S U M M A R Y
I N V E S T O R
S.A.M. Global Healthcare Biotech Notes Series 1
ISSUED BY
S . A . M . G L O B A L H E A LT H C A R E B I O T E C H N O T E S S E R I E S 1
KEY BENEFITS
1. The S.A.M. Global Healthcare Biotech Notes Series 1
(the “Notes”) will target consistent capital appreciation.
The equity portfolio to which the performance of the Notes is
linked will be managed by Sectoral Asset Management Inc.
(S.A.M.). S.A.M. specializes in the management of
investments in the healthcare and biotechnology sectors and,
as of December 31, 2003, managed over $2.6 billion in that
sector for European, Japanese, Chinese, American and
Canadian mutual funds, institutions and high net worth
individuals. Over the years, S.A.M.’s investment
management team has received many awards for the various
funds it manages.
5. The fee structure of the Note program is competitive.
The total fees, including the Principal Guarantee and the
profit lock-in feature, will be approximately 2.85% of Net
Asset Value (NAV) of the Note plus a performance fee that
is designed to align the interests of the investment advisor
with the Note program. This compares favourably with the
average management expense ratio for Canadian mutual
funds specializing in the Healthcare and Biotechnology
sector (3.10%).
2. The performance of the Notes will be linked to a long/short
equity portfolio of global healthcare and biotechnology
companies. The portfolio provides significant diversification
to Canadian investors since Canadian markets are
significantly under-weighted (2% vs. 11%)* in this important
sector compared to world markets.
7. The Notes provide tax deferral benefits, as no distributions
or tax accruals occur prior to maturity.
3. A principal guarantee and a profit lock-in feature are built
into the Notes. At the maturity date of the Notes, Note
holders will receive the greater of:
• 100% of the Principal Amount of the Notes;
• 80% of the highest Net Asset Value (NAV) of the Notes
from the date of issue until the maturity date (calculated
as at the end of each calendar quarter);
• The Final NAV of the Notes at maturity.
4. The Notes are issued by Citibank Canada and guaranteed
by Citibank, N.A., one of the world’s largest banks. The longterm debt obligations of Citibank, N.A. are rated AA by S&P
and Aa1 by Moody’s.
*Source: Bloomberg, MSCI Dec 31st,2003
6. A secondary market will provide liquidity to Note holders
and will commence on June 1st 2005.
8. The Notes are considered Canadian content and, as such,
are 100% RRSP, RRIF, DPSP and RESP eligible.
9. Although the majority of investments will be made in
foreign currencies, the equity portfolio to which the
performance of the Notes is linked will be hedged back to
Canadian dollars, thus minimizing the Note holder’s exposure
to foreign currency fluctuations.
The investment program to which the performance of the
Notes is linked is structured to focus on issuers in the
pharmaceutical and biotechnology sector. The gross exposure
of the portfolio will be 20% (minimum) to 70% (maximum)
to the Pharmaceutical sector and 20% (minimum) to 70%
(maximum) to the Biotechnology sector. The maximum
allocation to a single long position is 8% and the maximum
allocation to a single short position is 4%. The total short
positions will not exceed 40% of the total portfolio value.
The investment portfolio foreign exposure will be hedged back
to Canadian dollars.
INVESTMENT FROM
A CANADIAN PERSPECTIVE
Sector Breakdown of Canadian Stock Market
vs. Global Stock Market as of Dec 31st, 2003
TSX
in Canadian’s registered retirement savings plan accounts. The
average US or European investor has a much higher natural
exposure to the healthcare and biotechnology sector. In Canada,
there is no listed major brand name pharmaceutical company on
the domestic markets while the biotechnology sector has some
listed companies but they do not represent a large market
capitalization from a global perspective. Consequently, an
international approach to healthcare/biotechnology sector
investing is required.
MCSI WORLD INDEX
11%
2%
Healthcare
Finance
Tech
Cons. Disc.
Indust.
Cons. Stap.
Energy
Telecom
Resources
Utilities
The market capitalization of the world’s five largest
pharmaceutical companies is bigger than the entire market
capitalization of the TSX. The worldwide market for therapeutic
substances is over CAD$580* billion a year. This market is
expected to grow in the high single digits over the next ten years
due to the ageing of the population and the introduction of
innovative drugs addressing un-met medical needs. The fastest
growing sub-segments of the sector are biotechnology products
with an expected growth rate of 25% over the next decade and
the manufacturers of generic products with an expected growth
rate of 20% over the same period.
Source: Bloomberg, MSCI
The structure of the Canadian equity market is such
that the healthcare and biotechnology sector is
under-represented.
The global healthcare and biotechnology sector is growing faster
than the overall economy. In our ageing society, the need for
drugs and innovative treatments is increasing. By investing
solely in the Canadian equity market, investors are underweighted in one of the largest and most profitable worldwide
industry sectors. This fact is reinforced by foreign content limits
An investment in the global healthcare and biotechnology sector
by Canadian investors over the past ten years would have
significantly increased returns as shown in the following chart.
*Source: Sectoral Asset Management
Healthcare and Biotechnology Performance
from January 1st, 1994 to December 31st, 2003
$8000
$7000
$6000
$5000
$4000
$3000
$2000
$1000
0
Jan-94 Jun-94
Dec-94
Jun-95
Dec-95
Jun-96
Dec-96
Jun-97
Dec-97
Jun-98
Dec-98
Jun-99
Dec-99
Jun-00
S&P Pharmaceutical Index (USD)
Dec-00 Jun-01
Dec-01
Jun-02
Nasdaq Biotech Index (USD)
Dec-02
Jun-03
Dec-03
TSX Index (CAD)
Source: Bloomberg, S.A.M.
SECTORAL ASSET
MANAGEMENT
S.A.M. is a Montreal-based investment advisor and is 100%
employee-owned. Its focus is on managing global healthcare
and biotechnology sector portfolios for institutional investors
and high net worth individuals. As of December 31, 2003,
S.A.M. managed an aggregate of $2.6 billion for clients in
Canada, United States, Europe, Japan and China.
S.A.M.’s investment team is comprised of investment
S.A.M. has received numerous awards over the years:
• Europe Lipper 2004................ Fund of the Year Equity Sector Biotech
• France Lipper 2004 ................ Fund of the Year Equity Sector Biotech
• Germany Lipper 2004
................ Fund of the Year Equity Sector Biotech
• Switzerland Lipper 2004
................ Fund of the Year Equity Sector Biotech
• U.S.A. Nelson 2003................................... World’s Best Fund Manager
• Germany Lipper 2002
....................................... Best Sector Fund Biotech
• Switzerland Standard.............................
& Poors 2001
Best Fund of the year – Biotech
• Germany Finanzen ...................................................
1999
Manager of the year
professionals specialized in the healthcare and biotech sector:
• Jérôme Pfund, CFA
• Michael Sjöström, CFA
• Vincent Ossipow, Ph.D.
• Laurent Payer, CFA
• Jean Potvin, Ph.D.
• Stephan Patten, MBA
• Sanjay S. Patel, B.Sc.
• Carmen Tang, M.Sc., MBA
Chief Executive Officer
Chief Investment Officer
Chief Scientific Officer
Senior Portfolio Manager
Senior Private Equity Manager
Portfolio Manager
Financial Analyst
Financial Analyst
S.A.M. has established a proprietary network of scientists,
known as the Scientific Advisory Network (S.A.N.), to assist
in its in-depth scientific due diligence and to feed S.A.M. with
information about recent developments in science and
technology.
S.A.M. and its investment team have a 9 year audited track
record in the healthcare and biotech sector. In July 2001,
S.A.M. created the Global Long/Short Biotech Composite and
on January 1st, 2002, launched the Global Healthcare/
Biotech Composite.
S.A.M.’s Track Record (in USD):
As of
Dec 31st, 2003*
1 Year 2 Years 3 Years 5 Years 7 Years 9 Years
%
%
%
%
%
%
S.A.M. Global
Biotech Composite
50.7
(7.4)
(8.6)
15.7
15.7
18.9
S.A.M. Global
Long/Short
Biotech Composite
42.1
(3.4)
N/A
N/A
N/A
N/A
S.A.M. Global
Healthcare/Biotech
Composite
38.1
4.3
N/A
N/A
N/A
N/A
Nasdaq
Biotech Index
45.7
(10.7)
(12.6)
10.6
13.2
18.1
Philadelphia
Drug Index
12.8
(5.3)
N/A
N/A
N/A
N/A
50% Philadelphia
Drug Index/50%
Nasdaq Biotech Index
29.2
(7.4)
N/A
N/A
N/A
N/A
Source: Bloomberg, S.A.M.
*All Performance returns are net of fees. There is no guarantee of trading
performance and past performance is not indicative of future results.
Scientific Advisory Network Geographic Location
Aurélio Balsalobre, Ph.D.
Molecular Biology,
IRCM, Montréal
Amanda Adler, MD, Ph.D.
Epidemiology/Diabetes
Radcliffe Infirmary
Oxford
Henry I. Miller,
MS. MD.
Regulation
The Hoover Institution
Stanford
Pao-Hsien Chu, MD
Cardiology
Chang Gung Memorial Hospital
Taipei, Taiwan R.O.C.
Olivier Schaad,
Ph.D. DNA
University of Geneva
Keji Zhao, Ph.D.
Molecular Immunology
Nih, Besthesda
Adam Smith, D.Phil.
Drug Discovery
Nature Publishing Group
London
Vincent Ossipow, Ph.D.
Head of S.A.M. Scientific Advisory Network
Neurology/Brain Function
University of Geneva
Front Row: Jérôme Pfund, Michael Sjöström Carmen Tang
Second Row: Laurent Payer, Jean Potvin, Stephan Patten, Sanjay Patel
THE PROFIT
VALUE
LO C K- I N M E C H A N I S M
Balanced portfolio net asset value (NAV)
Capital
protection
CAD 10,000
Distance
Initial NAV
CAD 9,400
S . A . M . G L O B A L H E A LT H C A R E B I O T E C H N O T E S S E R I E S 1
The investment program to which the performance
of the Notes is linked will utilize a profit lock-in
protection mechanism called Constant Proportion
Portfolio Insurance (CPPI). For the purposes of the
CPPI, the Investment Portfolio will be divided in
two sections:
• Healthcare and Biotech Portfolio
• Fixed Income Portfolio
The allocation between the Healthcare/Biotech and the
Fixed Income Portfolios will be adjusted dynamically.
The CPPI strategy replicates a “stop-loss” mechanism
with the added benefit of offering full participation in
the upside of the portfolio to the investors.
The illustration below shows that an initial investment of
$9,400 ($10,000-Issue cost) could fluctuate over the life
of the Notes (blue line). The initial Fixed Income Curve
(FIC) is the present value of $10,000 in ten years. In this
example, the FIC is $7,114. The difference between the
NAV of the Investment Portfolio and the FIC is called the
“distance”. The distance in this case is 9,4007,114=2,286. The distance is multiplied by 3.5
(2,286 x 3.5/10,000 = 80%) and provides the investment
advisor with the percentage of $10,000 that can be
invested into the Healthcare and Biotech Portfolio. In this
case, the investment portfolio would consist of $7,520
(80% x 9,400 = 7,520) invested in the Healthcare and
Biotech Portfolio and the balance in the Fixed Income
Portfolio. If the value of the Healthcare and Biotech
Portfolio decreases, more assets are shifted into the
Fixed Income Portfolio and vice versa.
Initial FIC
CAD 7,114
Fixed income curve (FIC)
Releverage in
increasing markets
TIME
Maturity: 10 years
Deleverage in
decreasing markets
Source: Lehman Brothers
If the investment portfolio increases to a level such that
80% of its Net Asset Value (NAV) is higher than the FIC,
the FIC is then “re-set” to that level. For example, if the
NAV of the investment portfolio increases from $100 to
$130, the profit lock-in mechanism is re-set from $100 to
$104 (80% of 130) and the FIC is adjusted accordingly.
The investment program will also have access to a credit
facility. This will increase the exposure to the Healthcare and
Biotech portfolio in certain circumstances through leverage.
For example, if the NAV of the Investment Portfolio goes
from $9,400 to $10,400 and that the FIC stays constant,
the distance would be 10,400 - 7,114 = 3,286 and the
percentage to be invested in the Healthcare and Biotech
portfolio is (3,286 x 3.5/10,000 = 115%) This means that
100% of the asset of the investment program will be
invested in the Healthcare and Biotech portfolio plus an
extra 15% that will be borrowed through the credit facility.
Under the CPPI structure, if the Net Asset Value of the
Healthcare and Biotech Portfolio decreases significantly
under certain thresholds, the application of the CPPI
would result in all the assets of the investment portfolio
being invested in the Fixed Income Portfolio.
S.A.M. GLOBAL
HEALTHCARE BIOTECH Notes Series 1
Issue S.A.M. Global Healthcare Biotech Notes Series 1
Investment Advisor Sectoral Asset Management Inc.
Issuer Citibank Canada
Issue Size Minimum of $20,000,000 and maximum
of $200,000,000
Principal Repayment Guarantee
Citibank Canada – rated AA by S&P and AA high by DBRS
Citibank N.A. – rated AA by S&P and Aa1 by Moody’s
Payment at Maturity At maturity, the Notes holders will
receive the highest of (i) 100% of the Principal Amount
of the Notes; (ii) 80% of the highest NAV of the Notes
between the Closing Date and the Maturity Date
(calculated as at the end of each calendar quarter); or
(iii) the Final NAV of the Notes at Maturity
Minimum Purchase $5,000 (50 Notes)
Principal Amount $100 per Note
Offering Period March 29th, 2004 to May 14th 2004
Leverage Exposure to the Healthcare and Biotech portfolio
shall be no greater than the lesser of 170% of the
Principal Amount of the Notes or 140% of the prevailing
NAV of the Investment portfolio.
Maturity Date June 1st, 2014
Liquidity Secondary market will be established starting
June 1st, 2005
Subscription Currency Canadian Dollars
RRSP Eligible 100% eligible
Tax Consideration Tax deferred*
Early Sales Fees 5% of the Principal Amount starting
on June 1st, 2005 and diminishing by 1% a year until
May 31st, 2009 after which date, no cancellation fees
will be charged.
Transfer Agent CIBC Mellon
Administrator Sectoral Asset Management
*Generally, an amount received by a holder on a disposition of a Note, other than a
disposition resulting from a repayment by the issuer, will give rise to a capital gain
(or a capital loss) to the extent such amount exceeds (or is less that) such Holder’s
adjusted cost base. Holders who dispose of a Note within a short period of time
prior to the maturity date should consult their tax advisors with respect to their
particular circumstances.
CITIBANK CANADA
Rated AA high by Dominion Bond Rating Service
and AA by Standard & Poor’s, Citibank Canada
is Canada’s second largest foreign-owned
Schedule II bank providing a full range of
banking solutions to corporations, financial
institutions, government agencies and individual
consumers. Citibank Canada is part of Citigroup,
the world’s premier financial institution with
product and service offerings to more customers,
in more places and by more means of access and
delivery, than any other financial organization in
the world.
SECTORAL ASSET MANAGEMENT
Montreal based Sectoral Asset Management Inc.
(S.A.M.) is registered as an investment advisor
in the USA with the Securities and Exchange
Commission (SEC), and in Canada with the
Autorité des marchés financiers (AMF). S.A.M.
specializes in managing Healthcare and Biotech
equities and managed over $2.6 Billion in that
asset category as of December 31, 2003.
This communication is not, and under no circumstances is
to be construed as, an invitation to make an investment in
S.A.M. Global Healthcare Biotech Notes Series 1 nor
does it constitutes a public offering to sell the Notes.
Applications for S.A.M. Global Healthcare Biotech Notes
Series 1 will only be considered on the terms set out in the
Information Statement dated March 29th, 2004. Terms
defined in the Information Statement shall have the same
meaning in this material. Potential investors should note
that investments in the global healthcare and biotech
sector can involve significant risk and the value of an
investment may go down as well as up. There is no
guarantee of trading performance and past performance
is not indicative of future results. Investors should review
the Information Statement in its entirety for a complete
description of S.A.M. Global Healthcare Biotech Notes
Series 1 and consult their financial advisors before
making an investment. The information contained in this
material is subject to change without notice and Sectoral
Asset Management will not be held liable for any
inaccuracies or misprints.
Sectoral Asset Management Inc.
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