Citigroup in Equity-Linked Notes Offering Tied to REIT Portfolio Index
April 5, 2005
Cleary Gottlieb represented the underwriter, Citigroup Global Markets Inc., in Citigroup Global Markets Holdings’ $52.5 million offering of REIT Enhanced Income Strategy Principal-Protected Notes Linked to the 2005-3 Dynamic Portfolio Index. Cleary Gottlieb was also special tax counsel in the transaction.
The REIT enhanced income strategy notes are principal-protected debt securities linked to the performance of the 2005-3 Dynamic Portfolio Index, which allocates notional investments between a notional portfolio pursuing a “buy-write” equity strategy and a notional bond portfolio. The notional “buy-write portfolio” (the REIT Buy-Write Index portfolio) was initially established in March 2005 and will be reconstituted each March. The REIT Buy-Write Index portfolio tracks the performance of a hypothetical investment strategy in which (a) up to 25 common stocks of real estate investment trusts (excluding Citigroup Inc. or any of its affiliates) in the Dow Jones Composite All REIT Index with the highest annualized dividend yields (the 2005-1 REIT Portfolio) are purchased and (b) notional call options relating to those stocks are written on a quarterly basis. A buy-write strategy allows an investor to participate in equity appreciation that is capped by the strike prices of the notional call options while limiting downside exposure through premiums received when the options are written. The strategy appeals to investors who believe that equity markets will remain flat or show only moderate growth during the term of the notes. A real estate investment trust, or REIT, is a company that purchases and manages real estate and/or real estate loans. Income earned by a REIT is generally passed through and taxed to the shareholders rather than to the REIT.