected. The LBMA is a principals’ market which operates in a manner more closely analogous to an over-the-counter physical commodity market than regulated futures markets, and certain features of U.S. futures contracts are not present in the context of LBMA trading. For example, there are no daily price limits on the LBMA which would otherwise restrict fluctuations in the prices of LBMA contracts. In a declining or rising market, it is possible that prices would continue to decline or rise without limitation within a trading day or over a period of trading days.

 

For securities linked in whole or in part to the SPDR ® Gold Trust, the relevant exchange for gold has no obligation to consider your interests.

 

The price of the SPDR ® Gold Trust is closely related to the price of gold. T he relevant

 

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exchange for gold is responsible for calculating the official settlement price or fixing level, as applicable, for gold. The relevant exchange may alter, discontinue or suspend calculation or dissemination of the official settlement price or fixing level, as applicable, for gold. Any of these actions could adversely affect the value of the securities. The relevant exchange has no obligation to consider your interests in calculating or revising the official settlement price or fixing level, as applicable, for gold.

 

For securities linked in whole or in part to the SPDR ® Gold Trust, termination of the SPDR ® Gold Trust could affect adversely the value of the securities.

 

The SPDR ® Gold Trust may be required to terminate and liquidate at a time that is disadvantageous to you. If the SPDR ® Gold Trust is required to terminate and liquidate, such termination and liquidation could occur at a time that is disadvantageous to you, such as when the price of gold is higher than the price of gold at the time when you purchased your securities.

 

The performance of the SPDR ® Gold Trust may not correlate with the price of gold.

 

The performance of SPDR ® Gold Trust may not fully replicate the performance of the price of gold due to the fees and expenses charged by the SPDR ® Gold Trust or by restrictions on access to gold due to other circumstances. The SPDR ® Gold Trust does not generate any income and as the SPDR ® Gold Trust regularly sells gold to pay for its ongoing expenses, the amount of gold represented by each share gradually declines over time. The SPDR ® Gold Trust sells gold to pay expenses on an ongoing basis irrespective of whether the trading price of the shares rises or falls in response to changes in the price of gold. The sale of SPDR ® Gold Trust’s gold to pay expenses at a time of low gold prices (for securities that provide long exposure to the SPDR ® Gold Trust) or at a time of high gold prices (for securities that provide short exposure to the SPDR ® Gold Trust) could adversely affect the value of the securities. Additionally, there is a risk that part or all of the SPDR ® Gold Trust’s gold could be lost, damaged or stolen due to war, terrorism, theft, natural disaster or otherwise.

 

The net asset value of the SPDR ® Gold Trust will reflect the performance of gold. However, because the shares of the SPDR ® Gold Trust are traded on NYSE Arca, Inc. and are subject to market supply and investor demand, the market value of one Share of the SPDR ® Gold Trust may differ from the net asset value per share of the SPDR ® Gold Trust.

 

For all of the foregoing reasons, the performance of the SPDR ® Gold Trust over the term of the securities may not correlate with the performance of the return on gold over the same period. Consequently, the return on the securities will not be the same as investing directly in the SPDR ® Gold Trust, gold or other exchange-traded or over-the-counter instruments based on gold, and will not be the same as investing in a note or another financial product with payments linked in part to the performance of the SPDR ® Gold Trust.

 

For securities linked in whole or in part to the SPDR ® S&P ® Homebuilders ETF, risks associated with the homebuilding industry will affect the value of the securities.

 

The homebuilding industry is significantly affected by factors in general and local economic conditions and real estate markets as well as by weather conditions, natural disasters and geopolitical events, any of which could affect the ability of the companies the equity securities of which are held by the SPDR ® S&P ® Homebuilders ETF to conduct their businesses profitably. The homebuilding industry is cyclical and has from time to time experienced significant difficulties. The prices of the equity securities held by the SPDR ® S&P ® Homebuilders ETF and, in turn, the price of the SPDR ® S&P ® Homebuilders ETF, will be affected by a number of factors that may either offset or magnify each other, including:

 

· a decline in the value of real estate properties;

 

· employment levels and job growth;

 

· the availability of financing for home buyers;

 

· interest rates;

 

· consumer confidence;

 

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· housing demand;

 

· the availability of suitable undeveloped land;

 

· raw material and labor shortages and price fluctuations;

 

· federal, state and local laws and regulations concerning the development of land, homebuilding, home sales, consumer financing and environmental protection;

 

· competition among companies which engage in the homebuilding business; and

 

· the supply of homes and other housing alternatives.

 

In addition, weather conditions and natural disasters such as hurricanes, tornadoes, earthquakes, floods and fires can harm the homebuilding business. Geopolitical events, such as the aftermath of the war with Iraq and the terrorist attacks on September 11, 2001, and related market disruptions could also have a significant impact on the homebuilding business.

 

The factors described above could affect the homebuilding industry generally or regionally and could affect the value of the equity securities held by the SPDR ® S&P ® Homebuilders ETF and thus the price of the SPDR ® S&P ® Homebuilders ETF during the term of the securities.

 

For securities linked in whole or in part to the SPDR ® S&P ® Homebuilders ETF, there will be no direct correlation between the value of the securities or the price of the SPDR ® S&P ® Homebuilders ETF and residential housing prices.

 

There is no direct linkage between the price of the SPDR ® S&P ® Homebuilders ETF and residential housing prices in specific regions or residential housing prices in general. While residential housing prices may be one factor that could affect the prices of the equity securities held by the SPDR ® S&P ® Homebuilders ETF and consequently the price of the SPDR ® S&P ® Homebuilders ETF, the price of the SPDR ® S&P ® Homebuilders ETF and the securities are not directly linked to movements of residential housing prices and may be affected by factors unrelated to such movements.

 

For securities linked in whole or in part to the SPDR ® S&P ® Metals & Mining ETF, risks associated with the metals and mining industry will affect the value of the securities.

 

All or substantially all of the equity securities held by the SPDR ® S&P ® Metals & Mining ETF are issued by companies whose primary lines of business are directly associated with the metals and mining industry. As a result, the value of the securities may be subject to greater volatility and be more adversely affected by a single economic, political or regulatory occurrence affecting this industry than a different investment linked to securities of a more broadly diversified group of issuers. The metals and mining industry can be significantly affected by international political and economic developments, energy conservation, the success of exploration projects, commodity prices and tax and other government regulations. Companies involved in the metals and mining industry may benefit from government subsidies or certain trade protections. If those subsidies or trade protections are reduced or removed, the profits of such companies may be affected, potentially drastically. In addition, competitive pressures and the cyclical nature of the metal and mining industry may have a significant effect on the financial condition of these companies. These companies are also subject to risks of changes in exchange rates, terrorist attacks, depletion of resources and reduced demand as a result of increases in energy efficiency, substitution and energy conservation. Such companies are subject to extensive federal, state and local environmental laws and regulations regarding air emissions and the disposal of hazardous materials and may be at risk for environmental damage claims. These factors could affect the metals and mining industry and could affect the value of the equity securities held by the SPDR ® S&P ® Metals & Mining ETF and the price of the SPDR ® S&P ® Metals & Mining ETF during the term of the securities, which may adversely affect the value of your securities.

 

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For securities linked in whole or in part to the SPDR ® S&P ® Oil & Gas Exploration & Production ETF, risks associated with the exploration of oil and gas will affect the value of the securities.

 

All or substantially all of the equity securities underlying the SPDR ® S&P ® Oil & Gas Exploration & Production ETF are issued by companies whose primary business is associated with the exploration and production of oil and gas. As a result, the value of the securities may be subject to greater volatility and may be more adversely affected by a single economic, political or regulatory occurrence affecting this industry than a different investment linked to securities of a more broadly diversified group of issuers or issuers in a less volatile industry. The oil and gas industry is significantly affected by a number of factors that influence worldwide economic conditions and oil and gas prices, such as natural disasters, supply disruptions, geopolitical events and other factors that may offset or magnify each other, including:

 

· worldwide and domestic supplies of, and demand for, crude oil and natural gas;

 

· the cost of exploring for, developing, producing, refining and marketing crude oil and natural gas;

 

· consumer confidence;

 

· changes in weather patterns and climatic changes;

 

· the ability of the members of Organization of Petroleum Exporting Countries (OPEC) and other producing nations to agree to and maintain production levels;

 

· the worldwide military and political environment, uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or further acts of terrorism in the United States, or elsewhere;

 

· the price and availability of alternative and competing fuels;

 

· domestic and foreign governmental regulations and taxes;

 

· employment levels and job growth; and

 

· general economic conditions worldwide.

 

These or other factors or the absence of such factors affect the oil and natural gas industries generally or regionally and could cause the value of some or all of the component stocks held by the SPDR ® S&P ® Oil & Gas Exploration & Production ETF to decline during the term of the securities. For example, the SPDR ® S&P ® Oil & Gas Exploration & Production ETF suffered significant negative performance in 2014 and 2015 while the broader U.S. equities markets achieved positive returns for the same period.

 

For securities linked in whole or in part to the SPDR ® S&P ® Regional Banking ETF, risks associated with the banking sector will affect the value of the securities.

 

An investment in the securities is subject to risks associated with investing in stocks in the banking sector. Because the SPDR ® S&P ® Regional Banking ETF is concentrated in the banking sector, it may be adversely affected by the performance of the banking sector versus a fund that was more diversified. The performance of bank stocks may be affected by extensive governmental regulation which may limit both the amounts and types of loans and other financial commitments they can make, and the interest rates and fees they can charge and the amount of capital they must maintain. Profitability is largely dependent on the availability and cost of capital funds, and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers can negatively impact the sector. Banks may also be subject to severe price competition. The regional banking industry is highly competitive and failure to maintain or increase market share may result in lost market share.

 

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The performance of the United States Oil Fund, LP may not fully replicate the performance of the price of light, sweet crude oil.

 

United States Commodity Funds LLC, the general partner of the United States Oil Fund, LP, is responsible for investing the assets of the United States Oil Fund, LP in accordance with the objectives and policies of the United States Oil Fund, LP. The assets of the United States Oil Fund, LP consist primarily of investments in futures contracts for light, sweet crude oil, other types of crude oil, heating oil, gasoline, natural gas, and other petroleum-based fuels that are traded on the New York Mercantile Exchange, ICE Futures or other U.S. and foreign exchanges (collectively, “oil futures contracts”) and other oil interests such as cash-settled options on oil futures contracts, forward contracts for oil, and over-the-counter transactions that are based on the price of oil, other petroleum-based fuels, oil futures contracts and indices based on the foregoing (collectively, “other oil interests” and together with oil futures contracts, “oil interests”). The United States Oil Fund, LP seeks to achieve its investment objective by investing in a mix of oil futures contracts and other oil interests such that changes in the net asset value of the United States Oil Fund, LP will closely track the changes in the price of a specified oil futures contract (the “benchmark oil futures contract”). The United States Oil Fund, LP’s general partner believes that the benchmark oil futures contract historically has exhibited a close correlation with the spot price of light, sweet crude oil.

 

There is no assurance that the general partner of the United States Oil Fund, LP will successfully implement its investment strategy and there is a risk that changes in the price of United States Oil Fund, LP units will not closely track changes in the spot price of light, sweet crude oil. The performance of the United States Oil Fund, LP may not exactly replicate the performance of the oil interests underlying the United States Oil Fund, LP because the United States Oil Fund, LP will reflect transaction costs and fees. It is also possible that the United States Oil Fund, LP may not fully replicate or may in certain circumstances diverge significantly from the performance of the oil interests underlying the United States Oil Fund, LP due to the temporary unavailability of certain securities in the secondary market or the performance of any derivative instruments contained in the United States Oil Fund, LP. This could also happen if the price of the units does not correlate closely with the United States Oil Fund, LP’s net asset value; changes in the United States Oil Fund, LP’s net asset value do not closely correlate with changes in the price of the benchmark oil futures contract; or changes in the price of the benchmark oil futures contract do not closely correlate with changes in the cash or spot price of light, sweet crude oil. Light, sweet crude oil has also demonstrated a lack of correlation with world crude oil prices due to structural differences between the U.S. market for crude oil and the international market for crude oil. The prices of light, sweet crude oil may be more volatile than world crude oil prices generally.

 

For securities linked in whole or in part to the United States Oil Fund, LP, global energy commodity prices are primarily affected by the global demand for and supply of these commodities, but are also significantly influenced by speculative actions and by currency exchange rates.

 

Prices for energy commodities, which includes crude oil, are affected by governmental programs and policies, national and international political and economic events, changes in interest and exchange rates, trading activities in commodities and related contracts, trade, fiscal, monetary and exchange control policies and, with respect to oil specifically, drought, floods, weather, government intervention, environmental policies, embargoes and tariffs. Demand for refined petroleum products by consumers, as well as the agricultural, manufacturing and transportation industries, affects the price of energy commodities. Sudden disruptions in the supplies of energy commodities, such as those caused by war, natural events, accidents or acts of terrorism, may cause prices of energy commodities futures contracts to become extremely volatile and unpredictable. Also, sudden and dramatic changes in the futures market may occur, for example, upon a cessation of hostilities that may exist in countries producing energy commodities, the introduction of new or previously withheld supplies into the market or the introduction of substitute products or commodities. In particular, supplies of crude oil may increase or decrease depending on, among other factors, production decisions by the Organization of Oil and Petroleum Exporting Countries (“OPEC”) and other crude oil producers. Crude oil prices are determined with significant influence by OPEC, which has the capacity to influence oil prices worldwide because its members possess a significant portion of the world’s oil supply. Crude oil prices are generally more volatile and subject to dislocation than prices of other commodities. Demand for energy commodities such as crude oil is generally linked to economic activity, and will tend to reflect general economic conditions.

 

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For securities linked in whole or in part to the United States Oil Fund, LP, the price of crude oil may change unpredictably and affect the price of the United States Oil Fund, LP and the value of the securities in unforeseen ways.

 

The price of the United States Oil Fund, LP is linked closely to the price of light, sweet crude oil. The price of crude oil is subject to volatile price movements over short periods of time and is generally affected by numerous factors including:

 

· demand for refined petroleum products by consumers, as well as the agricultural, manufacturing and transportation industries;

 

· economic conditions that affect the end-use of crude oil as a refined product such as transport fuel, industrial fuel and in-home heating fuel;

 

· U.S. government regulations, such as environmental or consumption policies;

 

· geopolitical events, labor activity and, in particular, direct government intervention such as embargos;

 

· supply disruptions in major oil producing regions of the world, production decisions by OPEC and other crude oil producers and cessation of hostilities that may exist in countries producing oil;

 

· sudden disruptions in the supply of oil due to war, natural events, accidents or acts of terrorism; and

 

· the introduction of new or previously withheld supplies into the market or the introduction of substitute products or commodities.

 

For securities linked in whole or in part to the Vanguard FTSE Emerging Markets ETF, additional risks will affect the value of the securities.

 

On June 2, 2015, The Vanguard Group, Inc. announced that the Vanguard FTSE Emerging Markets ETF would transition to track a new underlying index. On November 2, 2015, the Vanguard FTSE Emerging Markets ETF ceased tracking the FTSE Emerging Index and began temporarily tracking the FTSE Emerging Markets All Cap China A Inclusion Transition Index. By using this transition index, over a period of approximately 12 months, the Vanguard FTSE Emerging Markets ETF will move gradually from tracking the FTSE Emerging Index to tracking the FTSE Emerging Markets All Cap China A Inclusion Index. As part of the transition, China A-shares and small-capitalization companies will gradually increase in weight over the 12-month period, while the weights of the stocks already in the index will be proportionately reduced. The FTSE Emerging Markets All Cap China A Inclusion Index is a market-capitalization weighted index representing the performance of large-, mid- and small-capitalization stocks in emerging markets. The principal differences between the FTSE Emerging Index and the FTSE Emerging Markets All Cap China A Inclusion Index are that the former represents the performance of large- and mid-capitalization companies in emerging markets, excluding China A-shares, whereas the latter also represents the performance of small-capitalization companies in emerging markets and includes China A-shares. As a result of this transition, the Vanguard FTSE Emerging Markets ETF will be exposed to risks associated with investing both in mainland China and in small-capitalization stocks.

 

The adjustments to the Vanguard FTSE Emerging Markets ETF’s holdings are expected to result in temporary increases in the Vanguard FTSE Emerging Markets ETF’s transaction costs and turnover rate. The Vanguard FTSE Emerging Markets ETF’s actual transaction costs and turnover rate will be dependent upon a number of factors, including the market environment at the time of the portfolio adjustments. These factors could reduce the Vanguard FTSE Emerging Markets ETF’s performance and the return on the securities.

 

Because the Vanguard FTSE Emerging Markets ETF has begun tracking an index that includes China A-shares, the securities are subject to increased risk exposure to Chinese incorporated companies that trade on either the Shanghai or Shenzhen stock exchange. Furthermore, in order to trade in China A-shares, a foreign investor must have access to a quota through a qualified foreign institutional investor (“QFII”) or Renminbi QFII license holder. In order to trade in China A-shares, the Vanguard FTSE Emerging Markets ETF must obtain a quota from the Chinese regulator prior to investing and then must continue to apply for additional quotas to meet its investment

 

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needs. There is no guarantee that the Chinese regulator will continue to give the Vanguard FTSE Emerging Markets ETF any or all of its requested quotas. If the Vanguard FTSE Emerging Markets ETF were to be denied any or all of a requested trade quota, the Vanguard FTSE Emerging Markets ETF would likely have difficulty trading and valuing its China A-shares. Such circumstance would likely cause the Vanguard FTSE Emerging Markets ETF to have difficulty tracking the FTSE Emerging Markets All Cap China A Inclusion Transition Index or FTSE Emerging Markets All Cap China A Inclusion Index, as applicable, and may adversely affect the price of the Vanguard FTSE Emerging Markets ETF.

 

During both the transition and final benchmark phases, the Vanguard FTSE Emerging Markets ETF will invest by sampling the relevant index, meaning that it will hold a broadly diversified collection of securities that, in the aggregate, approximates the full index in terms of key characteristics. In addition, the addition of small-capitalization stocks and China A-Shares may adversely affect the performance of the Vanguard FTSE Emerging Markets ETF. Moreover, the historical performance of the Vanguard FTSE Emerging Markets ETF prior to November 2, 2015 will not reflect the contribution of small-capitalization stocks and China A-shares and investors in the securities should bear this difference in mind when evaluating the historical data.

 

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Equity Index Descriptions

 

The Dow Jones Industrial Average TM

 

All information contained in this underlying supplement regarding the Dow Jones Industrial Average TM , including, without limitation, its make-up, method of calculation and changes in its components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, S&P Dow Jones Indices LLC (“S&P Dow Jones”). The Dow Jones Industrial Average TM is calculated, published and disseminated by S&P Dow Jones. S&P Dow Jones has no obligation to continue to publish, and may discontinue publication of, the Dow Jones Industrial Average TM .

 

The Dow Jones Industrial AverageTM is reported by Bloomberg L.P. under the ticker symbol “INDU.”

 

The Dow Jones Industrial Average TM consists of 30 common stocks chosen as representative of the broad market of U.S. industry. Many of the companies represented in the Dow Jones Industrial Average TM are household names and leaders in their respective industries, and their stocks are widely held by both individual and institutional investors. Because the Dow Jones Industrial Average TM is so well known and its performance is generally perceived to reflect that of the overall domestic equity market, it is often used as a benchmark for investments in equities, mutual funds and other asset classes. The Dow Jones Industrial average does not include the transportation and utilities sectors.

 

The Dow Jones Industrial Average TM is a price-weighted index rather than market capitalization-weighted index. In essence, the Dow Jones Industrial Average TM consists of one share of each of the 30 stocks included in the Dow Jones Industrial Average TM . Thus, the weightings of the components of the Dow Jones Industrial Average TM are affected only by changes in their prices, while the weightings of stocks in other indices generally are affected by price changes and changes in shares outstanding. This distinction stems from the fact that, when initially created, the Dow Jones Industrial Average TM was a simple average (hence the name), and was computed merely by adding up the prices of the stocks in the Dow Jones Industrial Average TM and dividing that sum by the total number of stocks in the Dow Jones Industrial Average TM . However, it eventually became clear that a method was needed to smooth out the effects of stock splits and other composition changes to prevent these events from distorting the level of the Dow Jones Industrial Average TM . Therefore, a divisor was created that has been periodically adjusted over time. This divisor, when divided into the sum of the prices of the stocks in the Dow Jones Industrial Average TM , generates the number that is reported every day in newspapers, on television and radio, and over the internet. With the incorporation of the divisor, the Dow Jones Industrial Average TM can no longer be considered an average.

 

The Dow Jones Industrial Average TM is maintained by the Dow Jones Averages Index Committee (the “Averages Committee”), which is currently composed of three representatives of S&P Dow Jones and two representatives of The Wall Street Journal . The Averages Committee meets at least semi-annually to review and make changes to the composition of the Dow Jones Industrial Average TM . While component selection is not governed by quantitative rules, a stock typically is added only if it has an excellent reputation, demonstrates sustained growth, is of interest to a large number of investors and accurately represents the sectors covered by the Dow Jones Industrial Average TM . The inclusion of any particular company in the Dow Jones Industrial Average TM does not constitute a prediction as to the company’s future results of operations or stock market performance. For the sake of continuity, composition changes are rare, and generally have occurred only after corporate acquisitions or other dramatic shifts in a component company’s core business. When such an event necessitates that one component be replaced, the entire index is reviewed. As a result, multiple component changes are often implemented simultaneously.

 

License Agreement

 

The Dow Jones Industrial Average TM is a registered trademark of Dow Jones Trademark Holdings, LLC (“Dow Jones”), and has been licensed for use. “Dow Jones ® ,” “Dow Jones Indexes,” and “Dow Jones Industrial Average TM ” are registered trademarks of Dow Jones. “S&P” is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”). Trademarks have been licensed to S&P Dow Jones and have been sublicensed for use for certain purposes by Citigroup Global Markets Inc. and its affiliates. The securities are not sponsored, endorsed, sold or promoted by S&P Dow Jones, Dow Jones, S&P or their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices make no representation or warranty, express or implied, to the

 

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owners of the securities or any member of the public regarding the advisability of investing in securities generally or in the securities particularly. The only relationship of S&P Dow Jones Indices to Citigroup Global Markets Inc. or to its affiliates is the licensing of certain trademarks, trade names and service marks of Dow Jones and of the Dow Jones Industrial Average TM , which is determined, composed and calculated by S&P Dow Jones Indices without regard to Citigroup Global Markets Inc. or the securities. S&P Dow Jones Indices have no obligation to take the needs of Citigroup Global Markets Inc. or the owners of the securities into consideration in determining, composing or calculating Dow Jones Industrial Average TM . S&P Dow Jones Indices are not responsible for and have not participated in the determination of the timing, prices or quantities of the securities to be issued or in the determination or calculation of the equation by which the securities are to be converted into cash. S&P Dow Jones Indices have no obligation or liability in connection with the administration, marketing or trading of the securities.

 

Notwithstanding the foregoing, S&P Dow Jones Indices may independently issue and/or sponsor financial products unrelated to the securities currently being issued by Citigroup Global Markets Holdings Inc., but which may be similar to and competitive with the securities. In addition, S&P Dow Jones Indices may actively trade financial products which are linked to the performance of the Dow Jones Industrial Average TM . It is possible that this trading activity will affect the value of the Dow Jones Industrial Average TM and the securities.

 

S&P DOW JONES INDICES DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE DOW JONES INDUSTRIAL AVERAGE TM OR ANY DATA INCLUDED THEREIN AND SUCH CORPORATIONS SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P DOW JONES INDICES MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY CITIGROUP GLOBAL MARKETS INC. AND ITS AFFILIATES, HOLDERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE DOW JONES INDUSTRIAL AVERAGE TM OR ANY DATA INCLUDED THEREIN. S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIM ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE DOW JONES INDUSTRIAL AVERAGE TM OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P DOW JONES INDICES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND CITIGROUP GLOBAL MARKETS INC. AND ITS AFFILIATES, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.

 

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The EURO STOXX 50 ® Index

 

All information contained in this underlying supplement regarding the EURO STOXX 50 ® Index, including, without limitation, its make-up, method of calculation and changes in its components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, STOXX Limited. The EURO STOXX 50 ® Index is calculated, maintained and published by STOXX Limited. STOXX Limited has no obligation to continue to publish, and may discontinue publication of, the EURO STOXX 50 ® Index.

 

The EURO STOXX 50 ® Index is reported by Bloomberg L.P. under the ticker symbol “SX5E.”

 

The EURO STOXX 50 ® Index was created by STOXX Limited, a wholly owned subsidiary of Deutsche Börse AG. Publication of the EURO STOXX 50 ® Index began on February 26, 1998, based on an initial EURO STOXX 50 ® Index value of 1,000 at December 31, 1991. The EURO STOXX 50 ® Index is disseminated on the STOXX Limited website: http://www.stoxx.com, which sets forth, among other things, the country and industrial sector weightings of the securities included in the EURO STOXX 50 ® Index. Information contained in the STOXX Limited website is not incorporated by reference in, and should not be considered a part of, this underlying supplement or the relevant terms supplement.

 

EURO STOXX 50 ® Index Composition and Maintenance

 

The EURO STOXX 50 ® Index is composed of 50 component stocks of market sector leaders in terms of free-float market capitalization from within the 19 EURO STOXX ® Supersector indices, which represent the Eurozone portion of the STOXX Europe 600 ® Supersector indices. The STOXX Europe 600 ® Supersector indices contain the 600 largest stocks traded on the major exchanges of 18 European countries.

 

The composition of the EURO STOXX 50 ® Index is reviewed annually, based on the closing stock data on the last trading day in August. The component stocks are announced on the first trading day in September. Changes to the component stocks are implemented on the third Friday in September and are effective the following trading day. The composition of the EURO STOXX 50 ® Index is also reviewed monthly to ensure that component stocks still remain eligible for inclusion. Any resulting changes from the monthly review are implemented on the close of the fifth trading day following the monthly review and are effective the next trading day. Changes in the composition of the EURO STOXX 50 ® Index are made to ensure that the EURO STOXX 50 ® Index includes the 50 market sector leaders from within the EURO STOXX ® Index.

 

The free float factors for each component stock used to calculate the EURO STOXX 50 ® Index, as described below, are reviewed, calculated and implemented on a quarterly basis and are fixed until the next quarterly review. Each components weight is capped at 10% of the EURO STOXX 50 ® Index’s total free-float market capitalization.

 

The EURO STOXX 50 ® Index is also reviewed on an ongoing basis. Corporate actions (including initial public offerings, mergers and takeovers, spin-offs, delistings and bankruptcy) that affect the EURO STOXX 50 ® Index composition are immediately reviewed. Any changes are announced, implemented and effective in line with the type of corporate action and the magnitude of the effect.

 

EURO STOXX 50 ® Index Calculation

 

The EURO STOXX 50 ® Index is calculated with the “Laspeyres formula,” which measures the aggregate price changes in the component stocks against a fixed base quantity weight. The formula for calculating the EURO STOXX 50 ® Index value at any time can be expressed as follows:

 

Index = free float market capitalization of the EURO STOXX 50 ® Index
Divisor

 

The “free float market capitalization of the EURO STOXX 50 ® Index” is equal to the sum of the products of the price, number of shares, free float factor and weighting cap factor for each component stock as of the time the EURO STOXX 50 ® Index is being calculated. Each component’s weight is capped at 10% of the free float market capitalization of the EURO STOXX 50 ® Index.

 

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The divisor for the EURO STOXX 50 ® Index is adjusted to maintain the continuity of EURO STOXX 50 ® Index values despite changes due to corporate actions. The following is a summary of the adjustments to any component stock made for corporate actions and the effect of such adjustment on the divisor, where shareholders of the component stock will receive “B” number of shares for every “A” share held (where applicable).

 

(1) Special cash dividend:

 

Cash distributions that are outside the scope of the regular dividend policy or that the company defines as an extraordinary distribution

 

Adjusted price = closing price – dividend announced by the company × (1 – withholding tax if applicable)

 

Divisor: decreases

(2) Split and reverse split:

 

Adjusted price = closing price × A / B

 

New number of shares = old number of shares × B / A

 

Divisor: unchanged

(3) Rights offering:

 

If the subscription price is not available or if the subscription price is equal to or greater than the closing price on the day before the effective date, then no adjustment is made.

 

In case the share increase is greater than or equal to 100% (B / A ≥ 1), the adjustment of the shares and weight factors are delayed until the new shares are listed.

 

Adjusted price = (closing price × A + subscription price × B) / (A + B)

 

New number of shares = old number of shares × (A + B)/ A

 

Divisor: increases

(4) Stock dividend:

 

Adjusted price = closing price × A / (A + B)

 

New number of shares = old number of shares × (A + B) / A

 

Divisor: unchanged

(5) S tock dividend (from treasury stock):

 

Adjusted only if treated as extraordinary dividend.

 

Adjusted close = close – close × B / (A + B)

 

Divisor: decreases

(6) S tock dividend of another company:

 

Adjusted price = (closing price × A – price of other company × B) / A

 

Divisor: decreases

 

(7) Return of capital and share consolidation:

 

Adjusted price = (closing price – capital return announced by company × (1-withholding tax)) × A / B

 

New number of shares = old number of shares × B / A

 

Divisor: decreases

(8) R epurchase of shares / self-tender:

 

(9) Spin-off:

 

 

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Adjusted price = ((price before tender × old number of shares) – (tender price × number of tendered shares)) / (old number of shares – number of tendered shares)

 

New number of shares = old number of shares – number of tendered shares

 

Divisor: decreases

Adjusted price = (closing price × A – price of spun-off shares × B) / A

 

Divisor: decreases

 

(10) Combination stock distribution (dividend or split) and rights offering:

 

For this corporate action, the following additional assumptions apply:

 

Shareholders receive B new shares from the distribution and C new shares from the rights offering for every A share held.

 

If A is not equal to one share, all the following “new number of shares” formulae need to be divided by A:

- If rights are applicable after stock distribution (one action applicable to other):

 

Adjusted price = (closing price × A + subscription price × C × (1 + B / A)) / ((A + B) × ( 1 + C / A))

 

New number of shares = old number of shares × ((A + B) × (1 + C / A)) / A

 

Divisor: increases

- If stock distribution is applicable after rights (one action applicable to other):

 

Adjusted price = (closing price × A + subscription price × C) /((A + C) × (1 + B / A))

 

New number of shares = old number of shares × ((A + C) × (1 + B / A))

 

Divisor: increases

- Stock distribution and rights (neither action is applicable to the other):

 

Adjusted price = (closing price × A + subscription price × C) / (A + B + C)

 

New number of shares = old number of shares × (A + B + C) / A

 

Divisor: increases

(11) Addition / deletion of a company:

 

No price adjustments are made. The net change in market capitalization determines the divisor adjustment.

 

(12) Free float and shares changes:

 

No price adjustments are made. The net change in market capitalization determines the divisor adjustment.

 

License Agreement

 

STOXX Limited (“STOXX”) and its licensors and Citigroup Global Markets Inc. have entered into a non-exclusive license agreement providing for the license to Citigroup Global Markets Inc. and its affiliates, in exchange for a fee, of the right to use the EURO STOXX 50 ® Index, which is owned and published by STOXX, in connection with certain financial instruments, including the securities.

 

The securities are not sponsored, endorsed, sold or promoted by STOXX or its licensors. STOXX and its licensors have no relationship to Citigroup Global Markets Inc. or its affiliates, other than the licensing of the EURO STOXX 50 ® Index and the related trademarks for use in connection with the securities. STOXX and its licensors make no recommendation that any person invest in the securities or any other securities. STOXX and its licensors

 

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have no responsibility or liability for or make any decisions about the timing, amount or pricing of the securities. STOXX and its licensors do not consider the needs of Citigroup Inc. or its affiliates or the holders of the securities in determining, composing or calculating the EURO STOXX 50 ® Index or have any obligation to do so. STOXX and its licensors have no responsibility or liability for the administration, management or marketing of the securities.

 

STOXX and its licensors will not have any liability in connection with the securities. Specifically,

 

· STOXX and its licensors do not make any warranty, express or implied and disclaim any and all warranty about (i) the results to be obtained by the securities, the owner of the securities or any other person in connection with the use of the EURO STOXX 50 ® Index and the data included in the EURO STOXX 50 ® Index; (ii) the accuracy or completeness of the EURO STOXX 50 ® Index and its data; or (iii) the merchantability and the fitness for a particular purpose or use of the EURO STOXX 50 ® Index and its data;

 

· STOXX and its licensors will have no liability for any errors, omissions or interruptions in the EURO STOXX 50 ® Index or its data; and

 

· Under no circumstances will STOXX or its licensors be liable for any lost profits or indirect, punitive, special or consequential damages or losses, even if STOXX or its licensors knows that they might occur.

 

The licensing agreement between Citigroup Global Markets Inc. and STOXX is solely for their benefit and not for the benefit of the owners of the securities or any other third parties.

 

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The EURO STOXX ® Banks Index

 

All information contained in this underlying supplement regarding the EURO STOXX ® Banks Index, including, without limitation, its make-up, method of calculation and changes in its components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, STOXX Limited. The EURO STOXX ® Banks Index is calculated, maintained and published by STOXX Limited. STOXX Limited has no obligation to continue to publish, and may discontinue publication of, the EURO STOXX ® Banks Index.

 

The EURO STOXX ® Banks Index is calculated in euros and is reported by Bloomberg L.P. under the ticker symbol “SX7E.”

 

The EURO STOXX ® Banks Index was created by STOXX Limited, a wholly owned subsidiary of Deutsche Börse AG. Publication of the EURO STOXX ® Banks Index began on June 15, 1998, based on an initial EURO STOXX ® Banks Index value of 100 at December 31, 1991. The EURO STOXX ® Banks Index is disseminated on the STOXX Limited website: http://www.stoxx.com, which sets forth, among other things, the country and industrial sector weightings of the securities included in the EURO STOXX ® Banks Index. Information contained in the STOXX Limited website is not incorporated by reference in, and should not be considered a part of, this underlying supplement or the relevant terms supplement.

 

Index Composition

 

The EURO STOXX ® Banks Index is one of 19 EURO STOXX ® Supersector indices that compose the STOXX ® Europe 600 Index. The STOXX ® Europe 600 Index contains the 600 largest European stocks by free float market capitalization. Each of the 19 EURO STOXX ® Supersector indices contain the companies within the Eurozone subset of the STOXX ® Europe 600 Index that fall within the relevant supersector, determined by reference to the Industry Classification Benchmark (“ICB”), an international system for categorizing companies that is maintained by FTSE International Limited.  The EURO STOXX ® Banks Index includes companies in the banks supersector, which tracks companies providing a broad range of financial services, including retail banking, loans and money transmissions. The EURO STOXX ® Banks Index currently includes 30 stocks of banks market sector leaders mainly from the ten largest Eurozone countries: Austria, Belgium, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal and Spain.

 

The composition of each of the EURO STOXX ® Supersector indices is reviewed quarterly, based on the closing stock data on the last trading day of the month following the implementation of the last quarterly index review. The component stocks are announced on the fourth Tuesday of the month immediately prior to the review implementation month. Changes to the component stocks are implemented on the third Friday in each of March, June, September and December and are effective the following trading day.

 

The STOXX ® Europe 600 Index is also reviewed on an ongoing basis, and any changes affecting the STOXX ® Europe 600 Index are also applied to the relevant EURO STOXX ® Supersector index. Corporate actions (including initial public offerings, mergers and takeovers, spin-offs, delistings and bankruptcy) that affect the STOXX ® Europe 600 Index composition are immediately reviewed. Any changes are announced, implemented and effective in line with the type of corporate action and the magnitude of the effect.

 

The free float factors and weighting cap factors for each component stock used to calculate the EURO STOXX ® Supersector indices, as described below, are reviewed, calculated and implemented on a quarterly basis and are fixed until the next quarterly review. All components of the EURO STOXX ® Banks Index are subject to a 30% cap for the largest company and a 15% cap for the second-largest company.

 

Index Calculation

 

The EURO STOXX ® Banks Index is calculated with the “Laspeyres formula,” which measures the aggregate price changes in the component stocks against a fixed base quantity weight. The formula for calculating the EURO STOXX ® Banks Index value at any time can be expressed as follows:

 

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Index = free float market capitalization of the EURO STOXX ® Banks Index
Divisor

 

The “free float market capitalization of the EURO STOXX ® Banks Index” is equal to the sum of the products of the price, number of shares, free float factor and weighting cap factor for each component stock as of the time the EURO STOXX ® Banks Index is being calculated.

 

The divisor for the EURO STOXX ® Banks Index is adjusted to maintain the continuity of the EURO STOXX ® Banks Index values despite changes due to corporate actions. The following is a summary of the adjustments to any component stock made for corporate actions and the effect of such adjustment on the divisor, where shareholders of the component stock will receive “B” number of shares for every “A” share held (where applicable).

 

(1) Special cash dividend:

 

Cash distributions that are outside the scope of the regular dividend policy or that the company defines as an extraordinary distribution

 

Adjusted price = closing price – dividend announced by the company × (1 – withholding tax if applicable)

 

Divisor: decreases

(2) Split and reverse split:

 

Adjusted price = closing price × A / B

 

New number of shares = old number of shares × B / A

 

Divisor: unchanged

(3) Rights offering:

 

If the subscription price is not available or if the subscription price is equal to or greater than the closing price on the day before the effective date, then no adjustment is made.

 

In case the share increase is greater than or equal to 100% (B / A ≥ 1), the adjustment of the shares and weight factors are delayed until the new shares are listed.

 

Adjusted price = (closing price × A + subscription price × B) / (A + B)

 

New number of shares = old number of shares × (A + B)/ A

 

Divisor: increases

(4) Stock dividend:

 

Adjusted price = closing price × A / (A + B)

 

New number of shares = old number of shares × (A + B) / A

 

Divisor: unchanged

(5) S tock dividend (from treasury stock):

 

Adjusted only if treated as extraordinary dividend.

 

Adjusted close = close – close × B / (A + B)

 

Divisor: decreases

(6) S tock dividend of another company:

 

Adjusted price = (closing price × A – price of other company × B) / A

(7) Return of capital and share consolidation:

 

Adjusted price = (closing price – capital return announced by company × (1-withholding tax)) × A / B

 

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Divisor: decreases

 

New number of shares = old number of shares × B / A

 

Divisor: decreases

(8) R epurchase of shares / self-tender:

 

Adjusted price = ((price before tender × old number of shares) – (tender price × number of tendered shares)) / (old number of shares – number of tendered shares)

 

New number of shares = old number of shares – number of tendered shares

 

Divisor: decreases

(9) Spin-off:

Adjusted price = (closing price × A – price of spun-off shares × B) / A

 

Divisor: decreases

 

(10) Combination stock distribution (dividend or split) and rights offering:

 

For this corporate action, the following additional assumptions apply:

 

Shareholders receive B new shares from the distribution and C new shares from the rights offering for every A share held.

 

If A is not equal to one share, all the following “new number of shares” formulae need to be divided by A:

- If rights are applicable after stock distribution (one action applicable to other):

 

Adjusted price = (closing price × A + subscription price × C × (1 + B / A)) / ((A + B) × ( 1 + C / A))

 

New number of shares = old number of shares × ((A + B) × (1 + C / A)) / A

 

Divisor: increases

 

- If stock distribution is applicable after rights (one action applicable to other):

 

Adjusted price = (closing price × A + subscription price × C) /((A + C) × (1 + B / A))

 

New number of shares = old number of shares × ((A + C) × (1 + B / A))

 

Divisor: increases

- Stock distribution and rights (neither action is applicable to the other):

 

Adjusted price = (closing price × A + subscription price × C) / (A + B + C)

 

New number of shares = old number of shares × (A + B + C) / A

 

Divisor: increases

(11) Addition / deletion of a company:

 

No price adjustments are made. The net change in market capitalization determines the divisor adjustment.

(12) Free float and shares changes:

 

No price adjustments are made. The net change in market capitalization determines the divisor adjustment.

 

License Agreement

 

STOXX Limited (“STOXX”) and its licensors and Citigroup Global Markets Inc. have entered into a non-exclusive license agreement providing for the license to Citigroup Global Markets Inc. and its affiliates, in exchange

 

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for a fee, of the right to use the EURO STOXX ® Banks Index, which is owned and published by STOXX, in connection with certain financial instruments, including the securities.

 

The securities are not sponsored, endorsed, sold or promoted by STOXX or its licensors. STOXX and its licensors have no relationship to Citigroup Global Markets Inc. or its affiliates, other than the licensing of the EURO STOXX ® Banks Index and the related trademarks for use in connection with the securities. STOXX and its licensors make no recommendation that any person invest in the securities or any other securities. STOXX and its licensors have no responsibility or liability for or make any decisions about the timing, amount or pricing of the securities. STOXX and its licensors do not consider the needs of Citigroup Inc. or its affiliates or the holders of the securities in determining, composing or calculating the EURO STOXX ® Banks Index or have any obligation to do so. STOXX and its licensors have no responsibility or liability for the administration, management or marketing of the securities.

 

STOXX and its licensors will not have any liability in connection with the securities. Specifically,

 

· STOXX and its licensors do not make any warranty, express or implied and disclaim any and all warranty about (i) the results to be obtained by the securities, the owner of the securities or any other person in connection with the use of the EURO STOXX ® Banks Index and the data included in the EURO STOXX ® Banks Index; (ii) the accuracy or completeness of the EURO STOXX ® Banks Index and its data; or (iii) the merchantability and the fitness for a particular purpose or use of the EURO STOXX ® Banks Index and its data;

 

· STOXX and its licensors will have no liability for any errors, omissions or interruptions in the EURO STOXX ® Banks Index or its data; and

 

· Under no circumstances will STOXX or its licensors be liable for any lost profits or indirect, punitive, special or consequential damages or losses, even if STOXX or its licensors knows that they might occur.

 

The licensing agreement between Citigroup Global Markets Inc. and STOXX is solely for their benefit and not for the benefit of the owners of the securities or any other third parties.

 

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The STOXX ® Europe 600 Index

 

We have derived all information contained in this underlying supplement regarding the STOXX ® Europe 600 Index, including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, STOXX Limited (“STOXX”). The STOXX ® Europe 600 Index is calculated, maintained and published by STOXX. STOXX has no obligation to continue to publish, and may discontinue publication of, the STOXX ® Europe 600 Index.

 

The STOXX ® Europe 600 Index is calculated in euros and is reported by Bloomberg L.P. under the ticker symbol “SXXP.”

 

The STOXX ® Europe 600 Index was created by STOXX, a joint venture between Deutsche Börse AG and SIX Group AG. Publication of the STOXX ® Europe 600 Index began on June 15, 1998, based on an initial STOXX ® Europe 600 Index value of 100 at December 31, 1991. The STOXX ® Europe 600 Index is disseminated on the STOXX website: http://www.stoxx.com, which sets forth, among other things, the country and industrial sector weightings of the securities included in the STOXX ® Europe 600 Index and updates these weightings at the end of each quarter. Information contained in the STOXX website is not incorporated by reference in, and should not be considered a part of, this pricing supplement. We make no representation or warranty as to the accuracy or completeness of information contained on the STOXX website.

 

STOXX ® Europe 600 Index Composition and Maintenance

 

The STOXX ® Europe 600 Index covers the 600 largest companies in Europe and represents large, mid and small capitalization companies across 18 European countries. The STOXX ® Europe 600 Index is derived from the STOXX Europe Total Market Index. The STOXX Europe Total Market Index represents the Western Europe region as a whole and covers approximately 95 percent of the free float market capitalization across 18 European countries. The selection list for the STOXX ® Europe 600 Index is composed of each company’s most liquid stock with a minimum liquidity of greater than one million EUR measured over 3-month average daily trading value and is ranked in terms of free-float market capitalization. From the selection list, the largest 550 stocks qualify for selection. The remaining 50 stocks are selected from the largest remaining current components ranked between 551 and 750. If the number of stocks selected is still below 600, the largest remaining stocks are selected until there are enough stocks.

 

The composition of the STOXX ® Europe 600 Index is reviewed quarterly, based on the closing stock data on the last trading day of the month following the implementation of the last quarterly index review. The component stocks are announced on the fourth Tuesday of the month immediately prior to the review implementation month. Changes to the component stocks are implemented after the close on the third Friday in each of March, June, September and December and are effective the following trading day.

 

Corporate actions (including initial public offerings, mergers and takeovers, spin-offs, delistings and bankruptcy) that affect the STOXX ® Europe 600 Index composition are immediately reviewed. Any changes are announced, implemented and effective in line with the type of corporate action and the magnitude of the effect.

 

The free float factors and weighting cap factors for each component stock used to calculate the STOXX ® Europe 600 Index, as described below, are reviewed, calculated and implemented on a quarterly basis and are fixed until the next quarterly review.

 

Computation of the STOXX ® Europe 600 Index

 

The STOXX ® Europe 600 Index is calculated with the “Laspeyres formula,” which measures the aggregate price changes in the component stocks against a fixed base quantity weight. The formula for calculating the STOXX ® Europe 600 Index value at any time can be expressed as follows:

 

Index = free float market capitalization of the STOXX ® Europe 600 Index
Divisor

 

The “free float market capitalization of the STOXX ® Europe 600 Index” is equal to the sum of the products of the price, number of shares, free float factor and weighting cap factor for each component stock as of the time the STOXX ® Europe 600 Index is being calculated. All components of the STOXX ® Europe 600 Index are subject to a 20% cap. The STOXX ® Europe 600 Index is divided into 19 supersector indices according to the ICB industry

 

US- 31

 

classification. The STOXX ® Europe 600 Index caps the weight of the largest and second largest company in each supersector index at 30% and 15%, respectively.

 

The divisor for the STOXX ® Europe 600 Index is adjusted to maintain the continuity of STOXX ® Europe 600 Index values despite changes due to corporate actions. The following is a summary of the adjustments to any component stock made for corporate actions and the effect of such adjustment on the divisor, where shareholders of the component stock will receive “B” number of shares for every “A” share held (where applicable).

 

(1) Special cash dividend:

 

Cash distributions that are outside the scope of the regular dividend policy or that the company defines as an extraordinary distribution

 

Adjusted price = closing price – dividend announced by the company × (1 – withholding tax if applicable)


Divisor: decreases

(2) Split and reverse split:

 

Adjusted price = closing price × A / B

 

New number of shares = old number of shares × B / A

 

Divisor: unchanged

(3) Rights offering:

 

If the subscription price is not available or if the subscription price is equal to or greater

 

than the closing price on the day before the effective date, then no adjustment is made.

 

In case the share increase is greater than or equal to 100% (B / A ≥ 1), the adjustment of the shares and weight factors are delayed until the new shares are listed.

 

Adjusted price = (closing price × A + subscription price × B) / (A + B)

 

New number of shares = old number of shares × (A + B)/ A

 

Divisor: increases

(4) Stock dividend:

 

Adjusted price = closing price × A / (A + B)

 

New number of shares = old number of shares × (A + B) / A

 

Divisor: unchanged

(5) S tock dividend (from treasury stock):

 

Adjusted if treated as extraordinary dividend:

 

Adjusted close = close – close × B / (A + B)

 

Divisor: decreases

(6) S tock dividend of another company:

 

Adjusted price = (closing price × A – price of other company × B) / A

 

Divisor: decreases

(7) Return of capital and share consolidation:

 

Adjusted price = (closing price – capital return announced by company × (1-withholding tax)) × A / B

 

New number of shares = old number of shares ×

 

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B / A

 

Divisor: decreases

(8) R epurchase of shares / self tender:

 

Adjusted price = ((price before tender × old number of shares) – (tender price × number of tendered shares)) / (old number of shares – number of tendered shares)

 

New number of shares = old number of shares – number of tendered shares

 

Divisor: decreases

(9) Spin-off:

Adjusted price = (closing price × A – price of spun-off shares × B) / A

 

Divisor: decreases

 

(10) Combination stock distribution (dividend or split) and rights offering:


For this corporate action, the following additional assumptions apply:


Shareholders receive B new shares from the distribution and C new shares from the rights offering for every A share held.


If A is not equal to one share, all the following “new number of shares” formulae need to be divided by A:

- If rights are applicable after stock distribution (one action applicable to other):

 

Adjusted price = (closing price × A + subscription price × C × (1 + B / A)) / ((A + B) × ( 1 + C / A))

 

New number of shares = old number of shares × ((A + B) × (1 + C / A)) / A

 

Divisor: increases

- If stock distribution is applicable after rights (one action applicable to other):

 

Adjusted price = (closing price × A + subscription price × C) /((A + C) × (1 + B / A))

 

New number of shares = old number of shares × ((A + C) × (1 + B / A))

 

Divisor: increases

- Stock distribution and rights (neither action is applicable to the other):

 

Adjusted price = (closing price × A + subscription price × C) / (A + B + C)

 

New number of shares = old number of shares × (A + B + C) / A

 

Divisor: increases

(11) Addition / deletion of a company:

 

No price adjustments are made. The net change in market capitalization determines the divisor adjustment.

(12) Free float and shares changes:

 

No price adjustments are made. The net change in market capitalization determines the divisor adjustment.

 

US- 33

 

License Agreement

 

STOXX and its licensors and CGMI have entered into a non-exclusive license agreement providing for the license to CGMI and its affiliates, in exchange for a fee, of the right to use the STOXX ® Europe 600 Index, which is owned and published by STOXX, in connection with certain financial instruments, including the securities.

 

The securities are not sponsored, endorsed, sold or promoted by STOXX or its licensors. STOXX and its licensors have no relationship to CGMI or its affiliates, other than the licensing of the STOXX ® Europe 600 Index and the related trademarks for use in connection with the securities. STOXX and its licensors make no recommendation that any person invest in the securities or any other securities. STOXX and its licensors have no responsibility or liability for or make any decisions about the timing, amount or pricing of the securities. STOXX and its licensors do not consider the needs of Citigroup Inc. or its affiliates or the holders of the securities in determining, composing or calculating the STOXX ® Europe 600 Index or have any obligation to do so. STOXX and its licensors have no responsibility or liability for the administration, management or marketing of the securities.

 

STOXX and its licensors will not have any liability in connection with the securities. Specifically,

 

· STOXX and its licensors do not make any warranty, express or implied and disclaim any and all warranty about (i) the results to be obtained by the securities, the owner of the securities or any other person in connection with the use of the STOXX ® Europe 600 Index and the data included in the STOXX ® Europe 600 Index; (ii) the accuracy or completeness of the STOXX ® Europe 600 Index and its data; or (iii) the merchantability and the fitness for a particular purpose or use of the STOXX ® Europe 600 Index and its data;

 

· STOXX and its licensors will have no liability for any errors, omissions or interruptions in the STOXX ® Europe 600 Index or its data; and

 

· Under no circumstances will STOXX or its licensors be liable for any lost profits or indirect, punitive, special or consequential damages or losses, even if STOXX or its licensors knows that they might occur.

 

The licensing agreement between Citigroup Global Markets Inc. and STOXX is solely for their benefit and not for the benefit of the owners of the securities or any other third parties.

 

US- 34

 

The FTSE ® 100 Index

 

All information in this underlying supplement regarding the FTSE ® 100 Index, including, without limitation, its make-up, method of calculation and changes in its components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, FTSE International Limited (“FTSE”). FTSE has no obligation to continue to publish, and may discontinue publication of, the FTSE ® 100 Index.

 

The FTSE ® 100 Index is reported by Bloomberg L.P. under the ticker symbol “UKX.”

 

The FTSE ® 100 Index is an index calculated, published and disseminated by FTSE Russell, a company owned wholly by London Stock Exchange Group plc (the “LSEG”). The FTSE ® 100 Index measures the composite price performance of stocks of the largest 100 companies (determined on the basis of market capitalization) traded on the London Stock Exchange (the “LSE”). Publication of the FTSE ® 100 Index began in January 1984.

 

Composition of the FTSE ® 100 Index

 

The 100 stocks included in the FTSE ® 100 Index (the “FTSE Underlying Stocks”) were selected from a reference group of stocks trading on the LSE that were selected by excluding certain stocks that have low liquidity based on public float, accuracy and reliability of prices, size and number of trading days. The FTSE Underlying Stocks were selected from this reference group by selecting 100 stocks with the largest market value. Where there are multiple lines of equity capital in a company, all are included and priced separately, provided that the secondary line’s full market capitalization ( i.e. before the application of any investability weightings), is greater than 25% of the full market capitalization of the company’s principal line and the secondary line satisfies the eligibility rules and screens in its own right in all respects. A list of the issuers of the FTSE Underlying Stocks is available from FTSE Russell.

 

The FTSE ® 100 Index is overseen and reviewed quarterly by the FTSE Russell Europe, Middle East & Africa Regional Equity Advisory Committee (the “Index Steering Committee”) in order to maintain continuity in the level. The Index Steering Committee undertakes the reviews of the FTSE ® 100 Index and ensures that constituent changes and index calculations are made in accordance with the ground rules of the FTSE ® 100 Index. The meetings to review the constituents are held on the Wednesday before the first Friday in March, June, September and December. Each review is based on data from the close of business on the Tuesday before the first Friday of the review month. Any constituent changes are implemented after the close of business on the third Friday of the review month ( i.e. effective Monday), following the expiry of the ICE Futures Europe futures and options contracts.

 

The FTSE Underlying Stocks may be replaced, if necessary, in accordance with deletion/addition rules that provide generally for the removal and replacement of a stock from the FTSE ® 100 Index if such stock is delisted or its issuer is subject to a takeover offer that has been declared unconditional or it has ceased, in the opinion of the Index Steering Committee, to be a viable component of the FTSE ® 100 Index. To maintain continuity, a stock will be added at the quarterly review if it has risen to 90th place or above and a stock will be deleted if at the quarterly review it has fallen to 111th place or below, in each case ranked on the basis of market capitalization. A constant number of constituents will be maintained for the FTSE ® 100 Index. Where a greater number of companies qualify to be inserted in the index than those qualifying to be deleted, the lowest ranking constituents presently included in the index will be deleted to ensure that an equal number of companies are inserted and deleted at the periodic review. Likewise, where a greater number of companies qualify to be deleted than those qualifying to be inserted, the securities of the highest ranking companies which are presently not included in the index will be inserted to match the number of companies being deleted at the periodic review.

 

Companies that are large enough to be constituents of the FTSE ® 100 Index but do not pass the liquidity test are excluded. At the next annual review, the companies are re-tested against all eligibility screens.

 

Calculation of the FTSE ® 100 Index

 

The FTSE ® 100 Index is calculated by (i) multiplying the per share price of each stock included in the FTSE ® 100 Index by the number of outstanding shares, (ii) calculating the sum of all these products (such sum being hereinafter the “FTSE Aggregate Market Value”) as of the starting date of the FTSE ® 100 Index, (iii) dividing the

 

US- 35

 

FTSE Aggregate Market Value by a divisor which represents the FTSE Aggregate Market Value on the base date of the FTSE ® 100 Index and which can be adjusted to allow changes in the issued share capital of individual underlying stocks including the deletion and addition of stocks, the substitution of stocks, stock dividends and stock splits to be made without distorting the FTSE ® 100 Index and (iv) multiplying the result by 1,000. Because of such capitalization weighting, movements in share prices of companies with relatively larger market capitalization will have a greater effect on the level of the entire FTSE ® 100 Index than will movements in share prices of companies with relatively smaller market capitalization.

 

License Agreement

 

The use of and reference to the FTSE™ 100 Index in connection with the securities has been consented to by the FTSE. All rights to the FTSE™ 100 Index are owned by the FTSE, the publisher of the FTSE™ 100 Index. Citigroup Inc. and its affiliates disclaim all responsibility for the calculation or other maintenance of or any adjustments to the FTSE™ 100 Index. In addition, none of the LSE, the Financial Times or FTSE has any relationship to Citigroup Inc., any of its affiliates or the securities. None of the LSE, the Financial Times or the FTSE sponsors, endorses, authorizes, sells or promotes the securities, or has any obligation or liability in connection with the administration, marketing or trading of the securities.

 

THE SECURITIES ARE NOT IN ANY WAY SPONSORED, ENDORSED, SOLD OR PROMOTED BY FTSE INTERNATIONAL LIMITED OR BY THE LONDON STOCK EXCHANGE PLC OR BY THE FINANCIAL TIMES LIMITED (“FT”) AND NEITHER FTSE, THE EXCHANGE OR FT MAKES ANY WARRANTY OR REPRESENTATION WHATSOEVER, EXPRESSLY OR IMPLIEDLY, EITHER AS TO THE RESULTS TO BE OBTAINED FROM THE USE OF THE FTSE™ 100 INDEX AND/OR THE FIGURE AT WHICH THE SAID INDEX STANDS AT ANY PARTICULAR TIME ON ANY PARTICULAR DAY OR OTHERWISE. FTSE™ 100 INDEX IS COMPILED AND CALCULATED BY FTSE. HOWEVER, NEITHER FTSE NOR THE EXCHANGE NOR FT SHALL BE LIABLE (WHETHER IN NEGLIGENCE OR OTHERWISE) TO ANY PERSON FOR ANY ERROR IN THE FTSE™ 100 INDEX AND NEITHER FTSE NOR THE EXCHANGE NOR FT SHALL BE UNDER ANY OBLIGATION TO ADVISE ANY PERSON OF ANY ERROR THEREIN.

 

“FTSE ® ,” “FT-SE ® ” and “Footsie ® ” are trademarks of the London Stock Exchange Plc and The Financial Times Limited and are used by FTSE International Limited under license. “All-Share ® ” is a trade mark of FTSE International Limited. “ICB ® ” is a trade mark of FTSE International Limited.

 

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The JPX-Nikkei Index 400

 

All information in this underlying supplement regarding the JPX-Nikkei Index 400, including, without limitation, its make-up, method of calculation and changes in its components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, the Japan Exchange Group, Inc. (“JPX”), the Tokyo Stock Exchange (“TSE”) (collectively, the “JPX group”) and Nikkei Inc. (“Nikkei,” and together with the JPX group, the “JPNK400 Index Provider”). The JPX-Nikkei Index 400 is calculated, maintained and published by the JPNK400 Index Provider. The JPNK400 Index Provider has no obligation to continue to publish, and may discontinue publication of, the JPX-Nikkei Index 400.

 

The JPX-Nikkei Index 400 is reported by Bloomberg L.P. under the ticker symbol “JPNK400.”

 

The JPX-Nikkei Index 400 is composed of 400 Japanese common stocks listed on the TSE First Section, Second Section, Mothers (Market Of The High-growth and EmeRging Stocks) or JASDAQ market. Publication of the JPX-Nikkei Index 400 began on January 6, 2014, based on an initial Index value of 10,000 on August 30, 2013. The JPX-Nikkei Index 400 index value is computed and published daily at market close via TSE’s Market Information System and is reported to securities companies across Japan and available worldwide through computerized information networks.

 

The Index components are reviewed annually on the last business day of August with the last business day of June as the selection base date. The results of the constituent reviews will be announced on the fifth business day of August. The selection process and criteria are as follows:

 

(1) 1,000 stocks are selected based on their trading value over the past three years and the market value on the base selection date.  Stocks are excluded from selection if they fall under any of the following criteria:

 

· listed for less than three years (excluding companies that underwent technical listing and were listed for 3 or more years prior to the delisting);

· the company’s liabilities exceed its assets during any of the past three fiscal years;

· the company has an operating loss in each of the past three fiscal years;

· the company has a net loss in each of the past three fiscal years;

· the company’s financials have disclosed doubt regarding its ability to continue as a going concern;

· disclosure of insufficient internal controls;

· the stock has been designated as a security to be delisted or security on alert; or

· certain listing violations have occurred over the past year.

 

(2) Each stock is scored by (a) three-year average return on equity (weighted 40%), (b) three-year cumulative operating profit (weighted 40%) and (c) market capitalization on the selection base date (weighted 20%). Each stock is ranked from 1st to 1,000th with respect to each of these three factors, with first place assigned 1,000 points and 1,000th place assigned 1 point. Then, the overall score for each stock is derived by aggregating the product of each factor’s assigned score multiplied by its applicable weight.

 

(3)  400 stocks are selected by the final ranking with the scores calculated above in (2) and qualitative factors from the perspectives of corporate governance and disclosure. These factors are applied as of the selection base date and include the appointment of at least two independent outside directors, releasing the most recent earnings report according to international financial reporting standards and the release of English language earnings information via TDnet. The final score for each stock equals the sum of the score calculated above in (2) plus the score from the qualitative factors. Stocks are ranked from highest to lowest based on their final scores, with the exception that stocks with negative three-year average return on equity and whose most recent return on equity are negative or that have negative three-year cumulative operating profit are moved to the bottom of the ranking. In the event of a tie in final scores, the stock with the higher market capitalization is ranked higher. The top 400 stocks based on their rankings are selected for inclusion in the JPX-Nikkei Index 400.

 

The JPX-Nikkei Index 400 is calculated using free-float adjusted market value weighting and is denominated in points (as a decimal figure) rounded to the second decimal place. The JPX-Nikkei Index 400 is calculated by dividing the current free-float adjusted market value (the “Current Market Value”) by the market value on the base

 

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date (the “Base Market Value”) and multiplied by the Index value on the base date (the “Base Point”). The market value is the sum of the number of shares of each constituent multiplied by that constituent’s stock price.

 

The calculation of the JPX-Nikkei Index 400 can be represented by the following formula:

 

Index =

Current Market Value

× Base Point
Base Market Value

 

The number of shares of each constituent is determined by multiplying the total number of listed shares by the free-float weight ratio following cap-adjustment. The weight of each constituent is capped at 1.5%, and if any constituent exceeds that weight, it is adjusted downwards at the time of the annual review. The free-float weight is determined by excluding the estimated number of listed shares that are deemed not to be available for trading in the market, using publicly available documents. Among the shares that are treated as non-free-float shares are, among others, shares held by specified types of major shareholders and shares held by board members and other representatives. The free-float weights are reviewed annually for each index constituent, with the announcement and effective date for each index constituent occurring on a quarterly basis, depending upon the relevant company’s earnings release schedule. In addition to this annual review, the JPNK400 Index Provider may also adjust a company’s free-float weight to reflect extraordinary events.

 

In order to maintain continuity, the Base Market Value is adjusted from time to time as a result of an increase or decrease in constituent issues, capital raising or similar events other than market fluctuations. Such events include, but are not limited to: new listings, delistings, new share issues either through public offerings or through rights offerings to shareholders, issuance of shares as a consequence of exercise of convertible bonds or warrants or mergers, acquisitions, consolidations, company splits or other similar changes in corporate structure. Adjustments to the JPX-Nikkei Index 400 to reflect dividends are made in two stages: (1) adjustment using estimated dividends and (2) minor adjustments made to reflect differences between estimated dividends and the dividend amount announced in the earnings report. The estimated dividend amount is derived from announcements in timely disclosure documents or by using the dividend amount for the previous period if the dividend for the current period is not fixed.

 

The formula for the adjustment is as follows:

 

New Base Market Value        =

Old Base Market Value ×
(Previous Business Day Market Value ± Adjustment Amount) 

Previous Business Day Market Value

 

Where Adjustment Amount = Increase (decrease) in the number of shares used for the Index calculation × stock price used for adjustment

 

License Agreement

 

Citigroup Global Markets Inc. has entered into an agreement with Nikkei Inc. that provides Citigroup Global Markets Inc. and certain of its affiliates or subsidiaries identified in that agreement with a non-exclusive license and, for a fee, with the right to use the JPX-Nikkei Index 400, which is owned and published by Nikkei Inc., in connection with certain securities, including the securities.

 

The license agreement with Nikkei Inc. provides that Nikkei Inc. will assume no obligation or responsibility for use of the JPX-Nikkei Index 400 by Citigroup Global Markets Inc. or its affiliates.

 

The JPX-Nikkei Index 400 is an intellectual property of Nikkei Inc. Nikkei Inc. was formerly known as Nihon Keizai Shimbun, Inc. The name was changed on January 1, 2007. “Nikkei,” “Nikkei Stock Average,” and “JPX-Nikkei Index 400” are the service marks of Nikkei Inc. Nikkei Inc. reserves all the rights, including copyright, to the index. Nikkei Digital Media, Inc., a wholly owned subsidiary of Nikkei Inc., calculates and disseminates the JPX-Nikkei Index 400 under exclusive agreement with Nikkei Inc. Nikkei Inc. and Nikkei Digital Media Inc. are collectively referred to as the “JPX-Nikkei Index 400 Index Sponsor.”

 

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THE SECURITIES ARE NOT IN ANY WAY SPONSORED, ENDORSED OR PROMOTED BY THE JPX-NIKKEI INDEX 400 INDEX SPONSOR. THE JPX-NIKKEI INDEX 400 INDEX SPONSOR DOES NOT MAKE ANY WARRANTY OR REPRESENTATION WHATSOEVER, EXPRESS OR IMPLIED, EITHER AS TO THE RESULTS TO BE OBTAINED AS TO THE USE OF THE JPX-NIKKEI INDEX 400 OR THE FIGURE AT WHICH THE JPX-NIKKEI INDEX 400 STANDS AT ANY PARTICULAR DAY OR OTHERWISE. THE JPX-NIKKEI INDEX 400 IS COMPILED AND CALCULATED SOLELY BY THE JPX-NIKKEI INDEX 400 INDEX SPONSOR. HOWEVER, THE JPX-NIKKEI INDEX 400 INDEX SPONSOR SHALL NOT BE LIABLE TO ANY PERSON FOR ANY ERROR IN THE JPX-NIKKEI INDEX 400 AND THE JPX-NIKKEI INDEX 400 INDEX SPONSOR SHALL NOT BE UNDER ANY OBLIGATION TO ADVISE ANY PERSON, INCLUDING A PURCHASER OR VENDOR OF THE SECURITIES, OF ANY ERROR THEREIN.

 

In addition, the JPX-Nikkei Index 400 Index Sponsor gives no assurance regarding any modification or change in any methodology used in calculating the JPX-Nikkei Index 400 and is under no obligation to continue the calculation, publication and dissemination of the JPX-Nikkei Index 400.

 

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Hang Seng China Enterprises Index

 

We have derived all information contained in this underlying supplement regarding the Hang Seng China Enterprises Index, including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information. We have not independently verified such information. Such information reflects the policies of, and is subject to change by, Hang Seng Indexes Company Limited (“HSICL”), a wholly owned subsidiary of Hang Seng Bank. The Hang Seng China Enterprises Index is calculated, maintained and published by HSICL. HSICL has no obligation to continue to publish, and may discontinue publication of, the Hang Seng China Enterprises Index.

 

The Hang Seng China Enterprises Index is reported by Bloomberg L.P. under the ticker symbol “HSCEI.”

 

The Hang Seng China Enterprises Index was first calculated and published on August 8, 1994, one year after the first H-share company was listed on The Stock Exchange of Hong Kong Ltd. (“SEHK”). H-shares are Hong Kong listed shares, traded in Hong Kong dollars, of a company incorporated in the Chinese mainland. The Hang Seng China Enterprises Index is a free-float adjusted market capitalization weighted stock market index and measures the performance of certain H-share companies that have their primary listing on the main board of the SEHK. The Hang Seng China Enterprises Index includes 40 constituent stocks. The Hang Seng China Enterprises Index is calculated and disseminated real-time every 15 seconds during the trading hours on each trading day of SEHK, based on the calendar of the SEHK.

 

Index Composition

 

Defining the Eligible Stocks

 

Only H-share companies with a primary listing on the main board of SEKH are eligible to be included in the Hang Seng China Enterprises Index. In addition, to be eligible for selection in the Hang Seng China Enterprises Index, a stock: (1) should be listed for at least one month by the review cut-off date; and (2) must satisfy the turnover screening requirements. Stocks that are already included in the Hang Seng China Enterprises Index must have a turnover velocity of at least 0.1% for at least 10 out of the past 12 months. To be added to the Hang Seng China Enterprises Index, a stock must have a turnover velocity of at least 0.1% for at least 10 out of the past 12 months and for each of the most recent three months. Turnover velocity is calculated by dividing the median of the daily trades shares during a specific calendar month by the freefloat-adjusted issued shares at the end of that month.

 

Selecting the Index Companies

 

The Hang Seng China Enterprises Index is reviewed quarterly with data cut-off dates as of the end of March, June, September and December each year. From the eligible stocks, final selections are made using the following methodology:

 

(1) all eligible stocks are ranked by (i) full market capitalization, in terms of average month-end market capitalization in the past 12 months and (ii) freefloat-adjusted market capitalization, in terms of 12-month average market capitalization after freefloat adjustment;

 

(2) the combined market capitalization ranking for each eligible stock is determined as the weighted average of the fully market capitalization ranking and the freefloat-adjusted market capitalization ranking, where each rank has a 50% weight; and

 

(3) the 40 stocks that have the highest combined market capitalization ranking are selected as the constituents of Hang Seng China Enterprises Index, subject to the buffer zone rule as described below.

 

Buffer Zone and Effective Date

 

Existing constituents ranked 49th or lower will be removed from the Hang Seng China Enterprises Index while non-constituent stocks ranked 32nd or above will be included. In case the number of incoming stocks is greater than the number of outgoing constituents, constituents with the lowest combined market capitalization rank will be removed from the Hang Seng China Enterprises Index in order to maintain the number of constituents at 40. If the

 

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number of incoming stocks is smaller than the number of outgoing constituents, stocks with the highest combined market capitalization rank will be added to the Hang Seng China Enterprises Index in order to maintain the number of constituents at 40.

 

Effective dates of constituent changes will be the next trading day after the first Friday of March, June, September and December. If that Friday falls on a public holiday, it will be postponed to the next Friday, subject to the final decision made by HSICL. Under normal circumstances, at least seven trading days’ notice will be given for any constituent changes before the effective dates.

 

Index Calculation

 

The calculation methodology of the Hang Seng China Enterprises Index is a free float-adjusted market capitalization weighting methodology with a 10% cap on individual stocks. The Hang Seng China Enterprises Index is a price index without adjustment for cash dividends or warrant bonuses.

 

The formula for the index calculation is shown below:

 

Current Index = Current Aggregate Freefloat-adjusted Market Capitalization of Constituents ×

Yesterday’s Closing Index

Yesterday’s Aggregate Freefloat-adjusted Market Capitalization of Constituents

 

= S (P t × IS × FAF × CF) × Yesterday’s Closing Index
S (P t-1 × IS × FAF × CF)

where:

 

P t :   current price at day t;

 

P t-1 :   closing price at day t-1;

 

IS :   number of issued shares (in the case of H-share constituents, only the H-share portion is taken into calculation);

 

FAF :   freefloat-adjusted factor, which is between 0 and 1; and

 

CF :   capping factor, which is between 0 and 1.

 

Free-float Adjustments. Shares held by any entities (excluding custodians, trustees, mutual funds and investment companies) that control more than 5% of the shareholdings would be consisted as non-free float and are excluded from the index calculation. These include strategic holdings (holdings by governments and affiliated entities or any other entities that hold substantial shares in the company would be considered as non-freefloat unless otherwise proved), directors’ and management holdings (holdings by directors, members of the board committee, principal officers or founding members), corporate cross holdings (holdings by publicly traded companies or private firms or institutions) and lock-up shares (shareholdings with a publicly disclosed lock-up arrangement). Lock-up shares with trading restrictions are classified as non-freefloat, regardless of the shareholding percentage.

 

The freefloat-adjusted factor represents the proportion of shares that is free-floated as a percentage of the issued shares. The freefloat-adjusted factor is rounded up to the nearest 1% if it is less than 10%; otherwise, it is rounded to the nearest 5. For companies with more than one class of shares, the freefloat-adjusted factor is calculated separately for each class of shares.

 

Cap Factor. A cap factor (“CF”) is calculated quarterly, such that no individual constituent in an Index will have a weighting exceeding a cap level of 10% on the index capping date.

 

Index Rebalancing. The update of the issued shares, adjustment of the freefloat-adjusted factor and calculation of the cap factor are undertaken quarterly. In addition, the issued shares will be updated simultaneously with the

 

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index adjustment for corporate actions, such as bonus issues, rights issues, stock splits and stock consolidations. Ad hoc rebalancing will be conducted if a constituent’s issued shares and/or freefloat-adjusted factor is substantially different from the production data. The Hang Seng China Enterprises Index will also be recapped in the event of constituent changes if the newly added component weighs higher than the index cap level.

 

The Stock Exchange of Hong Kong Ltd.

 

Trading on the SEHK is fully electronic through an Automatic Order Matching and Execution System (“AMS”). The system is an electronic order book in which orders are matched and executed instantaneously if there are matching orders in the book, and on the basis of time/price priority. Trading takes place through trading terminals on the trading floor or through the off-floor trading devices at Exchange Participants’ offices. Continuous trading is undertaken from 9:30 a.m. to 4:00 p.m. (Hong Kong time) every Hong Kong day except Saturdays, Sundays and other days on which the SEHK is closed. In addition, there is a pre-opening (auction) session from 9.00 a.m. to 9.30 a.m.

 

The SEHK has adopted certain measures intended to prevent any extreme short-term price fluctuations resulting from order imbalances or market volatility. Where the SEHK considers it necessary for the protection of the investor or the maintenance of an orderly market, it may at any time suspend dealings in any securities or cancel the listing of any securities in such circumstances and subject to such conditions as it thinks fit, whether requested by the listed issuer or not. The SEHK may also do so where: (1) an issuer fails, in a manner which the SEHK considers material, to comply with the SEHK Listing Rules or its Listing Agreements; (2) the SEHK considers there are insufficient securities in the hands of the public; (3) the SEHK considers that the listed issuer does not have a sufficient level of operations or sufficient assets to warrant the continued listing of the issuer’s securities; or (4) the SEHK considers that the issuer or its business is no longer suitable for listing. Investors should also be aware that the SEHK may suspend the trading of individual stocks in certain limited and extraordinary circumstances, until certain price-sensitive information has been disclosed to the public. Trading will not be resumed until a formal announcement has been made. Trading of a company’s shares may also be suspended if there is unusual trading activity in such shares.

 

Disclaimers related to the Hang Seng Indexes Company Limited

 

THE HANG SENG CHINA ENTERPRISES INDEX IS PUBLISHED AND COMPILED BY HANG SENG INDEXES COMPANY LIMITED PURSUANT TO A LICENSE FROM HANG SENG DATA SERVICES LIMITED. THE MARK AND NAME OF THE HANG SENG CHINA ENTERPRISES INDEX ARE PROPRIETARY TO HANG SENG DATA SERVICES LIMITED. HANG SENG INDEXES COMPANY LIMITED AND HANG SENG DATA SERVICES LIMITED HAVE AGREED TO THE USE OF, AND REFERENCE TO, THE HANG SENG CHINA ENTERPRISES INDEX BY CITIGROUP INC. AND ITS AFFILIATES, IN CONNECTION WITH THE SECURITIES, BUT NEITHER HANG SENG INDEXES COMPANY LIMITED NOR HANG SENG DATA SERVICES LIMITED WARRANTS OR REPRESENTS OR GUARANTEES TO ANY BROKER OR HOLDER OF THE SECURITIES OR ANY OTHER PERSON (I) THE ACCURACY OR COMPLETENESS OF THE INDEX AND ITS COMPUTATION OR ANY INFORMATION RELATED THERETO; OR (II) THE FITNESS OR SUITABILITY FOR ANY PURPOSE OF THE INDEX OR ANY COMPONENT OR DATA COMPRISED IN IT; OR (III) THE RESULTS WHICH MAY BE OBTAINED BY ANY PERSON FROM THE USE OF THE INDEX OR ANY COMPONENT OR DATA COMPRISED IN IT FOR ANY PURPOSE, AND NO WARRANTY OR REPRESENTATION OR GUARANTEE OF ANY KIND WHATSOEVER RELATING TO THE INDEX IS GIVEN OR MAY BE IMPLIED. THE PROCESS AND BASIS OF COMPUTATION AND COMPILATION OF THE HANG SENG CHINA ENTERPRISES INDEX AND ANY OF THE RELATED FORMULA OR FORMULAE, CONSTITUENT STOCKS AND FACTORS MAY AT ANY TIME BE CHANGED OR ALTERED BY HANG SENG INDEXES COMPANY LIMITED WITHOUT NOTICE. TO THE EXTENT PERMITTED BY APPLICABLE LAW, NO RESPONSIBILITY OR LIABILITY IS ACCEPTED BY HANG SENG INDEXES COMPANY LIMITED OR HANG SENG DATA SERVICES LIMITED (I) IN RESPECT OF THE USE OF AND/OR REFERENCE TO THE INDEX BY CITIGROUP INC. OR ITS AFFILIATES IN CONNECTION WITH THE SECURITIES; OR (II) FOR ANY INACCURACIES, OMISSIONS, MISTAKES OR ERRORS OF HANG SENG INDEXES COMPANY LIMITED IN THE COMPUTATION OF THE HANG SENG CHINA ENTERPRISES INDEX; OR (III)

 

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FOR ANY INACCURACIES, OMISSIONS, MISTAKES, ERRORS OR INCOMPLETENESS OF ANY INFORMATION USED IN CONNECTION WITH THE COMPUTATION OF THE INDEX WHICH IS SUPPLIED BY ANY OTHER PERSON; OR (IV) FOR ANY ECONOMIC OR OTHER LOSS WHICH MAY BE DIRECTLY OR INDIRECTLY SUSTAINED BY ANY BROKER OR HOLDER OF THE SECURITIES OR ANY OTHER PERSON DEALING WITH THE SECURITIES AS A RESULT OF ANY OF THE AFORESAID, AN NO CLAIMS, ACTIONS OR LEGAL PROCEEDINGS MAY BE BROUGHT AGAINST HANG SENG INDEXES COMPANY LIMITED AND/OR HANG SENG DATA SERVICES LIMITED IN CONNECTION WITH THE SECURITIES IN ANY MANNER WHATSOEVER BY ANY BROKER, HOLDER OR OTHER PERSON DEALING WITH THE SECURITIES. ANY BROKER, HOLDER OR OTHER PERSON DEALING WITH THE SECURITIES DOES SO THEREFORE IN FULL KNOWLEDGE OF THIS DISCLAIMER AND CAN PLACE NO RELIANCE WHATSOEVER ON HANG SENG INDEXES COMPANY LIMITED AND HANG SENG DATA SERVICES LIMITED. FOR THE AVOIDANCE OF DOUBT, THIS DISCLAIMER DOES NOT CREATE ANY CONTRACTUAL OR QUASI-CONTRACTUAL RELATIONSHIP BETWEEN ANY BROKER, HOLDER OR OTHER PERSON AND HANG SENG INDEXES COMPANY LIMITED AND/OR HANG SENG DATA SERVICES LIMITED AND MUST NOT BE CONSTRUED TO HAVE CREATED SUCH RELATIONSHIP.

 

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Hang Seng ® Index

 

We have derived all information contained in this underlying supplement regarding the Hang Seng ® Index, including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information. We have not independently verified such information. Such information reflects the policies of, and is subject to change by, Hang Seng Indexes Company Limited (“HSICL”), a wholly owned subsidiary of Hang Seng Bank. The Hang Seng ® Index is calculated, maintained and published by HSICL. HSICL has no obligation to continue to publish, and may discontinue publication of, the Hang Seng ® Index.

 

The Hang Seng ® Index is reported by Bloomberg L.P. under the ticker symbol “HSI.”

 

The Hang Seng ® Index was first calculated and published on November 24, 1969. The Hang Seng ® Index is a free-float adjusted market capitalization weighted stock market index and measures the performance of the largest and most liquid companies listed in Hong Kong. The constituent stocks are grouped under finance, utilities, properties and commerce and industry sub-indexes. The Hang Seng ® Index includes no more than 50 constituent stocks. The Hang Seng ® Index is calculated and disseminated real-time at 15-second intervals during the trading hours of the Stock Exchange of Hong Kong Ltd. (“SEHK”).

 

Index Composition

 

Defining the Eligible Companies

 

Only companies with a primary listing on the main board of the SEHK are eligible to be included in the Hang Seng ® Index (note that companies which are classified by SEHK as foreign companies are currently not included, as an interim policy announced in June 2010 and extended after a study and survey undertaken in the 2 nd half of 2010 (report released in January 2011)). Mainland China enterprises that have an H-share listing in Hong Kong are eligible for inclusion in the Hang Seng ® Index if they meet any one of the following conditions: (1) the H-share company has 100% of its ordinary share capital in the form of H-shares that are listed on the SEHK; (2) the H-share company has completed the process of share reform, with the result that there is no unlisted share capital in the company; or (3) for new H-share initial public offerings, the company has no unlisted share capital. H-shares are shares of mainland China companies listed on SEHK.

 

In addition, to be eligible for selection in the Hang Seng ® Index , a company: (1) must be among those that constitute the top 90% of the total market capitalization of all primary listed shares listed on the SEHK (market capitalization is expressed as an average of the past 12 months); (2) must be among those that constitute the top 90% of the total turnover of all primary listed shares on the SEHK (turnover is aggregated and individually assessed for eight quarterly sub-periods for the past 24 months); and (3) should normally have a listing history of 24 months on the SEHK. For newly listed large-cap stocks, the minimum listing history may be shorter than 24 months (and can be as short as 3 months) if certain market capitalization requirements are satisfied.

 

Selecting the Index Companies

 

From the eligible companies, final selections are based on the following: (1) the market capitalization and turnover rankings of the companies; (2) the representation of the sub-sectors within the Hang Seng ® Index directly reflecting that of the market; and (3) the financial performance of the companies. The Hang Seng ® Index is reviewed quarterly with data cut-off dates as of the end of March, June, September and December each year. The final selection will be decided by the advisory committee after the above criteria have been taken into consideration.

 

Before September 2006, Hang Seng ® Index was managed with a fixed number of constituents (33). In September 2006, it was decided that in order to ensure that the Hang Seng ® Index remains representative of the SEHK, the number of constituents would be permitted to gradually increase to a maximum of 50. There is no fixed schedule for reaching 50 constituents. Before reaching 50, the number of outgoing constituents will not exceed the number of incoming ones. After reaching 50, new additions and deletions of the Hang Seng ® Index will be of equal number and the number of constituents will remain fixed.

 

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Effective Date

 

Effective dates of constituent changes will be the next trading day after the first Friday of March, June, September and December. If that Friday falls on a public holiday, it will be postponed to the next Friday, subject to the final decision made by HSICL. Under normal circumstances, at least seven trading days’ notice will be given for any constituent changes before the effective dates.

 

Index Calculation

 

The calculation methodology of the Hang Seng ® Index is a free float-adjusted market capitalization weighting methodology with a 15% cap on each constituent weighting. The Hang Seng ® Index is a price index without adjustment for cash dividends or warrant bonuses.

 

The formula for the index calculation is shown below:

 

Current Index = Current Aggregate Freefloat-adjusted Market Capitalization of Constituents × Yesterday’s Closing Index
Yesterday’s Aggregate Freefloat-adjusted Market Capitalization of Constituents

 

= S (P t × IS × FAF × CF) × Yesterday’s Closing Index
S (P t-1 × IS × FAF × CF)

where:

 

P t :   current price at day t;

 

P t-1 :   closing price at day t-1;

 

IS :   number of issued shares;

 

FAF :  freefloat-adjusted factor, which is between 0 and 1; and

 

CF :  capping factor, which is between 0 and 1.

 

Free-float Adjustments. Shares held by any entities (excluding custodians, trustees, mutual funds and investment companies) that control more than 5% of the shareholdings would be consisted as non-free float and are excluded from the index calculation. These include strategic holdings (holdings by governments and affiliated entities or any other entities that hold substantial shares in the company would be considered as non-freefloat unless otherwise proved), directors’ and management holdings (holdings by directors, members of the board committee, principal officers or founding members), corporate cross holdings (holdings by publicly traded companies or private firms or institutions) and lock-up shares (shareholdings with a publicly disclosed lock-up arrangement). Lock-up shares with trading restrictions are classified as non-freefloat, regardless of the shareholding percentage.

 

The freefloat-adjusted factor represents the proportion of shares that is free-floated as a percentage of the issued shares. The freefloat-adjusted factor is rounded up to the nearest 1% if it is less than 10%; otherwise, it is rounded to the nearest 5. For companies with more than one class of shares, the freefloat-adjusted factor is calculated separately for each class of shares.

 

Cap Factor. A cap factor (“CF”) is calculated quarterly, such that no individual constituent in an Index will have a weighting exceeding a cap level of 15% on the index capping date. The update of the issued shares, adjustment of the freefloat-adjusted factor and calculation of the cap factor are undertaken quarterly. In addition, the issued shares will be updated simultaneously with the index adjustment for corporate actions, such as bonus issues, rights issues, stock splits and stock consolidations. Ad hoc rebalancing will be conducted if a constituent’s issued shares and/or freefloat-adjusted factor is substantially different from the production data. The Hang Seng ® Index will also be recapped in the event of constituent changes if the newly added component weighs higher than the index cap level.

 

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The Stock Exchange of Hong Kong Ltd.

 

Trading on the SEHK is fully electronic through an Automatic Order Matching and Execution System (“AMS”). The system is an electronic order book in which orders are matched and executed instantaneously if there are matching orders in the book, and on the basis of time/price priority. Trading takes place through trading terminals on the trading floor or through the off-floor trading devices at Exchange Participants’ offices. Continuous trading is undertaken from 9:30 a.m. to 4:00 p.m. (Hong Kong time) every Hong Kong day except Saturdays, Sundays and other days on which the SEHK is closed. In addition, there is a pre-opening (auction) session from 9.00 a.m. to 9.30 a.m.

 

The SEHK has adopted certain measures intended to prevent any extreme short-term price fluctuations resulting from order imbalances or market volatility. Where the SEHK considers it necessary for the protection of the investor or the maintenance of an orderly market, it may at any time suspend dealings in any securities or cancel the listing of any securities in such circumstances and subject to such conditions as it thinks fit, whether requested by the listed issuer or not. The SEHK may also do so where: (1) an issuer fails, in a manner which the SEHK considers material, to comply with the SEHK Listing Rules or its Listing Agreements; (2) the SEHK considers there are insufficient securities in the hands of the public; (3) the SEHK considers that the listed issuer does not have a sufficient level of operations or sufficient assets to warrant the continued listing of the issuer’s securities; or (4) the SEHK considers that the issuer or its business is no longer suitable for listing. Investors should also be aware that the SEHK may suspend the trading of individual stocks in certain limited and extraordinary circumstances, until certain price-sensitive information has been disclosed to the public. Trading will not be resumed until a formal announcement has been made. Trading of a company’s shares may also be suspended if there is unusual trading activity in such shares.

 

Disclaimers related to the Hang Seng Indexes Company Limited

 

THE HANG SENG ® INDEX IS PUBLISHED AND COMPILED BY HANG SENG INDEXES COMPANY LIMITED PURSUANT TO A LICENSE FROM HANG SENG DATA SERVICES LIMITED. THE MARK AND NAME OF THE HANG SENG ® INDEX ARE PROPRIETARY TO HANG SENG DATA SERVICES LIMITED. HANG SENG INDEXES COMPANY LIMITED AND HANG SENG DATA SERVICES LIMITED HAVE AGREED TO THE USE OF, AND REFERENCE TO, THE HANG SENG ® INDEX BY CITIGROUP INC. AND ITS AFFILIATES, IN CONNECTION WITH THE SECURITIES, BUT NEITHER HANG SENG INDEXES COMPANY LIMITED NOR HANG SENG DATA SERVICES LIMITED WARRANTS OR REPRESENTS OR GUARANTEES TO ANY BROKER OR HOLDER OF THE SECURITIES OR ANY OTHER PERSON (I) THE ACCURACY OR COMPLETENESS OF THE INDEX AND ITS COMPUTATION OR ANY INFORMATION RELATED THERETO; OR (II) THE FITNESS OR SUITABILITY FOR ANY PURPOSE OF THE INDEX OR ANY COMPONENT OR DATA COMPRISED IN IT; OR (III) THE RESULTS WHICH MAY BE OBTAINED BY ANY PERSON FROM THE USE OF THE INDEX OR ANY COMPONENT OR DATA COMPRISED IN IT FOR ANY PURPOSE, AND NO WARRANTY OR REPRESENTATION OR GUARANTEE OF ANY KIND WHATSOEVER RELATING TO THE INDEX IS GIVEN OR MAY BE IMPLIED. THE PROCESS AND BASIS OF COMPUTATION AND COMPILATION OF THE HANG SENG ® INDEX AND ANY OF THE RELATED FORMULA OR FORMULAE, CONSTITUENT STOCKS AND FACTORS MAY AT ANY TIME BE CHANGED OR ALTERED BY HANG SENG INDEXES COMPANY LIMITED WITHOUT NOTICE. TO THE EXTENT PERMITTED BY APPLICABLE LAW, NO RESPONSIBILITY OR LIABILITY IS ACCEPTED BY HANG SENG INDEXES COMPANY LIMITED OR HANG SENG DATA SERVICES LIMITED (I) IN RESPECT OF THE USE OF AND/OR REFERENCE TO THE INDEX BY CITIGROUP INC. OR ITS AFFILIATES IN CONNECTION WITH THE SECURITIES; OR (II) FOR ANY INACCURACIES, OMISSIONS, MISTAKES OR ERRORS OF HANG SENG INDEXES COMPANY LIMITED IN THE COMPUTATION OF THE HANG SENG ® INDEX; OR (III) FOR ANY INACCURACIES, OMISSIONS, MISTAKES, ERRORS OR INCOMPLETENESS OF ANY INFORMATION USED IN CONNECTION WITH THE COMPUTATION OF THE INDEX WHICH IS SUPPLIED BY ANY OTHER PERSON; OR (IV) FOR ANY ECONOMIC OR OTHER LOSS WHICH MAY BE DIRECTLY OR INDIRECTLY SUSTAINED BY ANY BROKER OR HOLDER OF THE SECURITIES OR ANY OTHER PERSON DEALING WITH THE SECURITIES AS A RESULT OF ANY OF THE AFORESAID, AN NO CLAIMS, ACTIONS OR LEGAL PROCEEDINGS MAY BE BROUGHT

 

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AGAINST HANG SENG INDEXES COMPANY LIMITED AND/OR HANG SENG DATA SERVICES LIMITED IN CONNECTION WITH THE SECURITIES IN ANY MANNER WHATSOEVER BY ANY BROKER, HOLDER OR OTHER PERSON DEALING WITH THE SECURITIES. ANY BROKER, HOLDER OR OTHER PERSON DEALING WITH THE SECURITIES DOES SO THEREFORE IN FULL KNOWLEDGE OF THIS DISCLAIMER AND CAN PLACE NO RELIANCE WHATSOEVER ON HANG SENG INDEXES COMPANY LIMITED AND HANG SENG DATA SERVICES LIMITED. FOR THE AVOIDANCE OF DOUBT, THIS DISCLAIMER DOES NOT CREATE ANY CONTRACTUAL OR QUASI-CONTRACTUAL RELATIONSHIP BETWEEN ANY BROKER, HOLDER OR OTHER PERSON AND HANG SENG INDEXES COMPANY LIMITED AND/OR HANG SENG DATA SERVICES LIMITED AND MUST NOT BE CONSTRUED TO HAVE CREATED SUCH RELATIONSHIP.

 

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Korea Stock Price Index 200

 

We have derived all information contained in this underlying supplement regarding the Korea Stock Price Index 200 (the “KOSPI 200”), including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information. We have not independently verified such information. Such information reflects the policies of, and is subject to change by, Korea Exchange (“KRX”), the publisher of the KOSPI 200. The KOSPI 200 is calculated, maintained and published by KRX. KRX has no obligation to continue to publish, and may discontinue publication of, the KOSPI 200.

 

The KOSPI 200 is reported by Bloomberg L.P. under the ticker symbol “KOSPI2.”

 

The KOSPI 200 is a capitalization-weighted index of 200 Korean blue-chip stocks that make up a large majority of the total market value of the Korea Stock Exchange (“KSE”). The KOSPI 200 is the underlying index for stock index futures and options trading. The constituent stocks are selected on a basis of the market value of the individual stocks, liquidity and their relative positions in their respective industry groups.

 

Selection Criteria

 

All common stocks listed on the KSE as of the periodic realignment date will be included in the selection process, except for the stocks which fall into one of the following categories:

 

· stocks with administrative issues;

 

· stocks with liquidation issues;

 

· stocks issued by securities investment companies;

 

· stocks that have been listed less than one year as of the last trading in April of the year in which the periodic review and selection process occurs;

 

· stocks belonging to the industry groups other than those industry groups listed below;

 

· a constituent stock merged into a non-constituent stock;

 

· a company established as a result of a merger between two constituent stocks; and

 

· any other stocks that are deemed unsuitable to be included in the constituents of the KOSPI 200.

 

The companies listed on the KOSPI 200 are classified into the following industry groups: (i) fisheries, (ii) mining, (iii) manufacturing, (iv) electricity and gas, (v) construction, (vi) services, (vii) post and communication and (viii) finance. The constituents of the KOSPI 200 are selected first from the non-manufacturing industry cluster, and then from the manufacturing industry cluster.

 

The constituents from the non-manufacturing industry cluster are selected in accordance with the following:

 

· Selection is made in descending order of market capitalization, from large to small, in the same industry group, while ensuring the accumulated market capitalization of the concerned industry group is within 70% of that of all industry groups.

 

· Notwithstanding the above, the stocks whose ranking of trading volume in descending order is below 85% of the stocks included in deliberation within the same industry group are excluded. In such case, the excluded stock is replaced by a stock that is next in ranking in market capitalization, but satisfies the trading volume criteria.

 

The constituents from the manufacturing industry cluster are selected in descending order of market capitalization, while excluding stocks whose ranking of trading volume in descending order is below 85% of the stocks included in the process within the same industry group. The excluded stock is replaced by a stock that is next in ranking in market capitalization, but satisfies the trading volume criteria.

 

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Notwithstanding anything above, if a stock whose market capitalization is within the top 50 in terms of market capitalization, such stock may be included in the constituents of the KOSPI 200, by taking into consideration the influence that the industry group has on the KOSPI 200, as well as the liquidity of the concerned stock. Stocks to be placed on the replacement list are selected from the stocks included for deliberation, excluding those already selected as constituents of the KOSPI 200.

 

KOSPI 200 Calculation

 

The KOSPI 200 is computed by multiplying (i) the market capitalization as of the calculation time divided by the market capitalization as of the base date, by (ii) 100. The base date of the KOSPI 200 is January 3, 1990 with a base index of 100. Market capitalization is obtained by multiplying the number of listed common shares of the constituents by the price of the concerned common share.

 

If the number of listed shares increases due to rights offering, bonus offering and stock dividend, which accompany ex-right or ex-dividend, such increase is included in the number of listed shares on the ex-right date or ex-dividend date.

 

Share prices refer to the market price established during the regular trading session. If no trading took place on such day, quotation price is used and if no quotation price is available, the closing price of the most recent trading day is used.

 

Stock Revision

 

The constituents of the KOSPI 200 are realigned once a year while observing each of the following:

 

· An existing constituent will not be removed if the ranking of the market capitalization of such stock is within 100/110 of the ranking of the KOSPI 200 constituents of the same industry group;

 

· In order to be included in the constituents of the KOSPI 200, the ranking of the market capitalization of a stock must be within 90/100 of the ranking of the KOSPI 200 constituents of the same industry group;

 

· If the ranking of the market capitalization of an existing constituent falls below 100/110 of the ranking of the KOSPI 200 constituents of the same industry group, but there is no stock satisfying the requirement specified in the preceding clause, the existing constituent will not be removed; and

 

· When removing the existing constituents, a constituent whose ranking of market capitalization within the same industry group is the lowest will be removed first.

 

The periodic realignment date is the trading day following the day, which is the last trading day of June contracts of both the index futures and index options. In the event where a constituent of the KOSPI 200 falls under any of the following cases, such constituent shall be removed from the constituents and the removal date is as follows:

 

· Delisting: the trading day following the delisting date;

 

· Designation as administrative issue: the designation date;

 

· Merger: the day of trading halt; and

 

· It is determined that the stock is unsuitable as a constituent of the KOSPI 200: the trading day following the day of such determination, which is the last trading day of the nearest month contracts of both the index futures and index options, after the date of such decision.

 

When realigning the constituents of the KOSPI 200, the replacement stocks are chosen from the replacement list in accordance with the rank order. In the case of an industry group that has no stock listed on the replacement list, a replacement stock is chosen from the replacement list of manufacturing industry cluster.

 

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The Korea Stock Exchange

 

The KSE’s predecessor, the Daehan Stock Exchange, was established in 1956. The KSE is a typical order-driven market, where buy and sell orders compete for best prices. The KSE seeks to maintain a fair and orderly market for trading and regulates and supervises its member firms.

 

Throughout the trading hours, orders are matched at a price satisfactory to both buy and sell sides, according to price and time priorities. The opening and closing prices, however, are determined by call auctions: at the market opening and closing, orders received for a certain period of time are pooled and matched at the price at which the most number of shares can be executed. The KSE uses electronic trading procedures, from order placement to trade confirmation. The KSE is open from 9:00 a.m. to 3:00 p.m., Korean time, during weekdays. Investors can submit their orders from 8:00 a.m., one hour before the market opening. Orders delivered to the market during the period from 8:00 a.m. to 9:00 a.m. are queued in the order book and matched by call auction method at 9:00 a.m. to determine opening prices. After opening prices are determined, the trades are conducted by continuous auctions until 2:50 p.m. (10 minutes before the market closing). Besides the regular session, the KSE conducts pre-hours and after-hours sessions for block trading and basket trading. During pre-hours sessions from 7:30 to 8:30 a.m., orders are matched at previous day’s respective closing prices. After-hours sessions are open for 50 minutes from 3:10 p.m. to 4:00 p.m. During after-hours sessions, orders are matched at the closing prices of the day.

 

On January 26, 2004, the KSE introduced the random-end system at the opening and closing call auctions. The stated purpose of the random-end system is to prevent any distortion in the price discovery function of the KSE caused by “fake” orders placed with an intention of misleading other investors. In cases where the highest or lowest indicative price of a stock set during the last 5 minutes before the closing time of the opening (or closing) call session, 8:55-9:00 a.m. (or 2:55-3:00 p.m.), deviates from the provisional opening (or closing) price by 5% or more, the KSE delays the determination of the opening (or closing) price of the stock up to five minutes. The official opening (or closing) price of such stock is determined at a randomly chosen time within five minutes after the regular opening (or closing) time. The KSE makes public the indicative prices during the opening (or closing) call trading sessions. Pooling together all bids and offers placed during the order receiving hours for the opening (or closing) session, 8:10-9:00 a.m. (or 2:50-3:00 p.m.), the indicative opening (or closing) prices of all stocks are released to the public on a real-time basis.

 

The KSE sets a limit on the range that the price of individual stocks can change during a day. As of June 15, 2015, that limit was set at 30%, which meant that the price of each stock could neither fall nor rise by more than 30% from the previous day’s closing price. In addition, when the price and/or trading activities of a stock are expected to show an abnormal movement in response to an unidentified rumor or news, or when an abnormal movement is observed in the market, the KSE may halt the trading of the stock. In such cases, the KSE requests the company concerned to make a disclosure regarding the matter. Once the company makes an official announcement regarding the matter, trading can resume within an hour; however, if the KSE deems that the situation was not fully resolved by the disclosure, trading resumption may be delayed.

 

The KSE introduced circuit breakers in December 1998. Effective June 15, 2015, trading in the equity markets is halted for 20 minutes when the KOSPI 200 falls by 8% or more from the previous day’s closing and the situation lasts for one minute or longer. The trading resumes by call auction where the orders submitted during the 10 minutes after the trading halt ended are matched at a single price. When the KOSPI 200 falls by 15% or more from the previous day’s closing and the situation lasts for one minute or longer, if the KOSPI 200 decreases by an additional 1% from the time the first circuit breaker is exercised, trading in the equity markets is halted for 20 minutes. The trading resumes by call auction where the orders submitted during the 10 minutes after the trading halt ended are matched at a single price. When the KOSPI 200 falls by 20% or more from the previous day’s closing and the situation lasts for one minute or longer, if the KOSPI 200 decreases by an additional 1% from the time the second circuit breaker is exercised, trading in the equity markets is suspended for the remainder of the day with no off-market trading. Additionally, if the KOSPI 200 changes by 10% or more from the previous single price execution, a two-minute cooling period will be triggered.

 

Disclaimers related to the Korea Exchange

 

The securities are not sponsored, endorsed, sold or promoted by KRX, the successor of the Korea Stock Exchange who calculates the KOSPI 200 and owns the intellectual property rights over it. KRX makes no

 

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representation or warranty, express or implied, to the owners of the securities or any member of the public regarding the advisability of investing in securities generally or in the securities particularly or the ability of the KOSPI 200 to track general stock market performance. KRX’s only relationship to Citigroup Inc. and its affiliates is the licensing of certain trademarks and trade names of KRX and of the KOSPI 200 which is determined, composed and calculated by KRX without regard to Citigroup Inc., its affiliates or the securities. KRX has no obligation to take the needs of Citigroup Inc., its affiliates or the owners of the securities into consideration in determining, composing or calculating the KOSPI 200. KRX is not responsible for and has not participated in the determination of the prices and amount of the securities or the timing of the issuance or sale of the securities or in the determination or calculation of the equation by which the securities is to be converted into cash. KRX has no obligation or liability in connection with the administration, marketing or trading of the securities.

 

KRX DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE KOSPI 200 OR ANY DATA INCLUDED THEREIN AND KRX SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. KRX MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY CITIGROUP INC., ITS AFFILIATES, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE KOSPI 200 OR ANY DATA INCLUDED THEREIN. KRX MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE KOSPI 200 OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL KRX HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

 

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The MSCI Indices

 

All information contained in this underlying supplement regarding the MSCI Brazil Index, the MSCI Canada Index, the MSCI EAFE ® Index, the MSCI Emerging Markets Index, the MSCI Europe Index, the MSCI Italy SMID Cap Index, the MSCI Japan Index, the MSCI Korea Index, the MSCI Malaysia Index, the MSCI Mexico Investable Market Index, the MSCI Pacific Ex-Japan Index, the MSCI Singapore Index, the MSCI South Africa Index, the MSCI Spain SMID Cap Index, the MSCI Taiwan Index, the MSCI Turkey Investable Market Index and the MSCI World Index SM (each, an “MSCI Index” and together, the “MSCI Indices”), including, without limitation, their make-up, method of calculation and changes in their components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, MSCI Inc. (“MSCI”). The MSCI Indices are calculated, maintained and published by MSCI. MSCI has no obligation to continue to publish, and may discontinue publication of, any of the MSCI Indices.

 

The MSCI Brazil Index

 

The MSCI Brazil Index is a free float-adjusted, capitalization-weighted index that is designed to measure the performance of the large- and mid-cap segments of the Brazilian equity market. The MSCI Brazil Index covers approximately 85% of the Brazilian equity universe. The U.S. dollar price return version of the MSCI Brazil Index is reported by Bloomberg L.P. under the ticker symbol “MXBR.”

 

The MSCI Canada Index

 

The MSCI Canada Index is a free float-adjusted, capitalization-weighted index that is designed to measure the performance of the large- and mid-cap segments of the Canadian equity market. The MSCI Canada Index covers approximately 85% of the free float-adjusted market capitalization in Canada. The U.S. dollar price return version of the MSCI Canada Index is reported by Bloomberg, L.P. under the ticker symbol “MXCA.”

 

The MSCI EAFE ® Index

 

The MSCI EAFE ® Index is a free float-adjusted market capitalization index intended to measure the equity market performance of certain developed markets excluding the United States and Canada. The MSCI EAFE ® Index currently consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. The MSCI EAFE ® Index covers approximately 85% of the free float-adjusted market capitalization in each country. The U.S. dollar price return version of the MSCI EAFE ® Index is reported by Bloomberg L.P. under the ticker symbol “MXEA.”

 

The MSCI Emerging Markets Index

 

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of global emerging markets. The MSCI Emerging Markets Index currently consists of the following 23 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates. The MSCI Emerging Markets Index covers approximately 85% of the free float-adjusted market capitalization in each country. The U.S. dollar price return version of the MSCI Emerging Markets Index is reported by Bloomberg L.P. under the ticker symbol “MXEF.”

 

The MSCI Europe Index

 

The MSCI Europe Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in Europe. The MSCI Europe Index currently consists of the following 15 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The MSCI Europe Index covers approximately 85% of the free float-adjusted market capitalization across the European developed markets equity universe. The U.S. dollar price return version of the MSCI Europe Index is reported by Bloomberg L.P. under ticker symbol “MXEU.”

 

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The MSCI Italy SMID Cap Index

 

The MSCI Italy SMID Cap Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of mid- and small-cap companies in Italy. The MSCI Italy SMID Cap Index covers approximately 28% of the free float-adjusted market capitalization in Italy. The U.S. dollar price return version of the MSCI Italy SMID Cap Index is reported by Bloomberg Financial Markets under the ticker symbol “MXITSM.”

 

The MSCI Japan Index

 

The MSCI Japan Index is a free float-adjusted, market capitalization-weighted index that is designed to measure the large- and mid-cap segments of the Japanese equity market. The MSCI Japan Index covers approximately 85% of the free float-adjusted market capitalization in Japan. The U.S. dollar price return version of the MSCI Japan Index is reported by Bloomberg L.P. under the ticker symbol “MXJP.”

 

The MSCI Korea Index

 

The MSCI Korea Index is a free float-adjusted market capitalization index designed to measure the performance of the large- and mid-cap segments of the South Korean equity market securities listed on the Korea Exchange. The MSCI Korea Index covers about 85% of the Korean equity universe. The U.S. dollar price return version of the MSCI Korea Index is reported by Bloomberg L.P. under the ticker symbol “MXKR.”

 

The MSCI Malaysia Index

 

The MSCI Malaysia Index is a free float-adjusted market capitalization index that is designed to measure the large- and mid-cap segments of the Malaysian equity market. The MSCI Malaysia Index covers about 85% of the Malaysian equity universe. The U.S. dollar price return version of the MSCI Malaysia Index is reported by Bloomberg L.P. under the ticker symbol “MXMY.”

 

The MSCI Mexico Investable Market Index

 

The MSCI Mexico Investable Market Index is a free float-adjusted market capitalization index of large-, mid- and small-cap segments of the Mexican equity market. The MSCI Mexico Index covers approximately 99% of the free float-adjusted market capitalization in Mexico. The U.S. dollar price return version of the MSCI Mexico Investable Market Index is reported by Bloomberg L.P. under the ticker symbol “MXMX”.

 

The MSCI Pacific Ex-Japan Index

 

The MSCI Pacific Ex-Japan Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of certain developed markets in the Pacific region, excluding Japan. The MSCI Pacific Ex-Japan Index currently consists of the following 4 developed country indices: Australia, Hong Kong, New Zealand and Singapore. The MSCI Pacific Ex-Japan Index covers approximately 85% of the free float-adjusted market capitalization in each country. The U.S. dollar price return version of the MSCI Pacific Ex-Japan Index is reported by Bloomberg L.P. under the ticker symbol “MXAPJ.”

 

The MSCI Singapore Index

 

The MSCI Singapore Index is a free float-adjusted market capitalization index that is designed to measure the large- and mid-cap segments of the Singaporean equity market. The MSCI Singapore Index covers about 85% of the Singapore equity universe. The U.S. dollar price return version of the MSCI Singapore Index is reported by Bloomberg L.P. under the ticker symbol “SIMSCI.”

 

The MSCI South Africa Index

 

The MSCI South Africa Index is a free float-adjusted market capitalization index that is designed to measure the large- and mid-cap segments of the South African equity market. The MSCI South Africa Index covers about 85% of the South African equity universe. The U.S. dollar price return version of the MSCI South Africa Index is reported by Bloomberg L.P. under the ticker symbol “MXZA.”

 

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The MSCI Spain SMID Cap Index

 

The MSCI Spain SMID Cap Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of mid- and small-cap companies in Spain. The MSCI Spain SMID Cap Index covers approximately 28% of the free float-adjusted market capitalization in Spain. The U.S. dollar price return version of the MSCI Spain SMID Cap Index is reported by Bloomberg Financial Markets under the ticker symbol “MXESSM.”

 

The MSCI Taiwan Index

 

The MSCI Taiwan Index is a free float-adjusted market capitalization index that is designed to measure the performance of the large- and mid-cap segments of the Taiwanese equity market. The MSCI Taiwan Index covers approximately 85% of the free float-adjusted market capitalization in Taiwan. The U.S. dollar price return version of the MSCI Taiwan Index is reported by Bloomberg L.P. under the ticker symbol “TAMSCI.”

 

The MSCI Turkey Investable Market Index

 

The MSCI Turkey Investable Market Index is a free float-adjusted market capitalization index that is designed to measure the performance of the large-, mid- and small-cap segments of the Turkish equity market. The MSCI Turkey Investable Market Index covers approximately 99% of the free float-adjusted market capitalization in Turkey. The U.S. dollar price return version of the MSCI Turkey Investable Market Index is reported by Bloomberg L.P. under the ticker symbol “MXTR.”

 

The MSCI World Index SM

 

The MSCI World Index SM is a free float-adjusted market capitalization index intended to measure the equity market performance of certain developed equity markets. The MSCI World Index SM currently consists of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The MSCI World Index SM covers approximately 85% of the free float-adjusted market capitalization in each country. The U.S. dollar price return version of the MSCI World Index SM is reported by Bloomberg L.P. under the ticker symbol “MXWO.”

 

Constructing the MSCI Global Investable Market Indices

 

MSCI undertakes an index construction process that involves: (i) defining the Equity Universe; (ii) determining the Market Investable Equity Universe for each market; (iii) determining market capitalization size segments for each market; (iv) applying Index Continuity Rules for the MSCI Standard Index; (v) creating style segments within each size segment within each market; and (vi) classifying securities under the Global Industry Classification Standard (the “GICS ® ”).

 

The “relevant market” with respect to a single country index is equivalent to the single country, except in DM-classified countries in Europe (as described below), where all such countries are first aggregated into a single market for index construction purposes. Subsequently, individual DM Europe country indices within the MSCI Europe Index are derived from the constituents of the MSCI Europe Index under the MSCI Global Investable Market Indices Methodology.

 

The “relevant market” with respect to a composite index includes each of the single countries which comprise the composite index.

 

The “Global Investable Equity Universe” is the aggregation of all Market Investable Equity Universes. The “DM Investable Equity Universe” is the aggregation of all the Market Investable Equity Universes for Developed Markets.

 

Defining the Equity Universe

 

(i)       Identifying Eligible Equity Securities: The Equity Universe initially looks at securities listed in any of the countries in the MSCI Global Index Series, which will be classified as Developed Markets (“DM”), Emerging

 

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Markets (“EM”) or Frontier Markets (“FM”). All listed equity securities, including Real Estate Investment Trusts (“REITs”) and certain income trusts listed in Canada are eligible for inclusion in the Equity Universe. Only one listing per security may be included in the Market Investable Equity Universe. If a security has two or more eligible listings that meet the liquidity criteria, MSCI will apply a set of priority rules to determine which listing will be included.

 

(ii)       Country Classification of Eligible Securities: Each company and its securities ( i.e. , share classes) are classified in one and only one country, which allows for a distinctive sorting of each company by its respective country.

 

Determining the Market Investable Equity Universes

 

A Market Investable Equity Universe for a market is derived by applying investability screens to individual companies and securities in the Equity Universe that are classified in that market. A market is equivalent to a single country, except in DM Europe, where all DM countries in Europe are aggregated into a single market for index construction purposes. Subsequently, individual DM Europe country indices within the MSCI Europe Index are derived from the constituents of the MSCI Europe Index under the Global Investable Market Indices methodology. Limited partnerships, limited liability companies and business trusts, which are listed in the United States and are not structured to be taxed as limited partnerships, are likewise eligible for inclusion in the Equity Universe. Conversely, mutual funds, ETFs, equity derivatives and most investment trusts are not eligible for inclusion in the Equity Universe. Preferred shares that exhibit characteristics of equity securities are eligible.

 

The investability screens used to determine the Investable Equity Universe in each market are as follows:

 

(i) Equity Universe Minimum Size Requirement: This investability screen is applied at the company level. In order to be included in a Market Investable Equity Universe, a company must have the required minimum full market capitalization. A company will meet this requirement if its cumulative free float-adjusted market capitalization is within the top 99% of the Equity Universe sorted in descending order by full market capitalization.

 

(ii) Equity Universe Minimum Float-Adjusted Market Capitalization Requirement: This investability screen is applied at the individual security level. To be eligible for inclusion in a Market Investable Equity Universe, a security must have a free float-adjusted market capitalization equal to or higher than 50% of the Equity Universe Minimum Size Requirement.

 

(iii) DM and EM Minimum Liquidity Requirement: This investability screen is applied at the individual security level. To be eligible for inclusion in a Market Investable Equity Universe, a security must have adequate liquidity as measured by the Annualized Traded Value Ratio (“ATVR”) and the Frequency of Trading. The ATVR screens out extreme daily trading volumes, taking into account the free float-adjusted market capitalization size of securities. The aim of the 12-month and 3-month ATVR together with 3-month Frequency of Trading is to select securities with a sound long and short-term liquidity. A minimum liquidity level of 20% of 3-month ATVR and 90% of 3-month Frequency of Trading over the last 4 consecutive quarters, as well as 20% of 12-month ATVR are required for the inclusion of a security in a Market Investable Equity Universe of a Developed Market. A minimum liquidity level of 15% of 3-month ATVR and 80% of 3-month Frequency of Trading over the last 4 consecutive quarters, as well as 15% of 12-month ATVR are required for the inclusion of a security in a Market Investable Equity Universe of an Emerging Market.

 

In instances when a security does not meet the above criteria, the security will be represented by a relevant liquid eligible Depository Receipt if it is trading in the same geographical region. Depository Receipts are deemed liquid if they meet all the above mentioned criteria for 12-month ATVR, 3-month ATVR and 3-month Frequency of Trading.

 

(iv) Global Minimum Foreign Inclusion Factor Requirement: This investability screen is applied at the individual security level. To be eligible for inclusion in a Market Investable Equity Universe, a security’s Foreign Inclusion Factor (“FIF”) must reach a certain threshold. The FIF of a security is defined as the proportion of shares outstanding that is available for purchase in the public equity markets by

 

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international investors. This proportion accounts for the available free float of and/or the foreign ownership limits applicable to a specific security (or company). In general, a security must have an FIF equal to or larger than 0.15 to be eligible for inclusion in a Market Investable Equity Universe.

 

(v) The Minimum Length of Trading Requirement: This investability screen is applied at the individual security level. For an initial public offering (“IPO”) to be eligible for inclusion in a Market Investable Equity Universe, the new issue must have started trading at least three months before the implementation of a semi-annual index review. This requirement is applicable to small new issues in all markets. Large IPOs and large primary / secondary offerings of non-index-constituents are not subject to the Minimum Length of Trading Requirement and may be included in a Market Investable Equity Universe and the Standard Index outside of a Quarterly or semi-annual index review.

 

(vi) The Minimum Foreign Room Requirement: This investability screen is applied at the individual security level. For a security that is subject to a Foreign Ownership Limit (FOL) to be eligible for inclusion in a Market Investable Equity Universe, the proportion of shares still available to foreign investors relative to the maximum allowed (referred to as “foreign room”) must be at least 15%.

 

Defining Market Capitalization Size Segments for Each Market

 

Once a Market Investable Equity Universe is defined, it is segmented into the following size-based indices:

 

(i) Investable Market Index (Large + Mid + Small)

 

(ii) Standard Index (Large + Mid)

 

(iii) Large Cap Index

 

(iv) Mid Cap Index

 

(v) Small Cap Index

 

Creating the Size Segment Indices in each market involves the following steps: (i) defining the Market Coverage Target Range for each size segment; (ii) determining the Global Minimum Size Range for each size segment; (iii) defining the Global Minimum Size Reference; (iv) determining the Segment Number of Companies and associated Market Size-Segment Cutoffs; (v) assigning companies to the size segments; and (vi) applying final size-segment investability requirements and index continuity rules.

 

Index Continuity Rules for the Standard Indices

 

In order to achieve index continuity, as well as provide some basic level of diversification within a market index, notwithstanding the effect of other index construction rules, a minimum number of five constituents will be maintained for a DM Standard Index and a minimum number of three constituents will be maintained for an EM Standard Index.

 

If after the application of the index construction methodology, a Standard Index contains fewer than five securities in a Developed Market or three securities in an Emerging Market, then the largest securities by free float-adjusted market capitalization among the securities included in the Market Investable Equity Universe are added to the Standard Index in order to reach five constituents in that Developed Market or three in that Emerging Market. At subsequent index reviews, if after the application of the index maintenance methodology a Standard Index contains less than five securities in a Developed Market or three securities in an Emerging Market, then the remaining securities are selected for inclusion by multiplying market capitalization of such securities by a factor of 1.5.

 

Creating Style Indices within Each Size Segment

 

All securities in the investable equity universe are classified into Value or Growth segments using the MSCI Global Value and Growth methodology.

 

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Classifying Securities under the Global Industry Classification Standard

 

All securities in the Global Investable Equity Universe are assigned to the industry that best describes their business activities. To this end, MSCI has designed, in conjunction with S&P Dow Jones Indices LLC, the Global Industry Classification Standard (“GICS ® ”). The GICS ® entails four levels of classification: (1) sector; (2) industry groups; (3) industries; (4) sub-industries. Under the GICS ® , each company is assigned uniquely to one sub-industry according to its principal business activity. Therefore, a company can belong to only one industry grouping at each of the four levels of the GICS ® .

 

Maintenance of the MSCI Global Investable Market Indices

 

The MSCI Global Investable Market Indices are maintained with the objective of reflecting the evolution of the underlying equity markets and segments on a timely basis, while seeking to achieve index continuity, continuous investability of constituents and replicability of the indices, and index stability and low index turnover.

 

In particular, index maintenance involves:

 

(i) semi-annual index reviews (“SAIRs”) in May and November of the Size Segment and Global Value and Growth Indices, which include:

 

· updating the indices on the basis of a fully refreshed Equity Universe;

 

· taking buffer rules into consideration for migration of securities across size and style segments; and

 

· updating FIFs and Number of Shares (“NOS”).

 

The objective of the SAIRs is to systematically reassess the various dimensions of the Equity Universe for all markets on a fixed semi-annual timetable. A SAIR involves a comprehensive review of the Size Segment and Global Value and Growth Indices.

 

(ii) quarterly index reviews (“QIRs”) in February and August of the Size Segment Indices aimed at:

 

· including significant new eligible securities (such as IPOs that were not eligible for earlier inclusion) in the index;

 

· allowing for significant moves of companies within the Size Segment Indices, using wider buffers than in the SAIR; and

 

· reflecting the impact of significant market events on FIFs and updating NOS.

 

QIRs are designed to ensure that the indices continue to be an accurate reflection of the evolving equity marketplace. This is achieved by a timely reflection of significant market driven changes that were not captured in the index at the time of their actual occurrence but are significant enough to be reflected before the next SAIR. QIRs may result in additions or deletions due to migration to another Size Segment Index, and changes in FIFs and in NOS. QIRs may also result in additions of significant new investable companies to the Standard Index or deletion of companies from the Investable Market Indices due to low liquidity. The buffer zones used to manage the migration of companies from one segment to another are wider than those used in the SAIR. The style classification is reviewed only for companies that are reassigned to a different size segment.

 

Any index constructed on the basis of the Global Investable Market Indexes methodology may be subject to other limitations resulting from changes in the underlying markets. Any such potential limitations of an existing methodology may be assessed as part of the SAIR/QIR process.

 

(iii) Ongoing event-related changes. Ongoing event-related changes to the indices are the result of mergers, acquisitions, spin-offs, bankruptcies, reorganizations and other similar corporate events. They can also result from capital reorganizations in the form of rights issues, bonus issues, public placements and other similar corporate actions that take place on a continuing basis. These changes are reflected in the indices

 

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  at the time of the event. Significantly large IPOs are included in the indices after the close of the company’s tenth day of trading.

 

Announcement Policy

 

The results of the SAIRs are announced at least two weeks in advance of their effective implementation dates as of the close of the last business day of May and November. The results of the QIRs are announced at least two weeks in advance of their effective implementation dates as of the close of the last business day of February and August. All changes resulting from corporate events are announced prior to their implementation.

 

The changes are typically announced at least ten business days prior to the changes becoming effective in the indices as an “expected” announcement, or as an “undetermined” announcement, when the effective dates are not known yet or when aspects of the event are uncertain. MSCI sends “confirmed” announcements at least two business days prior to events becoming effective in the indices, provided that all necessary public information concerning the event is available. The full list of all new and pending changes is delivered to clients on a daily basis, between 5:30 p.m. and 6 p.m., U.S. Eastern Time through the Advance Corporate Events (ACE) File.

 

In exceptional cases, events are announced during market hours for same or next day implementation. Announcements made by MSCI during market hours are usually linked to late company disclosure of corporate events or unexpected changes to previously announced corporate events.

 

In the case of secondary offerings representing more than 5% of a security’s number of shares for existing constituents, these changes will be announced prior to the end of the subscription period when possible and a subsequent announcement confirming the details of the event (including the date of implementation) will be made as soon as the results are available.

 

Both primary equity offerings and secondary offerings for U.S. securities, representing at least 5% of the security’s number of shares, will be confirmed through an announcement during market hours for next day or shortly after implementation, as the completion of the events cannot be confirmed prior to the notification of the pricing.

 

Early deletions of constituents due to events, such as bankruptcy, are announced as soon as practicable prior to their implementation.

 

Index Calculation

 

Price Index Level

 

The MSCI Indices are calculated using the Laspeyres’ concept of a weighted arithmetic average together with the concept of chain-linking. As a general principle, today’s index level is obtained by applying the change in the market performance to the previous period index level.

 

PriceIndexLevelUSD t  = PriceIndexLevelUSD t-1  × IndexAdjustedMarketCapUSD t
IndexInitialMarketCapUSD t

 

PriceIndexLevelLocal t  = PriceIndexLevelLocal t-1  × IndexAdjustedMarketCapForLocal t
IndexInitialMarketCapUSD t


Where:

 

PriceIndexLevelUSDt-1 is the Price Index level in USD at time t-1.

IndexAdjustedMarketCapUSDt is the Adjusted Market Capitalization of the index in USD at time t.

IndexInitialMarketCapUSDt is the Initial Market Capitalization of the index in USD at time t.

PriceIndexLevelLocalt-1 is the Price Index level in local currency at time t-1.

IndexAdjustedMarketCapForLocalt is the Adjusted Market Capitalization of the index in USD converted using FX rate as of t-1 and used for local currency index at time t.

 

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  Index Market Capitalization

 

IndexAdjustedMarketCapUSD t =

 

  

 

IndexAdjustedMarketCapForLocal t =

 

 

  IndexInitialMarketCapUSD t =

 

 

Where:

 

· EndOfDayNumberOfShares t -1 is the number of shares of security s at the end of day t-1.

· PricePerShare t is the price per share of security s at time t.

· PricePerShare t -1 is the price per share of security s at time t-1.

· InclusionFactor t is the inclusion factor of security s at time t. The inclusion factor can be one or the combination of the following factors: Foreign Inclusion Factor, Domestic Inclusion Factor Growth Inclusion Factor, Value Inclusion Factor, Index Inclusion Factor.

· PAF t is the Price Adjustment Factor of security s at time t.

· FXrate t is the FX rate of the price currency of security s vs USD at time t. It is the value of 1 USD in foreign currency.

· FXrate t -1 is the FX rate of the price currency of security s vs USD at time t-1. It is the value of 1 USD in foreign currency.

· ICI t is the Internal Currency Index of price currency at time t. The ICI is different than 1 when a country changes the internal value of its currency ( e.g. , from Turkish Lira to New Turkish Lira – ICI = 1,000,000).

· ICI t-1 is the Internal Currency Index of price currency at time t-1.

 

Corporate Events

 

Mergers and Acquisitions

 

MSCI implements M&As as of the close of the last trading day of the acquired entity or merging entities (last offer day for tender offers), regardless of the status of the securities (index constituents or non-index constituents) involved in the event. MSCI uses market prices for implementation. This principle applies if all necessary information is available prior to the completion of the event and if the liquidity of the relevant constituent(s) is not expected to be significantly diminished on the day of implementation. Otherwise, MSCI determines the most appropriate implementation method and announce it prior to the changes becoming effective in the indices.

 

Tender Offers

 

In tender offers, the acquired or merging security is deleted from an index at the end of the initial offer period, when the offer is likely to be successful and / or if the free float of the security is likely to be substantially reduced (this rule is applicable even if the offer is extended), or once the results of the offer have been officially communicated and the offer has been successful and the security’s free float has decreased below 0.15 (except for Standard Index constituents), if all required information is not available in advance or if the offer’s outcome is uncertain. The main factors considered by MSCI when assessing the outcome of a tender offer (not in order of

 

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importance) are: the announcement of the offer as friendly or hostile, a comparison of the offer price to the acquired security’s market price, the recommendation by the acquired company’s board of directors, the major shareholders’ stated intention whether to tender their shares, the required level of acceptance, the existence of pending regulatory approvals and legal actions, the market perception of the transaction, official preliminary results if any, and other additional conditions for the offer.

 

In certain cases, securities are deleted earlier or using a different date than the last offer day. For example, in the case of tender offers in the United Kingdom, a security is typically deleted two business days after the offer is declared unconditional in all respects.

 

Changes to a security resulting from large acquisition of non-listed companies or assets are implemented at the next regularly scheduled index review following completion of the event and listing of the newly issued shares.

 

Increases in a security’s number of shares resulting from acquisition of listed non-index constituent securities representing at least 5% of the security’s number of shares are implemented as of the close of the last trading day of the acquired entity if all necessary information is available prior to the completion of the event or if such information is not available prior to the completion of the event, as soon as practicable following the completion of the event. Changes representing less than 5% of the security’s number of shares are implemented at the next regularly scheduled index review following the completion of the event.

 

If a security is deleted from an index, the security is not reinstated immediately after its deletion even when the tender offer is subsequently declared unsuccessful and/or the free float of the security is not substantially reduced. It will be reconsidered for index inclusion at the following regularly scheduled index review.

 

Late Announcements of Completion of Mergers and Acquisitions

 

When the completion of an event is announced too late to be reflected as of the close of the last trading day of the acquired or merging entities, implementation occurs as of the close of the following day or as soon as practicable thereafter. In these cases, MSCI uses a calculated price for the acquired or merging entities. The calculated price is determined using the terms of the transaction and the price of the acquiring or merged entity, or, if not appropriate, using the last trading day’s market price of the acquired or merging entities.

 

Conversions of Share Classes

 

Conversions of a share class into another share class resulting in the deletion and/or addition of one or more classes of shares are implemented as of the close of the last trading day of the share class to be converted.

 

Spin-Offs

 

On the ex-date of a spin-off, a PAF is applied to the price of the security of the parent company. The PAF is calculated based on the terms of the transaction and the market price of the spun-off security. If the spun-off entity qualifies for inclusion, it is included as of the close of its first trading day. In cases of spin-offs of partially owned companies, the post-event free float of the spun-off entity is calculated using a weighted average of the existing shares and the spun-off shares, each at their corresponding free float. Any resulting changes to FIFs and/or DIFs are implemented as of the close of the ex-date.

 

In cases of spin-offs of partially-owned companies, the post-event free float of the spun-off entity is calculated using a weighted average of the existing shares and the spun-off shares, each at their corresponding free float. Any resulting changes to FIFs and/or DIFs are implemented as of the close of the ex-date.

 

When the spun-off security does not trade on the ex-date, a PAF is applied to the price of the parent entity and a “detached” security is created to avoid a drop in the free float-adjusted market capitalization of the parent entity, regardless of whether the spun-off security is added or not. The detached security is included in the MSCI Indices as of the close of the ex-date and is maintained until the spun-off security begins trading. The value of the detached security is equal to the difference between the cumulative price and the ex-price of the parent security.

 

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Corporate Actions

 

Corporate actions such as splits, stock dividends and rights issues, which affect the price of a security, require a price adjustment. PAFs are applied on the ex-date of the event to allow (as per the Laspeyres’ concept) security prices to be comparable between the ex-date and the cum date. To do so, MSCI adjusts for the value of the right and/or the value of the special assets that are distributed and the changes in number of shares and FIF, if any, are reflected as of the close of the ex-date. In general, corporate actions do not impact the free float of the securities because the distribution of new shares is carried out on a pro rata basis to all existing shareholders. Therefore, MSCI does not implement any pending number of shares and/or free float updates simultaneously with the event.

 

If a security does not trade for any reason on the ex-date of the corporate action, the event will be implemented on the day the security resumes trading.

 

Share Placements and Offerings

 

Changes in number of shares and FIF resulting from primary equity offerings representing at least 5% of the security’s number of shares are implemented as of the close of the first trading day of the new shares, if all necessary information is available at that time. Otherwise, the event is implemented as soon as practicable after the relevant information is made available. Pending NOS and/or float changes, if any, are implemented simultaneously with the event. Changes in number of shares and FIF resulting from primary equity offerings representing less than 5% of the security’s number of shares are implemented at the next regularly scheduled index review following the completion of the event. In the case of secondary offerings representing at least 5% of the security’s number of shares for existing constituents, these changes are announced prior to the end of the subscription period when possible and a subsequent announcement confirming the details of the event (including the date of the implementation) is made as soon as the results are available. Block sales and secondary offerings (outside the United States) that were not captured at the time of completion will be reflected at a following regularly scheduled Index Review. Due to the nature of secondary offerings, being usually pre-announced by the company or company shareholders, MSCI generally announces changes due to secondary offerings (outside the United States) with an undetermined or expected status and sends the confirmed only after the event is completed.

 

Debt-to-Equity Swaps

 

Large debt-to-equity swaps involve the conversion of debt into equity originally not convertible at the time of issue. In this case, changes in numbers of shares and subsequent FIF and/or DIF changes are implemented as of the close of the first trading day of the newly issued shares, or shortly thereafter if all necessary information is available at the time of the swap. Pending NOS and/or float changes, if any, are implemented simultaneously with the event. Shares issued in debt-to-equity swaps are assumed to be issued to strategic investors, unless stated otherwise. As such, the post event free float is calculated on a pro forma basis assuming that all these shares are non-free float. Changes in numbers of shares and subsequent FIF and/or DIF changes due to conversions of convertible bonds or other convertible instruments, including periodical conversions of preferred stocks and small debt-to-equity swaps are implemented at the next regularly scheduled index review.

 

Suspensions and Bankruptcies

 

MSCI removes from the MSCI Indices as soon as possible companies that file for bankruptcy or protection from their creditors and/or are suspended and for which a return to normal business activity is unlikely in the near future. MSCI treats in the same way companies that fail stock exchange listing requirements with announcements of delisting from stock exchanges. In cases where the company is still trading, MSCI deletes the company on the same day at its last trading price, if feasible, and sends an intraday announcement. When the primary exchange price is not available, MSCI deletes securities at an over the counter or equivalent market price when such a price is available and deemed relevant. If no such price is available, the security will be deleted at the lowest system price. If MSCI decides to delete a company at the lowest system price with more than one full business day advance notice, the company may be maintained in the MSCI Indices at the lowest system price, instead of carrying forward its last trading price, until its deletion.

 

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License Agreement

 

MSCI and Citigroup Global Markets Inc. have entered into a non-exclusive license agreement providing for the license to Citigroup Global Markets Inc. and certain of its affiliates, in exchange for a fee, of the right to use the MSCI Indices in connection with certain securities, including the securities.

 

The MSCI Indexes are the exclusive property of MSCI. MSCI and the MSCI Index names are service mark(s) of MSCI or its affiliates and have been licensed for use for certain purposes by Citigroup Global Markets Inc. and certain of its affiliates. The securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such securities.

 

THIS FINANCIAL PRODUCT IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY MSCI INC. (“MSCI”), ANY AFFILIATE OF MSCI OR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX. THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAMES ARE SERVICE MARK(S) OF MSCI OR ITS AFFILIATES AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY CITIGROUP GLOBAL MARKETS INC. AND ITS AFFILIATES (THE “LICENSEE”). NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THIS FINANCIAL PRODUCT OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN FINANCIAL SECURITIES GENERALLY OR IN THIS FINANCIAL PRODUCT PARTICULARLY OR THE ABILITY OF ANY MSCI INDEX TO TRACK CORRESPONDING STOCK MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE THE LICENSORS OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE MSCI INDEXES WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO THIS FINANCIAL PRODUCT OR THE ISSUER OR OWNER OF THIS FINANCIAL PRODUCT. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX HAS ANY OBLIGATION TO TAKE THE NEEDS OF THE ISSUERS OR OWNERS OF THIS FINANCIAL PRODUCT INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE MSCI INDEXES. NEITHER MSCI, ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES OF THIS FINANCIAL PRODUCT TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THIS FINANCIAL PRODUCT IS REDEEMABLE FOR CASH. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, THE MAKING OR COMPILING ANY MSCI INDEX HAS ANY OBLIGATION OR LIABILITY TO THE OWNERS OF THIS FINANCIAL PRODUCT IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR OFFERING OF THIS FINANCIAL PRODUCT.

 

ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE MSCI INDEXES FROM SOURCES WHICH MSCI CONSIDERS RELIABLE, NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO MAKING OR COMPILING ANY MSCI INDEX WARRANTS OR GUARANTEES THE ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE’S CUSTOMERS OR COUNTERPARTIES, ISSUERS OF THE FINANCIAL SECURITIES, OWNERS OF THE FINANCIAL SECURITIES, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. FURTHER, NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY

 

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INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, AND MSCI, ANY OF ITS AFFILIATES AND ANY OTHER PARTY INVOLVED IN, OR RELATED TO MAKING OR COMPILING ANY MSCI INDEX HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY MSCI INDEX AND ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MSCI, ANY OF ITS AFFILIATES OR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

 

No purchaser, seller or holder of this security, or any other person or entity, should use or refer to any MSCI trade name, trademark or service mark to sponsor, endorse, market or promote this product without first contacting MSCI to determine whether MSCI’s permission is required. Under no circumstances may any person or entity claim any affiliation with MSCI without the prior written permission of MSCI.

 

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The MSCI 25/50 Indices

 

All information contained in this underlying supplement regarding the MSCI Brazil 25/50 Index and the MSCI Mexico Investable Market (IMI) 25/50 Index (each, an “MSCI 25/50 Index” and together, the “MSCI 25/50 Indices”), including, without limitation, their make-up, method of calculation and changes in their components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, MSCI Inc. (“MSCI”). The MSCI 25/50 Indices are calculated, maintained and published by MSCI. MSCI has no obligation to continue to publish, and may discontinue publication of, any of the MSCI 25/50 Indices.

 

The MSCI Brazil 25/50 Index

 

The MSCI Brazil 25/50 Index is designed to measure the performance of the large- and mid-cap segments of the Brazilian market. It applies certain investment limits that are imposed on regulated investment companies (“RICs”) under the current U.S. Internal Revenue Code. The MSCI Brazil 25/50 Index covers approximately 85% of the free float-adjusted market capitalization in Brazil. The MSCI Brazil 25/50 Index is an index created by applying the weight constraints described below to the MSCI Brazil Index. For more information about the MSCI Brazil Index, please see “— The MSCI Indices” in this underlying supplement. The U.S. dollar price return version of the MSCI Brazil 25/50 Index is reported by Bloomberg L.P. under the ticker symbol “MXBR2550.”

 

The MSCI Mexico IMI 25/50 Index

 

The MSCI Mexico IMI 25/50 Index is designed to measure the performance of the large-, mid- and small-cap segments of the Mexican equity market. It applies certain investment limits that are imposed on RICs under the current U.S. Internal Revenue Code. The MSCI Mexico IMI 25/50 Index covers approximately 99% of the free float-adjusted market capitalization in Mexico. The MSCI Mexico IMI 25/50 Index is an index created by applying the weight constraints described below to the MSCI Mexico Investable Market Index. For more information about the MSCI Index, please see “— The MSCI Indices” in this underlying supplement. The U.S. dollar price return version of the MSCI Mexico IMI 25/50 Index is reported by Bloomberg L.P. under the ticker symbol “MXMX5IM.”

 

Objectives and Guiding Principles Underlying the MSCI 25/50 Indices

 

Under current regulations, a fund needs to satisfy certain tests, such as those relating to asset diversification and sources of income, for qualification as a RIC. More specifically, one requirement of a RIC is that, at the end of each quarter of a RIC’s tax year, no more than 25% of the value of the RIC’s assets may be invested in a single issuer and the sum of the weights of all issuers representing more than 5% of the fund should not exceed 50% of the fund’s total assets. The MSCI 25/50 Indices take into account these investment limits, offering a benchmarking alternative for RIC-compliant funds.

 

The following principles have guided MSCI in designing a methodology for constructing the MSCI 25/50 Indices from underlying non-constrained indices.

 

Reflecting the 25% and 50% concentration constraints. Reflecting the 25% and 50% concentration constraints is the primary consideration in terms of both index construction and index maintenance. Ensuring timely and on-going reflection of the constraints requires an MSCI 25/50 Index to be rebalanced periodically. The MSCI 25/50 Indices are rebalanced in February, May, August and November.

 

Minimizing tracking error to the parent index. Minimizing the tracking error between an MSCI 25/50 Index and the relevant parent index, while keeping the index turnover to a reasonable level, is another important objective. MSCI seeks to achieve this by rebalancing an MSCI 25/50 Index using an optimization process that aims to minimize the constituent weight differences between that MSCI 25/50 Index and the relevant parent index.

 

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Index Construction and Maintenance Methodology

 

Constructing and Rebalancing the MSCI 25/50 Indices

 

The MSCI 25/50 Index methodology follows a portfolio optimization framework. The Barra Optimizer is utilized to perform the optimization function, which is aimed at minimizing index turnover, tracking error and extreme deviation from the relevant parent index. The Barra Optimizer is an algorithm designed to facilitate the portfolio construction process.

 

Constraint targets. Each MSCI 25/50 Index is subject to the following constraints:

 

· no issuer may exceed 25% of index weight; and

 

· all issuers with weight above 5% may not exceed 50% of the index weight.

 

Minimizing weight distance from the relevant parent index. The MSCI 25/50 Index methodology aims at minimizing the weight distance from the relevant parent index. The active risk or the tracking error of an MSCI 25/50 Index versus the relevant parent index is measured as the distance between the constituent weights of that MSCI 25/50 Index and the relevant parent index.

 

Minimizing transaction cost. A transaction cost is applied as a proxy for index turnover on rebalancing from each MSCI 25/50 Index.

 

Minimum weight of constituents. The minimum weight of any MSCI 25/50 Index constituent is equal to the weight of the smallest constituent in the relevant parent index.

 

Buffer Rules

 

A buffer of 10% of the value of each constraint is used in order to reduce the risk of non-compliance due to short term market movements between two quarterly rebalancing. As a result, at the point of constructing or rebalancing the MSCI 25/50 Indices, the weight of any single issuer cannot exceed 22.5% of the index weight and all issuers with weight above 4.5% cannot exceed 45% of the index weight.

 

Maintenance Rules

 

Quarterly index reviews. The MSCI 25/50 Indices are rebalanced quarterly and the changes resulting from the rebalancing are made as of the close of the last business day of each February, May, August and November, to coincide with the quarterly index reviews of their parent indices.

 

The MSCI 25/50 Indices are in general rebalanced five business days before the effective date. The changes resulting from the rebalancing are announced on the same day.

 

In case a pro forma MSCI 25/50 Index violates the 25/50 constraints between the announcement date and the effective date, the previously announced results will be discarded and a newly rebalanced MSCI 25/50 Index will be announced.

 

There is no index rebalancing due to non-compliance between quarterly index reviews.

 

At each rebalancing, a constraint factor is calculated for each constituent of each MSCI 25/50 Index. The constraint factor is defined as the weight in the applicable MSCI 25/50 Index at the time of the rebalancing divided by the weight in the relevant parent index. The constraint factor as well as the constituents of each MSCI 25/50 Index remains constant between index reviews except in case of corporate events.

 

Ongoing Event Related Changes. A security added to a parent index following a corporate event is added to the relevant MSCI 25/50 Index with an estimated capped weight, without rebalancing of the MSCI 25/50 index.

 

In the event of a merger or an acquisition where an index constituent acquires another index constituent or merges with another index constituent, the remaining company is maintained in the relevant MSCI

 

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25/50 Index with a constraint factor calculated as the weighted average of the constraint factors before the corporate event.

 

If a spun-off security of an index constituent is added to a parent index, it will be added to the relevant MSCI 25/50 Index with the same constraint factor as the parent security.

 

The deletion of a constituent from a parent index following a corporate event triggers its deletion from the relevant MSCI 25/50 Index without rebalancing of that MSCI 25/50 Index.

 

The addition of a newly eligible security in a parent index — for example, an early inclusion of a large initial public offering, or a security migrating to that parent index from another size segment — will result in the inclusion of that security in the relevant MSCI 25/50 Index and consequently trigger the full rebalancing of that MSCI 25/50 Index.

 

Issuer Concentration Issues

 

A minimum of 15 issuers in the relevant parent index is required at any point in time for an MSCI 25/50 Index to be rebalanced as described above. In the event the number of issuers drops below 15 but remains above 11 following a corporate event or a regular index review, MSCI will apply the following adjustments:

 

· Number of issuers drops to 14: the buffer mentioned above will be reduced from 10% to 9%. Thus, the weight of any single issuer cannot exceed 22.75% of the index weight and all issuers with weight above 4.55% cannot exceed 45.5% of the index weight.

 

· Number of issuers drops to 13: the buffer mentioned above will be reduced from 10% to 4%. Thus, the weight of any single issuer cannot exceed 24% of the index weight and all issuers with weight above 4.8% cannot exceed 48% of the index weight.

 

· Number of issuers drops to 12: the buffer mentioned above will be reduced from 10% to 0%. Thus, the weight of any single issuer cannot exceed 25% of the index weight and all issuers with weight above 5% cannot exceed 50% of the index weight.

 

An MSCI 25/50 Index will need to be discontinued if the number of issuers drops below 12 as mathematically no solution can satisfy the 25% and 50% constraints. MSCI will however temporarily maintain the MSCI 25/50 Index for a minimum of two months before discontinuation by adding the necessary number of securities to that MSCI 25/50 Index. The index discontinuation will coincide with one of the subsequent regular index reviews. The securities to be added will be chosen in the following order of priority:

 

· Securities deleted from the relevant MSCI 25/50 Index, provided they exhibit required liquidity and were not deleted due to financial difficulties, etc.

 

· Eligible securities of relevant size not included in the relevant parent index, e.g. , largest small cap size-segment securities.

  

In the event that no securities are eligible for temporary addition to the relevant MSCI 25/50 Index, MSCI will provide an index, as close as possible to the 25/50 constraints, for a minimum of two months before discontinuation. The index discontinuation will coincide with one of the subsequent regular index reviews.

 

Index Calculation and Corporate Events

 

Please refer to “—The MSCI Indices” in this underlying supplement for information relating to the calculation of the MSCI 25/50 Indices and the treatment of corporate events. For these purposes, the MSCI 25/50 Indices are deemed to be included in the MSCI Indices described in “— The MSCI Indices” in this underlying supplement.

 

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License Agreement

 

MSCI and Citigroup Global Markets Inc. have entered into a non-exclusive license agreement providing for the license to Citigroup Global Markets Inc. and certain of its affiliates, in exchange for a fee, of the right to use the MSCI 25/50 Indices in connection with certain securities, including the securities.

 

The MSCI 25/50 Indexes are the exclusive property of MSCI. MSCI and the MSCI 25/50 Index names are service mark(s) of MSCI or its affiliates and have been licensed for use for certain purposes by Citigroup Global Markets Inc. and certain of its affiliates. The securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such securities.

 

THIS FINANCIAL PRODUCT IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY MSCI INC. (“MSCI”), ANY AFFILIATE OF MSCI OR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI 25/50 INDEX. THE MSCI 25/50 INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI 25/50 INDEX NAMES ARE SERVICE MARK(S) OF MSCI OR ITS AFFILIATES AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY CITIGROUP GLOBAL MARKETS INC. AND ITS AFFILIATES (THE “LICENSEE”). NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI 25/50 INDEX MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THIS FINANCIAL PRODUCT OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN FINANCIAL SECURITIES GENERALLY OR IN THIS FINANCIAL PRODUCT PARTICULARLY OR THE ABILITY OF ANY MSCI 25/50 INDEX TO TRACK CORRESPONDING STOCK MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE THE LICENSORS OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE MSCI 25/50 INDEXES WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO THIS FINANCIAL PRODUCT OR THE ISSUER OR OWNER OF THIS FINANCIAL PRODUCT. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI 25/50 INDEX HAS ANY OBLIGATION TO TAKE THE NEEDS OF THE ISSUERS OR OWNERS OF THIS FINANCIAL PRODUCT INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE MSCI 25/50 INDEXES. NEITHER MSCI, ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI 25/50 INDEX IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES OF THIS FINANCIAL PRODUCT TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THIS FINANCIAL PRODUCT IS REDEEMABLE FOR CASH. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, THE MAKING OR COMPILING ANY MSCI 25/50 INDEX HAS ANY OBLIGATION OR LIABILITY TO THE OWNERS OF THIS FINANCIAL PRODUCT IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR OFFERING OF THIS FINANCIAL PRODUCT.

 

ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE MSCI 25/50 INDEXES FROM SOURCES WHICH MSCI CONSIDERS RELIABLE, NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO MAKING OR COMPILING ANY MSCI 25/50 INDEX WARRANTS OR GUARANTEES THE ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS OF ANY MSCI 25/50 INDEX OR ANY DATA INCLUDED THEREIN. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI 25/50 INDEX MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE’S CUSTOMERS OR COUNTERPARTIES, ISSUERS OF THE FINANCIAL SECURITIES, OWNERS OF THE FINANCIAL SECURITIES, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF ANY MSCI 25/50 INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI 25/50 INDEX SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH ANY MSCI 25/50 INDEX OR ANY

 

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DATA INCLUDED THEREIN. FURTHER, NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI 25/50 INDEX MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, AND MSCI, ANY OF ITS AFFILIATES AND ANY OTHER PARTY INVOLVED IN, OR RELATED TO MAKING OR COMPILING ANY MSCI 25/50 INDEX HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY MSCI 25/50 INDEX AND ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MSCI, ANY OF ITS AFFILIATES OR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI 25/50 INDEX HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

 

No purchaser, seller or holder of this security, or any other person or entity, should use or refer to any MSCI trade name, trademark or service mark to sponsor, endorse, market or promote this product without first contacting MSCI to determine whether MSCI’s permission is required. Under no circumstances may any person or entity claim any affiliation with MSCI without the prior written permission of MSCI.

 

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The NASDAQ-100 Index ®

 

All information contained in this underlying supplement regarding the NASDAQ-100 Index ® , including, without limitation, its make-up, method of calculation and changes in its components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, The Nasdaq Stock Market, Inc. (“Nasdaq”). The NASDAQ-100 Index ® was developed by Nasdaq and is calculated, maintained and published by The NASDAQ OMX Group, Inc. (“NASDAQ OMX”). Neither Nasdaq nor NASDAQ OMX has any obligation to continue to publish, and may discontinue publication of, the NASDAQ-100 Index ® .

 

The NASDAQ-100 Index ® is reported by Bloomberg L.P. under the ticker symbol “NDX.”

 

The NASDAQ-100 Index ® is a modified market capitalization-weighted index of stocks of the 100 largest non-financial companies listed on The NASDAQ Stock Market. The NASDAQ-100 Index ® , which includes companies across a variety of major industry groups, was launched on January 31, 1985, with a base index value of 125.00, as adjusted. Current information regarding the market value of the NASDAQ-100 Index ® is available from Nasdaq as well as numerous market information services.

 

The NASDAQ-100 Index ® share weights of the component securities of the NASDAQ-100 Index ® at any time are based upon the total shares outstanding in each of those securities and are additionally subject, in certain cases, to rebalancing. Accordingly, each underlying stock’s influence on the level of the NASDAQ- 100 Index ® is directly proportional to the value of its NASDAQ-100 Index ® share weight.

 

Calculation of the NASDAQ-100 Index ®

 

At any moment in time, the value of the NASDAQ-100 Index ® equals the aggregate value of the then-current NASDAQ-100 Index ® share weights of each of the NASDAQ-100 Index ® component securities, which are based on the total shares outstanding of each such NASDAQ-100 Index ® component security, multiplied by each such security’s respective last sale price on The NASDAQ Stock Market (which may be the official closing price published by The NASDAQ Stock Market), and divided by a scaling factor (the “divisor”), which becomes the basis for the reported NASDAQ-100 Index ® value. The divisor serves the purpose of scaling such aggregate value to a lower order of magnitude which is more desirable for NASDAQ-100 Index ® reporting purposes.

 

Underlying Stock Eligibility Criteria

 

Initial Eligibility Criteria

 

To be eligible for initial inclusion in the NASDAQ-100 Index ® , a security must meet the following criteria:

 

· the issuer of the security’s U.S. listing must be exclusively on the NASDAQ Global Select Market or the NASDAQ Global Market (unless the security was dually listed on another U.S. market prior to January 1, 2004 and has continuously maintained such listing);

 

· a security must be issued by a non-financial company;

 

· a security may not be issued by an issuer currently in bankruptcy proceedings;

 

· a security must have an average daily trading volume of at least 200,000 shares (measured annually during the ranking review process described below);

 

· if the issuer of the security is organized under the laws of a jurisidiction outside the United States, then that security must have listed options on a recognized options market in the United States or be eligible for listed-options trading on a recognized options market in the United States (measured annually during the ranking review process);

 

· the issuer of the security may not have entered into a definitive agreement or other arrangement which would likely result in the security no longer being NASDAQ-100 Index ® eligible;

 

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· the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn; and

 

· the security must have “seasoned” on the NASDAQ, NYSE or NYSE MKT. Generally, a company is considered to be seasoned if it has been listed on a market for at least three full months (excluding the first month of initial listing).

 

Continued Eligibility Criteria

 

In addition, to be eligible for continued inclusion in the NASDAQ-100 Index ® , the security must meet the following criteria:

 

· the issuer of the security’s primary U.S. listing must be exclusively listed on the NASDAQ Global Select Market or the NASDAQ Global Market;

 

· the security must be issued by a non-financial company;

 

· the security may not be issued by an issuer currently in bankruptcy proceedings;

 

· the security must have an average daily trading volume of at least 200,000 shares in the previous three month trading period (measured annually during the ranking review process);

 

· if the issuer of the security is organized under the laws of a jurisdiction outside the United States, then that security must have listed options on a recognized options market in the United States or be eligible for listed-options trading on a recognized options market in the United States;

 

· the issuer must have an adjusted market capitalization equal to or exceeding 0.10% of the aggregate adjusted market capitalization of the NASDAQ-100 Index ® at each month-end. In the event a company does not meet this criterion for two consecutive month-ends, it will be removed from the NASDAQ-100 Index ® effective after the close of trading on the third Friday of the following month; and

 

· the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn.

 

For the purposes of NASDAQ-100 Index ® eligibility criteria, if the security is a depositary receipt representing a security of a non-U.S. issuer, then references to the “issuer” are references to the issuer of the underlying security.

 

These NASDAQ-100 Index ® eligibility criteria may be revised from time to time by Nasdaq without regard to the notes.

 

Annual Ranking Review

 

The composition of the NASDAQ-100 Index ® is evaluated on an annual basis, except under extraordinary circumstances that may result in an interim evaluation, as follows (this evaluation is referred to herein as the “Ranking Review”). Securities listed on The NASDAQ Stock Market that meet the applicable eligibility criteria are ranked by market value. NASDAQ-100 Index ® -eligible securities that are already in the NASDAQ-100 Index ® and whose issuer is ranked in the top 100 eligible companies (based on market capitalization) are retained in the NASDAQ-100 Index ® . A NASDAQ-100 ® Index issuer that is ranked 101 to 125 is also retained, provided that such issuer was ranked in the top 100 eligible issuers as of the previous Ranking Review or was added to the NASDAQ-100 Index ® subsequent to the previous Ranking Review. NASDAQ-100 Index ® issuers not meeting such criteria are replaced. The replacement securities chosen are those NASDAQ-100 Index ® -eligible securities not currently in the NASDAQ-100 Index ® whose issuers have the largest market capitalization. The data used in the ranking includes end of October market data and is updated for total shares outstanding submitted in a publicly filed SEC document via EDGAR through the end of November.

 

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Generally, the list of annual additions and deletions as a result of the annual evaluation is publicly announced via a press release in the early part of December. Replacements are made effective after the close of trading on the third Friday in December. Moreover, if at any time during the year other than the Ranking Review, a NASDAQ-100 Index ® issuer no longer meets the continued eligibility criteria or is otherwise determined by Nasdaq to become ineligible for continued inclusion in the NASDAQ-100 Index ® , the issuer security will be replaced with the largest market capitalization security not currently in the NASDAQ-100 Index ® and meeting the NASDAQ-100 Index ® initial eligibility criteria listed above. Ordinarily, a security will be removed from the NASDAQ-100 Index ® at its last sale price. If, however, at the time of its removal the security is halted from trading on its primary listing market and an official closing price cannot readily be determined, the security may, in Nasdaq’s discretion, be removed at a zero price. The zero price will be applied to the security after the close of the market but prior to the time the official closing value of the NASDAQ-100 Index ® is disseminated, which is ordinarily 5:16:00 p.m. EST.

 

Index Maintenance

 

Changes in the price and/or the aggregate value of the then-current NASDAQ-100 Index ® share weights of each of the NASDAQ-100 Index ® component securities driven by corporate events such as stock dividends, stock splits and certain spin-offs and rights issuances are adjusted on the ex-date. If the change in total shares outstanding arising from other corporate actions is greater than or equal to 10.0%, the change will be made to the NASDAQ-100 Index ® as soon as practicable. Otherwise, if the change in total shares outstanding is less than 10.0%, then all such changes are accumulated and made effective at one time on a quarterly basis after the close of trading on the third Friday in each of March, June, September and December. The NASDAQ-100 Index ® share weights for those underlying stocks are derived from each security’s total shares outstanding. The NASDAQ-100 Index ® share weights for those underlying stocks are adjusted by the same percentage amount by which the total shares outstanding have changed in those NASDAQ-100 Index ® securities.

 

The price of the component security is adjusted for the amount of the special cash dividend. A dividend is considered special if the information provided by the listing exchange in their announcement of the ex-date indicates that the dividend is special. A special dividend may also be referred to as extra, extraordinary, non-recurring, one-time, unusual, etc.

 

Index Rebalancing

 

On a quarterly basis coinciding with the quarterly scheduled Index Share adjustment procedures, the NASDAQ-100 Index ® will be rebalanced if it is determined that: (1) the current weight of the single largest market capitalization component security is greater than 24.0% and (2) the “collective weight” of those component securities whose individual current weights are in excess of 4.5%, when added together, exceed 48.0% of the NASDAQ-100 Index ® . In addition, a special rebalancing of the NASDAQ-100 Index ® may be conducted at any time if it is determined necessary to maintain the integrity of the NASDAQ-100 Index ® .

 

If either one or both of these weight distribution requirements are met upon quarterly review or it is determined that a special rebalancing is required, a weight rebalancing will be performed.

 

First, relating to weight distribution requirement (1) above, if the current weight of the single largest component security exceeds 24.0%, then the weights of all Large Stocks (those greater than 1%) will be scaled down proportionately towards 1.0% by enough for the adjusted weight of the single largest component security to be set to 20.0%.

 

Second, relating to weight distribution requirement (2) above, for those component securities whose individual current weights or adjusted weights in accordance with the preceding step are in excess of 4.5%, if their “collective weight” exceeds 48.0%, then the weights of all Large Stocks will be scaled down proportionately towards 1.0% by just enough for the “collective weight,” so adjusted, to be set to 40.0%.

 

The aggregate weight reduction among the Large Stocks resulting from either or both of the above rescaling will then be redistributed to the Small Stocks (those stocks less than or equal to 1%) in the following iterative manner.

 

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In the first iteration, the weight of the largest Small Stock will be scaled upwards by a factor which sets it equal to the average Index weight of 1.0%. The weights of each of the smaller remaining Small Stocks will be scaled up by the same factor reduced in relation to each stock’s relative ranking among the Small Stocks such that the smaller the component security in the ranking, the less the scale-up of its weight. This is intended to reduce the market impact of the weight rebalancing on the smallest component securities in the NASDAQ-100 Index ® .

 

In the second iteration, the weight of the second largest Small Stock, already adjusted in the first iteration, will be scaled upwards by a factor which sets it equal to the average index weight of 1.0%. The weights of each of the smaller remaining Small Stocks will be scaled up by this same factor reduced in relation to each stock’s relative ranking among the Small Stocks such that, once again, the smaller the stock in the ranking, the less the scale-up of its weight.

 

Additional iterations will be performed until the accumulated increase in weight among the Small Stocks exactly equals the aggregate weight reduction among the Large Stocks from rebalancing in accordance with weight distribution requirement (1) and/or weight distribution requirement (2).

 

Then, to complete the rebalancing procedure, once the final percent weights of each of the component securities are set, the NASDAQ-100 Index ® share weights will be determined anew based upon the last sale prices and aggregate capitalization of the NASDAQ-100 Index ® at the close of trading on the last day in February, May, August and November. Changes to the NASDAQ-100 Index ® share weights will be made effective after the close of trading on the third Friday in March, June, September and December and an adjustment to the NASDAQ-100 Index ® divisor will be made to ensure continuity of the NASDAQ-100 Index ® .

 

Ordinarily, new rebalanced weights will be determined by applying the above procedures to the current NASDAQ-100 Index ® share weights. However, NASDAQ OMX may from time to time determine rebalanced weights, if necessary, by applying the above procedure to the actual current market capitalization of the component securities. In such instances, NASDAQ OMX would announce the different basis for rebalancing prior to its implementation.

 

During at the quarterly rebalancing, data is cutoff as of the previous month-end and no changes are made to the NASDAQ-100 Index ® from that cutoff until the quarterly share change effective date with the single exception for corporate actions with an ex-date. NASDAQ OMX may, from time to time, exercise reasonable discretion as it deems appropriate in order to ensure the integrity of the NASDAQ-100 Index ® .

 

License Agreement

 

Citigroup Global Markets Inc. has entered into a non-exclusive license agreement with NASDAQ OMX providing for the license to Citigroup Global Markets Inc. and its affiliates, in exchange for a fee, of the right to use the NASDAQ-100 Index ® in connection with certain securities, including the securities.

 

The license agreement between NASDAQ OMX and Citigroup Global Markets Inc. provides that the following language must be stated in this underlying supplement:

 

The securities are not sponsored, endorsed, sold or promoted by, The NASDAQ OMX Group, Inc. or its affiliates (NASDAQ OMX, with its affiliates, are referred to as the “Corporations”). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the securities. The Corporations make no representation or warranty, express or implied, to the owners of the securities or any member of the public regarding the advisability of investing in securities generally or in the securities particularly, or the ability of the NASDAQ-100 Index ® to track general stock market performance. The Corporations’ only relationship to Citigroup Inc. and its affiliates is in the licensing of the Nasdaq ® , NASDAQ OMX ® , OMX ® and NASDAQ-100 Index ® registered trademarks, service marks and certain trade names of the Corporations and the use of the NASDAQ-100 Index ® which is determined, composed and calculated by NASDAQ OMX without regard to Citigroup Inc., its affiliates or the securities. NASDAQ OMX has no obligation to take the needs of Citigroup Inc., its affiliates or the owners of the securities into consideration in determining, composing or calculating the NASDAQ-100 Index ® . The Corporations are not responsible for and have not participated in the determination of the timing of, prices at, or quantities of the securities to be issued or in the determination or

 

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calculation of the equation by which the securities are to be converted into cash. The Corporations have no liability in connection with the administration, marketing or trading of the securities.

 

THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE NASDAQ-100 INDEX ® OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY CITIGROUP INC., ITS AFFILIATES, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE NASDAQ-100 INDEX ® OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE NASDAQ-100 INDEX ® OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

 

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The Nikkei 225 Index

 

All information contained in this underlying supplement regarding the Nikkei 225 Index, including, without limitation, its make-up, method of calculation and changes in its components, has been derived from publicly available information without independent verification. This information reflects the policies of, and is subject to change by, Nikkei Inc. The Nikkei 225 Index is calculated, maintained and published by Nikkei Inc. Nikkei Inc. has no obligation to continue to publish, and may discontinue the publication of, the Nikkei 225 Index.

 

The Nikkei 225 Index is reported by Bloomberg L.P. under the ticker symbol “NKY.”

 

The Nikkei 225 Index is a stock index that measures the composite price performance of selected Japanese stocks. The Nikkei 225 Index is currently based on 225 underlying stocks (the “Nikkei Underlying Stocks”) trading on the Tokyo Stock Exchange (“TSE”) representing a broad cross-section of Japanese industries. Non-ordinary shares, such as shares of ETFs, REITs, preferred stock or other preferred securities or tracking stocks, are excluded from the Nikkei 225 Index.

 

All 225 Nikkei Underlying Stocks are stocks listed in the First Section of the TSE. Stocks listed in the First Section of the TSE are among the most actively traded stocks on the TSE. Nikkei Inc. rules require that the 75 most liquid issues (one-third of the component count of the Nikkei 225 Index) be included in the Nikkei 225 Index. Nikkei Inc. first calculated and published the Nikkei 225 Index in 1970.

 

Rules of the Periodic Review

 

Nikkei Underlying Stocks are reviewed annually (the “periodic review”) in accordance with the following rules, and results of the review are applied on the first trading day in October. Results of the review become effective on the first trading day of October, and there is no limit to the number of Nikkei Underlying Stocks that can be affected. Stocks selected by the procedures outlined below are presented as candidates to a committee comprised of academics and market professionals for comment; based on comments from the committee, Nikkei Inc. determines and announces any changes to the Nikkei Underlying Stocks.

 

High Liquidity Group

 

The top 450 most liquid stocks are chosen from the TSE First Section. For purposes of this selection, liquidity is measured by (i) trading volume in the preceding 5-year period and (ii) the magnitude of price fluctuation by volume in the preceding 5-year period. These 450 stocks constitute the “High Liquidity Group” for the review. Those Nikkei Underlying Stocks that are not in the High Liquidity Group are removed. Those stocks that are not currently Nikkei Underlying Stocks but that are in the top 75 of the High Liquidity Group are added.

 

Sector Balance

 

The High Liquidity Group is then categorized into the following six sectors: Technology, Financials, Consumer Goods, Materials, Capital Goods/Others and Transportation and Utilities. These six sector categories are further divided into 36 industrial classifications as follows:

 

· Technology — Pharmaceuticals, Electrical Machinery, Automobiles, Precision Machinery, Tel ecommunications;

 

· Financials — Banks, Miscellaneous Finance, Securities, Insurance;

 

· Consumer Goods — Marine Products, Food, Retail, Services;

 

· Materials — Mining, Textiles, Paper and Pulp, Chemicals, Oil, Rubber, Ceramics, Steel, Nonferrous Metals, Trading House;

 

· Capital Goods/Others — Construction, Machinery, Shipbuilding, Transportation Equipment, Miscellaneous Manufacturing, Real Estate; and

 

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· Transportation and Utilities — Railroads and Buses, Trucking, Shipping, Airlines, Warehousing, Electric Power, Gas.

 

The “appropriate number” of constituents for each sector is defined to be half the number of stocks in that sector. After the liquidity-based adjustments, discussed above, a rebalancing is conducted if any of the sectors are over- or under-represented. The degree of representation is evaluated by comparing the actual number of constituents in the sector against the appropriate number for that sector.

 

For over-represented sectors, current constituents in the sector are deleted in the order of liquidity (lowest liquidity first) to correct the overage. For under-represented sectors, non-constituent stocks are added from the High Liquidity Group in the order of liquidity (highest liquidity first) to correct the shortage.

 

Extraordinary Replacement Rules

 

Nikkei Underlying Stocks removed from the TSE First Section are deleted from the Nikkei 225 Index. Reasons for removal from the TSE First Section include: designation as a “security to be delisted” or actual delisting by reason of bankruptcy (including filing under the Corporate Reorganization Act, Civil Rehabilitation Act or liquidation), delisting due to corporate restructuring such as merger, share exchange or share transfer, designation as a “security to be delisted” or actual delisting due to excess debt or transfer to the Second Section. In addition, a component stock transferred to the “Kanri-Post” (Posts for stocks under supervision) is in principle a candidate for deletion. However, the decision to delete such candidates will be made by examining the sustainability and the probability of delisting in the individual case.

 

When a Nikkei Underlying Stock is deleted from the Nikkei 225 Index as outlined in the preceding paragraph, a new Nikkei Underlying Stock will be selected and added, in principle, from the same sector of the High Liquidity Group in order of liquidity. Notwithstanding the foregoing, the following rules may apply depending on the timing and circumstances of the deletion: (i) when such deletion is scheduled close to the periodic review, additional stocks may be selected as part of the periodic review process and (ii) when multiple deletions are scheduled in a season other than the periodic review, additions may be selected using the sector balancing rules outlined above.

 

Procedures to Implement Constituent Changes

 

As a general rule, for both the periodic review and the extraordinary replacement rules, additions and deletions are made effective on the same day in order to keep the number of Nikkei Underlying Stocks 225. However, under the circumstances outlined below, when an addition cannot be made on the same day as a deletion, the Nikkei 225 Index may be calculated with fewer than 225 Nikkei Underlying Stocks. In this case, the divisor is adjusted to ensure continuity.

 

The first instance when the Nikkei 225 Index may be calculated with fewer than 225 Nikkei Underlying Stocks is when a Nikkei Underlying Stock is delisted by reason of share exchange or transfer and th e succeeding company becomes liste d a short period of time later. The second instance is when a Nikkei Underlying Stock is deleted due to a sudden announcement of bankruptcy, or is designated as a “security to be delisted” for the same reason, and there is not sufficient time to add a new Nikkei Underlying Stock in the same day.

 

Calculation of the Nikkei 225 Index

 

The Nikkei 225 Index is a modified, price-weighted index ( i.e. , a Nikkei Underlying Stock’s weight in the index is based on its price per share rather than the total market capitalization of the issuer) that is calculated by (i) multiplying the per share price of each Nikkei Underlying Stock by the corresponding weighting factor for such Nikkei Underlying Stock (a “Weight Factor”), (ii) calculating the sum of all these products and (iii) dividing such sum by a divisor (the “Divisor”). The Divisor is subject to periodic adjustments as set forth below. Each Weight Factor is computed by dividing ¥50 by the par value of the relevant Nikkei Underlying Stock, so that the share price of each Nikkei Underlying Stock when multiplied by its Weight Factor corresponds to a share price based on a uniform par value of ¥50. The stock prices used in the calculation of the Nikkei 225 Index are those reported by a primary market for the Nikkei Underlying Stocks (currently the TSE). The level of the Nikkei 225 Index is calculated once per minute during TSE trading hours.

 

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In order to maintain continuity in the Nikkei 225 Index in the event of certain changes due to non-market factors affecting the Nikkei Underlying Stocks, such as the addition or deletion of stocks, substitution of stocks, stock splits or distributions of assets to stockholders, the Divisor used in calculating the Nikkei 225 Index is adjusted in a manner designed to prevent any instantaneous change or discontinuity in the level of the Nikkei 225 Index. Thereafter, the Divisor remains at the new value until a further adjustment is necessary as the result of another change. As a result of such change affecting any Nikkei Underlying Stock, the Divisor is adjusted in such a way that the sum of all share prices immediately after such change multiplied by the applicable Weight Factor and divided by the new Divisor ( i.e. , the level of the Nikkei 225 Index immediately after such change) will equal the level of the Nikkei 225 Index immediately prior to the change.

 

License Agreement

 

Citigroup Global Markets Inc. has entered into an agreement with Nikkei Inc. that provides Citigroup Global Markets Inc. and certain of its affiliates or subsidiaries identified in that agreement with a non-exclusive license and, for a fee, with the right to use the Nikkei 225 Index, which is owned and published by Nikkei Inc., in connection with certain securities, including the securities.

 

The license agreement with Nikkei Inc. provides that Nikkei Inc. will assume no obligation or responsibility for use of the Nikkei 225 by Citigroup Global Markets Inc. or its affiliates.

 

The Nikkei 225 Index is an intellectual property of Nikkei Inc. Nikkei Inc. was formerly known as Nihon Keizai Shimbun, Inc. The name was changed on January 1, 2007. “Nikkei,” “Nikkei Stock Average,” and “Nikkei 225” are the service marks of Nikkei Inc. Nikkei Inc. reserves all the rights, including copyright, to the index. Nikkei Digital Media, Inc., a wholly owned subsidiary of Nikkei Inc., calculates and disseminates the Nikkei 225 Index under exclusive agreement with Nikkei Inc. Nikkei Inc. and Nikkei Digital Media Inc. are collectively referred to as the “Nikkei 225 Index Sponsor.”

 

The Securities are not in any way sponsored, endorsed or promoted by the Nikkei 225 INDEX Sponsor. The Nikkei 225 INDEX Sponsor does not make any warranty or representation whatsoever, express or implied, either as to the results to be obtained as to the use of the Nikkei 225 INDEX or the figure aT which the Nikkei 225 INDEX stands at any particular day or otherwise. The Nikkei 225 INDEX is compiled and calculated solely by the Nikkei 225 INDEX Sponsor. However, the Nikkei 225 INDEX Sponsor shall not be liable to any person for any error in the Nikkei 225 INDEX and the Nikkei 225 INDEX Sponsor shall not be under any obligation to advise any person, including a purchaseR or vendor of the Securities, of any error therein.

 

In addition, the Nikkei 225 Index Sponsor gives no assurance regarding any modification or change in any methodology used in calculating the Nikkei 225 Index and is under no obligation to continue the calculation, publication and dissemination of the Nikkei 225 Index.

 

The Tokyo Stock Exchange

 

The TSE is one of the world’s largest securities exchanges in terms of market capitalization. Trading hours are currently from 9:00 a.m. to 11:00 a.m. and from 12:30 p.m. to 3:00 p.m., Tokyo time, Monday through Friday.

 

Due to the time zone difference, the TSE will close on any normal trading day prior to the opening of business in New York City on the same calendar day. Therefore, the closing level of the Nikkei 225 Index on a trading day will generally be available in the United States by the opening of business on the same calendar day.

 

The TSE has adopted certain measures, including daily price floors and ceilings on individual stocks, intended to prevent any extreme short-term price fluctuations resulting from order imbalances. In general, any stock listed on the TSE cannot be traded at a price lower than the applicable price floor or higher than the applicable price ceiling. These price floors and ceilings are expressed in absolute Japanese yen, rather than percentage limits based on the closing price of the stock on the previous trading day. In addition, when there is a major order imbalance in a listed stock, the TSE posts a “special bid quote” or a “special asked quote” for that stock at a specified higher or lower

 

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price level than the stock’s last sale price in order to solicit counter-orders and balance supply and demand for the stock. Prospective investors should also be aware that the TSE may suspend the trading of individual stocks in certain limited and extraordinary circumstances, including, for example, unusual trading activity in that stock. As a result, changes in the Nikkei 225 Index may be limited by price limitations or special quotes, or by suspension of trading, on individual stocks that make up the Nikkei 225 Index, and these limitations, in turn, may adversely affect the value of the securities.

 

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The Russell Indices

 

All information contained in this underlying supplement regarding the Russell 1000 ® Index, the Russell 2000 ® Index and the Russell 3000 ® Index (each, a “Russell Index” and collectively, the “Russell Indices”), including, without limitation, their make-up, method of calculation and changes in their components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, FTSE Russell, a company wholly owned by London Stock Exchange Group plc (“the LSEG”). The Russell Indices were developed by Russell Investment Group and are calculated, maintained and published by FTSE Russell. FTSE Russell has no obligation to publish, and may discontinue the publication of, the Russell Indices.

 

The Russell 1000 ® Index

 

The Russell 1000 ® Index measures the composite price performance of stocks of 1,000 companies (with respect to the Russell 1000 ® Index, the “Component Stocks”) domiciled in the U.S. and its territories. All stocks included in the Russell 1000 ® Index are traded on an eligible U.S. exchange. Eligible U.S. exchanges include the New York Stock Exchange, the NYSE MKT, The NASDAQ Stock Market and the NYSE Arca. The companies included in the Russell 1000 ® Index are the 1,000 largest companies that form the Russell 3000E™ Index, which is composed of the 4,000 largest U.S. companies as determined by total market capitalization and represents approximately 99% of the U.S. equity market. The Russell 1000 ® Index is reported by Bloomberg L.P. under the ticker symbol “RIY.”

 

The Russell 2000 ® Index

 

The Russell 2000 ® Index measures the capitalization-weighted price performance of the small-capitalization stocks included in the Russell 2000 ® Index (with respect to the Russell 2000 ® Index, the “Component Stocks”) and is designed to track the performance of the small-capitalization segment of the U.S. equity market. All stocks included in the Russell 2000 ® Index are traded on an eligible U.S. exchange, as described above. The companies included in the Russell 2000 ® Index are the middle 2,000 of the companies that form the Russell 3000E™ Index, which is composed of the 4,000 largest U.S. companies as determined by total market capitalization and represents approximately 99% of the U.S. equity market. The Russell 2000 ® Index is reported by Bloomberg L.P. under the ticker symbol “RTY.”

 

The Russell 3000 ® Index

 

The Russell 3000 ® Index measures the capitalization-weighted price performance of the stocks included in the Russell 3000 ® Index (with respect to the Russell 3000 ® Index, the “Component Stocks”) and is designed to represent the broad U.S. equity market. All stocks included in the Russell 3000 ® Index are traded on an eligible U.S. exchange, as described above. The companies included in the Russell 3000 ® Index are the 3,000 largest U.S. companies that form the Russell 3000E™ Index, which is composed of the 4,000 largest U.S. companies as determined by total market capitalization and represents approximately 99% of the U.S. equity market. The Russell 3000 ® Index consists of the 3,000 companies included in the Russell 1000 ® Index and the Russell 2000 ® Index, which are subsets of the Russell 3000E™ Index, and represents approximately 98% of the U.S. equity market. The Russell 3000E™ Index is not the same as the Russell 3000 ® Index, which is a subset of the Russell 3000E™ Index. The Russell 3000 ® Index is reported by Bloomberg L.P. under the ticker symbol “RAY.”

 

Selection of Stocks Underlying the Russell Indices

 

The Russell Indices are sub-indices of the Russell 3000E™ Index. To be eligible for inclusion in the Russell 3000E™ Index and, consequently, a Russell Index, a company’s stock must be listed on the last trading day in May of a given year, and FTSE Russell must have access to documentation on that date verifying the company’s eligibility for inclusion. Eligible initial public offerings (“IPOs”) are added to Russell Indices at the end of each calendar quarter, based on total market capitalization rankings within the market-adjusted capitalization breaks established during the most recent reconstitution. To be added to any Russell Index during a quarter outside of reconstitution, IPOs must meet all eligibility criteria, and as of the most recent reconstitution, must (i) be priced and traded and (ii) rank larger in total market capitalization than the market-adjusted smallest company in the Russell 3000E™ Index as of the latest June reconstitution. A one-month window will be used to ensure that companies submitting the requisite filings just outside of the quarter are not excluded from eligibility.

 

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U.S. companies are eligible for inclusion in the Russell 3000E ™ Index and, consequently, any Russell Index. FTSE Russell uses the following method for determining whether a company is a U.S. company. If a company incorporates in, has a stated headquarters location in and also trades in the same country (ADRs and ADSs are not eligible), the company is assigned to its country of incorporation. If any of the three do not match, FTSE Russell then defines three Home Country Indicators (“HCIs”). The HCIs are as follows:

 

· country of incorporation;

 

· country of headquarters; and

 

· country of the most liquid exchange as defined by two-year average daily dollar trading volume from all exchanges within a country.

 

After the HCIs are defined, the next step in the country assignment involves an analysis of assets by location. FTSE Russell cross-compares the primary location of the company’s assets with the three HCIs. If the primary location of assets matches any of the HCIs, then the company is assigned to its primary asset location.

 

If there is not enough information to determine a company’s primary country of assets, FTSE Russell uses the primary location of the company’s revenue for the same cross-comparison and assigns the company to the appropriate country in a similar fashion. FTSE Russell uses an average of two years of assets or revenue data for analysis to reduce potential turnover.

 

If conclusive country details cannot be derived from assets or revenue, FTSE Russell assigns the company to the country where its headquarters are located unless the country is a Benefit Driven Incorporation (“BDI”) country. If the country in which its headquarters are located is a BDI country, the company is assigned to the country of its most liquid stock exchange. The BDI countries are Anguilla, Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, Bermuda, Bonaire, British Virgin Islands, Cayman Islands, Channel Islands, Cook Islands, Curacao, Faroe Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Liberia, Marshall Islands, Panama, Saba, Sint Eustatius, Sint Maarten and Turks and Caicos Islands.

 

The following securities are specifically excluded from the Russell Indices: (i) stocks that are not traded on an eligible U.S. exchange (Bulletin Board, Pink Sheet and over-the-counter (“OTC”) securities are not eligible, including securities for which prices are displayed on the FINRA Alternative Display Facility); (ii) preferred stock, convertible preferred stock, redeemable shares, participating preferred stock, warrants, rights, installment receipts and trust receipts; and (iii) securities issued by royalty trusts, limited liability companies, closed-end investment companies (due to SEC treatment of reporting, business development companies are no longer eligible as of the June 2014 annual reconstitution), blank-check companies, special purpose acquisition companies, limited partnerships, exchange-traded funds and mutual funds.

 

The primary criterion used to determine the initial list of securities eligible for the Russell 3000E™ Index and, consequently, any Russell Index, is total market capitalization, which is defined as the total number of outstanding shares times the closing price of the shares as of the last trading day in May for those securities being considered at annual reconstitution. An IPO’s eligibility is determined each quarter. Common stock, non-restricted exchangeable shares and partnership units/membership interests (in certain cases) are used to calculate a company’s total market capitalization. Exchangeable shares are shares that may be exchanged at any time, at the holder’s option, on a one-for-one basis for common stock. Partnership units/membership interests represent an economic interest in a limited partnership or limited liability company. FTSE Russell includes partnership units/membership interests as part of total market capitalization when the company in question is a holding company whose sole asset is its partnership units/membership interests in an underlying entity. In these cases, total market capitalization will be calculated based on 100% of the value of all partnership units/membership interests. Any other form of shares — such as preferred or convertible preferred stock, redeemable shares, participating preferred stock, warrants and rights or trust receipts — is excluded from the calculation. If multiple share classes of common stock exist, they are combined. In cases where the common stock share classes act independently of each other ( e.g. , tracking stocks), each class is considered for inclusion separately.

 

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During annual reconstitution, a stock’s closing price on its primary exchange on the last trading day in May (typically, but a confirmed timetable is announced each spring) is used to determine total market capitalization. If an eligible company trades under multiple share classes, FTSE Russell will review each share class independently for inclusion in the Russell 3000E™ Index, and consequently, any Russell Index. Share classes in addition to the primary share class that meet minimum size, liquidity and float requirements will also be eligible. Those share classes must have a total market capitalization larger than that of the smallest company currently included in the Russell 3000E™ Index, must have an average daily dollar trading value in excess of the median average daily dollar trading value of all stocks eligible for inclusion in the Russell 3000E™ Index and must have greater float than 5% of shares available in the marketplace. If the additional share class does not meet the requirements, the shares will be aggregated with the primary share class to maintain a representative index weight for the company. For reconstitution ranking purposes, all share classes for a company, including unlisted shares, will be aggregated and total market capitalization will be based on the primary share class’s closing price. Rank will be determined based on cumulative market capitalization. As of the 2016 annual reconstruction, share classes not qualifying for eligibility independently will not be aggregated with the primary share class within the available shares calculation. For companies with multiple share classes, the primary share class will be designated as the share class with the highest two-year trading volume as of the last trading day in May. In the absence of two years’ worth of data, all available data will be used in the determination. If the difference between trading volumes for each share class is less than 20%, the share class with the most available shares outstanding will be used as the primary share class. At least 100-day trading volume is necessary to consider the class as a primary share class for existing members. New members will be analyzed on all available data, even if that data is for less than 100 days. If applicable, shares held across different share classes will be represented on a mathematically equivalent basis. Growth, value, defensive and dynamic probabilities will be based on that of the primary share class and assigned consistently across all additional share classes. Shares of an additional share class distributed through mandatory corporation action to a company’s existing shareholders or made available via initial public offering will be evaluated for separate membership in the Russell 3000E™ Index, and consequently, any Russell Index. Index membership of additional share classes that are added due to corporate actions will mirror that of the primary share class, as will style and stability probabilities.

 

Once the market capitalization for each security is determined by use of total shares and price as described above, each security is placed in the appropriate Russell market capitalization-based index. The largest 4,000 securities become members of the Russell 3000E™ Index. If eligible securities total less than 4,000, the Russell 3000E™ will include all eligible securities. Market capitalization breakpoints for each Russell Index are determined by the break between the companies below.

 

Index

 

Companies Included (based on descending total market capitalization)  

 
Russell 3000 ® Index Companies #1 – 3,000
Russell 1000 ® Index Companies #1 – 1,000
Russell 2000 ® Index Companies #1,001 – 3,000

 

After the initial market capitalization breakpoints are determined by the ranges listed above, new members are assigned on the basis of the breakpoints and existing members are reviewed to determine if they fall within a cumulative 5% market cap range around these new market capitalization breakpoints. If an existing member’s market cap falls within this cumulative 5% of the market capitalization breakpoint, it will remain in its current index rather than be moved to a different market capitalization-based Russell index. Companies that fall on the edge of market capitalization breakpoints are often still within the manager’s opportunity set, since they have not significantly grown or declined in market capitalization. As an exception, there will be no percentile banding at the bottom of the Russell 3000 ® Index (stock 3,000) or the Russell 3000E™ Index (stock 4,000).

 

Set forth below are the steps in calculating percentile ranges:

 

· Sort the Russell 3000E™ Index members in descending order by total market capitalization.

 

· Calculate the total market capitalization of the Russell 3000E™ Index by summing all members’ total market capitalizations.

 

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· Calculate percentiles for each company in the Russell 3000E™ Index by dividing the cumulative market cap associated with each member by the total market cap of the Russell 3000E™ index.

 

· Calculate a range of five percentiles around the newly determined market cap breakpoints, by subtracting, and then adding, 2.5% from/to the calculated percentile of the market cap breakpoint.

 

After membership is determined, a security’s shares are adjusted to include only those shares available to the public (“free float”). The purpose of this adjustment is to exclude from market calculations the capitalization that is not available for purchase and is not part of the investable opportunity set. Stocks in the Russell Indices are weighted by their available (also called float-adjusted) market capitalization, which is calculated by multiplying the primary closing price by the available shares. Adjustments to shares are reviewed at reconstitution and for major corporate actions such as mergers. For merger and spin-off transactions that are effective between the last trading day in May and the Friday prior to annual reconstitution in June, the market capitalizations of the impacted securities are recalculated and membership is reevaluated as of the effective date of the corporate action. For corporate events that occur during the final week of reconstitution (during which reconstitution is finalized Friday after U.S. market close), market capitalizations and memberships will not be reevaluated. Non-index members that have been considered ineligible as of rank day (the last trading day in May) will not be reevaluated in the event of a subsequent corporate action that occurs between rank day and the reconstitution effective date.

 

Companies with only a total market capitalization of less than $30 million are not eligible for inclusion in the Russell 3000E™ Index or, consequently, any Russell Index.

 

In addition, companies with only 5% or less of their shares available in the marketplace are not eligible for inclusion in the Russell 3000E™ Index or, consequently, any Russell Index. When unavailable shares are determined to be 94.5% or greater, this will be rounded to 95%. Also, stocks must have a closing price at or above $1.00 on their primary exchange on the last trading day in May to be eligible for inclusion in any Russell Index at annual reconstitution. In order to reduce unnecessary turnover, if an existing Component Stock’s closing price is less than $1.00 on its primary exchange on the last trading day in May, it will be considered eligible if the average of the daily closing prices from its primary exchange during the month of May is equal to or greater than $1.00. If an existing index member does not trade on the last trading day in May, it must price at $1.00 or above on another eligible U.S. exchange to remain eligible. A stock added during the quarterly IPOs process is considered a new index addition and therefore must have a close price on its primary exchange at or above $1.00 on the last day of the IPO eligibility period in order to qualify for index inclusion.

 

Companies that produce unrelated business taxable income (“UBTI”) are restricted from ownership for tax-exempt investors. In recognition of this, FTSE Russell screens all real estate investment trusts and publicly traded partnerships, removing any security from eligibility that generates or has historically generated UBTI and has not taken steps to block UBTI to equity holders. The research process is conducted as part of FTSE Russell’s annual rebalance effort. Additional screening will not be assessed or changed outside of the reconstitution period. Information used to confirm UBTI impact includes the following publicly available sources: 10-K, SEC Form S-3, K-1, company annual report, dividend notices and the company website.

 

The Russell Indices are reconstituted annually to reflect changes in the marketplace. The list of companies is ranked based on total market capitalization as of the last trading day in May, with the actual reconstitution occurring on the last Friday in June each year, except that if the last Friday in June of any year is the 29th or 30th, reconstitution will occur on the preceding Friday. Changes in the Component Stocks are pre-announced and subject to change if any corporate activity occurs or if any new information is received prior to release. IPOs are considered for inclusion on a quarterly basis.

 

Capitalization Adjustments

 

The following types of shares are removed from total market capitalization to arrive at free float or available market capitalization. Adjustments are based on information recorded in SEC corporate filings, including DEF 14, 424B, and 10K filings, or other reliable sources in the event of missing or questionable data (but not 13F filings).

 

· Officers’ and directors’ holdings — Shares held by officers and directors are considered unavailable and removed entirely from available shares. FTSE Russell’s float research process allows removal of

 

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options/warrants/convertibles from the officer and director holdings when those shares are provided in a summed format within the footnotes. However, if FTSE Russell determines that a company is being excluded from membership in the Russell 3000E ™ Index solely on the basis of the minimum float requirement, FTSE Russell will use best available information found within SEC filings, filed on or before the rank day in May;

 

· Large private holdings — Shares held privately will be removed from available shares if they exceed 10% of shares outstanding. Share percentage is determined by those shares held either by an individual or by a group of individuals acting together. Private equity and venture capital firms are considered large private holders;

 

· Institutional holdings — Shares held by investment companies, partnerships, insurance companies, mutual funds and banks will be removed from available shares if their holding is greater than 30%. If a firm has a direct relationship to the company, such as board representation, they will be considered strategic and will be excluded regardless of the size of holding per the officers and directors’ exclusion rule;

 

· Publicly listed companies — Shares held by publicly listed companies will be removed from the available shares of a member of the Russell 3000E ™ Index . Institutional holdings will be considered as available unless the 30% threshold is surpassed, regardless of listing;

 

· ESOP or LESOP shares — Shares held by an Employee Stock Ownership Plan (“ESOP”) or a Leveraged Employee Stock Ownership Plan (“LESOP”) are considered unavailable and removed entirely from available shares;

 

· IPO lock-ups — Shares locked up during an IPO are not available to the public and will be excluded from available shares at the time the IPO enters the Russell 3000E Index;

 

· Government Holdings:

 

· Direct government holders — those holdings listed as “government of” or shares held by government controlled/affiliated entities are considered unavailable and will be removed entirely from available shares;

 

· Indirect government holders — shares held by government investment boards and/or investment arms will be treated similarly to large private holdings and removed if the holding is greater than 10%; and

 

· Government pensions — any holding by a government pension plan is considered an institutional holding and will not be removed from available shares unless the holding is greater than 30%.

 

Corporate Actions Affecting the Russell Indices

 

FTSE Russell applies corporate actions to its indices on a daily basis, both to reflect the evolution of securities and to ensure that the indices remain highly representative of the U.S. equity market. A company’s membership in a Russell Index and its weight in that index can be impacted by these corporate actions. FTSE Russell uses a variety of reliable public sources to determine when an action is final, including a company’s press releases and regulatory filings; local exchange notifications; and official updates from other data providers FTSE Russell deems trustworthy. Prior to the completion of a corporate action, FTSE Russell estimates the effective date on the basis of the same above sources. As new information becomes available, FTSE Russell may revise the anticipated effective date and the terms of the corporate action, before ultimately confirming its effective date. Depending upon the time an action is determined to be final, FTSE Russell either (1) applies the action before the open on the ex-date or (2) applies the action providing appropriate notice, referred to as a “delayed action” (see specific action types for details on timing and procedure). FTSE Russell applies the following methodology guidelines when adjusting the applicable Russell Index in response to corporate actions:

 

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· “No Replacement” Rule — Securities that leave the relevant Russell Index for any reason ( e.g. , mergers, acquisitions or other similar corporate activity) are not replaced. Thus, the number of securities in the relevant Russell Index over a year will fluctuate according to corporate activity.

 

· Mergers and Acquisitions — Mergers and acquisitions (“M&A”) activity may result in changes to index membership as well as to the shares included in the relevant Russell Index. Adjustment due to M&A activity are applied to the relevant Russell Index after the action is determined to be final, providing appropriate notice. To avoid unnecessary delays, FTSE Russell may consider M&A transactions “final” prior to shareholder approval or prior to a delisting notice. FTSE Russell will consider prevailing shareholder sentiment, board/director recommendations, exchange notification and stock price versus deal value when making this decision.

 

· Acquisition of a Russell Index member for cash — The target company is deleted from the relevant Russell Index at the last traded price. In the event that trading in the target company has halted at the time of implementation, it will be deleted from the relevant Russell Index using the cash terms.

 

· Merger between Russell Index members for stock — The target company is deleted from the relevant Russell Index and the shares of the acquiring stock are increased, according to the offer terms. FTSE Russell affects the action after it has considered the transaction as final with the provision of appropriate notice. In the absence of an active market for the target company at the time of index implementation, the target company will be deleted from the relevant Russell Index using a synthetic price based on the offer terms.

 

· Merger between Russell Index members for cash or stock, or a combination thereof — The target company is deleted from the relevant Russell Index and the shares of the acquiring company are simultaneously increased per the election results and the announced number of shares being issued (adjusted to account for FTSE Russell’s current float factor of the target). If the terms are cash and stock (no option); then the shares of the acquirer will be increased per the offer terms. In the absence of an active market for the target company at the time of implementation, the target company will be deleted from the relevant Russell Index using a synthetic price based on the default offer terms (the consideration an investor will receive for non-election).

 

· M&A activity between a Russell Index member and a non-memb er A non-member is a company that is not a member of the Russell 3000E™ Index. The M&A activity can involve either of two scenarios: (1) the acquiring company is a member of the Russell 3000E™ Index and the target company is not; or (2) the acquiring company is not a member, but the target company is a member. If the target company is the member, it is deleted from the relevant Russell Index after the action is determined as final. If the acquiring company is the member, its shares are adjusted by adding the target company’s market capitalization through a month-end share adjustment (if the increase in shares is greater than 5%).

 

· Cross-border M&A activity — In the event of a merger or acquisition in which the acquiring company and the target company are in different countries, FTSE Russell applies the action when the transaction is determined as final. The target company’s market capitalization moves to the acquiring stock according to the transaction terms. Cumulative market capitalization of the acquiring company increases, while the cumulative market capitalization of the target company decreases by the same amount. If FTSE Russell is able to determine the status of the action to be final prior to 1:00 p.m. Eastern Time, these actions will be applied after the close of the current day. If FTSE Russell is able to determine the status of the action to be final after 1:00 p.m. Eastern Time, these actions will be deemed a “delayed action” and will be applied after the close of the following day. The deleted company will remain in the relevant Russell Index at a

 

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stale price, based on the previous day’s close, and will be removed the following day at a synthetic price based on the terms offered by the acquiring company.

 

· Reincorporations — Members of the relevant Russell Index that reincorporate in another country are analyzed for country assignment during annual reconstitution, as long as they continue to trade in the United States. Members of the relevant Russell Index that reincorporate to another country and no longer trade in the United States are immediately deleted from the relevant Russell Index. Companies that reincorporate to the United States are assessed for membership during annual reconstitution.

 

· Reclassifications of Shares (primary share classes) — Primary share classes will not be assessed or changed outside of a reconstitution period unless the existing primary share class ceases to exist. In the event of extenuating circumstances signaling a necessary primary share class change, proper notification will be made.

 

· Rights Offerings — FTSE Russell will not apply poison pill rights or entitlements that give shareholders the right to purchase ineligible securities such as convertible debt. FTSE Russell will adjust the relevant Russell Index to account for a right only if the subscription price of the right is at a discount to the market price of the stock. Provided FTSE Russell has been alerted to the rights offer prior to the ex-date, a price adjustment will be applied before the open on the ex-date to account for the value of the rights, and shares increased according to the terms of the offering. The treatment is consistent for both transferable and non-transferable rights. Where the rights issue / entitlement offer subscription price remains unconfirmed on the ex-date, an estimated price will be used. FTSE Russell will estimate the subscription price using the value being raised and the offer terms. Where there is a range of values, the mid value will be used to estimate the subscription price. Where the value being raised and/or offer terms are unknown, no adjustment will be made on the ex-date. If those details are subsequently released or a company announces a rights issue with a historical ex-date, a price adjustment and share increase will be applied as soon as practical. The latest close price prior to the announcement will be used to confirm whether the rights are being offered at a discount and to calculate the adjustment.

 

· Changes to Shares Outstanding — Changes to shares outstanding due to buybacks (including Dutch auctions), secondary offerings, and other potential corporate activity are updated at the end of each month. For FTSE Russell to implement a month-end change to available shares outstanding, the cumulative change to available shares must be greater than 5%. Share changes that are confirmed by FTSE Russell’s vendors and verified by FTSE Russell by use of an SEC filing at least six days prior to month end are implemented and communicated to FTSE Russell’s subscribers five trading days prior to month end. The float factor last determined (either at reconstitution or due to a corporate action implementation) is applied to the new shares. If the float factor has been updated since reconstitution due to the implementation of a corporate action, the updated float factor will be used. If any new shares issued are unavailable according to the filing, that portion will not be added to the relevant Russell Index.

 

Changes to available shares outstanding due to merger activity between members of the relevant Russell Index and non-members will be implemented if the availability of the newly issued shares can be confirmed within the appropriate filings or press releases. When the new shares are partially available, FTSE Russell will increase shares per the available amount if the cumulative change to available shares outstanding is greater than 5%. When the availability of new shares cannot be confirmed with an appropriate source, FTSE Russell will defer any increase to the next reconstitution, allowing for further information to be announced. This applies to mergers with both publicly listed and privately held non-members.

 

November and December month-end share changes will be processed as one event after the close on the third Friday of each December along with fourth quarter IPO additions. This date is used rather than December month end due to low liquidity in the financial markets at year end and the proximity of a separate November month-end process.

 

Because annual reconstitution occurs in June, month-end share changes are not scheduled for the month of June. Residual changes to shares outstanding that are not addressed as part of the annual reconstitution process are rolled into the following July month-end process.

 

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· Spin-offs and IPOs — Spin-offs will be valued using an estimate prior to the ex-date, based on the following (listed in order of preference):

 

· A “When Issued” price will be used where available;

 

· If no “When Issued” price is available company valuation will be used;

 

· If a company valuation is unavailable broker estimates will be used; and

 

· If broker estimates are unavailable the spin-off will be added at zero.

 

If the spun-off company trades the on ex-date, no revision to the FTSE Russell estimated value will be made. If the spun-off company does not trade on the ex-date and the estimated value is incorrect by greater than 10% of the parent’s value as measured at open, the spin-off valuation will be updated intraday to set the value equal to the change in parent’s value. This will be measured by parent’s cum-date close minus ex-date open.

 

When a spin-off results in an eligible security type being listed on an eligible exchange, the spin-off company will remain in the relevant Russell Index until the next review of index constituents, regardless of size. When an index constituent spins off an ineligible security type or the spin-off company is listed on an ineligible exchange only, the security will be added to the relevant Russell Index on the ex-date and subsequently removed with notice at market price once “regular way” trade has commenced. If a spin-off company has not commenced trading after 20 business days, the suspended companies rule will apply.

 

For domestic spin-offs, spin-off companies are added to the relevant Russell Index at the time they are spun-off from their parent company, with the parent’s market value reducing simultaneously per the spin-off valuation. The spin-off company will be added to the parent’s index on the ex-date.

 

For cross-border spin-offs, a spun-off company may be assigned to a different country from the parent, if any of its HCIs differ from those of the parent. Consequently, the spin-off company may become a member of the Russell Global Index. Otherwise, the same rules apply between domestic or cross-border spin-off additions. If any of the HCIs differ from those of the parent, country assignment research for the spun-off company will be reviewed using the country assignment rules discussed above, with one exception. In the absence of independent reported asset and revenue data, the spun-off company will not be allowed to default to the new entity headquarter location and instead will default to the parent’s country assignment and will be reviewed independently during the subsequent annual reconstitution. This treatment allows time for standard filings to be presented in the absence of critical data components used for country classification.

 

· Tender Offers — In the case of a cash tender offer, the target company will be removed from the relevant Russell Index when (i) offer acceptances reach 90%, shareholders have validly tendered, the shares have been irrevocably accepted for payment, all pertinent offer conditions have been reasonably met and the acquirer has not explicitly stated it does not intend to acquire the remaining shares, (ii) where the offer acceptances are below 90%, there is reason to believe that the remaining free float is under 5% based on information available at the time or (iii) following completion of the offer, the acquirer has stated an intent to finalize the acquisition via a short-form merger, squeeze-out, top-up option or any other compulsory mechanism.

 

The target company is deleted from the relevant Russell Index at the last traded price. In the event that trading in the target company has halted at the time of implementation, it will be deleted from the relevant Russell Index at a price based on the offer terms. In the event where a company has been deleted from the relevant Russell Index but retains a listing with a float greater than 5%, it will not be considered for index eligibility for a period of 12 months.

 

When non-tradable Contingent Value Rights (“CVRs”) are included within the tender offer terms, FTSE Russell may consider a tender offer “final” prior to the expiration date of the offer. FTSE Russell will establish the likelihood of tender offer completion using confirmed tendered shares, board/director

 

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recommendations, exchange notifications, stock price versus deal value and any other available information. Where the conditions for deletion are not met, FTSE Russell may implement a free float change based on the reported acceptance results at the expiration of the initial, subsequent, or final offer period where (i) the minimum acceptance level as stipulated by the acquirer has been met, (ii) shareholders have validly tendered and the shares have been irrevocably accepted for payment and (iii) all pertinent offer conditions have been reasonably met. A minimum two days’ notice period of the change is generally provided. If the offer includes a stock consideration, the acquiring company’s shares will be increased proportionate to the free float change of the target company. The target company will then be deleted as a second step, if the conditions for deletion are achieved at the expiration of a subsequent offer period. FTSE Russell does not review partial tender offers and acquisitions.

 

· Voluntary Exchange Offers — A publicly traded company may offer to exchange or split off some or all of its ownership in a separate publicly traded company. Shareholders are given the option to retain their shares; or to exchange them, in full or in part, for shares of the “split-off” company. Once the offer expires, FTSE Russell will decrease the available shares in the offering company, and increase the available shares of the “split-off” company, based on the results of the offering. FTSE Russell will effect this change based on, but not limited to, preliminary results, company filings, and exchange notices.

 

· Delisted Stocks — Only companies listed on U.S. exchanges are included in the Russell Indices. Therefore, when a company is delisted from a U.S. exchange and moved to OTC, the company is removed from the Russell Indices. If FTSE Russell determines that the action is final prior to 1:00 p.m. Eastern Time on a given day, the deletions will be applied after the close of the current day (t), using the last traded price. If, instead, FTSE Russell determines that the action is final after 1:00 p.m. Eastern Time on a given day, the deletions will be applied after the close of the following day (t+1), using the closing OTC price. Stocks previously halted that fail to trade on the primary exchange prior to being moved to OTC will always be removed the following day (t+1) at the OTC closing price, regardless of the time of notification.

 

· Bankruptcy and Voluntary Liquidations — A company that files for a Chapter 7 liquidation bankruptcy or that files a liquidation plan will be removed from the relevant Russell Index at the time of filing. When shareholder approval is required to finalize the liquidation plan, FTSE Russell will remove the security once shareholder approval has been granted. A company that files for a Chapter 11 reorganization bankruptcy will remain a member of the relevant Russell Index, unless the company’s stock is delisted from the primary exchange, in which case normal delisting rules apply. If a company files for bankruptcy, its stock is delisted, and it can be confirmed that the stock will not trade OTC, FTSE Russell may remove the stock at a nominal price of $0.0001.

 

· Stock Distributions — A price adjustment for a stock distribution is applied on the ex-date of the distribution. When the distribution is a fixed amount of stock distributed on the ex-date, FTSE Russell increases the number of shares on the ex-date. When the distribution is an undetermined amount of stock based on future earnings and profits to be distributed at a future date, FTSE Russell increases the number of shares on the pay-date.

 

· Dividends — Gross dividends are included in the daily total return calculation of the relevant Russell Index on the basis of their ex-dates. The ex-date is used rather than the pay-date because the marketplace price adjustment for the dividend occurs on the ex-date. If a dividend is payable in stock and cash and the number of shares to be issued cannot be determined by the ex-date, the dividend is treated as all cash. If the number of shares to be issued as a stock dividend is announced subsequently, FTSE Russell will give effect to the share change on the pay date, providing appropriate notice can be given. Monthly, quarterly and annual total returns are calculated by compounding the reinvestment of dividends daily. The reinvestment and compounding is at the total index level, not at the security level. Stock prices are adjusted to reflect special cash dividends on the ex-date.

 

· Halted Stocks — When a stock’s trading has been halted, FTSE Russell holds the security at its most recent closing price until trading is resumed or is officially delisted. Stocks that are scheduled for changes but are halted or suspended prior to reconstitution will have their scheduled updates postponed and will be

 

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 monitored for trade resumption. Once trading resumes, these securities changes will be announced and will have their positions updated accordingly.

 

License Agreement

 

Russell and Citigroup Global Markets Inc., an affiliate of ours, has entered into a non-exclusive license agreement providing for the license to Citigroup Inc. and its affiliates, in exchange for a fee, of the right to use indices owned and published by Russell in connection with certain financial products, including the securities.

 

The license agreement between Russell and Citigroup Global Markets Inc. provides that the following language must be stated in this underlying supplement:

 

The securities are not sponsored, endorsed, sold, or promoted by Russell or any successor thereto or index owner and neither Russell nor any party hereto makes any representation or warranty whatsoever, whether express or implied, to the owners of the securities or any member of the public regarding the advisability of investing in securities generally or in the securities particularly or the ability of the Russell Indices to track general stock market performance or a segment of the same. Russell’s publication of the Russell Indices in no way suggests or implies an opinion by Russell as to the advisability of investment in any or all of the securities upon which the Russell Indices are based. Russell’s only relationship to Citigroup Inc. and its affiliates is the licensing of certain trademarks and trade names of Russell and of the Russell Indices, which are determined, composed and calculated by Russell without regard to Citigroup Inc. and its affiliates or the securities. Russell is not responsible for and has not reviewed the securities or any associated literature or publications and Russell makes no representation or warranty express or implied as to their accuracy or completeness, or otherwise. Russell reserves the right, at any time and without notice, to alter, amend, terminate or in any way change the Russell Indices. Russell has no obligation or liability in connection with the administration, marketing or trading of the securities.

 

RUSSELL DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE RUSSELL INDICES OR ANY DATA INCLUDED THEREIN AND RUSSELL SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. RUSSELL MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY CITIGROUP INC. AND/OR ITS AFFILIATES, INVESTORS, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE RUSSELL INDICES OR ANY DATA INCLUDED THEREIN. RUSSELL MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RUSSELL INDICES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL RUSSELL HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN RUSSELL AND CITIGROUP INC.

 

“Russell 1000 ® Index,” “Russell 1000 ® Growth Index,” “Russell 2000 ® Index,” “Russell 3000 ® Index” and “Russell 3000E TM Index” are trademarks of Russell and have been licensed for use by Citigroup Inc. and its affiliates. This transaction is not sponsored, endorsed, sold, or promoted by Russell and Russell makes no representation regarding the advisability of entering into this transaction.

 

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The S&P/ASX 200 Index

 

All information contained in this underlying supplement regarding the S&P/ASX 200 Index, including, without limitation, its make-up, method of calculation and changes in its components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, S&P Dow Jones Indices LLC (“S&P Dow Jones”). The S&P/ASX 200 Index is calculated, maintained and published by S&P Dow Jones. S&P Dow Jones has no obligation to continue to publish, and may discontinue publication of, the S&P/ASX 200 Index.

 

The S&P/ASX 200 Index is reported by Bloomberg L.P. under the ticker symbol “AS51.”

 

T he S&P/ASX 200 Index is designed to be the primary gauge for the Australian equity market, and it is recognized as an investable benchmark in Australia. The S&P/ASX 200 Index measures the performance of the 200 largest index-eligible stocks listed on the Australian Securities Exchange (the “ASX”) by float-adjusted market capitalization, and is widely considered Australia’s benchmark index. The index is float-adjusted, covering approximately 80% of Australian equity market capitalization.

 

Composition of the S&P/ASX 200 Index

 

T he S&P/ASX 200 Index weights companies according to the Global Industry Classification Standard (“GICS ® ”), which creates uniform ground rules for replicable, custom-tailored, industry-focused portfolios. It also enables meaningful comparisons of sectors and industries across regions.

 

S tandards for Listing and Maintenance

 

The index committee of the S&P/ASX 200 Index aims to design a highly liquid and tradable index whose total market capitalization is large enough to approximate the market segment it is capturing while keeping the number of stocks at a minimum. Both market capitalization and liquidity are assessed using the previous six months’ worth of data. Quarterly review changes take effect the third Friday of March, June, September and December.

 

T he criteria for index additions include, but are not limited to:

 

· Listing . Only securities listed on the ASX are considered for inclusion in the S&P/ASX 200 Index;

 

· Market Capitalization . The market capitalization criterion for stock inclusion is based upon the daily average market capitalization of a security over the last six months. The stock price history (last six months), latest available shares on issue and the investable weight factor (“IWF”) are the relevant variables for the calculation. The IWF is a variable that is primarily used to determine the available float of a security for ASX listed securities; and

 

· Liquidity . Only securities that are regularly traded are eligible for inclusion in the S&P/ASX 200 Index. A stock’s liquidity is measured relative to its peers. Relative Liquidity is calculated as follows:

 

 

Where :

 

· Stock Median Liquidity is the median daily value traded for each stock divided by the average float/index weight-adjusted market capitalization for the previous six months; and

 

· Market Liquidity is determined using the market capitalization weighted average of the stock median liquidities of the 500 constituents in the All Ordinaries index, an index that includes nearly all ordinary shares listed on the ASX.

 

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Stocks must have a minimum Relative Liquidity of 50% to be included in the S&P/ASX 200 Index.

 

· Eligible Securities. Common and equity preferred stocks (which are not of a fixed income nature) are eligible for inclusion in the S&P/ASX 200 Index. Hybrid stocks, such as convertible stock, bonds, warrants and preferred stock that provide a guaranteed fixed return, are not eligible. Listed investment companies (LICs) that invest in a portfolio of securities are not eligible. Companies that are currently under consideration for merger or acquisition are not eligible.

 

Intra-Quarter Additions/Deletions. Between rebalancing dates, an addition to the S&P/ASX 200 Index is generally made only if a vacancy is created by an index deletion. Index additions are made according to market size and liquidity. An initial public offering (IPO) is added to the S&P/ASX 200 only when an appropriate vacancy occurs and is subject to proven liquidity for at least two months. An exception may be made for extraordinary large offerings where sizeable trading volumes justify index inclusion. An index constituent that appears to violate criteria for addition to the S&P/ASX 200 Index will not be deleted unless ongoing conditions warrant an index change. Deletions can occur between index rebalancing dates due to acquisitions, mergers and spin-offs or due to suspension or bankruptcies. The decision to remove a stock from the S&P/ASX 200 Index will be made once there is sufficient evidence that the transaction will be completed. Stocks that are removed due to mergers & acquisitions activity are removed from the S&P/ASX 200 Index at the cash offer price for cash-only offers. Otherwise, the best available price in the market is used.

 

Rebalancing. Rebalancing of the S&P/ASX 200 Index series occurs on a regular basis. Both market capitalization and liquidity are assessed using the previous six months’ worth of data to determine index eligibility. Shares and IWFs updates are also applied regularly.

 

F requency. The S&P/ASX 200 Index constituents are rebalanced quarterly to ensure adequate market capitalization and liquidity. Quarterly rebalancing changes take effect on the third Friday of March, June, September and December.

 

S hare Updates. The share count for all index constituents are updated quarterly and are rounded to the nearest thousand (‘000). An update to the number of issued shares will be considered if the change is at least 5% of the float adjusted shares or $100 million Australian dollars. Intra quarter share changes are implemented at the effective date or as soon as reliable information is available; however, they will only take place in the following circumstances:

 

· Changes in a company’s float-adjusted shares of 5% or more due to market-wide shares issuance;

 

· Rights issues, bonus issues and other major corporate actions; and

 

· Share issues resulting from index companies merging and major off-market buy-backs.

 

Share changes due to mergers or acquisitions are implemented when the transaction occurs, even if both of the companies are not in the same index and regardless of the size of the change.

 

Notification of intra quarter changes to the number of issued shares generally takes place three business days prior to the implementation date.

 

Calculation of the S&P/ASX 200 Index

 

T he S&P/ASX 200 Index is calculated using a base-weighted aggregate methodology so that the level of the S&P/ASX 200 Index reflects the total market value of all the component stocks relative to a particular base period. The total market value of a company is determined by multiplying the price of its stock by the number of shares available after float (IWF) adjustment. An indexed number is used to represent the result of this calculation in order to make the value easier to work with and track over time.

 

Investable Weight Factor (IWF) . A stock’s weight in the S&P/ASX 200 Index is determined by the float-adjusted market capitalization of the stock. This is a function of current index shares, the latest available stock price and the IWF. The IWF represents the float-adjusted portion of a stock’s equity capital. Therefore any

 

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strategic holdings that are classified as either corporate, private or government holdings reduce the IWF which, in turn, results in a reduction in the float-adjusted market capital. Shares owned by founders, directors of the company, trusts, venture capitalists and other companies are also excluded. These are also deemed strategic holders and are considered long-term holders of a stock’s equity. Any strategic shareholdings that are greater than 5% of total issued shares are excluded from the relevant float.

 

O n any given day, the S&P/ASX 200 Index value is the quotient of the total available market capitalization of its constituents and its divisor. Continuity in the S&P/ASX 200 Index values is maintained by adjusting the divisor for all changes in the constituents’ share capital after the base date. This includes additions and deletions to the S&P/ASX 200 Index, rights issues, share buybacks and issuances, spin-offs, and adjustments in availability. The divisor’s time series is, in effect, a chronological summary of all changes affecting the base capital of the index. The divisor is adjusted such that the S&P/ASX 200 Index value at an instant just prior to a change in base capital equals the S&P/ASX 200 Index value at an instant immediately following that change.

 

Corporate Action Adjustment

 

The table below summarizes the types of index maintenance adjustments upon various corporate actions and indicate whether or not a divisor adjustment is required.

 

Type of
Corporate Action

Index Treatment  

Divisor Adjustment  

Special cash dividend Price adjustment needed Yes
Stock dividend and/or split Shares are multiplied by and price is divided by the split factor No
Stock dividend from class A shares into existing class B shares, both of which are included in the index Adjustment for price of A; adjustment for shares in B Yes
Stock dividend of different class, same company and is not included in the index Price adjustment Yes
Reverse Split Adjustment for price and shares No
Rights offering Adjustment for price and shares Yes
Rights offering for a new line Adjustment for price Yes
New share issuance Adjustment for shares Yes
Reduction of capital Share adjustment Yes
New addition to index Share adjustment Yes
Deletion from index Share adjustment Yes
Merger (acquisition by index company for stock) Share increase Yes

 

Index Governance

 

E ach of S&P Dow Jones’ global indices is the responsibility of an index committee that monitors overall policy guidelines and methodologies, as well as additions to and deletions from these indices. S&P Dow Jones chairs the S&P/ASX Index Committee, which is composed of five members representing both S&P Dow Jones and the ASX.

 

Decisions made by the index committee include all matters relating to index construction and maintenance. The index committee meets regularly to review market developments and convenes as needed to address major

 

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corporate actions. It is the sole responsibility of the Index Committee to decide on all matters relating to methodology, maintenance, constituent selection and index procedures. The index committee makes decisions based on all publicly available information and discussions are kept confidential to avoid any unnecessary impact on market trading.

 

License Agreement

 

S&P Dow Jones and Citigroup Global Markets Inc. have entered into a non-exclusive license agreement providing for the license to Citigroup Inc. and its other affiliates, in exchange for a fee, of the right to use indices owned and published by S&P Dow Jones in connection with certain financial products, including the securities. “Standard & Poor’s,” “S&P” and “S&P/ASX 200” are trademarks of S&P. “Dow Jones” is a registered trademark of Dow Jones Trademark Holdings, LLC (“Dow Jones”). Trademarks have been licensed to S&P Dow Jones and have been licensed for use by Citigroup Inc. and its affiliates.

 

The license agreement between S&P Dow Jones and Citigroup Global Markets Inc. provides that the following language must be stated in this underlying supplement:

 

“The securities are not sponsored, endorsed, sold or promoted by S&P Dow Jones, Dow Jones, S&P or their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices make no representation or warranty, express or implied, to the holders of the securities or any member of the public regarding the advisability of investing in securities generally or in the securities particularly. S&P Dow Jones Indices’ only relationship to Citigroup Inc. and its affiliates (other than transactions entered into in the ordinary course of business) is the licensing of certain trademarks, trade names and service marks of S&P Dow Jones Indices and of the S&P/ASX 200 Index, which is determined, composed and calculated by S&P Dow Jones Indices without regard to Citigroup Inc., its affiliates or the securities. S&P Dow Jones Indices have no obligation to take the needs of Citigroup Inc., its affiliates or the holders of the securities into consideration in determining, composing or calculating the S&P/ASX 200 Index. S&P Dow Jones Indices are not responsible for and have not participated in the determination of the timing of, prices at or quantities of the securities to be issued or in the determination or calculation of the equation by which the securities are to be converted into cash. S&P Dow Jones Indices have no obligation or liability in connection with the administration, marketing or trading of the securities.

 

S&P DOW JONES INDICES DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P/ASX 200 INDEX OR ANY DATA INCLUDED THEREIN AND S&P DOW JONES INDICES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P DOW JONES INDICES MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY CITIGROUP INC., HOLDERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P/ASX 200 INDEX OR ANY DATA INCLUDED THEREIN. S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P/ASX 200 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P DOW JONES INDICES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND CITIGROUP INC.

 

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The S&P Select Industry Indices

 

All information contained in this underlying supplement regarding the S&P ® Homebuilders Select Industry TM Index, the S&P ® Metals & Mining Select Industry TM Index, the S&P ® Oil & Gas Exploration & Production Select Industry TM Index and the S&P ® Regional Banks Select Industry TM Index (each, a “Select Industry Index” and collectively, the “Select Industry Indices”), including, without limitation, their make-up, method of calculation and changes in their components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, S&P Dow Jones Indices LLC (“S&P Dow Jones”). S&P Dow Jones has no obligation to continue to calculate and publish, and may discontinue calculation and publication of, the Select Industry Indices.

 

The Select Industry Indices are designed to measure the performance of GICS ® sub-industries or groups of sub-industries. Membership is based on a company’s GICS ® classification, as well as liquidity and market capitalization requirements. Additional information concerning the Select Industry Indices may be obtained at the S&P Dow Jones website (http://us.spindices.com/). Information contained in the S&P Dow Jones website is not incorporated by reference in, and should not be considered part of, this underlying supplement.

 

The S&P Total Market Index

 

The S&P Total Market Index (the “S&P TM Index”) offers broad market exposure to companies of all market capitalization, including all U.S. common equities listed on the New York Stock Exchange (including NYSE Arca), the NYSE MKT, the NASDAQ Global Select Market, the NASDAQ Global Select Market, the NASDAQ Select Market and the NASDAQ Capital Market. Only U.S. companies are eligible for inclusion in the S&P TM Index. All members of the Select Industry Indices are selected from the S&P TM Index.

 

The S&P ® Homebuilders Select Industry TM Index

 

The S&P ® Homebuilders Select Industry TM Index is a modified equal-weighted index that is designed to measure the performance of the GICS ® homebuilding sub-industry. As described below, the S&P ® Homebulders Select Industry TM Index may also include companies in the following supplementary GICS ® sub-industries: building products, home furnishings, home improvement retail, homefurnishing retail and household appliances. The S&P ® Homebuilders Select Industry TM Index is reported by Bloomberg L.P. under the ticker symbol “SPSIHO.”

 

The S&P ® Metals & Mining Select Industry TM Index

 

The S&P ® Metals & Mining Select Industry TM Index is a modified equal-weighted index that is designed to measure the performance of the following GICS ® sub-industries: aluminum, coal & consumable fuels, diversified metals & mining, gold, precious metals & minerals, silver and steel. The S&P ® Metals & Mining Select Industry TM Index is reported by Bloomberg L.P. under the ticker symbol “SPSIMM.”

 

The S&P ® Oil & Gas Exploration & Production Select Industry TM Index

 

The S&P ® Oil & Gas Exploration & Production Select Industry TM Index is a modified equal-weighted index that is designed to measure the performance of the following GICS ® sub-industries: integrated oil & gas, oil & gas exploration & mining and oil & gas refining & marketing. The S&P ® Oil & Gas Exploration & Production Select Industry TM Index is reported by Bloomberg under the ticker symbol “SPSIOP.”

 

The S&P ® Regional Banks Select Industry TM Index

 

The S&P ® Regional Banks Select Industry TM Index is a modified equal-weighted index that is designed to measure the performance of the GICS ® regional banks sub-industry. The S&P ® Regional Banks Select Industry TM Index is reported by Bloomberg L.P. under the ticker symbol “SPSIRBK.”

 

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Index Eligibility

 

For purposes of membership in the Select Industry Indices, S&P Dow Jones applies the inclusion and exclusion criteria separately. Membership is based on a company’s GICS ® classification, as well as liquidity and market cap requirements.

 

Index Inclusion Criteria

 

To be eligible for inclusion in the Select Industry Indices, companies must be in the S&P TM Index, must be included in the relevant GICS ® sub-industry ( i.e. homebuilding) and must satisfy one of the two following combined size and liquidity criteria:

 

1. float-adjusted market capitalization above U.S. $500 million and float-adjusted liquidity ratio (“FALR”) above 90%; or

 

2. float-adjusted market capitalization above U.S. $400 million and FALR above 150%.

 

A number of companies in the S&P TM Index are represented by multiple share classes. To determine eligibility for the Select Industry Indices, the float-adjusted market capitalization of each share class of multiple class companies is combined to arrive at a company float-adjusted market capitalization figure. The liquidity of each individual share class is evaluated independently based on the float-adjusted market capitalization of that individual line. If an individual share class of a multiple share class company does not meet the liquidity criteria, the remaining share class has its float-adjusted market capitalization reevaluated independently to ensure that it continues to meet the size criteria on its own. In a Select Industry Index, each company is represented once by the primary listing. In the event that a company issues a secondary share class to index share class holders by means of a mandatory distribution, the newly issued share class will be added to that Select Industry Index on the distribution ex-date, provided that the distributed class is not considered to be de minimis. Both share classes will remain in that Select Industry Index until next rebalancing, at which time only the primary share class will be considered for continued inclusion.

 

All stocks satisfying the above requirements are included in a Select Industry Index. At each rebalancing, at least 35 stocks are selected for each Select Industry Index. In the event that fewer than 35 stocks are selected for each Select Industry Index using the eligible primary sub-industries (primary stocks), certain indices will select stocks for inclusion from a supplementary list of highly correlated sub-industries (supplementary stocks) based on process established by S&P Dow Jones. Additionally, minimum market capitalization requirements may be relaxed for all Select Industry Indices to ensure that there are at least 22 stocks in each Select Industry Index as of each rebalancing effective date.

 

Index Exclusion Criteria

 

Existing index constituents are removed at the quarterly rebalancing effective date if either their float-adjusted market capitalization falls below U.S. $300 million or their FALR falls below 50%.

 

Eligibility Factors

 

Market Capitalization. Float-adjusted market capitalization should be at least U.S. $400 million for inclusion in a Select Industry Index. Existing index components must have a float-adjusted market capitalization of U.S. $300 million to remain in the applicable Select Industry Index at each rebalancing.

 

Liquidity. The liquidity measurement used is a liquidity ratio, defined as dollar value traded over the previous 12-months divided by the float-adjusted market capitalization as of the applicable Select Industry Index rebalancing reference date.

 

Constituents having a float-adjusted market capitalization above U.S. $500 million must have a liquidity ratio greater than 90% to be eligible for addition to a Select Industry Index. Constituents having a float-adjusted market capitalization between U.S. $400 and U.S. $500 million must have a liquidity ratio greater than 150% to be eligible for addition to a Select Industry Index. Existing index constituents must have a liquidity ratio greater than 50% to

 

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remain in the applicable Select Industry Index at the quarterly rebalancing. Some of the Select Industry Indices may have different market capitalization and float-adjusted liquidity ratio requirements. The length of time to evaluate liquidity is reduced to the available trading period for IPOs or spin-offs that do not have 12 months of trading history. In these cases, the dollar value traded available as of the rebalance reference date is annualized.

 

Takeover Restrictions. At the discretion of S&P Dow Jones, constituents with shareholder ownership restrictions defined in company bylaws may be deemed ineligible for inclusion in a Select Industry Index. Ownership restrictions preventing entities from replicating the index weight of a stock may be excluded from the eligible universe or removed from the applicable Select Industry Index. S&P Dow Jones will provide up to five days advance notification of a deletion between rebalancing due to ownership restrictions.

 

Turnover. S&P Dow Jones believes turnover in index membership should be avoided when possible. At times a stock may appear to temporarily violate one or more of the addition criteria. However, the addition criteria are for addition to a Select Industry Index, not for continued membership. As a result, an index constituent that appears to violate criteria for addition to a Select Industry Index will not be deleted unless ongoing conditions warrant a change in the composition of the applicable Select Industry Index.

 

Sector Classification. A Select Industry Index includes companies in the applicable GICS ® sub-industries set forth above.

 

Index Construction and Calculations

 

The Select Industry Indices are equal-weighted, with adjustments to individual constituent weights to ensure concentration and liquidity requirements, and calculated by the divisor methodology.

 

The index value of each Select Industry Index is simply the market value of that Select Industry Index divided by the index divisor:

 

Index Value = (Index Market Value) / Divisor

 

Index Market Value = P i × Shares i × IWF i × AWF i

 

where N is the number of stocks in the index, P i the price of stock i , IWF i is the float factor of stock I (as defined below ) , and AWF i is the adjustment factor of stock i assigned at each index rebalancing date, t, which makes all index constituents modified market capitalization equal (and, therefore, equal weight), while maintaining the total market value of the overall index. The AWF for each index constituent, i, at rebalancing date, t , is calculated by:

 

AWF i,t = Z / N × FloatAdjustedMarketValue i,t

 

where Z is an index specific constant set for the purpose of deriving the AWF and, therefore, each stock’s share count used in the index calculation (often referred to as modified index shares).

 

Float Adjustment . Float adjustment means that the number of shares outstanding is reduced to exclude closely held shares from the calculation of the index value because such shares are not available to investors. The goal of float adjustment is to distinguish between strategic (control) shareholders, whose holdings depend on concerns such as maintaining control rather than the economic fortunes of the company, and those holders whose investments depend on the stock’s price and their evaluation of a company’s future prospects. Generally, these “control holders” include officers and directors, private equity, venture capital & special equity firms, other publicly traded companies that hold shares for control, strategic partners, holders of restricted shares, employee stock ownership plans, employee and family trusts, foundations associated with the company, holders of unlisted share classes of stock or government entities at all levels (other than government retirement/pension funds) and any individual person who controls a 5% or greater stake in a company as reported in regulatory filings. Shares that are not considered outstanding are also not included in the available float. These generally include treasury stock, stock options, equity participation units, warrants, preferred stock, convertible stock and rights.

 

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For each component, S&P Dow Jones calculates an Investable Weight Factor (“IWF”), which represents the portion of the total shares outstanding that are considered part of the public float for purposes of the relevant Select Industry Index.

 

Divisor . Continuity in index values of each Select Industry Indices is maintained by adjusting its divisor for all changes in its constituents’ share capital after its base date. This includes additions and deletions to the relevant Select Industry Index, rights issues, share buybacks and issuances and non-zero price spin-offs. The value of each Select Industry Index’s divisor over time is, in effect, a chronological summary of all changes affecting the base capital of that Select Industry Index. The divisor of each Select Industry Index is adjusted such that the index value of that Select Industry Index at an instant just prior to a change in base capital equals the index value of that Select Industry Index at an instant immediately following that change.

 

Constituent Weightings

 

At each quarterly rebalancing, companies are initially equally weighted using closing prices as of the second Friday of the last month of the quarter as the reference price. For those companies with multiple share classes in an index, the weight assigned to each share class is proportional to its float-adjusted market capitalization as of the rebalance reference date. Adjustments are then made to ensure that there are no individual constituents whose weight in the applicable Select Industry Index exceeds the value that can be traded in a single day for a given theoretical portfolio value ranging from U.S. $500 million to U.S. $2,000 million (the “Theoretical Portfolio Value”). Theoretical Portfolio Values are determined and reviewed annually by The Americas Thematic and Strategy Index Committee (the “Index Committee”) at S&P Dow Jones. Any updates to Theoretical Portfolio Values are made at the discretion of the Index Committee and announced to the clients with ample lead time.

 

S&P Dow Jones calculates a maximum basket liquidity weight for each constituent in the applicable Select Industry Index using the ratio of its three-month median daily value traded to the Theoretical Portfolio Value. Each constituent’s weight in the applicable Select Industry Index is, then, compared to its maximum basket liquidity weight and is set to the lesser of its maximum basket liquidity weight or its initial equal weight. All excess weight is redistributed across the applicable Select Industry Index to the uncapped stocks. If necessary, a final adjustment is made to ensure that no stock in the applicable Select Industry Index has a weight greater that 4.5%. This step of the iterative weighting process may force the weight of those stocks limited to their maximum basket liquidity weight to exceed that weight. In such cases, S&P Dow Jones will make no further adjustments. If any of the Select Industry Indices contain exactly 22 stocks as of the rebalancing effective date, the applicable Select Industry Index is equally weighted without basket liquidity constraints.

 

Index Maintenance

 

The membership to the Select Industry Indices is reviewed quarterly. Rebalancings occur after the closing on the third Friday of the quarter ending month. The reference date for float-adjusted market capitalization and FALR is after the closing of the last trading date of the previous month. Closing prices as of the second Friday of the last month of the quarter are used for setting index weights. The reference date for GICS ® classification is as of the rebalancing effective date.

 

Timing of Changes

 

Additions. Stocks are added between rebalancings only if a deletion in the applicable Select Industry Index causes the stock count to fall below 22. In those cases, each stock deletion is accompanied with a stock addition. The new stock will be added to the applicable Select Industry Index at the weight of the deleted company. In the case of mergers involving two index constituents, the merged entity will remain in the applicable Select Industry Index provided that it meets all general eligibility requirements. The merged entity will be added to the applicable Select Industry Index at the weight of the stock deemed to be the surviving stock in the transaction (i.e. the surviving stock will not experience a weight change and its subsequent weight will not be equal to that of the pre-merger weight of the merged entities). In the case of spin-offs, the applicable Select Industry Index will follow the S&P TM Index’s treatment of the action.

 

Deletions. A stock is deleted from the applicable Select Industry Index if the S&P TM Index drops the company. If a stock deletion causes the number of stocks in the relevant index to fall below 22, each stock deletion

 

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is accompanied with a corresponding stock addition. In case of GICS ® changes, where a company does not belong to a qualifying sub-industry after the classification change, it is removed from the applicable Select Industry Index at the next rebalancing.

 

Adjustments

 

The tables below summarize the types of index maintenance adjustments and indicate whether or not an index adjustment is required.

 

S&P TM Index Actions

 

S&P TM Index Action

Adjustment Made to a Select Industry Index  

Divisor
Adjustment  

Constituent Deletion If the constituent is a member of a Select Industry Index, it is dropped. Yes
Constituent Addition

Only in cases where the deletion causes the stock count to fall below 22 stocks, then the deletion is accompanied by an addition assuming the weight of the dropped stock.

 

If a stock is removed from a Select Industry Index at a price of $0.00, the stock’s replacement will be added to the applicable Select Industry Index at the weight using the previous day’s closing value, or the most immediate prior business day that the deleted stock was not valued at $0.00.

 

In the case of additions due to spin-offs, the Select Industry Indices follow the S&P TM Index’s treatment of the action.

 

No, except in the case of stocks removed at $0.00
GICS ® Change None. If, after the GICS ® change, a stock no longer qualifies to belong to a Select Industry Index, it is removed at the next rebalancing. No

 

Corporate Actions

 

Type of
Corporate Action

Adjustment Made to a Select Industry Index  

Divisor
Adjustment  

Spin-Off In general, both the parent stock and spun-off stocks will remain in the applicable Select Industry Index until the next index rebalancing, regardless of whether they conform to the theme of the applicable Select Industry Index.   No
Rights Offering The price is adjusted to the price of the parent company minus (the price of the rights subscription/rights ratio).  The index shares change so that the company’s weight remains the same as its weight before the spin-off. No
Stock Dividend, Stock Split or Reverse Stock Split The index shares are multiplied by and price is divided by the split factor. No
Share Issuance or Share Repurchase None No
Special Dividends Price of the stock making the special dividend payment is reduced by the per share special dividend amount after the close of trading on the day before the dividend ex-date. Yes

 

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License Agreement

 

S&P Dow Jones and Citigroup Global Markets Inc. have entered into a non-exclusive license agreement providing for the license to Citigroup Inc. and its other affiliates, in exchange for a fee, of the right to use indices owned and published by S&P Dow Jones in connection with certain financial products, including the securities. “Standard & Poor’s,” “S&P,” “S&P Total Market Index,” “S&P ® Homebuilders Select Industry TM Index” and the “S&P ® Metals & Mining Select Industry TM Index” are trademarks of S&P. “Dow Jones” is a registered trademark of Dow Jones Trademark Holdings, LLC (“Dow Jones”). Trademarks have been licensed to S&P Dow Jones and have been licensed for use by Citigroup Inc. and its affiliates.

 

The license agreement between S&P Dow Jones and Citigroup Global Markets Inc. provides that the following language must be stated in this underlying supplement:

 

“The securities are not sponsored, endorsed, sold or promoted by S&P Dow Jones, Dow Jones, S&P or their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices make no representation or warranty, express or implied, to the holders of the securities or any member of the public regarding the advisability of investing in securities generally or in the securities particularly. S&P Dow Jones Indices’ only relationship to Citigroup Inc. and its affiliates (other than transactions entered into in the ordinary course of business) is the licensing of certain trademarks, trade names and service marks of S&P Dow Jones Indices and of the Select Industry Indices, which are determined, composed and calculated by S&P Dow Jones Indices without regard to Citigroup Inc., its affiliates or the securities. S&P Dow Jones Indices have no obligation to take the needs of Citigroup Inc., its affiliates or the holders of the securities into consideration in determining, composing or calculating the Select Industry Indices. S&P Dow Jones Indices are not responsible for and have not participated in the determination of the timing of, prices at or quantities of the securities to be issued or in the determination or calculation of the equation by which the securities are to be converted into cash. S&P Dow Jones Indices have no obligation or liability in connection with the administration, marketing or trading of the securities.

 

S&P DOW JONES INDICES DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE SELECT INDUSTRY INDICES OR ANY DATA INCLUDED THEREIN AND S&P DOW JONES INDICES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P DOW JONES INDICES MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY CITIGROUP INC., HOLDERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE SELECT INDUSTRY INDICES OR ANY DATA INCLUDED THEREIN. S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE SELECT INDUSTRY INDICES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P DOW JONES INDICES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND CITIGROUP INC.

 

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The S&P Select Sector Indices

 

All information contained in this underlying supplement regarding the Consumer Discretionary Select Sector Index, the Consumer Staples Select Sector Index, the Energy Select Sector Index, the Financial Select Sector Index, the Financial Services Select Sector Index, the Health Care Select Sector Index, the Industrial Select Sector Index, the Materials Select Sector Index, the Real Estate Select Sector Index, the Technology Select Sector Index and the Utilities Select Sector Index (each, a “Select Sector Index” and collectively, the “Select Sector Indices”), including, without limitation, their make-up, method of calculation and changes in their components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, S&P Dow Jones Indices LLC (“S&P Dow Jones”). The S&P U.S. Indices are calculated, maintained and published by S&P Dow Jones. S&P Dow Jones has no obligation to continue to publish, and may discontinue the publication of, any of the S&P U.S. Indices.

 

The constituents included in each Select Sector Index are all members of the S&P 500 ® Index. Each constituent of the S&P 500 ® Index is assigned to at least one Select Sector Index. S&P Dow Jones assigns constituents to a Select Sector Index based on the constituent’s classification under the Global Industry Classification Standard (“GICS ® ”). For additional information about the S&P 500 ® Index, see “Equity Index Descriptions — S&P U.S. Indices” in this underlying supplement.

 

The Consumer Discretionary Select Sector Index

 

The Consumer Discretionary Select Sector Index measures the performance of the GICS ® consumer discretionary sector, which currently includes companies in the following industries: auto components; automobiles; household durables; leisure products; textiles, apparel and luxury goods; hotels, restaurants and leisure; diversified consumer services; media; distributors; internet and catalog retail; multiline retail; and speciality retail. The Consumer Discretionary Select Sector Index is reported by Bloomberg L.P. under the ticker symbol “IXY.”

 

The Consumer Staples Select Sector Index

 

The Consumer Staples Select Sector Index measures the performance of the GICS ® consumer staples sector, which currently includes companies in the following industries: food and staples retailing; beverages; food products; tobacco; household products; and personal products. The Consumer Staples Select Sector Index is reported by Bloomberg L.P. under the ticker symbol “IXR.”

 

The Energy Select Sector Index

 

The Energy Select Sector Index measures the performance of the GICS ® energy sector, which currently includes companies in the following industries: energy equipment and services; and oil, gas and consumable fuels. The Energy Select Sector Index is reported by Bloomberg L.P. under the ticker symbol “IXE.”

 

The Financial Select Sector Index

 

Prior to September 16, 2016, the Financial Select Sector Index measured the performance of the GICS ® financials sector that was effective prior to September 1, 2016, which included companies in the following industries: banks; thrifts and mortgage finance; diversified financial services; consumer finance; capital markets; insurance; real estate investment trusts (“REITs”); and real estate.  Effective as of September 16, 2016, the Financial Select Sector Index measures the performance of the same companies measured by the Financial Services Select Sector Index.  The Financial Select Sector Index is reported by Bloomberg L.P. under the ticker symbol “IXM.”

 

The Financial Services Select Sector Index

 

The Financial Services Select Sector Index measures the performance of the current GICS ® financials sector.  The Financial Services Select Sector Index currently includes companies in the following industries: banks; thrifts and mortgage finance; diversified financial services; consumer finance; capital markets; insurance; and mortgage REITs.  The Financial Services Select Sector Index is reported by Bloomberg L.P. under the ticker symbol “IXFNS.”

 

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The Health Care Select Sector Index

 

The Health Care Select Sector Index measures the performance of the GICS ® health care sector, which currently includes companies in the following industries: health care equipment and supplies; health care providers and services; health care technology; biotechnology; pharmaceuticals; and life sciences tools and services. The Health Care Select Sector Index is reported by Bloomberg L.P. under the ticker symbol “IXV.”

 

The Industrial Select Sector Index

 

The Industrial Select Sector Index measures the performance of the GICS ® industrials sector, which currently includes companies in the following industries: aerospace and defense; building products; construction and engineering; electrical equipment; industrial conglomerates; machinery; trading companies and distributors; commercial services and supplies; professional services; air freight and logistics; airlines; marine; road and rail; and transportation infrastructure. The Industrial Select Sector Index is reported by Bloomberg L.P. under the ticker symbol “IXI.”

 

The Materials Select Sector Index

 

The Materials Select Sector Index measures the performance of the GICS ® materials sector, which currently includes companies in the following industries: chemicals; construction materials; containers and packaging; metals and mining; and paper and forest products. The Materials Select Sector Index is reported by Bloomberg L.P. under the ticker symbol “IXB.”

 

The Real Estate Select Sector Index

 

The Real Estate Select Sector Index measures the performance of the GICS ® real estate sector excluding mortgage REITs, which currently includes companies in the real estate management and development industry. The Real Estate Select Sector Index is reported by Bloomberg L.P. under the ticker symbol “IXRE.”

 

The Technology Select Sector Index

 

The Technology Select Sector Index measures the performance of the GICS ® information technology sector, which currently includes companies in the following industries: internet software and services; IT services; software; communications equipment; technology hardware, storage and peripherals; electronic equipment, instruments and components; and semiconductors and semiconductor equipment. The Technology Select Sector Index is reported by Bloomberg L.P. under the ticker symbol “IXT.”

 

The Utilities Select Sector Index

 

The Utilities Select Sector Index measures the performance of the GICS ® utilities sector, which currently includes companies the following industries: electric utilities; gas utilities; multi-utilities; water utilities; and independent power and renewable electricity producers. The Utilities Select Sector Index is reported by Bloomberg L.P. under the ticker symbol “IXU.”

 

Select Sector Index Capping Methodology

 

For reweighting purposes, the Select Sector Indices are rebalanced quarterly after the close of business on the second to last calculation day of March, June, September and December using the following procedures:

 

1. The rebalancing reference date is two business days prior to the last calculation day of March, June, September and December.

 

2. With prices reflected on the rebalancing reference date, and membership, shares outstanding and other metrics as of the rebalancing effective date, each company is weighted using the modified market capitalization methodology. Modifications are made as described below.

 

3. The Select Sector Indices are first evaluated based on their companies’ modified market capitalization weights to ensure none of the Select Sector Indices breach the maximum allowable limits defined in

 

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paragraphs 4 and 7 below. If a Select Sector Index breaches any of the allowable limits, the companies are reweighted based on their float-adjusted market capitalization weights calculated using the prices as of the rebalancing reference date, and membership, shares outstanding and other metrics as of the rebalancing effective date.

 

4. If any company has a weight greater than 24%, that company has its float-adjusted market capitalization weight capped at 23%. The cap is set to 23% to allow for a 2% buffer. This buffer is needed to ensure that no company exceeds 25% as of the quarter end diversification requirement date.

 

5. All excess weight is equally redistributed to all uncapped companies within the relevant Select Sector Capped Index.

 

6. After this redistribution, if the float-adjusted market capitalization weight of any other company then breaches 23%, the process is repeated iteratively until no company breaches the 23% weight cap.

 

7. The sum of the companies with weight greater than 4.8% cannot exceed 50% of the total index weight. These caps are set to allow for a buffer below the 5% limit.

 

8. If the rule in paragraph 7 is breached, all the companies are ranked in descending order of their float-adjusted market capitalization weights and the first company that causes the 50% limit to be breached is identified. The weight of this company is, then, reduced to 4.6%.

 

9. This excess weight is equally redistributed to all companies with weights below 4.6%. This process is repeated iteratively until paragraph 7 is satisfied.

 

10. Index share amounts are assigned to each constituent to arrive at the weights calculated above. Since index shares are assigned based on prices one business day prior to rebalancing, the actual weight of each constituent at the rebalancing differs somewhat from these weights due to market movements.

 

If necessary, the reweighting process may take place more than once prior to the close on the last business day of March, June, September or December to ensure the Select Sector Indices conform to all diversification requirements.

 

When companies represented in the Select Sector Indices are represented by multiple share classes, maximum weight capping is based on company float-adjusted market capitalization, with the weight of multiple-class companies allocated proportionally to each share class based on its float-adjusted market capitalization as of the rebalancing reference date. If no capping is required, both share classes remain in the relevant Select Sector Index at their natural float-adjusted market capitalization.

 

Calculation, Maintenance and Governance of the Select Sector Indices

 

The Select Sector Indices are calculated, maintained and governed using the same methodology as the S&P 500 ® Index.  For additional information about the calculation, maintenance and governance of the S&P 500 ® Index, see “Equity Index Descriptions — S&P U.S. Indices”  in this underlying supplement.

 

License Agreement

 

S&P Dow Jones and Citigroup Global Markets Inc. have entered into a non-exclusive license agreement providing for the license to Citigroup Inc. and its other affiliates, in exchange for a fee, of the right to use indices owned and published by S&P Dow Jones in connection with certain financial products, including the securities. “Standard & Poor’s” and “S&P” are trademarks of Standard & Poor’s Financial Services LLC (“S&P”). “Dow Jones” is a registered trademark of Dow Jones Trademark Holdings, LLC (“Dow Jones”). Trademarks have been licensed to S&P Dow Jones and have been licensed for use by Citigroup Inc. and its affiliates.

 

The license agreement between S&P Dow Jones and Citigroup Global Markets Inc. provides that the following language must be stated in this underlying supplement:

 

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“The securities are not sponsored, endorsed, sold or promoted by S&P Dow Jones, Dow Jones, S&P or their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices make no representation or warranty, express or implied, to the holders of the securities or any member of the public regarding the advisability of investing in securities generally or in the securities particularly. S&P Dow Jones Indices’ only relationship to Citigroup Inc. and its affiliates (other than transactions entered into in the ordinary course of business) is the licensing of certain trademarks, trade names and service marks of S&P Dow Jones Indices and of the Select Sector Indices, which are determined, composed and calculated by S&P Dow Jones Indices without regard to Citigroup Inc., its affiliates or the securities. S&P Dow Jones Indices have no obligation to take the needs of Citigroup Inc., its affiliates or the holders of the securities into consideration in determining, composing or calculating the Select Sector Indices. S&P Dow Jones Indices are not responsible for and have not participated in the determination of the timing of, prices at or quantities of the securities to be issued or in the determination or calculation of the equation by which the securities are to be converted into cash. S&P Dow Jones Indices have no obligation or liability in connection with the administration, marketing or trading of the securities.

 

S&P DOW JONES INDICES DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE SELECT SECTOR INDICES OR ANY DATA INCLUDED THEREIN AND S&P DOW JONES INDICES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P DOW JONES INDICES MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY CITIGROUP INC., HOLDERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE SELECT SECTOR INDICES OR ANY DATA INCLUDED THEREIN. S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE SELECT SECTOR INDICES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P DOW JONES INDICES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND CITIGROUP INC.

 

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The S&P U.S. Ind ices

 

All information contained in this underlying supplement regarding the S&P 500 ® Index, the S&P 100 ® Index, the S&P MidCap 400 ® Index and the S&P SmallCap 600 ® Index (each, an “S&P U.S. Index” and collectively, the “S&P U.S. Indices”), including, without limitation, their make-up, method of calculation and changes in their components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, S&P Dow Jones Indices LLC (“S&P Dow Jones”). The S&P U.S. Indices are calculated, maintained and published by S&P Dow Jones. S&P Dow Jones has no obligation to continue to publish, and may discontinue the publication of, any of the S&P U.S. Indices.

 

The S&P 500 ® Index

 

The S&P 500 ® Index consists of stocks of 500 companies selected to provide a performance benchmark for the U.S. equity markets. The S&P 500 ® Index is reported by Bloomberg L.P. under the ticker symbol “SPX.”

 

The S&P 100 ® Index

 

The S&P 100 ® Index is a subset of the S&P 500 ® Index and comprises 100 leading U.S. stocks with exchange-listed options. The S&P 100 ® Index is reported by Bloomberg L.P. under the ticker symbol “OEX.”

 

The S&P MidCap 400 ® Index

 

The S&P MidCap 400 ® Index consists of stocks of 400 companies selected to provide a performance benchmark for the medium market capitalization segment of the U.S. equity markets. The S&P MidCap 400 ® Index is reported by Bloomberg L.P. under the ticker symbol “MID.”

 

The S&P SmallCap 600 ® Index

 

The S&P SmallCap 600 ® Index consists of stocks of 600 companies selected to provide a performance benchmark for the small market capitalization segment in the U.S. equity markets. The S&P SmallCap 600 ® Index is reported by Bloomberg L.P. under the ticker symbol “SML.”

 

Composition of the S&P U.S. Indices

 

Changes to the S&P U.S. Indices are made as needed, with no annual or semi-annual reconstitution. Constituent changes are typically announced one to five days before they are scheduled to be implemented.

 

Effective with the September 2015 rebalance, each class of stock for a company with multiple share classes is separately evaluated for inclusion, and separately weighted, in the S&P U.S. Indices. It is possible that one listed share class may be included in an S&P U.S. Index while a second listed share class of the same company is excluded. Unlisted share classes will not be combined with any other listed share classes, but these unlisted share classes will be included in the company total market capitalization. For companies that issue a second publicly traded share class to index share class holders, the newly issued share class will be considered for inclusion if the event is mandatory and the market capitalization of the distributed class is not considered to be de minimis.

 

Additions to the S&P U.S. Indices are evaluated based on the following eligibility criteria:

 

· Market Capitalization. The unadjusted company market capitalization should be within a specified range. For the S&P 500 ® Index, the range is currently $5.3 billion or more, for the S&P MidCap 400 ® Index, the range is currently $1.4 billion to $5.9 billion and for the S&P SmallCap 600 ® Index, the range is currently $400 million to $1.8 billion. These ranges are reviewed from time to time to assure consistency with market conditions. The market capitalization of a potential addition to an S&P U.S. Index is looked at in the context of its short- and medium-term historical trends, as well as those of its industry. S&P U.S. Index membership eligibility for a company with multiple share classes is based on the total market capitalization of the company, including all publicly listed and unlisted share classes, if applicable. For spin-offs, S&P U.S. Index membership eligibility is determined using when-issued prices, if available.

 

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· Liquidity. Using composite pricing and volume, the ratio of annual dollar value traded to float-adjusted market capitalization should be 1.00 or greater, and the stock should trade a minimum of 250,000 shares in each of the six months leading up to the evaluation date. For companies with multiple share classes, each listed share class is viewed independently to determine if its meets the liquidity criteria.

 

· Domicile. The company should be a U.S. company, meaning a company that has the following characteristics:

 

· the company should file 10-K annual reports and should not be considered a foreign entity by the SEC;

 

· the U.S. portion of fixed assets and revenues should constitute a plurality of the total, but need not exceed 50%. When these factors are in conflict, assets determine plurality. Revenue determines plurality when there is incomplete asset information. If this criteria is not met or is ambiguous, S&P Dow Jones may still deem the company to be a U.S. company for index purposes if its primary listing, headquarters and incorporation are all in the United States and/or “a domicile of convenience” (Bermuda, Channel Islands, Gibraltar, islands in the Caribbean, Isle of Man, Luxembourg, Liberia or Panama);

 

· the primary listing of the common stock is the New York Stock Exchange (including NYSE Arca and NYSE MKT), the NASDAQ Global Select Market, the NASDAQ Select Market, the NASDAQ Capital Market, the Bats BZX, the Bats BYX, the Bats EDGA or the Bats EDGX. ADRs are not eligible for inclusion; and

 

· the company should have a corporate governance structure consistent with U.S. practice.

 

In situations where the only factor suggesting that a company is not a U.S. company is its tax registration in a “domicile of convenience” or another location chosen for tax-related reasons, S&P Dow Jones normally determines that the company is still a U.S. company. The final determination of domicile eligibility is made by the S&P Dow Jones’s U.S. index committee.

 

· Public Float. There should be a public float of at least 50% of the company’s stock. For companies with multiple share classes, each share class is evaluated separately. Only those share classes with a public float of at least 50% are considered for inclusion.

 

· Sector Classification. The company is evaluated for its contribution to sector balance maintenance, as measured by a comparison of each GICS ® sector’s weight in an S&P U.S. Index with its weight in the market, in the relevant market capitalization range.

 

· Financial Viability. The sum of the most recent four consecutive quarters’ as-reported earnings of the company should be positive as should the most recent quarter. As-reported earnings are Generally Accepted Accounting Principles (GAAP) net income excluding discontinued operations and extraordinary items. For equity real estate investment trusts (REITs), financial viability is based on as-reported earnings and/or Funds From Operations (FFO), if reported. Another measure of financial viability is a company’s balance sheet leverage, which should be operationally justifiable in the context of both its industry peers and its business model.

 

· Treatment of IPOs. Initial public offerings should be seasoned for six to 12 months before being considered for addition to an S&P U.S. Index.

 

· Eligible Securities. Eligible securities include all U.S. common equities listed on the New York Stock Exchange, NYSE Arca, NYSE MKT, NASDAQ Global Select Market, NASDAQ Select Market and NASDAQ Capital Market. Ineligible securities include business development companies (BDCs), limited partnerships, master limited partnerships, limited liability companies (LLCs), OTC bulletin board issues, closed-end funds, ETFs, ETNs, royalty trusts, tracking stocks, preferred and convertible preferred stock, unit trusts, equity warrants, convertible bonds, investment trusts, rights, ADRs, ADSs and master limited partnership units. Real estate investment trusts (REITs) are eligible for inclusion.

 

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Removals from the S&P U.S. Indices are evaluated based as follows:

 

· Companies that are involved in mergers, acquisitions, or significant restructuring such that they no longer meet inclusion criteria. Companies delisted as a result of merger, acquisition or other corporate action are removed at a time announced by S&P Dow Jones, normally at the close of the last day of trading or expiration of a tender offer. Constituents that are halted from trading may be kept in an S&P U.S. Index until trading resumes, at the discretion of S&P Dow Jones. If a stock is moved to the pink sheets or the bulletin board, the stock is removed.

 

· Companies that substantially violate one or more of the addition criteria. S&P Dow Jones believes turnover in index membership should be avoided when possible. At times a stock may appear to temporarily violate one or more of the addition criteria. However, the addition criteria are for addition to an index, not for continued membership. As a result, an index constituent that appears to violate criteria for addition to that index is not deleted unless ongoing conditions warrant an index change. When a stock is removed from an index, S&P Dow Jones explains the basis for the removal.

 

Calculation of the S&P U.S. Indices

 

The S&P U.S. Indices are float-adjusted market capitalization-weighted indices. On any given day, the index value of each S&P U.S. Index is the total float-adjusted market capitalization of that S&P U.S. Index’s constituents divided by its divisor. The float-adjusted market capitalization reflects the price of each stock in the relevant S&P U.S. Index multiplied by the number of shares used in the index value calculation.

 

Float Adjustment. Float adjustment means that the number of shares outstanding is reduced to exclude closely held shares from the calculation of the index value because such shares are not available to investors. The goal of float adjustment is to distinguish between strategic (control) shareholders, whose holdings depend on concerns such as maintaining control rather than the economic fortunes of the company, and those holders whose investments depend on the stock’s price and their evaluation of a company’s future prospects. Generally, these “control holders” include officers and directors, private equity, venture capital & special equity firms, other publicly traded companies that hold shares for control, strategic partners, holders of restricted shares, employee stock ownership plans, employee and family trusts, foundations associated with the company, holders of unlisted share classes of stock or government entities at all levels (other than government retirement/pension funds) and any individual person who controls a 5% or greater stake in a company as reported in regulatory filings. Shares that are not considered outstanding are also not included in the available float. These generally include treasury stock, stock options, equity participation units, warrants, preferred stock, convertible stock and rights.

 

For each component, S&P Dow Jones calculates an Investable Weight Factor (“IWF”), which represents the portion of the total shares outstanding that are considered part of the public float for purposes of the relevant S&P U.S. Index.

 

Divisor. Continuity in index values of each S&P U.S. Indices is maintained by adjusting its divisor for all changes in its constituents’ share capital after its base date. This includes additions and deletions to the relevant S&P U.S. Index, rights issues, share buybacks and issuances and non-zero price spin-offs. The value of each S&P U.S. Index’s divisor over time is, in effect, a chronological summary of all changes affecting the base capital of that S&P U.S. Index. The divisor of each S&P U.S. Index is adjusted such that the index value of that S&P U.S. Index at an instant just prior to a change in base capital equals the index value of that S&P U.S. Index at an instant immediately following that change.

 

Maintenance of the S&P U.S. Indices

 

Changes in response to corporate actions and market developments can be made at any time. Constituent changes are typically announced one to five days before they are scheduled to be implemented.

 

Share Updates. Changes in a company’s shares outstanding due to its acquisition of another public company are made as soon as reasonably possible. At S&P Dow Jones’ discretion, de minimis merger and acquisition share changes are accumulated and implemented with the quarterly share rebalancing. All other changes of less than 5% are accumulated and made quarterly on the third Friday of March, June, September and December.

 

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5% Rule. Changes in a company’s total shares outstanding of 5% or more due to public offerings, tender offers, Dutch auctions or exchange offers are made as soon as reasonably possible. Other changes of 5% or more (for example, due to company stock repurchases, private placements, acquisitions of private companies or non-index companies that do not trade on a major exchange, redemptions, exercise of options, warrants, conversion of preferred stock, notes, debt, equity participations, at-the-market stock offerings or other recapitalizations) are made weekly, and are announced on Fridays for implementation after the close of trading the following Friday (one week later). If an exchange holiday/closure falls on a Friday, the weekly share change announcement will be made the day before the exchange holiday/closure.

 

If a 5% or more share change causes a company’s IWF to change by five percentage points or more (for example from 0.80 to 0.85), the IWF is updated at the same time as the share change. IWF changes resulting from partial tender offers are considered on a case-by-case basis.

 

For weekly share reviews involving companies with multiple share classes, the 5% share change threshold is based on each individual share class rather than total company shares.

 

Share Freezes. S&P Dow Jones implements a share freeze the week leading up to the rebalancing effective date (the third Friday of the last month of each quarter). During this frozen period, shares are not changed except for certain corporate action events (merger activity, stock splits, rights offerings and certain share dividend payable events).

 

Corporate Actions. Corporate actions (such as stock splits, stock dividends, non-zero price spin-offs and rights offerings) are applied after the close of trading on the day prior to the ex-date.

 

Other Adjustments. In cases where there is no achievable market price for a stock being deleted, it can be removed at a zero or minimal price at the S&P Dow Jones’s U.S. index committee ’s discretion, in recognition of the constraints faced by investors in trading bankrupt or suspended stocks.

 

The table below summarizes types of index maintenance adjustments and indicates whether or not a divisor adjustment is required.

 

Type of
Corporate Action

Comments  

Divisor
Adjustment  

Company added/deleted Net change in market value determines divisor adjustment. Yes
Change in shares outstanding Any combination of secondary issuance, share repurchase or buy back – share counts revised to reflect change. Yes
Stock split Share count revised to reflect new count.  Divisor adjustment is not required since the share count and price changes are offsetting. No
Non-zero price spin-off If the spun-off company is not being added to the index, the divisor adjustment reflects the decline in index market value ( i.e. , the value of the spun-off unit). Yes
Non-zero price spin-off Spun-off company added to the index, no company removed from the index. No
Non-zero price spin-off Spun-off company added to the index, another company removed to keep number of names fixed.  Divisor adjustment reflects deletion. Yes
Change in IWF Increasing (decreasing) the IWF increases (decreases) the total market value of the index.  The divisor change reflects the change in market value caused by the change to an IWF. Yes

 

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Type of
Corporate Action

Comments  

Divisor
Adjustment  

Special dividend When a company pays a special dividend, the share price is assumed to drop by the amount of the dividend; the divisor adjustment reflects this drop in index market value. Yes
Rights offering Each shareholder receives the right to buy a proportional number of additional shares at a set (often discounted) price.  The calculation assumes that the offering is fully subscribed.  Divisor adjustment reflects increase in market capitalization measured as the shares issued multiplied by the price paid. Yes

 

Stock splits and stock dividends do not affect the divisor, because following a split or dividend, both the stock price and number of shares outstanding are adjusted by S&P Dow Jones so that there is no change in the market value of the relevant component. All stock split and dividend adjustments are made after the close of trading on the day before the ex-date.

 

Governance of the S&P U.S. Indices

 

The S&P U.S. Indices are maintained by S&P Dow Jones’s U.S. index committee. All index committee members are full-time professional members of S&P Dow Jones’ staff. The index committee meets monthly. At each meeting, the index committee reviews pending corporate actions that may affect index constituents, statistics comparing the composition of the indices to the market, companies that are being considered as candidates for addition to an index, and any significant market events. In addition, the index committee may revise index policy covering rules for selecting companies, treatment of dividends, share counts or other matters.

 

License Agreement

 

S&P Dow Jones and Citigroup Global Markets Inc. have entered into a non-exclusive license agreement providing for the license to Citigroup Inc. and its other affiliates, in exchange for a fee, of the right to use indices owned and published by S&P Dow Jones in connection with certain financial products, including the securities. “Standard & Poor’s,” “S&P,” “S&P 500,” “S&P 100,” “S&P MidCap 400” and “S&P SmallCap” are trademarks of S&P. “Dow Jones” is a registered trademark of Dow Jones Trademark Holdings, LLC (“Dow Jones”). Trademarks have been licensed to S&P Dow Jones and have been licensed for use by Citigroup Inc. and its affiliates.

 

The license agreement between S&P Dow Jones and Citigroup Global Markets Inc. provides that the following language must be stated in this underlying supplement:

 

“The securities are not sponsored, endorsed, sold or promoted by S&P Dow Jones, Dow Jones, S&P or their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices make no representation or warranty, express or implied, to the holders of the securities or any member of the public regarding the advisability of investing in securities generally or in the securities particularly. S&P Dow Jones Indices’ only relationship to Citigroup Inc. and its affiliates (other than transactions entered into in the ordinary course of business) is the licensing of certain trademarks, trade names and service marks of S&P Dow Jones Indices and of the S&P U.S. Indices, which are determined, composed and calculated by S&P Dow Jones Indices without regard to Citigroup Inc., its affiliates or the securities. S&P Dow Jones Indices have no obligation to take the needs of Citigroup Inc., its affiliates or the holders of the securities into consideration in determining, composing or calculating the S&P U.S. Indices. S&P Dow Jones Indices are not responsible for and have not participated in the determination of the timing of, prices at or quantities of the securities to be issued or in the determination or calculation of the equation by which the securities are to be converted into cash. S&P Dow Jones Indices have no obligation or liability in connection with the administration, marketing or trading of the securities.

 

S&P DOW JONES INDICES DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P U.S. INDICES OR ANY DATA INCLUDED THEREIN AND S&P DOW JONES INDICES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P DOW JONES INDICES MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY CITIGROUP INC., HOLDERS OF THE

 

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SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P U.S. INDICES OR ANY DATA INCLUDED THEREIN. S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P U.S. INDICES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P DOW JONES INDICES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND CITIGROUP INC.

 

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The TOPIX ® Index

 

All information contained in this underlying supplement regarding the Tokyo Stock Price Index, or the TOPIX ® Index, including, without limitation, its make-up, method of calculation and changes in its components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, the Tokyo Stock Exchange (the “TSE”). The TOPIX ® Index is calculated, maintained and published by the TSE. The TSE has no obligation to continue to publish, and may discontinue publication of, the TOPIX ® Index.

 

The TOPIX ® Index is reported by Bloomberg L.P. under the ticker symbol “TPX.”

 

The component stocks of the TOPIX ® Index consist of all Japanese common stocks listed on the First Section of the TSE. The TOPIX ® Index measures changes in the aggregate market value of these stocks. The TOPIX ® Index was developed by the TSE. Publication of the TOPIX ® Index began on July 1, 1969, based on an initial Index value of 100 at January 4, 1968, which was reset at 1,000 on April 1, 1998. The TOPIX ® Index is computed and published every second via TSE’s Market Information System, and is reported to securities companies across Japan and available worldwide through computerized information networks.

 

The TSE Japanese stock market is divided into two sections: the First Section and the Second Section. Listings of stocks on the TSE are divided between these two sections, with stocks listed on the First Section typically being limited to larger, longer established and more actively traded issues and the Second Section to smaller and newly listed companies. The component stocks of the TOPIX ® Index are determined based on market capitalization and liquidity. Review and selection of component stocks is conducted semiannually, based on market data as of the base date for selection.

 

The TOPIX ® Index is a free-float adjusted market capitalization-weighted index, with the market price of each component stock multiplied by the number of shares listed (as adjusted by multiplying the free-float weight (“FFW”) to take into account only the listed shares deemed to be available for trading in the market). The TSE is responsible for calculating and maintaining the TOPIX ® Index, and can add, delete or substitute the stocks underlying the TOPIX ® Index or make other methodological changes that could change the value of the TOPIX ® Index. The underlying stocks may be removed, if necessary, in accordance with deletion/addition rules which provide generally for the deletion of a stock from the TOPIX ® Index if such stock ceases to meet the criteria for inclusion. Stocks listed on the Second Section of the TSE may be transferred to the First Section if they satisfy applicable criteria. Such criteria include numerical minimum values for number of shares listed, number of shareholders and average monthly trading volume, among others. Similarly, when a First Section stock falls within the coverage of TSE rules prescribing reassignment thereof to the Second Section, such stock will be removed from the First Section.

 

The TOPIX ® Index is not expressed in Japanese yen, but is presented in terms of points (as a decimal figure), rounded to the nearest one-hundredth. The TOPIX ® Index is calculated by multiplying 100 by the figure obtained by dividing the current free-float adjusted market value (the current market price per share at the time of the index calculation multiplied by the number of free-float adjusted common shares listed on the First Section of the TSE at the same instance) (as adjusted by multiplying the FFW) (the “Current Market Value”) by the base market value ( i.e. , the Current Market Value on the base date) (the “Base Market Value”).

 

The calculation of the TOPIX ® Index can be represented by the following formula:

 

Index =

Current Market Value 

x 100
Base Market Value

 

In order to maintain continuity, the Base Market Value is adjusted from time to time to ensure that it reflects only price movements resulting from auction market activity, and to eliminate the effects of other factors and prevent any instantaneous change or discontinuity in the level of the TOPIX ® Index. Such factors include, without limitation: new listings, delistings, new share issues either through public offerings or through rights offerings to shareholders, issuance of shares as a consequence of exercise of convertible bonds or warrants, and transfer of listed securities from the First Section to the Second Section of the TSE.

 

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The formula for the adjustment is as follows:

 

Free-float adjusted Market Value on business day before adjustment date

       =

(Free-float adjusted Market Value on business day before adjustment date ± Adjustment Amount) 

Base Market Value before adjustment Base Market Value after adjustment

 

Where Adjustment Amount is equal to the changes in the number of shares included in the calculation of the TOPIX ® Index multiplied by the price of those shares used for the purposes of the adjustment.

 

Therefore,

 

New Base Market Value        =

Old Base Market Value x
(Free-float adjusted Market Value on business day before adjustment date ± Adjustment Amount) 

Free-float adjusted Market Value on business day before adjustment date

 

The Base Market Value remains at the new value until a further adjustment is necessary as a result of another change. As a result of such change affecting the Current Market Value or any stock underlying the TOPIX ® Index, the Base Market Value is adjusted in such a way that the new value of the TOPIX ® Index will equal the level of the TOPIX ® Index immediately prior to such change.

 

No adjustment is made to the Base Market Value, however, in the case of events such as stock splits or decreases in capital without compensation, which theoretically do not affect market capitalization.

 

License Agreement

 

Citigroup Global Markets Inc. has entered into a non-exclusive license agreement with the TSE providing for the license to Citigroup Global Markets Inc. and certain of its affiliates, in exchange for a fee, of the right to use the TOPIX ® Index, which is owned and published by the TSE, in connection with the securities.

 

The TOPIX ® Index Value and the TOPIX ® Trademarks, including “TOPIX ® ” and “TOPIX ® Index,” are subject to the intellectual property rights owned by the Tokyo Stock Exchange, Inc. and the Tokyo Stock Exchange, Inc. owns all rights relating to the TOPIX ® Index, such as calculation, publication and use of the TOPIX ® Index Value and relating to the TOPIX ® Trademarks.

 

The Tokyo Stock Exchange, Inc. shall reserve the rights to change the methods of calculation or publication, to cease the calculation or publication of the TOPIX ® Index Value or to change the TOPIX ® Trademarks or cease the use thereof.

 

The Tokyo Stock Exchange, Inc. makes no warranty or representation whatsoever, either as to the results stemming from the use of the TOPIX ® Index Value and the TOPIX ® Trademarks or as to the figure at which the TOPIX ® Index Value stands on any particular day.

 

The Tokyo Stock Exchange, Inc. gives no assurance regarding accuracy or completeness of the TOPIX ® Index Value and data contained therein. Further, the Tokyo Stock Exchange, Inc. shall not be liable for the miscalculation, incorrect publication, delayed or interrupted publication of the TOPIX ® Index Value.

 

The securities are in no way sponsored, endorsed or promoted by the Tokyo Stock Exchange, Inc.

 

The Tokyo Stock Exchange, Inc. shall not bear any obligation to give an explanation of the securities or any advice on investments to any purchaser of the securities or to the public.

 

The Tokyo Stock Exchange, Inc. neither selects specific stocks or groups thereof nor takes into account any needs of the issuer or any purchaser of the securities, for calculation of the TOPIX Index Value.

 

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Including but not limited to the foregoing, the Tokyo Stock Exchange, Inc. shall not be responsible for any damage resulting from the issue and sale of the securities.

 

The securities have not been and will not be passed on by the TSE as to their legality or suitability. The securities will not be issued, endorsed, sold or promoted by the TSE. THE TSE MAKES NO WARRANTIES AND BEARS NO LIABILITY WITH RESPECT TO THE SECURITIES.

 

The Tokyo Stock Exchange

 

The TSE is one of the world’s largest securities exchanges in terms of market capitalization. Trading hours are currently from 9:00 a.m. to 11:00 a.m. and from 12:30 p.m. to 3:00 p.m., Tokyo time, Monday through Friday.

 

Due to the time zone difference, the TSE will close on any normal trading day prior to the opening of business in New York City on the same calendar day. Therefore, the closing level of the TOPIX ® Index on a trading day will generally be available in the United States by the opening of business on the same calendar day.

 

The TSE has adopted certain measures, including daily price floors and ceilings on individual stocks, intended to prevent any extreme short-term price fluctuations resulting from order imbalances. In general, any stock listed on the TSE cannot be traded at a price lower than the applicable price floor or higher than the applicable price ceiling. These price floors and ceilings are expressed in absolute Japanese yen, rather than percentage limits based on the closing price of the stock on the previous trading day. In addition, when there is a major order imbalance in a listed stock, the TSE posts a “special bid quote” or a “special asked quote” for that stock at a specified higher or lower price level than the stock’s last sale price in order to solicit counter-orders and balance supply and demand for the stock. Prospective investors should also be aware that the TSE may suspend the trading of individual stocks in certain limited and extraordinary circumstances, including, for example, unusual trading activity in that stock. As a result, changes in the TOPIX ® Index may be limited by price limitations or special quotes, or by suspension of trading, on individual stocks that make up the TOPIX ® Index, and these limitations, in turn, may adversely affect the value of the securities.

 

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Commodity Index Descriptions

 

The Bloomberg Commodity Indices

 

General

 

All information contained in this underlying supplement regarding the Bloomberg Commodity Index SM , its single-commodity sub-indices and the forward-month version of the Bloomberg Commodity Index SM and its single-commodity sub-indices (each, a “Bloomberg Commodity Index” and collectively, the “Bloomberg Commodity Indices”), including, without limitation, their make-up, methods of calculation and changes in their components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, UBS Securities LLC (“UBS”) and Bloomberg Finance L.P. (“Bloomberg”). UBS and Bloomberg are not involved in the offer of the securities in any way and have no obligation to consider your interests as a holder of the securities. UBS and Bloomberg have no obligation to continue to publish, and may discontinue publication of, the Bloomberg Commodity Indices at any time in their sole discretion.

 

On July 1, 2014, Bloomberg became responsible for the governance, calculation, distribution and licensing of the Bloomberg Commodity Indices. The Dow Jones-UBS Commodity Index SM was renamed to the Bloomberg Commodity Index SM and the ticker changed from “DJUBS” to “BCOM.” UBS has maintained its ownership, but Bloomberg calculates the Bloomberg Commodity Index on behalf of UBS. Material changes or amendments to the index methodology are subject to approval by the Bloomberg index oversight committee in consultation, if practical, with UBS.

 

Overview

 

The Bloomberg Commodity Index SM was introduced in July of 1998 to provide a unique, diversified, economically rational and liquid benchmark for commodities as an asset class. The Bloomberg Commodity Index SM currently is composed of the prices of twenty-two exchange-traded futures contracts on physical commodities. A futures contract is a bilateral agreement providing for the purchase and sale of a specified type and quantity of a commodity or financial instrument during a stated delivery month for a fixed price. For a general description of the commodity futures markets, please see “The Commodity Futures Markets” below. The commodities included in the Bloomberg Commodity Index SM for 2016 are as follows: aluminum, coffee, copper, corn, cotton, crude oil (WTI and Brent), gold, ultra-low-sulfur diesel (“ULS diesel”), lean hogs, live cattle, natural gas, nickel, silver, soybean meal, soybean oil, soybeans, sugar, unleaded gasoline, wheat (soft and hard red winter) and zinc. The Bloomberg Commodity Index SM tracks futures contracts that trade on the Chicago Board of Trade (“CBOT”), New York Board of Trade (“NYBOT”), Commodities Exchange division of the New York Mercantile Exchange (“COMEX”), New York Mercantile Exchange (“NYMEX”), the Kansas City Board of Trade (“KCBOT”), the London Metals Exchange (“LME”) and ICE Futures Europe.

 

The Bloomberg Commodity Index SM is composed of exchange-traded futures contracts on physical commodities and is designed to be a highly liquid and diversified benchmark for commodities as an asset class. Its component weightings are determined primarily based on liquidity data, which is the relative amount of trading activity of a particular commodity. The Bloomberg Commodity Index SM is published by Bloomberg L.P. under the ticker symbols “BCOM” for the excess return version and “BCOMTR” for the total return version.

 

The single-commodity sub-indices of the Bloomberg Commodity Index SM follow the methodology of the Bloomberg Commodity Index SM , except that the calculation of each single-commodity sub-index utilizes the prices of the relevant futures contracts (listed under “— Designated Contracts for Each Commodity”) and the relevant Commodity Index Multiplier (determined as described under “— Commodity Index Multipliers”). The single-commodity sub-indices of the Bloomberg Commodity Index SM are published by Bloomberg L.P. If the securities are linked in whole or in part to a single-commodity sub-index of the Bloomberg Commodity Index SM , the ticker symbol will be provided in the relevant terms supplement.

 

Bloomberg also publishes forward-month versions of the Bloomberg Commodity Index SM and its single-commodity sub-indices that trades longer-dated commodity futures contracts. The Bloomberg Commodity Index 3 Month Forward SM follows the methodology of the Bloomberg Commodity Index SM , except that the futures contracts used for calculating the Bloomberg Commodity Index 3 Month Forward SM are advanced, as compared to the

 

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Bloomberg Commodity Index SM , such that the delivery months for the reference contracts are later than those of the corresponding reference contracts used for the Bloomberg Commodity Index SM . The Bloomberg Commodity Index 3 Month Forward SM is published by Bloomberg L.P. under the ticker symbols “BCOMF3” for the excess return version and “BCOMF3T” for the total return version.

 

The forward-month single-commodity sub-indices of the Bloomberg Commodity Index SM follow the methodology of the Bloomberg Commodity Index SM , except that the calculation of each forward-month single-commodity sub-index utilizes the prices of the relevant futures contracts (as listed under “— Designated Contracts for Each Commodity”) and the relevant Commodity Index Multiplier (determined as described under “— Commodity Index Multipliers”). In addition, the futures contracts used for calculating the forward-month single-commodity sub-indices are advanced, as compared to the futures contracts included in the Bloomberg Commodity Index SM , such that the delivery months for the reference contracts are later than those of the corresponding reference contracts used for the single-commodity sub-indices. The forward-month single-commodity sub-indices of the Bloomberg Commodity Index SM are published by Bloomberg L.P. If the securities are linked in whole or in part to a forward-month single-commodity sub-index of the Bloomberg Commodity Index SM , the ticker symbol will be provided in the relevant terms supplement.

 

Bloomberg publishes both a total return version and excess return version of each of the Bloomberg Commodity Indices. The total return version of each Bloomberg Commodity Index reflects the returns on a fully collateralized investment in the excess return version of such Bloomberg Commodity Index. Accordingly, the total return version of each Bloomberg Commodity Index combines the returns of the relevant excess return version with returns on cash collateral invested in Treasury Bills. The cash collateral returns are calculated using the most recent weekly auction high rate for 13-week (3 Month) U.S. Treasury Bills, as reported on the website www.publicdebt.treas.gov/AI/OFBills under the column heading “Discount Rate %,” published by the Bureau of the Public Debt of the U.S. Treasury (or any successor source). Information contained in the Bureau of the Public Debt of the U.S. Treasury website is not incorporated by reference in, and should not be considered a part of, this underlying supplement or the relevant terms supplement. Weekly auction high rates are generally published once each week on Monday. The securities may be linked to the excess return or the total return version of the Bloomberg Commodity Indices, as specified in the relevant terms supplement.

 

UBS and its affiliates actively trade futures contracts and options on futures contracts on the commodities that underlie the Bloomberg Commodity Index SM , as well as commodities, including commodities included in the Bloomberg Commodity Index SM . For information about how this trading may affect the value of the Bloomberg Commodity Indices, see “Risk Factors — For securities linked to a Bloomberg Commodity Index, trading and other transactions by UBS and its affiliates in the futures contracts constituting the Bloomberg Commodity Indices and the underlying commodities may affect the level of the Bloomberg Commodity Indices” in this underlying supplement.

 

The Bloomberg Index Oversight Committee and Index Advisory Council

 

Bloomberg established an internal index oversight committee (the “IOC”) as part of its initiative to comply with the “19 Principles for Financial Benchmarks” as published by the International Organization of Securities Commissions (IOSCO). The committee consists of senior representatives from various Bloomberg business units. The purpose of the IOC is to provide oversight and accountability over all aspects of the Index determination process.

 

Additionally, an external index advisory council (the “IAC”) will be convened from time to time for the Bloomberg Commodity Index SM in order to provide Bloomberg with guidance and feedback from the investment community on the Bloomberg Commodity Index SM , index products and commodities markets generally.

 

Four Main Principles Guiding the Creation of the Bloomberg Commodity Index SM

 

The Bloomberg Commodity Index SM was created using the following four main principles:

 

· ECONOMIC SIGNIFICANCE. A commodity index should fairly represent the importance of a diversified group of commodities to the world economy. To achieve a fair representation, the Bloomberg Commodity Index SM uses both liquidity data and dollar-weighted production data in determining the relative quantities of included commodities. The Bloomberg Commodity Index SM primarily relies on

 

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liquidity data, or the relative amount of trading activity of a particular commodity, as an important indicator of the value placed on that commodity by financial and physical market participants. The Bloomberg Commodity Index SM also relies on production data as a useful measure of the importance of a commodity to the world economy. Production data alone, however, may underestimate the economic significance of storable commodities ( e.g. , gold) relative to non-storable commodities ( e.g. , live cattle). Production data alone also may underestimate the investment value that financial market participants place on certain commodities, and/or the amount of commercial activity that is centered around various commodities. Accordingly, production statistics alone do not necessarily provide as accurate a reflection of economic importance as the markets themselves. The Bloomberg Commodity Index SM thus relies on data that is both endogenous to the futures market (liquidity) and exogenous to the futures market (production) in determining relative weightings.

 

· DIVERSIFICATION. A second major goal of the Bloomberg Commodity Index SM is to provide diversified exposure to commodities as an asset class. Disproportionate weighting of any particular commodity or sector increases volatility and negates the concept of a broad-based commodity index. Instead of diversified commodities exposure, the investor is unduly subjected to micro-economic shocks in one commodity or sector. As described further below, diversification rules have been established and are applied annually. Additionally, the Bloomberg Commodity Index SM is re-balanced annually on a price-percentage basis in order to maintain diversified commodities exposure over time.

 

· CONTINUITY. The third goal of the Bloomberg Commodity Index SM is to be responsive to the changing nature of commodity markets in a manner that does not completely reshape the character of the Bloomberg Commodity Index SM from year to year. The Bloomberg Commodity Index SM is intended to provide a stable benchmark so that end-users may be reasonably confident that historical performance data (including such diverse measures as correlation, spot yield, roll yield and volatility) is based on a structure that bears some resemblance to both the current and future composition of the Bloomberg Commodity Index SM .

 

· LIQUIDITY. Another goal of the Bloomberg Commodity Index SM is to provide a highly liquid index. The explicit inclusion of liquidity as a weighting factor helps to ensure that the Bloomberg Commodity Index SM can accommodate substantial investment flows. The liquidity of an index affects transaction costs associated with current investments. It also may affect the reliability of historical price performance data.

 

These four principles represent goals of the Bloomberg Commodity Index SM and its creators, and there can be no assurance that these goals will be achieved.

 

Composition of the Bloomberg Commodity Index SM — Commodities Available for Inclusion

 

Commodities have been selected that are believed to be both sufficiently significant to the world economy to merit consideration for inclusion in the Bloomberg Commodity Index SM and tradable through a qualifying related futures contract. With the exception of several metals contracts (aluminum, lead, tin, nickel and zinc) that trade on the LME and contracts for Brent crude, which trade on ICE Futures Europe, each of the potential commodities is currently the subject of at least one futures contract that trades on a U.S. exchange.

 

The 24 commodities currently available for inclusion in the Bloomberg Commodity Index SM are aluminum, cocoa, coffee, copper, corn, cotton, crude oil (WTI and Brent), gold, ULS diesel, lead, lean hogs, live cattle, natural gas, nickel, platinum, silver, soybean meal, soybean oil, soybeans, sugar, tin, unleaded gasoline, wheat (soft (Chicago) and hard red winter (KC HRW)) and zinc.

 

The 20 commodities included in the Bloomberg Commodity Index SM (each, an “Index Commodity” and collectively, the “Index Commodities”) for 2016 are as follows: aluminum, coffee, copper, corn, cotton, crude oil (WTI and Brent), gold, ULS diesel, lean hogs, live cattle, natural gas, nickel, silver, soybean meal, soybean oil, soybeans, sugar, unleaded gasoline, wheat (soft and hard red winter) and zinc.

 

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Designated Contracts for Each Commodity

 

One or more futures contracts known as a “Designated Contract” is selected by Bloomberg for each commodity available for inclusion in the Bloomberg Commodity Index SM . Historically, through and including the composition of the Bloomberg Commodity Index SM for 2016, Bloomberg has chosen for each Commodity one Designated Contract that is traded in North America and denominated in U.S. dollars (with the exception of several LME contracts, which are traded in London, and with the exception of crude oil, for which two Designated Contracts have been selected starting in 2012, and wheat, for which two Designated Contracts that are traded in North America have been selected starting in 2013).

 

Bloomberg may in the future select more than one Designated Contract for additional commodities or may select Designated Contracts that are traded outside of the United States or in currencies other than the U.S. dollar. For example, in the event that changes in regulations concerning position limits materially affect the ability of market participants to replicate the Bloomberg Commodity Index SM in the underlying futures markets, it may become appropriate to include multiple Designated Contracts for more commodities (in addition to crude oil and wheat) in order to enhance liquidity.

 

The termination or replacement of a futures contract on an established exchange occurs infrequently; if a Designated Contract were to be terminated or replaced, a comparable futures contract, if available, would be selected to replace that Designated Contract. Please see “Risk Factors — S&P or Bloomberg may be required to replace a contract underlying an S&P GSCI ® Index or a Bloomberg Commodity Index, if the existing futures contract is terminated or replaced” in this underlying supplement.

 

The 2016 Designated Contracts for the commodities underlying the Bloomberg Commodity Index SM are set forth in the table below:

 

Commodity

Designated Contract  

Exchange  

Units  

Price quote  

Aluminum High Grade Primary Aluminum LME 25 metric tons USD/metric ton
Coffee Coffee “C” NYBOT 37,500 lbs U.S. cents/pound
Copper* Copper COMEX 25,000 lbs U.S. cents/pound
Corn Corn CBOT 5,000 bushels U.S. cents/bushel
Cotton Cotton NYBOT 50,000 lbs U.S. cents/pound
Crude (WTI) Light, Sweet Crude Oil NYMEX 1,000 barrels USD/barrel
Crude (Brent) Brent Crude Oil ICE Futures Europe 1,000 barrels USD/barrel
Gold Gold COMEX 100 troy oz. USD/troy oz.
Lean Hogs Lean Hogs CME 40,000 lbs U.S. cents/pound
Live Cattle Live Cattle CME 40,000 lbs U.S. cents/pound
Natural Gas Henry Hub Natural Gas NYMEX 10,000 mmbtu USD/mmbtu
Nickel Primary Nickel LME 6 metric tons USD/metric ton
Silver Silver COMEX 5,000 troy oz. U.S. cents/troy oz.
Soybeans Soybeans CBOT 5,000 bushels U.S. cents/bushel
Soybean Meal Soybean Meal CBOT 100 short tons USD/short ton
Soybean Oil Soybean Oil CBOT 60,000 lbs U.S. cents/pound
Sugar World Sugar No. 11 NYBOT 112,000 lbs U.S. cents/pound
ULS diesel ULS diesel NYMEX 42,000 gallons U.S. cents/gallon
Unleaded Gasoline (RBOB) Reformulated Gasoline Blendstock for Oxygen Blending NYMEX 42,000 gal U.S. cents/gallon
Wheat (Chicago) Soft Wheat CBOT 5,000 bushels U.S. cents/bushel
Wheat (KC HRW) Hard Red Winter Wheat KCBOT 5,000 bushels U.S. cents/ bushel
Zinc Special High Grade Zinc LME 25 metric tons USD/metric ton

 

* The Bloomberg Commodity Index SM uses the copper contract traded on the COMEX division of the New York Mercantile Exchange for copper contract prices and LME volume data in determining the weighting for the Bloomberg Commodity Index SM .

 

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In addition to the commodities set forth in the above table, cocoa, lead, platinum and tin also are considered annually for inclusion in the Bloomberg Commodity Index SM .

 

Commodity Groups

 

For purposes of applying the diversification rules discussed above and below, the commodities available for inclusion in the Bloomberg Commodity Index SM are assigned to Commodity Groups. The Commodity Groups, and the commodities currently included in each Commodity Group, are as follows:

 

Commodity Group:

Commodities:  

Commodity Group:  

Commodities:  

Energy Crude Oil (WTI and Brent)
ULS diesel
Natural Gas
Unleaded Gasoline (RBOB)
Livestock Lean Hogs
Live Cattle
Precious Metals Gold
Silver
Platinum
Grains Corn
Soybeans
Soybean Meal
Soybean Oil
Wheat (Chicago and KC HRW)
Industrial Metals Aluminum
Copper
Lead
Nickel
Tin
Zinc
Softs Cocoa
Coffee
Cotton
Sugar

 

Bloomberg Commodity Index SM Breakdown by Commodity Group

 

 

The Commodity Group Breakdown set forth below is based on the weightings and composition of the Bloomberg Commodity Index SM set forth under “The Bloomberg Commodity Index SM 2016 Commodity Index Target Weights” below.

 

Energy 31.03%
Precious Metals 15.59%
Industrial Metals 17.11%
Livestock 5.63%
Grains 23.22%
Softs 7.42%

 

Annual Reweightings and Rebalancings of The Bloomberg Commodity Index SM

 

The Bloomberg Commodity Index SM is reweighted and rebalanced each year in January on a price-percentage basis. The annual weightings for the Bloomberg Commodity Index SM are determined each year in the third or fourth quarter by Bloomberg index managers operating under the supervision of the IOC following advice from the IAC and are published as promptly as practicable following the calculation. The annual weightings for the next calendar year are implemented the following January.

 

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For example, the target composition of the Bloomberg Commodity Index SM for 2016 was published on October 29, 2015. The January 2016 reweighting and rebalancing was based on the following percentages:

 

The Bloomberg Commodity Index SM 2016 Commodity Index Target Weights

 

Commodity

Weighting  

Crude Oil

WTI Crude Oil: 7.4697630%

Brent Crude Oil: 7.5302370%

15.000000%

Gold 11.3798610%
Natural Gas 8.4488420%
Copper 7.6272480%
Corn 7.3587030%
Soybeans 5.7038300%
Aluminum 4.5987080%

Wheat

Chicago: 3.3268340%

KC HRW: 1.1531400%

4.4799740%

Silver 4.2131830%
Sugar 3.6272510%
ULS Diesel* 3.8290390%
Unleaded Gasoline 3.7478780%
Live Cattle 3.5666190%
Soybean Oil 2.8375480%
Soybean Meal 2.8446630%
Zinc 2.5276320%
Coffee 2.2946230%
Nickel 2.3593750%
Lean Hogs 2.0621330%
Cotton 1.4931910%

* CME’s heating oil contract on NYMEX was renamed ULS diesel futures after the April 2013 contract.

 

Information concerning the Bloomberg Commodity Index SM , including weightings and composition, may be obtained at the Bloomberg website at www.bloombergindexes.com/bloomberg-commodity-index-family. Information contained in the Bloomberg website is not incorporated by reference in, and should not be considered part of, this underlying supplement or the relevant terms supplement.

 

Determination of Relative Weightings

 

The relative weightings of the Index Commodities are determined annually according to both liquidity and dollar-adjusted production data in 2/3 and 1/3 shares, respectively. Each year, for each Designated Contract selected as a reference contract for a commodity designated for potential inclusion in the Bloomberg Commodity Index SM , liquidity is measured by the Commodity Liquidity Percentage (“CLP”) and production by the Commodity

 

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Production Percentage (“CPP”). The CLP for each Designated Contract is determined by taking a five-year average of the product of trading volume and the historical dollar value of that Designated Contract, and dividing the result by the sum of such products for all Designated Contracts. The CPP is determined for each commodity by taking a five-year average of annual world production figures, adjusted by the historical U.S. dollar value of the applicable Designated Contract, and dividing the result by the sum of such production figures for all the commodities that were designated for potential inclusion in the Bloomberg Commodity Index SM . The CLP and the CPP are then combined (using a ratio of 2:1) to establish the Commodity Index Percentage (“CIP”) for each commodity. This CIP is then adjusted in accordance with certain diversification rules to determine the Index Commodities that will be included in the Bloomberg Commodity Index SM and their respective percentage weights.

 

Diversification Rules

 

The Bloomberg Commodity Index SM is designed to provide diversified exposure to commodities as an asset class. To ensure that no single commodity or commodity sector dominates the Bloomberg Commodity Index SM , the following diversification rules are applied to the annual reweighting and rebalancing of the Bloomberg Commodity Index SM as of January of each year:

 

· No single commodity ( e.g. , natural gas or silver) may constitute more than 15% of the Bloomberg Commodity Index SM .

 

· No single commodity sector, together with its derivatives ( e.g. , WTI crude oil and Brent crude oil, together with ULS diesel and unleaded gasoline), may constitute more than 25% of the Bloomberg Commodity Index SM .

 

· No related group of commodities designated as a “Commodity Group” ( e.g. , energy, precious metals, livestock or grains) may constitute more than 33% of the Bloomberg Commodity Index SM .

 

· No single commodity included in the Bloomberg Commodity Index SM may constitute less than 2% of the Bloomberg Commodity Index SM , as liquidity allows.

 

· Any single commodity constituting less than 0.4% of the Bloomberg Commodity Index SM will be eliminated.

 

· Adjust gold and silver percentages so that their weights are equal to their CIP without violating the previous diversification rules.

 

· The ratio of CIP divided by the associated CLP must be less than or equal to 3.5.

 

Following the annual reweighting and rebalancing of the Bloomberg Commodity Index SM in January, the percentage of any Index Commodity or Commodity Group at any time prior to the next reweighting or rebalancing will fluctuate and may exceed or be less than the percentages established in January.

 

Commodity Index Multipliers

 

Following application of the diversification rules discussed above, CIPs are incorporated into the Bloomberg Commodity Index SM by calculating the new unit weights for each Designated Contract. Near the beginning of each new calendar year, the CIPs, along with the settlement prices determined on that date for Designated Contracts included in the Bloomberg Commodity Index SM , are used to determine a Commodity Index Multiplier (“CIM”) for each Designated Contract. This CIM is used to achieve the percentage weightings of the Designated Contracts, in dollar terms, indicated by their respective CIPs. After the CIMs are calculated, they remain fixed throughout the year. As a result, the observed price percentage of each Designated Contract will float throughout the year, until the CIMs are reset the following year based on new CIPs.

 

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Calculations

 

The price return version of the Bloomberg Commodity Index SM is calculated by Bloomberg by applying the impact of the changes to the futures prices of commodities included in the Bloomberg Commodity Index SM (based on their relative weightings). Once the CIMs are determined as discussed above, the calculation of the price return version of the Bloomberg Commodity Index SM is a mathematical process whereby the CIMs for the Index Commodities are multiplied by the prices in U.S. dollars for the applicable Designated Contracts. These products are then summed. The percentage change in this sum is then applied to the prior Bloomberg Commodity Index SM price return level to calculate the new Bloomberg Commodity Index SM price return level.

 

The total return version of the Bloomberg Commodity Index SM is calculated by Bloomberg by applying the impact of the changes in the level of the price return version of the Bloomberg Commodity Index SM and adding interest that could be earned on funds committed to the trading of the underlying futures contracts. Once the level of the price return version of the Bloomberg Commodity Index SM is determined as discussed above, the daily return on a 13-week (3-month) T-bill is added to the percentage change in the price return version of the Bloomberg Commodity Index SM (as compared with the prior Bloomberg Commodity Index SM price return level) to obtain the total return. The total return is then applied to the prior Bloomberg Commodity Index SM total return level to calculate the new Bloomberg Commodity Index SM total return level.

 

The Bloomberg Commodity Index SM Is a Rolling Index

 

The Bloomberg Commodity Index SM is composed of futures contracts on physical commodities. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, commodity futures contracts normally specify a certain date for the delivery of the underlying commodity. In order to avoid delivering the underlying physical commodities and to maintain exposure to the underlying physical commodities, periodically futures contracts on physical commodities specifying delivery on a nearby date must be sold and futures contracts on physical commodities that have not yet reached the delivery period must be purchased. The rollover for each contract occurs over a period of five Index Business Days (as defined below) each month according to a pre-determined schedule. This process is known as “rolling” a futures position. The Bloomberg Commodity Index SM is a “rolling index.”

 

An “Index Business Day” is a day on which the sum of the Commodity Index Percentages (as defined above in “Determination of Relative Weightings”) for the Index Commodities that are open for trading is greater than 50%. For example, based on the weighting of the Index Commodities for 2015, if the CBOT, the NYMEX and the LME are each closed for trading on the same day, an Index Business Day will not exist.

 

Bloomberg Commodity Index SM Calculation Disruption Events

 

From time to time, disruptions can occur in trading futures contracts on various commodity exchanges. The daily calculation of the Bloomberg Commodity Index SM will be adjusted in the event that Bloomberg determines that any of the following index calculation disruption events exists:

 

(a)       the termination or suspension of, or material limitation or disruption in the trading of any futures contract used in the calculation of the Bloomberg Commodity Index SM on that day;

 

(b)       the settlement price of any futures contract used in the calculation of the Bloomberg Commodity Index SM reflects the maximum permitted price change from the previous day’s settlement price;

 

(c)       the failure of an exchange to publish official settlement prices for any futures contract used in the calculation of the Bloomberg Commodity Index SM ; or

 

(d)       with respect to any futures contract used in the calculation of the Bloomberg Commodity Index SM that trades on the LME, a business day on which the LME is not open for trading.

 

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License Agreement

 

The Bloomberg Commodity Indices are joint products of UBS and Bloomberg, and have been licensed for use by Citigroup Global Markets Inc. “Bloomberg,” “Bloomberg Commodity Index SM ” and “BCOM” are service and/or trademarks of Bloomberg and sublicensed for certain purposes by Citigroup Global Markets Inc. (the “Licensee”).

 

The securities are not sponsored, endorsed, sold or promoted by UBS, Bloomberg or any of their subsidiaries or affiliates. None of UBS, Bloomberg or any of their subsidiaries or affiliates makes any representation or warranty, express or implied, to the owners of or counterparts to the securities or any member of the public regarding the advisability of investing in securities or commodities generally or in the securities particularly. The only relationship of UBS, Bloomberg or any of their subsidiaries or affiliates to the Licensee is the licensing of certain trademarks, trade names and service marks and of the Bloomberg Commodity Indices, which are determined, composed and calculated by Bloomberg in conjunction with UBS Securities without regard to the Licensee or the securities. UBS and Bloomberg have no obligation to take the needs of the Licensee or the owners of the securities into consideration in determining, composing or calculating Bloomberg Commodity Indices. None of UBS, Bloomberg or any of their respective subsidiaries or affiliates is responsible for or has participated in the determination of the timing of, prices at, or quantities of the securities to be issued or in the determination or calculation of the equation by which the securities are to be converted into cash, surrendered or redeemed, as the case may be. None of UBS, Bloomberg or any of their subsidiaries or affiliates shall have any obligation or liability, including, without limitation, to securities customers, in connection with the administration, marketing or trading of the securities. Notwithstanding the foregoing, UBS, Bloomberg and their respective subsidiaries and affiliates may independently issue and/or sponsor financial products unrelated to the securities currently being issued by the Licensee, but which may be similar to and competitive with the securities. In addition, UBS, Bloomberg and their subsidiaries and affiliates actively trade commodities, commodity indicies and commodity futures (including the Bloomberg Commodity Index), as well as swaps, options and derivatives which are linked to the performance of such commodities, commodity indicies and commodity futures. It is possible that this trading activity will affect the value of the Bloomberg Commodity Indices and the securities.

 

Purchasers of the securities should not conclude that the inclusion of a futures contract in the Bloomberg Commodity Indices is any form of investment recommendation of the futures contract or the underlying exchange-traded physical commodity by UBS, Bloomberg or any of their subsidiaries or affiliates. The information in this underlying supplement regarding the Bloomberg Commodity Indices components has been derived solely from publicly available documents. None of UBS, Bloomberg or any of their subsidiaries or affiliates has made any due diligence inquiries with respect to the Bloomberg Commodity Indices components in connection with the securities. None of UBS, Bloomberg or any of their subsidiaries or affiliates makes any representation that these publicly available documents or any other publicly available information regarding the Bloomberg Commodity Indices components, including without limitation a description of factors that affect the prices of such components, are accurate or complete.

 

NONE OF UBS, BLOOMBERG OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE BLOOMBERG COMMODITY INDICES OR ANY DATA RELATED THERETO AND NONE OF UBS, BLOOMBERG OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. NONE OF UBS, BLOOMBERG OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE LICENSEE, OWNERS OF THE SECURITIES OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BLOOMBERG COMMODITY INDICES OR ANY DATA RELATED THERETO. NONE OF UBS, BLOOMBERG OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE BLOOMBERG COMMODITY INDICES OR ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL UBS, BLOOMBERG OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY

 

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BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS AMONG UBS, BLOOMBERG AND THE LICENSEE, OTHER THAN UBS AND THE LICENSORS OF BLOOMBERG.

 

The Commodity Futures Markets

 

Futures contracts on physical commodities are traded on regulated futures exchanges, in the over-the-counter market and on various types of physical and electronic trading facilities and markets. As of the date of this underlying supplement, all of the contracts included in the Bloomberg Commodity Index SM described in this underlying supplement are exchange-traded futures contracts. An exchange-traded futures contract provides for the purchase and sale of a specified type and quantity of a commodity or financial instrument during a stated delivery month for a fixed price. A futures contract provides for a specified settlement month in which cash settlement is made or in which the commodity or financial instrument is to be delivered by the seller (whose position is therefore described as “short”) and acquired by the purchaser (whose position is therefore described as “long”).

 

No purchase price is paid or received on the purchase or sale of a futures contract. Instead, an amount of cash or cash equivalents must be deposited with the broker as “initial margin.” This amount varies based on the requirements imposed by the exchange clearing houses, but it may be lower than 5% of the notional value of the contract. This margin deposit provides collateral for the obligations of the parties to the futures contract.

 

By depositing margin, which may vary in form depending on the exchange, with the clearing house or broker involved, a market participant may be able to earn interest on its margin funds, thereby increasing the total return that it may realize from an investment in futures contracts.

 

Futures contracts are traded on organized exchanges, known as “contract markets” in the United States. At any time prior to the expiration of a futures contract, a trader may elect to close out its position by taking an opposite position on the exchange on which the trader obtained the position, subject to the availability of a liquid secondary market. This operates to terminate the position and fix the trader’s profit or loss. Futures contracts are cleared through the facilities of a centralized clearing house and a brokerage firm, referred to as a “futures commission merchant,” which is a member of the clearing house.

 

Unlike equity securities, futures contracts, by their terms, have stated expirations at a specified point in time prior to expiration. At a specific point in time prior to expiration, trading in a futures contract for the current delivery month will cease. As a result, a market participant wishing to maintain its exposure to a futures contract on a particular commodity or financial instrument with the nearest expiration must close out its position in the expiring contract and establish a new position in the contract for the next delivery month, a process referred to as “rolling.” For example, a market participant with a long position in a futures contract expiring in November who wishes to maintain a position in the nearest delivery month will, as the November contract nears expiration, sell the November contract, which serves to close out the existing long position, and buy a futures contract expiring in December. This will “roll” the November position into a December position, and, when the November contract expires, the market participant will still have a long position in the nearest delivery month.

 

Futures exchanges and clearing houses in the United States are subject to regulation by the Commodity Futures Trading Commission. Exchanges may adopt rules and take other actions that affect trading, including imposing speculative position limits, maximum price fluctuations and trading halts and suspensions and requiring liquidation of contracts in certain circumstances.

 

Futures markets outside the United States are generally subject to regulation by comparable regulatory authorities. The structure and nature of trading on non-U.S. exchanges may differ from this description.

 

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The S&P GSCI ® Indices

 

All information contained in this underlying supplement regarding the S&P GSCI ® Indices (as defined below), including, without limitation, their make-up, method of calculation and changes in their components, has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, S&P Dow Jones Indices LLC (“S&P Dow Jones”), the publisher of the S&P GSCI ® Indices. The S&P GSCI ® Indices are determined, composed and calculated by S&P Dow Jones, without regard to the securities. S&P Dow Jones acquired the rights to the S&P GSCI ® Indices from Goldman, Sachs & Co. in 2007. Goldman, Sachs & Co. established and began calculating the S&P GSCI ® in May 1991. The former name of the S&P GSCI ® was the Goldman Sachs Commodity Index, or GSCI ® . S&P Dow Jones has no obligation to continue to publish, and may discontinue publication of, any S&P GSCI ® Index.

 

The securities may be linked in whole or in part to the performance of the S&P GSCI ® Index (“S&P GSCI ® ”), the S&P GSCI ® Light Energy Index or certain of the S&P GSCI ® ’s commodity sector sub-indices: the S&P GSCI ® Agriculture Index, the S&P GSCI ® Energy Index, the S&P GSCI ® Industrial Metals Index, the S&P GSCI ® Livestock Index and the S&P GSCI ® Precious Metals Index (each a “S&P GSCI ® Sector Index,” and together, the “S&P GSCI ® Sector Indices”), or the S&P GSCI ® ’s single commodity sub-indices (each a “S&P GSCI ® Single Component Index,” and collectively, the “S&P GSCI ® Single Component Indices”). The S&P GSCI ® Single Component Indices and S&P GSCI ® Sector Indices are referred to in this underlying supplement collectively as the “S&P GSCI ® Component Indices,” and together with the S&P GSCI ® and the S&P GSCI ® Light Energy Index, as the “S&P GSCI ® Indices,” and each, a “S&P GSCI ® Index.” If the securities are linked to any S&P GSCI ® Single Component Index, any relevant disclosure for such S&P GSCI ® Single Component Index will be provided in the relevant terms supplement.

 

S&P Dow Jones publishes excess return and total return versions of each of the S&P GSCI ® Indices. The relevant terms supplement will specify whether the securities are linked to the excess return or total return version of the S&P GSCI ® Indices. The excess return versions of the S&P GSCI ® Indices is based on price levels of the futures contracts included in that S&P GSCI ® Index as well as the discount or premium obtained by “rolling” hypothetical positions in those contracts forward as they approach delivery. The total return versions of the S&P GSCI ® Indices incorporate the returns of the excess return versions, except that the total return versions also reflect interest earned on hypothetical, fully collateralized contract positions on the included commodities.

 

The S&P GSCI ® is an index on a world production-weighted basket of principal non-financial commodities ( i.e. , physical commodities) that satisfy specified criteria. The S&P GSCI ® is designed to be a measure of the performance over time of the markets for these commodities. The only commodities represented in the S&P GSCI ® are those physical commodities on which active and liquid contracts are traded on trading facilities in major industrialized countries. The commodities included in the S&P GSCI ® are weighted, on a production basis, to reflect the relative significance (in the view of S&P, as described below) of such commodities to the world economy. The fluctuations in the value of the S&P GSCI ® are intended generally to correlate with changes in the prices of such physical commodities in global markets. The S&P GSCI ® has been normalized such that its hypothetical level on January 2, 1970 was 100. Futures contracts on the S&P GSCI ® , and options on such futures contracts, are currently listed for trading on the Chicago Mercantile Exchange.

 

The S&P GSCI ® Light Energy Index is composed of the same commodity futures contracts as the S&P GSCI ® but with those weights for contracts in the energy sector having been divided by 4. Because the weights of energy-related S&P GSCI ® commodities are reduced in the S&P Light Energy Index relative to the S&P GSCI ® , the relative weights of the remaining S&P GSCI ® commodities are necessarily increased. As a result, although the S&P Light Energy Index contains all of the S&P GSCI ® commodities that are included in the S&P GSCI ® , they are not world-production weighted in the same manner as the S&P GSCI ® and may not serve as a benchmark for changes in inflation or other economic factors. In particular, because of the significance of energy-related commodities to the world economy, a significant reduction in the weights of these commodities in the S&P GSCI ® Light Energy Index will substantially limit the effect of changes in energy prices on the S&P GSCI ® Light Energy Index. Increases in the prices of energy commodities, therefore, will not increase the level of the S&P GSCI ® Light Energy Index to the same extent as the S&P GSCI ® .

 

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The S&P GSCI ® Agriculture Index is a world production-weighted index of certain agricultural commodities in the world economy, including Wheat, Kansas Wheat, Corn, Soybeans, Cotton, Sugar, Coffee and Cocoa. The S&P GSCI ® Energy Index is a world production-weighted index of certain energy commodities in the world economy, including Crude Oil, Brent Crude Oil, RBOB Gasoline, Heating Oil, Gasoil and Natural Gas. The S&P GSCI ® Industrial Metals Index is a world production-weighted index of certain industrial metals commodities in the world economy, including High Grade Primary Aluminum, Copper, Standard Lead, Primary Nickel and Special High Grade Zinc. The S&P GSCI ® Livestock Index is a world production-weighted index of certain livestock commodities in the world economy, including live cattle, feeder cattle and lean hogs. The S&P GSCI ® Precious Metals Index is a world production-weighted index consisting of two precious metals commodities in the world economy: Gold and Silver.

 

Set forth below is a summary of the methodology used to calculate the S&P GSCI ® Indices. Because the S&P GSCI ® is the base index of the S&P GSCI ® Component Indices, the methodology for compiling the S&P GSCI ® relates as well to the methodology of compiling the S&P GSCI ® Component Indices. Each of the S&P GSCI ® Component Indices is calculated in the same manner as the S&P GSCI ® , except that (i) the daily contract reference price, CPWs and roll weights (each as discussed below) used in performing those calculations are limited to those of the commodities included in the relevant S&P GSCI ® Component Index and (ii) each S&P GSCI ® Component Index has a separate normalizing constant (discussed below). The methodology for determining the composition and weighting of the S&P GSCI ® and for calculating its value is subject to modification in a manner consistent with the purposes of the S&P GSCI ® , as described below. S&P Dow Jones makes the official calculations of the S&P GSCI ® Indices.

 

The Index Committee and the Index Advisory Panel

 

S&P Dow Jones has established an index committee (the “Index Committee”) to oversee the daily management and operations of the S&P GSCI ® , and is responsible for all analytical methods and calculation of the S&P GSCI ® Indices. The Index Committee consists of full-time professional members of S&P Dow Jones’s staff. At each meeting, the Index Committee reviews any issues that may affect index constituents, statistics comparing the composition of the indices to the market, commodities that are being considered as candidates for addition to an index and any significant market events. In addition, the Index Committee may revise index policy covering rules for selecting commodities or other matters.

 

S&P Dow Jones considers information about changes to its indices and related matters to be potentially market-moving and material. Therefore, all Index Committee discussions are confidential.

 

S&P Dow Jones has established an index advisory panel (the “Advisory Panel”) to assist it in connection with the operation of the S&P GSCI ® . The Advisory Panel meets on an annual basis and at other times at the request of the Index Committee. The principal purpose of the Advisory Panel is to advise the Index Committee with respect to, among other things, the calculation of the S&P GSCI ® , the effectiveness of the S&P GSCI ® as a measure of commodity futures market performance and the need for changes in the composition or in the methodology of the S&P GSCI ® . The Advisory Panel acts solely in an advisory and consultative capacity; the Index Committee makes all decisions with respect to the composition, calculation and operation of the S&P GSCI ® .

 

Composition of the S&P GSCI ®

 

In order to be included in the S&P GSCI ® , a contract must satisfy the following eligibility criteria:

 

· the contract must be in respect of a physical commodity and not a financial commodity;

 

· the contract must have a specified expiration or term or provide in some other manner for delivery or settlement at a specified time, or within a specified period, in the future;

 

· the contract must, at any given point in time, be available for trading at least five months prior to its expiration or such other date or time period specified for delivery or settlement;

 

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· the contract must be traded on an exchange, facility or other platform (referred to as a “trading facility”) that allows market participants to execute spread transactions, through a single order entry, between the pairs of contract expirations included in the S&P GSCI ® that, at any given point in time, will be involved in the rolls to be effected in the next three roll periods (defined below);

 

· the contract must be denominated in U.S. dollars; and

 

· the contract must be traded on or through a trading facility that has its principal place of business or operations in a country that is a member of the Organization for Economic Cooperation and Development and that:

 

· makes price quotations generally available to its members or participants (and to S&P Dow Jones) in a manner and with a frequency that is sufficient to provide reasonably reliable indications of the level of the relevant market at any given point in time;

 

· makes reliable trading volume information available to S&P Dow Jones with at least the frequency required by S&P Dow Jones to make the monthly determinations;

 

· accepts bids and offers from multiple participants or price providers; and

 

· is accessible by a sufficiently broad range of participants.

 

The price of the relevant contract that is used as a reference or benchmark by market participants (referred to as the “daily contract reference price”) generally must have been available on a continuous basis for at least two years prior to the proposed date of inclusion in the S&P GSCI ® . In appropriate circumstances, S&P Dow Jones may determine that a shorter time period is sufficient or that historical daily contract reference prices for such contract may be derived from daily contract reference prices for a similar or related contract. The daily contract reference price may be (but is not required to be) the price (a) used by the relevant trading facility or clearing facility to determine the margin obligations (if any) of its members or participants or margining transactions or for other purposes or (b) referred to generally as the reference, closing or settlement price of the relevant contract.

 

At and after the time a contract is included in the S&P GSCI ® , the daily contract reference price for such contract must be published between 10:00 a.m. and 4:00 p.m., New York City time, on each business day relating to such contract by the trading facility on or through which it is traded and must generally be available to all members of, or participants in, such facility (and to S&P Dow Jones) on the same day from the trading facility or through a recognized third-party data vendor. Such publication must include, at all times, daily contract reference prices for at least one expiration or settlement date that is five months or more from the date the determination is made, as well as for all expiration or settlement dates during such five-month period.

 

For a contract to be eligible for inclusion in the S&P GSCI ® , volume data with respect to such contract must be available for at least the three months immediately preceding the date on which the determination is made. The following eligibility criteria apply:

 

· In order to be added to the S&P GSCI ® , a contract that is not included in the S&P GSCI ® at the time of determination and that is based on a commodity that is not represented in the S&P GSCI ® at such time must have an annualized total dollar value traded over the relevant period of at least U.S. $15 billion. The total dollar value traded is the dollar value of the total quantity of the commodity underlying transactions in the relevant contract over the period for which the calculation is made, based on the average of the daily contract reference prices on the last day of each month during the period.

 

· In order to continue to be included in the S&P GSCI ® , a contract that is already included in the S&P GSCI ® at the time of determination and that is the only contract on the relevant commodity included in the S&P GSCI ® must have an annualized total dollar value traded of at least U.S. $5 billion over the relevant period and of at least U.S. $10 billion during at least one of the three most recent annual periods used in making the determination.

 

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· In order to be added to the S&P GSCI ® , a contract that is not included in the S&P GSCI ® at the time of determination and that is based on a commodity on which there are one or more contracts already included in the S&P GSCI ® at such time must have an annualized total dollar value traded over the relevant period of at least U.S. $30 billion.

 

· In order to continue to be included in the S&P GSCI ® , a contract that is already included in the S&P GSCI ® at the time of determination and that is based on a commodity on which there are one or more contracts already included in the S&P GSCI ® at such time must have an annualized total dollar value traded, over the relevant period of at least U.S. $10 billion over the relevant period and of at least U.S. $20 billion during at least one of the three most recent annual periods used in making the determination.

 

In addition to the volume requirements described above, a contract must have a minimum reference percentage dollar weight:

 

· In order to continue to be included in the S&P GSCI ® , a contract that is already included in the S&P GSCI ® at the time of determination must have a reference percentage dollar weight of at least 0.10%. The reference percentage dollar weight of a contract is determined by multiplying the CPW (defined below) of a contract by the average of its daily contract reference prices on the last day of each month during the relevant period. These amounts are summed for all contracts included in the S&P GSCI ® and each contract’s percentage of the total is then determined.

 

· In order to be added to the S&P GSCI ® , a contract that is not included in the S&P GSCI ® at the time of determination must have a reference percentage dollar weight of at least 1.00% at the time of determination.

 

In the event that two or more contracts on the same commodity satisfy the eligibility criteria, such contracts are included in the S&P GSCI ® in the order of their respective total quantity traded during the relevant period (determined as the total quantity of the commodity underlying transactions in the relevant contract), with the contract having the highest total quantity traded being included first. No further contracts are included if such inclusion results in the portion of the S&P GSCI ® attributable to such commodity exceeding a particular level.

 

If under the procedure set forth in the preceding paragraph, additional contracts could be included with respect to several commodities at the same time, the procedure is first applied to the commodity that has the smallest portion of the S&P GSCI ® attributable to it at the time of determination. Subject to the other eligibility criteria, the contract with the highest total quantity traded on such commodity is included. Before any additional contracts on any commodity are included, the portion of the S&P GSCI ® attributable to all commodities is recalculated. The selection procedure described above is then repeated with respect to the contracts on the commodity that then has the smallest portion of the S&P GSCI ® attributable to it.

 

The contracts currently included in the S&P GSCI ® are all futures contracts traded on the New York Mercantile Exchange, Inc. (“NYMEX”), ICE Futures Europe (“ICE-Europe”), ICE Futures U.S. (“ICE-US”), the Chicago Mercantile Exchange (“CME”), the Chicago Board of Trade (“CBOT”), the Kansas City Board of Trade (“KBT”), the Commodities Exchange Inc. (“CMX”) and the London Metal Exchange (“LME”).

 

The quantity of each of the contracts included in the S&P GSCI ® is determined on the basis of a five-year average (referred to as the “world production average”) of the production quantity of the underlying commodity from sources determined by S&P Dow Jones to be reasonably accurate and reliable, such as the United Nations Industrial Commodity Statistics Yearbook. However, if a commodity is primarily a regional commodity, based on its production, use, pricing, transportation or other factors, S&P Dow Jones may calculate the weight of such commodity based on regional, rather than world, production data. At present, natural gas is the only commodity the weight of which is calculated on the basis of regional production data, with the relevant region being North America.

 

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The five-year moving average is updated annually for each commodity included in the S&P GSCI ® , based on the most recent five-year period (ending approximately two years prior to the date of calculation and moving backwards) for which complete data for all commodities is available. The contract production weights (the “CPWs”) used in calculating the S&P GSCI ® are derived from world or regional production averages, as applicable, of the relevant commodities, and are calculated based on the total quantity traded for the relevant contract and the world or regional production average, as applicable, of the underlying commodity. However, if the volume of trading in the relevant contract, as a multiple of the production levels of the commodity, is below specified thresholds, the CPW of the contract is reduced until the threshold is satisfied. This is designed to ensure that trading in each such contract is sufficiently liquid relative to the production of the commodity.

 

In addition, S&P Dow Jones performs this calculation on a monthly basis and, if the multiple of any contract is below the prescribed threshold, the composition of the S&P GSCI ® is reevaluated, based on the criteria and weighting procedure described above. This procedure is undertaken to allow the S&P GSCI ® to shift from contracts that have lost substantial liquidity into more liquid contracts, during the course of a given year. As a result, it is possible that the composition or weighting of the S&P GSCI ® will change on one or more of these monthly evaluat