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 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.
|
||
Citigroup Inc.
|
SUBJECT TO COMPLETION, DATED FEBRUARY 26, 2015
|
February , 2015
Medium-Term Senior Notes, Series G
Pricing Supplement No. 2015-CMTNG0400
Filed pursuant to Rule 424(b)(2)Registration No. 333-192302
|
·
|
The securities offered by this pricing supplement are unsecured senior debt securities issued 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 Mexican peso relative to the euro as measured by the currency return formula specified below. The securities reflect a bullish position with respect to the Mexican peso and a bearish position with respect to the euro.
|
·
|
If the currency return is positive (which means that the Mexican peso has appreciated against the euro from the initial exchange rate to the final exchange rate), investors in the securities will receive a positive return at maturity reflecting leveraged exposure to that currency return, subject to the maximum return at maturity specified below. If the currency return is flat or negative but is not equal to or below –20% (which means that the Mexican peso has depreciated against the euro but has not fallen below a contingent buffer zone provided by the securities), investors in the securities will receive the $1,000 stated principal amount at maturity. However, if the currency return is equal to or below –20% (which means that the Mexican peso has depreciated against the euro and has fallen below the contingent buffer zone provided by the securities), investors in the securities will incur a loss equal to the negative currency return, with no buffer.
|
·
|
In exchange for the leveraged exposure on the upside and the contingent buffer feature, investors in the securities must be willing to (i) forgo interest on the securities, (ii) forgo any return in excess of the maximum return at maturity specified below and (iii) accept a method of measuring the performance of the Mexican peso against the euro that will produce greater losses on the downside, and smaller gains on the upside, than would be realized using alternative methods of measuring that performance. See “How the MXN/EUR Exchange Rate and the Currency Return Formula Work” in this pricing supplement for important information about the currency exposure that the securities provide. In addition, in order to obtain the currency exposure that the securities provide, investors must be willing to accept an investment that may have limited or no liquidity and the risk of not receiving any amount due under the securities if we default on our obligations. All payments on the securities are subject to the credit risk of Citigroup Inc.
|
Aggregate stated principal amount:
|
$
|
|||
Stated principal amount:
|
$1,000 per security
|
|||
Pricing date:
|
February , 2015 (expected to be February 27, 2015)
|
|||
Issue date:
|
March , 2015 (expected to be March 13, 2015). See “Supplemental Plan of Distribution” in this pricing supplement.
|
|||
Final valuation dates:
|
Expected to be February 23, 2017, February 24, 2017, February 27, 2017, February 28, 2017 and March 1, 2017, each subject to postponement as set forth under “Additional Terms of the Securities” in this pricing supplement
|
|||
Maturity date:
|
March , 2017 (expected to be March 15, 2017), subject to postponement as set forth under “Additional Terms of the Securities” in this pricing supplement
|
|||
Payment at maturity:
|
At maturity, for each $1,000 security you then hold, you will receive an amount in U.S. dollars determined as follows:
· If the currency return is positive:
$1,000 + the leveraged return amount, subject to the maximum return at maturity
· If the currency return is zero or negative but not equal to or below the contingent buffer amount of –20%:
$1,000
· If the currency return is negative and is equal to or below the contingent buffer amount of –20%:
$1,000 + ($1,000 × currency return)
If the currency return is negative and is equal to or below –20%, you will lose 1% of your stated principal amount for every 1% of that negative currency return. You may lose up to all of your investment.
|
|||
Initial exchange rate:
|
, the MXN/EUR exchange rate on the pricing date
|
|||
Final exchange rate:
|
The arithmetic average of the MXN/EUR exchange rate on each of the final valuation dates
|
|||
MXN/EUR exchange rate:
|
On any date, the exchange rate between the Mexican peso (“MXN”) and the euro (“EUR”), expressed as a number of Mexican pesos per 1 euro, as determined by reference to Reuters page “WMRSPOT37” (or any successor or substitute page) under the caption “MID” at approximately 4:00 p.m., London time, on such date, except as otherwise specified under “Additional Terms of the Securities” in this pricing supplement.
|
|||
Currency return:
|
A percentage equal to (i) initial exchange rate minus final exchange rate divided by (ii) initial exchange rate
|
|||
Leveraged return amount:
|
$1,000 × leverage factor × currency return
|
|||
Leverage factor:
|
500%
|
|||
Maximum return at maturity:
|
$407.50 per security (40.75% of the stated principal amount). The payment at maturity will not exceed the stated principal amount plus the maximum return at maturity.
|
|||
Contingent buffer amount:
|
–20%
|
|||
CUSIP / ISIN:
|
1730T05Q8 / US1730T05Q82
|
|||
Listing:
|
The securities will not be listed on any securities exchange
|
|||
Underwriter:
|
Citigroup Global Markets Inc. (“CGMI”), an affiliate of the issuer, acting as principal
|
|||
Underwriting fee and issue price:
|
Issue price(1)(2)
|
Underwriting fee(3)
|
Proceeds to issuer(3)
|
|
Per security:
|
$1,000.00
|
$15.00
|
$985.00
|
|
Total:
|
$
|
$
|
$
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
February 2015
|
PS-2
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
Contingent Buffered Enhanced Currency Linked Securities
Payment at Maturity Diagram
|
Hypothetical Final
Exchange Rate
|
Hypothetical Currency
Return(1)
|
Hypothetical Payment at
Maturity
|
Hypothetical Total Return on
the Securities at Maturity(2)
|
8.5000
|
50.00%
|
$1,407.50
|
40.75%
|
13.6000
|
20.00%
|
$1,407.50
|
40.75%
|
15.3000
|
10.00%
|
$1,407.50
|
40.75%
|
15.6145
|
8.15%
|
$1,407.50
|
40.75%
|
15.7250
|
7.50%
|
$1,375.00
|
37.50%
|
16.1500
|
5.00%
|
$1,250.00
|
25.00%
|
16.4900
|
3.00%
|
$1,150.00
|
15.00%
|
16.8300
|
1.00%
|
$1,050.00
|
5.00%
|
17.0000
|
0.00%
|
$1,000.00
|
0.00%
|
17.8500
|
–5.00%
|
$1,000.00
|
0.00%
|
18.7000
|
–10.00%
|
$1,000.00
|
0.00%
|
19.5500
|
–15.00%
|
$1,000.00
|
0.00%
|
20.3983
|
–19.99%
|
$1,000.00
|
0.00%
|
20.4000
|
–20.00%
|
$800.00
|
–20.00%
|
21.2500
|
–25.00%
|
$750.00
|
–25.00%
|
25.5000
|
–50.00%
|
$500.00
|
–50.00%
|
29.7500
|
–75.00%
|
$250.00
|
–75.00%
|
34.0000
|
–100.00%
|
$0.00
|
–100.00%
|
(1)
|
Hypothetical currency return = initial exchange rate minus final exchange rate, divided by initial exchange rate
|
(2)
|
Hypothetical total return on the securities at maturity = hypothetical payment at maturity minus $1,000 stated principal amount per security, divided by $1,000 stated principal amount per security
|
February 2015
|
PS-3
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
Currency return | = | initial exchange rate – final exchange rate | = | 17.0000 – 16.4900 | = | 3.00% |
initial exchange rate | 17.0000 |
Payment at maturity per security | = $1,000 + the leveraged return amount, subject to the maximum return at maturity of $407.50 |
= $1,000 + ($1,000 × the currency return × the leverage factor), subject to the maximum return at maturity of $407.50
|
|
= $1,000 + ($1,000 × 3.00% × 500%), subject to the maximum return at maturity of $407.50
|
|
= $1,000 + $150.00, subject to the maximum return at maturity of $407.50
|
|
= $1,150.00
|
Currency return | = | initial exchange rate – final exchange rate | = | 17.0000 – 15.3000 | = | 10.00% |
initial exchange rate | 17.0000 |
Payment at maturity per security | = $1,000 + the leveraged return amount, subject to the maximum return at maturity of $407.50 |
= $1,000 + ($1,000 × the currency return × the leverage factor), subject to the maximum return at maturity of $407.50
|
|
= $1,000 + ($1,000 × 10.00% × 500%), subject to the maximum return at maturity of $407.50
|
|
= $1,000 + $500.00, subject to the maximum return at maturity of $407.50
|
|
= $1,407.50 |
Currency return | = | initial exchange rate – final exchange rate | = | 17.0000 – 19.5500 | = | –15.00% |
initial exchange rate | 17.0000 |
February 2015
|
PS-4
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
Currency return | = | initial exchange rate – final exchange rate | = | 17.0000 – 21.2500 | = | –25.00% |
initial exchange rate | 17.0000 |
Payment at maturity per security | = $1,000 + ($1,000 × currency return) |
= $1,000 + ($1,000 × –25.00%) | |
= $750 |
Currency return | = | initial exchange rate – final exchange rate | = | 17.0000 – 34.0000 | = | –100.00% |
initial exchange rate | 17.0000 |
Payment at maturity per security | = $1,000 + ($1,000 × currency return) |
= $1,000 + ($1,000 × –100.00%) | |
= $0
|
You may lose some or all of your investment. Unlike conventional debt securities, the securities do not repay a fixed amount of principal at maturity. Your payment at maturity will depend on the change in the exchange rate between the Mexican peso and the euro from the initial exchange rate to the final exchange rate. If the currency return is equal to or below –20%, you will lose 1% of the stated principal amount of your securities at maturity for every 1% of that negative currency return. The minimum payment at maturity on the securities is $0, and you may lose up to all of your investment.
|
■
|
The contingent buffer feature of the securities exposes you to particular risks. If the currency return is negative and is equal to or below –20%, you will not receive the benefit of the contingent buffer and, instead, will lose 1% of the stated principal amount of the securities for every 1% of that negative currency return. Unlike securities with a non-contingent buffer feature, the securities offer no protection at all if the Mexican peso depreciates relative to the euro and the currency return is equal to or below –20%. As a result, you may lose your entire investment in the securities.
|
February 2015
|
PS-5
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
■
|
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.
|
■
|
If the Mexican peso depreciates against the euro and the currency return is equal to or below –20%, the resulting loss on the securities may be greater than the loss that would have been realized had an alternative method of measuring the performance of the Mexican peso relative to the euro been used. In particular, if the currency return is equal to or below –20%, your loss on the securities will be greater than it would have been had the return on the securities been based on the percentage change in the value of the Mexican peso in terms of euros (the “MXN value return”), rather than based on the currency return formula used by the securities. The greater the depreciation, the greater the difference will be between your loss on the securities and the loss that would have resulted had the MXN value return been used instead of the currency return formula used by the securities. If the Mexican peso were to lose half of its value relative to the euro, you would have incurred a 50% loss based on a MXN value return, but you would lose 100% of your investment in the securities. See “How the MXN/EUR Exchange Rate and the Currency Return Formula Work” and “Hypothetical Examples” above. Your return on the securities will also differ from the return that could be achieved on other means of obtaining exposure to the MXN/EUR exchange rate because you will not receive any interest on the amount that you invest in the securities.
|
■
|
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. If the Mexican peso appreciates relative to the euro and the resulting currency return is greater than the currency return at which the maximum return at maturity is reached, the effective leverage provided by the securities will be reduced.
|
■
|
The leverage provided by the securities would be less than the leverage factor stated on the cover page if the return on the securities were compared to a MXN value return. If the Mexican peso appreciates relative to the euro, the leveraged return you receive at maturity will be determined by multiplying the leverage factor by the currency return. The currency return, as a measure of the performance of the Mexican peso relative to the euro, will always be less than the MXN value return. As a consequence, if the Mexican peso appreciates relative to the euro, the return on the securities will represent a degree of leverage that is less than the stated leverage factor when compared to the MXN value return. The greater the appreciation of the Mexican peso relative to the euro, the lower the degree of leverage that the securities will provide as compared to a MXN value return. See “How the MXN/EUR Exchange Rate and the Currency Return Formula Work” and “Hypothetical Examples” above.
|
■
|
The payment at maturity on the securities is based on the arithmetic average of the MXN/EUR exchange rate on the five final valuation dates. As a result, you are subject to the risk that the exchange rate between the Mexican peso and the euro on those five final valuation dates will result in a less favorable return than you would have received had the final exchange rate been based on the MXN/EUR exchange rate on other days during the term of the securities. If you had invested directly in Mexican pesos, or in another instrument linked to the Mexican peso that you could liquidate for full value at a time selected by you, you might have achieved better returns. In addition, because the final exchange rate is based on the average over the five final valuation dates, your return on the securities may be less favorable than it would have been if it were based on the exchange rate on only one of those five final valuation dates.
|
■
|
The securities are subject to the credit risk of Citigroup Inc. If we default on our obligations under the securities, you may not receive anything owed to you under the securities. In addition, changes in our actual or perceived creditworthiness are likely to affect the value of the securities prior to maturity.
|
■
|
The securities will not be listed on a 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.
|
■
|
The estimated value of the securities on the pricing date, based on CGMI’s proprietary pricing models and our internal funding rate, will be 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) the placement 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
|
February 2015
|
PS-6
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
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.
|
■
|
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 MXN/EUR exchange rate and interest rates in Mexico, the European Union and the United States. 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.
|
■
|
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 the market rate implied by traded instruments referencing our debt obligations in the secondary market for those debt obligations, which we refer to as our secondary market rate. 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 we will pay to investors in the securities, which do not bear interest.
|
■
|
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.
|
■
|
The value of your securities prior to maturity will fluctuate based on many unpredictable factors. Prior to maturity, the value of your securities will fluctuate based on the MXN/EUR exchange rate at that time and a number of other factors, including those described below. Some of these factors are interrelated in complex ways. As a result, the effect of any one factor may be offset or magnified by the effect of one or more other factors. The paragraphs below describe what we expect to be the impact on the value of the securities of a change in a specific factor, assuming all other conditions remain constant. You should understand that the value of your securities at any time prior to maturity may be significantly less than the issue price.
|
·
|
Exchange rate. We expect that the value of the securities at any time prior to maturity will depend substantially on the MXN/EUR exchange rate. If the MXN/EUR exchange rate increases (reflecting depreciation of the Mexican peso relative to the euro) following the pricing date, the value of your securities will also likely decline, perhaps significantly. Even at a time when the MXN/EUR exchange rate is less than the initial exchange rate (reflecting appreciation of the Mexican peso relative to the euro), the value of your securities may nevertheless be significantly less than the stated principal amount of your securities because of expectations that the MXN/EUR exchange rate will continue to fluctuate over the term of the securities, among other reasons.
|
·
|
Volatility of the MXN/EUR exchange rate. Volatility refers to the magnitude and frequency of changes in the MXN/EUR exchange rate over any given period. Any increase in the expected volatility of the MXN/EUR exchange rate may adversely affect the value of the securities.
|
·
|
Interest rates. We expect that the value of the securities will be affected by changes in the interests rates in Mexico, the European Union and the United States.
|
·
|
Time remaining to maturity. At any given time, the value of the securities may reflect a discount based on the amount of time then remaining to maturity, which will reflect uncertainty about the change in the MXN/EUR exchange rate over that period.
|
·
|
Creditworthiness of Citigroup Inc. The securities are subject to the credit risk of Citigroup Inc. Therefore, actual or anticipated adverse changes in the creditworthiness of Citigroup Inc. may adversely affect the value of the securities.
|
February 2015
|
PS-7
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
■
|
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.
|
■
|
If an early redemption event occurs during the term of the securities, we may redeem the securities early for an amount that may result in a significant loss on your investment. See “Additional Terms of the Securities—Early Redemption Event” in this pricing supplement for information about the events that may constitute an early redemption event. If an early redemption event occurs, we may redeem the securities prior to the maturity date for an amount equal to the early redemption amount determined as of the early redemption notice date. The early redemption amount will be determined in a manner based upon (but not necessarily identical to) CGMI’s then contemporaneous practices for determining secondary market bid prices for the securities and similar instruments, subject to the exceptions and more detailed provisions set forth under “Additional Terms of the Securities—Early Redemption Event” below. As discussed above, any secondary market bid price is likely to be less than the issue price and, absent favorable changes in market conditions and other relevant factors, is also likely to be less than the estimated value of the securities set forth on the cover page of this pricing supplement. Accordingly, if an early redemption event occurs, there is a significant likelihood that the early redemption amount you receive will result in a loss on your investment in the securities. Moreover, in determining the early redemption amount, the calculation agent will take into account the relevant event that has occurred or has been announced, which may have a significant adverse effect on the underlying currency markets, resulting in an early redemption amount that is significantly less than the amount you paid for your securities. You may lose up to all of your investment.
|
The early redemption amount may be significantly less than the amount you would have received had we not elected to redeem the securities and had you been able instead to hold them to maturity. For example, the early redemption amount may be determined during a market disruption that has a significant adverse effect on the early redemption amount. That market disruption may be resolved by the time of the originally scheduled maturity date and, had your payment on the securities been determined on the scheduled final valuation dates rather than on the early redemption notice date, you might have achieved a significantly better return.
|
■
|
The calculation agent may make discretionary determinations in connection with an early redemption event and the early redemption amount that could adversely affect your return upon early redemption. The calculation agent will be required to exercise discretion in determining whether an early redemption event has occurred. The calculation agent may determine that an early redemption event has occurred if it determines that a market disruption event is reasonably likely to occur and is reasonably likely to last for at least five currency business days, even if a market disruption event has not actually occurred at the time of determining that an early redemption event has occurred or at the time of redemption of the securities. If we elect to redeem the securities upon the occurrence of an early redemption event, you may incur a significant loss on your investment in the securities, even if the market disruption event that was anticipated never occurs or has a duration that is less than was anticipated by the calculation agent.
|
In addition, the calculation agent has broad discretion to determine the early redemption amount, including the ability to make adjustments to proprietary pricing models and inputs to those models in good faith and in a commercially reasonable manner. The fact that the calculation agent is our affiliate may cause it to have interests that are adverse to yours as a holder of the securities. Under the terms of the securities, the calculation agent has the authority to make determinations that may protect our economic interests while resulting in a significant loss to you on your investment in the securities.
|
■
|
The securities are subject to currency exchange rate risk with respect to the Mexican peso relative to the euro. Fluctuations in the exchange rate between the Mexican peso and the euro will affect the value of and your return on the securities. The exchange rate between any two currencies is influenced by numerous factors, including the supply of and demand for the currencies, government policy, intervention or actions, political or economic developments and the actions of currency speculators. Of particular importance to potential exchange rate risk are: (i) existing and expected rates of inflation in Mexico and the Eurozone; (ii) existing and expected interest rate levels in those countries; (iii) the balance of payments between those countries; (iv) growth rates in those countries; and (v) the extent of governmental surpluses or deficits in those countries. These factors are expected to affect the MXN/EUR exchange rate.
|
■
|
The exchange rate between the Mexican peso and the euro is subject to particular risks. Your return on the securities will depend on the performance of a single emerging market currency, the Mexican peso, relative to the euro. As an emerging market currency, the Mexican peso is subject to increased risk. Currencies of emerging economies, such as Mexico, are often subject to more frequent and larger central bank interventions than the currencies of developed countries and are also more likely to be affected by drastic changes in monetary or exchange rate policies of the issuing countries, which may negatively affect the value of the securities.
|
■
|
The value of the Mexican peso may be correlated with, and subject to fluctuations in, the commodities market. The Mexican economy is reliant upon the export of commodities and the value of the Mexican peso has historically exhibited high correlation to the demand for certain commodities. As a result, a decrease in the demand for certain commodities may negatively affect the value of the Mexican peso and, in turn, the value of the securities.
|
February 2015
|
PS-8
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
■
|
Distortions or disruptions of market trading in the underlying currency markets may adversely affect the value of and return on the securities. The currency markets are subject to temporary distortions or other disruptions due to various factors, including government regulation and intervention, the lack of liquidity in the markets and the participation of speculators. These circumstances could adversely affect the value of the Mexican peso relative to the euro and, therefore, the value of and return on the securities. In addition, if a market disruption event occurs on a final valuation date, that final valuation date will be subject to postponement, as described under “Additional Terms of the Securities” in this pricing supplement. If a market disruption event occurs on a final valuation date and that final valuation date is not postponed, the calculation agent will determine the MXN/EUR exchange rate on that final valuation date in good faith and in a commercially reasonable manner. The calculation agent’s determination of the MXN/EUR exchange rate in this circumstance may result in an unfavorable return on the securities.
|
■
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Currency exchange rate risks can be expected to heighten in periods of financial or political turmoil. In periods of financial or political turmoil, capital can move quickly out of regions that are perceived to be more vulnerable to the effects of the crisis than others with sudden and severely adverse consequences to the currencies of those regions, and it may move into regions that are perceived to offer greater safety. For example, if the U.S. dollar is perceived to be a safer investment than the Mexican peso following a financial or political event, resulting in a sudden capital inflow to the United States, it could cause the U.S. dollar to strengthen relative to the Mexican peso and, if a similar phenomenon does not take place with respect to the euro, cause the euro to strengthen relative to the Mexican peso, which would adversely affect the value of and return on the securities.
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Currencies trade around the clock, but the securities will not. The inter-bank market in foreign currencies is a global, around-the-clock market. However, if you seek to sell your securities prior to maturity, you will be able to do so (if at all) only during business hours in the United States. Therefore, significant movements may take place in the level of the MXN/EUR exchange rate at times when you will not be able to sell your securities. Additionally, there is no systematic reporting of last-sale information for foreign currencies, which may make it difficult for many investors to obtain timely and accurate data regarding the state of the underlying foreign exchange markets.
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Currency exchange rates are determined in a manner that is less transparent and more susceptible to distortion and manipulation than the market prices of other assets, such as stocks. Unlike other assets such as stocks, currencies are not traded on regulated exchanges, and there is not a single market-determined rate that is universally accepted as the official exchange rate on a given day. The MXN/EUR exchange rate is determined by a private company, without the transparency and regulatory oversight that applies to the determination of other asset prices, like exchange-traded stock prices.
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Furthermore, foreign currency trading is highly concentrated among a small number of market participants. Our affiliates and the placement agents and their affiliates are among the largest participants in foreign currency trading markets. Trading activities by a small number of market participants, including our affiliates and the placement agents and their affiliates, may therefore have a significant effect on exchange rates. The concentration of trading among a small number of market participants, combined with the lack of transparency and regulatory oversight, creates the potential for a small number of market participants to have a distorting effect on exchange rates, including as a result of activities intended to manipulate exchange rates. In fact, regulators in various countries have recently investigated alleged manipulation on the part of a number of significant market participants in connection with the determination of currency exchange rates. If any distortions in exchange rates resulting from these or other factors occurred in the past, the historical MXN/EUR exchange rates included in this pricing supplement could have been affected. If any such distortion occurs on the pricing date or on a final valuation date, the initial exchange rate or the final exchange rate could be affected in a manner that has an adverse effect on your return on the securities.
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In light of recent allegations of manipulation of foreign currency markets, it is possible that regulators will impose new rules on foreign currency trading or that changes will occur in the manner in which the MXN/EUR exchange rate is determined. It is impossible to predict whether any such changes will occur or what their effects will be. It is possible, however, that any such changes could reduce liquidity in the foreign exchange markets or otherwise adversely affect the return on the securities.
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The historical MXN/EUR exchange rate is not an indication of its future performance. The historical performance of the MXN/EUR exchange rate, which is included in this pricing supplement, should not be taken as an indication of future exchange rates during the term of the securities. It is impossible to predict whether the Mexican peso will appreciate or depreciate against the euro.
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■
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The calculation agent, which is an affiliate of the issuer, will make important determinations with respect to the securities. Citibank, N.A., the calculation agent for the securities, is an affiliate of ours and will determine the MXN/EUR exchange rate on the final valuation dates and the amount owed to you at maturity. In addition, if certain events occur, Citibank, N.A. will be required to make certain discretionary judgments that could significantly affect your payment at maturity. In making these judgments, Citibank, N.A.’s interests as an affiliate of ours could be adverse to your interests as a holder of the securities. Such judgments could include, among other things:
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February 2015
|
PS-9
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
|
·
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determining whether a market disruption event or an early redemption event has occurred;
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·
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if a market disruption event occurs on a final valuation date, determining whether to postpone that final valuation date;
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·
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if a market disruption event occurs on a final valuation date and the final valuation date is not postponed, determining the MXN/EUR exchange rate;
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|
·
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if an early redemption event occurs, determining the early redemption amount; or
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|
·
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if a succession event occurs, selecting a successor currency and making related adjustments to the terms of the securities.
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Any of these determinations made by Citibank, N.A., in its capacity as calculation agent, may adversely affect any payment owed to you under the securities.
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The offering of the securities does not constitute a recommendation of the Mexican peso against the euro by CGMI or its affiliates or by the placement agents or their affiliates. You should not take the offering of the securities as an expression of our views or the views of the placement agents or our or their respective affiliates regarding how the Mexican peso will perform relative to the euro in the future or as a recommendation to invest in the Mexican peso, including through an investment in the securities. As we and the placement agents are part of global financial institutions, our and their affiliates may, and often do, have positions that conflict with an investment in the securities, including short positions with respect to the Mexican peso. You should undertake an independent determination of whether an investment in the securities is suitable for you in light of your specific investment objectives and financial resources.
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■
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Our affiliates or the placement agents or their affiliates may have published research, expressed opinions or provided recommendations that are inconsistent with investing in the securities and may do so in the future, and any such research, opinions or recommendations could adversely affect the MXN/EUR exchange rate. CGMI and other of our affiliates or the placement agents or their affiliates may publish research from time to time relating to the Mexican peso relative to the euro. Any research, opinions or recommendations provided by CGMI and other of our affiliates or the placement agents or their affiliates may influence the exchange rate between the Mexican peso and the euro, and they may be inconsistent with purchasing or holding the securities. CGMI and other of our affiliates or the placement agents or their affiliates may have published or may publish research or other opinions that call into question the investment view implicit in an investment in the securities. Investors should make their own independent investigation of the Mexican peso relative to the euro and the merits of investing in the securities.
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Hedging and trading activity by our affiliates could potentially affect the value of the securities. We expect to hedge our obligations under the securities through CGMI or other of our affiliates, who in turn will likely take positions in or with respect to Mexican peso relative to the euro. Our affiliates and the placement agents and/or their affiliates also trade the Mexican peso and the euro and financial instruments related to the Mexican peso and the euro on a regular basis as part of their general trading and other businesses. Any of these hedging or trading activities at or prior to the pricing date could increase the value of the Mexican peso relative to the euro at the time of your initial investment and, as a result, the value that the Mexican peso must attain relative to the euro on the final valuation dates before you would receive a positive return at maturity on the securities. Additionally, such hedging or trading activities on or near the final valuation dates could potentially affect the MXN/EUR exchange rate on the final valuation dates and, therefore, adversely affect your payment at maturity. Our affiliates and the placement agents and their affiliates are among the largest participants in the foreign currency trading markets.
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If a succession event occurs, a successor currency may be substituted for the Mexican peso or the euro. A succession event will occur if the Mexican peso or the euro is lawfully eliminated and replaced with, converted into, redenominated as, or exchanged for, another currency, or if any relevant country divides into two or more countries or economic regions, as applicable, each with a different lawful currency immediately after that event. As more fully described under “Additional Terms of the Securities” in this pricing supplement, if a succession event occurs, the Mexican peso or the euro will be replaced with a successor currency. We can give you no assurance as to the performance of any such successor currency or as to the impact on the performance of the securities of the occurrence of a succession event. The occurrence of a succession event may have a significant adverse effect on the performance of the securities.
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The U.S. federal tax consequences of an investment in the securities are uncertain. There is no direct legal authority regarding the proper U.S. federal tax treatment of the securities, and we do not plan to request a ruling from the Internal Revenue Service (the “IRS”). Consequently, significant aspects of the tax treatment of the securities are uncertain, and the IRS or a court might not agree with the treatment of the securities as prepaid forward contracts. If the IRS were successful in asserting an alternative treatment for the securities, the tax consequences of ownership and disposition of the securities might be materially and adversely affected. Moreover, any gain or loss recognized by a U.S. Holder (as defined below under “United States Federal Tax Considerations”) with respect to the securities generally will be ordinary income or loss unless an election under Section 988(a)(1)(B) of the Internal Revenue Code of 1986, as amended
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February 2015
|
PS-10
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
(the “Code”), to treat such gain or loss as capital gain or loss is available and the U.S. Holder makes such election before the close of the day on which the U.S. Holder purchases the securities. While a taxpayer may make an election under Section 998(a)(1)(B) of the Code with respect to certain forward contracts, futures contracts and option contracts linked to one or more foreign currencies, it is unclear whether the election is available for the securities. U.S. Holders should consult their tax advisers regarding the possibility and advisability of making the election. Moreover, in 2007 the IRS issued a revenue ruling holding that a financial instrument which is issued and redeemed for U.S. dollars, but provides a return determined by reference to a foreign currency and related market interest rates, is a debt instrument denominated in the foreign currency. While the securities are distinguishable in meaningful respects from the instrument described in the revenue ruling, future guidance that extends the scope of the revenue ruling could materially and adversely affect the tax consequences of an investment in the securities for U.S. Holders, possibly with retroactive effect. In addition, a security might be considered a “foreign currency contract” under Section 1256 of the Code, in which case a U.S. Holder would be required to mark to market the security by recognizing gain or loss at the close of each taxable year for which it holds the security as if the security were sold for its fair market value on the last day of such taxable year. U.S. Holders should consult their tax advisers regarding the possibility and advisability of making the election described above and the potential application of Section 1256 of the Code.
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As described below under “United States Federal Tax Considerations,” in 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on various issues regarding the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. 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. You should review carefully the section of this pricing supplement entitled “United States Federal Tax Considerations.” You should also consult your tax adviser regarding the U.S. federal tax consequences of an investment in the securities, as well as tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
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MXN/EUR Exchange Rate
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High
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Low
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Period End
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2010
|
|||
First Quarter
|
18.7417
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16.5945
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16.7051
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Second Quarter
|
16.7451
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15.3284
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15.8364
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Third Quarter
|
17.1716
|
16.1242
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17.1716
|
Fourth Quarter
|
17.4802
|
16.1165
|
16.5174
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2011
|
|||
First Quarter
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17.0868
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15.7449
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16.8533
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Second Quarter
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17.2723
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16.4416
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16.9864
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Third Quarter
|
18.9768
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16.4786
|
18.6096
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Fourth Quarter
|
19.0052
|
18.0056
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18.0655
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2012
|
|||
First Quarter
|
18.0167
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16.4304
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17.0876
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Second Quarter
|
17.7990
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16.7997
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16.9227
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Third Quarter
|
16.8125
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16.0799
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16.5364
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Fourth Quarter
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17.2144
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16.5362
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16.9611
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2013
|
|||
First Quarter
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17.2598
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15.7657
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15.8177
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Second Quarter
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17.6695
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15.6484
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16.8463
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Third Quarter
|
17.7700
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16.3531
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17.7078
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Fourth Quarter
|
18.0401
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17.3802
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17.9161
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2014
|
|||
First Quarter
|
18.4344
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17.7242
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17.9796
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February 2015
|
PS-11
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
MXN/EUR Exchange Rate
|
High
|
Low
|
Period End
|
Second Quarter
|
18.1772
|
17.4665
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17.7560
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Third Quarter
|
17.7814
|
16.8788
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16.9613
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Fourth Quarter
|
18.4557
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16.8616
|
17.8387
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2015
|
|||
First Quarter (through February 24, 2015)
|
17.8414
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16.3839
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16.9347
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Historical MXN/EUR Exchange Rate
January 2, 2010 to February 24, 2015
|
February 2015
|
PS-12
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
(a)
|
a convertibility event;
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(b)
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a deliverability event;
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(c)
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a liquidity event;
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(d)
|
a taxation event;
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(e)
|
a discontinuity event;
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(f)
|
a price source disruption event, or
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(g)
|
any event that generally makes it impossible to convert Mexican pesos or euros into another currency (including, but not limited to, U.S. dollars),
|
(i)
|
convert any amount of Mexican pesos into euros or vice versa through customary legal channels; or
|
|
(ii)
|
convert any amount of Mexican pesos into euros or vice versa at a rate at least as favorable as the rate for domestic institutions located in Mexico or the European Union.
|
February 2015
|
PS-13
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
|
(i)
|
delivering Mexican pesos from accounts inside Mexico to accounts outside Mexico or delivering euros from accounts inside any euro area country to accounts outside of that euro area country; or
|
|
(ii)
|
delivering Mexican pesos between accounts inside Mexico or to a party that is a non-resident of Mexico or delivering euros between accounts inside any euro area country or to a party that is a non-resident of that euro area country.
|
|
(a)
|
the Mexican peso or the euro is lawfully eliminated and replaced with, converted into, redenominated as, or exchanged for, another currency; or
|
|
(b)
|
any relevant country divides into two or more countries or economic regions, as applicable, each with a different lawful currency immediately after that event.
|
|
(i)
|
in the case of clause (a) above, the currency that lawfully replaces the former currency, into which the former currency is converted or redenominated, or for which the former currency is exchanged, as applicable, or
|
|
(ii)
|
in the case of clause (b) above, a currency selected by the calculation agent from among the lawful currencies resulting from the division that the calculation agent determines in good faith and in a commercially reasonable manner is most comparable to the former currency, taking into account the latest available quotation for the MXN/EUR exchange rate and any other information that it deems relevant.
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February 2015
|
PS-14
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
|
·
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the original initial exchange rate; and
|
|
·
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a ratio of the successor currency to the former currency, which ratio will be calculated on the basis of the exchange rate set forth by the relevant entity or economic region of the former currency for converting the former currency into the successor currency on the effective date of the succession event, as determined by the calculation agent.
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|
·
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a financial institution;
|
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·
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a “regulated investment company”;
|
|
·
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a tax-exempt entity, including an “individual retirement account” or “Roth IRA”;
|
|
·
|
a dealer or trader subject to a mark-to-market method of tax accounting with respect to the securities;
|
|
·
|
a person holding a security as part of a “straddle” or conversion transaction or one who has entered into a “constructive sale” with respect to a security;
|
|
·
|
a person subject to the alternative minimum tax;
|
February 2015
|
PS-15
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
|
·
|
a U.S. Holder (as defined below) whose functional currency is not the U.S. dollar; or
|
|
·
|
an entity classified as a partnership for U.S. federal income tax purposes.
|
|
·
|
a citizen or individual resident of the United States;
|
|
·
|
a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or
|
|
·
|
an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
|
February 2015
|
PS-16
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
|
·
|
an individual who is classified as a nonresident alien;
|
|
·
|
a foreign corporation; or
|
|
·
|
a foreign estate or trust.
|
February 2015
|
PS-17
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
February 2015
|
PS-18
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
|
(i)
|
the purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the purchaser or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of the purchaser or holder with respect to (A) the design and terms of the securities, (B) the purchaser or holder’s investment in the securities, (C) the holding of the securities, or (D) the exercise of or failure to exercise any rights we have under or with respect to the securities;
|
|
(ii)
|
we and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to the securities and (B) all hedging transactions in connection with our obligations under the securities;
|
|
(iii)
|
any and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those entities and are not assets and positions held for the benefit of the purchaser or holder;
|
|
(iv)
|
our interests are adverse to the interests of the purchaser or holder; and
|
|
(v)
|
neither we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets, positions or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment advice.
|
February 2015
|
PS-19
|
Citigroup Inc.
|
Contingent Buffered Enhanced Currency Linked Securities Due March , 2017
Based on the Performance of the Mexican Peso (MXN) Relative to the Euro (EUR) (Bullish MXN/Bearish EUR)
|
February 2015
|
PS-20
|