Citi Volatility Balanced Beta (VIBE) Eurozone Spread Beta ... · Eurozone equity market directional bias is intended to be achieved by implementing a beta adjustment to the Long-Short

Citi Investment Strategies Citi Volatility Balanced Beta (VIBE) Eurozone Spread Beta Neutral Prim Index

Index Methodology

Citi Volatility Balanced Beta (VIBE) Eurozone Spread Beta Neutral Prim Index

Index Methodology

Citi Investment Strategies

24 April 2014


Index Methodology

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Table of Contents

Part A: Introduction 2

Part B: Key Information 4

Part C: Overview of the Index 7

Part D: Calculation of the Index Level 11

Part E: Data 19

Part F: Specific Risks 23

Part G: Constituent Disclaimers 27


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Part A: Introduction


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Introduction

This document constitutes the “Index Methodology” in respect of the Index (as defined below) and is made available by Citigroup Global Markets Limited in its capacity as the Index Sponsor. This Index Methodology dated 24 April 2014 and the Index General Conditions dated 3 June 2013 (as amended from time to time, the “Index General Conditions”) together comprise the Index Conditions applicable to the Index and must be read together. In the case of any inconsistency between this Index Methodology and the Index General Conditions, this Index Methodology shall prevail in respect of the Index. Full information in respect of the Index is only available on the basis of the combination of this Index Methodology and the Index General Conditions. Full information in respect of any Index Linked Product is only available on the basis of the combination of this Index Methodology and the Index General Conditions and the confirmation, prospectus or offering document (however described) in respect of such Index Linked Product. This Index Methodology may be amended from time to time without notice, and will be available from the Index Sponsor. See Section E (Miscellaneous) of the Index General Conditions for a description of the circumstances in which a change to this Index Methodology may be required. Terms used in this Index Methodology but not defined in this Index Methodology shall have the meanings given to them in the Index General Conditions.


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Part B: Key Information


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Key Information

Name of Index: Citi Volatility Balanced Beta (VIBE) Eurozone Spread Beta Neutral Prim Index (the "Index")

Summary of strategy: The aim of the Index is to extract the outperformance of Citi Volatility Balanced Beta (VIBE) Equity Eurozone Net Total Return Index (BBG Ticker: <CIISRLET Index>) (the "Long Index") relative to its benchmark (the Euro Stoxx 50

® Net Total Return Index (BBG Ticker:

<SX5T Index>) (the “Benchmark Index”)) while aiming to reduce Eurozone equity market directional bias. The Index uses a long/short asset allocation strategy that provides exposure to Eurozone equities through (1) a notional long position in the Long Index and (2) a notional short position in the Euro Stoxx 50

® Gross Total

Return Index (BBG Ticker: <SX5GT Index> (the “Short Index” and such allocation, the “Long-Short Allocation”). The aim of reducing Eurozone equity market directional bias is intended to be achieved by implementing a beta adjustment to the Long-Short Allocation Level if the beta for the Long-Short Allocation relative to the Benchmark Index is negative, to reduce the extent to which such beta is negative. Here the beta value is a measure of the change in returns of the Long-Short Allocation Level relative to the change in returns of the Benchmark Index. A negative beta indicates that the returns of the Long-Short Allocation Level generally move opposite to those of the Benchmark Index. Such beta adjustment is achieved by also including in the Index a variable exposure to the Benchmark Excess Return Level. The Long-Short Allocation, following such beta adjustment and after taking into account a notional replication cost, is reflected in the "Index Level". The beta adjustment is based on an adjustment factor (the "Excess Beta") that allows for a beta adjustment ranging from 0 to 0.2. Subject to such adjustment, the Index will generally perform well during any periods when the Long Index outperforms the Short Index and generally perform poorly during any periods where the Short Index outperforms the Long Index. The Index therefore offers significant exposure to the Long Index relative to the Short Index. The Long Index comprises stocks listed on stock exchanges in Eurozone member states in weights which are determined according to the Citi Volatility Balanced Beta (“VIBE”) methodology developed by Citigroup Global Markets Limited. The percentage weight of each stock within the Long Index is determined on a quarterly basis such that the risk contribution of each stock is equal in accordance with the VIBE methodology. For more information with respect to the Long Index, please refer to the applicable Index Methodology published by the Index Sponsor, which is available free of charge upon request from the Index Sponsor.

Index Sponsor: Citigroup Global Markets Limited

Index Calculation Agent: Citigroup Global Markets Limited

Index Base Currency: Euro (EUR)

Index Launch Date: 28 May 2012

Index Start Date: 20 November 2001


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Index Start Level: EUR 100

Index Fee: Not Applicable. However see the notional replication cost described in section 2.1 of Part D (Calculation of the Index Level)

Beta Calculation Start Date: 12 November 2001

Long-Short Allocation Start Date: 15 October 2001

Frequency of calculation of the Index Level:

Daily, as of each Index Business Day

Frequency of rebalancing: Quarterly, as of each Rebalancing Date

Index Electronic Page: Not Applicable

The Index was launched by the Index Sponsor as of the Index Launch Date and has been calculated by the Index Calculation Agent for the period from the Index Start Date. Any back-testing or similar performance analysis undertaken by any person in respect of the Index for any reason must be considered illustrative only and may be based on assumptions or estimates not used by the Index Calculation Agent when determining the Index Level.


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Part C: Overview of the Index


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Overview of the Index

1. GENERAL OVERVIEW The overview set out in this Part C is a summary only of the Index Conditions, of which this Part C is a part. The Index Conditions as a whole govern the calculation of the Index and the Index Level (as defined in Part D (Calculation of the Index Level) below), and the determinations made in connection with the maintenance of the Index. In the case of any inconsistency between this Part C and the remainder of the Index Conditions, the remainder of the Index Conditions shall prevail. The Index is a rules-based proprietary index developed by the Index Sponsor. The Index is described as replicating notional positions in the Constituents because there is no actual portfolio of assets to which any person is entitled or in which any person has any ownership interest. The Index simply references certain investment positions the performance of which is used as a reference point for the purpose of calculating the Index Level. The Index Level is calculated in the Index Base Currency by the Index Calculation Agent as of every Index Business Day (as specified in Part E (Data) below) and is generally published on the following Index Business Day. The Index has been calculated on a live basis since the Index Launch Date and has been back-tested for the period since the Index Start Date. The Long-Short Allocation The Index uses a beta adjusted long/short asset allocation strategy that provides exposure to Eurozone equities through: (1) a notional long position, in the Citi Volatility Balanced Beta (VIBE) Equity Eurozone Net Total

Return Index (i.e. the Long Index); and (2) a notional short position in the Euro Stoxx 50

® Gross Total Return Index (i.e. the Short Index).

This is reflected in a “Long-Short Allocation Level”. As a consequence, subject to a beta adjustment (see “Beta Adjustment”) below, the Index will perform well during any periods when the Long Index outperforms the Short Index but will suffer negative performance during any periods when the Short Index outperforms the Long Index. The effective weights of the Long Index and the Short Index will be equal, as of the Long-Short Index Start Date and each quarterly Rebalancing Date (as defined in Part E (Data)). However, the performance of the Long Index and the Short Index will change the respective weights of the Constituents between Rebalancing Dates such that the Long Index and the Short Index will deviate from equilibrium. As of each Rebalancing Date, the equilibrium between the effective weight of the Long Index and the Short Index will be re-established. The Long Index The Long Index is the Citi Volatility Balanced Beta (VIBE) Equity Eurozone Net Total Return Index. The Long Index tracks the weighted performance of up to 75 Eurozone-listed stocks selected from the S&P Euro 75. The percentage weight of each stock within the Long Index is determined on a quarterly basis such that the contribution of each stock to the overall volatility of the Long Index is equal in accordance with the Citi Volatility Balanced Beta (“VIBE”) methodology developed by Citigroup Global Markets Limited. A review of the Long Index is carried out quarterly. On each quarterly selection day, the stocks are reselected by reference to the stocks in the S&P Euro 75 at the time and the percentage weight of each


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stock to be included in the Long Index is determined in accordance with the Citi VIBE methodology. These new stocks are given effect in their respective weights as of the related quarterly rebalancing date. For more information with respect to the Long Index, please refer to the applicable Index Methodology published by the Long Index sponsor. The Short Index The Short Index is the Euro Stoxx 50

® Gross Total Return Index. The EURO STOXX 50

® Gross

Total Return Index provides a blue-chip representation of supersector leaders in the Eurozone. The Short Index covers 50 stocks from 12 Eurozone countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The Short Index is calculated using reinvestment of dividends gross of withholding taxes. Beta Adjustment The Index Level reflects (after deduction of a notional replication cost) the "beta adjusted" performance of the Long-Short Allocation Level. Such "beta adjustment" is achieved by adding a portion of the performance (whether positive or negative) of the excess return of the Euro Stoxx 50

® Net Total Return

Index (i.e. the Benchmark Index) to the performance of the Short Rate (being a EUR interest rate). The Benchmark Index The Benchmark Index is the EURO STOXX 50

® Net Total Return Index, which provides a blue-chip

representation of supersector leaders in the Eurozone. The Benchmark Index covers 50 stocks from 12 Eurozone countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The Benchmark Index is calculated using reinvestment of dividends net of withholding taxes. 2. INDEX SPONSOR AND INDEX CALCULATION AGENT The Index Sponsor is Citigroup Global Markets Limited. As at the date of this Index Methodology, the Index Sponsor also acts as Index Calculation Agent to calculate and publish the Index in accordance with the Index Conditions. The Index Sponsor may, in its sole discretion and without notice, appoint an alternative Index Calculation Agent at any time. The Index Sponsor’s determinations in respect of the Index shall be final. Please refer to Section E (Miscellaneous) of the Index General Conditions for further information. 3. INDEX LEVEL CALCULATION Subject to the occurrence or existence of a Disrupted Day (as defined in Section D (Definitions) of the Index General Conditions), the Index Level is calculated by the Index Calculation Agent as of the Index Valuation Time on each Index Business Day (as defined in Part E (Data) below). The Index Level as of each Index Business Day is published on the Index Electronic Page, generally on the following Index Business Day. This should be considered the official source for the Index Level and a level obtained from any other source (electronic or otherwise) must be considered unofficial. The Index Level is the closing level of the Index for that Index Business Day. The Index Calculation Agent may also, but is not obliged to, calculate the level of the Index in respect of any other valuation time on any Index Business Day or any other day with the consent of the Index Sponsor.

The detailed procedures for the calculation of the Index Level in respect of each Index Business Day are set out in Part D (Calculation of the Index Level) below.

The Index Level is a function of (i) the performance of the Long-Short Allocation Level and (ii) the effect of any beta adjustment applied to the Long-Short Allocation Level determined by the Index Methodology. The performance of the Long-Short Allocation itself can be conceived of as the aggregate performance of


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two further components – the Long Index and the Short Index (as outlined above and set out in detail in Part D (Calculation of the Index Level) below). 4. QUARTERLY REBALANCING Subject to the occurrence or existence of a Disrupted Day, the Long-Short Allocation is rebalanced on a quarterly basis as of each Rebalancing Date in order to return the effective weights of the Long Index and the Short Index to equilibrium.


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Part D: Calculation of the Index Level


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Calculation of the Index Level

1. INTRODUCTION

The Index Sponsor is Citigroup Global Markets Limited. As at the date of this Index Methodology, the Index Sponsor also acts in the capacity of Index Calculation Agent to calculate and publish the Index in accordance with the Index Conditions. The Index Sponsor may, in its sole discretion and without notice, appoint an alternative Index Calculation Agent at any time. The Index Sponsor’s determinations in respect of the Index shall be final. Please refer to Section E (Miscellaneous) of the Index General Conditions for further information. The Index Level is calculated by the Index Calculation Agent as of the Index Valuation Time on each Index Business Day (each as defined in Part E (Data) below). The Index Level for each Index Business Day is published on the Index Electronic Page, generally on the following Index Business Day. This should be considered the official source for the Index Level and a level obtained from any other source (electronic or otherwise) must be considered unofficial. The Index Level is the closing level of the Index for the relevant Index Business Day. The Index Calculation Agent may also, but is not obliged to, calculate the level of the Index in respect of any other valuation time on any Index Business Day or any other day with the consent of the Index Sponsor. All of the calculations and determinations described in this Part D are the responsibility of the Index Calculation Agent. The calculations and determinations in this Part D are subject to the occurrence of, and adjustments made as a consequence of, Additional Adjustment Events as set out below in this Part D, Disrupted Days and other Adjustment Events as described in Section B (Valuations and Adjustments) and Section F (Constituent Schedule) of the Index General Conditions.

2. DAILY INDEX CALCULATION 2.1 Index Level The “Index Level” as of the Index Start Date shall be the Index Start Level. The “Index Level” as of each Index Business Day t (following the Index Start Date) shall be an amount determined by the Index Calculation Agent as of the Index Valuation Time on such Index Business Day t in accordance with the following formula:

365

1)-tdc(t,NRC1

BALevel

BALevel1LevelIndex LevelIndex

1t

t

1tt

provided that the Index Level shall never be less than zero (0). For the avoidance of doubt, if the formula above would result in a negative amount for the Index Level in respect of any Index Business Day t, the Index Level as of such Index Business Day t shall be deemed to be zero (0).If the Index Level as of any Index Business Day t is equal to, or is deemed to be equal to, zero (0), the Index Level will cease to be calculated and the Index will be discontinued and cancelled. Where:

Index Levelt = Index Level in respect of Index Business Day t

Index Levelt-1 = Index Level in respect of the Index Business Day immediately


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preceding Index Business Day t (Index Business Day t-1)

NRC = 0.10%; being the deemed cost of notionally replicating the Index

BA Levelt = Beta Adjusted Level in respect of Index Business Day t

BA Levelt-1 = Beta Adjusted Level in respect of Index Business Day t-1

dc(t,t-1) = The number of calendar days in the period from and including Index Business Day t-1 to but excluding Index Business Day t

The formula calculates the Index Level by multiplying the Index Level in respect of Index Business Day t-1 by a figure representing one plus the percentage change in the Beta Adjusted Level between Index Business Day t-1 and Index Business Day t less a notional replication cost.

2.2 Beta Adjusted Level

The “Beta Adjusted Level” as of the Index Start Date shall be 100. The “Beta Adjusted Level” as of each Index Business Day t (following the Index Start Date) shall be an amount determined by the Index Calculation Agent in accordance with the following formula:

1

sBenchExces

sBenchExcesβ1

LSLevel

LSLevel1LevelBA LevelBA

adj

t

adj

adj

t

adjt

Where:

BA Levelt = Beta Adjusted Level in respect of Index Business Day t

BA Leveladj = Beta Adjusted Level in respect of the Adjustment Date immediately preceding Index Business Day t

LSLevelt = Long-Short Allocation Level in respect of Index Business Day t

LSLeveladj = Long-Short Allocation Level in respect of the Adjustment Date immediately preceding Index Business Day t

BenchExcesst = Benchmark Excess Return Level in respect of Index Business Day t

BenchExcessadj = Benchmark Excess Return Level in respect of the Adjustment Date immediately preceding Index Business Day t

β adj = Excess Beta calculated in respect of the Adjustment Date

immediately preceding Index Business Day t. This beta adjustment factor is used to determine the adjustment, if any, to the Beta Adjusted Level with the aim of reducing any negative Beta in the Long-Short Allocation Level as described in 2.5 and 2.6 below.

The formula calculates the Beta Adjusted Level by multiplying the Beta Adjusted Level in respect of the Adjustment Date immediately preceding Index Business Day t by a figure representing (i) one plus the


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percentage change in the Long-Short Allocation Level between such Adjustment Date and Index Business Day t plus (ii) the product of (a) the percentage change in the Benchmark Excess Return Level between such Adjustment Date and Index Business Day t and (b) a beta adjustment factor (i.e. the Excess Beta). The effect of the Excess Beta on the Beta Adjusted Level is described further in 2.5 below. See also 2.6 below as to the way in which Beta is calculated. 2.3 Long-Short Allocation Level The “Long-Short Allocation Level” as of each Index Business Day t (following the Long-Short Allocation Start Date) shall be an amount determined by the Index Calculation Agent in accordance with the formula set out below. The formula combines the performance of the Long Allocation Level and the Short Allocation Level for the period from the preceding Rebalancing Date up to, and including, Index Business Day t.

1

Level AllocationShort

Level AllocationShort 1

Level Allocation Long

Level Allocation Long1Level LSLevel LS

r

t

r

t

rt

where:

LS Levelt = The Long-Short Allocation Level in respect of Index Business Day t

LS Levelr = The Long-Short Allocation Level in respect of the Rebalancing Date r immediately preceding Index Business Day t

Long Allocation Levelt

= the Constituent Closing Level of the Long Index in respect of Index Business Day t

Long Allocation Levelr

= the Constituent Closing Level of the Long Index in respect of the Rebalancing Date r immediately preceding Index Business Day t

Short Allocation Levelt

= the Constituent Closing Level of the Short Index in respect of Index Business Day t

Short Allocation Levelr

= the Constituent Closing Level of the Short Index in respect of the Rebalancing Date r immediately preceding Index Business Day t

provided that LS Levelt shall never be less than zero (0). For the avoidance of doubt, if the formula above would result in a negative amount for the Long-Short Allocation Level in respect of any Index Business Day t, the Long-Short Allocation Level as of such Index Business Day t shall be deemed to be zero (0). If the Long-Short Allocation Level as of any Index Business Day t is equal to, or is deemed to be equal to, zero (0), the Index Level will cease to be calculated and the Index will be discontinued and cancelled. The “Long-Short Allocation Level” as of the Long-Short Allocation Start Date shall be 100.

2.4. Benchmark Excess Return Level

The “Benchmark Excess Return Level” as of each Index Business Day t (following the Index Start Date) shall be an amount determined by the Index Calculation Agent in accordance with the following formula:


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360

1-tt,dcShortRate1

Bench

Bench1sBenchExcessBenchExces 1t

1-t

t

1-tt

BenchExcesst = Benchmark Excess Return Level in respect of Index Business Day t

BenchExcesst-1 = Benchmark Excess Return Level in respect of the Index Business Day immediately preceding Index Business Day t

ShortRatet-1 = The Short Rate in respect of the Index Business Day immediately preceding Index Business Day t

Bencht = The Closing Level of the Benchmark Index in respect of Index Business Day t

Bencht-1 = The Closing Level of the Benchmark Index in respect of the Index Business Day immediately preceding Index Business Day t

dc(t,t-1) = The number of calendar days in the period from and including Index Business Day t-1 (being the Index Business Day immediately preceding Index Business Day t) to but excluding Index Business Day t

The formula calculates the Benchmark Excess Return Level by multiplying the Benchmark Excess Return Level in respect of the Index Business Day immediately preceding Index Business Day t ("Index Business Day t-1") by a figure representing (i) one plus the percentage change in the Benchmark Index between Index Business Day t-1 and Index Business Day t less (ii) the product of (a) the Short Rate and (b) a day count fraction. The “Benchmark Excess Return Level” as of the Index Start Date shall be 100. The “Closing Level of the Benchmark Index” means, in respect of Index Business Day t, the official closing level of such Benchmark Index on such day, as published by the Benchmark Index Sponsor and displayed on Bloomberg page <SX5T Index>. If the Benchmark Index Sponsor does not publish, for any reason, a closing level for the Benchmark Index on Index Business Day t then the “Closing Level of the Benchmark Index” shall be deemed to be equal to the closing level of the Benchmark Index on the preceding day on which a closing level for the Benchmark Index was published by the Benchmark Index Sponsor. The “Benchmark Index Sponsor” means STOXX Limited, including its successors and assigns.

2.5 Excess Beta

The “Excess Beta” as of each Index Business Day t (following the Index Start Date) shall be an amount determined by the Index Calculation Agent in accordance with the following formula:

))AvgBeta- TargetBetaN,Max(betaMIX,Min(betaMAβ2-t,5t

Where:

t = Excess Beta in respect of Index Business Day t


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Min = The lower of the amounts separated by a comma within the set of brackets immediately following the “Min” symbol

Max = The higher of the amounts separated by a comma within the set of brackets immediately following the “Max” symbol

betaMIN = 0

betaMAX = 0.2

TargetBeta = Target Beta of the Index

AvgBeta5,t-2 = The average, for the five Index Business Days ending on and including the second Index Business Day immediately preceding Index Business Day t, of the beta of the Long-Short Allocation Level relative to the Benchmark Index, calculated as follows:

6t

2-ti

i2-t5, Beta5

1AvgBeta

Betai = The Beta of the Long-Short Allocation Level relative to the Benchmark Index in respect of Index Business Day i as calculated pursuant to 2.6 below.

The formula provides that, subject to the betaMIN and the betaMAX, Excess Beta shall be equal to the Target Beta for the Index minus the mean of the Beta of the Long-Short Allocation Level relative to the Benchmark Index for the five Index Business Days ending on and including the second Index Business Day preceding Index Business Day t. Excess Beta will therefore be a value ranging from zero to 0.2 and will be greater than zero only where the Beta (as calculated in 2.6) is a negative value. Where the Excess Beta is zero, the Benchmark Excess Return Level is not taken into account in the Beta Adjusted Level but it is taken into account if and to the extent that Excess Beta is greater than zero (subject to Excess Beta not exceeding the betaMAX value). In this way, where the Beta of the Long-Short Allocation Level is negative, the performance of the Long-Short Allocation Level (as reflected in the Beta Adjusted Level) is adjusted by reference to the performance of the Benchmark Excess Return Level. This adjustment will have a positive effect on the Beta Adjusted Level where the relevant performance of the Benchmark Excess Return Level is positive but will have a negative effect on the Beta Adjusted Level where the relevant performance of the Benchmark Excess Return Level is negative. The Excess Beta as of the Index Start Date equals 0.2.

2.6 Beta

The “Beta” as of each Index Business Day t (from and including the Beta Calculation Start Date) shall be an amount determined by the Index Calculation Agent in accordance with the following formula:

(Bench)VAR

Bench)(LSLevel,COVbeta

t20,

t20,

t

betat = The beta of the Long-Short Allocation Level relative to the Benchmark Index in respect of Index Business Day t


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COV20, t (LSLevel, Bench)

= The covariance between the ln-Returns of the Long-Short Allocation Level on each of the 20 Index Business Days ending on and including Index Business Day t (LSs (s=t-19….t)) and the 20 daily ln-Returns of the Benchmark Index (Benchs (s= t-19….t)), calculated as follows:

N

BenchLSt

1Nts

ss

; N=20,

Where: "LSs" means the ln-Return in respect of Index Business Day s of the Long-Short Allocation Level; "Benchs" means the ln-Return in respect of Index Business Day s of the level of the Benchmark Index; "ln-Return" means, in relation to a level and an Index Business Day, the natural logarithmic function of the Return for such level and such day; and "Return" means, in respect of a level and an Index Business Day, such level on such Index Business Day divided by such level on the immediately preceding Index Business Day.

VAR20, t (Bench) = 20-day variance of the Benchmark Index on Index Business Day t which is equal to COV20, t (Bench, Bench). This is the covariance between the In-Returns of the Benchmark Index on each of the 20 Index Business Days ending on and including Index Business Day t (Bench (s=t – 19….t)) and the In-Returns of the Benchmark Index on each of the 20 Index Business Days ending on and including Index Business Day t (Benchs (s=t – 19 …..t)), calculated as follows:

N

BenchBencht

1Nts

ss

; N=20

where: "Benchs" means the daily In-Return in respect of Index Business Day s of the level of the Benchmark Index; "In-Return" means, in relation to a level and an Index Business Day, the natural logarithmic function of the Return for such level and such day; and "Return" means in respect of a level and an Index Business Day, such level on such Index Business Day divided by such level on the immediately preceding Index Business Day..

The Beta value is a measure of the change in returns of the Long-Short Allocation Level relative to the change in returns of the Benchmark Index. The Long-Short Allocation Level will have a Beta of zero if its


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returns change independently of changes in the Long-Short Allocation Level and will have a negative Beta where the returns of the Long-Short Allocation Level generally move opposite to those of the Benchmark Index. 3. ADDITIONAL ADJUSTMENT EVENTS 3.1 Constituent Licensing Event If, in respect of any Constituent, any licence granted to the Index Sponsor and/or the Index Calculation Agent and/or any of their respective Affiliates, to use such Constituent in connection with the Index is terminated, or any such entity’s right to use such Constituent in connection with calculating the Index is otherwise disputed, impaired or ceases for any reason (each an “Additional Adjustment Event”), then regardless of whether such Constituent is, at that time, a Constituent: (i) the Index Calculation Agent may suspend the calculation, publication and dissemination of the

Index and the Index Level until the first succeeding Index Business Day on which such event does not occur or continue to occur; and/or

(ii) the Index Calculation Agent may select a replacement Constituent that has substantially similar characteristics to the Constituent that is being replaced, having regard to the manner in which such Constituent is used in the calculation of the Index (the “Replacement Criteria”), in which case the Index Calculation Agent will (a) determine the effective date of such replacement, and (b) make such adjustment(s) to the Index Conditions as it determines appropriate to account for the effect on the Index of such replacement; and/or

(iii) the Index Sponsor may cease to calculate the Index Level and discontinue and cancel the Index.


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Part E: Data


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Data

(As at the Index Start Date)

The Index shall operate with reference to certain Constituents. This Part E sets out the particulars of each Constituent and certain elections and inputs relating to the calculation of the Index. 1. Constituents

i Constituent Electronic Page Constituent Schedule

Allocation Type

1 Citi Volatility Balanced Beta (VIBE) Equity Eurozone Net Total Return Index

<CIISRLET Index>

Proprietary Index Long Allocation

2 Euro Stoxx 50® Gross Total Return Index <SX5GT Index> Share Index Short

Allocation

2. Particulars in respect of each Constituent

Constituenti Type of Index Exchange(s) Related Exchange(s)

1 Not Applicable Not Applicable Not Applicable

2 Multiple Exchange Index See the relevant Constituent Schedule in the Index General Conditions

All Exchanges

3. Adjustment Elections

Scheduled Valuation Date

Rebalancing Date Adjustment Date Other

Adjustments (Scheduled Trading Days: “holidays”):

Move In Block

Move In Block

Move In Block

Adjustments (Disrupted Days):

Value What You Can

Value What You Can Move In Block

Valuation Roll (Disrupted Days):

5 5 5


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In cases where a scheduled Rebalancing Date or Adjustment Date is postponed due to the occurrence or existence of a Disrupted Day, an Index Level for the day which was originally scheduled to be such Rebalancing Date or Adjustment Date (as applicable) will be determined in accordance with the methodology set out in the column headed “Other”, and the Rebalancing Date or Adjustment Date (as applicable) will occur as of the last occurring Valuation Date in relation to the originally scheduled Rebalancing Date or Adjustment Date (as applicable). 4. Defined Terms

Adjustment Date: The Index Start Date and each Monday thereafter or, if any such day is not an Index Business Day, the immediately following Index Business Day, subject to adjustment in accordance with paragraph 3 (Adjustment Elections) above.

Adjustment Event: Each Share Index Adjustment Event and each Proprietary Index Adjustment Event. For the avoidance of doubt, where an Adjustment Event occurs the possible consequences of this are as provided for in the relevant Constituent Schedule and the provisions of paragraph 5 (Adjustment Events) of Section B (Valuations and Adjustments) of the Index General Conditions will not apply. The provisions of paragraph 2(j) (Process following the occurrence of an Adjustment Event) of Section C (General Risks) of the Index General Conditions, should be read accordingly.

Index Business Day: Each day which is (1) a Scheduled Trading Day for each Constituent; (2) a day on which XETRA (or any successor) is scheduled to be open for trading for its regular trading session; and (3) an LSE Trading Day and an NYSE Trading Day.

Index Valuation Time: In respect of an Index Business Day, 11.00 p.m. (London time) on such Index Business Day, or such later time that the Index Calculation Agent may determine with the consent of the Index Sponsor.

LSE Trading Day: Each day on which the London Stock Exchange (or any successor) is scheduled to be open for trading for its regular trading session.

NYSE Trading Day: Each day on which the New York Stock Exchange (or any successor) is scheduled to be open for trading for its regular trading session.

Rebalancing Date: The Long-Short Allocation Start Date and thereafter, the fourth Index Business Day of January, April, July and October in each calendar year, subject to adjustment in accordance with paragraph 3 (Adjustment Elections) above.

Scheduled Valuation Date: Each Index Business Day.

Short Rate: In respect of any Index Business Day, the rate for 3 month EURIBOR which appears on Bloomberg Screen, BBG: <EUR0003M Index> as of 11.00a.m. Brussels time on such Index Business Day or any successor rate determined by and


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acceptable to the Index Calculation Agent in its sole and absolute discretion, or, if any such rate is unavailable at such time, the Short Rate shall be such rate that is determined by the Index Calculation Agent, (by reference to such sources as the Index Calculation Agent determines appropriate) to be the Short Rate that would have prevailed in respect of such Index Business Day but for such unavailability.

Target Beta: 0.

5. Corrections

For the avoidance of doubt, in the event that the Index Calculation Agent is entitled to make revisions to the Index Level pursuant to paragraph 4 of Section B (Valuations and Adjustments) of the Index General Conditions, the Index Calculation Agent shall also have the right, but not the obligation, to make all such other amendments to this Index Methodology and the Index General Conditions as the Index Calculation Agent determines are necessary or desirable to reflect the relevant correction in its sole and absolute discretion.


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Part F: Specific Risks


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Specific Risks

This Part G does not describe all of the risks arising in respect of the Index. Please refer to Section C (General Risks) of the Index General Conditions for a discussion of further risks arising in respect of the Index. LONG/SHORT STRATEGY RISK The Index uses a beta adjusted long/short asset allocation strategy that provides exposure to Eurozone equities through (1) a notional long position in the Citi Volatility Balanced Beta (VIBE) Equity Eurozone Net Total Return Index (i.e. the Long Index); and (2) a notional short position in the Euro Stoxx 50® Gross Total Return Index (i.e. the Short Index). Subject to the beta adjustment, the Index will, therefore, perform positively during any periods when the of the Long Index outperforms the Short Index, but will suffer negative performance during any periods when the Short Index outperforms the Long Index. Since the Index offers this exposure to the outperformance of the Long Index over the Short Index, the performance of the Index may be worse than the performance of the Long Index and indeed the Index may perform negatively during periods when the Long Index or the Eurozone equity markets more broadly experience positive performance. The Index is particularly sensitive to the success or failure of the Citi Volatility Balanced Beta (“VIBE”) methodology in determining constituent weights which deliver improved overall returns relative to a market capitalization weighting methodology. See “VIBE Methodology Risk” below. Investors in Index Linked Products should be aware of this limitation in considering their investment decision. RISKS RELATING TO BETA ADJUSTMENT Investors should review carefully how beta is determined and should note in particular the following: The Index Level (after deduction of a notional replication cost) represents the "beta adjusted" performance of the Long-Short Allocation Level. Such "beta adjustment" is achieved by adding a portion of the performance (whether positive or negative) of the excess return of the Euro Stoxx 50

® Net Total Return

Index (i.e. the Benchmark Index) to the performance of the Short Rate (being a EUR interest rate). Investors in Index Linked Products should note: (1) the beta adjustment (or Excess Beta) will apply when the Beta (as calculated in accordance with paragraph 2.6 of Part D of this Index Methodology) of the Long-Short Allocation Level relative to the Benchmark Index is negative on an Adjustment Date; (2) the portion of the performance of the Benchmark Index excess return to be added to the performance of the Long-Short Allocation Level will be determined by reference to the Excess Beta; (3) such Excess Beta is calculated in accordance with paragraph 2.5 of Part D of this Index Methodology by reference to the Target Beta of the Index (which is zero) and the historical average beta of the Long-Short Allocation Level relative to the Benchmark Index. The Excess Beta is subject to a maximum capped value of 0.2 and a minimum of zero; and (4) where the excess return performance of the Benchmark Index is negative, any beta adjustment will have a negative impact on the performance of the Index. Investors should note that whilst the application of the beta adjustment (or Excess Beta) aims towards achieving beta neutrality of the Index, that adjustment is limited by a value cap such that the Excess Beta, calculated in accordance with paragraph 2.5 of Part D of this Index Methodology, that may be added to


Index Methodology

25

the performance of the Long-Short Allocation Level will be equal to 0.2 or less. Accordingly, the Index may prove not to be beta neutral. VIBE METHODOLOGY RISK The VIBE methodology used by the Long Index employs a quantitative risk-weighting strategy that determines the percentage weights of its constituents on a quarterly basis with the aim of equalizing the risk contribution of each constituent. This strategy is designed with the aim of providing diversification among the constituents, with lower volatility, when compared to an equivalent equal-weighted or market capitalization-weighted index. However, there is no guarantee that this will be the case, especially over short periods. In particular, the benefits of the VIBE methodology may only become apparent over a long period and may underperform market capitalization-weighted indices during an upward trend in the investment cycle. Although the Long Index and the Short Index are measures of Eurozone equities, the constituents of the Long Index and the Short Index are selected in different ways. Investors should note in particular that the Long Index will generally be calculated by reference to 75 constituent equities while the Short Index will generally be calculated by reference to 50 constituent equities. Consequently, the Long Index and the Short Index are not directly comparable in terms of their constituents. REBALANCING FREQUENCY LIMITATIONS The Long-Short Allocation Level is rebalanced on a quarterly basis on each Rebalancing Date in order to return the effective weights of the Long Index and the Short Index to equilibrium. However, each of the Long Index and the Short Index will experience a different performance, which means that the respective weights of the Long Index and the Short Index will vary between Rebalancing Dates. As such, the performance of the Long Index and the Short Index may deviate significantly from equilibrium. As the weight of the Long Index or Short Index within the Index increases, the contribution of the performance of that individual Constituent to the performance of the Index will increase. This may expose investors in Index Linked Products to greater directional risk with respect to Eurozone equities than would have been the case if the Index was rebalanced on a more frequent basis. FIXED ALGORITHMIC MODEL PARAMETERS In common with many algorithmic strategies, the Index uses a rules-based methodology which contains fixed parameters. For example, the effective weights of the Long Index and the Short Index are rebalanced on a quarterly basis on each Rebalancing Date. The Index methodology assumes that these parameters and the other fixed parameters used in the calculation of the Index are reasonable in the context of the Index, however, alternative parameters could have a positive effect on the performance of the Index. THE INDEX WILL BE CANCELLED IF EITHER THE INDEX LEVEL OR THE LONG-SHORT ALLOCATION LEVEL FALLS TO ZERO The use of a beta adjusted long/short asset allocation strategy means that the Index Level and the Long-Short Allocation Level could fall to zero even if the individual Constituents do not fall to zero. This is possible due to several factors, including: (i) an increase in the value of the Short Index will cause a decline in the Long-Short Allocation Level, (ii) a short position in any asset is subject to the risk of losses which are theoretically unlimited because there is no upper limit on the price to which an asset can rise, and (iii) the Long-Short Allocation Index will decline as a result of both (a) any increase in the value of the Short Index, as previously mentioned, and (b) any decrease in the value of the Long Index. If the Index Level or the Long-Short Allocation Level falls to zero, the Index will be discontinued and cancelled by the Index Sponsor.


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DEDUCTION OF NOTIONAL REPLICATION COST The Index Level reflects the deduction of a 0.10% annualised notional replication cost. This reflects the deemed cost of replicating the Index. The deduction of this cost will reduce the Index Level. LIMITED OPERATING HISTORY The Index was launched by the Index Sponsor on the specified Index Launch Date and has been calculated by the Index Calculation Agent for the period from the specified Index Start Date. Any back-testing or similar performance analysis performed by any person in respect of the Index must be considered illustrative only and may be based on estimates or assumptions not used by the Index Calculation Agent when determining the Index Level. This list of risk factors is not intended to be exhaustive. All persons should seek such advice as they consider necessary from their professional advisors, investment, legal, tax or otherwise, without reliance on the Index Sponsor, the Index Calculation Agent, any of their respective Affiliates or any of their respective directors, officers, employees, representatives, delegates and agents.


Index Methodology

27

Part G: Constituent Disclaimers


Index Methodology

28

Constituent Disclaimers

STOXX and its licensors (the “Licensors”) have no relationship to Citi, other than the licensing of the Euro Stoxx 50

® Net Total Return Index and Euro Stoxx 50

® Gross Total Return Index (the “STOXX

Indices”) and the related trademarks for use in connection with the Index. STOXX and its Licensors do not:

» Sponsor, endorse, sell or promote the Index. » Recommend that any person invest in the Index, any Index Linked Product or any other securities. » Have any responsibility or liability for or make any decisions about the timing, amount or pricing of the Index. » Have any responsibility or liability for the administration, management or marketing of the Index. » Consider the needs of the Index or the owners of any Index Linked Product in determining, composing or calculating the STOXX Indices or have any obligation to do so.

STOXX and its Licensors will not have any liability in connection with the Index. Specifically:

» STOXX and its Licensors do not make any warranty, express or implied and disclaim any and all warranty about:

» The results to be obtained by the Index, the owner of any Index Linked Product or any other person in connection with the use of the STOXX Indices and the data included in the Euro Stoxx 50


® Gross Total Return Index;

» The accuracy or completeness of STOXX Indices and its data;

» The merchantability and the fitness for a particular purpose or use of Euro Stoxx 50® Net

Total Return Index and Euro Stoxx 50® Gross Total Return Index and its data;

» STOXX and its Licensors will have no liability for any errors, omissions or interruptions in the Euro Stoxx 50


® Gross Total Return Index or its

data;

» 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 Citi and STOXX is solely for their benefit and not for the benefit of the owners of any Index Linked Product or any other third parties.

Documents

Citi Volatility Balanced Beta (VIBE) Eurozone Spread Beta ... · Eurozone equity market directional bias is intended to be achieved by implementing a beta adjustment to the Long-Short