CITI GLOBAL INTEREST RATES STRATEGY 10 INDEX FUND

Transcription

1 CITI GLOBAL INTEREST RATES STRATEGY 10 INDEX FUND SIMPLIFIED PROSPECTUS Dated 24 February 2012 This Simplified Prospectus contains key information in relation to the Citi Global Interest Rates Strategy 10 Index Fund (the Fund), a fund of CitiFirst Investments plc (the Company), an umbrella fund with segregated liability between subfunds. The Company was incorporated on 1 February 2008 and is an umbrella open-ended investment company authorised by the Central Bank of Ireland (the Central Bank) under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011 (the Regulations). The Company currently has eight other funds in existence, namely CitiFX Alpha Strategy 1 Fund, Citi Global Interest Rates Strategy Index Fund, Citi Global Interest Rates Strategy USD Index Fund, Citi COMET Index Fund, UK Structured Growth Fund, UK Autocall Fund, Citi CUBES Diversified Commodities Fund, Citi 80% Protected Dynamic Allocation Fund, Citi Equity Balanced-Beta Eurozone Fund, Citi Equity Balanced-Beta UK Fund and Citi Equity Balanced-Beta US Fund. Potential investors are advised to read the Prospectus of the Company dated 10 May 2011 and the Supplement dated 22 February 2012 (together the Prospectus) before making an investment decision on whether or not to invest in the Fund. The rights and duties of the investor as well as the legal relationship with the Company are laid down in the Prospectus. Capitalised terms used herein (but not defined herein) have the meanings attributed to them in the Prospectus. The Base Currency of the Fund is Euro. Investment objective Investment policy The investment objective of the Fund is to achieve capital appreciation, to out-perform global equity and global bond investments on a risk-adjusted basis and to provide a return with low correlations to both these asset classes by providing Shareholders of each Class with a return linked to the performance of the Global Interest Rates Strategy 10 Index (the Index) (after accounting for applicable fees and expenses). In order to achieve the investment objective, the Company on behalf of the Fund intends to invest the net proceeds of any issue of Shares (whether on the Initial Issue Date or subsequently) in Fund Assets. The Fund Assets will be Derivative Contracts which the Fund will enter into with an Approved Counterparty (expected to be Citigroup Global Markets Limited and/or one or more of its Affiliates (Citi)) in respect of each Class with each Derivative Contract for each Class referencing the relevant Currency Version of the Index. Such Derivative Contracts will include but not be limited to swaps, and, subject as provided below, futures and/or options entered into with an Approved Counterparty and each Derivative Contract will be on similar terms except in relation to the level of fees. While the Fund may enter into futures and /or options, it will not do so until such time as the Central Bank has approved a revised Risk Management Process relating to such contracts. The terms of each Derivative Contract will provide that in return for receiving the net subscription proceeds of the Shares of the relevant Classes, the Derivative Contract will give exposure to the performance of the relevant Currency Version of the Index. The Investment Advisor will advise the Manager in respect of the Derivative Contracts that the Company will enter into on behalf of the Fund in order to achieve its investment objective. For full details on the Fund s investment policy, please refer to the Supplement. Risk profile In addition to the risk factors set out in the section entitled "Risk Factors" in the Prospectus, the following risk factors must be considered. Potential conflicts of interest Citi have various roles that may give rise to potential conflicts of interest in relation to the Shares. In particular, Citi acts as Investment Advisor, Distributor and Promoter in respect of the Shares, Citi is expected to act as the Approved Counterparty and Calculation Agent in respect of the Derivative Contracts and Citi will act as Index Sponsor for the Index and each Underlying Index. Citi will only have the duties and responsibilities expressly agreed to by them in their relevant capacities and will not be deemed to have other duties or responsibilities or be deemed to have a standard of care other than as expressly provided in respect of each capacity in which they act. Citi may, for its own account (including for the purpose of hedging the Approved Counterparty's obligations under the Derivative Contracts) or on behalf of its customers, trade in financial instruments, including derivatives, linked to the Index or any Underlying Index. These activities may result in conflicts of interest for Citi and may, directly or indirectly, affect the level of the Index (either positively or negatively) and in turn the Net Asset Value of the Shares. Furthermore, Citi may from time to time acquire non-public information relating to the Index, any Underlying Index, interest rates, exchange rates and/or other factors that may affect the value of the Shares. Any such information will not be disclosed to the Company, the Manager or the Shareholders. Citi may from time to time express views as to the Index, any Underlying Index, interest rates, exchange rates and other factors that may affect the value of the Shares. Any such views may not be taken into account by Citi in the performance of its role as Calculation Agent, Investment Advisor or any other role

2 held by it in respect of the Shares. Citi may from time to time subscribe or request that Shares held by them be repurchased. Any such subscriptions or repurchases may adversely affect the value of the other Shares then in issue. Calculation Agent discretion The Net Asset Value per Share of each Class will depend on the value of the Derivative Contracts through which the Shares will be exposed to the Index. If events occur that affect the composition of the Index or its valuation, the Calculation Agent to the Derivative Contracts may make changes to the terms of the Derivative Contracts to take account of these events which may be adverse to Shareholders. Furthermore, any such changes may be made by the Calculation Agent without the consent of Shareholders and the Calculation Agent is under no obligation to take into account the interests of Shareholders. Capital at risk The Shares are not capital protected. Accordingly, investors may lose part or all of the capital originally invested by them. Early repurchase Investors should note that although there is no Final Repurchase Date in respect of each Class of Shares, the outstanding Shares of each Class of Shares will be compulsorily repurchased early in certain circumstances, for example: a. if the Derivative Contracts are terminated early for any reason, the outstanding Shares of the relevant Classes may be compulsorily repurchased; b. if the Derivative Contracts are terminated early as a result of an adjustment or disruption event, the outstanding Shares of the relevant Classes will be compulsorily repurchased; c. if, at any time, the Net Asset Value per Share of any Share is less than 10 per cent. of the Initial Issue Price of the relevant Share, all of the outstanding Shares will be compulsorily repurchased; or d. if, at any time, the total outstanding share holding of a particular Class of Shares is equal to or less than the Minimum Share Class Size, the Company may compulsorily repurchase all of the Shares of that particular Class of Shares by giving notice to the holders of that Class of Shares of such early repurchase and those Shares will be compulsorily repurchased on the date specified for repurchase in such notice. Derivative Contracts The Derivative Contracts provide exposure to the relevant Currency Version of the Index but the absolute return under the Derivative Contracts may not correspond directly to the change in such Currency Version. This tracking error is due to a number of factors including, but not limited to, errors and any costs. Any such tracking errors are not expected to be material. Cross liability between Classes On the Initial Issue Date there will be more than one Class of Shares issued in respect of the Fund. Additional Classes of Shares may be created at any time without the consent of the then existing Shareholders in accordance with the Central Bank's requirements. Each Class of Shares issued in respect of the Fund will perform differently as a result of differences in currency and fees. The Company on behalf of the Fund will enter into Derivative Contracts that are designed to generate the cashflows payable in respect of the Shares of the relevant Classes. There is no legal segregation of the assets and liabilities between Classes and there is no separate portfolio of assets held for each Class. Accordingly, if more than one Class of Shares has been issued and there is a shortfall attributable to one Class, this will adversely affect the other Classes of Shares issued in respect of the Fund. See the paragraphs entitled "Allocation of shortfalls among Classes of a Fund" and "Segregated Liability between Funds" in the section headed "Risk Factors" of the Prospectus. Fees and expenses The Net Asset Value of the Shares will be reduced by certain fees and expenses as described under "Fees and Expenses" in the section of this document headed "Terms of the Shares Representing Interests in the Fund". Taxation Each Shareholder will assume and be solely responsible for any and all taxes of any jurisdiction or governmental or regulatory authority, including, without limitation, any state or local taxes or other like assessment or charges that may be applicable to any payment to it in respect of the Shares. In the event that withholding or deduction of any taxes from payments of principal or interest, if any, in respect of the Shares is required by law in any jurisdiction, the Company is not under any obligation to make any additional payments to the Shareholders in respect of such withholding or deduction. 2

3 Collateral The Approved Counterparty is required to provide Collateral in accordance with the UCITS Guidelines. The Approved Counterparty is required to provide Collateral under each Derivative Contract to which the Company will have recourse if the Approved Counterparty defaults in its obligations under such Derivative Contract. The performance of the Shares is dependent on foreign exchange rates Each Class of Shares is exposed to the Currency Version of the Index with the same currency denomination as the relevant Class. Consequently, returns in respect of a Class denominated in one currency may differ from those in respect of Classes denominated in different currencies. For example, if the value of the USD Currency Version increases, the amount of increase in the value of the EUR Currency Version will depend on the USD / Euro exchange rate specified in the Index Conditions; if the USD is relatively weak against the Euro, the increase in the value of the EUR Currency Version will be smaller than if the USD is relatively strong against the Euro. In addition the exchange rates used in determining the Currency Versions may be less favourable than exchange rates which may be obtained from other sources. The performance of the Shares will depend on the Index The Index was developed by Citi. Citi calculate and maintain the Index based on the methodology set out in the Index Conditions and are also responsible for publishing the value of the Index as set out on page 6 above. The Shares are linked to the Index through the Derivative Contracts. The Index gives notional exposure to a combination of rules based interest rate trading strategies, namely the Underlying Indices. Accordingly, potential investors in the Shares should determine whether an investment linked to the Index is suitable for them in light of their individual circumstances and investment objectives. In particular, prospective investors should ensure that they understand the nature of the Index's exposure to the Underlying Indices, how each Underlying Index is composed and calculated in accordance with its rules and how their investment will be linked to the Index. There can be no assurance that the Index will reflect a successful investment strategy. Neither the Index nor the Underlying Indices are designed to be representative of any market in relation to interest rates or a segment of any such market. Prospective investors should note that the past performance of the Index or any Underlying Index or any similar index or trading strategy should not be used as a guide to the future performance of the Index or the Underlying Indices, as applicable. Exposure to the relevant Currency Version of the Index is achieved through an investment in Derivative Contracts, which seek to provide Shareholders of each Class with a return linked to the relevant Currency Version of the Index. Returns across Classes will be the same as those in respect of any other Classes denominated in the same currency save for differences arising from the different fees charged. Given the nature of Derivative Contracts and the costs that may be involved in their utilisation, the value of the Derivative Contracts (which ultimately determine the return Shareholders will receive) may not exactly track the value of the relevant Currency Version of the Index. Shareholders should thus be familiar with the risks associated with such an approach to investment. Index Sponsor discretion The Net Asset Value per Share will largely depend on the value of the Currency Version of the Index to which the Shares are exposed through the Derivative Contracts. Potential investors in the Shares should note that the methodology for calculating the relevant Currency Versions of the Index confers on the Index Sponsor broad discretions in making certain determinations, calculations and decisions which could adversely affect the value of the Currency Versions of the Index and the Shares. The Index Sponsor is not required to (and will not) have any responsibility to consider the interests of Shareholders when exercising its discretion nor any liability in respect of any decisions taken. Adjustment to Index Methodology If market, regulatory, juridical or fiscal circumstances or, without limitation, any other circumstances arise that would, in the determination of the Index Sponsor, necessitate a modification or change to the methodology for calculating the Index as described in the Index Conditions, the Index Sponsor may make such modifications or changes as it considers appropriate to maintain the economic objectives of the Index. Any changes will be available on request from the Company at its specified office and from the Index Sponsor at Global Rates Structuring, Citigroup Global Markets Limited, Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, United Kingdom. Decline in value of the Index The Net Asset Value of the Shares of each Class on any Business Day will be largely dependent on the value of the relevant Currency Version on the corresponding Index Business Day. The performance of each Underlying Index will affect the performance of the Index and the value of the relevant Currency Version. 3

4 Exposure to the Index is notional Prospective investors should understand that the "investments" made in the Index are notional investments each with no separate legal personality, and that adjustments to the level of investment in them will be made solely in books and records kept on behalf of the Index Sponsor. Shareholders claims are limited to the Fund Assets held by the Company on behalf of the Fund which will comprise Derivative Contracts. The Net Asset Value of the Shares will therefore be impacted by the change in value of the Derivative Contracts. Factors that could impact the value of Derivatives Contracts include conditions in currency markets, interest rates, volatilities (realised and implied by the market), supply and demand factors and such other modelling and quantitative assumptions that the Approved Counterparty and/or the market may take into consideration when valuing derivatives. Prospective investors should understand that due to costs and expenses at the various levels of the structure underlying the Shares, the performance of the Shares will not fully correlate to changes in the value of the Index over the life of the Shares. Performance Data Profile of the typical investor Distribution Policy N/A Subject to their personal circumstances, the Fund may be suitable for investors who seek an exposure to the interest rate markets through an investment linked to a rules based index that reflects the returns of ten underlying interest rate trading strategies and can accept an investment with medium to high volatility and are prepared to lose some or all of their investment. There are no dividend entitlements for the Shares. The Directors do not intend to operate the Fund with the objective of satisfying the conditions for certification by HMRC as a distributing fund for United Kingdom tax purposes and accordingly the Company will not apply for "distributing fund" status in respect of the Shares for the purposes of relevant United Kingdom tax legislation. In addition no application will be made for the Fund to become a reporting fund for United Kingdom tax purposes. Fees and Expenses The following fees and expenses will be incurred by the Company on behalf of the Fund and will affect the Net Asset Value per Share of each Class issued in respect of the Fund. Management Fee The Company on behalf of the Fund will pay in respect of each Class a fee to the Manager out of the assets of the Fund attributable to such Class (the "Management Fee"). The Management Fee in respect of each Class is specified below. The Management Fee will be calculated and accrued on each Dealing Day using the Net Asset Value per Share on such Dealing Day. The Management Fee will be paid monthly in arrears. The Manager will pay out of the Management Fee (and not out of the assets of the Fund) the fees of the Investment Advisor and Distributor. The Management Fee will not include the other costs and expenses described below under the heading "Other Costs and Expenses". Share Class C I Z Management 1.25% 0.50% 0.00% Fee Preliminary Charge A Preliminary Charge may be levied on the subscription of any Share of each Class. The maximum Preliminary Charge (if any) that may be levied in respect of each Class is specified below. Shareholders should also note that a Preliminary Charge may be charged by the Distributor, some of which may be paid by the Distributor to Sub-Distributors, on the subscription of any Share of the relevant Class. Share Class C I Z Preliminary 5% None None Charge Other Costs and Expenses The Company on behalf of the Fund will pay up to 0.25% of the Net Asset Value of each Class. Such amount shall reflect the costs and the expenses incurred by the Company in setting up and maintaining the Fund, the fees charged by the Administrator and the Custodian, and other expenses such as administrative and legal costs. Citigroup Global Markets Limited shall pay any costs and expenses in excess of such amount. 4

5 Share Class C I Z Other Costs and Max 0.25% Max 0.25% Max 0.25% Expenses This section headed Fees and Expenses should be read in conjunction with the section headed Fees and Expenses in the Prospectus. Total Expense Ratio Portfolio Turnover Rate Taxation N/A N/A The Fund will only be subject to Irish tax in respect of Shareholders who are Taxable Irish Persons (generally being persons who are resident or ordinarily resident in Ireland for tax purposes) on chargeable events. Shareholders who are neither resident nor ordinarily resident in Ireland, subject to receipt of appropriate declaration, generally will not be subject to any Irish tax including any deductions from any payments made. Shareholders and potential investors should familiarise themselves with and where appropriate take tax advice on the tax treatment of their holdings of Shares. Information related to Irish taxation and United Kingdom taxation is set out in the Prospectus under the heading "Taxation". Publication of Share Price How to buy/sell Shares The Net Asset Value of each Class of Shares will be available from the Administrator and will be published on each Business Day on Such prices will reflect the Net Asset Value of the Fund at the Valuation Point on the relevant Dealing Day. Instructions to buy, sell and exchange Shares may be made directly to the Company care of the Administrator by 9.30 a.m. (UK time) on the Thursday prior to any Dealing Day (the Directors may however elect to extend the Dealing Deadline in their sole and absolute discretion provided any extension shall be before the relevant Valuation Point), or indirectly through a Distributor, Sub- Distributor or a Clearing System, for onward transmission to the Company care of the Administrator by the times specified above. For investors seeking to buy or sell Shares via facsimile, by telephone or indirectly through a Distributor, Sub-Distributor or Clearing System, attention is drawn to the relevant provisions contained in the Share Dealings section of the Prospectus. Frequency of dealing is Friday of each week or if such day is not a Business Day, the immediately succeeding Business Day and in respect of a Dealing Day, the Valuation Point shall be 4.15 p.m. (UK time) on such Dealing Day. In the case of subscriptions, this will be up to two Business Days immediately following the relevant Dealing Day, assuming receipt of the relevant signed subscription application request prior to the Dealing Deadline for such Dealing Day and cleared funds as confirmed by the Administrator. In the case of repurchases, up to five Business Days after the relevant Dealing Day, assuming receipt of the relevant signed repurchase request prior to the Dealing Deadline for such Dealing Day as confirmed by the Administrator. Additional Important Information Directors of Company: Promoter: Manager: Investment Manager: Investment Advisor and Distributor: Custodian: Administrator: Auditors: Supervisory Authority: John Donohoe Gerry Brady Kevin Molony Citibank International plc Capita Financial Managers (Ireland) Limited Citigroup First Investment Management Limited Citigroup Global Markets Limited J.P. Morgan Bank (Ireland) plc Capita Financial Administrators (Ireland) Limited Deloitte & Touche Central Bank of Ireland Additional information and copies of the Prospectus, the Supplement, the latest annual and semi-annual 5

6 report and accounts (if any) may be obtained free of charge from the Company at the offices of Capita Financial Administrators (Ireland) Limited Tel: or Fax: or the registered office of the Company at Beaux Lane House, Mercer Street Lower, Dublin 2, Ireland. SCHEDULE I This section is a brief overview of the Index. It contains a summary of the principal features of the Index and is not a complete description Any changes to the Index will be available on request from the Company at its specified office and from the Index Sponsor at Global Rates Structuring, Citigroup Global Markets Limited, Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, United Kingdom. The Index The Index is a rules based notional trading strategy sponsored by Citigroup Global Markets Limited (the Index Sponsor) which represents exposure to the United States, Eurozone, United Kingdom, Australian and Norwegian interest rate markets. It aims notionally to generate capital appreciation by investing in ten Underlying Indices which each reflect the performance of a rulesbased trading strategy. This will be achieved by each Underlying Index on a weekly basis notionally entering into forward rate agreements, forward transactions, interest rate swaps, swaption transactions and/or straddle transactions, as appropriate. Description of the Index The Index was established on 29 March 2010 and back-calculated from 30 October 2006 (the Start Date). On the Start Date the Index was comprised of weighted exposures to the following ten Underlying Indices: (i) the US Macro Strategy (M) Index; (ii) the EU Macro Strategy (M) Index; (iii) the US Curve Strategy (M) Index; (iv) the EU Curve Strategy (M) Index; (v) the EU-US Cross Markets Strategy (M) Index; (vi) the EU Forward Bias Strategy Index; (vii) the US Forward Bias Strategy Index; (viii) the Quant Fund Tracker Strategy Index; (xi) the US Volatility Strategy Index; and (x) the Multi Pulse Strategy Index. The Index has embedded risk controls that seek to limit the volatility of the Index to the target volatility of 6%. The risk controls vary, each week, the weighted exposure to the Underlying Indices. Each Underlying Index that realises a higher relative volatility is underweighted in the Index. If the Index realises a higher volatility than the target volatility, the weighting of each of the Underlying Indices is proportionately reduced to bring down the volatility of the Index. Risk controls are embedded in the Index and do not amend the Derivative Contracts. The Underlying Indices Each Underlying Index is a rules based notional trading strategy sponsored by the Index Sponsor which aims notionally to generate capital appreciation by reflecting the performance of a single rules based trading strategy. The US Macro Strategy (M) Index The US Macro Strategy (M) Index reflects the performance of the US Macro Strategy (M), which aims to predict whether 2 year USD interest rates will rise or fall during each calculation week. The US Macro Strategy (M) is based on US macro economic data. The main assumption of the US Macro Strategy (M) is that the direction of the USD interest rate movement is influenced by the performance of two US economic indicators: the US Non Farm Payroll Number (published by the US Bureau of Labor Statistics) and the ISM Manufacturing Index (released by the Institute for Supply Management). The EU Macro Strategy (M) Index The EU Macro Strategy (M) Index reflects the performance of the EU Macro Strategy (M), which aims to predict whether 2 year EUR interest rates will rise or fall during each calculation week. The EU Macro Strategy (M) is based on EU and US macro economic data and employs macroeconomic trading models based on the observation and analysis of two published economic indicators, the US Non Farm Payroll Number (published by the US Bureau of Labor Statistics) and the IFO Business Climate Index (released by IFO Institute for Economic Research, Munich). Its main assumption is that the direction of the EUR interest rates is influenced by the performance of the two economic indicators. The US Curve Strategy (M) Index The US Curve Strategy (M) Index reflects the performance of the US Curve Strategy (M), which aims to predict the shape of the USD swap curve during each calculation week. The EU Curve Strategy (M) Index The EU Curve Strategy (M) Index reflects the performance of the EU Curve Strategy (M), which aims to predict the shape of the EUR swap curve during each calculation week. The EU-US Cross Markets Strategy (M) Index The EU-US Cross Markets Strategy (M) Index reflects the performance of the EU-US Cross Markets Strategy (M), which aims to identify trends and capture the changes in 2 year USD interest rates relative to 2 year EUR interest rates during each calculation week. The EU Forward Bias Strategy Index The EU Forward Bias Strategy Index reflects the performance of the EU Forward Bias Strategy, which aims to take advantage of the forward rate bias in EUR interest rate markets. The forward rate bias is the tendency of market expected forward interest rates 6

7 to over-predict future realised interest rates. This Underlying Index achieves a return through exposure to certain EUR forward contracts. The US Forward Bias Strategy Index The US Forward Bias Strategy Index reflects the performance of the US Forward Bias Strategy, which aims to take advantage of the forward rate bias in USD interest rate markets. The forward rate bias is the tendency of market expected forward interest rates to over-predict future realised interest rates. This Underlying Index achieves a return through exposure to certain USD forward contracts. The Quant Fund Tracker Strategy Index The Quant Fund Tracker Strategy Index reflects the performance of the Quant Fund Tracker Strategy, which aims to achieve a return by approximating the performance of the HFRX Macro: Multi-strategy Index published by Hedge Fund Research, Inc. (or a successor hedge fund index selected by the Index Sponsor) using the outputs of a trading model. The model's main assumption is that changes in the HFRX Macro: Multi-strategy Index can be tracked, within a small margin of error, by notionally investing in a portfolio of interest rate and currency instruments. The US Volatility Strategy Index The US Volatility Strategy Index reflects the performance of the US Volatility Strategy, which aims to achieve a return by capturing the tendency of market expected volatility to over-predict over realised volatility in USD interest rates during each calculation week. The Multi Pulse Strategy Index The Multi Pulse Strategy Index reflects the performance of the Multi Pulse Strategy, which aims to achieve a return by predicting whether 2 year interest rates and 5 year interest rates in respect of EUR, GBP and USD will increase or decrease during each calculation week. Based on the prediction for each currency, the Index makes notional investments in 2 year and 5 year interest rate instruments. A full description of each Underlying Index and its related trading strategy is set out in the Index Conditions. The Index Conditions are available on request from the Company at its specified office and from the Index Sponsor at Global Rates Structuring, Citigroup Global Markets Limited, Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, United Kingdom. 7