424B2 1 dp41866_424b2-us3.htm UNDERLYING SUPPLEMENT NO. 3
Filed pursuant to Rule 424(b)(2)
Registration No. 333-192302
UNDERLYING SUPPLEMENT NO. 3
(To the prospectus supplement and prospectus each dated November 13, 2013)
 
Citigroup Inc.
 
Medium-Term Senior Notes, Series G
Securities Linked to one or more Indices or Exchange-Traded Funds

 
Citigroup 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 Inc. The securities and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality.
 

 











November 13, 2013
 
 
 

 
 
TABLE OF CONTENTS
 
Page
 
Risk Factors
1
Equity Index Descriptions
18
Dow Jones Global Titans 50 IndexSM
18
Dow Jones Industrial AverageSM
21
EURO STOXX 50® Index
23
FTSE™ 100 Index
27
FTSE China 25 Index
29
Gold Miners Index
32
Hang Seng China Enterprises Index
34
Hang Seng® Index
38
Markit iBoxx® USD Liquid High Yield Index
42
Junior Gold Miners Index
46
Korea Stock Price Index 200
53
MDAX® Index
57
MSCI Indices
63
NASDAQ-100 Index®
75
Nikkei Stock Average
80
Philadelphia Oil Service SectorSM Index
84
Russell Indices
88
S&P 100® Index
94
S&P 500® Index
98
S&P MidCap 400® Index
102
S&P Select Industry Indices
106
S&P/TSX 60 Index
111
Select Sector Indices
115
TOPIX® Index
118
Commodity Index Descriptions
121
Dow Jones-UBS Commodity Indices
121
S&P GSCI Indices
135
Fund Descriptions
143
Financial Select Sector SPDR® Fund
143
Industrial Select Sector SPDR® Fund
145
iShares® 20+ Year Treasury Bond ETF
147
iShares® U.S. Real Estate ETF
149
iShares® China Large-Cap ETF
152
iShares® iBoxx $ High Yield Corporate Bond ETF
154
iShares® MSCI Brazil Capped ETF
156
iShares® MSCI Chile Capped ETF
158
iShares® MSCI EAFE ETF
160
iShares® MSCI Emerging Markets ETF
162
iShares® MSCI Japan ETF
164
iShares® MSCI Mexico Capped ETF
166
iShares® MSCI Pacific ex Japan ETF
168
iShares® Russell 1000 Growth ETF
170
iShares® Russell 2000 ETF
172
Market Vectors® Gold Miners ETF
174
Market Vectors® Junior Gold Miners ETF
176
SPDR® Gold Trust
178
SPDR® S&P 500® ETF Trust
181
SPDR® S&P® Homebuilders ETF
183
SPDR® S&P® Metals & Mining ETF
185
 
 
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SPDR® S&P MidCap 400® ETF Trust
187
Technology Select Sector SPDR® Fund
189
United States Oil Fund, LP
191

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 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.
 
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 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 risks discussed 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
 
We are currently a component of the Russell 1000® Index, the Russell 3000® Index, the S&P 500® Index, the S&P 100® Index, MSCI World IndexSM, the Dow Jones Global Titans 50 IndexSM 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.
 
We are currently a component of the Russell 1000® Index, the Russell 3000® Index, the S&P 500® Index, the S&P 100® Index, MSCI World IndexSM, the Dow Jones Global Titans 50 IndexSM 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 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 the Russell 2000® Index, an investment in the securities will be subject to risks associated with small capitalization stocks.
 
The stocks that constitute the Russell 2000® 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. 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 EURO STOXX 50® Index, an investment in the securities will be subject to risks associated with the Eurozone.
 
The companies whose stocks constitute the EURO STOXX 50® Index are leading companies in the Eurozone. A number of countries in the Eurozone are undergoing a financial crisis affecting their economies, their ability to meet their sovereign financial obligations and their financial institutions. Countries in the Eurozone that are not currently experiencing a financial crisis may do so in the future as a result of developments in other Eurozone countries. The economic ramifications of this financial crisis, and its effects on the companies that make up the EURO STOXX 50® Index, are impossible to predict. This uncertainty may contribute to significant volatility in the EURO STOXX 50® Index, and adverse developments affecting the Eurozone may affect the EURO STOXX 50® Index in a way that adversely affects the value of and return on your securities. In addition, there is generally less publicly available information about non-U.S. companies than about U.S. companies that are subject to the reporting requirements of the Securities and Exchange Commission, and non-U.S. companies are generally subject
 
 
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to accounting, auditing and financial reporting standards and requirements and securities trading rules that are different from those applicable to U.S. reporting companies.
 
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.
 
For securities linked in whole or in part to the Philadelphia Oil Service SectorSM Index, risks associated with the oil services sector will affect the value of the securities.
 
All of the companies included in the Philadelphia Oil Service SectorSM Index operate in the oil services sector. The Philadelphia Oil Service SectorSM Index is subject to increased volatility as it tracks solely the oil services industry and is highly susceptible to adverse economic market, political or regulatory occurrences affecting that industry.
 
The oil services sector is significantly affected by changes in general economic or business conditions, including most significantly by the supply and demand for oil. Prices and trends in the oil services sector are also affected by the supply and demand for rigs, the age and maintenance costs of rigs, governmental regulations concerning deep-water drilling and oil exploration generally, the prevalence of renewable energy and any governmental regulations affecting renewable energy, as well as terrorism and political turbulence in oil rich regions and industrial accidents. For example, on April 20, 2010, a fire and explosion occurred onboard the semisubmersible drilling rig Deepwater Horizon, owned by Transocean Ltd. and under contract to a subsidiary of BP plc, leading to a massive oil spill in the Gulf of Mexico. Transocean Ltd. is a significant component of the Philadelphia Oil Service SectorSM Index. The economic impact of this incident on Transocean Ltd. and on the sector as a whole has been, and is likely to continue to be, significantly adverse. In response to this incident, the U.S. government implemented a six-month moratorium on certain deep-water drilling activities and adopted new governmental safety and environmental requirements applicable to both deep-water and shallow water operations. While the moratorium has been lifted, the new safety and environmental guidelines and regulations for drilling in the U.S. Gulf of Mexico that the U.S. government has already implemented, and any further new guidelines or regulations or any other steps that the U.S. government or any other governments may implement, could disrupt or delay operations, increase the cost of operations, reduce the area of operations for drilling rigs or impose increased liability on operations. These developments could adversely affect the value of several, or all, of the stocks that constitute the Philadelphia Oil Service SectorSM Index and, in turn, the value of the Philadelphia Oil Service SectorSM Index and of the securities.
 
For securities linked in whole or in part to the Philadelphia Oil Service SectorSM Index, there will be no direct correlation between the value of the securities or the value of the Philadelphia Oil Service SectorSM Index and energy prices.
 
There is no direct linkage between the value of the securities or the value of the Philadelphia Oil Service SectorSM Index and energy prices in specific regions or energy prices in general. While energy prices may be one factor that could affect the prices of the stocks that constitute the Philadelphia Oil Service SectorSM Index, the Philadelphia Oil Service SectorSM Index and the securities are not directly linked to movements of energy prices and may be affected by factors unrelated to such movements which may either counteract or exacerbate such movements.
 
 
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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 any of their respective affiliates, and are not responsible for their public disclosure of information.
 
We and our affiliates are not affiliated with S&P Dow Jones, UBS or any of their respective affiliates, in any way (except for arrangements discussed below in “Commodity Index Descriptions—S&P GSCI Indices—License Agreement” and “Commodity Index Descriptions—DJ-UBS Commodity Indices—License Agreement”) and have no ability to control S&P Dow Jones, UBS or any of their respective affiliates, including any errors in or discontinuation of disclosure regarding its methods or policies relating to the calculation of the DJ-UBS Commodity Indices (as defined under “Commodity Index Descriptions—DJ-UBS Commodity Indices” in this underlying supplement) or the S&P GSCI Indices (as defined under “Commodity Index Descriptions—S&P GSCI Indices” in this underlying supplement). None of S&P Dow Jones, UBS or any of their respective affiliates is under any obligation to continue to calculate any of the S&P GSCI Indices or DJ-UBS Commodity Indices nor are they required to calculate any successor index. If S&P Dow Jones, UBS or any of their respective affiliates 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, UBS and/or one of their respective affiliates may be required to replace a contract underlying an S&P GSCI Index or a DJ-UBS 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 DJ-UBS Commodity Index. Data concerning this Designated Contract will be used to calculate each S&P GSCI Index and DJ-UBS 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 S&P Dow Jones, UBS and/or one of their respective affiliates, 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 value of the individual S&P GSCI Index or level of any DJ-UBS Commodity Index. Suspension or disruptions of market trading in the commodity and related futures markets may adversely affect the value of the securities.
 
If the securities are linked in whole or in part to a DJ-UBS Commodity Index, you may in the future have exposure to contracts that are not traded on regulated futures exchanges.
 
At present, the DJ-UBS Commodity Indices are composed exclusively of regulated futures contracts; however, the DJ-UBS 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 DJ-UBS 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 DJ-UBS Commodity Index, risks associated with that DJ-UBS Commodity Index may adversely affect the market price of the securities.
 
Because the Dow Jones-UBS Commodity IndexSM and the Dow Jones-UBS Commodity Index 3 Month ForwardSM reflect the return on exchange-traded futures contracts on twenty different physical commodities and because the single-commodity sub-indices and the forward-month single-commodity sub-indices of Dow Jones-UBS
 
 
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Commodity IndexSM each reflect the return on exchange-traded futures contract on a single physical commodity, securities linked to one or more of the DJ-UBS 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 DJ-UBS 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 DJ-UBS Commodity Indices. Any discrepancies that require revision are not applied retroactively but will be reflected in the weighting calculations of the DJ-UBS Commodity Indices for the following year. However, UBS, S&P Dow Jones and their respective affiliates may not discover every discrepancy. Furthermore, the annual weightings for the DJ-UBS Commodity Indices are determined each year in the third or fourth quarter and announced as promptly as practicable following the calculation by UBS under the supervision of the Dow Jones-UBS Commodity Index Supervisory Committee, which has a significant degree of discretion in exercising its supervisory duties with respect to the DJ-UBS Commodity Indices and has no obligation to take the needs of any parties to transactions involving the DJ-UBS Commodity Indices into consideration when reweighting or making any other changes to the DJ-UBS Commodity Indices. Finally, subject to the minimum/maximum diversification limits described in “Commodity Index Descriptions—DJ-UBS Commodity Indices—Diversification Rules,” the commodities underlying the exchange-traded futures contracts included in the Dow Jones-UBS Commodity IndexSM and the Dow Jones-UBS Commodity Index 3 Month ForwardSM 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 Dow Jones-UBS Commodity IndexSM 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 DJ-UBS Commodity Index, trading and other transactions by UBS and its affiliates in the futures contracts constituting the DJ-UBS Commodity Indices and the underlying commodities may affect the level of the DJ-UBS Commodity Indices.
 
UBS and its affiliates actively trade futures contracts and options on futures contracts on the commodities underlying the DJ-UBS 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 DJ-UBS Commodity Indices, the futures contracts underlying the DJ-UBS 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 DJ-UBS Commodity Indices and related indices, and UBS and S&P Dow Jones and certain of their affiliates may license the DJ-UBS Commodity Indices for publication or for use by unaffiliated third parties.
 
These activities could present conflicts of interest and could affect the levels of the DJ-UBS Commodity Indices. For instance, a market maker in a financial instrument linked to the performance of a DJ-UBS 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 DJ-UBS 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 DJ-UBS Commodity Index, which in turn may affect the level of such DJ-UBS Commodity Index and the value of your securities. With respect to any of the activities described above, none of UBS, S&P Dow Jones or their 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—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 Dow Jones-UBS Commodity IndexSM. In contrast to the S&P GSCI™ and Dow Jones-UBS Commodity IndexSM, 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 Dow Jones-UBS Commodity IndexSM will likely have a greater impact on each S&P GSCI Component Index than it would on the broader S&P GSCI™ or Dow Jones-UBS Commodity IndexSM, and each S&P GSCI Component Index individually will be more susceptible to fluctuations and declines in value of
 
 
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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 value and/or one or more payments on the securities.
 
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 value and/or one or more payments on securities linked to the S&P GSCI Index.
 
For securities linked in whole or in part to an S&P GSCI Index or a DJ-UBS Commodity Index, possible regulatory changes could adversely affect the return on and value of your securities.
 
U.S. regulatory agencies are currently considering and are expected to soon enact rules that may substantially affect the regulation of the commodity and futures markets. Although the final form of any new rules has not yet been determined, it is likely that such rules will limit the ability of market participants to participate in the commodity and futures markets to the extent and at the levels that they have in the past and may have the effect of reducing liquidity in these markets and changing the structure of the markets in other ways. In addition, these regulatory changes will likely increase the level of regulation of markets and market participants and the costs of participating in the commodities and futures markets. These changes could adversely affect the value of your securities.
 
 
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Risks Relating to Certain Funds
 
We are 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.
 
We are 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 corporate actions that might affect the value of your securities. Additional information about whether we 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 value of your securities.
 
If the securities are linked in whole or in part to the Financial Select Sector SPDR® Fund, risks associated with the financial services industry 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 services sector, including the following sub-sectors: banking, mortgage finance, consumer finance, specialized finance, investment banking and brokerage, asset management and custody, corporate lending, insurance and financial investment, and real estate, including real estate investment trusts. 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, and the interest rates and fees they can charge. 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. 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 real estate securities (which include real estate investment trusts). If the securities are linked in whole or in part to the Financial Select Sector SPDR® Fund, 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 these industries than a different investment linked to securities of a more broadly diversified group of issuers.
 
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
 
 
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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.
 
All or substantially all of the securities held by the iShares® U.S. Real Estate ETF are issued by companies that invest in real estate, primarily REITs or real estate holding companies, which will expose the securities to the risks of owning real estate directly as well as to risks that relate specifically to the way in which real estate companies are organized and operated. 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 real estate industry is cyclical, highly sensitive to general and local economic conditions and developments, and characterized by intense competition and periodic overbuilding. 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;
 
 
·
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 United States real estate market has in recent years suffered a period of extraordinary declines, and we can give you no assurance that such declines will not continue or worsen. Any of the risks mentioned above could adversely affect the value of the securities.
 
 
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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 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.
 
 
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For securities linked in whole or in part to the iShares® iBoxx $ High Yield Corporate Bond ETF, the securities are subject to significant risks associated with fixed-income securities, including interest rate-related and credit-related risks.
 
The iShares® iBoxx $ High Yield Corporate Bond ETF is exposed to fluctuations of U.S. dollar-denominated fixed-income securities. That exposure differs significantly from investing directly in fixed-income securities to be held to maturity because the value of the iShares® iBoxx $ High Yield Corporate Bond ETF changes, at times significantly, during each trading day based upon current market prices of the fixed-income securities underlying the iShares® iBoxx $ High Yield Corporate Bond ETF. The market prices of these fixed-income securities are volatile and significantly influenced by a number of factors, particularly the yields on these fixed-income securities as compared to current market interest rates and the actual or perceived credit quality of the issuers of these fixed-income securities. The market prices of the fixed-income securities underlying the iShares® iBoxx $ High Yield Corporate Bond ETF are determined by reference to bid and ask quotations provided by the 9 contributing banks, one of which is Citibank N.A.
 
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® iBoxx $ High Yield Corporate 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. 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.
 
In addition, the prices of the fixed-income securities underlying the iShares® iBoxx $ High Yield Corporate Bond ETF are significantly influenced by the creditworthiness of the issuers of those fixed-income securities. The fixed-income securities underlying the iShares® iBoxx $ High Yield Corporate Bond ETF may have their credit ratings downgraded or credit spreads widen significantly. Following a ratings downgrade or the widening of credit spreads, some or all of the fixed-income securities may suffer significant and rapid price declines. These events may affect only a few or a large number of the fixed-income securities.
 
The iShares® iBoxx $ High Yield Corporate Bond ETF may include U.S. dollar-denominated fixed-income securities of foreign corporations. Investing in U.S. dollar-denominated fixed-income securities issued by non-U.S. companies has different risks than investing in U.S. companies. These include differences in accounting, auditing and financial reporting standards, the possibility of expropriation or confiscatory taxation, adverse changes in investment or exchange control regulations, political instability which could affect U.S. investments in foreign countries, and potential restrictions of the flow of international capital.
 
Further, the iShares® iBoxx $ High Yield Corporate Bond ETF are designed to provide a representation of the U.S. dollar high-yield corporate market and are therefore subject to high-yield securities risk, the risk being that securities that are rated below investment grade (commonly known as “junk bonds,” including those securities rated at BB+ or lower by S&P or Fitch or Ba1 by Moody’s) may be more volatile than higher-rated securities of similar maturity. High-yield securities may also be subject to greater levels of credit or default risk than higher-rated securities. The value of high-yield securities can be adversely affected by overall economic conditions, such as an economic downturn or a period of rising interest rates, and high-yield securities may be less liquid and more difficult to sell at an advantageous time or price or to value than higher-rated securities. In particular, high-yield securities are often issued by smaller, less creditworthy companies or by highly leveraged (indebted) firms, which are generally less able than more financially stable firms to make scheduled payments of interest and principal.
 
 
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For securities linked in whole or in part to the iShares® Russell 2000 ETF or the Market Vectors Junior Gold Miners 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 and the Market Vectors Junior Gold Miners 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.
 
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
 
 
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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 or the Market Vectors Junior 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 the Market Vectors® Junior Gold Miners Index and that are generally tracked by the Market Vectors Gold Miners ETF and the Market Vectors Junior Gold Miners ETF are common stocks and ADRs of companies primarily engaged in mining for gold and silver. The shares of the Market Vectors Gold Miners ETF and the Market Vectors Junior 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 and the Market Vectors Junior Gold Miners ETF invest 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. Gold prices are subject to volatile price movements over short periods of time and are affected by numerous factors. These include economic factors, including, among other things, the structure of and confidence in the global monetary system, expectations of 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 generally quoted), interest rates and gold borrowing and lending rates, and global or regional economic, financial, political, regulatory, judicial or other events. Gold prices may also be affected by industry factors such as industrial and jewelry demand, lending, sales and purchases of gold by the official sector, including central banks and other governmental agencies and multilateral institutions which hold gold, levels of gold production and production costs, and short-term changes in supply and demand because of trading activities in the gold market.
 
The Market Vectors Gold Miners ETF and the Market Vectors Junior Gold Miners ETF invest 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. 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 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 the United Mexican States and the Republic of Peru. 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, photography, jewelry and silverware.
 
For securities linked in whole or in part to the Market Vectors Junior Gold Miners ETF, risks associated with early stage mining companies will affect the value of the securities.
 
The issuers of a significant amount of the equity securities held by the Market Vectors Junior Gold Miners ETF may be early stage mining companies that are in the exploration stage only or that hold properties that might not ultimately produce gold or silver. The exploration and development of mineral deposits involve significant financial risks over a significant period of time which even a combination of careful evaluation, experience and knowledge may not eliminate. Few properties which are explored are ultimately developed into producing mines. Major
 
 
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expenditures may be required to establish reserves by drilling and to construct mining and processing facilities at a site. In addition, many early stage miners operate at a loss and are dependent on securing equity and/or debt financing, which might be more difficult to secure for an early stage mining company than for a more established counterpart.
 
For securities linked in whole or in part to the SPDR® Gold Trust, the 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 significantly affected by the global demand for and supply of gold, which is influenced by factors such as forward selling by gold producers, purchases made by gold producers to unwind gold hedge positions, central bank purchases and sales, and production and cost levels in major gold-producing countries such as South Africa, the United States and Australia.. 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, investment and trading activities of hedge funds and commodity funds, 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. It is not possible to predict the aggregate effect of all or any combination of these factors.
 
In particular, you should understand that the price of gold may be inversely correlated with the strength or weakness of the U.S. dollar relative to other currencies. If the U.S. dollar generally strengthens relative to other currencies and all other conditions remain constant, the price of gold may be expected to decline. However, you should also understand that many factors other than the value of the U.S. dollar affect the price of gold and that, at numerous times in the past, the price of gold and the value of the U.S. dollar have declined at the same time. Accordingly, gold may not be an effective hedge against depreciation of the U.S. dollar.
 
If gold markets continue to be subject to sharp fluctuations, this may result in a significant loss on the securities. Gold markets have historically experienced extended periods of flat or declining prices, in addition to sharp fluctuations. In the event that the price of gold declines over the term of the securities, you may experience a significant loss on your investment in the securities.
 
For securities linked in whole or in part to the SPDR® Gold Trust, substantial sales of gold by the official sector could adversely affect the value of the securities
 
The official sector consists of central banks, other governmental agencies and multi-lateral institutions that buy, sell and hold gold as part of their reserve assets. The official sector holds a significant amount of gold, most of which is static, meaning it is held in vaults and not bought, sold, leased, swapped or otherwise mobilized in the open market. Several central banks have sold portions of their gold over the past 10 years, with the result that the official sector, taken as a whole, has been a net supplier to the open market. Most of these sales have been done in a coordinated manner under the terms of the Central Bank Gold Agreement, under which certain central banks agree to limit their level of gold sales and lending. In the event that future economic, political or social conditions or other pressures require official sector members to liquidate their gold assets all at once or in an uncoordinated manner, the supply could overwhelm the demand. As a result, the price of gold could significantly decline and adversely affect the price of the underlying shares and the value of the securities.
 
 
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For securities linked in whole or in part to the SPDR® Gold Trust, economic 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.
 
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, possible regulatory changes could adversely affect the return on and value of your securities.
 
U.S. regulatory agencies are currently considering and are expected to soon enact rules that may substantially affect the regulation of the commodity and futures markets. Although the final form of any new rules has not yet been determined, it is likely that such rules will limit the ability of market participants to participate in the commodity and futures markets to the extent and at the levels that they have in the past and may have the effect of reducing liquidity in these markets and changing the structure of the markets in other ways. In addition, these regulatory changes will likely increase the level of regulation of markets and market participants and the costs of participating in the commodities and futures markets. These changes could adversely affect the price of gold, which would in turn adversely affect the return on and the value of your 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), which is traded on the London Bullion Market Association (the “LBMA”). Investments in securities indexed to the value of commodities that are traded on non-U.S. exchanges involve risks associated with the markets in those countries, including risks of volatility in those markets and governmental intervention in those markets.
 
The value of the SPDR® Gold Trust will be determined by reference to fixing prices reported 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 market, it is possible that prices would continue to decline 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. The relevant 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.
 
 
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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, 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 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.
 
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;
 
 
·
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
 
 
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·
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 difficulties described above could cause an upturn or a downturn in the homebuilding industry generally or regionally and could cause 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 to decline or remain flat 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 cause a downturn in the metals and mining industry and could cause 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 to decline during the term of the 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: computers and peripherals; software; diversified telecommunication services; communications equipment; semiconductors & semiconductor equipment; internet software and services; IT services; electronic equipment, instruments and components; wireless telecommunication services and office electronics. 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
 
 
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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. 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. 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 difficulties described above could cause an upturn or a downturn in the technology sector generally or regionally and could cause the value of the securities held by the Technology Select Sector SPDR® Fund and thus the value of the Technology Select Sector SPDR® Fund to decline or remain flat during the term of the securities, which may adversely affect the value of your securities.
 
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
 
 
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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.
 
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.
 
 
17

 
 
EQUITY INDEX DESCRIPTIONS
 
DOW JONES GLOBAL TITANS 50 INDEXSM
 
We have derived all information contained in this underlying supplement regarding the Dow Jones Global Titans 50 IndexSM, including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information prepared by S&P Dow Jones Indices LLC (“S&P Dow Jones”), a joint venture company owned by The McGraw-Hill Companies, Inc., CME Group Inc. and Dow Jones & Company, Inc. We have not independently verified such information. Such information reflects the policies of, and is subject to change by, S&P Dow Jones. The Dow Jones Global Titans 50 Index SM is an index 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 Global Titans 50 IndexSM.
 
The Dow Jones Global Titans 50 IndexSM is reported by Bloomberg L.P. under the ticker symbol “DJGT.”
 
The Dow Jones Global Titans 50 IndexSM was first calculated on July 14, 1999. The Dow Jones Global Titans 50 IndexSM represents 50 of the world’s leading multinational companies whose blue-chip stocks are traded on the major exchanges of countries covered by the Dow Jones Global IndexesSM family.
 
Dow Jones Global Titans 50 IndexSM Composition and Maintenance
 
The 50 component companies of the Dow Jones Global Titans 50 IndexSM are selected from an index universe that is defined as all equity securities in the Dow Jones Global IndexSM, a broad market benchmark that covers 51 countries, subject to the following eligibility screens:  (i) if a company has more than one class of shares in the index universe, only the most liquid class of shares is eligible, (ii) if a company does not generate revenue from foreign markets, it is ineligible, and (iii) for countries with significant barriers to direct foreign investment, Dow Jones Indexes may opt to include Depository Receipts or other types of offshore listings in the index. A selection list of 100 companies is compiled from this index universe. The selection list includes the 50 current component companies and the 50 largest noncomponent companies in this index universe by float-adjusted market capitalization. All companies on the selection list are then ranked by float-adjusted market capitalization, revenue and net profit. For each company, a final rank is calculated by weighting the float-adjusted market capitalization rank at 60% and the revenue rank and net profit rank at 20% each. The top 50 stocks by final rank were selected as index components for the initial component selection. Subsequent review selections are subject to the following buffers that aim to limit index turnover by favoring current components: (i) noncomponents ranked among the top 30 stocks in the final ranking will replace the lowest-ranked current component and (ii) current components not ranked among the top 70 stocks in the final ranking will be replaced by the highest-ranked noncomponent.
 
The Dow Jones Global Titans 50 IndexSM is weighted by float-adjusted market capitalization, rather than full market capitalization, to reflect the actual number of shares available to investors. Each component’s weight is capped at 10% of the index’s total float-adjusted market capitalization on a quarterly basis. The float factors and shares outstanding for stocks included in the Dow Jones Global Titans 50 IndexSM are reviewed quarterly on the third Friday of each march, June, September and December. The Dow Jones Global Titans 50 IndexSM composition is reviewed annually at the end of each May. Component changes resulting from the annual review are announced approximately 10 business days prior to the third Friday of June and implemented following the close of trading on that third Friday. Index composition is also monitored on an ongoing basis for unusual events such as delistings, bankruptcies, mergers and takeovers. Changes to the index composition and related weight adjustments are made as soon as such corporate actions become effective, and announced two business days prior to the implementation date.
 
Index Composition Adjustments. The following extraordinary corporate actions necessitate changes to the index composition:
 
 
·
Initial Public Offerings. An initial public offering (IPO) becomes eligible for inclusion in index at the next annual review. It will replace the smallest component in the index if it is among the top 30 companies on the selection list.
 
 
18

 
 
 
·
Spinoffs. If an index component splits or spins off a portion of its business to form one or more new companies, all of the companies involved in the spinoff will be evaluated for index eligibility. If the larger of the parent company or its spinoff would be among the top 70 companies on the index selection list, that company takes the place of the pre-spinoff company in the index. Otherwise, the original component is replaced by the largest noncomponent on the selection list.
 
 
·
Mergers and Takeovers. If both companies are current components of the index and the surviving company meets the selection criteria for the Dow Jones Global Titans 50 IndexSM, then it will replace one of the two components. The other original component will be replaced by the highest ranked noncomponent on the selection list. If the surviving company does not meet the selection criteria for the Dow Jones Global Titans 50 IndexSM, then the two original components will be replaced by the two highest ranked noncomponents on the selection list. If one company is a current component, the other is a noncomponent and the surviving company meets the selection criteria for the Dow Jones Global Titans 50 IndexSM, then it replaces the original component. If the surviving company does not meet the selection criteria for the Dow Jones Global Titans 50 Index SM, then the original component is replaced by the highest ranked noncomponent on the selection list.
 
Index components are also subject to the following early exit rules:  (i) if a component stock has a market capitalization rank greater than 120 on the monthly selection list for two consecutive months, it will be removed and replaced by the highest-ranking noncomponent at the next quarterly review in March, June, September or December or (ii) if a component has a market capitalization rank greater than 200 on the monthly selection list, it will be removed from the index and replaced with the highest-ranking noncomponent with a minimum of two business days’ notice. Selection lists are published at the beginning of each month to indicate possible changes in the composition of the index.
 
Index Formula.  The Dow Jones Global Titans 50 IndexSM is calculated using the Laspeyres formula, which measures the aggregate price changes in the component stocks against a fixed base quantity weight. The formula for calculating the Dow Jones Global Titans 50 IndexSM value can be expressed as follows:
 
 
The free float market capitalization of the index is equal to the sum of the products of the closing price, market capitalization and free float factor for each component stock as of the time of calculation. The Dow Jones Indexes calculates and disseminates the Dow Jones Global Titans 50 Index SM over a 24-hour dissemination period in both U.S. dollars and Euros with real-time currency conversion based on the latest available currency rates quoted by Reuters. The closing index level is calculated based on each component stock’s last traded price at the close of trading on its primary market during that day’s index dissemination period. If a component stock does not trade on a given day, then the previous day’s closing price on its home market is used as the current day’s closing price in calculating the closing index value. If a corporate action becomes effective that day, then the adjusted closing price for the previous day is used to determine the effect of the corporate action on the index. The closing index level is disseminated at 5:30 p.m. New York time.
 
Divisor Adjustments. The Dow Jones Global Titans 50 Index SM divisor is used to maintain continuity and prevent distortions due to corporate actions, such as the addition, deletion or replacement of component companies or changes of more than 10% of any component’s number of float-adjusted shares, that would affect the market capitalization of an index component.
 
Changes to Weightings. If, due to an extraordinary corporate action, the number of float-adjusted shares outstanding for any index component changes by less than 10% or if the changes occur over a prolonged period, the new number of shares outstanding and factor will become effective at the next quarterly shares outstanding update. If, on the other hand, the number of float-adjusted shares for any index component changes by more than 10%, such
 
 
 
 
19

 
 
 
adjustments are made as soon as such corporate actions become effective, and announced two business days prior to the implementation date.
 
License Agreement
 
The Dow Jones Global Titans 50 IndexSM is a product of S&P Dow Jones and a registered trademark of Dow Jones Trademark Holdings, LLC (“Dow Jones”), and has been licensed for use. “Dow Jones®,” “Dow Jones Indexes,” “Dow Jones Global IndexSM” and “Dow Jones Global Titans 50 IndexSM” 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 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 Global Titans 50 IndexSM, 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 Global Titans 50 IndexSM. 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 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 Global Titans 50 IndexSM. It is possible that this trading activity will affect the value of the Dow Jones Global Titans 50 IndexSM and the securities.
 
S&P DOW JONES INDICES DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE DOW JONES GLOBAL TITANS 50 INDEXSM 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 GLOBAL TITANS 50 INDEXSM 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 GLOBAL TITANS 50 INDEXSM 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.
 
 
20

 
 
DOW JONES INDUSTRIAL AVERAGESM
 
We have derived all information contained in this underlying supplement regarding the Dow Jones Industrial AverageSM, including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information prepared by S&P Dow Jones Indices LLC (“S&P Dow Jones”), a joint venture company owned by The McGraw-Hill Companies, Inc., CME Group Inc. and Dow Jones & Company, Inc. We have not independently verified such information. Such information reflects the policies of, and is subject to change by, S&P Dow Jones. The Dow Jones Industrial AverageSM is an index 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 AverageSM.
 
The Dow Jones Industrial AverageSM is reported by Bloomberg L.P. under the ticker symbol “INDU.”
 
The Dow Jones Industrial AverageSM was introduced to the investing public by Charles Dow on May 26, 1896 and originally comprised only 12 stocks. It has since become one of the most well-known and widely followed indicators of the U.S. stock market and is the oldest continuing stock market index in the world. The Dow Jones Industrial AverageSM 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 AverageSM 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 AverageSM 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 AverageSM is a price-weighted index rather than market capitalization-weighted index. In essence, the Dow Jones Industrial AverageSM consists of one share of each of the 30 stocks included in the Dow Jones Industrial AverageSM. Thus, the weightings of the components of the Dow Jones Industrial AverageSM are affected only by changes in their prices, while the weightings of stocks in other indices are affected by price changes and changes in shares outstanding. This distinction stems from the fact that, when initially created, the Dow Jones Industrial AverageSM was a simple average (hence the name), and was computed merely by adding up the prices of the stocks in the Dow Jones Industrial AverageSM and dividing that sum by the total number of stocks in the Dow Jones Industrial AverageSM. 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 AverageSM. 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 AverageSM, 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 AverageSM can no longer be considered an average.
 
The components of the Dow Jones Industrial AverageSM are selected by a committee composed of the managing editor of The Wall Street Journal, which is published by Dow Jones, the head of Dow Jones Indexes research and the head of CME Group research (the “Averages Committee”). Periodically, the Averages Committee reviews and makes changes to the composition of the Dow Jones Industrial AverageSM. While component selection is not governed by quantitative rules, a stock typically is added only if it has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors. The inclusion of any particular company in the Dow Jones Industrial AverageSM 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 AverageSM is a product of S&P Dow Jones and 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 AverageSM” 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
 
 
21

 
 
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 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 AverageSM, 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 AverageSM. 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 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 AverageSM. It is possible that this trading activity will affect the value of the Dow Jones Industrial AverageSM and the securities.
 
S&P DOW JONES INDICES DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE DOW JONES INDUSTRIAL AVERAGESM 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 AVERAGESM 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 AVERAGESM 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.
 
 
22

 

EURO STOXX 50® INDEX
 
We have derived 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, from publicly available information. We have not independently verified such information. Such 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 joint venture between Deutsche Börse AG, Dow Jones and SWX Swiss Exchange. 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 published in The Wall Street Journal and disseminated on the STOXX Limited website.
 
On March 1, 2010, STOXX Limited announced the removal of the “Dow Jones” prefix from all of its indices, including the EURO STOXX 50® Index.
 
EURO STOXX 50® Index Composition and Maintenance
 
The EURO STOXX 50® Index is composed of 50 component stocks of market sector leaders 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 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. A current list of the issuers that comprise the EURO STOXX 50® Index is available on the STOXX Limited website: http://www.stoxx.com. Information contained on the STOXX Limited website is not incorporated by reference in, and should not be considered a part of, this underlying supplement or the relevant pricing supplement. We make no representation or warranty as to the accuracy or completeness of information contained on the STOXX Limited website.
 
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.
 
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 can be expressed as follows:
 
 
23

 
 
 
The “free float market capitalization of the EURO STOXX 50® Index” is equal to the sum of the products of the closing price, market capitalization and free float factor for each component stock as of the time the EURO STOXX 50® Index is being calculated.
 
The EURO STOXX 50® Index is also subject to a divisor, which 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) Split and reverse split:
 
Adjusted price = closing price * A/B
 
New number of shares = old number of shares * B/A
 
Divisor: no change
(2) 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
 
Adjusted price = (closing price * A + subscription price * B) / (A + B)
 
New number of shares = old number of shares *(A + B)/ A
 
Divisor: increases
(3) Stock dividend:
 
Adjusted price = closing price * A / (A + B)
 
New number of shares = old number of shares
* (A + B) / A
 
Divisor: decreases
(4) Stock dividend of another company:
 
Adjusted price = (closing price * A - price of
other company * B) / A
 
 
 
Divisor: decreases
(5) Return of capital and share consideration:
 
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: no change
(6) Repurchase 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
(7) Spin-off:
Adjusted price = (closing price * A - price of spun-off shares * B) / A
 
Divisor: decreases
 
 
24

 
 
(8) 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))
/ 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
 
License Agreement with STOXX Limited
 
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 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.
 
 
25

 
 
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.
 
 
26

 

FTSE™ 100 INDEX
 
We have derived 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, from publicly available information. We have not independently verified such information. Such 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 calculated, published and disseminated by FTSE, a company owned equally by the London Stock Exchange (the “LSE”) and the Financial Times. 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 LSE. Publication of the FTSE™ 100 Index began in January 1984.
 
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 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.
 
FTSE has announced that it will move to use actual free float (rounded up to the next 1%) in the FTSE UK Index Series, which includes the FTSE™ 100 Index, with effect from the June 2012 review.
 
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. A list of the issuers of the FTSE Underlying Stocks is available from FTSE.
 
The FTSE™ 100 Index is reviewed quarterly by the FTSE European/Middle East/Africa Regional 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 will be held on the Wednesday after the first Friday in March, June, September and December. Any constituent changes will normally be implemented on the trading day following the third Friday of the same month.
 
FTSE prepares information regarding possible companies to be included or excluded from the FTSE Index using the close of business figures from the Tuesday before a review. The review is then presented to the Index Steering Committee for approval.
 
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
 
 
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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.
 
License Agreement with FTSE
 
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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FTSE CHINA 25 INDEX
 
We have derived all information in this underlying supplement regarding the FTSE China 25 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 FTSE International Limited (“FTSE”). FTSE has no obligation to continue to publish, and may discontinue publication of, the FTSE China 25 Index.
 
The FTSE China 25 Index is reported by Bloomberg L.P. under the ticker symbol “XIN0I.”
 
The FTSE China 25 Index is a stock index calculated, published and disseminated by FTSE, a company owned equally by the London Stock Exchange (the “LSE”) and the Financial Times, and is designed to represent the performance of the mainland Chinese market that is available to international investors and includes companies that trade on the Hong Kong Stock Exchange (the “HKSE”).
 
General. The FTSE China 25 Index is quoted in Hong Kong dollars (“HKD”) and currently is based on the 25 largest and most liquid Chinese stocks (called “H-shares” and “Red Chip” shares) based on full market-capitalization value, listed and trading on the HKSE. “H-shares” are securities of companies incorporated in the People’s Republic of China and nominated by the Chinese government for listing and trading on the HKSE. H-shares are quoted and traded in HKD and U.S. dollars. “Red Chip” shares are securities of Hong Kong-incorporated companies listed and traded on the HKSE, which are substantially owned directly or indirectly by the Chinese government and have the majority of their business interests in mainland China. “Red Chip” shares are quoted and traded in HKD and are available only to international investors and not to those from the People’s Republic of China.
 
Eligible Securities. Currently, only H-shares and Red Chip shares are eligible for inclusion in the FTSE China 25 Index. All classes of equity in issue are eligible for inclusion in the FTSE China 25 Index, subject to certain restrictions, however, each constituent must also be a constituent of the FTSE All-World Index. Companies whose business is that of holding equity and other investments, exchange-traded funds, and funds whose prices are a direct derivation of underlying holdings (e.g. mutual funds) are not eligible for inclusion. Securities must be sufficiently liquid to be traded, therefore the following criteria, among others, are used to ensure that illiquid securities are excluded:
 
1. Price. FTSE must be satisfied that an accurate and reliable price exists for the purposes of determining the market value of a company. FTSE may exclude a security from the FTSE China 25 Index if it considers that an “accurate and reliable” price is not available. The FTSE China 25 Index uses the last trade prices from the relevant stock exchanges, when available.
 
2. Liquidity. Securities in the FTSE China 25 Index will be reviewed annually for liquidity. Securities which do not turn over at least 2% of their shares in issue, after the application of any free float restrictions, per month for ten of the twelve months prior to the quarterly review by FTSE will not be eligible for inclusion in the FTSE China 25 Index. An existing constituent failing to trade at least 2.0% of its shares in issue, after the application of any free float restrictions, per month for more than four of the twelve months prior to the quarterly review will be removed after close of the index calculation on the next trading day following the third Friday in January, April, July and October. Any period when a share is suspended will be excluded from the calculation.
 
 3. New Issues. New issues become eligible for inclusion in the FTSE China 25 Index at the next quarterly review of constituents, provided they have a minimum trading record of at least 20 trading days prior to the date of such review and turnover of a minimum of 2% of their shares in issue, after the application of any free float restrictions, per month each month, except in certain circumstances.
 
The FTSE China 25 Index, like other indices of FTSE, is governed by an independent advisory committee, the FTSE Asia Pacific Regional Committee, that ensures that the FTSE China 25 Index is operated in accordance with its published ground rules, and that the rules remain relevant to the FTSE China 25 Index. The FTSE Asia Pacific Regional Committee is responsible for undertaking the review of the FTSE China 25 Index and for approving changes of constituents.
 
 
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Computation of the FTSE China 25 Index. The FTSE China 25 Index is calculated using the free float index calculation methodology of the FTSE Group. The FTSE China 25 Index is calculated using the following algorithm:
 

where “p” is the latest trade price of the component security “n,” “e” is the exchange rate required to convert the security’s home currency into the FTSE China 25 Index’s base currency, “s” is the number of shares of the security in issue, “f” is the free float factor published by FTSE, applicable to such security, to be applied to the security to allow amendments to its weighting, “c” is the capping factor published by FTSE at the most recent quarterly review of the FTSE China 25 Index, and “d” is the divisor, a figure that represents the total issued share capital of the FTSE China 25 Index at the base date, which may be adjusted to allow for changes in the issued share capital of individual securities without distorting the FTSE China 25 Index.
 
The FTSE China 25 Index uses actual trade prices for securities with local stock exchange quotations and Reuters real-time spot currency rates for its calculations. Under this methodology, FTSE excludes from free floating shares: (i) trade investments in a FTSE China 25 Index constituent company by either another FTSE China 25 Index constituent company or a non-constituent company or entity; (ii) significant long-term holdings by founders, directors and/or their families; (iii) employee share schemes (if restricted); (iv) government holdings; (v) foreign ownership limits; and (vi) portfolio investments subject to lock-in clauses (for the duration of the clause). Free float restrictions are calculated using available published information. The initial weighting of a FTSE China 25 Index constituent stock is applied in bands, as follows:
 
Free float less than or equal to 15%
Ineligible for inclusion in the FTSE China 25 Index, unless free float is also greater than 5% and the full market capitalization is greater than US$2.5 billion (or local currency equivalent), in which case actual free float is used.
Free float greater than 15% but less than or equal to 20%
20%
Free float greater than 20% but less than or equal to 30%
30%
Free float greater than 30% but less than or equal to 40%
40%
Free float greater than 40% but less than or equal to 50%
50%
Free float greater than 50% but less than or equal to 75%
75%
Free float greater than 75%
100%

These bands are narrow at the lower end, to ensure that there is sufficient sensitivity in order to maintain accurate representation, and broader at the higher end, in order to ensure that the weightings of larger companies do not fluctuate absent a significant corporate event.
 
Following the application of an initial free float restriction, a FTSE China 25 Index constituent stock’s free float will only be changed if its actual free float is more than five percentage points above the minimum or five percentage points below the maximum of an adjacent band. This five percentage point threshold does not apply if the initial free float is less than 15%. Foreign ownership limits, if any, are applied after calculating the actual free
 
 
 
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float restriction, but before applying the bands shown above. If the foreign ownership limit is more restrictive than the free float restriction, the precise foreign ownership limit is applied. If the foreign ownership limit is less restrictive or equal to the free float restriction, the free float restriction is applied, subject to the bands shown above.
 
The FTSE China 25 Index is periodically reviewed for changes in free float. These reviews coincide with the quarterly reviews undertaken of the FTSE China 25 Index. Implementation of any changes takes place after the close of the index calculation on the third Friday in January, April, July and October. A stock’s free float is also reviewed and adjusted if necessary following certain corporate events. If the corporate event includes a corporate action which affects the FTSE China 25 Index, any change in free float is implemented at the same time as the corporate action. If there is no corporate action, the change in free float is applied as soon as practicable after the corporate event.
 
 
 
 
 
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GOLD MINERS INDEX
 
We have derived all information contained in this underlying supplement regarding the Gold Miners Index, including, without limitation, its make-up, method of calculation and changes in its components, from publicly available information and information supplied by the NYSE Arca. We have not independently verified such information. Such information reflects the policies of, and is subject to change by, the NYSE Arca. The Gold Miners Index was developed by the NYSE Amex (formerly the American Stock Exchange) and is calculated, maintained and published by the NYSE Arca. The NYSE Arca has no obligation to continue to publish, and may discontinue the publication of, the Gold Miners Index.
 
The Gold Miners Index is reported by Bloomberg L.P. under the ticker symbol “GDM.”
 
The Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining of gold or silver.
 
Eligibility Criteria for Index Components
 
The Gold Miners Index includes common stocks and ADRs of selected companies that are involved in mining for gold and silver and that are listed for trading on the NYSE or the NYSE Amex or quoted on The NASDAQ Stock Market. Only companies with market capitalization greater than $100 million that have a daily average trading volume of at least 50,000 shares over the past six months are eligible for inclusion in the Gold Miners Index.
 
Index Calculation
 
The Gold Miners Index is calculated using a modified market capitalization weighting methodology. The Gold Miners Index is weighted based on the market capitalization of each of the component securities, modified to conform to the following asset diversification requirements, which are applied in conjunction with the scheduled quarterly adjustments to the Gold Miners Index:
 
(1)  the weight of any single component security may not account for more than 20% of the total value of the Gold Miners Index;
 
(2)  the component securities are split into two subgroups—large and small, which are ranked by market capitalization weight in the Gold Miners Index. Large stocks are defined as having a Gold Miners Index weight greater than or equal to 5%. Small securities are defined as having an Gold Miners Index weight below 5%; and
 
(3)  the aggregate weight of those component securities which individually represent more than 4.5% of the total value of the Gold Miners Index may not account for more than 50% of the total Gold Miners Index value.
 
The Gold Miners Index is reviewed quarterly so that the Gold Miners Index components continue to represent the universe of companies involved in the gold mining industry. The NYSE Arca may at any time and from time to time change the number of securities comprising the group by adding or deleting one or more securities, or replacing one or more securities contained in the group with one or more substitute securities of its choice, if in the NYSE Arca’s discretion such addition, deletion or substitution is necessary or appropriate to maintain the quality and/or character of the Gold Miners Index. Changes to the Gold Miners Index compositions and/or the component share weights in the Gold Miners Index typically take effect after the close of trading on the third Friday of each calendar quarter month in connection with the quarterly index rebalance.
 
At the time of the quarterly rebalance, the weights for the components stocks (taking into account expected component changes and share adjustments), are modified in accordance with the following procedures.
 
 
·
Diversification Rule 1: If any component stock exceeds 20% of the total value of the Gold Miners Index, then all stocks greater than 20% of the Gold Miners Index are reduced to represent 20% of the value of the Gold Miners Index. The aggregate amount by which all component stocks are reduced is redistributed proportionately across the remaining stocks that represent less than 20% of the index value. After this redistribution, if any other stock then exceeds 20%, the stock is set to 20% of the index value and the redistribution is repeated.
 
 
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·
Diversification Rule 2: The components are sorted into two groups, large are components with a starting index weight of 5% or greater and small are those that are under 5% (after any adjustments for Diversification Rule 1). Each group in aggregate will be represent 50% of the index weight. The weight of each of the large stocks will be scaled down proportionately with a floor of 5% so that the aggregate weight of the large components will be reduced to represent 50% of the Gold Miners Index. If any component stock falls below a weight equal to the product of 5% and the proportion by which the stocks were scaled down following this distribution, then the weight of the stock is set equal to the product of 5% and the proportion by which the stocks were scaled down, the components with weights greater than 5% will reduced proportionately. The weight of each of the small components will be scaled up proportionately from the redistribution of the large components. If any component stock exceeds a weight equal to the product of 4.5% and the proportion by which the stocks were scaled down following this distribution, then the weight of the stock is set equal to the product of 4.5% and the proportion by which the stocks were scaled down. The redistribution of weight to the remaining stocks is repeated until the entire amount has been redistributed.
 
Index Maintenance
 
The Gold Miners Index is reviewed quarterly to ensure that at least 90% of the index weight is accounted for by index components that continue to meet the initial eligibility requirements. Components will be removed from the Gold Miners Index during the quarterly review, if the market capitalization falls below $50 million or the traded average daily shares for the previous six months is lower than 25,000 shares. In conjunction with the quarterly review, the share weights used in the calculation of the Gold Miners Index are determined based upon current shares outstanding modified, if necessary, to provide greater Index diversification, as described above. The index components and their share weights are determined and announced prior to taking effect. The share weight of each component stock in the index portfolio remains fixed between quarterly reviews except in the event of certain types of corporate actions such as stock splits, reverse stock splits, stock dividends, or similar events. The share weights used in the index calculation are not typically adjusted for shares issued or repurchased between quarterly reviews. However, in the event of a merger between two components, the share weight of the surviving entity may be adjusted to account for any stock issued in the acquisition. The NYSE Arca may substitute stocks or change the number of stocks included in the Gold Miners Index, based on changing conditions in the industry or in the event of certain types of corporate actions, including mergers, acquisitions, spin-offs, and reorganizations. In the event of component or share weight changes to the index portfolio, the payment of dividends other than ordinary cash dividends, spin-offs, rights offerings, re-capitalization, or other corporate actions affecting a component stock of the Gold Miners Index; the index divisor may be adjusted to ensure that there are no changes to the index level as a result of non-market forces.
 
 
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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:
 
 
where:
 
 
Pt
:
current price at day t;
 
 
Pt-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.
 
 
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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 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
 
 
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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) 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 2nd 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:
 
 
where:
 
 
Pt
:
current price at day t;
 
 
Pt-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
 
 
39

 
 
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® 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
 
 
40

 
 
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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MARKIT IBOXX® USD LIQUID HIGH YIELD INDEX
 
The Markit iBoxx® USD Liquid High Yield Index is sponsored by International Index Company Limited (“IIC”), a wholly owned subsidiary of Markit Group Limited (“Markit”). The Markit iBoxx® USD Liquid High Yield Index is calculated, disseminated and published by IIC. Unless otherwise stated, we have derived all information contained in this underlying supplement regarding the Markit iBoxx® USD Liquid High Yield Index, including, without limitation, its composition, method of calculation and changes in its components, from publicly available sources. We have not independently verified such information. Such information reflects the policies of, and is subject to change by, IIC. IIC has no obligation to continue to calculate and publish, and may discontinue calculation and publication of the Markit iBoxx® USD Liquid High Yield Index.
 
The Markit iBoxx® USD Liquid High Yield Index is a basket of 50 bonds, rebalanced monthly three business days prior to the rebalancing date. It is designed to provide a balanced representation of the US dollar high yield corporate market by the means of the most liquid high yield corporate bonds available. The Markit iBoxx® USD Liquid High Yield Index consists of sub-investment grade US dollar-denominated bonds issued by corporate issuers and rated by at least one of three rating services: Moody’s Investors Service, Standard & Poor’s Rating Services, or Fitch Ratings. The index composition is rebalanced once a month, after the close of business on the last business day of the rebalancing month (the “rebalancing date”). The new index composition becomes effective on the first business day of the next month (the “composition month”).
 
Selection criteria for Markit iBoxx® USD High Yield Index.
 
The constituents of the Markit iBoxx® USD Liquid High Yield Index are drawn solely from the broad Markit iBoxx® USD High Yield Index. The following selection criteria are applied to determine a security’s eligibility for inclusion in the Markit iBoxx® USD High Yield Index: bond type, time to maturity, amount outstanding, age, denomination, issuer and agency ratings.
 
Fixed coupon bonds, zero coupon bonds, step-up bonds with coupon schedules known at issuance (or as functions of the issuer’s rating), bonds with sinking funds, medium-term notes (“MTNs”), Rule 144A offerings and callable bonds are eligible for inclusion in the Markit iBoxx® USD High Yield Index. Preferred shares, convertibles, bonds with other equity features attached (e.g., options/warrants), perpetual bonds, floating rate notes, putables and Reg S offerings are not eligible for inclusion in the Markit iBoxx® USD High Yield Index. To qualify for the Markit iBoxx® USD High Yield Index, all eligible bonds must have at least three years and six months remaining time to maturity when joining the Markit iBoxx® USD High Yield Index. Bonds with maturities less than three years will be excluded from the Markit iBoxx® USD High Yield Index at the next rebalancing. The outstanding face value of a bond must be greater than or equal to USD200 million as of the close of business three business days prior to the rebalancing date (“Bond Selection Cut-off Date”). Partial buybacks or add-ons will affect the outstanding face value of a candidate bond. Markit will consider changes in the outstanding face value of a candidate bond as a result of partial or full buybacks or add-ons, provided that Markit is aware of such changes as of the Bond Selection Cut-off Date.
 
New issues must have a first settlement date on or before a rebalancing date to be included in the index for the next period. As of a rebalancing date, bonds must be less than five years old and have at least three years remaining to maturity. Bonds must be denominated in USD.
 
The issuer or, in the case of a finance subsidiary, the issuer’s guarantor, must be domiciled in the United States, Bermuda, Cayman Islands, Canada, Japan or Western Europe. The issue must be corporate credit, i.e., debt instruments backed by corporate issuers that are not secured by specific assets. Debt issued by governments, sovereigns, quasi-sovereigns, and government-backed or guaranteed entities is excluded.
 
Bonds must be rated below investment grade – but not in default – at BB+ or lower by S&P or Fitch or Ba1 by Moody’s as of the Bond Selection Cut-off Date to qualify. The highest rating determines the index rating. Split-rated (e.g., Baa3/BB + or Ba1/BBB) issues are excluded from the index. A split-rated issue means that an issue is rated investment grade by at least one rating agency and non-investment grade by at least one other rating agency. Issues rated D by S&P or Fitch, or that have been subject to a default press release by Moody’s cannot enter the index; those issues in the index that are subsequently downgrade to D by Fitch or S&P or subject to a default press release
 
 
42

 
 
by Moody’s (as of the Bond Selection Cut-off Date) will be taken out of the index on the next rebalancing date. After a bond has migrated into high yield from investment grade status, it must retain that status for three months (the “stabilization period”) before it can be included in the index.
 
Bonds trading flat of accrued are not eligible for the Markit iBoxx® USD High Yield Index. If a bond trades flat of accrued on any day between T–5 (five trading days before the end of the month) and T–2 it is excluded at the next rebalancing.
 
Selection criteria for Markit iBoxx® USD Liquid High Yield Index.
 
To become a member of the Markit iBoxx® USD Liquid High Yield Index, the bonds must satisfy all the conditions for inclusion in the Markit iBoxx® USD High Yield Index. Any bond that enters the Markit iBoxx® USD Liquid High Yield Index must remain in the index for a minimum of six months provided it remains eligible for the Markit iBoxx® USD High Yield Index during that period. A bond that drops out of the Markit iBoxx® USD Liquid High Yield Index at rebalancing is excluded from reentering the index for a three-month lockout period. Bonds from the same issuer will only be replaced by another bond from the same issuer if the bond to be replaced (i) is no longer in the Markit iBoxx® USD High Yield Index, (ii) is no longer in the same classification bucket, or (iii) has been a member of the Markit iBoxx® USD Liquid High Yield Index for at least one year.
 
Bonds are disqualified from candidacy in the Markit iBoxx® USD Liquid High Yield Index for any of the following reasons: (i) US dollar denominated bonds for foreign corporate issuers (i.e., Yankee bonds, Zeros and zero step-ups (GAINS) are also excluded; (ii) as of any rebalancing date, bonds must have less than 15 years remaining to maturity; (iii) any bond subject to a firm call or tender offer in the month immediately following the rebalancing date will be excluded, provided that Markit is aware of such tender offer or call as of the Bond Selection Cut-off Date; (iv) a bond is disqualified if it is within a lockout period; (v) in order to satisfy the minimum run requirement, a bond must have at least three years and six months remaining to maturity when it enters the Markit iBoxx® USD Liquid High Yield Index.
 
Every bond is assigned a liquidity score, as determined by IIC in its sole discretion, that approximates the ease of transaction execution. The liquidity score is a composite of three factors: raw score, issuer premium and incumbency premium.
 
Raw Score.
 
The raw score is a function of the age and size of the bond, with parameters constructed by studying actual trading patterns. The formula reflects the fact that larger issues are more liquid but become less liquid with age.
 
Issuer Premium.
 
The issuer premium gives the biggest issuers in the market a higher overall liquidity score. The aggregate age-adjusted debt of every issuer is calculated, and the largest one identified. The bond with the highest raw score (of an issuer) is awarded the full issuer premium, and every other bond (of the issuer) is awarded a fraction of the full issuer premium proportionate to the ratio of its raw score to the highest raw score of the issuer. For purposes of computing the issuer premium, aggregate debt outstanding of any issuer shall include all dollar-denominated, SEC-registered notes and bonds that are eligible for the Markit iBoxx® USD High Yield Index. Aggregate debt outstanding will exclude commercial paper, preferred shares and non SEC-registered debt.
 
Incumbency Premium.
 
Bonds that were members of the Markit iBoxx® USD Liquid High Yield Index in the prior month are assigned an incumbency premium to their liquidity score to reflect the concept that a new entry candidate would have to outscore an incumbent by a reasonable margin of additional liquidity in order to justify the expense of the trade. The non-incumbent bonds from an incumbent issuer are granted a reduced premium to facilitate a potential move to a new issue from the same issuer at the next rebalancing date.
 
 
43

 
 
Index size, issuer ordering and bonds selection.
 
To help to obtain the goal that the Markit iBoxx® USD Liquid High Yield Index reflects the composition of the high yield market, the Markit iBoxx® USD High Yield Index is profiled annually following the close of the market at the end of October. The broad market is segmented into index cells. The percentage par amounts outstanding of the Markit iBoxx® USD High Yield Index in each cell determine the bond allocation for the Markit iBoxx® USD Liquid High Yield Index during the following 12 months. The broad market is profiled across industry sector dimensions by segmenting the bonds into five baskets, which represent the following industry sectors: Consumer Goods, Consumer Services, Industrials & Materials, Telecommunication & Technology and Utilities & Energy. While the market profile is constant for a year, the bonds constituting the Markit iBoxx® USD Liquid High Yield Index are chosen at the end of every month to fill the matrix according to their liquidity scores. The qualified entrants in each cell are ranked according to their liquidity scores and chosen in descending order of liquidity, subject to one-issue per issuer per cell. If there are insufficient qualified entrants to fill the predetermined number of bonds in any cell, the Markit iBoxx® USD Liquid High Yield Index is rebalanced with fewer than 50 bonds. The inclusion and exclusion criteria described above may result in the identification of bonds that equally satisfy the general selection criteria of the index. In the event that the qualified entrants for the index equally satisfy the selection criteria, the qualified entrants are ranked according to the following characteristics in the order listed: incumbency, most recent issue, longest length to maturity.
 
If a bond in the Markit iBoxx® USD Liquid High Yield Index is in its minimum run and is disqualified from the Markit iBoxx® USD High Yield Index, it will be removed from the Markit iBoxx® USD Liquid High Yield Index. The rules for the Minimum Run and the Lockout Period take precedence over the other rules for the Markit iBoxx® USD Liquid High Yield Index. Thus, a minimum run bond, which is disqualified from the Markit iBoxx® USD Liquid High Yield Index, but which still qualifies for the Markit iBoxx® USD High Yield Index, remains in the Markit iBoxx® USD Liquid High Yield Index. This could happen, for example, if a bond’s “yankee” status changes due to a corporate merger. A locked out bond will not be selected, even if it has a high liquidity score and otherwise qualifies. All bonds in their minimum run are selected, even if this results in more bonds than normally allowed in a particular sector. Furthermore, if such maturity sector changes result in multiple minimum run bonds from the same issuer in the same sector, all minimum run bonds will remain in that sector. Finally, if more minimum run bonds qualify for a sector than would normally be allowed in that sector, all minimum run bonds will be selected, and the index will rebalance with the excess bond or bonds in that sector and in the Markit iBoxx® USD Liquid High Yield Index.
 
Index rebalancing.
 
The Markit iBoxx® USD Liquid High Yield Index is rebalanced every month, on the last calendar day of the month after the last index calculation. Rebalancing also takes place if the rebalancing falls on a non-trading day. The composition of the Markit iBoxx® USD Liquid High Yield Index is held constant for any given calendar month to ensure continuity during the month and to avoid changes unrelated to the price movements of the bonds. In a first step the selection criteria set out above are applied to the universe of USD denominated bonds. Bond ratings and amounts outstanding are used as of three business days before the rebalancing date. Maturity dates remain fixed for the life of the bond. Only bonds with a first settlement date on or before the rebalancing date are included in the selection process. Once the eligible bond universe has been defined, a hierarchy of issuers is determined by the ranking criteria.
 
Consolidation of contributed quotes.
 
Index calculation is based on bid and ask quotes provided by the contributing banks. As of May 6, 2009, the date of the most recently available information from IIC, the following leading financial institutions provide input bond prices for EUR, GBP and USD to IIC: ABN AMRO, Barclays Capital, BNP Paribas, Deutsche Bank, Dresdner Kleinwort, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Royal Bank of Scotland, UBS. The quotes pass through a two-step consolidation process. The first filter tests the technical validity of the quotes. The following parameters are tested: whether bid and ask quotes are non-negative, whether the bid quote is lower than the ask quote, whether the bid-ask spread is within 500 basis points. A quote from a bank is only accepted if both bid and ask pass the test. In the second filter, the bid and the ask sides of all surviving quotes are ordered from highest to lowest. In a first test the difference between the maximum and the minimum quote must not be greater than a
 
 
44

 
 
specified limit (the limit depends on the bond). If the test is passed, all quotes enter the consolidation process. If the distance between maximum and minimum quote is too wide, two more tests are carried out. First, the distance between the maximum/minimum quote and its neighboring quote is checked. If this distance is too wide then the maximum and/or minimum quote is excluded. Second, the distances between the other neighboring quotes are tested and all quotes are dismissed if one of the distances is greater than a predefined limit. The consolidated bid and ask prices are calculated from the remaining quotes. If less than two quotes are valid, no consolidated price can be generated. If two or three quotes are received, the consolidated price is determined as the arithmetical mean of these quotes. If four or more quotes are received, the highest and lowest quotes are eliminated. Thereafter the mean value of the remaining quotes is calculated to determine the consolidated price.
 
Calculating the Markit iBoxx® USD Liquid High Yield Index.
 
The quotes from the contributing banks are consolidated and enter the index calculation at the end of day as consolidated prices. In the event that no new quotes for a particular bond are received, an index will continue to be calculated based on the last available consolidated prices. The index calculation is based on bid prices. Bonds that are not in the Markit iBoxx High Yield universe for the current month, but become eligible for at the next rebalancing, enter the Markit iBoxx® USD Liquid High Yield Index at their ask price. The Markit iBoxx® USD Liquid High Yield Index attributes the same price-weight in returns to each bond (assuming equal quantity of each bond). Calculations are performed daily, using consolidated Markit iBoxx bid prices at approximately 4 p.m. Eastern Time.
 
License Agreement with International Index Company Limited
 
The license agreement between International Index Company Limited and Citigroup Global Markets Inc. provides that the following language must be stated in this underlying supplement:
 
“The Markit iBoxx® USD Liquid High Yield Index is derived from a source considered reliable, but International Index Company Limited and its employees, suppliers, subcontractors and agents (together “International Index Company Associates”) do not guarantee the veracity, completeness or accuracy of Markit iBoxx® USD Liquid High Yield Index or other information furnished in connection with Markit iBoxx® USD Liquid High Yield Index. No representation, warranty or condition, express or implied, statutory or otherwise, as to condition, satisfactory quality, performance, or fitness for purpose are given or assumed by International Index Company Limited or any of the International Index Company Associates in respect of the Markit iBoxx® USD Liquid High Yield Index or any data included in it or the use by any person or entity of the Markit iBoxx® USD Liquid High Yield Index or that data and all those representations, warranties and conditions are excluded save to the extent that such exclusion is prohibited by law.
 
International Index Company Limited and the International Index Company Associates shall have no liability or responsibility to any person or entity for any loss, damages, costs, charges, expenses or other liabilities whether caused by the negligence of International Index Company Limited or any of the International Index Company Associates or otherwise, arising in connection with the use of the securities.”
 
Markit iBoxx is a trade mark of International Index Company Limited and has been licensed for the use by Citigroup Global Markets Inc. International Index Company does not approve, endorse or recommend Citigroup Global Markets Inc. or the securities.
 
 
45

 

JUNIOR GOLD MINERS INDEX
 
We have derived all information contained in this underlying supplement regarding the Junior Gold Miners 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, the 4asset-management GmbH (the “Index Owner”). The Junior Gold Miners Index was developed by the Index Owner and is maintained and published by the Index Owner. The Junior Gold Miners Index is calculated by Structured Solutions AG. The Index Owner has no obligation to continue to publish, and may discontinue the publication of, the Junior Gold Miners Index.
 
The Junior Gold Miners Index is reported by Bloomberg L.P. under the ticker symbol “MVGDXJ.”
 
The Junior Gold Miners Index tracks the performance of the small-cap segment of the global gold and silver mining industries. The Junior Gold Miners Index was launched on August 31, 2009 with a base index value of 1,000 as of December 31, 2003.
 
Index Composition and Maintenance
 
The Index Universe
 
The index universe includes only common stocks and stocks with similar characteristics from financial markets that are freely investable for foreign investors and that provide real-time and historical component and currency pricing. Companies from financial markets that are not freely investable for foreign investors or that do not provide real-time and historical component and currency pricing may still be eligible if they have a listing on an eligible exchange and if they meet all the size and liquidity requirements on that exchange.
 
Only stocks that have a full market capitalization exceeding US$50 million are eligible for the index universe.
 
In addition, to be included in the index universe, a security must:
 
 
·
generate at least 50% of its revenues from gold mining;
 
 
·
generate at least 50% of its revenues from silver mining;
 
 
·
own properties that have the potential to generate at least 50% of its revenues from gold or silver when developed; or
 
 
·
primarily invest in gold or silver.
 
Investable Index Universe
 
Any stocks from the index universe that have had ten or more non-trading days in a three-month period prior to a quarterly review are ineligible for inclusion in the Junior Gold Miners Index. Companies with a free-float (or shares available to foreign investors) of less than 5% for existing index components or less than 10% for new components are ineligible for inclusion.
 
In addition to the above, stocks that are currently not in the Junior Gold Miners Index must meet the following size and liquidity requirements:
 
 
·
a full market capitalization exceeding US$150 million;
 
 
·
a three-month average-daily-trading volume of at least US$1 million at the current review and also at the previous two reviews; and
 
 
·
at least 250,000 shares traded per month over the last six months at the current review and also at the previous two reviews.
 
For stocks already in the Junior Gold Miners Index the following applies:
 
 
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·
a full market capitalization exceeding US$75 million; and
 
 
·
a three-month average-daily-trading volume of at least US$0.6 million at the current review or at one of the previous two reviews; or
 
 
·
at least 200,000 shares traded per month over the last six months at the current review or at one of the previous two reviews.
 
The Index Owner can, in exceptional cases, use price sources other than the home market even if these price sources are less liquid than the home market listing.
 
For each stock, the pricing from the respective home market is used. In cases where ADRs, GDRs or similar products, or a secondary listing exists either on an exchange in the U.S., Canada or in the United Kingdom, the alternative price source is used (instead of the home market price source) if it meets at least three-times the standard liquidity requirements at a quarterly review, i.e.:
 
 
·
a three-month average-daily-trading volume of at least US$3.0 million at the current review and also at the previous two reviews; and
 
 
·
at least 750,000 shares traded per month over the last six months at the current review and also at the previous two reviews.
 
The Index Owner can, in exceptional cases, use price sources other than the home market even if these price sources are less liquid than the home market listing. Once the price source is switched to the alternative price source, the standard liquidity requirements apply again.
 
Index Constituent Selection
 
The Junior Gold Miners Index is reviewed on a quarterly basis. The Index Owner can, in exceptional cases, add stocks to the Junior Gold Miners Index and also remove stocks from the Junior Gold Miners Index.
 
The target coverage of the Junior Gold Miners Index is 100% of the free-float market capitalization of the investable universe with at least 25 companies. Index constituents are selected using the following procedure:
 
 
(1)
All companies in the index universe are valued by full market capitalization (all secondary lines are grouped). All companies (and not securities) are sorted by full market capitalization in descending order.
 
 
(2)
Companies covering the top 90% of the full market capitalization are excluded. Only companies ranking between 90% and 98% qualify for the selection. Existing index companies ranking between 80% and 90% or 98% and 99% also qualify for the selection.
 
 
(3)
All companies which qualified in step 2 are now viewed as securities (companies with secondary lines are un-grouped and treated separately). Only securities that meet all requirements of the investable index universe are added to the Junior Gold Miners Index.
 
The revenue quota for each company is reviewed quarterly; only companies with at least 50% of their revenues in the gold or silver sector are eligible. The revenue quota for companies that have already been in the Junior Gold Miners Index may drop to 25% and these companies would still be eligible. The Index Owner can, in exceptional cases, add stocks to the Junior Gold Miners Index with a lower revenue portion.
 
Review Schedule
 
The Junior Gold Miners Index is reviewed quarterly and changes to the Junior Gold Miners Index are implemented and based on the closing prices of the third Friday of every quarter-end month (i.e., March, June, September and December). If the third Friday is not a business day, then the review will take place on the last business day before the third Friday. If an index constituent does not trade on the third Friday of a quarter-end
 
 
47

 
 
month, then the last available price for that index constituent will be used. Changes become effective on the next business day.
 
The reviews are based on the (adjusted) closing data on the last business day in February, May, August and November. If an index constituent does not trade on the last business day in February, May, August or November, then the last available price for this index constituent will be used. The component changes to the Junior Gold Miners Index are announced on the 2nd Friday in a quarter-end month (i.e., March, June, September and December). The Junior Gold Miners Index data (e.g., new number of shares, new free-float factors, and new company weighting cap factors) is announced on the 2nd Friday in a quarter-end month (i.e., March, June, September and December). The weighting cap factors are based on closing data from on the 2nd Wednesday in a quarter-end month (i.e., March, June, September and December).
 
For purposes of this Appendix A, “business day” means any day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments in Stuttgart and London.
 
Ongoing Maintenance
 
In addition to the periodic reviews, the Junior Gold Miners Index is continually reviewed for corporate events (e.g., mergers, takeovers, spin-offs, delistings and bankruptcies) that affect the index components.
 
Replacements.  For all corporate events that result in a stock deletion from the Junior Gold Miners Index, the deleted stock will be replaced immediately only if the number of components in the Junior Gold Miners Index would drop below 22. The replacement stock will be added at the same weight as the deleted stock. In all other cases, the additional weight resulting from the deletion will be re-distributed proportionally across all other index constituents.
 
Changes to Free-Float Factor and Number of Shares. Changes to the number of shares or the free-float factors due to corporate actions like stock dividends, splits, rights issues, etc. are implemented immediately and will be effective the next trading day (i.e., the ex-date). All other changes are implemented at the quarterly review and will be effective the next trading day after implementation.
 
Illiquidity.  Illiquid stocks are deleted immediately if their illiquidity is due to:
 
 
·
not being traded for 10 consecutive days;
 
 
·
being suspended from trading for 10 consecutive days; or
 
 
·
ongoing bankruptcy proceedings: a company that has filed for bankruptcy will be deleted from the Junior Gold Miners Index based either on the traded stock price on its primary market, if available, or the OTC stock price. If neither price is available, the company will be deleted at US$0.
 
Changes are announced immediately, implemented three trading days later and become effective the next trading day after implementation. The Index Owner can, in exceptional cases or in temporary situations, decide differently.
 
Initial Public Offerings (IPOs).  An IPO stock is eligible for fast-track addition to the Junior Gold Miners Index once (either at the next quarterly review if it has been trading for at least 30 days prior to the review snapshot dates (i.e., the last trading day in February, May, August or November) or else at the then following quarterly review). In order to be added to the Junior Gold Miners Index the IPO stock has to meet the size and liquidity requirements:
 
 
·
the IPO must have a full market capitalization exceeding US$150 million;
 
 
·
the IPO must have an average-daily-trading volume of at least US$1 million; and
 
 
·
the IPO must have traded least 250,000 shares per month (or per 22 days).
 
Changes due to Mergers & Takeovers.  A merger or takeover is deemed successful if it has been declared wholly unconditional and has received approval of all regulatory agencies with jurisdiction over the transaction. 
 
 
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The result of a merger or takeover is one surviving stock and one or more non-surviving stocks that may not necessarily be de-listed from the respective trading system(s). A surviving stock that does not qualify for the Junior Gold Miners Index will be deleted immediately. A surviving stock that qualifies for the Junior Gold Miners Index is added to the Junior Gold Miners Index and replaces the largest of the original stocks. The Index Owner can, in exceptional cases, decide differently.
 
Changes due to Spin-Offs.  Each spin-off stock is immediately added to the Junior Gold Miners Index for at least one trading day. If a spin-off company does not qualify for the Junior Gold Miners Index it will be deleted based on its first closing price. The Index Owner can, in exceptional cases, decide differently.
 
Index Calculation
 
The value of the Junior Gold Miners Index is calculated using the Laspeyres’ formula, rounded to two decimal places, with stock prices converted to U.S. dollars:
 
 
where (for all stocks (i) in the Junior Gold Miners Index):
 
pi = stock price (rounded to four decimal places);
 
qi = number of shares;
 
ffi = free-float factor (rounded to two decimal places);
 
fxi = exchange rate (local currency to U.S. Dollar) (rounded to six decimal places);
 
cfi = sector-weighting cap factor (if applicable, otherwise set to 1) (rounded to six decimal places);
 
M = free-float market capitalization of the Junior Gold Miners Index; and
 
D = divisor (rounded to six decimal places).
 
Free-Float
 
The Junior Gold Miners Index is free-float adjusted—that is, the number of shares outstanding is reduced to exclude closely held shares from the index calculation. At times, other adjustments are made to the share count to reflect foreign ownership limits. These are combined with the block-ownership adjustments into a single multiplier. To avoid unwanted double counting, either the block-ownership adjustment or the restricted stocks adjustment is applied, whichever produces the higher result.
 
Sector-Weighting Cap Factor
 
Companies determined to be “silver” stocks may not constitute more than 20% of the Junior Gold Miners Index. If at a quarterly review, the aggregated weighting of all silver stocks represents more than 20% of the Junior Gold Miners Index, a sector-weighting cap factor is applied. The sector-weighting cap factor is calculated to ensure that the aggregated weighting of all gold stocks will not be less than 80% and the aggregated weighting of all silver stocks is capped at 20%. If the aggregated weighting of all gold stocks represents more than 80% of the Junior Gold Miners Index, then no sector-weighting cap factor is needed.
 
Company-Weighting Cap Factors
 
Companies in the Junior Gold Miners Index are weighted according to their free-float market capitalization. To ensure portfolio diversity, the company-weighting cap factors are applied to individual companies if they exceed a certain weight in the Junior Gold Miners Index. The company-weighting cap factors are reviewed quarterly and applied, if necessary.
 
 
49

 
 
The company-weighted cap factors are applied differently to gold companies and silver companies. For gold companies, all companies are ranked by their free-float market capitalization, and the maximum weight for any single stock is 8.0%. If a stock exceeds the maximum weight, then the weight will be reduced to the maximum weight and the excess weight shall be re-distributed proportionally across all other index constituents. This process is repeated until no stocks have weights exceeding the respective maximum weight.
 
The company-weighting scheme will be applied to the largest stocks and the excess weight after each step shall be re-distributed across all other (smaller) stocks in the Junior Gold Miners Index on a proportional basis:
 
 
·
If the largest two stocks exceed 8.0%, then both will be capped at 8.0%.
 
 
·
If the 3rd largest stock exceeds 7.0%, then it will be capped at 7.0%.
 
 
·
If the 4th largest stock exceeds 6.5%, then it will be capped at 6.5%.
 
 
·
If the 5th largest stock exceeds 6.0%, then it will be capped at 6.0%.
 
 
·
If the 6th largest stock exceeds 5.5%, then it will be capped at 5.5%.
 
 
·
If the 7th largest stock exceeds 5.0%, then it will be capped at 5.0%.
 
 
·
If any other stock exceeds 4.5%, then it will be capped at 4.5%.
 
For silver companies, the maximum weight of any single silver stock is 4.5% and the excess weight will be redistributed proportionally across all other silver stock index constituents. If the excess weight cannot be redistributed proportionally across all other silver stock index constituents due to the weight restriction of 4.5%, then the remaining excess weight will be re-distributed proportionally across all other gold stock index constituents.
 
Divisor Adjustments
 
Index maintenance should not change the level of the Junior Gold Miners Index. This is accomplished with an adjustment to the divisor. Any change to the stocks in the Junior Gold Miners Index that alters the total market value of the Junior Gold Miners Index while holding stock prices constant will require a divisor adjustment.
 
 
where Δ MC is the difference between closing market capitalization and adjusted closing market capitalization of the Junior Gold Miners Index.
 
Data Correction
 
Incorrect or missing input data will be corrected immediately.
 
Corporate Action Related Adjustments
 
Corporate actions range widely from routine share issuances or buy backs to unusual events like spin-offs or mergers. These are listed on the table below with securities about the necessary changes and whether the divisor will be adjusted.
 
Special cash dividend
 
1.     pi, adjusted = pi – (Dividend × (1 – Withholding Tax))
 
Split
 
2.     Shareholders receive “B” new shares for every “A” share held.
Divisor change: Yes
 
Divisor change: No
 
 
 
50

 
 
 
 
Rights offering
 
3.     Shareholders receive “B” new shares for every “A” share held.
 
4.     If the subscription-price is either not available or not smaller than the closing price, then no adjustment will be done.
 
 
Divisor change: Yes
 
Stock dividend
 
5.     Shareholders receive “B” new shares for every “A” share held.
 
 
Divisor change: Yes
Spin-offs
 
6.     Shareholders receive “B” new shares for every “A” share held.
Divisor change: Yes
 
7. 
 
 
Addition/deletion of a company
 
8.     Net change in market value determines the divisor adjustment.
 
Divisor change: Yes
Changes in shares outstanding
 
9.     Any combination of secondary issuance, share repurchase or buy back will be updated at the quarterly review.
 
Divisor change: Yes
Changes to free-float
 
10.     Increasing (decreasing) the free-float increases (decreases) the total market value of the Junior Gold Miners Index and changes will be updated at the quarterly review.
Divisor change: Yes
 
 
51

 
 
With corporate actions where cash or other corporate assets are distributed to shareholders, the price of the stock will drop on the ex-dividend day (the first day when a new shareholder is not eligible to receive the distribution.)  The effect of the divisor adjustment is to prevent the price drop from causing a corresponding drop in the Index.
 
Corporate actions are announced at least three days prior to implementation.
 
Dissemination
 
The Junior Gold Miners Index is calculated weekdays between 01:00 and 23:30 (CET) and the index values are disseminated to data vendors every 15 seconds. The Junior Gold Miners Index is disseminated on days when at least one of the underlying stock exchanges of the Junior Gold Miners Index is open for trading.
 
 
52

 
 
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.
 
 
53

 
 
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.
 
 
54

 
 
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 2004, that limit was set at 15%, which meant that the price of each stock could neither fall nor rise by more than 15% 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. The trading in the equity markets is halted for 20 minutes when the KOSPI 200 falls by 10% 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.
 
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 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
 
 
55

 
 
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.
 
 
56

 
 
MDAX® INDEX
 
We have derived all information contained in this underlying supplement regarding the MDAX® 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, Deutsche Börse AG (“Deutsche Börse”). The MDAX® Index was developed by Deutsche Börse and is calculated, maintained and published by Deutsche Börse. Deutsche Börse has no obligation to continue to publish, and may discontinue the publication of, the MDAX® Index.
 
The MDAX® Index is reported by Bloomberg L.P. under the ticker symbol “MDAX.”
 
The MDAX® Index (the “MDAX®”) comprises 50 mid-cap issuers based in Germany from classic sectors (i.e., sectors other than technology sectors) that are listed at the FWB® Frankfurter Wertpapierbörse (the Frankfurt Stock Exchange). These companies are selected from the continuously traded companies in the Prime Standard Segment that meet certain selection criteria. To be listed in the Prime Standard, a company must meet minimum statutory requirements, which include the regular publication of financial reports, and must satisfy additional transparency requirements. The reference date of the MDAX® is December 30, 1987.
 
The MDAX® is capital-weighted, meaning the weight of any individual issue is proportionate to its respective share in the overall capitalization of all Index component issues. The weight of any single company is capped at 10% of the MDAX® capitalization, measured quarterly. Weighting is based exclusively on the free float portion of the issued share capital of any class of shares involved. Both the number of shares included in the issued share capital and the free float factor are updated on one day each quarter (the “chaining date”). The MDAX® is a performance (i.e. total return) Index, which reinvests all income from dividend and bonus payments in the MDAX® portfolio.
 
The Working Committee for Equity Indices and the Management Board of Deutsche Börse
 
The Working Committee for Equity Indices (Arbeitskreis Aktienindizes) (the “Committee”) advises Deutsche Börse on all issues related to the MDAX®, recommending measures that are necessary in order to ensure the relevance of the MDAX® range and the correctness and transparency of the MDAX® calculation process. In accordance with the various rules, the Committee pronounces recommendations in respect of the composition of the MDAX®. However, any decisions on the composition of and possible modifications to the MDAX® are exclusively taken by the Management Board of Deutsche Börse (the “Board”). Such decisions are published in a press release and on Deutsche Börse’s publicly available website at www.deutsche-boerse.com in the evening after the Committee has concluded its meeting. Information contained on Deutsche Börse’s website is not incorporated by reference in, and should not be considered a part of, this underlying supplement or any relevant pricing supplement. We make no representation or warranty as to the accuracy or completeness of information contained on Deutsche Börse’s website.
 
The Committee’s meetings usually take place on the third trading day in each of March, June, September and December. The date for the respective next meeting is announced via a press release on Deutsche Börse’s website on the evening of the current meeting.
 
The so-called "equity index ranking" is published monthly by Deutsche Börse, containing all relevant data in respect of the key criteria order book turnover and market capitalization. This publication also serves the Committee as a basis for decision-making at its quarterly meetings. It is produced at the beginning of each month and published via the Internet.
 
Free Float
 
For the determination of the free float portion used to weight a company’s class of shares in the MDAX® and for the ranking lists, the following definition applies:
 
1. All shareholdings of an owner which, on an accumulated basis, account for at least 5% of a company’s share capital attributed to a class of shares are considered to be non-free float. Shareholdings of an owner also include shareholdings:
 
 
57

 
 
 
·
held by the family of the owner as defined by section §15a of the German Securities Trading Act (“WpHG”);
 
 
·
for which a pooling has been arranged in which the owner has an interest;
 
 
·
managed or kept in safe custody by a third party for account of the owner; and
 
 
·
held by a company which the owner controls as defined by section 22(3) of the German Securities Trading Act (“WpHG”).
 
2. The definition of “non-free float”—irrespective of the size of a shareholding—covers any shareholding of an owner that is subject to a statutory or contractual qualifying period of at least six months with regard to its disposal by the owner. This applies only during the qualifying period. Shareholdings as defined by No. 1 above are counted as shareholdings for the calculation according to No. 1. Shares held by the issuing company (treasury shares) are always considered as block holdings and are not part of the free float of the share class.
 
3. As long as the size of such a shareholding does not exceed 25% of a company’s share capital, the definition of free float includes all shareholdings held by:
 
 
·
asset managers and trust companies;
 
 
·
investment funds and pension funds; and
 
 
·
capital investment companies or foreign investment companies in their respective special fund assets.
 
with the purpose of pursuing short-term investment strategies. Such shares, for which the acquirer has at the time of purchase clearly and publicly stated that strategic goals are being pursued and that the intention is to actively influence the company policies and ongoing business of the company, are not considered as such a short-term investment. In addition, shares having been acquired through a public purchase offer will not be considered as short-term investment. This does not apply to shareholdings managed or held in safe custody according to No. 1, or to venture capital companies, or other assets serving similar purposes. The shareholdings as defined by No. 1 above are not counted as shareholdings for the calculation according to No. 1.
 
4. In case of an ongoing takeover, shares that are under the control of the overtaking companies via derivatives will also be considered for the determination of the stock’s free float. The derivatives need to be subject to registration according to legislation in WpHG and the German Securities Acquisition and Takeover Act (“WpÜG").
 
The various criteria in Nos. 1 to 4 are also fully applied to classes of shares that are subject to restrictions of ownership.
 
Index Composition
 
Selection Criteria
 
To be included or to remain in the MDAX®, companies have to satisfy certain prerequisites. All classes of the company’s shares must:
 
 
·
be listed in the Prime Standard segment on the Frankfurt Stock Exchange;
 
 
·
be traded continuously on Deutsche Börse’s electronic trading system Xetra®;
 
 
·
show a free float portion of at least 10%; and
 
 
·
belong to a sector or subsector that is assigned to the “Classic” (i.e. non-technology) area.
 
If, for any company, more than one class of shares fulfills the above criteria, only the respective larger or more liquid class can be included in the MDAX®. Moreover, companies must either:
 
 
58

 
 
 
·
have their registered headquarters (or operating headquarters) in Germany; or
 
 
·
have a major share of the stock exchange turnover at the Frankfurt Stock Exchange and their juristic headquarters in the European Union or in a European Free Trade Association state.
 
Operating headquarters is defined as the location of management or company administration, in part or in full. If a company has its operating headquarters in Germany, but not its registered office, this must be publicly identified by the company. The primary trading turnover requirement is met if at least 33% of aggregate turnover for each of the last three months took place on the Frankfurt Stock Exchange, including Xetra®.
 
To preserve the character of the MDAX®, the Board reserves the right to exclude certain companies from the MDAX® in coordination with the Committee. One possible reason for such an exclusion could be that the applicable company is a foreign holding company with headquarters in Germany, but a clear focus of business activities abroad.
 
Companies that satisfied the prerequisites listed above are selected for inclusion in the MDAX® according to the following two key criteria:
 
 
·
order book turnover on Xetra® and in Frankfurt floor trading (within the preceding twelve months); and
 
 
·
free float market capitalization (determined using the average of the volume-weighted average price (“VWAP”) of the last 20 trading days prior to the last day of the month) as at a certain reporting date (last trading day of each month).
 
In addition, the following factors influence the decision-making process:
 
 
·
the free float;
 
 
·
market availability (measured on the basis of trading volumes, frequency of price determination, turnover or the Xetra® Liquidity Measure);
 
 
·
sector affiliation; and
 
 
·
the period during which a company has met the criteria for inclusion in, or elimination from, the MDAX® (retroactive view).
 
Taking all these criteria into account, the Committee submits proposals to the Board to leave the current composition of the MDAX® unchanged or to effect changes. The final decision as to whether or not to replace an Index component issue is taken by the Board.
 
Adjustments to Index Composition
 
Ordinary adjustments are made each year in March and September, based on the following criteria:
 
 
·
a company can be included in the MDAX® if it has a minimum turnover ranking of 60 and a minimum market capitalization ranking of 60; and
 
 
·
a company can be removed from the MDAX® if it has a turnover ranking worse than 60 or a market capitalization ranking worse than 60.
 
Replacements can take place if only one of the two criteria listed above is met.
 
Furthermore, under the “fast-entry” and “fast-exit” rules, which are applied in March, June, September and December:
 
 
·
a company can be included in the MDAX® if it has a minimum turnover ranking of 40 and a minimum market capitalization ranking of 40; and
 
 
59

 
 
 
·
a company can be removed from the MDAX® if it has a turnover ranking worse than 75 or a market capitalization ranking worse than 75.
 
Based on the rankings and further criteria involved, the Committee recommends in these cases if—and if so, against which issuer—such company is to be admitted to the MDAX®.
 
Finally, extraordinary adjustments to Index composition have to be performed, regardless of the “fast-exit” or “fast-entry” rules, upon occurrence of specific events, such as insolvency. In addition, a company can be removed immediately if its Index weight based on the actual market capitalization exceeds 10% and its annualized 30-day volatility exceeds 250%. The relevant figures are published by Deutsche Börse on a daily basis. The Board, in agreement with the Committee, may decide on the removal and may replace the company two full trading days after the announcement.
 
Adjustments are also necessary in two scenarios in the mergers and acquisitions context:
 
 
·
if an absorbing or emerging company meets basis criteria for inclusion in the MDAX®, as soon as the free float of the absorbed company falls below 10%, the company is removed from the company under the ordinary or extraordinary adjustments described above; and
 
 
·
if an absorbing company is already included in the MDAX® or does not meet the basis criteria for inclusion in the MDAX®, as soon as the free float of the absorbed company falls below 10%, the company is removed from the MDAX® under the ordinary or extraordinary adjustments described above. On the same date, the absorbed company is replaced by a new company after recommendation of the Committee.
 
The weight of the company represented in the MDAX® is adjusted to the new number of shares on the quarterly date after the merger has taken place.
 
Index Calculation
 
The MDAX® is weighted by market capitalization; however, only freely available and tradable shares (“free-float”) are taken into account. The MDAX® is a performance (i.e. total return) Index, which reinvests all income from dividend and bonus payments in the MDAX® portfolio.
 
The Index Formula
 
The MDAX® is conceived according to the Laspeyres formula set out below:
 

whereby:
 
cit
=
Adjustment factor of company i at time t
ffiT
=
Free float factor of share class I at time T
n
=
Number of shares in the MDAX®
pi0
=
Closing price of share i on the trading day before the first inclusion in the MDAX
piT
=
Price of share i at time t
qi0
=
Number of shares of company i on the trading day before the first inclusion in the MDAX
qiT
=
Number of shares of company i at time T
t
=
Calculation time of the index
KT
=
MDAX® chaining factor valid as of chaining date T
 
 
60

 
 
T
=
Date of the last chaining

The formula set out below is equivalent in analytic terms, but designed to achieve relative weighting:
 
Index calculation can be reproduced in simplified terms by using the expression Fi:
 
 
·
Multiply the current price by the respective Fi weighting factor;
 
 
·
Take the sum of these products; and
 
 
·
Divide this by the base value (A) which remains constant until a modification in the MDAX® composition occurs.
 
The Fi factors provide information on the number of shares required from each company to track the underlying Index portfolio.
 
Calculation Frequency
 
Index calculation is performed on every exchange trading day in Frankfurt, using prices traded on Deutsche Börse’s electronic trading system Xetra®, whereby the last determined prices are used. The MDAX® is calculated continuously once a second. The MDAX® is distributed as soon as current prices are available for 35 companies belonging to the MDAX®. As long as opening prices for individual shares are not available, the particular closing prices of the previous day are taken instead for calculating the indices.
 
In the event of a suspension during trading hours, the last price determined before such a suspension is used for all subsequent computations. If such suspension occurs before the start of trading, the closing price of the previous day is taken instead. The “official” closing index level is calculated using the respective closing prices (or last prices) established on Xetra®.
 
Adjustments and Corrections
 
The MDAX® is adjusted for exogenous influences (e.g. price-relevant capital changes) by means of certain correction factors, assuming a reinvestment according to the “opération blanche.” If the absolute amount of the accumulated distributions (dividends, bonus and special distributions, spin-offs or subscription rights on other security-classes) between two regular chaining dates accounts for more than 10% of the market capitalization of the
 
 
61

 
 
distributing company on the day before the first distribution, the part of the distribution exceeding the 10% will not be reinvested in a single stock but in the overall Index portfolio per unscheduled chaining date.
 
The Board reserves the right to correct any incorrect index values with immediate effect after becoming aware of such incorrect index values. A historic correction is usually applied as of the start of the calculation of the current business day. Deutsche Börse will inform the general public of any such corrections immediately.
 
Licensing Agreement with Deutsche Börse
 
The MDAX® Index is a registered trademark of Deutsche Börse. The securities are neither sponsored nor promoted, distributed or in any other manner supported by Deutsche Börse. Neither the publication of the MDAX® by Deutsche Börse nor the granting of a license regarding the MDAX® as well as the MDAX® trademark for the utilization in connection with the securities or other securities or financial products that are derived from the MDAX®, represents a recommendation by Deutsche Börse for a capital investment or contains in any manner a warranty or opinion by Deutsche Börse with respect to the attractiveness on an investment in the securities.
 
 
62

 

MSCI INDICES
 
We have derived all information contained in this underlying supplement regarding the MSCI Brazil Index, the MSCI Canada Index, the MSCI Chile Investable Market Index, the MSCI EAFE® Index, the MSCI Emerging Markets Index, the MSCI Europe 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 Free Index, the MSCI South Africa Index, the MSCI Taiwan Index, the MSCI Turkey Investable Market Index and the MSCI World IndexSM (each, an “MSCI Index” and together, the “MSCI Indices”), including, without limitation, their make-up, method of calculation and changes in their components, from publicly available information. We have not independently verified such information. Such 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.
 
MSCI Brazil Index
 
The MSCI Brazil Index is a free float-adjusted, capitalization-weighted index of securities traded primarily on the Bolsa de Valores de São Paolo. Component companies must meet objective criteria for inclusion in the MSCI Brazil Index, taking into consideration unavailable strategic shareholdings and limitations to foreign ownership. The MSCI Brazil Index has a base date of December 31, 1987.
 
The MSCI Brazil Index is reported by Bloomberg L.P. under the ticker symbol “MXBR.”
 
MSCI Canada Index
 
The MSCI Canada Index is a free float-adjusted, capitalization-weighted index designed to measure the performance of the large- and mid-cap segments of the Canada market. The MSCI Canada Index consists of stocks traded primarily on the Toronto Stock Exchange. The MSCI Canada Index is calculated daily in U.S. dollars. Component companies must meet objective criteria for inclusion in the MSCI Canada Index, taking into consideration unavailable strategic shareholdings and limitations to foreign ownership. The MSCI Canada Index has a base date of December 31, 1969.
 
The MSCI Canada Index is reported by Bloomberg, L.P. under the ticker symbol “MXCA.”
 
MSCI Chile Investable Market Index
 
The MSCI Chile Investable Market Index is a free float-adjusted market capitalization index designed to measure broad-based equity market performance in Chile. Component companies must meet objective criteria for inclusion in the MSCI Chile Investable Market Index, taking into consideration unavailable strategic shareholdings and limitations to foreign ownership. The MSCI Chile Investable Market Index has a base date of December 31, 1987.
 
The MSCI Chile Investable Market Index is reported by Bloomberg under the ticker symbol “MXCL.”
 
MSCI EAFE® Index
 
The MSCI EAFE® Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index intended to capture large- and mid-cap equity market performance across 22 of 24 developed markets countries, excluding the U.S. and Canada. The MSCI EAFE® Index is calculated in U.S. dollars on a real time basis and disseminated every 60 seconds during market trading hours. As of September 30, 2013, the MSCI EAFE® Index included the following 22 developed markets countries:  Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Effective May 2010, Israel has been reclassified as a developed market and is included in the MSCI EAFE® Index. The MSCI EAFE® Index has a base date of December 31, 1969.
 
The MSCI EAFE® Index is reported by Bloomberg L.P. under the ticker symbol “MXEA.”
 
 
63

 
 
MSCI Emerging Markets Index
 
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to capture large- and mid-cap equity market performance across 21 global emerging markets countries. The MSCI Emerging Markets Index is calculated daily in U.S. dollars on a real time basis and disseminated every 60 seconds during market trading hours. As of September 30, 2013, the MSCI Emerging Markets Index consisted of the following 21 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey. Effective May 2010, Israel has been reclassified as a developed market and is no longer included in the MSCI Emerging Markets Index. The MSCI Korea Index and MSCI Taiwan Index are currently under review for a potential reclassification to developed markets as part of the 2012 annual market classification review.
 
The MSCI Emerging Markets Index is reported by Bloomberg L.P. under the ticker symbol “MXEF.”
 
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. As of September 30, 2013, the MSCI Europe Index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The MSCI Europe Index has a base date of December 31, 1969.
 
The MSCI Europe Index is reported by Bloomberg Financial Markets under ticker symbol “MXEU.”
 
MSCI Japan Index
 
The MSCI Japan Index is a free-float adjusted market capitalization weighted index that is designed to track the equity market performance of Japanese securities listed on Tokyo Stock Exchange, Osaka Stock Exchange, JASDAQ and Nagoya Stock Exchange. The MSCI Japan Index is constructed based on the MSCI Global Investable Market Indices Methodology, targeting a free-float market capitalization coverage of 85%. The index has a base date of December 31, 1987. The MSCI Japan Index is calculated in Japanese yen on a real time basis and disseminated every 60 seconds during market trading hours.
 
The MSCI Japan Index is reported by Bloomberg Financial Markets under ticker symbol “MXJP.”
 
MSCI Korea Index
 
The MSCI Korea Index is a free float-adjusted market capitalization index of securities listed on the Korea Exchange. The MSCI Korea Index is calculated daily in the local currencies on a real time basis and disseminated every 60 seconds during market trading hours.
 
The MSCI Korea Index is reported by Bloomberg L.P. under the ticker symbol “MXKR.”
 
MSCI Malaysia Index
 
The MSCI Malaysia Index is a free float-adjusted market capitalization index of securities listed on the Bursa Malaysia. The MSCI Malaysia Index is calculated daily in the local currencies on a real time basis and disseminated every 60 seconds during market trading hours.
 
The MSCI Malaysia Index is reported by Bloomberg L.P. under the ticker symbol “MXMY.”
 
MSCI Mexico Investable Market Index
 
The MSCI Mexico Investable Market Index is a free float-adjusted market capitalization index of securities listed on the Mexican Stock Exchange. Component companies must meet objective criteria for inclusion in the
 
 
64

 
 
MSCI Mexico Investable Market Index, taking into consideration unavailable strategic shareholdings and limitations to foreign ownership. The MSCI Mexico Investable Market Index has a base date of December 31, 1987.
 
The MSCI Mexico Investable Market Index is reported by Bloomberg under the ticker symbol “MXMX.”
 
MSCI Pacific ex-Japan Index
 
The MSCI Pacific ex-Japan Index is a free float-adjusted market capitalization index that captures large and mid-cap representation across 4 of 5 developed market countries in the Pacific region, excluding Japan. As of September 30, 2013, it had 148 constituents and covered approximately 85% of the free float-adjusted market capitalization in each such country. The MSCI Pacific ex-Japan Index has a base date of December 31, 1969.
 
The MSCI Pacific ex-Japan Index is reported by Bloomberg L.P. under the ticker symbol “MSDUPXJ.”
 
MSCI Singapore Free Index
 
The MSCI Singapore Free Index is a free float-adjusted market capitalization index of securities listed on the Singapore Stock Exchange. The MSCI Singapore Free Index is calculated daily in the local currencies on a real time basis and disseminated every 60 seconds during market trading hours.
 
The MSCI Singapore Free Index is reported by Bloomberg L.P. under the ticker symbol “SIMSCI.”
 
MSCI South Africa Index
 
The MSCI South Africa Index is a free float-adjusted market capitalization index of securities listed on the JSE Limited. The MSCI South Africa Index is calculated daily in the local currencies on a real time basis and disseminated every 60 seconds during market trading hours.
 
The MSCI South Africa Index is reported by Bloomberg L.P. under the ticker symbol “MXZA.”
 
MSCI Taiwan Index
 
The MSCI Taiwan Index is a free float-adjusted market capitalization index of securities listed on the Taiwan Stock Exchange. The MSCI Taiwan Index is calculated daily in the local currencies on a real time basis and disseminated every 60 seconds during market trading hours.
 
The MSCI Taiwan Index is reported by Bloomberg L.P. under the ticker symbol “TAMSCI.”
 
MSCI Turkey Investable Market Index
 
The MSCI Turkey Investable Market Index is a free float-adjusted market capitalization index of securities listed on the Istanbul Stock Exchange. The MSCI Turkey Investable Market Index is calculated daily in the local currencies on a real time basis and disseminated every 60 seconds during market trading hours.
 
The MSCI Turkey Investable Market Index is reported by Bloomberg L.P. under the ticker symbol “MXTR.”
 
MSCI World IndexSM
 
The MSCI World IndexSM is a free float-adjusted market capitalization index intended to measure the large- and mid- cap equity market performance across 24 developed market countries. The MSCI World IndexSM is calculated daily in U.S. dollars on a real time basis and disseminated every 60 seconds during market trading hours. As of September 30, 2013, the MSCI World IndexSM consisted of the following 24 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. Effective May 2010, Israel has been reclassified as a developed market and has been included in the MSCI World IndexSM.
 
The MSCI World IndexSM is reported by Bloomberg L.P. under the ticker symbol “MXWO.”
 
 
65

 
 
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 (“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 Markets (“EM”) or Frontier Markets (“FM”). All listed equity securities, or listed securities that exhibit characteristics of equity securities, except mutual funds, exchange traded funds, equity derivatives, limited partnerships, and most investment trusts, are eligible for inclusion in the Equity Universe. Real Estate Investment Trusts (“REITs”) in some countries and certain income trusts in Canada are also eligible for inclusion.
 
(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.
 
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
 
 
66

 
 
 
 
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 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 four months before the implementation of the initial construction of the index or 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 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.
 
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:
 
 
·
Investable Market Index (Large + Mid + Small)
 
 
·
Standard Index (Large + Mid)
 
 
·
Large Cap Index
 
 
·
Mid Cap Index
 
 
·
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) determining the Market Size-Segment Cutoffs and associated Segment Number of Companies; (iv) assigning companies to the size segments; and (v) 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
 
 
67

 
 
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 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 the free float-adjusted market capitalization of a non-index constituent is at least 1.50 times the free float-adjusted market capitalization of the smallest existing constituent after rebalancing, the larger free float-adjusted market capitalization security replaces the smaller one.
 
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.
 
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 Standard & Poor’s, the 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. 
 
 
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QIRs may result in additions or deletions due to migration to another Size Segment Index, and changes in FIFs and in NOS. Only additions of significant new investable companies are considered, and only for the Standard Index. 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.
 
(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 generally are reflected in the indices 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., US 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 bankruptcy or other significant cases 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.
 
 
 
 
69

 
 
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.
 
Note: IndexInitialMarketCapUSD was previously called IndexUnadjustedMarketCapPreviousUSD

Security Price Index Level
 
 
Where:

 
·
SecurityPriceIndexLevelt-1 is Security Price Index level at time t-1.
 
 
·
SecurityAdjustedMarketCapForLocalt is the Adjusted Market Capitalization of security s in USD converted using FX rate as of t-1.
 
 
·
SecurityInitialMarketCapUSDt is the Initial Market Capitalization of security s in USD at time t.
 
 
·
EndOfDayNumberOfSharest-1 is the number of shares of security s at the end of day t-1.
 
 
·
PricePerSharet is the price per share of security s at time t.
 
 
·
PricePerSharet-1 is the price per share of security s at time t-1.
 
 
·
InclusionFactort 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.
 
 
·
PAFt is the Price Adjustment Factor of security s at time t.
 
 
·
FXratet -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.
 
 
·
ICIt 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).
 
 
·
ICIt-1 is the Internal Currency Index of price currency at time t-1.
 
 
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Index Market Capitalization
 
IndexAdjustedMarketCapUSDt =
 
 
 IndexInitialMarketCapUSDt =
 
Where:

 
·
EndOfDayNumberOfSharest-1 is the number of shares of security s at the end of day t-1.
 
 
·
PricePerSharet is the price per share of security s at time t.
 
 
·
PricePerSharet-1 is the price per share of security s at time t-1.
 
 
·
InclusionFactort 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.
 
 
·
PAFt is the Price Adjustment Factor of security s at time t.
 
 
·
FXratet 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.
 
 
·
FXratet -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.
 
 
·
ICIt 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).
 
 
·
ICIt-1 is the Internal Currency Index of price currency at time t-1.
 
Corporate Events
 
Mergers and Acquisitions
 
As a general principle, 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 will determine the most appropriate implementation method and announce it prior to the changes becoming effective in the indices.
 
 
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Tender Offers
 
In tender offers, the acquired or merging security is generally 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 been substantially reduced, 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 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, market perception of the transaction, official preliminary results if any, and other additional conditions for the offer.
 
In certain cases, securities may be deleted earlier 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.
 
If a security is deleted from an index, the security will not be 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 may 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 “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 until the spun-off security begins trading, and is deleted thereafter. Generally, the value of the detached security is equal to the difference between the cum price and the ex price of the parent security.
 
Corporate Actions
 
Corporate actions such as splits, stock dividends and rights issues, which affect the price of a security, require a price adjustment. In general, the PAF is applied on the ex-date of the event to ensure that security prices are
 
 
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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 will generally 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 generally 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 generally 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. A primary equity offering involves the issuance of new shares by a company. Changes in number of shares and FIF resulting from primary equity offerings representing less than 5% of the security’s number of shares are deferred to the next regularly scheduled index review following the completion of the event. For public secondary offerings of existing constituents representing at least 5% of the security’s number of shares, where possible, MSCI will announce these changes and reflect them shortly after the results of the subscription are known. Secondary public offerings that, given lack of sufficient notice, were not reflected immediately will be reflected at the next regularly scheduled index review. Secondary offerings involve the distribution of existing shares of current shareholders’ in a listed company and are usually pre-announced by a company or by a company’s shareholders and open for public subscription during a pre-determined period.
 
Debt-to-Equity Swaps
 
In general, 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. In general, shares issued in debt-to-equity swaps are assumed to be issued to strategic investors. 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 a following regularly scheduled index review.
 
Suspensions and Bankruptcies
 
MSCI will remove from an index as soon as practicable companies that file for bankruptcy, companies that file for protection from their creditors. MSCI will delete from an index after 40 business days of suspension securities of companies facing financial difficulties (e.g., liquidity issues, debt repayment issues, companies under legal investigation, etc.) with at least two business days advance notice. Subsequently, if and when these securities resume normal trading, they may be considered as a potential addition to an index at the next scheduled semi-annual index review. Securities of companies suspended due to pending corporate events (e.g., merger, acquisition, etc.), will continue to be maintained in an index until they resume trading regardless of the duration of the suspension period. When the primary exchange price is not available, MSCI will delete securities at an over the counter or equivalent market price when such a price is available and deemed relevant. If no over the counter or equivalent price is available, the security will be deleted at the smallest price (unit or fraction of the currency) at which a security can trade on a given exchange. For securities that are suspended, MSCI will carry forward the market price prior to the suspension during the suspension period.
 
License Agreement with MSCI
 
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.
 
 
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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 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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NASDAQ-100 INDEX®
 
We have derived 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, from publicly available information. We have not independently verified such information. Such 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 a modified market capitalization-weighted index of 100 of the largest stocks of non-financial companies listed on The Nasdaq Global Market tier of 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 250.00. On January 1, 1994, the base index value was reset to 125.00. 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® is reported by Bloomberg L.P. under the ticker symbol “NDX.”
 
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 be listed on The NASDAQ Stock Market and meet the following criteria:
 
 
·
the security’s U.S. listing must be exclusively on the NASDAQ National Market (unless the security was dually listed on another U.S. market prior to January 1, 2004 and has continuously maintained such listing);
 
 
·
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;
 
 
·
if the security is of a foreign issuer (a foreign issuer is determined based on its country of organization), it 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;
 
 
·
only one class of security per issuer is allowed;
 
 
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·
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;
 
 
·
the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn;
 
 
·
the security must have “seasoned” on the NASDAQ Stock Market or another recognized market (generally, a company is considered to be seasoned if it has been listed on a market for at least two years; in the case of spin-offs, the operating history of the parent will be considered); and
 
 
·
if the security would otherwise qualify to be in the top 25% of the securities included in the NASDAQ-100 Index® by market capitalization for the six prior consecutive month-ends, then a one-year “seasoning” criterion would apply.
 
Continued Eligibility Criteria
 
In addition, to be eligible for continued inclusion in the NASDAQ-100 Index® the following criteria apply:
 
 
·
the security’s U.S. listing must be exclusively on the NASDAQ National Market (unless the security was dually listed on another U.S. market prior to January 1, 2004 and has continuously maintained such listing);
 
 
·
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 as measured annually during the ranking review process described below;
 
 
·
if the security is of a foreign issuer, it 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, as measured annually during the ranking review process;
 
 
·
the security 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.
 
These NASDAQ-100 Index® eligibility criteria may be revised from time to time by Nasdaq without regard to the securities.
 
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.
 
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 above are ranked by market value. NASDAQ-100 Index® -eligible securities which are already in the NASDAQ-100 Index® and which are ranked in the top 100 eligible securities (based on market capitalization) are retained in the NASDAQ-100 Index® . A security that is ranked 101 to 125 is also retained, provided that such security was ranked in the top 100 eligible securities as of the previous Ranking Review or was added to the NASDAQ-100
 
 
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Index® subsequent to the previous Ranking Review. Securities not meeting such criteria are replaced. The replacement securities chosen are those NASDAQ-100 Index® -eligible securities not currently in the NASDAQ-100 Index® that have the largest market capitalization. The data used in the ranking includes end of October market data from The NASDAQ Stock Market and is updated for total shares outstanding submitted in a publicly filed SEC document via EDGAR through the end of November.
 
Generally, the list of annual additions and deletions 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® security 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 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.
 
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. In the case of a special cash dividend, a determination is made on an individual basis whether to make an adjustment to the last sale price of a NASDAQ-100 Index® component security in accordance with its dividend policy. If it is determined that an adjustment will be made, it will be reflected in the last sale price prior to the market open on the ex-date. Ordinarily, whenever there is a change in the NASDAQ-100 Index® share weights, a change in a component security included in the NASDAQ-100 Index®, or a change to the price of a component security due to spin-off, rights issuances or special cash dividends, Nasdaq adjusts the divisor to ensure that there is no discontinuity in the level of the NASDAQ-100 Index® that might otherwise be caused by any such change. All changes will be announced in advance and will be reflected in the NASDAQ-100 Index® prior to market open on the effective date of such changes.
 
Index Rebalancing
 
The NASDAQ-100 Index® is calculated under a “modified capitalization-weighted” methodology, which is a hybrid between equal weighting and conventional capitalization weighting. This methodology is expected to: (1) retain in general the economic attributes of capitalization weighting; (2) promote portfolio weight diversification (thereby limiting domination of the NASDAQ-100 Index® by a few large stocks); (3) reduce NASDAQ-100 Index® performance distortion by preserving the capitalization ranking of companies; and (4) reduce market impact on the smallest NASDAQ-100 Index® securities from necessary weight rebalancings.
 
Under the methodology employed, on a quarterly basis coinciding with Nasdaq’s quarterly scheduled weight adjustment procedures, the NASDAQ-100 Index® securities are categorized as either “Large Stocks” or “Small Stocks” depending on whether their current percentage weights (after taking into account scheduled weight adjustments due to stock repurchases, secondary offerings or other corporate actions) are greater than, or less than or equal to, the average percentage weight in the NASDAQ-100 Index® (i.e., as a 100-stock index, the average percentage weight in the NASDAQ-100 Index® is 1.0%).
 
 
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This quarterly examination will result in a NASDAQ-100 Index® rebalancing if either one or both of the following two weight distribution requirements are not met: (1) the current weight of the single largest market capitalization component security must be less than or equal to 24.0% and (2) the “collective weight” of those component securities the individual current weights of which are in excess of 4.5%, when added together, must be less than or equal to 48.0%. In addition, Nasdaq may conduct a special rebalancing 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 not met upon quarterly review, or Nasdaq determines 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 the individual current weights or adjusted weights in accordance with the preceding step of which 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 rescalings will then be redistributed to the Small Stocks in the following iterative manner. 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 component 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 share weights will be made effective after the closing of trading on the third Friday in March, June, September and December. 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 instead 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.
 
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®.
 
 
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License Agreement with NASDAQ OMX
 
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 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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NIKKEI STOCK AVERAGE
 
We have derived all information contained in this underlying supplement regarding the Nikkei Stock Average (the “Nikkei 225”), 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 Nikkei Inc. The Nikkei 225 was developed by Nikkei Inc. and 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 at any time in its sole discretion.
 
The Nikkei 225 is reported by Bloomberg L.P. under the ticker symbol “NKY.”
 
The Nikkei 225 tracks the Tokyo Stock Exchange (the “TSE”) and is widely used as a benchmark of the Japanese Stock Market. It is the average price of 225 stocks listed on the TSE First Section (as defined below under “—The Tokyo Stock Exchange”), but it is different from a simple average in that the divisor is adjusted to maintain continuity and reduce the effect of external factors not directly related to the market. The index started on September 7, 1950. However, it was retroactively calculated back to May 16, 1949 when the TSE reopened for the first time after the Second World War
 
The Nikkei 225 includes 225 of the most actively traded stocks from the TSE First Section. Since the Nikkei 225 is expected to represent the performance of stocks on the TSE First Section, and by extension the market in general, the mix of components has been rebalanced from time to time to assure that all stocks in the index are both highly liquid and representative of Japan's industrial structure.
 
Component stocks of the Nikkei 225 are balanced among six sector categories. These categories are broken into the following 36 had six sector categories, which were broken into the 36 underlying industry classifications identified below. The sector-based breakdown and underlying industry classifications may be modified to reflect changes in the industrial structure.
 
 
·
Technology -- Pharmaceuticals, Electrical Machinery, Automobiles, Precision Machinery, Telecommunications
 
 
·
Financials -- Banks, Miscellaneous Finance, Securities, Insurance
 
 
·
Consumer Goods -- Marine products, Food, Retail, Services
 
 
·
Materials -- Mining, Textiles, Paper & Pulp, Chemicals, Oil, Rubber, Ceramics, Steel, Nonferrous metals, Trading House
 
 
·
Capital Goods/Others -- Construction, Machinery, Shipbuilding, Transportation Equipment, Miscellaneous Manufacturing, Real Estate
 
 
·
Transportation and Utilities -- Railroads & Buses, Trucking, Shipping, Airlines, Warehousing, Electric Power, Gas
 
Standards for Listing and Maintenance
 
The Nikkei 225 is reviewed annually at the beginning of October. Stocks with high market liquidity are added and those with low liquidity are deleted. At the same time, to take changes in the industry structure into account, the balance of the sectors, in terms of the number of constituents, is examined. Liquidity of a stock is assessed by the two measures: “trading value” and “magnitude of price fluctuation by volume,” which is calculated as (High price/Low price) / Volume. Among stocks on the TSE First Section, the top 450 stocks in terms of the liquidity are selected to form the “high liquidity group.” Those constituents not in the high liquidity group are deleted. Those non-constituent stocks which are in the top 75 of the high liquidity group are added. After examining the result of the liquidity deletions and additions, constituents are also deleted and added to balance the number of constituents among the six sectors described above, and to make the total number of the constituents equal 225. Among the 450 “high liquidity” stocks, half of those that belong to any sector is designated as the “appropriate number of stocks” for that sector. The actual number of constituents in a sector is then compared with its “appropriate number,” and if
 
 
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the actual number is larger or smaller than the “appropriate number,” then components are delete or added, as necessary. Stocks to be deleted are selected from stocks with lower liquidity and stocks to be added are selected from stocks with higher liquidity. Stocks selected according the foregoing procedures are candidates for addition or deletion, as applicable, and the final determinations will be made Nikkei Inc.
 
The Nikkei 225 is also reviewed on an ongoing basis in response to extraordinary developments, such as bankruptcies or mergers. A Nikkei Underlying Stock may be deleted or added by Nikkei Inc. Any stock becoming ineligible for listing in the TSE First Section due to any of the following reasons will be removed from the Nikkei 225: (i) designated to “securities to be delisted,” i.e. “Seiri Meigara” or delisted due to bankruptcy, including filing for Corporate Reorganization Act, Civil Rehabilitation Act, or liquidation; (ii) delisted due to corporate restructuring such as merger, share exchange or share transfer, (iii) designated to “securities to be delisted” or delisted due to excel debt or other reasons; or (iv) transfer to the TSE Second Section. In addition, a component stock designated to “securities under supervision,” i.e. “Kanri Meigara” become deletion candidates. However, decision to delete such candidates will be made by examining the sustainability and the probability of delisting for each individual case. Upon deletion of a stock from the Nikkei Underlying Stocks, Nikkei Inc. will select a replacement for such deleted Nikkei Underlying Stock in accordance with certain criteria. In an exceptional case, a newly listed stock in the TSE First Section that is recognized by Nikkei Inc. to be representative of a market may be added to the Nikkei Underlying Stocks. In such a case, an existing Nikkei Underlying Stock with low trading volume and deemed not to be representative of a market will be deleted by Nikkei Inc.
 
Nikkei Inc. revised the component selection rules for Nikkei 225 effective February 1, 2002. Previously, new constituents were removed and added immediately upon corporate failure events or after the close of the same day constituents filed for bankruptcy or were moved to Seiri-Post; however, in the face of recent economic conditions, new constituents are added after an interval that is approximately two days. The exact number of days will be announced at each event. Constituents which are moved to Seiri-Post continue to be removed on the day of the event. The Nikkei Average will be calculated with fewer than 225 constituents before the addition of new components.
 
Calculation of the Nikkei 225
 
The Nikkei 225 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) where the sum of the constituent stock prices, adjusted by the presumed par value, is divided by a divisor. It is calculated by (i) converting the Nikkei Underlying Stocks that do not have a par value of 50 yen to 50 yen par value, as described below, (ii) calculating the sum of the share prices of each Nikkei Underlying Stock and (ii) dividing such sum by a divisor (the “Divisor”). The Divisor was initially set at 225 for the date of May 16, 1949 using historical numbers from May 16, 1949, the date on which the TSE was reopened. The Divisor was 24.975 as of April 1, 2013, and is subject to periodic adjustments as set forth below. Most listed companies in Japan have a par value of 50 yen. All companies included in the Nikkei 225 are given an equal weighting based on a par value of 50 yen. Stocks with irregular par values are modified to reflect a 50 yen par value. For example, a stock with a 500 yen par value will have its share price divided by 10 to give a 50 yen par value price. The stock prices used in the calculation of the Nikkei 225 are those reported by a primary market for the Nikkei Underlying Stocks (currently the TSE). The level of the Nikkei 225 is calculated every 15 seconds since January 5, 2010 during TSE trading hours.
 
In order to maintain continuity in the Nikkei 225 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 is adjusted in a manner designed to prevent any instantaneous change or discontinuity in the level of the Nikkei 225. 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 immediately after such change) will equal the level of the Nikkei 225 immediately prior to the change.
 
 
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License Agreement with Nikkei Inc. and Disclaimers
 
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, 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 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 under exclusive agreement with Nikkei Inc. Nikkei Inc. and Nikkei Digital Media Inc. are collectively referred to as the “Nikkei 225 Sponsor.”
 
THE SECURITIES ARE NOT IN ANY WAY SPONSORED, ENDORSED OR PROMOTED BY THE NIKKEI 225 SPONSOR. THE NIKKEI 225 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 OR THE FIGURE AT WHICH THE NIKKEI 225 STANDS AT ANY PARTICULAR DAY OR OTHERWISE. THE NIKKEI 225 IS COMPILED AND CALCULATED SOLELY BY THE NIKKEI 225 SPONSOR. HOWEVER, THE NIKKEI 225 SPONSOR SHALL NOT BE LIABLE TO ANY PERSON FOR ANY ERROR IN THE NIKKEI 225 AND THE NIKKEI 225 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 Sponsor gives no assurance regarding any modification or change in any methodology used in calculating the Nikkei 225 and is under no obligation to continue the calculation, publication and dissemination of the Nikkei 225.
 
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. The stocks listed on the TSE are divided into a first section (the “TSE First Section”) for large companies, a second section (the “TSE Second Section”) for mid-sized companies and the Mothers (market of the high-growth and emerging stocks) for high-growth startup companies. Stocks listed on the TSE First Section are usually limited to longer established and more actively traded issues and stocks listed on the TSE Second Section are usually smaller newly listed companies.
 
Due to the time zone difference, on any normal trading day the TSE will close prior to the opening of business in New York City on the same calendar day. Therefore, the closing level of the Nikkei 225 on any 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 Nikkei 225 may be limited by price limitations or special quotes, or by suspension of trading
 
 
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on individual stocks that make up the Nikkei 225, and these limitations, in turn, may adversely affect the value of the securities.
 
 
 
 
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PHILADELPHIA OIL SERVICE SECTORSM INDEX
 
Unless otherwise stated, we have derived all information regarding the Philadelphia Oil Service SectorSM Index provided in this underlying supplement, including, without limitation, its composition, method of calculation and changes in components, from publicly available sources. We have not independently verified such information. Such information reflects the policies of, and is subject to change by, NASDAQ OMX. NASDAQ OMX is under no obligation to continue to publish, and may discontinue or suspend the publication of, the Philadelphia Oil Service SectorSM Index at any time.
 
The Philadelphia Oil Service SectorSM Index is calculated, maintained and published by NASDAQ OMX, and reported by Bloomberg L.P. under the ticker symbol “OSX.”  The Philadelphia Oil Service SectorSM Index is a price-weighted index currently composed of fifteen companies (the “Index Securities”) whose primary lines of business are in the oil services sector.
 
Calculation of the Philadelphia Oil Service SectorSM Index
 
The Philadelphia Oil Service SectorSM Index is a price-weighted index. The value of the Philadelphia Oil Service SectorSM Index equals the aggregate value of the index share weights, also known as the Index Shares, of each of the Index Securities multiplied by each such security’s last sale price, and divided by the divisor of the Philadelphia Oil Service SectorSM Index. The divisor serves the purpose of scaling such aggregate value to a lower order of magnitude which is more desirable for index reporting purposes. If trading in an Index Security on its primary listing market is halted while the market is open, the most recent last sale price for that security is used for all index computations until trading on such market resumes. Likewise, the most recent last sale price is used if trading in an Index Security is halted on its primary listing market before the market is open. The Philadelphia Oil Service SectorSM Index began publishing on December 31, 1996 at a base value of 75.
 
The formula for calculating the index value is as follows:
 
Aggregate Adjusted Market Value
Divisor

The divisor is determined as follows:
 
Market Value after Adjustments
´
Divisor before
Adjustments
Market Value before Adjustments

The Philadelphia Oil Service SectorSM Index is ordinarily calculated without regard to cash dividends on the Index Securities. The Philadelphia Oil Service SectorSM Index is calculated during the trading day and is disseminated once per second from 09:30:01 to 17:16:00 Eastern Time. The closing value of the Philadelphia Oil Service SectorSM Index may change up until 17:15:00 Eastern Time due to corrections to the last sale price of the Index Securities.
 
Eligibility
 
Eligibility for inclusion in the Philadelphia Oil Service SectorSM Index is limited to specific security types only. The security types eligible for the Philadelphia Oil Service SectorSM Index include foreign or domestic common stocks, ordinary shares, American Depositary Receipts, shares of beneficial interest or limited partnership interests, and tracking stocks. Security types not included in the Philadelphia Oil Service SectorSM Index are closed-end funds, convertible debentures, exchange traded funds, preferred stocks, rights, warrants, units and other derivative securities.
 
Initial Security Eligibility Criteria
 
To be included in the Philadelphia Oil Service SectorSM Index, a security must meet the following criteria:
 
 
·
a security must be listed on the Nasdaq Stock Market, the New York Stock Exchange, or NYSE AMEX;
 
 
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·
the issuer of the security must be classified, as reasonably determined by NASDAQ OMX, as a company whose primary business is in the oil services sector;
 
 
·
only one class of security per issuer is allowed;
 
 
·
the security must have a market capitalization of at least $100 million;
 
 
·
the security must have traded at least 1.5 million shares in each of the last six months;
 
 
·
the security must have listed options on a recognized options market in the U.S. or be eligible for listed-options trading on a recognized options market in the U.S.;
 
 
·
the security may not be issued by an issuer currently in bankruptcy proceedings;
 
 
·
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 Philadelphia Oil Service SectorSM Index eligible;
 
 
·
the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn; and
 
 
·
the issuer of the security must have “seasoned” on a recognized market for at least 6 months; in the case of spin-offs, the operating history of the spin-off will be considered.
 
For the purposes of 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.
 
Continued Security Eligibility Criteria
 
To be eligible for continued inclusion in the Philadelphia Oil Service SectorSM Index, an Index Security must meet the following criteria:
 
 
·
the security must be listed on the Nasdaq Stock Market, the New York Stock Exchange, or NYSE AMEX;
 
 
·
the issuer of the security must be classified, as reasonably determined by NASDAQ OMX, as a company whose primary business is in the oil services sector (Index Securities as of October 31, 2008 will be grandfathered for index classification purposes unless there is a material changes in its business line);
 
 
·
the security must have a market capitalization of at least $60 million;
 
 
·
the security may not be issued by an issuer currently in bankruptcy proceedings; and
 
 
·
the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn.
 
Component Replacement Criteria
 
In the event that a security no longer meets the Continued Security Eligibility Criteria, it will be replaced with a security that meets all of the Initial Security Eligibility Criteria and additional criteria which follows. Securities eligible for inclusion will be ranked in descending order by market value, current price and greatest percentage price change over the previous six months. The security with the highest overall ranking will be added to the Philadelphia Oil Service SectorSM Index provided that the Philadelphia Oil Service SectorSM Index then meets the following criteria:
 
 
·
no single Index Security is greater than 20% of the weight of the Philadelphia Oil Service SectorSM Index and the top 5 Index Securities are not greater than 55% of the weight of the Philadelphia Oil Service SectorSM Index; and
 
 
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·
no more than 15% of the weight of the Philadelphia Oil Service SectorSM Index is composed of non-U.S. component securities that are not subject to comprehensive surveillance agreements.
 
In the event that the highest-ranking security does not permit the Philadelphia Oil Service SectorSM Index to meet the above criteria, the next highest-ranking security will be selected and the Philadelphia Oil Service SectorSM Index criteria will again be applied to determine eligibility. The process will continue until a qualifying replacement security is selected.
 
Continued Index Eligibility Criteria
 
In addition to the security eligibility criteria, the Philadelphia Oil Service SectorSM Index as a whole must meet the following criteria on a continual basis unless otherwise noted:
 
 
·
no single Index Security is greater than 25% of the weight of the Philadelphia Oil Service SectorSM Index and the top 5 Index Securities are not greater than 60% of the weight of the Philadelphia Oil Service SectorSM Index (measured semiannually the first trading day in January and July);
 
 
·
no more than 18% of the weight of the Philadelphia Oil Service SectorSM Index is composed of non-U.S. Index Securities that are not subject to comprehensive surveillance agreements;
 
 
·
the total number of Index Securities has not increased or decreased by 33⅓% of the Philadelphia Oil Service SectorSM Index and in no event will be less than nine;
 
 
·
Index Securities representing at least 95% of the weight of the Philadelphia Oil Service SectorSM Index has a market capitalization of $75 million;
 
 
·
Index Securities representing at least 92% of the weight of the Philadelphia Oil Service SectorSM Index and at least 82% of the total number of Index Securities meet the security options eligibility rules; and
 
 
·
Index Securities must have trading volume of at least 600,000 shares for each of the last 6 months except that for each of the lowest weighted Index Securities that in the aggregate account for no more than 5% of the weight of the Philadelphia Oil Service SectorSM Index, trading volume must be at least 500,000 shares for each of the last six months.
 
In the event the Philadelphia Oil Service SectorSM Index does not meet the criteria, the index composition will be adjusted to ensure that the Philadelphia Oil Service SectorSM Index meets the criteria. Index Securities that contribute to the Philadelphia Oil Service SectorSM Index not meeting the eligibility criteria may be removed. Index Securities may be added and/or replaced according to the component replacement rules to ensure compliance with the Continued Index Eligibility Criteria. Ordinarily, a security is removed from the Philadelphia Oil Service SectorSM Index at its last sale price. If, however, at the time of its removal the Index Security is halted from trading on its primary listing market and an official price cannot readily be determined, the Index Security may, on NASDAQ’s discretion, be removed at a zero price.
 
Philadelphia Oil Service SectorSM Index Maintenance
 
Changes in the price of the Index Securities driven by corporate events such as stock dividends, splits, and certain spin-offs will be adjusted on the ex-date and the shares shall remain fixed.
 
In the case of a special cash dividend, NASDAQ OMX will determine on an individual basis whether to make a change to the price of an Index Security in accordance with its Philadelphia Oil Service SectorSM Index dividend policy. If it is determined that a change will be made, it will become effective on the ex-date and advance notification will be made.
 
Ordinarily, whenever there is a change in the price of an Index Security due to stock dividends, stock splits, spin-off, rights issuances or special cash dividends, the divisor is adjusted to ensure that there is no discontinuity in the value of the Philadelphia Oil Service SectorSM Index, which might otherwise be caused by any such change. All
 
 
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changes are announced in advance and will be reflected in the Philadelphia Oil Service SectorSM Index prior to market open on the effective date of the Philadelphia Oil Service SectorSM Index.
 
In administrating the Philadelphia Oil Service SectorSM Index, NASDAQ OMX will exercise discretion as it deems appropriate to ensure Philadelphia Oil Service SectorSM Index integrity.
 
License Agreement
 
The NASDAQ OMX Group, Inc. and Citigroup Global Markets Inc. have entered into a non-exclusive license agreement providing license to Citigroup Global Markets Inc. and certain of its affiliated companies, in exchange for a fee, of the right to use the Philadelphia Oil Service SectorSM Index, which is owned and published by NASDAQ OMX, in connection with securities, including the securities.
 
The license agreement between NASDAQ OMX and Citigroup Global Markets Inc. provides that the following language must be set forth 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 Philadelphia Oil Service SectorSM Index to track general stock market performance. The Corporations’ only relationship to Citigroup Inc. (“Licensee”) is in the licensing of the Nasdaq®, OMX®, and Philadelphia Oil Service SectorSM Index registered trademarks, and certain trade names of the Corporations and the use of the Philadelphia Oil Service SectorSM Index which is determined, composed and calculated by NASDAQ OMX without regard to Licensee or the securities. NASDAQ OMX has no obligation to take the needs of the Licensee or the owners of the securities into consideration in determining, composing or calculating the Philadelphia Oil Service SectorSM 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 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 PHILADELPHIA OIL SERVICE SECTORSM INDEX OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE PHILADELPHIA OIL SERVICE SECTORSM 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 PHILADELPHIA OIL SERVICE SECTORSM 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.
 
“Nasdaq®,” “OMX®,” “Philadelphia Oil Service SectorSM” and “OSXSM” are registered trademarks or service marks of NASDAQ OMX and have been licensed for use by Citigroup Global Markets Inc. and its affiliates. The securities have not been passed on by the Corporations as to their legality or suitability. The securities are not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE SECURITIES.
 
 
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RUSSELL INDICES
 
We have derived 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, from publicly available information. We have not independently verified such information. Such information reflects the policies of, and is subject to change by, Russell Investments (“Russell”). The Russell Indices were developed by Russell Investment Group (formerly, Frank Russell Company) and are calculated, maintained and published by Russell, a subsidiary of Russell Investment Group. 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 a major U.S. exchange. The companies included in the Russell 1000® Index are the 1,000 largest companies that form the Russell 3000ETM Index, which is composed of the 4,000 largest U.S. companies as determined by 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 1000® Growth Index
 
The Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000® Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000® Growth Index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect growth characteristics.
 
The Russell 1000® Growth Index is reported by Bloomberg L.P. under the ticker symbol “RLG.”
 
The Russell 2000® Index
 
The Russell 2000® Index measures the capitalization-weighted price performance of the small-cap 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 a major U.S. exchange. The companies included in the Russell 2000® Index are the middle 2,000 of the companies that form the Russell 3000ETM Index, which is composed of the 4,000 largest U.S. companies as determined by 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 2000® 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 a major U.S. exchange. The companies included in the Russell 3000® Index are the 3,000 largest U.S. companies that form the Russell 3000ETM Index, which is composed of the 4,000 largest U.S. companies as determined by 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 3000ETM Index, and represents approximately 98% of the U.S. equity market. The Russell 3000ETM Index is not the same as the Russell 3000® Index, which is a subset of the Russell 3000ETM Index.
 
The Russell 3000® Index is reported by Bloomberg L.P. under the ticker symbol “RAY.”
 
 
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Selection of Stocks Underlying the Russell Indices
 
The Russell Indices are sub-indices of the Russell 3000ETM Index. To be eligible for inclusion in the Russell 3000ETM 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 Russell must have access to documentation verifying the company’s eligibility for inclusion. Eligible initial public offerings 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, initial public offerings must meet additional eligibility criteria.
 
U.S. companies are eligible for inclusion in the Russell 3000ETM Index and, consequently, the Russell Indices. 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, Russell then defines 3 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 2-year average daily dollar trading volume (ADDTV) 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. 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, 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. In 2011, Russell began using an average of two years of assets or revenues data for analysis to reduce potential turnover.
 
      If conclusive country details cannot be derived from assets or revenue, 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, Isle of Man, Liberia, Marshall Islands, Panama, Saba, Sint Eustasius, Sint Maarten and Turks and Caicos Islands.
 
The following securities are specifically excluded from the Russell Indices: (i) stocks that are not traded on a major U.S. exchange; (ii) preferred stock, convertible preferred stock, redeemable shares, participating preferred stock, warrants, rights and trust receipts; (iii) royalty trusts, limited liability companies, closed-end investment companies (business development companies or BDCs are eligible), blank check companies, special purpose acquisition companies (SPACs) and limited partnerships.
 
The primary criteria used to determine the initial list of securities eligible for the Russell 3000ETM Index is total market capitalization, which is defined as the price of the shares times the total number of available shares. All common stock share classes are combined in determining market capitalization. If multiple share classes have been combined, the price of the primary trading vehicle (usually the most liquid) is used in the calculations. In cases where the common stock share classes act independently of each other (e.g., tracking stocks), each class is considered for inclusion separately. Stocks must trade at or above $1.00 (on their primary exchange) on the last trading day in May of each year to be eligible for inclusion in any Russell Index. In order to reduce unnecessary turnover, if an existing Component Stock’s closing price is less than $1.00 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. Quarterly IPO additions must have a close price at or above $1.00 on the last day of
 
 
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their eligibility period in order to qualify for index inclusion. If a stock, new or existing, does not have a close price at or above $1.00 (on its primary exchange) on the last trading day in May, but does have a close price at or above $1.00 on another major U.S. exchange, the stock will be eligible for inclusion.
 
Companies with only a total market capitalization of less than $30 million are not eligible for inclusion in the Russell 3000ETM Index and, consequently, the Russell Indices. Companies with only a small portion of their shares available in the marketplace are not eligible for inclusion in the Russell 3000ETM Index and, consequently, the Russell Indices. Companies with 5% or less float will be removed from eligibility.
 
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 effective on the first trading day following the final Friday of June each year, except that if the last Friday of June of any year is the 28th, 29th or 30th, reconstitution will occur on the preceding Friday. Changes in the constituents are pre-announced and subject to change if any corporate activity occurs or if any new information is received prior to release.
 
Capitalization Adjustments
 
As a capitalization-weighted index, the each Russell Index reflects changes in the capitalization, or market value, of the Component Stocks relative to the capitalization on a base date. The current value of each Russell Index is calculated by adding the market values of the Component Stocks, which are derived by multiplying the price of each stock by the number of available shares, to arrive at the total market capitalization of the 2,000 stocks. The total market capitalization is then divided by a divisor, which represents the “adjusted” capitalization of the applicable Russell Index on the base date of December 31, 1986. To calculate the Russell Indices, last sale prices will be used for exchange-traded and NASDAQ stocks. If a Component Stock is not open for trading, the most recently traded price for that security will be used in calculating the Russell Indices. In order to provide continuity for the value of the Russell Indices, the applicable divisor is adjusted periodically to reflect events including changes in the number of common shares outstanding for Component Stocks, company additions or deletions, corporate restructurings and other capitalization changes.
 
Available shares are assumed to be shares available for trading. Exclusion of capitalization held by other listed companies and large holdings of private investors (10% or more) is based on information recorded in SEC corporate filings, including DEF 14, 424B and 10K filings (but not 13F filings), or other reliable sources in the event of missing or questionable data.
 
The following types of shares are considered unavailable for the purposes of capitalization determinations: