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The information in this preliminary
pricing supplement is not complete and may be changed. A registration statement relating to these securities has been filed with
the Securities and Exchange Commission. This preliminary pricing supplement and the accompanying product supplement, prospectus
supplement and prospectus are not an offer to sell these securities, nor are they soliciting an offer to buy these securities,
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED
OCTOBER 31, 2019
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Citigroup Global Markets Holdings Inc.
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November , 2019
Medium-Term Senior Notes,
Series N
Pricing Supplement No. 2019-USNCH3103
Filed Pursuant to Rule 424(b)(2)
Registration Statement Nos.
333-224495 and 333-224495-03
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Buffer Securities Linked to the MSCI USA Women’s
Leadership Index Due November 30, 2022
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▪
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The securities offered by this pricing supplement are unsecured debt securities issued by Citigroup Global Markets Holdings
Inc. and guaranteed by Citigroup Inc. Unlike conventional debt securities, the securities do not pay interest and do not repay
a fixed amount of principal at maturity. Instead, the securities offer a payment at maturity that may be greater than, equal to
or less than the stated principal amount, depending on the performance of the underlying specified below from the initial underlying
value to the final underlying value.
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▪
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The securities offer modified exposure to the performance of the underlying, with (i) the opportunity to participate in a limited
range of potential appreciation of the underlying at the upside participation rate specified below and (ii) a limited buffer against
any depreciation of the underlying as described below. In exchange for these features, investors in the securities must be willing
to forgo any appreciation of the underlying in excess of the maximum return at maturity specified below and must be willing to
forgo any dividends with respect to the underlying. In addition, investors in the securities must be willing to accept downside
exposure to any depreciation of the underlying in excess of the buffer percentage specified below. If the underlying depreciates
by more than the buffer percentage from the initial underlying value to the final underlying value, you will lose 1% of the stated
principal amount of your securities for every 1% by which that depreciation exceeds the buffer percentage.
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▪
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In order to obtain the modified exposure to the underlying that the securities provide, investors must be willing to accept
(i) an investment that may have limited or no liquidity and (ii) the risk of not receiving any amount due under the securities
if we and Citigroup Inc. default on our obligations. All payments on the securities are subject to the credit risk of Citigroup
Global Markets Holdings Inc. and Citigroup Inc.
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KEY TERMS
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Issuer:
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Citigroup Global Markets Holdings Inc., a wholly owned subsidiary of Citigroup Inc.
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Guarantee:
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All payments due on the securities are fully and unconditionally guaranteed by Citigroup Inc.
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Underlying:
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The MSCI USA Women’s Leadership Index
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Stated principal amount:
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$1,000 per security
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Pricing date:
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November 25, 2019
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Issue date:
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November 29, 2019
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Valuation date:
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November 25, 2022, subject to postponement if such date is not a scheduled trading day or certain market disruption events occur
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Maturity date:
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November 30, 2022
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Payment at maturity:
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You will receive at maturity for each security you then hold:
§
If the final underlying value is greater than the initial underlying value:
$1,000 + the return amount, subject to the maximum
return at maturity
§
If the final underlying value is less than or equal to the initial underlying value but greater than or equal to
the final buffer value:
$1,000
§
If the final underlying value is less than the final buffer value:
$1,000 + [$1,000 × (the underlying return +
the buffer percentage)]
If the final underlying value is less than the final buffer
value, which means that the underlying has depreciated from the initial underlying value by more than the buffer percentage, you
will lose 1% of the stated principal amount of your securities at maturity for every 1% by which that depreciation exceeds the
buffer percentage.
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Initial underlying value:
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, the closing value of the underlying on the pricing date
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Final underlying value:
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The closing value of the underlying on the valuation date
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Return amount:
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$1,000 × the underlying return × the upside participation rate
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Upside participation rate:
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200.00%
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Underlying return:
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(i) The final underlying value minus the initial underlying value, divided by (ii) the initial underlying value
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Maximum return at maturity:
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The maximum return at maturity will be determined on the pricing date and will be between $217.50 and
$267.50 per security (21.75% to 26.75% of the stated principal amount). The payment at maturity per security will not exceed the
stated principal amount plus the maximum return at maturity.
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Final buffer value:
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, 90.00% of the initial underlying value
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Buffer percentage:
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10.00%
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Listing:
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The securities will not be listed on any securities exchange
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CUSIP / ISIN:
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17327TDX1 / US17327TDX19
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Underwriter:
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Citigroup Global Markets Inc. (“CGMI”), an affiliate of the issuer, acting as principal
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Underwriting fee and issue price:
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Issue price(1)(2)
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Underwriting fee(3)
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Proceeds to issuer(4)
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Per security:
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$1,000.00
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$30.00
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$970.00
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Total:
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$
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$
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$
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(1) Citigroup Global Markets Holdings
Inc. currently expects that the estimated value of the securities on the pricing date will be at least $928.50 per security, which
will be less than the issue price. The estimated value of the securities is based on CGMI’s proprietary pricing models and
our internal funding rate. It is not an indication of actual profit to CGMI or other of our affiliates, nor is it an indication
of the price, if any, at which CGMI or any other person may be willing to buy the securities from you at any time after issuance.
See “Valuation of the Securities” in this pricing supplement.
(2) The issue price for investors
purchasing the securities in fee-based advisory accounts will be $975.00 per security, assuming no custodial fee is charged by
a selected dealer, and up to $980.00 per security, assuming the maximum custodial fee is charged by a selected dealer. See “Supplemental
Plan of Distribution” in this pricing supplement.
(3) CGMI will receive an underwriting
fee of up to $30.00 for each security sold in this offering. The total underwriting fee and proceeds to issuer in the table above
give effect to the actual total underwriting fee. For more information on the distribution of the securities, see “Supplemental
Plan of Distribution” in this pricing supplement. In addition to the underwriting fee, CGMI and its affiliates may profit
from expected hedging activity related to this offering, even if the value of the securities declines. See “Use of Proceeds
and Hedging” in the accompanying prospectus.
(4) The per security proceeds to
issuer indicated above represent the minimum per security proceeds to issuer for any security, assuming the maximum per security
underwriting fee. As noted above, the underwriting fee is variable.
Investing in the securities
involves risks not associated with an investment in conventional debt securities. See “Summary Risk Factors” beginning
on page PS-4.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of the securities or determined that this pricing supplement and
the accompanying product supplement, prospectus supplement and prospectus are truthful or complete. Any representation to the contrary
is a criminal offense.
You should read this pricing supplement
together with the accompanying product supplement, prospectus supplement and prospectus, which can be accessed via the hyperlinks
below:
Product Supplement No. EA-02-08 dated February 15, 2019 Prospectus Supplement and Prospectus each dated May 14, 2018
The securities
are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental
agency, nor are they obligations of, or guaranteed by, a bank.
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Citigroup Global Markets Holdings Inc.
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Additional Information
The terms of the securities are set forth in the accompanying
product supplement, prospectus supplement and prospectus, as supplemented by this pricing supplement. The accompanying product
supplement, prospectus supplement and prospectus contain important disclosures that are not repeated in this pricing supplement.
For example, the accompanying product supplement contains important information about how the closing value of the underlying will
be determined and about adjustments that may be made to the terms of the securities upon the occurrence of market disruption events
and other specified events with respect to the underlying. It is important that you read the accompanying product supplement, prospectus
supplement and prospectus together with this pricing supplement in deciding whether to invest in the securities. Certain terms
used but not defined in this pricing supplement are defined in the accompanying product supplement.
Payout Diagram
The diagram below illustrates your payment at maturity for a
range of hypothetical underlying returns. The diagram assumes that the maximum return at maturity will be set at the lowest value
indicated on the cover page of this pricing supplement. The actual maximum return at maturity will be determined on the pricing
date.
Investors in the securities will not receive any dividends
with respect to the underlying. The diagram and examples below do not show any effect of lost dividend yield over the term of the
securities. See “Summary Risk Factors—You will not receive dividends or have any other rights with respect to the
underlying” below.
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Payout Diagram
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n The Securities
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n The Underlying
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Citigroup Global Markets Holdings Inc.
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Hypothetical Examples
The examples below illustrate how to determine the payment at
maturity on the securities, assuming the various hypothetical final underlying values indicated below. The examples are solely
for illustrative purposes, do not show all possible outcomes and are not a prediction of what the actual payment at maturity on
the securities will be. The actual payment at maturity will depend on the actual final underlying value.
The examples below are based on the following hypothetical values
and do not reflect the actual initial underlying value or final buffer value. For the actual initial underlying value and final
buffer value, see the cover page of this pricing supplement. We have used these hypothetical values, rather than the actual values,
to simplify the calculations and aid understanding of how the securities work. However, you should understand that the actual payment
at maturity on the securities will be calculated based on the actual initial underlying value and final buffer value, and not the
hypothetical values indicated below. For ease of analysis, figures below have been rounded. The examples below assume that the
maximum return at maturity will be set at the lowest value indicated on the cover page of this pricing supplement. The actual maximum
return at maturity will be determined on the pricing date.
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Hypothetical initial underlying value:
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100.00
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Hypothetical final buffer value:
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90.00 (90.00% of the hypothetical initial underlying value)
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Example 1—Upside Scenario A. The final underlying
value is 105.00, resulting in a 5.00% underlying return. In this example, the final underlying value is greater than the
initial underlying value.
Payment at maturity per security = $1,000 + the return amount,
subject to the maximum return at maturity
= $1,000 + ($1,000 × the underlying return × the
upside participation rate), subject to the maximum return at maturity
= $1,000 + ($1,000 × 5.00% × 200.00%), subject to
the maximum return at maturity
= $1,000 + $100.00, subject to the maximum return at maturity
= $1,100.00
In this scenario, the underlying has appreciated from the initial
underlying value to the final underlying value, and your total return at maturity would equal the underlying return multiplied
by the upside participation rate.
Example 2—Upside Scenario B. The final underlying
value is 150.00, resulting in a 50.00% underlying return. In this example, the final underlying value is greater than the
initial underlying value.
Payment at maturity per security = $1,000 + the return amount,
subject to the maximum return at maturity
= $1,000 + ($1,000 × the underlying return × the
upside participation rate), subject to the maximum return at maturity
= $1,000 + ($1,000 × 50.00% × 200.00%), subject to
the maximum return at maturity
= $1,000 + $1,000.00, subject to the maximum return at maturity
= $1,217.50
In this scenario, the underlying has appreciated from the initial
underlying value to the final underlying value, but the underlying return multiplied by the upside participation rate would
exceed the maximum return at maturity. As a result, your total return at maturity in this scenario would be limited to the maximum
return at maturity, and an investment in the securities would underperform a hypothetical alternative investment providing 1-to-1
exposure to the appreciation of the underlying without a maximum return.
Example 3—Par Scenario. The final underlying value
is 95.00, resulting in a -5.00% underlying return. In this example, the final underlying value is less than the initial
underlying value but greater than the final buffer value.
Payment at maturity per security = $1,000
In this scenario, the underlying has depreciated from the initial
underlying value to the final underlying value, but not by more than the buffer percentage. As a result, you would be repaid the
stated principal amount of your securities at maturity but would not receive any positive return on your investment.
Example 4—Downside Scenario. The final underlying
value is 30.00, resulting in a -70.00% underlying return. In this example, the final underlying value is less than the final
buffer value.
Payment at maturity per security = $1,000 + [$1,000 × (the
underlying return + the buffer percentage)]
= $1,000 + [$1,000 × (-70.00% + 10.00%)]
= $1,000 + [$1,000 × -60.00%]
= $1,000 + -$600.00
= $400.00
In this scenario, the underlying has depreciated from the initial
underlying value to the final underlying value by more than the buffer percentage. As a result, your total return at maturity in
this scenario would be negative and would reflect 1-to-1 exposure to the negative performance of the underlying beyond the buffer
percentage.
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Citigroup Global Markets Holdings Inc.
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Summary Risk Factors
An investment in the securities is significantly riskier than
an investment in conventional debt securities. The securities are subject to all of the risks associated with an investment in
our conventional debt securities (guaranteed by Citigroup Inc.), including the risk that we and Citigroup Inc. may default on our
obligations under the securities, and are also subject to risks associated with the underlying. Accordingly, the securities are
suitable only for investors who are capable of understanding the complexities and risks of the securities. You should consult your
own financial, tax and legal advisors as to the risks of an investment in the securities and the suitability of the securities
in light of your particular circumstances.
The following is a summary of certain key risk factors for investors
in the securities. You should read this summary together with the more detailed description of risks relating to an investment
in the securities contained in the section “Risk Factors Relating to the Securities” beginning on page EA-7 in the
accompanying product supplement. You should also carefully read the risk factors included in the accompanying prospectus supplement
and in the documents incorporated by reference in the accompanying prospectus, including Citigroup Inc.’s most recent Annual
Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q, which describe risks relating to the business of Citigroup
Inc. more generally.
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§
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You may lose a significant portion of your investment. Unlike conventional debt securities, the securities do not repay
a fixed amount of principal at maturity. Instead, your payment at maturity will depend on the performance of the underlying. If
the underlying depreciates by more than the buffer percentage from the initial underlying value to the final underlying value,
you will lose 1% of the stated principal amount of your securities for every 1% by which that depreciation exceeds the buffer percentage.
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§
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Your potential return on the securities is limited. Your potential total return on the securities at maturity is limited
to the maximum return at maturity, even if the underlying appreciates by significantly more than the maximum return at maturity.
If the underlying appreciates by more than the maximum return at maturity, the securities will underperform an alternative investment
providing 1-to-1 exposure to the performance of the underlying. When lost dividends are taken into account, the securities may
underperform an alternative investment providing 1-to-1 exposure to the performance of the underlying even if the underlying appreciates
by less than the maximum return at maturity. In addition, the maximum return at maturity reduces the effect of the upside participation
rate for all final underlying values exceeding the final underlying value at which, by multiplying the corresponding underlying
return by the upside participation rate, the maximum return at maturity is reached.
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§
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The securities do not pay interest. Unlike conventional debt securities, the securities do not pay interest or any other
amounts prior to maturity. You should not invest in the securities if you seek current income during the term of the securities.
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§
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You will not receive dividends or have any other rights with respect to the underlying. You will not receive any dividends
with respect to the underlying. This lost dividend yield may be significant over the term of the securities. The payment scenarios
described in this pricing supplement do not show any effect of such lost dividend yield over the term of the securities. In addition,
you will not have voting rights or any other rights with respect to the underlying or the stocks included in the underlying.
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§
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Your payment at maturity depends on the closing value of the underlying on a single day. Because your payment at maturity
depends on the closing value of the underlying solely on the valuation date, you are subject to the risk that the closing value
of the underlying on that day may be lower, and possibly significantly lower, than on one or more other dates during the term of
the securities. If you had invested directly in the underlying or in another instrument linked to the underlying that you could
sell for full value at a time selected by you, or if the payment at maturity were based on an average of closing values of the
underlying, you might have achieved better returns.
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§
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The securities are subject to the credit risk of Citigroup Global Markets Holdings Inc. and Citigroup Inc. If we default
on our obligations under the securities and Citigroup Inc. defaults on its guarantee obligations, you may not receive anything
owed to you under the securities.
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§
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The securities will not be listed on any securities exchange and you may not be able to sell them prior to maturity.
The securities will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities.
CGMI currently intends to make a secondary market in relation to the securities and to provide an indicative bid price for the
securities on a daily basis. Any indicative bid price for the securities provided by CGMI will be determined in CGMI’s sole
discretion, taking into account prevailing market conditions and other relevant factors, and will not be a representation by CGMI
that the securities can be sold at that price, or at all. CGMI may suspend or terminate making a market and providing indicative
bid prices without notice, at any time and for any reason. If CGMI suspends or terminates making a market, there may be no secondary
market at all for the securities because it is likely that CGMI will be the only broker-dealer that is willing to buy your securities
prior to maturity. Accordingly, an investor must be prepared to hold the securities until maturity.
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§
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The estimated value of the securities on the pricing date, based on CGMI’s proprietary pricing models and our internal
funding rate, is less than the issue price. The difference is attributable to certain costs associated with selling, structuring
and hedging the securities that are included in the issue price. These costs include (i) any selling concessions or other fees
paid in connection with the offering of the securities, (ii) hedging and other costs incurred by us and our affiliates in connection
with the offering of the securities and (iii) the expected profit (which may be more or less than actual profit) to CGMI or other
of our affiliates in connection with hedging our obligations under the securities. These costs adversely affect the economic terms
of the securities because, if they were lower, the economic terms of the securities would be more favorable to you. The economic
terms of the securities are also likely to be adversely affected by the use of our internal funding rate, rather than our secondary
market rate, to price the securities. See “The estimated value of the securities would be lower if it were calculated based
on our secondary market rate” below.
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Citigroup Global Markets Holdings Inc.
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§
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The estimated value of the securities was determined for us by our affiliate using proprietary pricing models. CGMI
derived the estimated value disclosed on the cover page of this pricing supplement from its proprietary pricing models. In doing
so, it may have made discretionary judgments about the inputs to its models, such as the volatility of the closing value of the
underlying, the dividend yield on the underlying and interest rates. CGMI’s views on these inputs may differ from your or
others’ views, and as an underwriter in this offering, CGMI’s interests may conflict with yours. Both the models and
the inputs to the models may prove to be wrong and therefore not an accurate reflection of the value of the securities. Moreover,
the estimated value of the securities set forth on the cover page of this pricing supplement may differ from the value that we
or our affiliates may determine for the securities for other purposes, including for accounting purposes. You should not invest
in the securities because of the estimated value of the securities. Instead, you should be willing to hold the securities to maturity
irrespective of the initial estimated value.
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§
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The estimated value of the securities would be lower if it were calculated based on our secondary market rate. The estimated
value of the securities included in this pricing supplement is calculated based on our internal funding rate, which is the rate
at which we are willing to borrow funds through the issuance of the securities. Our internal funding rate is generally lower than
our secondary market rate, which is the rate that CGMI will use in determining the value of the securities for purposes of any
purchases of the securities from you in the secondary market. If the estimated value included in this pricing supplement were based
on our secondary market rate, rather than our internal funding rate, it would likely be lower. We determine our internal funding
rate based on factors such as the costs associated with the securities, which are generally higher than the costs associated with
conventional debt securities, and our liquidity needs and preferences. Our internal funding rate is not an interest rate that is
payable on the securities.
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Because there is not an active market for traded instruments
referencing our outstanding debt obligations, CGMI determines our secondary market rate based on the market price of traded instruments
referencing the debt obligations of Citigroup Inc., our parent company and the guarantor of all payments due on the securities,
but subject to adjustments that CGMI makes in its sole discretion. As a result, our secondary market rate is not a market-determined
measure of our creditworthiness, but rather reflects the market’s perception of our parent company’s creditworthiness
as adjusted for discretionary factors such as CGMI’s preferences with respect to purchasing the securities prior to maturity.
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§
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The estimated value of the securities is not an indication of the price, if any, at which CGMI or any other person may be
willing to buy the securities from you in the secondary market. Any such secondary market price will fluctuate over the term
of the securities based on the market and other factors described in the next risk factor. Moreover, unlike the estimated value
included in this pricing supplement, any value of the securities determined for purposes of a secondary market transaction will
be based on our secondary market rate, which will likely result in a lower value for the securities than if our internal funding
rate were used. In addition, any secondary market price for the securities will be reduced by a bid-ask spread, which may vary
depending on the aggregate stated principal amount of the securities to be purchased in the secondary market transaction, and the
expected cost of unwinding related hedging transactions. As a result, it is likely that any secondary market price for the securities
will be less than the issue price.
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§
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The value of the securities prior to maturity will fluctuate based on many unpredictable factors. The value of your
securities prior to maturity will fluctuate based on the closing value of the underlying, the volatility of the closing value of
the underlying, the dividend yield on the underlying, interest rates generally, the time remaining to maturity and our and Citigroup
Inc.’s creditworthiness, as reflected in our secondary market rate, among other factors described under “Risk Factors
Relating to the Securities—Risk Factors Relating to All Securities—The value of your securities prior to maturity will
fluctuate based on many unpredictable factors” in the accompanying product supplement. Changes in the closing value of the
underlying may not result in a comparable change in the value of your securities. You should understand that the value of your
securities at any time prior to maturity may be significantly less than the issue price.
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§
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Immediately following issuance, any secondary market bid price provided by CGMI, and the value that will be indicated on
any brokerage account statements prepared by CGMI or its affiliates, will reflect a temporary upward adjustment. The amount
of this temporary upward adjustment will steadily decline to zero over the temporary adjustment period. See “Valuation of
the Securities” in this pricing supplement.
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§
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The underlying may not be successful and may underperform alternative investment strategies.
There can be no assurance that the underlying will achieve positive returns over any period. Each quarter, MSCI Inc. (“MSCI”)
selects the Index Components from the components of the MSCI USA IndexSM, as described in “Annex A—Description
of the MSCI USA Women’s Leadership Index” below. Therefore, the determination as to which components of the MSCI USA
IndexSM will be included in the underlying for each quarterly period will be made solely by MSCI. In general, if the
Index Components appreciate over a period, the level of the underlying will increase, and if they depreciate over that period,
the level of the underlying will decrease, perhaps significantly. However, there is no guarantee that the underlying will outperform
the MSCI USA IndexSM or equity markets generally, and the performance of the underlying may be less favorable than alternative
investment strategies that could have been implemented, including strategies adopting different, rules-based criteria or without
determinations made by MSCI.
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§
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The underlying follows a particular methodology, which may differ significantly from
alternative approaches and investor expectations. As described in “Annex A—Description of the MSCI USA Women’s
Leadership Index” below, the underlying follows a specific methodology, with determinations made by MSCI as to which components
of the MSCI USA IndexSM will be selected as Index Components of the underlying for a given quarterly period. The
underlying methodology was developed by MSCI and may differ substantially from alternative investment strategies with similar objectives.
Decisions to include or exclude components of the underlying will be made solely by MSCI, and such decisions will affect the performance
of the underlying on an ongoing basis. Additionally, MSCI will make decisions regarding the Index Components at its own discretion,
without regard to investor expectations. For example, pursuant to the third criterion for inclusion in the underlying, MSCI
can exercise discretion in determining that a company has experienced a Discrimination & Workplace Diversity controversy and
in evaluating the severity of a controversy, which could lead to exclusion of that company from the underlying. Neither we nor
you will have any ability to impact decisions made by MSCI regarding the Index Components, and the underlying may include components
that differ significantly from those of alternative
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Citigroup Global Markets Holdings Inc.
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investments strategies
with similar objectives. The underlying may underperform such alternative investment strategies, perhaps significantly.
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§
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The underlying is not a market capitalization-weighted index. As described below
in “Annex A—Description of the MSCI USA Women’s Leadership Index - Index Component Weightings,” Index Components
will have different weightings within the underlying than the same companies have within the MSCI USA IndexSM, which
may result in unexpected and potentially adverse weightings for Index Components. This is because only the sector weightings of
the underlying (as opposed to the individual component weightings) track the weightings of the MSCI USA IndexSM. If,
for example, only one company from a particular sector were to be included in the underlying due to MSCI’s determinations
pursuant to the underlying construction methodology, that company would be assigned the same weighting as its entire sector is
assigned in the MSCI USA IndexSM, which could lead to significant effects on the performance of the underlying. It is
impossible to predict whether the underlying weightings will cause the underlying to perform better or worse than the MSCI USA
IndexSM. The underlying will perform differently, and perhaps worse, than if it were a market capitalization-weighted
index or if it used an alternative weighting mechanism.
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§
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As the underlying is new and has very limited actual historical performance, any investment
in the underlying may involve greater risk than an investment in an index with longer actual historical performance and a proven
track record. Past performance is never a guarantee of future performance.
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§
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Our offering of the securities is not a recommendation of the underlying. The fact that we are offering the securities
does not mean that we believe that investing in an instrument linked to the underlying is likely to achieve favorable returns.
In fact, as we are part of a global financial institution, our affiliates may have positions (including short positions) in the
underlying or in instruments related to the underlying, and may publish research or express opinions, that in each case are inconsistent
with an investment linked to the underlying. These and other activities of our affiliates may affect the closing value of the underlying
in a way that negatively affects the value of and your return on the securities.
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§
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The closing value of the underlying may be adversely affected by our or our affiliates’ hedging and other trading
activities. We expect to hedge our obligations under the securities through CGMI or other of our affiliates, who may take positions
in the underlying or in financial instruments related to the underlying and may adjust such positions during the term of the securities.
Our affiliates also take positions in the underlying or in financial instruments related to the underlying on a regular basis (taking
long or short positions or both), for their accounts, for other accounts under their management or to facilitate transactions on
behalf of customers. These activities could affect the closing value of the underlying in a way that negatively affects the value
of and your return on the securities. They could also result in substantial returns for us or our affiliates while the value of
the securities declines.
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§
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We and our affiliates may have economic interests that are adverse to yours as a result of our affiliates’ business
activities. Our affiliates engage in business activities with a wide range of companies. These activities include extending
loans, making and facilitating investments, underwriting securities offerings and providing advisory services. These activities
could involve or affect the underlying in a way that negatively affects the value of and your return on the securities. They could
also result in substantial returns for us or our affiliates while the value of the securities declines. In addition, in the course
of this business, we or our affiliates may acquire non-public information, which will not be disclosed to you.
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§
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The calculation agent, which is an affiliate of ours, will make important determinations with respect to the securities.
If certain events occur during the term of the securities, such as market disruption events and other events with respect to the
underlying, CGMI, as calculation agent, will be required to make discretionary judgments that could significantly affect your return
on the securities. In making these judgments, the calculation agent’s interests as an affiliate of ours could be adverse
to your interests as a holder of the securities. See “Risk Factors Relating to the Securities—Risk Factors Relating
to All Securities—The calculation agent, which is an affiliate of ours, will make important determinations with respect to
the securities” in the accompanying product supplement.
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§
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Changes that affect the underlying may affect the value of your securities. The sponsor of the underlying may at any
time make methodological changes or other changes in the manner in which it operates that could affect the value of the underlying.
We are not affiliated with the underlying sponsor and, accordingly, we have no control over any changes such sponsor may make.
Such changes could adversely affect the performance of the underlying and the value of and your return on the securities.
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The securities may become linked to a different underlying. As described under
“Additional Terms of the Securities” in this pricing supplement, if the underlying is discontinued or is materially
modified, the calculation agent will in certain circumstances select the MSCI USA IndexSM to be a successor to the underlying
for all purposes under the securities. In these circumstances, the MSCI USA IndexSM may perform less favorably than
the underlying would have performed.
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The U.S. federal income tax consequences of an investment in the securities are uncertain.
Please read the discussion under “United States Federal Tax Considerations” in this document and the discussion under
“United States Federal Tax Considerations” in the accompanying product supplement for the securities (together, the
“Tax Disclosure Sections”) concerning the U.S. federal income tax consequences of an investment in the securities.
If the Internal Revenue Service (the “IRS”) were successful in asserting an alternative treatment, the timing and character
of income on the securities might differ significantly from the tax treatment described in the Tax Disclosure Sections. There is
substantial risk that the IRS could seek to recharacterize the securities as debt instruments. In that event, U.S. Holders would
be required to accrue into income original issue discount on the securities every year at a “comparable yield” determined
at the time of issuance and recognize all income and gain in respect of the securities as ordinary income. Additionally, as discussed
under “United States Federal Tax Considerations —FATCA” in the accompanying product supplement for the securities,
the withholding rules commonly referred to as “FATCA” would apply to the securities if they were recharacterized as
debt instruments. However, proposed regulations (the preamble to which specifies that taxpayers are permitted to rely on them pending
finalization) eliminate the withholding requirement on payments of gross proceeds of a taxable disposition. The risk that financial
instruments providing for buffers, triggers or similar downside protection features, such as the securities, would be recharacterized
as debt is greater than the risk of recharacterization for comparable financial instruments that do not have such
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features.
We do not plan to request a ruling from the IRS regarding the tax treatment of the securities, and the IRS or a court may not agree
with the tax treatment described in the Tax Disclosure Sections. We do not plan to request a ruling from the IRS regarding the
tax treatment of the securities, and the IRS or a court may not agree with the tax treatment described in the Tax Disclosure Sections.
In 2007, the
U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid
forward contracts” and similar instruments. The notice focuses in particular on whether to require holders of these instruments
to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character
of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime;
the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which
the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors
should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership”
rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest
charge. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other
guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment
in the securities, possibly with retroactive effect. Both U.S. and Non-U.S. Holders should consult their tax advisers regarding
the U.S. federal income tax consequences of an investment in the securities, including possible alternative treatments, the issues
presented by this notice and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
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Additional
Terms of the Securities
The following terms apply
with respect to the securities in lieu of the provisions described in “Description of the Securities—Certain Additional
Terms for Securities Linked to an Underlying Index—Discontinuance or Material Modification of an Underlying Index”
in the accompanying product supplement.
If the underlying is (i)
not calculated and announced by MSCI Inc. (the “underlying index publisher”) but is calculated and announced by a successor
publisher acceptable to the calculation agent or (ii) replaced by a successor index that the calculation agent determines, in its
sole discretion, uses the same or a substantially similar formula for and method of calculation as used in the calculation of the
underlying, in each case the calculation agent may deem that index (the “successor index”) to be the underlying. Upon
the selection of any successor index by the calculation agent pursuant to this paragraph, references in this pricing supplement
to the original underlying will no longer be deemed to refer to the original underlying and will be deemed instead to refer to
that successor index for all purposes, and references in this pricing supplement to the underlying index publisher will be deemed
to be to the publisher of the successor index. In such event, the calculation agent will make such adjustments, if any, to any
level of the underlying that is used for purposes of the securities as it determines are appropriate in the circumstances. Upon
any selection by the calculation agent of a successor index, the calculation agent will cause notice to be furnished to us and
the trustee.
If the underlying index
publisher announces that it will make a material change in the formula for or the method of calculating the underlying or in any
other way materially modifies the underlying (other than a modification prescribed in that formula or method to maintain the underlying
in the event of changes in constituent stock and capitalization and other routine events), then the calculation agent may replace
the underlying with the MSCI USA IndexSM, which will be the successor index with the effect described in the preceding
paragraph. If the underlying index publisher permanently cancels the underlying and no successor index is chosen as described above,
then the calculation agent will replace the underlying with the MSCI USA IndexSM, which will be the successor index
with the effect described in the preceding paragraph.
Notwithstanding these alternative
arrangements, the discontinuance or material modification of the underlying may adversely affect the value of the securities.
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Information About the MSCI USA Women’s
Leadership Index
For information about the
underlying, see “Annex A—Description of the MSCI USA Women’s Leadership Index” to this pricing supplement.
We have derived all information
regarding the MSCI USA Women’s Leadership Index from publicly available information and have not independently verified any
information regarding the MSCI USA Women’s Leadership Index. This pricing supplement relates only to the securities and not
to the MSCI USA Women’s Leadership Index. We make no representation as to the performance of the MSCI USA Women’s Leadership
Index over the term of the securities.
The securities represent
obligations of Citigroup Global Markets Holdings Inc. (guaranteed by Citigroup Inc.) only. The sponsor of the MSCI USA Women’s
Leadership Index is not involved in any way in this offering and has no obligation relating to the securities or to holders of
the securities.
Historical Information
The closing value of the MSCI USA Women’s Leadership Index
on October 29, 2019 was 1,377.32.
The graph below shows the closing value of the MSCI USA Women’s
Leadership Index for each day such value was available from August 4, 2016 to October 29, 2019. We obtained the closing values
from Bloomberg L.P., without independent verification. You should not take historical closing values as an indication of future
performance.
MSCI USA Women’s Leadership Index – Historical Closing Values
August 4, 2016 to October 29, 2019
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United States Federal Tax Considerations
Although there is uncertainty
regarding the U.S. federal income tax consequences of an investment in the securities due to the lack of governing authority, in
the opinion of our counsel, Shearman & Sterling LLP, under current law, and based on current market conditions, a security
should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.
Assuming this treatment
of the securities is respected and subject to the discussion in “United States Federal Tax Considerations” in the accompanying
product supplement for securities, the following U.S. federal income tax consequences should result based on current law:
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A U.S. Holder should not be required to recognize
taxable income over the term of the securities prior to settlement, other than pursuant to a sale or exchange.
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Upon sale, exchange or settlement of the securities,
a U.S. Holder should recognize gain or loss equal to the difference between the amount realized and the U.S. Holder’s tax
basis in the securities. Such gain or loss should be long-term capital gain or loss if the investor has held the securities for
more than one year, and short-term capital gain or loss otherwise.
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There is a substantial
risk that the Internal Revenue Service (the “IRS”) could seek to recharacterize the securities as debt instruments.
In that event, U.S. Holders would be required to accrue into income original issue discount on the securities every year at a “comparable
yield” determined at the time of issuance and recognize all income and gain in respect of the securities as ordinary income.
In 2007, the U.S. Treasury
Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward
contracts” and similar instruments. The notice focuses in particular on whether to require holders of these instruments to
accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character
of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime;
the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which
the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors
should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership”
rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest
charge. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other
guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment
in the securities, possibly with retroactive effect.
As discussed in the accompanying
product supplement for securities, Section 871(m) of the Internal Revenue Code of 1986, as amended, and Treasury regulations promulgated
thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding tax on dividend
equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S. equities or indices
that include U.S. equities (each, an “Underlying Security”). Subject to certain exceptions, Section 871(m) generally
applies to instruments that substantially replicate the economic performance of one or more Underlying Securities, as determined
based on tests set forth in the applicable Treasury regulations (a “Specified Security”). However, pursuant to an IRS
notice, Section 871(m) will not apply to instruments issued before January 1, 2021 that do not have a delta of one with respect
to any Underlying Security. Based on our determination that the securities do not have a delta of one with respect to any Underlying
Security, our counsel is of the opinion that the securities should not be Specified Securities and, therefore, should not be subject
to Section 871(m).
Our determination is not
binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application may depend
on your particular circumstances, including whether you enter into other transactions with respect to an Underlying Security. If
withholding is required, we will not be required to pay any additional amounts with respect to the amounts so withheld. You should
consult your tax adviser regarding the potential application of Section 871(m) to the securities.
Both U.S. and non-U.S.
investors considering an investment in the securities should read the discussion under “Summary Risk Factors” in this
document and the discussion under “United States Federal Tax Considerations” in the accompanying product supplement
for the securities and consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment
in the securities, including possible alternative treatments, the issues presented by the aforementioned notice and any tax consequences
arising under the laws of any state, local or non-U.S. taxing jurisdiction.
The discussion in the
preceding paragraphs under “United States Federal Tax Considerations” and the discussion contained in the section entitled
“United States Federal Tax Considerations” in the accompanying product supplement for the securities, insofar as they
purport to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitute the full opinion
of Shearman & Sterling LLP regarding the material U.S. federal tax consequences of an investment in the securities.
Supplemental Plan of Distribution
CGMI, an affiliate of Citigroup Global Markets Holdings Inc.
and the underwriter of the sale of the securities, is acting as principal and will receive an underwriting fee of up to $30.00
for each security sold in this offering. The actual underwriting fee will be equal to the selling concession provided to selected
dealers, as described in this paragraph, plus $5.00 per security in the case of securities sold to fee-based advisory accounts.
From this underwriting fee, CGMI will pay selected dealers not affiliated with CGMI a variable selling concession of up to $30.00
for each security they sell to accounts other than fee-based advisory accounts. CGMI will pay selected dealers not affiliated with
CGMI, which may include dealers acting as custodians, a variable selling concession of up to $5.00 for each security they sell
to fee-based advisory accounts.
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See “Plan of Distribution; Conflicts of Interest”
in the accompanying product supplement and “Plan of Distribution” in each of the accompanying prospectus supplement
and prospectus for additional information.
Valuation of the Securities
CGMI calculated the estimated value of the securities set forth
on the cover page of this pricing supplement based on proprietary pricing models. CGMI’s proprietary pricing models generated
an estimated value for the securities by estimating the value of a hypothetical package of financial instruments that would replicate
the payout on the securities, which consists of a fixed-income bond (the “bond component”) and one or more derivative
instruments underlying the economic terms of the securities (the “derivative component”). CGMI calculated the estimated
value of the bond component using a discount rate based on our internal funding rate. CGMI calculated the estimated value of the
derivative component based on a proprietary derivative-pricing model, which generated a theoretical price for the instruments that
constitute the derivative component based on various inputs, including the factors described under “Summary Risk Factors—The
value of the securities prior to maturity will fluctuate based on many unpredictable factors” in this pricing supplement,
but not including our or Citigroup Inc.’s creditworthiness. These inputs may be market-observable or may be based on assumptions
made by CGMI in its discretionary judgment.
The estimated value of the securities is a function of the terms
of the securities and the inputs to CGMI’s proprietary pricing models. As of the date of this preliminary pricing supplement,
it is uncertain what the estimated value of the securities will be on the pricing date because certain terms of the securities
have not yet been fixed and because it is uncertain what the values of the inputs to CGMI’s proprietary pricing models will
be on the pricing date.
For a period of approximately three months following issuance
of the securities, the price, if any, at which CGMI would be willing to buy the securities from investors, and the value that will
be indicated for the securities on any brokerage account statements prepared by CGMI or its affiliates (which value CGMI may also
publish through one or more financial information vendors), will reflect a temporary upward adjustment from the price or value
that would otherwise be determined. This temporary upward adjustment represents a portion of the hedging profit expected to be
realized by CGMI or its affiliates over the term of the securities. The amount of this temporary upward adjustment will decline
to zero on a straight-line basis over the three-month temporary adjustment period. However, CGMI is not obligated to buy the securities
from investors at any time. See “Summary Risk Factors—The securities will not be listed on any securities exchange
and you may not be able to sell them prior to maturity.”
Certain Selling Restrictions
Hong Kong Special Administrative Region
The contents of this pricing supplement and the accompanying
product supplement, prospectus supplement and prospectus have not been reviewed by any regulatory authority in the Hong Kong Special
Administrative Region of the People’s Republic of China (“Hong Kong”). Investors are advised to exercise caution
in relation to the offer. If investors are in any doubt about any of the contents of this pricing supplement and the accompanying
product supplement, prospectus supplement and prospectus, they should obtain independent professional advice.
The securities have not been offered or sold and will not be
offered or sold in Hong Kong by means of any document, other than
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to persons whose ordinary business is to buy or sell shares or debentures (whether as principal or agent); or
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(ii)
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to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the “Securities
and Futures Ordinance”) and any rules made under that Ordinance; or
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(iii)
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in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance
(Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and
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There is no advertisement, invitation or document relating to
the securities which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except
if permitted to do so under the securities laws of Hong Kong) other than with respect to securities which are or are intended to
be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and
Futures Ordinance and any rules made under that Ordinance.
Non-insured Product: These securities are not insured by any
governmental agency. These securities are not bank deposits and are not covered by the Hong Kong Deposit Protection Scheme.
Singapore
This pricing supplement and the accompanying product supplement,
prospectus supplement and prospectus have not been registered as a prospectus with the Monetary Authority of Singapore, and the
securities will be offered pursuant to exemptions under the Securities and Futures Act, Chapter 289 of Singapore (the “Securities
and Futures Act”). Accordingly, the securities may not be offered or sold or made the subject of an invitation for subscription
or purchase nor may this pricing supplement or any other document or material in connection with the offer or sale or invitation
for subscription or purchase of any securities be circulated or distributed, whether directly or indirectly, to any person in Singapore
other than (a) to an institutional investor pursuant to Section 274 of the Securities and Futures Act, (b) to a relevant person
under Section 275(1) of the Securities and Futures Act or to any person pursuant to Section 275(1A) of the Securities and Futures
Act and in accordance with the conditions specified in Section 275 of the Securities and Futures Act, or (c) otherwise pursuant
to, and in accordance with the conditions of, any other applicable provision of the Securities and Futures Act. Where the securities
are subscribed or purchased under Section 275 of the Securities and Futures Act by a relevant person which is:
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(a)
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a corporation (which is not an accredited investor (as defined in Section 4A of the Securities and Futures Act)) the sole business
of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited
investor; or
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(b)
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a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is
an individual who is an accredited investor, securities (as defined in Section 239(1) of the Securities and Futures Act) of that
corporation or the beneficiaries’ rights and interests (howsoever described) in that trust shall not be transferable for
6 months after that corporation or that trust has acquired the relevant securities pursuant to an offer under Section 275 of the
Securities and Futures Act except:
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(i)
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to an institutional investor or to a relevant person defined in Section 275(2) of the Securities and Futures Act or to any
person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the Securities and Futures Act; or
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(ii)
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where no consideration is or will be given for the transfer; or
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(iii)
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where the transfer is by operation of law; or
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(iv)
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pursuant to Section 276(7) of the Securities and Futures Act; or
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(v)
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as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005
of Singapore.
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Any securities referred to herein may not be registered with
any regulator, regulatory body or similar organization or institution in any jurisdiction.
The securities are Specified Investment Products (as defined
in the Notice on Recommendations on Investment Products and Notice on the Sale of Investment Product issued by the Monetary Authority
of Singapore on 28 July 2011) that is neither listed nor quoted on a securities market or a futures market.
Non-insured Product: These securities are not insured by any
governmental agency. These securities are not bank deposits. These securities are not insured products subject to the provisions
of the Deposit Insurance and Policy Owners’ Protection Schemes Act 2011 of Singapore and are not eligible for deposit insurance
coverage under the Deposit Insurance Scheme.
Contact
Clients may contact their local brokerage representative. Third-party
distributors may contact Citi Structured Investment Sales at (212) 723-7005.
© 2019 Citigroup Global Markets Inc. All rights reserved.
Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout
the world.
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Annex A
Description of the MSCI USA Women’s Leadership Index
The MSCI USA Women’s Leadership Index (the “Index”)
is a price-return index developed by MSCI Inc. with the goal of tracking the price performance of those companies that exhibit
a commitment toward gender diversity among their boards of directors and other leadership positions. Specifically, the Index is
designed to provide investors with exposure to U.S.-based companies that satisfy three gender diversity criteria:
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Women in leadership positions;
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2.
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Percentage of women on the board of directors; and
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3.
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Absence of discrimination and workforce diversity controversy
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, each of which is described in more detail below.
All of the Index Components (as defined below) are components
of the MSCI USA IndexSM, subject to the three filtering criteria above. Additionally, the weighting of Index Components
within the Index differs from the weighting of components within the MSCI USA IndexSM. For additional information, see
“Index Component Weightings” below.
As of May 31, 2019, the Index had 274 Index Components, while
the MSCI USA IndexSM had 641 components.
The Index is calculated, published and disseminated daily by
MSCI. The Index was launched on August 4, 2016 and is reported by Bloomberg L.P. under the ticker symbol “MXCXJPMF.”
For the purposes of Annex B, the Index is one of the “MSCI Global Investable Market Indices.”
Index Universe
The universe of stocks from which MSCI selects eligible stocks
for inclusion in the Index consists of all of the stocks in the MSCI USA IndexSM. The MSCI USA IndexSM is
a free float-adjusted market capitalization index intended to reflect the sectoral diversity of the United States equity market
and to reflect the performance of United States companies that are available to investors worldwide. For more information regarding
the MSCI USA IndexSM, see “Annex B—Description of the MSCI USA IndexSM” in this pricing
supplement.
Index Construction
The Index is recomposed quarterly, at the end of each February,
May, August and November, to include all companies from the MSCI USA IndexSM that satisfy the following three criteria
(each, an “Index Component”). For the purposes of the below, gender data regarding directors and Leadership Positions
are taken as of the end of the month preceding a quarterly index review.
(1) Women in Leadership Positions
An Index Component must have either at least (i) three directors
who are women or (ii) (a) one director who is a woman and (b) and one other woman in a Leadership Position. A “Leadership
Position” is any one of the following:
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Lead director (for the avoidance of doubt, this director must be in addition to another director who is a woman);
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Chief Executive Officer;
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Co-Chief Executive Officer; or
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Chief Financial Officer.
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(2) Percentage of Women on the Board of Directors
The percentage of women on an Index Component’s board of
directors must be greater than the average percentage of women on boards of directors across all companies within the United States.
(3) Absence of Discrimination and Workforce Diversity Controversy
An Index Component must have a score greater than 2 for the MSCI
ESG Controversies ratings system key performance indicator “Labor Rights & Supply Chain – Discrimination &
Workforce Diversity.” The MSCI ESG Controversies ratings system is a service provided by MSCI designed to provide assessments
of companies’ social, environmental and governance controversies. MSCI defines a “controversy” as an instance
or ongoing situation in which company operations and/or products allegedly have a negative environmental, social and/or governance
impact. MSCI employs 185 research analysts who access data from sources including publicly available company disclosure, academic,
governmental and non-governmental organizations and over 1,600 media sources to assess companies’ exposure to and management
of social, environmental and governance controversies.
Under the MSCI ESG Controversies rating system, each company
starts with a “perfect 10” score (indicating “no controversies”) in each of 28 key performance indicators
measured by MSCI, including “Discrimination & Workforce Diversity.” The “Discrimination & Workforce Diversity”
key performance indicator measures the severity of controversies related to a firm’s workforce diversity, including its employees
as well as temporary employees, contractors and franchisee employees. Topics related to “Discrimination & Workforce Diversity”
include allegations of discrimination on the basis of sex, race, ethnicity or other characteristics. A score for a key performance
indicator may be reduced by MSCI’s assessment of the controversies affecting a given company. MSCI defines each controversy
as “Very Severe,” “Severe,” “Moderate” or “Minor,”
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depending on MSCI’s assessment of the scale and nature
of the impact of the controversy on the company. This initial severity assessment may be revised due to a number of factors that,
in MSCI’s judgment, can influence a final assessment, including:
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Whether there are extenuating or exacerbating circumstances;
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Whether the controversy is structural (i.e., reflecting an underlying problem at the company) or non-structural; and
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Whether the controversy is ongoing, concluded or simply of historical concern.
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MSCI, in its discretion, lowers the numerical score of a company
in a key performance indicator such as “Discrimination & Workforce Diversity” based on MSCI’s assessment
of controversies that impact such key performance indicator. For a company to have a “Discrimination & Workforce Diversity”
score of 2 or less (meaning that the company will not be included as an Index Component in the Index, even if it meets the first
two criteria for inclusion), MSCI must have determined that the company has faced “Very Severe” or “Severe”
structural diversity-related controversies or “Severe” ongoing diversity-related controversies.
Determinations relating to “Discrimination & Workplace
Diversity” are made solely by MSCI. See “Summary Risk Factors—The underlying follows a particular methodology,
which may differ significantly from alternative approaches and investor expectations” above.
Index Component Weightings
Once Index Components are selected for inclusion in the Index
pursuant to the criteria under “Index Construction” above, the Index Components are weighted in two steps. First, each
sector that each Index Component belongs to (as determined pursuant to the GICS classification) is assigned the same weight as
that sector has within the MSCI USA IndexSM. Second, the Index Components within each sector are weighted equally so
that the aggregate sector weight is equal to the sector weight established in the previous step. Due to this weighting methodology,
the Index is not a market capitalization-weighted index, unlike the MSCI USA IndexSM, and the Index Components will
have different weightings within the Index than the same companies will have within the MSCI USA IndexSM. It is impossible
to predict whether these weightings will cause the Index to perform better or worse than the MSCI USA IndexSM. For more
information, see “Summary Risk Factors—The underlying is not a market capitalization-weighted index.”
Index Maintenance
The Index is 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 Index Components, Index stability and low Index turnover. The treatment of some common corporate events is outlined
below.
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Event Type
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Event Details
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New Additions to the MSCI USA IndexSM
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A new security added to the MSCI USA IndexSM (such as an IPO or other new inclusion) will not be added to the Index.
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Spin-Offs
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All securities created as a result of the spin-off of an existing Index Component will be added to the Index at the time of event implementation. Reevaluation for continued inclusion in the Index will occur at the subsequent quarterly index review.
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Merger/Acquisition
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For mergers and acquisitions, the acquirer’s post-event
weight will account for the proportionate amount of shares involved in deal consideration, while cash proceeds will be invested
across the Index.
If an existing Index Component is acquired by a non-Index Component,
the existing Index Component will be deleted from the Index and the acquiring non-Index Component will not be added to the Index.
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Changes in Security Characteristics
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A security will continue to be an Index Component if there are changes in characteristics (sector, etc.). Reevaluation for continued inclusion in the Index will occur at the subsequent index review.
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Index maintenance also involves additional ongoing event-related
changes and other similar corporate events. Outside of the corporate events described above, no new Index Components will be added
to the Index between quarterly index reviews. However, deletions from the MSCI USA IndexSM will be reflected immediately
in the Index.
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Annex B
Description of the MSCI USA IndexSM
We have derived all information contained in this pricing supplement
regarding the MSCI USA IndexSM, including, without limitation, its make-up, method of calculation and changes in its
components, from publicly available information, without independent verification. This information reflects the policies of, and
is subject to change by, MSCI Inc. (“MSCI”). The MSCI USA IndexSM is calculated, maintained and published
by MSCI. MSCI has no obligation to continue to publish, and may discontinue publication of, the MSCI USA IndexSM.
The MSCI USA IndexSM is a free float-adjusted market
capitalization index intended to reflect the sectoral diversity of the United States equity market and to represent United States
companies that are available to investors worldwide. Securities listed on the New York Stock Exchange, NASDAQ and NYSE MKT Equities
are eligible for inclusion in the MSCI USA Index. The MSCI USA Index was developed with a base value of 100 as of December 31,
1969. The MSCI USA Index is reported by Bloomberg Financial Markets under ticker symbol “MXUS.”
The MSCI USA IndexSM is one of the “MSCI Global
Investable Market Indices” and one of the “MSCI International Equity Indices.”
MSCI International Equity Indices
The MSCI International Equity Indices are calculated for 80 countries
globally in the developed, emerging and frontier markets. The MSCI International Equity Indices include, among others, MSCI EAFE
Index, MSCI Emerging Markets Index, MSCI Europe Index, MSCI World Index, MSCI World Real Estate Index, MSCI Australia Index, MSCI
Belgium Index, MSCI Brazil Index, MSCI France Index, MSCI Italy Index, MSCI Japan Index, MSCI Pacific Ex-Japan Index, MSCI Singapore
Index, MSCI Spain Index, MSCI Switzerland Index, MSCI Taiwan Index and MSCI USA Index. MSCI implemented enhancements to the methodology
of the MSCI International Equity Indices in May 2008. In an attempt to provide broader coverage of the equity markets, MSCI moved
from a sampled multi-cap approach to an approach targeting exhaustive coverage with non-overlapping size and segments. MSCI combined
the MSCI Global Standard and MSCI Global Small Cap Indices to form the MSCI Global Investable Market Indices, segmented by region/country,
size (large, mid and small cap), value/growth styles and Global Industry Classification Standard (“GICS®”)
sectors/industries. The MSCI Global Standard and MSCI Global Small Cap Indices, along with the other MSCI equity indices based
on them, transitioned to the MSCI Global Investable Market Indices methodology. The transition was completed at the end of May
2008. For more details, please see “– MSCI Global Investable Market Indices Methodology.”
Certain securities traded outside of their country of classification
(i.e., “foreign listings”) are eligible for inclusion in certain MSCI Country Investable Market Indexes within the
MSCI Global Investable Market Indices. Foreign listings are eligible to represent securities only from countries that meet the
Foreign Listing Materiality Requirement. To meet the Foreign Listing Materiality Requirement, the aggregate market capitalization
of all securities represented by foreign listings should represent at least (i) 5% of the free float-adjusted market capitalization
of the relevant MSCI Country Investable Market Index and (ii) 0.05% of the free-float adjusted market capitalization of the MSCI
ACWI (All Country World Index) Investable Market Index.
MSCI Global Investable Market Indices Methodology
Constructing the MSCI Global Investable Market Indices
MSCI undertakes an index construction process, which involves:
(i) identifying eligible equity securities and classifying those eligible securities into the appropriate country (defining
the “Equity Universe”); (ii) applying investability screens to individual companies and securities in the Equity
Universe that are classified in that market (determining the “Market Investable Equity Universe” for each market);
(iii) determining market capitalization size segments for each market; (iv) applying index continuity rules for an index
that includes 85% ± 5% of the Market Investable Equity Universe (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®”).
Defining the Equity Universe
(i) Identifying Eligible Equity Securities: The Equity Universe
initially looks at securities listed in countries which are classified as either developed markets (“Developed Market”
or “DM”) or emerging markets (“Emerging Market” or “EM”). All listed equity securities, or
listed securities that exhibit characteristics of equity securities, except mutual funds (U.S. Business Development Companies are
eligible), 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) is classified in one and only one country, which allows for 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. To determine this minimum size requirement, the companies in the DM
Equity Universe are sorted in descending order of full market capitalization and the cumulative coverage of the free float-adjusted
market capitalization of the DM Equity Universe is calculated at each company. When the cumulative free float-adjusted market capitalization
coverage of 99% of the sorted Equity Universe is achieved, the full market capitalization of the company at that point defines
the Equity Universe Minimum Size Requirement.
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(ii) Equity Universe Minimum Float-Adjusted Market Capitalization
Requirement: This investability screen is applied at the individual security level. To be eligible for inclusion in a Market Investable
Equity Universe, a security must have a free float-adjusted market capitalization equal to or higher than 50% of the Equity Universe
Minimum Size Requirement.
(iii) DM and EM Minimum Liquidity Requirement: This investability
screen is applied at the individual security level. To be eligible for inclusion in a Market Investable Equity Universe, a security
must have adequate liquidity. A minimum liquidity level of 20% of 3-month Annualized Traded Value Ratio (“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 Depositary Receipt if it is trading
in the same geographical region. Depositary 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. In addition, securities with stock prices above USD 10,000 fail the liquidity screening unless it is already
a constituent of the MSCI Global Investable Market Indices.
(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. Exceptions to this general rule are made only in the limited cases where the exclusion of securities of a very
large company would compromise the MSCI Standard Index’s ability to fully and fairly represent the characteristics of the
underlying market.
(v) “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 and large primary / secondary offerings of non index-constituents
are not subject to the Minimum Length of Trading Requirement and may be included in a Market Investable Equity Universe and the
Standard Index outside of a quarterly or semi-annual index review.
(vi) Minimum Foreign Room Requirement: This investability screen
is applied at the individual security level. For a security that is subject to a foreign ownership limit (FOL) to be eligible for
inclusion in a Market Investable Equity Universe, the proportion of shares still available to foreign investors relative to the
maximum allowed (referred to as “foreign room”) must be at least 15%.
Defining Market Capitalization Size Segments for Each Market
Once a Market Investable Equity Universe is defined, it is segmented
into the following size-based indices:
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Investable Market Index (Large + Mid + Small)
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Standard Index (Large + Mid)
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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 maintained for a DM Standard Index and a minimum number of three constituents will be maintained for
an EM Standard Index. The application of this requirement involves the following steps:
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-
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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.
When the index continuity rule is in effect, the market size-segment
cutoff is set at 0.5 times the global minimum size reference for the Standard Index rather than the full market capitalization
of the smallest company in that market’s Standard Index.
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 (“GICS®”)
All securities in the Global Investable Equity Universe are assigned
to the industry that best describes their business activities. To this end, MSCI has designed, in conjunction with S&P Dow
Jones Indices LLC, the GICS. The GICS entails four levels of classification: (1) sector; (2) industry group; (3) industries; and
(4) sub-industries. Under the GICS, each company is assigned 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.
Index Maintenance
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:
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Updating the indices on the basis of a fully refreshed Equity Universe.
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Taking buffer rules into consideration for migration of securities across size and style segments.
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Updating Foreign Inclusion Factor (“FIF”) and Number of Shares (“NOS”).
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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. During each SAIR, the equity universe is updated and the global minimum
size range is recalculated for each size segment. Among other index maintenance activities, for each market, new equity securities
are identified and tested for inclusion in the relevant index, and existing component securities are evaluated to ensure they meet
the revised requirements for inclusion in the relevant index.
(ii) Quarterly Index Reviews (“QIRs”) in February
and August (in addition to the SAIRs in May and November) of the Size Segment Indices aimed at:
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Including significant new eligible securities (such as IPOs that were not eligible for earlier inclusion) in the index.
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Allowing for significant moves of companies within the Size Segment Indices, using wider buffers than in the SAIR.
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Reflecting the impact of significant market events on FIFs and updating NOS.
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QIRs are designed to ensure that the indices continue to be an
accurate reflection of the evolving equity marketplace. This is achieved by a timely reflection of significant market driven changes
that were not captured in the index at the time of their actual occurrence but are significant enough to be reflected before the
next SAIR. QIRs may result in additions or deletions due to migration to another Size Segment Index, and changes in FIFs and in
NOS. 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.
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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 in the MSCI indices.
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 6:00 p.m., U.S. Eastern Time.
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 at least 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 in the MSCI indices.
For Standard Index constituents, a more descriptive text announcement
is sent to clients for significant events that meet any of the following criteria:
• Additions and deletions of constituents.
• Changes in free float-adjusted market capitalization
equal to or larger than USD 5 billion, or with an impact of at least 1% of the constituent’s underlying country index.
If warranted, MSCI Inc. may make additional announcements for
events that are complex in nature and for which additional clarification could be beneficial.
IPOs and Other Early Inclusions. Early inclusions of large
IPOs in the MSCI Standard Index Series are announced no earlier than the first day of trading and no later than before the opening
of the third day of trading in the market where the company has its primary listing. Early inclusions of already listed securities
following large secondary offerings of new and/or existing shares are announced no earlier than shortly after the end of the offer
period.
GICS®. Non-event related changes in industry
classification at the sub-industry level are announced at least two weeks prior to their implementation as of the close of the
last U.S. business day of each month. MSCI announces GICS changes twice a month, the first announcement being made on the first
U.S. business day of the month and the second one being made at least ten U.S. business days prior to the last U.S. business day
of the month. All GICS changes announced in a given month will be implemented as of the close of the last U.S. business day of
the month.
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, the level of the relevant
MSCI index level is obtained by applying the change in the market performance to the previous period level for such MSCI index.
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PriceIndexLevelUSDt = PriceIndexLevelUSDt-1 ×
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IndexAdjustedMarketCapUSDt
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IndexInitialMarketCapUSDt
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PriceIndexLevelLocalt = PriceIndexLevelLocalt-1 ×
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IndexAdjustedMarketCapForLocalt
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IndexInitialMarketCapUSDt
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Where:
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PriceIndexLevelUSDt-1 is the Price Index level in USD at time t-1
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IndexAdjustedMarketCapUSDt is the Adjusted Market Capitalization of the index in USD at time t
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IndexInitialMarketCapUSDt is the Initial Market Capitalization of the index in USD at time t
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PriceIndexLevelLocalt-1 is the Price Index level in local currency at time t-1
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IndexAdjustedMarketCapForLocalt is the Adjusted Market Capitalization of the index in USD converted using
FX rate as of t-1 and used for local currency index at time t
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Note: IndexInitialMarketCapUSD was previously called IndexUnadjustedMarketCapPreviousUSD
Security Index of Price in Local Currency
The Security Index of Price is distributed in MSCI daily and
monthly security products. It represents the price return from period to period by utilizing the concept of an index of performance
with an arbitrary base value. The index of price is fully adjusted for capital changes and is expressed in local currency.
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SecurityPriceIndexLevel1 = SecurityPriceIndexLevelt-1 ×
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SecurityAdjustedMarketCapForLocalt
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SecurityInitialMarketCapUSDt
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SecurityAdjustedMarketCapForLocalt =
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EndOfDayNumberOfSharest -1 × PricePerSharet × InclusionFactort × PAFt
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×
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ICIt
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FXratet-1
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ICIt-1
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SecurityInitialMarketCapUSDt =
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EndOfDayNumberOfSharest -1 × PricePerSharet-1 × InclusionFactort
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FXratet-1
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Where:
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SecurityPriceIndexLevelt-1 is Security Price Index level at time t-1.
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SecurityAdjustedMarketCapForLocalt is the Adjusted Market Capitalization of security s in USD converted
using FX rate as of t-1.
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SecurityInitialMarketCapUSDt is the Initial Market Capitalization of security s in USD at time t.
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EndOfDayNumberOfSharest-1 is the number of shares of security s at time t-1.
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PricePerSharet is the price per share of security s at time t.
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PricePerSharet-1 is the price per share of security s at time t-1.
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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.
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PAFt is the Price Adjustment Factor (“PAF”) of security s at time t.
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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.
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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).
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ICIt-1 is the Internal Currency Index of price currency at time t-1.
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Index Market Capitalization
IndexAdjustedMarketCapUSDt =
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s ε I,t
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End of Day Number of Sharest-1 × Price Per Sharet × Inclusion Factort × PAFt
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FXratet
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Citigroup Global Markets Holdings Inc.
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IndexAdjustedMarketCapForLocalt =
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s ε I,t
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(
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End of Day Number of Sharest-1 × Price Per Sharet × Inclusion Factort × PAFt
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×
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ICIt
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)
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FXratet-1
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ICIt-1
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IndexInitialMarketCapUSDt =
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s ε I,t
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End of Day Number of Sharest-1 × Price Per Sharet × Inclusion Factort
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FXratet-1
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Where:
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EndOfDayNumberOfSharest-1 is the number of shares of security s at the end of day t-1.
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PricePerSharet is the price per share of security s at time t.
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PricePerSharet-1 is the price per share of security s at time t-1.
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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.
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PAFt is the Price Adjustment Factor of security s at time t.
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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.
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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.
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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).
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ICIt-1 is the Internal Currency Index of price currency at time t-1.
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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.
For U.S. mergers and acquisitions, where the delisting date for
the acquired security is not available in advance and the completion of the transaction may be delayed due to, for example, the
existence of financing conditions, MSCI will wait until the official announcement of the completion of the deal to delete the security
and will give advance notice before the deletion. However, if the delisting date for the acquired security is not available in
advance, and the transaction is not subject to any financing conditions, MSCI will delete such securities shortly after the relevant
shareholders’ approvals, provided that all other conditions required for completion of the transaction have been met. If
the deletion of securities after the official announcement of the completion of a deal results in deleting securities after they
have ceased trading. MSCI will use the following deletion prices:
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the last traded price before the delisting if the acquisition is for cash; or
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a calculated price based on the terms of the acquisition and the market share price of the acquirer if the acquisition is for
shares or cash and shares.
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Tender Offers. In tender offers, the acquired or merging
security is generally deleted from the MSCI indices 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 below 15% of shares outstanding that are available
for purchase in the public equity markets by international investors (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.
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 in the context of a quarterly index review
or annual full country index review. MSCI uses market prices for implementation.
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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 order to decide whether the spun-off entity qualifies for inclusion, the full company market capitalization of the spun-off
entity is estimated by MSCI prior to the spin-off being effective. These estimates are typically based on public information provided
by the parent company, including amongst others the spin-off prospectus and estimates from brokers.
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 Domestic Inclusion Factors (“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, bonus
issues 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 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. 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 following
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. For U.S. securities, increases in number of shares and changes in FIFs and/or DIFs resulting from
primary equity offerings and from secondary offerings representing at least 5% of the security’s number of shares will be
implemented as soon as practicable after the offering is priced. Generally, implementation takes place as of the close of the same
day that the pricing of the shares is made public. If this is not possible, the implementation will take place as of the close
of the following trading day.
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 as part of the quarterly index review.
Optional Dividends. In the case of an optional dividend,
the company offers shareholders the choice of receiving the dividend either in cash or in shares. However, shareholders electing
the cash option may receive the dividend consideration in cash or shares, or some combination of cash and shares. These dividends
are a common practice in the U.S. For dividend reinvestment purposes, MSCI assumes that investors elect the cash option, therefore
the dividend is reinvested in the MSCI Daily Total Return Indices and price adjustment is not necessary (if the dividend is less
than 5% of the cum market price of the underlying security). In the event that shareholders electing the cash option receive the
dividend distribution in shares, or a combination of cash and shares, MSCI will increase the number of shares accordingly after
results have been officially communicated, with two full business days’ notice.
Suspensions, Delistings and Bankruptcies. MSCI will remove
from the MSCI Equity Index Series as soon as practicable companies that file for bankruptcy, companies that file for protection
from their creditors, and companies that fail stock exchange listing requirements with announcements of delisting from the stock
exchanges. MSCI will delete from the MSCI Equity Indexes after 50 business days of suspension, where feasible, securities of companies
facing financial difficulties (e.g., liquidity issues, debt repayment issues, companies under legal investigation) 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 the MSCI Indexes at the next scheduled Semi-Annual Index Review based on the rules described in the
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Citigroup Global Markets Holdings Inc.
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section 3.1 of the MSCI Global Investable Market Indexes Methodology
Book. In certain cases, when the financial situation of companies may not be transparent to the public, after 50 business days
of suspension, MSCI may keep these companies longer in the Indexes and may delete them at one of the following Index Reviews.
Securities of companies suspended due to pending corporate events
(e.g., merger, acquisition, etc.), will continue to be maintained in the MSCI Indices 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.
Certain MSCI Indices are Subject to Currency Exchange Risk.
Because the closing prices of the component securities are converted into U.S. dollars for purposes of calculating the value
of certain MSCI indices, investors in the securities linked to such MSCI indices will be exposed to currency exchange rate risk.
Exposure to currency changes will depend on the extent to which the relevant currency strengthens or weakens against the U.S. dollar.
The devaluation of the U.S. dollar against the applicable currency will result in an increase in the value of the relevant index.
Conversely, if the U.S. dollar strengthens against such currency, the value of such index will be adversely affected and may reduce
or eliminate any return on your investment. Fluctuations in currency exchange rates can have a continuing impact on the value of
the indices, and any negative currency impact on the indices may significantly decrease the value of the securities. The return
on an index composed of the component securities where the closing price is not converted into U.S. dollars can be significantly
different than the return on the indices which are converted into U.S. dollars.
Chateau Communities (NYSE:CPJ)
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