Citi Flexible Allocation 6 Excess Return Index Index Methodology. Citi Investment Strategies

Transcription

1 Citi Flexible Allocation 6 Excess Return Index Citi Investment Strategies 2 February 2016

2 Table of Contents Citi Investment Strategies Part A: Introduction 2 Part B: Key Information 4 Part C: Calculation of the Index Level 7 Part D: Data 28 Part E: Specific Risks 34 Part F: Index Specific Disclaimers 41 Index General Conditions Section A: Introduction 2 Section B: Valuations and Adjustments 5 Section C: General Risks 9 Section D: Definitions 16 Section E: Miscellaneous 20 Section F: Constituent Schedules 24 1

3 Part A: Introduction 2

4 Introduction Citi Investment Strategies This document constitutes the "" in respect of the Index (as defined below) and is made available by Citigroup Global Markets Limited in its capacity as the Index Sponsor. This dated 2 February 2016 and the Index General Conditions dated 26 October 2015 (as amended from time to time, the "Index General Conditions") together comprise the Index Conditions applicable to the Index and must be read together. In the case of any inconsistency between this Index Methodology and the Index General Conditions, this shall prevail in respect of the Index. Full information in respect of the Index is only available on the basis of the combination of this Index Methodology and the Index General Conditions. Full information in respect of any Index Linked Product is only available on the basis of the combination of this and the Index General Conditions and the confirmation, prospectus or offering document (however described) in respect of such Index Linked Product. This may be amended in the circumstances described in Section E (Miscellaneous), and will be available from the Index Sponsor. See Section E (Miscellaneous) of the Index General Conditions for a description of the circumstances in which a change to this may be required. Terms used in this but not defined in this shall have the meanings given to them in the Index General Conditions. 3

5 Part B: Key Information 4

6 Key Information Citi Investment Strategies Index: Summary of strategy: (the "Index"). The Index is a notional rules-based proprietary index developed by the Index Sponsor. The Index is a volatility-targeted index that tracks the excess return (i.e., the return above a cash rate) of the performance of a Core Index representing a notional long position in either: (a) (b) a Core Asset composed of a notional basket of four distinct asses classes: equities, commodities, US real estate and fixed income; or a Reserve Asset, composed of commodities and fixed income assets, in each case, as further described in Part D (Data) below, depending on the monthly observation of output of an algorithmic indicator or "signal". The signal is based on a Trend Indicator in respect of the Core Asset which aims to model the recent directional performance of the Core Asset over a specified Trend Look Back Period of up to 120 Index Business Days and a backward-looking indicator of macro-economic sentiment or risk, being the Citi Risk Aversion Indicator Index (the "Citi RAI Index"). Asset selection and Index rebalancing (whereby the weights of the relevant constituents forming part of the Index are reset to their fixed weights, as specified in Part D (Data) below) takes place on a monthly basis (subject to the occurrence of an Additional Rebalancing Date) and, in certain circumstances described below, the relative exposure of the Index to the Core Index, representing the Core Asset or the Reserve Asset (as the case may be) may be adjusted on a daily basis. All assets in the basket are together the "Eligible Constituents" of the Index and the assets selected to form part of the Index are together the "Constituents" of the Index, each as defined in Section D (Definitions) of the Index General Conditions. The performance of the Constituents is reflected in the Core Index. The exposure of the Index to the Core Index is adjusted, potentially on a daily basis, so that the annualised volatility of the Index is maintained as close as practicable to a target level of 6%, as determined with reference to the recent volatility of the Core Index. The exposure of the Index to the Core Index is designed not to exceed 100%. Index Sponsor: Citigroup Global Markets Limited Index Calculation Agent: S&P Dow Jones Indices LLC and/or its subsidiaries (as applicable) Index Base Currency: US dollars ("USD") Index Launch Date: 18 July 2014 Index Start Date: 31 March 1997 Index Start Level: 100 5

7 Core Index Start Date: 6 February 1997 Core Index Start Level: 100 Core Asset Start Date: 5 January 1996 Core Asset Start Level: 100 Reserve Asset Start Date: 5 January 1996 Reserve Asset Start Level: 100 Index Fee: Frequency of calculation of the Index Level: Frequency of rebalancing: Index Electronic Page: Not Applicable. However, note the overall notional index cost associated with change in exposure to the Core Index, the notional core index cost associated with a change in exposure to the Core Asset or the Reserve Asset as a result of a change in signal, and the notional transaction and replication costs associated with the individual constituents weights and levels, as described in paragraphs 2.6 (Index Cost), 2.7 (Core Cost), 2.8 (Transaction Costs) 2.9 (Weight) and 2.5 (Index Constituent Levels), respectively, of Part C (Calculation of the Index Level) Daily, as of each Index Business Day Monthly, as of each Rebalancing Date Bloomberg page: CIISFM6E <Index> The Index was launched by the Index Sponsor as of the Index Launch Date and has been calculated by the Index Calculation Agent for the period from the Index Start Date. Any back-testing or similar performance analysis undertaken by any person in respect of the Index for any reason must be considered illustrative only and may be based on assumptions or estimates not used by the Index Calculation Agent when determining the Index Level. The Citi RAI Index is a proprietary index of the Index Sponsor which tracks the performance of specified indicators to serve as a proxy for estimating the level of general market risk aversion. Such indicators include emerging market sovereign spreads, US credit spreads, the cost of credit protection against corporate default and implied foreign exchange, equity and swap rate volatilities. Further information relating to the Citi RAI Index is available free of charge upon request to Citigroup Global Markets Limited. 6

8 Part C: Calculation of the Index Level 7

9 Calculation of the Index Level Citi Investment Strategies 1. INTRODUCTION The Index Sponsor is Citigroup Global Markets Limited. As at the date of this, the Index Sponsor has appointed S&P Dow Jones Indices LLC and/or its subsidiaries (as applicable) as Index Calculation Agent to calculate and publish the Index in accordance with the Index Conditions. The Index Sponsor may, in its sole discretion and without notice, appoint an alternative Index Calculation Agent at any time which may be one of its Affiliates. The Index Calculation Agent's calculations of the Index Level shall be final in the absence of manifest error. Please refer to Section E (Miscellaneous) of the Index General Conditions for further information. The Index Level is calculated by the Index Calculation Agent as of the Index Valuation Time on each Index Business Day (each as defined in Table 7 (Defined Terms) of Part D (Data) below). The Index Level for each Index Business Day is published on the Index Electronic Page, generally on the following Index Business Day. This should be considered the official source for the Index Level and a level obtained from any other source (electronic or otherwise) must be considered unofficial. The Index Level is the closing level of the Index for the relevant Index Business Day. The Index Calculation Agent may also, but is not obliged to, calculate the level of the Index in respect of any other valuation time on any Index Business Day or any other day with the consent of the Index Sponsor. All of the calculations and determinations described in this Part C are the responsibility of the Index Calculation Agent. The calculations and determinations in this Part C are subject to the occurrence of, and adjustments made as a consequence of, Additional Adjustment Events as set out below in this Part C, Disrupted Days and Adjustment Events (as described in Section B (Valuations and Adjustments) and Section F (Constituent Schedule) of the Index General Conditions). 2. DAILY INDEX CALCULATION 2.1 Index Level The "Index Level" as of the Index Start Date shall be USD100 (the Index Start Level). The "Index Level" as of each Index Business Day t following the Index Start Date shall be an amount determined by the Index Calculation Agent as of the Index Valuation Time on such Index Business Day t in accordance with the following formula: where: Index t = Index t 1 x {1 + Exp t 1 x [ CoreIndex t CoreIndex t 1 1]} IndexCost t 1 Index t = Index Level on Index Business Day t Index t-1 = Index Level on the Index Business Day immediately preceding Index Business Day t CoreIndex t = Core Index Level on Index Business Day t, as determined in accordance with paragraph 2.2 (Core Index Level) CoreIndex t-1 = Core Index Level on the Index Business Day immediately preceding Index Business Day t, as determined in accordance with paragraph 2.2 (Core Index Level) Exp t-1 = Exposure (as defined below) of the Index to the Core Index as of the Index Business Day immediately preceding Index Business Day t, as determined in accordance with paragraph (1) of 2.2 8

10 below IndexCost t-1 = The notional cost in respect of any change in the Exposure of the Index to the Core Index as of the Index Business Day immediately preceding Index Business Day t, as determined in accordance with paragraph 2.6 (Index Cost) below 2.2 Core Index Level The Core Index Level on the Core Index Start Date was the Core Index Start Level. The "Core Index Level" as of each Index Business Day t following the Core Index Start Date shall be an amount determined by the Index Calculation Agent on such Index Business Day t in accordance with the following formula: CoreIndex t = CoreIndex r x [1 + Signal k x ( CoreAssetER t 1) + (1 Signal CoreAssetER k ) ( ReserveAssetER t 1)] r ReserveAssetER r CoreCost r where: CoreIndex t = Core Index Level on Index Business Day t. CoreIndex r = Core Index Level on Rebalancing Date r immediately preceding Index Business Day t (or, if such Rebalancing Date r falls prior to the Core Index Start Date, the Core Index Start Level) CoreAssetER t = Core Asset ER Level on Index Business Day t, as determined in accordance with paragraph 2.3 (Core Asset ER Level) CoreAssetER r = Core Asset ER Level on Rebalancing Date r immediately preceding Index Business Day t (or, if such Rebalancing Date r falls prior to the Core Index Start Date, the Core Asset Start Level), as determined in accordance with paragraph 2.3 (Core Asset ER Level) ReserveAssetER t = Reserve Asset ER Level on Index Business Day t, as determined in accordance with paragraph 2.4 (Reserve Asset ER Level) ReserveAssetER r = Reserve Asset ER Level on Rebalancing Date r immediately preceding Index Business Day t, as determined in accordance with paragraph 2.4 (Reserve Asset ER Level) Signal k = The value of Signal (being either 1 or 0) on the Selection Day immediately preceding the Rebalancing Date r immediately preceding Index Business Day t, as determined in accordance with paragraph 3 (Notional Asset Selection and Rebalancing Process) CoreCost r = The notional transaction costs in respect of any change in the exposure of the Core Index to the Core Asset or the Reserve Asset on the Rebalancing Date r immediately preceding Index Business Day t, as determined in accordance with paragraph 2.7 (Core Cost) below 9

11 The Exposure of the Index to the Core Index (100% of which may consist of the Core Asset or the Reserve Asset) is determined on each Index Business Day. Such determination is made by reference to the short term realized volatility of the Core Index over a period of 21 Index Business Days commencing on, and including, the 23rd Index Business Day before Index Business Day t and ending on, and including, the third Index Business Day before Index Business Day t. The Exposure of the Index to the Core Index will never be more than 100%. The Exposure of the Index to the Core Index shall never be less than 0%. (1) The "Exposure" (Exp t ) in respect of each Index Business Day (following the Index Start Date) shall be an amount (expressed as a percentage) determined by the Index Calculation Agent in accordance with the formula set out below: (a) Exp t = Th_Exposure t if abs(th_exposure t Exp t 1 ) > 10% or (b) in any other case, Exp t = Exp t 1 where: Th_Exposure t = min ( VolatilityTarget RV t, 100%) The Exp t for the Index Start Date shall be equal to the Th_Exposure t for the Index Start Date. where: Exp t = The Exposure of the Index to the Core Index on Index Business Day t Exp t-1 = The Exposure of the Index to the Core Index on the Index Business Day immediately preceding Index Business Day t. Th_Exposure t = The Theoretical Exposure of the Index to the Core Index on Index Business Day t min = The lower of the two values within the brackets and separated by a comma RV t = Realized Volatility (as defined in paragraph (2) below) of the Core Index on Index Business Day t Volatility Target = 6% (2) The "Realized Volatility" of the Core Index in respect of any Index Business Day t (falling on or after the Index Start Date, and the Index Start Date shall be deemed to be an Index Business Day for the purposes of this calculation) shall be an amount (expressed as a percentage) determined by the Index Calculation Agent in accordance with the following formula: 2 CoreAssetER x (ln ( i ) ) (ln ( CoreAssetER 2 t 2 t 2 i n i=t 22 CoreAssetER i=t 22 ) ) i 1 CoreAssetER i 1 RV t = Signal k x x 252 n x (n 1) 2 x t 2 ReserveAssetER (ln ( i n i=t 22 ) ) (ln ( ReserveAssetER 2 t 2 i ReserveAssetER i=t 22 ) ) i 1 ReserveAssetER i 1 + (1 Signal k ) x n x (n 1) x252 where: RV t = Realized Volatility of the Core Index Level as of any Index Business Day t 10

12 t 2 i t 22 = Citi Investment Strategies The sum of the series of values achieved by calculating the formula following such symbol from Index Business Day t-22 to Index Business Day t-2 (inclusive), such that, for example: t 2 ( i t 22 i y) = [((t-22) + y) + ((t-21) + y) + ((t-20) + y)..((t-2)+ y)] i = In respect of an Index Business Day t, represents each of the 21 consecutive Index Business Days in the sequence from, and including, the 22 nd Index Business Day prior to such Index Business Day t to, and including, the 2 nd Index Business Day prior to such Index Business Day t CoreAssetER i = Core Asset ER Level on Index Business Day i, as determined in accordance with paragraph 2.3 (Core Asset ER Level) CoreAssetER i-1 = Core Asset ER Level on Index Business Day immediately preceding Index Business Day i, as determined in accordance with paragraph 2.3 (Core Asset ER Level) ReserveAssetER i ReserveAssetER i-1 Signal k = Reserve Asset ER Level on Index Business Day i as determined in accordance with paragraph 2.4 (Reserve Asset ER Level) = Reserve Asset ER Level on the Index Business Day immediately preceding Index Business Day i as determined in accordance with paragraph 2.4 (Reserve Asset ER Level) = The value of Signal (being either 1 or 0) on the Selection Day immediately preceding the Rebalancing Date r immediately preceding Index Business Day t, as determined in accordance with paragraph 3 (Notional Asset Selection and Rebalancing Process) ln = The natural logarithmic function n = Core Asset ER Level The Core Asset ER Level on the Core Asset Start Date was the Core Asset Start Level. The "Core Asset ER Level" as of each Index Business Day t following the Core Asset Start Date shall be an amount determined by the Index Calculation Agent on such Index Business Day t in accordance with the following formula: where: CoreAssetER t = CoreAssetER r x [1 + ( CoreAsset t 1) ( USD3M r r) ) x (dc(t, CoreAsset r )] CoreAssetER t = Core Asset ER Level on Index Business Day t CoreAssetER r = Core Asset ER Level on the Rebalancing Date 11

13 immediately preceding Index Business Day t (or, if such Rebalancing Date r falls prior to the Core Asset Start Date, the Core Asset Start Level) CoreAsset t CoreAsset r USD3M r dc(t, r) = Core Asset Level on Index Business Day t, as determined in accordance with paragraph (Core Asset Level) below = Core Asset Level on the Rebalancing Date immediately preceding Index Business Day t (or, if such Rebalancing Date r falls prior to the Core Asset Start Date, the Core Asset Start Level), as determined in accordance with paragraph (Core Asset Level) below = 3-month LIBOR observed as of 11 a.m. London time on the Rebalancing Date immediately preceding Index Business Day t (or, if such Rebalancing Date r falls prior to the Core Asset Start Date, as of 11 a.m. London time on the Core Asset Start Date) (as displayed on Bloomberg page <US0003M Index> or such other alternative or successor page), provided that if such rate is unavailable for any reason, the applicable rate shall be the rate prevailing as of the preceding Index Business Day for which such rate is available = The number of calendar days in the period from, and including, the Rebalancing Date r immediately preceding Index Business Day t (or, if such Rebalancing Date r falls prior to the Core Asset Start Date, from, and including, the Core Asset Start Date) to, but excluding, Index Business Day t Core Asset Level The "Core Asset Level" as of each Index Business Day t falling on or after the Core Asset Start Date (and the Core Asset Start Date shall be deemed to be an Index Business Day for the purposes of this calculation) shall be an amount determined by the Index Calculation Agent on such Index Business Day t in accordance with the following formula: where: 9 CoreAsset t = ( W i,r x CAConstituent i,t ) i=1 CoreAsset t W i,r = Core Asset Level on Index Business Day t = Weight of Constituent i of the Core Asset on the immediately preceding Rebalancing Date r, as determined in accordance with paragraph (Weight of each Constituent i of Core Asset) below CAConstituent i,t = CA Constituent Level of Constituent i on Index Business Day t, as determined in accordance with paragraph (Core Asset Constituent Level) below 12

14 2.4 Reserve Asset ER Level The Reserve Asset ER Level on the Reserve Asset Start Date was the Reserve Asset Start Level. The "Reserve Asset ER Level" as of each Index Business Day t following the Reserve Asset Start Date shall be an amount determined by the Index Calculation Agent as of the Index Valuation Time on such Index Business Day t in accordance with the following formula: where: ReserveAssetER t = ReserveAssetER r x [1 + ( ReserveAsset t 1) ( USD3M r r) ) x (dc(t, ReserveAsset r )] ReserveAssetER t = Reserve Asset ER Level on Index Business Day t. ReserveAssetER r ReserveAsset t ReserveAsset r USD3M r dc(t, r) = Reserve Asset ER Level on Rebalancing Date r immediately preceding Index Business Day t (or, if such Rebalancing Date r falls prior to the Reserve Asset Start Date, the Reserve Asset Start Level) = Reserve Asset Level on Index Business Day t, as determined in accordance with paragraph (Reserve Asset Level) below = Reserve Asset Level on Rebalancing Date r (or, if such Rebalancing Date r falls prior to the Reserve Asset Start Date, the Reserve Asset Level on the Reserve Asset Start Date), as determined in accordance with paragraph (Reserve Asset Level) below = 3-month LIBOR observed as of 11 a.m. London time on the Rebalancing Date immediately preceding Index Business Day t (or, if such Rebalancing Date r falls prior to the Reserve Asset Start Date, as of 11 a.m. London time on the Reserve Asset Start Date) (as displayed on Bloomberg page <US0003M Index> or such other alternative or successor page), provided that if such rate is unavailable for any reason, the applicable rate shall be the rate prevailing as of the preceding Index Business Day for which such rate is available = The number of calendar days in the period from and including the Rebalancing Date r immediately preceding Index Business Day t (or, if such Rebalancing Date r falls prior to the Reserve Asset Start Date, from, and including, the Reserve Asset Start Date) to, but excluding, Index Business Day t Reserve Asset Level The "Reserve Asset Level" as of each Index Business Day t falling on or after the Reserve Asset Start Date (and the Reserve Asset Start Date shall be deemed to be an Index Business Day for the purposes of this calculation) shall be an amount determined by the Index Calculation Agent on such Index Business Day t in accordance with the following formula: where: ReserveAsset t = W Gold,r x Gold t + W USTR,r x USTR t 13

15 ReserveAsset t W Gold,r Gold t = Reserve Asset Level on Index Business Day t = Weight of Gold Index on Rebalancing Date r, as determined in accordance with paragraph (Weight of Gold Index) below = Gold Index Level on Business Day t, as determined in accordance with paragraph (Gold Index Level) below W USTR,r = Weight of USTR Index on Rebalancing Date r, as determined in accordance with (Weight of USTR Index) below USTR t = USTR Index Level on Business Day t, as determined in accordance with paragraph (US Treasury Notes Index Level) below 2.5 Index Constituent Levels Constituents of Core Asset: Core Asset Constituent Level In respect of each Constituent i of the Core Asset, the "CA Constituent Level" for each Constituent i as of any Index Business Day t shall be determined (for the purposes of determining the Core Asset Level and related calculations) in accordance with the following formula: where: CAConstituent i,t = CAConstituent i,r x [1 + (( CCL i,t dc(t, r) 1) nrc CCL i x i,r 365 )] CAConstituent i,t = CA Constituent Level of Constituent i of the Core Asset on Index Business Day t CAConstituent i,r = CA Constituent Level of Constituent i of the Core Asset on the Rebalancing Date immediately preceding Index Business Day t CCL i,t = Constituent Closing Level of Constituent i of the Core Asset on Index Business Day t, as determined in accordance with Section B (Valuations and Adjustments) of the Index General Conditions and the relevant Constituent Schedule CCL i,r = Constituent Closing Level of Constituent i of the Core Asset on the Rebalancing Date immediately preceding Index Business Day t, as determined in accordance with Section B (Valuations and Adjustments) of the Index General Conditions and the relevant Constituent Schedule nrc i = The notional replication cost specified in relation to each Constituent i of the Core Asset under the heading "NRC" pursuant to Table 4 (Particulars in respect of each Eligible Constituent of Core Asset) of Part D (Data) 14

16 dc(t,r) The number of calendar days from, and including, the Rebalancing Date immediately preceding Index Business Day t to, but excluding, Index Business Day t Constituents of Reserve Asset: Gold Index Level The "Gold Index Level" as of any Index Business Day t shall be determined (for the purposes of determining the Reserve Asset Level and related calculations) in accordance with the following formula: where: GoldIndex t = GoldIndex r x [1 + (( CCL t dc(t, r) 1) nrc x CCL r 365 )] GoldIndex t = Gold Index Level on Index Business Day t GoldIndex r = Gold Index Level on the Rebalancing Date immediately preceding Index Business Day t CCL t = Constituent Closing Level of the Gold Index on Index Business Day t, as determined in accordance with Section B (Valuations and Adjustments) of the Index General Conditions and the relevant Constituent Schedule CCL r = Constituent Closing Level of the Gold Index on the Rebalancing Date immediately preceding Index Business Day t, as determined in accordance with Section B (Valuations and Adjustments) of the Index General Conditions and the relevant Constituent Schedule nrc = The notional replication cost specified in relation to the Gold Index under the heading "NRC" pursuant to Table 5 (Particulars in respect of each Eligible Constituent of Reserve Asset) of Part D (Data) dc(t,r) The number of calendar days from, and including, the Rebalancing Date immediately preceding Index Business Day t to, but excluding, Index Business Day t US Treasury Notes Index Level The "USTR Index Level" as of any Index Business Day t shall be determined (for the purposes of determining the Reserve Asset Level and related calculations) in accordance with the following formula: where: USTRIndex t = USTRIndex r x [1 + (( CCL t dc(t, r) 1) nrc x CCL r 365 )] USTRIndex t = USTR Index Level on Index Business Day t USTRIndex r = USTR Index Level on the Rebalancing Date immediately 15

17 preceding Index Business Day t CCL t = Constituent Closing Level of the USTR Index on Index Business Day t, as determined in accordance with Section B (Valuations and Adjustments) of the Index General Conditions and the relevant Constituent Schedule CCL r = Constituent Closing Level of the USTR Index on the Rebalancing Date immediately preceding Index Business Day t, as determined in accordance with Section B (Valuations and Adjustments) of the Index General Conditions and the relevant Constituent Schedule nrc = The notional replication cost specified in relation to the USTR Index under the heading "NRC" pursuant to Table 5 (Particulars in respect of each Eligible Constituent of Reserve Asset) of Part D (Data) dc(t,r) The number of calendar days from, and including, the Rebalancing Date immediately preceding Index Business Day t to, but excluding, Index Business Day t 2.6 Index Cost The Index Cost (IndexCost t-1 ) is the notional cost in respect of any change in the Exposure of the Index Level to the Core Index Level in relation to the Index Business Day immediately preceding Index Business Day t. If there is no reallocation of assets between the Core Asset and the Reserve Asset in relation to an Index Business Day (i.e., the Core Index is exposed to the same Notional Asset as the previous Index Business Day), the Index Cost is calculated in accordance with the following formula: IndexCost t 1 = abs((exp t 1 Exp t 2 )) x (Signal k x TC CoreAsset + (1 Signal k ) x TC ReserveAsset ) x Index t 1 In any other case, the Index Cost is calculated in accordance with the following formula: IndexCost t 1 = 0 where: IndexCost t-1 = The notional transaction costs in connection with any change in Exposure of the Index to the Core Index in respect of the second Index Business Day immediately preceding Index Business Day t and the Index Business Day immediately preceding Index Business Day t, provided that the Index Cost t-1 in respect of the first Index Business Day t following the Index Start Date is zero. Exp t-1 = The Exposure of Index to the Core Index on the Index Business Day immediately preceding Index Business Day t Exp t-2 = The Exposure of Index to the Core Index on the second Index Business Day immediately preceding Index Business Day t Signal k = The value of Signal (being either 1 or 0) on the Selection Day immediately preceding the Rebalancing Date r immediately preceding Index Business Day t, as determined in accordance with paragraph 3 (Notional Asset Selection and Rebalancing Process) 16

18 Index t-1 = Index Level on the Index Business Day immediately preceding Index Business Day t TC CoreAsset = Notional transaction cost in respect of the Core Asset, as determined in accordance with paragraph 2.8(a) below TC ReserveAsset = Notional transaction cost in respect of the Reserve Asset, as determined in accordance with paragraph 2.8(b) below 2.7 Core Cost The Core Cost (CoreCost r ) is the notional transaction cost in respect of any change in the exposure of the Core Index to the Core Asset ER Level or the Reserve Asset ER Level in respect of Rebalancing Date r immediately preceding Index Business Day t and is calculated in accordance with the following formula: CoreCost r = (TC CoreAsset + TC ReserveAsset ) x CoreIndex r x abs(signal k Signal k 1 ) CoreIndex r = The Core Index Level on such Rebalancing Date r Signal k = The value of Signal (being either 1 or 0) on the Selection Day immediately preceding such Rebalancing Date r, as determined in accordance with paragraph 3 (Notional Asset Selection and Rebalancing Process) Signal k-1 = The value of Signal (being either 1 or 0) on the Selection Day immediately preceding the Rebalancing Date immediately preceding such Rebalancing Date r, as determined in accordance with paragraph 3 (Notional Asset Selection and Rebalancing Process) TC CoreAsset = The notional transaction costs of the Core Asset applicable on such Rebalancing Date r as determined in accordance with paragraph 2.8(a) below TC ReserveAsset = The notional transaction costs of the Reserve Asset applicable on such Rebalancing Date r, as determined in accordance with paragraph 2.8(b) below For the avoidance of doubt, the Core Cost for the period starting on the Core Index Start Date until the following Rebalancing Date is equal to zero. 2.8 Transaction Costs (a) The notional transaction costs relating to the Core Asset are: TC CoreAsset = 9 i=1 PW i x TC i (b) The notional transaction costs relating to the Reserve Asset are: TC ReserveAsset = 25% x TC Gold + 75% x TC USTR where: TC CoreAsset = The notional transaction costs relating to the Core Asset 17

19 PW i = The Percentage Weight of Constituent i of the Core Asset, as specified in Table 2 (Eligible Constituents of Core Asset) of Part D (Data) TC i = The notional transaction cost specified in relation to each Constituent i of the Core Asset under the heading "NTC" pursuant to Table 4 (Particulars in respect of each Eligible Constituent of Core Asset) of Part D (Data) TC ReserveAsset = The notional transaction costs relating to the Reserve Asset TC Gold = The notional transaction cost of trading the Gold Index, as specified under the heading "NTC" pursuant to Table 5 (Particulars in respect of each Eligible Constituent of Reserve Asset) of Part D (Data) TC USTR = The notional transaction cost of trading the USTR Index, as specified in Table 5 (Particulars in respect of each Eligible Constituent of Reserve Asset) of Part D (Data) 18

20 2.9 Weight Weight of Constituents of Core Asset: Weight of each Constituent i of Core Asset On each Rebalancing Date r falling on or after the Core Asset Start Date, the Weight of each Constituent i of the Core Asset will be determined as follows: Weight i,r = where: (CPW CoreAsset i,r + (PW i CPW i,r ) x (1 + ntc i )), if PW i < CPW i,r r x { CAConstituentLevel 1 } i,r (CPW i,r + (PW i CPW i,r ) x ), otherwise 1 + ntc i Weight i,r = Weight of Constituent i of the Core Asset as of such Rebalancing Date r (after rebalancing on that date) CoreAsset r = Core Asset Level on such Rebalancing Date r CAConstituent Level i,r = CA Constituent Level of Constituent i of the Core Asset on such Rebalancing Date r CPW i,r = The Current Percentage Weight of Constituent i of the Core Asset on such Rebalancing Date r, as determined in accordance with paragraph (Current Percentage Weight of each Constituent i of Core Asset) below PW i = Percentage Weight of Constituent i of the Core Asset), as specified in Table 2 (Eligible Constituents of Core Asset) of Part D (Data) ntc i = The Notional Transaction Cost for Constituent i of the Core Asset, as specified under the heading "NTC" in Table 4 (Particulars in respect of each Eligible Constituent of Core Asset) of Part D (Data) For the Core Asset Start Date the Current Percentage Weights are deemed to be equal to the Percentage Weights for each Constituent i of the Core Asset Weight of Constituents of Reserve Asset: Weight of Gold Index On each Rebalancing Date r falling on or after the Reserve Asset Start Date, the Weight of the Gold Index will be determined as follows: Weight Gold,r = ReserveAsset (CPW Gold,r + (PW Gold CPW Gold,r ) x (1 + ntc Gold )), if PW Gold,r < CPW Gold,r r x { GoldIndex 1 } r (CPW Gold,r + (PW Gold CPW Gold,r ) x ), otherwise 1 + ntc Gold where: Weight Gold,r = Weight of Gold Index as of such Rebalancing Date r (after rebalancing on that date) 19

21 ReserveAsset r = Reserve Asset Level on Rebalancing Date r GoldIndex r = Gold Index Level on Rebalancing Date r CPW Gold,r = The Current Percentage Weight of the Gold Index on Rebalancing Date r, as determined in accordance with paragraph (Current Percentage Weight of Gold Index) below PW Gold = Percentage Weight of the Gold Index, as specified in Table 3 (Eligible Constituents of Reserve Asset) of Part D (Data) ntc Gold = The Notional Transaction Cost for the Gold Index, as specified under the heading "NTC" in Table 5 (Particulars in respect of each Eligible Constituent of Reserve Asset) of Part D (Data) For the Reserve Asset Start Date, the Current Percentage Weight of the Gold Index shall be deemed to be equal to the Percentage Weight for the Gold Index Weight of USTR Index On each Rebalancing Date r falling on or after the Reserve Asset Start Date, the Weight of the USTR Index will be determined as follows: Weight USTR,r = ReserveAsset (CPW USTR,r + (PW USTR CPW USTR,r ) x (1 + ntc USTR )), if PW USTR < CPW USTR, r x { USTRIndex 1 r (CPW USTR,r + (PW USTR CPW USTR,r ) x ), otherwise 1 + ntc USTR where: Weight USTR,r = Weight of USTR Index as of such Rebalancing Date r (after rebalancing on that date) ReserveAsset r = Reserve Asset Level on Rebalancing Date r-1 USTRIndex r = USTR Index Level on Rebalancing Date r-1 CPW USTR,r = The Current Percentage Weight of the USTR Index on Rebalancing Date r-1, as determined in accordance with paragraph (Current Percentage Weight of USTR Index) below PW USTR = Percentage Weight of the USTR Index, as specified in Table 3 (Eligible Constituents of Reserve Asset) of Part D (Data) ntc USTR = The Notional Transaction Cost for the USTR Index, as specified under the heading "NTC" in Table 5 (Particulars in respect of each Eligible Constituent of Reserve Asset) of Part D (Data) For the Reserve Asset Start Date, the Current Percentage Weight of the USTR Index shall be deemed to be equal to the Percentage Weight for the USTR Index. 20

22 2.10 Current Percentage Weight Current Percentage Weight of Constituents of Core Asset: Current Percentage Weight of each Constituent i of Core Asset The Current Percentage Weight of each Constituent i of the Core Asset on any Index Business Day is calculated as the Weight (as determined in accordance with paragraph 2.9 (Weight) above) that such Constituent had in the Index from, but excluding, the immediately preceding Rebalancing Date r (or the Index Start Date, as the case may be), multiplied by the CA Constituent Level on such Index Business Day, divided by the Core Asset Level in respect of such Index Business Day. On each Index Business Day t, the Index Calculation Agent shall calculate the "Current Percentage Weight" in respect of each Constituent i of the Core Asset in accordance with the following formula: CPW i,t Weight i,r CAConstituent CoreAsset t i,t where: CPW i,t Weight i,r CAConstituent Level i,t CoreAsset t Current Percentage Weight of Constituent i of the Core Asset on Index Business Day t, provided that it is zero on the Core Asset Start Date Weight of Constituent i of the Core Asset on Rebalancing Date r (after rebalancing on that date) (or the Index Start Date, as applicable) immediately preceding Index Business Day t, as determined in accordance with paragraph 2.9 (Weight) above CA Constituent Level of Constituent i of the Core Asset on the Index Business Day t, as determined in accordance with paragraph (Core Asset Constituent Level) above Core Asset Level on Index Business Day t, as determined in accordance with paragraph (Core Asset Level) above Where Index Business Day t is itself a Rebalancing Date, then references to Rebalancing Date r in the above formula shall be construed as references to "Rebalancing Date r-1" (being the Rebalancing Date immediately preceding Rebalancing Date r, or, if such Rebalancing Date would fall prior to the Index Start Date, the Index Start Date) and references to Index Business Day t shall be construed as references to "Rebalancing Date r" such that Weight i, r and CAConstituentLevel i, t are determined prior to the rebalancing taking place on Rebalancing Date r Current Percentage Weight of Constituents of Reserve Asset: Current Percentage Weight of Gold Index 21

23 The Current Percentage Weight of the Gold Index on any Index Business Day is calculated as the Weight (as determined in accordance with paragraph 2.9 (Weight) above) that such Constituent had in the Index from, but excluding, the immediately preceding Rebalancing Date r (or the Index Start Date, as the case may be), multiplied by the Gold Index Level on such Index Business Day, divided by the Reserve Asset Level in respect of such Index Business Day. On each Index Business Day t, the Index Calculation Agent shall calculate the "Current Percentage Weight" in respect of the Gold Index in accordance with the following formula: CPW Gold, t Weight Gold, r GoldIndex ReserveAsset t t where: CPW Gold, t Weight Gold, r GoldIndex t ReserveAsset t Current Percentage Weight of Gold Index on Index Business Day t, provided that it is zero on the Reserve Asset Start Date Weight of Gold Index on Rebalancing Date r (after rebalancing on that date) (or the Index Start Date, as applicable) immediately preceding Index Business Day t, as determined in accordance with paragraph 2.9 (Weight) above Gold Index Level on the Index Business Day t, as determined in accordance with paragraph (Gold Index Level) above Reserve Asset Level on Index Business Day t, as determined in accordance with paragraph (Reserve Asset Level) above Where Index Business Day t is itself a Rebalancing Date, then references to Rebalancing Date r in the above formula shall be construed as references to "Rebalancing Date r-1" (being the Rebalancing Date immediately preceding Rebalancing Date r, or, if such Rebalancing Date would fall prior to the Index Start Date, the Index Start Date) and references to Index Business Day t shall be construed as references to "Rebalancing Date r" such that Weight Gold, r and GoldIndex t are determined prior to the rebalancing taking place on Rebalancing Date r Current Percentage Weight of USTR Index The Current Percentage Weight of the USTR Index on any Index Business Day is calculated as the Weight (as determined in accordance with paragraph 2.9 (Weight) above) that such Constituent had in the Index from, but excluding, the immediately preceding Rebalancing Date r (or the Index Start Date, as the case may be), multiplied by the USTR Index Level on such Index Business Day, divided by the Reserve Asset Level in respect of such Index Business Day. On each Index Business Day t, the Index Calculation Agent shall calculate the "Current Percentage Weight" in respect of the USTR Index in accordance with the following formula: 22

24 CPW USTR,t Weight USTR,r USTRIndex t ReserveAsset t where: CPW USTR, t Weight USTR, r USTRIndex t ReserveAsset t Current Percentage Weight of USTR Index on Index Business Day t, provided that it is zero on the Reserve Asset Start Date Weight of USTR Index on Rebalancing Date r (after rebalancing on that date) (or the Index Start Date, as applicable) immediately preceding Index Business Day t, as determined in accordance with paragraph 2.9 (Weight) above USTR Index Level on the Index Business Day t, as determined in accordance with paragraph (USTR Index Level) above Reserve Asset Level on Index Business Day t, as determined in accordance with paragraph (Reserve Asset Level) above Where Index Business Day t is itself a Rebalancing Date, then references to Rebalancing Date r in the above formula shall be construed as references to "Rebalancing Date r-1" and references to Index Business Day t shall be construed as references to "Rebalancing Date r" such that Weight USTR, r and USTRIndex t are determined prior to the rebalancing taking place on Rebalancing Date r. 3. NOTIONAL ASSET SELECTION AND REBALANCING PROCESS 3.1 Selection of Notional Asset On each Selection Day, the Index Calculation Agent shall determine, according to the formula set out in paragraph (1) (Determination of Signal) below, whether the Core Index (and therefore the Index) shall track the performance of the Core Asset or the Reserve Asset (each a "Notional Asset") from, but excluding, Rebalancing Date r immediately following such Selection Day to, and including, the second Rebalancing Date immediately following such Selection Day, and the constituents of the relevant Notional Asset shall form the "Constituents" of the Index. (1) Determination of Signal A notional trading signal (the "Signal") is incorporated in the determination of the Index Level following the formula set out in paragraph 2.1 (Index Level). The Signal is the result of an algorithmic determination by the Index Calculation Agent on each Selection Day. The output of the Signal is a blend of the output of two indicators. In particular, the Signal shall have a value of 1 if: (i) a backward looking indicator of macro-economic risk (the "Risk Aversion Indicator") determined in accordance with the formula set out in paragraph (2) (Determination of Risk Aversion Indicator) has a value less than 0.5 and (ii) if a trend indicator which aims to model the recent performance of the Core Asset ER Level (the "Trend Indicator") has a positive value or is equal to zero. In all other cases, the Signal shall have a value of zero as set out below: Signal k = { 1, if CRAI k < 0.5 and if Trend Indicator k > = 0 Otherwise, 0 23

25 where: Signal k = The value of the Signal as of such Selection Day as applicable in the calculation of the Index Level (see paragraph 2.1 (Index Level)) CRAI k = The level of the Risk Aversion Indicator as of such Selection Day as determined in accordance with paragraph (2) (Determination of Risk Aversion Indicator) below Trend Indicator k = The level of the Trend Indicator as of such Selection Day as determined in accordance with paragraph (3) (Determination of Trend Indicator) below When the Signal generates a value of one, such value is applied in the determination of the formula set out in paragraph 2.1 (Index Level). In this case, the formula shall, in effect, measure only the performance of the Core Asset and ignore the performance of the Reserve Asset in determining the Index Level. Conversely, when the Signal has a value of zero, the Index Level shall only measure the performance of the Reserve Asset and ignore the performance of the Core Asset. In this way, the algorithmic determination of the Signal has the effect of selecting one Notional Asset from time to time while ignoring the other in the determination of the Index Level. (2) Determination of Risk Aversion Indicator The Risk Aversion Indicator is intended to measure the level of risk aversion that prevails in the global financial markets using a set of observable financial indicators computed across different asset classes. The Risk Aversion Indicator in respect of a Selection Day shall be determined in accordance with the following formula: where: 4 CRAI k = 1 5 x CRAI Index k i i=0 CRAI k = The level of the Risk Aversion Indicator as of Selection Day k x CRAI Index k i i=0 = The arithmetic average of the CRAI Index Level over the 5 Index Business Days (each a Business Index Day i) up to and including such Selection Day (where i has a value from k-4 to k) i = Represents an arithmetic progression where the first term is k-4 and the last term is k and there are 5 terms with a common difference of 1 between the terms CRAI Index Level = The level of the Citi Risk Aversion Indicator Index (the "Citi RAI Index") observed as of the Index Valuation Time on an Index Business Day (as displayed on Bloomberg page CIISRAI <Index> or such other alternative or successor page), provided that in the event that the Citi RAI Index is not published on such Index Business Day, the last published level of the Citi RAI Index shall be used The rationale for the Risk Aversion Indicator is to assess a short-term arithmetic average of the level of risk aversion determined by the Citi RAI Index during the 5 Index Business Days up to, and including, such Selection Day. The Citi RAI Index is a proprietary index of the Index Sponsor which tracks the performance of specified indicators to serve as a proxy for estimating the level of general market risk aversion. Such indicators 24

26 include emerging market sovereign spreads, US credit spreads, US swap spreads, the cost of credit protection against corporate default and implied foreign exchange, equity and swap rate volatilities. Further information relating to the Citi RAI Index is available free of charge upon request to Citigroup Global Markets Limited. The Citi RAI Index will, from time to time, have a range of values from zero to one where values approaching one will imply ever greater levels of general market risk aversion. The will not select the Core Asset unless the Risk Aversion Indicator has an average value of less than 0.5 over the course of the relevant period. The Risk Aversion Indicator shall be determined as of each Selection Day by the Index Calculation Agent as the arithmetic average of the performance of the Citi RAI Index observed as of the Index Valuation Time on each of the 5 Index Business Days up to and including the Selection Day k. (3) Determination of Trend Indicator The rationale behind the Trend Indicator is to derive a value which represents the underlying direction and momentum (whether negative or positive) of the performance of the Core Asset Level within the Trend Look Back Period (as defined below). The will not select the Core Asset unless the Trend Indicator has a value which is positive or equal to zero. The Trend Indicator shall be determined as of each Selection Day by the Index Calculation Agent observing the Core Asset ER Level as of the Index Valuation Time on each Index Business Day in the Trend Look Back Period (as defined below) (each such value, an "observed value"). For the avoidance of doubt, these observed values shall be recorded regardless of whether the Index is then tracking the Core Asset. Because the observed values will follow no perceptible pattern, the attempts to make sense of them by finding a mathematical model that provides the best summary describing the scatter of such observed values. Such a mathematical model can be expressed as a linear equation. The Trend Indicator, in turn, measures the rate of change of such linear equation. These mathematical models may be conceptualised as describing a series of idealised values (each such value, an "idealised value") of the Core Asset ER Level for each Index Business Day in the Trend Look Back Period. Viewed together with such a mathematical model, each observed value will have its own corresponding idealised value which may (or may not, as the case may be) be very close to such observed value. An optimization routine is then used to compare these various mathematical models to find one which provides the best summary description of the observed values. The Trend Indicator in respect of a Selection Day is calculated in accordance with the following formula: Trend Indicator k = N T 1 N T 1 N T 1 i=0 ) DateNum i x CoreAssetER i ( i=0 CoreAssetER i) x ( DateNum i i=0 N T N T 1 (DateNum i DateNum) 2 i=0 where: Trend Indicator k = The value of the Trend Indicator as of such Selection Day DateNum i = In respect of each Index Business Day i in the relevant Trend Look Back Period, the integer value corresponding to such Index Business Day i, where such integer values are assigned to an infinite series of consecutive calendar days commencing on 1 January 1990 such that 1 January 1990 is assigned a value of 1 and there is a common difference of 1 between each calendar day in the infinite series of consecutive calendar days (with 2 January 1990 being assigned a value of 2, 3 January 1990 being assigned a value of 3 and so on indefinitely) 25

27 Core AssetER i = The Core Asset ER Level on DateNum i DateNum = The arithmetic average of the values represented by each DateNum i within the Trend Look Back Period (as defined below) N T 1 i=0 = The sum of the series of values achieved by calculating the formula following such symbol for each DateNum i from, and including, the first Index Business Day of the Trend Look Back Period to, and including, the final Index Business Day of the Trend Look Back Period, being the Selection Day immediately preceding Rebalancing Date r N T = The "Trend Look Back Period" for such Selection Day, being the period of consecutive Index Business Days commencing on, and including, the Index Business Day t falling a number of Index Business Days equal to one less than the number derived from the formula below, prior to such Selection Day, and ending on, and including, such Selection Day, as determined using the following formula: t ( 1 i=t 59 N T = Max [Min [INT (( 60 x RV i) ) x BW) ; n] ; k] RV i 2 Where: 4. ADDITIONAL ADJUSTMENT EVENTS (1) General t RV i = ( 1 10 xln ( CoreAssetER 2 j ) ) x 252 CoreAssetER j 1 j=t 9 INT = the integer resulting from the formula within the brackets, after rounding the result of the formula downwards to the nearest integer n = 120 k = 20 BW = 60 (being the bandwidth parameter) ln = the natural logarithmic function Certain Constituent Schedules are expressed to be applicable to this as indicated in Table 2 (Eligible Constituents of Core Asset) and Table 3 (Eligible Constituents of Reserve Asset) of Part D (Data) and should be read and construed in conjunction with this. Without derogating from the provisions of Section B of the Index General Conditions (Valuations and Adjustments), the Index Calculation Agent shall apply, where necessary, the adjustments contained therein upon the occurrence of certain Adjustment Events as described in the applicable Constituent Schedules. (2) Regulatory Events If either: (i) the Index Sponsor or any of its Affiliates is required (or there is a reasonable likelihood that, within the next 30 Index Business Days, it will be required) by any applicable law or regulation to dispose of any Hedge Position, or it is not permitted (or there is a reasonable likelihood that, within the next 30 Index Business Days, it will not be permitted) to hold, acquire, increase, decrease or dispose of any Hedge Position; and/or 26