Title of each class of securities to be registered
|
Maximum aggregate offering price
|
Amount of registration fee(1) (2)
|
Medium-Term Senior Notes, Series G
|
$3,000,000
|
$348.60
|
(1)
|
Calculated in accordance with Rule 457(r) of the Securities Act.
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(2)
|
Pursuant to Rule 457(p) under the Securities Act, the $268,444.99 remaining of the relevant portion of the registration fees previously paid with respect to unsold securities registered on Registration Statement File No. 333-172554, filed on March 2, 2011 by Citigroup Funding Inc., a wholly owned subsidiary of Citigroup Inc., is being carried forward, of which $348.60 is offset against the registration fee due for this offering and of which $268,096.39 remains available for future registration fee offset. No additional registration fee has been paid with respect to this offering. See the “Calculation of Registration Fee” table accompanying the filing of Pricing Supplement No. 2015-CMTNG0369 dated February 12, 2015, filed by Citigroup Inc. on February 17, 2015, for information regarding the registration fees that are being carried forward.
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Pricing Supplement No. 2015—CMTNG0477 to Product Supplement No. EA-02-03 dated November 13, 2013, Underlying Supplement
No. 3 dated November 13, 2013, Prospectus Supplement and Prospectus each dated November 13, 2013
Filed Pursuant to Rule 424(b)(2)
Registration Statement No. 333-192302
Dated April 2, 2015
Citigroup Inc. $3,000,000 Contingent Absolute Return Optimization Securities
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Investment Description
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Features
|
Key Dates
|
||
q Growth Potential Subject to Maximum Gain — At maturity, the Securities provide a return equal to any positive Share Return up to the Maximum Gain. If the Share Return is negative, investors will be exposed to the negative Share Return at maturity if the Final Share Price is less than the Trigger Price.
q Downside Exposure with Contingent Absolute Return at Maturity — If the Share Return is negative and the Final Share Price is greater than or equal to the Trigger Price, the Issuer will repay the Stated Principal Amount of the Securities and pay you the Contingent Absolute Return at maturity. However, if the Share Return is negative and the Final Share Price is less than the Trigger Price, the Contigent Absolute Return will not apply and the Issuer will pay less than the Stated Principal Amount of the Securities, and possibly nothing, at maturity, resulting in a loss on the Stated Principal Amount to investors that is proportionate to the percentage decline in the price of the Underlying Shares. The Contingent Absolute Return and any contingent repayment of the Stated Principal Amount apply only if you hold the Securities to maturity. You might lose some or all of your initial investment. Any payment on the Securities is subject to the creditworthiness of the Issuer. If the Issuer were to default on its payment obligations, you might not receive any amounts owed to you under the Securities and you could lose your entire investment.
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Trade Date
Settlement Date
Final Valuation Date1
Maturity Date
|
April 2, 2015
April 8, 2015
October 3, 2017
October 10, 2017
|
|
1 See page PS-3 for additional details.
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Security Offering
|
Underlying Shares
|
Initial Share Price
|
Maximum Gain
|
Trigger Price
|
CUSIP/ ISIN
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iShares® MSCI Emerging Markets ETF (Ticker: EEM) (the “ETF” or “Underlying Share Issuer”)
|
$41.24
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20.50%
|
$28.87, 70% of the Initial Share Price
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17323B455 / US17323B4555
|
Issue Price(1)
|
Underwriting Discount(2)
|
Proceeds to Issuer
|
|
Per Security
|
$10.00
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$0.10
|
$9.90
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Total
|
$3,000,000.00
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$30,000.00
|
$2,970,000.00
|
(1)
|
On the date of this pricing supplement, the estimated value of the Securities is $9.819 per Security, which is less than the issue price. The estimated value of the Securities is based on proprietary pricing models of Citigroup Global Markets Inc. (“CGMI”) 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.
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(2)
|
The underwriting discount is $0.10 per Security. CGMI, acting as principal, has agreed to purchase from Citigroup Inc., and Citigroup Inc. has agreed to sell to CGMI, the aggregate Stated Principal Amount of the Securities set forth above for $9.90 per Security. UBS Financial Services Inc. (“UBS”), as agent for sales of the Securities, has agreed to purchase from CGMI, and CGMI has agreed to sell to UBS, all of the Securities for $9.90 per Security. UBS will receive an underwriting discount of $0.10 per Security for each Security it sells. UBS proposes to offer the Securities to the public at a price of $10.00 per Security. For additional information on the distribution of the Securities, see “Supplemental Plan of Distribution” in this pricing supplement. It is expected that CGMI and its affiliates may profit from hedging activity related to this offering, even if the value of the Securities declines. See “Use of Proceeds and Hedging” in the accompanying prospectus.
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Citigroup Global Markets Inc.
|
UBS Financial Services Inc.
|
Additional Terms Specific to the Securities
|
¨
|
Product Supplement No. EA-02-03 dated November 13, 2013:
|
¨
|
Underlying Supplement No. 3 dated November 13, 2013:
|
¨
|
Prospectus Supplement and Prospectus each dated November 13, 2013:
|
Investor Suitability
|
The Securities may be suitable for you if, among other considerations:
|
The Securities may not be suitable for you if, among other considerations:
|
|
¨ You fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial investment.
¨ You can tolerate a loss of all or a substantial portion of your initial investment and are willing to make an investment that may have the full downside market risk of an investment in the Underlying Shares or in the stocks held by the ETF.
¨ You believe that the price of the Underlying Shares will increase over the term of the Securities and are willing to give up any appreciation in excess of the Maximum Gain of 20.50%, or that if the price of the Underlying Shares declines, the Final Share Price will not be less than the Trigger Price.
¨ You understand and accept that (i) your potential upside return is limited by the Maximum Gain and you are willing to invest in the Securities based on the Maximum Gain of 20.50%, and (ii) your potential Contingent Absolute Return is limited by the percentage difference between the Initial Share Price and the Trigger Price.
¨ You can tolerate fluctuations in the value of the Securities prior to maturity that may be similar to or exceed the downside fluctuations in the price of the Underlying Shares.
¨ You do not seek current income from your investment and are willing to forgo dividends or any other distributions paid on the Underlying Shares or the stocks held by the ETF for the term of the Securities.
¨ You seek an investment with exposure to emerging markets.
¨ You are willing and able to hold the Securities to maturity and accept that there may be little or no secondary market for the Securities and that any secondary market will depend in large part on the price, if any, at which CGMI is willing to purchase the Securities.
¨ You are willing to assume the credit risk of Citigroup Inc. for all payments under the Securities, and understand that if Citigroup Inc. defaults on its obligations you might not receive any amounts due to you, including any repayment of the Stated Principal Amount.
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¨ You do not fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial investment.
¨ You require an investment designed to guarantee a full return of the Stated Principal Amount at maturity.
¨ You cannot tolerate the loss of all or a substantial portion of your initial investment, and you are not willing to make an investment that may have the full downside market risk of an investment in the Underlying Shares or in the stocks held by the ETF.
¨ You believe that the price of the Underlying Shares will decline during the term of the Securities and the Final Share Price is likely to be less than the Trigger Price, or you believe the price of the Underlying Shares will appreciate over the term of the Securities by more than the Maximum Gain of 20.50%.
¨ You seek an investment that participates in the full appreciation in the price of the Underlying Shares or that has unlimited return potential, or you are unwilling to invest in the Securities based on the Maximum Gain of 20.50%.
¨ You cannot tolerate fluctuations in the value of the Securities prior to maturity that may be similar to or exceed the downside fluctuations in the price of the Underlying Shares.
¨ You seek current income from this investment or prefer to receive the dividends and any other distributions paid on the Underlying Shares or the stocks held by the ETF for the term of the Securities.
¨ You do not seek an investment with exposure to emerging markets.
¨ You are unwilling or unable to hold the Securities to maturity or you seek an investment for which there will be an active secondary market.
¨ You are not willing to assume the credit risk of Citigroup Inc. for all payments under the Securities, including any repayment of the Stated Principal Amount.
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Final Terms
|
|
Issuer
|
Citigroup Inc.
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Issue Price
|
100% of the Stated Principal Amount per Security
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Stated Principal Amount
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$10.00 per Security
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Term
|
2.5 years
|
Trade Date
|
April 2, 2015
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Settlement Date
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April 8, 2015
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Final Valuation Date1
|
October 3, 2017
|
Maturity Date
|
October 10, 2017
|
Underlying Shares
|
Shares of the iShares® MSCI Emerging Markets ETF (Ticker: EEM) (the “ETF” or the “Underlying Share Issuer”)
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Maximum Gain
|
20.50%
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Trigger Price
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$28.87, 70% of the Initial Share Price
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Payment at Maturity (per $10.00 Stated Principal Amount of Securities)
|
If the Share Return is zero or positive, Citigroup Inc. will pay you a cash payment per $10.00 Stated Principal Amount of Securities that provides you with the Stated Principal Amount of $10.00 per Security plus the Share Return, subject to the Maximum Gain, calculated as follows:
$10.00 + ($10.00 × the lesser of (i) Share Return and (ii) Maximum Gain)
If the Share Return is negative and the Final Share Price is greater than or equal to the Trigger Price on the Final Valuation Date, Citigroup Inc. will pay you a cash payment per $10.00 Stated Principal Amount of Securities equal to:
$10.00 + ($10.00 × Contingent Absolute Return)
In this scenario, because the price of the Underlying Shares has not declined below the Trigger Price, the Issuer will pay the Stated Principal Amount plus the Contingent Absolute Return.
If the Share Return is negative and the Final Share Price is less than the Trigger Price on the Final Valuation Date, Citigroup Inc. will pay you a cash payment at maturity less than the Stated Principal Amount of $10.00 per Security, resulting in a loss on the Stated Principal Amount that is proportionate to the percentage decline in the price of the Underlying Shares, calculated as follows:
$10.00 + ($10.00 × Share Return)
In this scenario, the Contingent Absolute Return will not apply, you will be exposed to the full negative Share Return, and you will lose a substantial portion or all of the Stated Principal Amount in an amount proportionate to the percentage decline in the price of the Underlying Shares.
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Share Return
|
Final Share Price – Initial Share Price
Initial Share Price
|
Contingent Absolute Return
|
The absolute value of the Share Return. For example, if the Share Return is –5%, the Contingent Absolute Return will equal 5%.
|
Initial Share Price
|
$41.24, the closing price of the Underlying Shares on the Trade Date
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Final Share Price
|
The closing price of the Underlying Shares on the Final Valuation Date
|
Investment Timeline
|
Trade Date:
|
The closing price of the Underlying Shares (Initial Share Price) is observed, the Maximum Gain is set and the Trigger Price is determined.
|
||
Maturity Date:
|
The Final Share Price is determined on the Final Valuation Date and the Share Return is calculated.
If the Share Return is zero or positive, Citigroup Inc. will pay you a cash payment per $10.00 Stated Principal Amount of Securities that provides you with the Stated Principal Amount of $10.00 plus the Share Return, subject to the Maximum Gain, calculated as follows:
$10.00 + ($10.00 × the lesser of (i) Share Return and (ii) Maximum Gain)
If the Share Return is negative and the Final Share Price is greater than or equal to the Trigger Price on the Final Valuation Date, Citigroup Inc. will pay you a cash payment per $10.00 Stated Principal Amount of Securities equal to:
$10.00 + ($10.00 × Contingent Absolute Return)
In this scenario, because the price of the Underlying Shares has not declined below the Trigger Price, the Issuer will pay the Stated Principal Amount plus the Contingent Absolute Return.
If the Share Return is negative and the Final Share Price is less than the Trigger Price on the Final Valuation Date, Citigroup Inc. will pay you a cash payment at maturity less than the Stated Principal Amount of $10.00 per Security, resulting in a loss on the Stated Principal Amount that is proportionate to the percentage decline in the price of the Underlying Shares, calculated as follows:
$10.00 + ($10.00 × Share Return)
In this scenario, the Contingent Absolute Return will not apply, you will be exposed to the full negative Share Return, and you will lose a substantial portion or all of the Stated Principal Amount in an amount proportionate to the percentage decline in the price of the Underlying Shares.
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1
|
Subject to postponement as described under “Description of the Securities—Certain Additional Terms for Securities Linked to ETF Shares or Company Shares—Consequences of a Market Disruption Event; Postponement of a Valuation Date” in the accompanying product supplement.
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Summary Risk Factors
|
¨
|
You may lose some or all of your investment — The Securities differ from ordinary debt securities in that we will not necessarily repay the full Stated Principal Amount of your Securities at maturity. Instead, your return on the Securities is linked to the performance of the Underlying Shares and will depend on whether, and the extent to which, the Share Return is positive or negative. If the Final Share Price is less than the Trigger Price, the Contingent Absolute Return feature will not apply and you will lose 1% of the Stated Principal Amount of the Securities for every 1% by which the Final Share Price is less than the Initial Share Price. There is no minimum payment at maturity on the Securities, and you may lose up to all of your investment in the Securities.
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¨
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The Contingent Absolute Return offered by the Securities is contingent, and you will have full downside exposure to the Underlying Shares if the Final Share Price is less than the Trigger Price — If the Final Share Price is below the Trigger Price, the Contingent Absolute Return offered by the Securities with respect to a limited range of potential depreciation of the Underlying Shares will not apply and you will lose 1% of the Stated Principal Amount of the Securities for every 1% by which the Final Share Price is less than the Initial Share Price. The Securities will have full downside exposure to the decline of the Underlying Shares if the Final Share Price is below the Trigger Price. Any Contingent Absolute Return will be limited by the percentage difference between the Initial Share Price and the Trigger Price, as any decline of the price of the Underlying Shares below the Trigger Price will result in no Contingent Absolute Return being paid. Further, the Contingent Absolute Return applies only if you hold the Securities to maturity. If you are able to sell the Securities prior to maturity, you may have to sell them for a loss even if the Underlying Shares have not declined below the Trigger Price. See "The value of the Securities prior to maturity will fluctuate based on many unpredictable factors" below.
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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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The upside appreciation potential of the Securities and the Contingent Absolute Return offered by the Securities are both limited — If the price of the Underlying Shares appreciates over the term of the Securities, your potential total return on the Securities at maturity is limited by the Maximum Gain, and if the price of the Underlying Shares declines over the term of the Securities, the Contingent Absolute Return you may receive is limited by the percentage difference between the Initial Share Price and the Trigger Price.
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¨
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You will not have voting rights, rights to receive any dividends or other distributions or any other rights with respect to the Underlying Shares — As of April 2, 2015, the average dividend yield of the Underlying Shares was approximately 2.12%. While it is impossible to know the future dividend yield of the Underlying Shares, if this average dividend yield were to remain constant for the term of the Securities, you would be forgoing an aggregate yield of approximately 5.30% (assuming no reinvestment of dividends) by investing in the Securities instead of investing directly in the Underlying Shares or in another investment linked to the Underlying Shares that provides for a passthrough of dividends. The payment scenarios described in this pricing supplement do not show any effect of lost dividend yield over the term of the Securities.
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¨
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Your payment at maturity depends on the closing price of the Underlying Shares on a single day — Because your payment at maturity depends on the closing price of the Underlying Shares solely on the Final Valuation Date, you are subject to the risk that the closing price of the Underlying Shares 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 Shares or in another instrument linked to the Underlying Shares 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 prices of the Underlying Shares, you might have achieved better returns.
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¨
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The Securities are subject to the credit risk of Citigroup Inc. — Any payment on the Securities will be made by Citigroup Inc. and therefore is subject to the credit risk of Citigroup Inc. If we default on our obligations under the Securities, you may not receive any payments that become due under the Securities. As a result, the value of the Securities prior to maturity will be affected by changes in the market’s view of our creditworthiness. Any decline, or anticipated decline, in our credit ratings or increase, or anticipated increase, in the credit spreads charged by the market for taking our credit risk is likely to adversely affect the value of the Securities.
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¨
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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.
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¨
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The estimated value of the Securities on the Trade 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) the selling concessions 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
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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 Underlying Shares, dividend yields on the Underlying Shares and the stocks held by the ETF 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 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.
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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 price and volatility of the Underlying Shares and a number of other factors, including the price and volatility of the stocks held by the ETF, the dividend yields on the Underlying Shares and the stocks held by the ETF, the exchange rate and the volatility of the exchange rate between the U.S. dollar and each of the currencies in which the stocks held by the ETF trade, the correlation between those rates and the price of the Underlying Shares, interest rates in the United States and in each of the markets of the stocks held by the ETF, the time remaining to maturity and our creditworthiness, as reflected in our secondary market rate. You should understand that the value of your Securities at any time prior to maturity may be significantly less than the issue price. The stated payout from the Issuer, including the potential application of the Trigger Price and the Contingent Absolute Return, only applies if you hold the Securities to maturity.
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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 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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Our offering of the Securities is not a recommendation of the Underlying Shares — The fact that we are offering the Securities does not mean that we believe that investing in an instrument linked to the Underlying Shares 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 Shares or the stocks held by the ETF or in instruments related to the Underlying Shares or such stocks, and may publish research or express opinions, that in each case are inconsistent with an investment linked to the Underlying Shares. These and other activities of our affiliates may affect the price of the Underlying Shares in a way that has a negative impact on your interests as a holder of the Securities.
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¨
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Our affiliates, or UBS or its affiliates, may publish research, express opinions or provide recommendations that are inconsistent with investing in or holding the Securities — Any such research, opinions or recommendations could affect the closing price of the Underlying Shares and the value of the Securities. Our affiliates, and UBS and its affiliates, publish research from time to time on financial markets and other matters that may influence the value of the Securities, or express opinions or provide recommendations that may be inconsistent with purchasing or holding the Securities. Any research, opinions or recommendations expressed by our affiliates or by UBS or its affiliates may not be consistent with each other and may be modified from time to time without notice. These and other activities of our affiliates or UBS or its affiliates may adversely affect the price of the Underlying Shares and may have a negative impact on your interests as a holder of the Securities. Investors should make their own independent investigation of the merits of investing in the Securities and the Underlying Shares to which the Securities are linked.
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¨
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Trading and other transactions by our affiliates, or by UBS or its affiliates, in the equity and equity derivative markets may impair the value of the Securities — We have hedged our exposure under the Securities through CGMI or other of our affiliates, who have entered into equity and/or equity derivative transactions, such as over-the-counter options or exchange-traded instruments, relating to the Underlying Shares or the stocks held by the ETF and other financial instruments related to the Underlying Shares or such stocks and may adjust such positions during the term of the Securities. It is possible that our affiliates could receive substantial returns from these hedging activities while the value of the Securities declines. Our affiliates and UBS and its affiliates may also engage in trading in instruments linked to the Underlying Shares on a regular basis as part of their respective general broker-dealer and other businesses, for proprietary accounts, for other accounts under management or to facilitate transactions for customers, including block transactions. Such trading and hedging activities may affect the closing price of the Underlying Shares and reduce the return on your investment in the Securities. Our affiliates or UBS or its affiliates may also issue or underwrite other securities or financial or derivative instruments
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¨
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Our affiliates, or UBS or its affiliates, may have economic interests that are adverse to yours as a result of their respective business activities — Our affiliates or UBS or its affiliates may currently or from time to time engage in business with the Underlying Share Issuer or the issuers of the stocks held by the ETF, including extending loans to, making equity investments in or providing advisory services to such issuers. In the course of this business, our affiliates or UBS or its affiliates may acquire non-public information about those issuers, which they will not disclose to you. Moreover, if any of our affiliates or UBS or any of its affiliates is or becomes a creditor of any such issuer, they may exercise any remedies against that issuer that are available to them without regard to your interests.
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¨
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Even if the Underlying Share Issuer pays a dividend that it identifies as special or extraordinary, no adjustment will be required under the Securities for that dividend unless it meets the criteria specified in the accompanying product supplement — In general, an adjustment will not be made under the terms of the Securities for any cash dividend paid on the Underlying Shares unless the amount of the dividend per share, together with any other dividends paid in the same quarter, exceeds the dividend paid per share in the most recent quarter by an amount equal to at least 10% of the closing price of the Underlying Shares on the date of declaration of the dividend. Any dividend will reduce the closing price of the Underlying Shares by the amount of the dividend per share. If the Underlying Share Issuer pays any dividend for which an adjustment is not made under the terms of the Securities, holders of the Securities will be adversely affected. See “Description of the Securities—Certain Additional Terms for Securities Linked to ETF Shares or Company Shares—Dilution and Reorganization Adjustments—Certain Extraordinary Cash Dividends” in the accompanying product supplement.
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¨
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The Securities may become linked to shares of an issuer other than the original Underlying Share Issuer upon the occurrence of a reorganization event or upon the delisting of the Underlying Shares — For example, if the Underlying Share Issuer enters into a merger agreement that provides for holders of the Underlying Shares to receive shares of another entity, the shares of such other entity will become the Underlying Shares for all purposes of the Securities upon consummation of the merger. Additionally, if the Underlying Shares are delisted or the ETF is otherwise terminated, the calculation agent may, in its sole discretion, select shares of another ETF to be the Underlying Shares. See “Description of the Securities—Certain Additional Terms for Securities Linked to ETF Shares or Company Shares—Dilution and Reorganization Adjustments” and “—Delisting, Liquidation or Termination of an ETF” in the accompanying product supplement.
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¨
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An adjustment is not required to be made for all events that may have a dilutive effect on or otherwise adversely affect the market price of the Underlying Shares — For example, an adjustment will not be made for ordinary dividends or extraordinary dividends that do not meet the criteria described above. Moreover, the adjustments that are made may not fully offset the dilutive or adverse effect of the particular event. Investors in the Securities may be adversely affected by such an event in a circumstance in which a direct holder of the Underlying Shares would not.
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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, such as market disruption events, events with respect to the Underlying Share Issuer that may require a dilution adjustment or the delisting of the Underlying Shares, CGMI, as calculation agent, will be required to make discretionary judgments that could significantly affect your payment at maturity. Such judgments could include, among other things:
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¨
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determining whether a market disruption event has occurred;
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¨
|
if a market disruption event occurs on the Final Valuation Date, determining whether to postpone the Final Valuation Date;
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¨
|
determining the price of the Underlying Shares if the price of the Underlying Shares is not otherwise available or a market disruption event has occurred;
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¨
|
determining the appropriate adjustments to be made to the Initial Share Price upon the occurrence of an event described under “Description of the Securities—Certain Additional Terms for Securities Linked to ETF Shares or Company Shares—Delisting, Liquidation or Termination of an Underlying ETF” in the accompanying product supplement; and
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¨
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selecting a successor ETF or performing an alternative calculation of the price of the Underlying Shares if the Underlying Shares are discontinued or materially modified (see “Description of the Securities—Certain Additional Terms for Securities Linked to ETF Shares or Company Shares—Delisting, Liquidation or Termination of an Underlying ETF” in the accompanying product supplement).
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¨
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The price of the Underlying Shares may not completely track the performance of the index underlying the ETF — The price of the Underlying Shares will reflect transaction costs and fees of the Underlying Share Issuer that are not included in the calculation of the index underlying the ETF. In addition, the Underlying Share Issuer may not hold all of the shares included in, and may hold securities and derivative instruments that are not included in, the index underlying the ETF.
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¨
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Changes made by the investment adviser to the Underlying Share Issuer or by the sponsor of the index underlying the ETF may adversely affect the Underlying Shares — We are not affiliated with the investment adviser to the Underlying Share Issuer or with the sponsor of the index underlying the ETF. Accordingly, we have no control over any changes such investment adviser or sponsor may make to the Underlying Share Issuer or the index underlying the ETF. Such changes could be made at any time and could adversely affect the performance of the Underlying Shares.
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¨
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Investing in the Securities exposes investors to risks associated with emerging markets equity securities. The stocks composing the ETF and that are generally tracked by the Underlying Shares have been issued by companies in various emerging markets. Investments in securities linked to the value of foreign equity securities involve risks associated with the securities markets in those countries, including risks of volatility in those markets, governmental intervention in those markets and cross-shareholdings in companies
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Fluctuations in exchange rates will affect the price of the Underlying Shares — Because the ETF invests in non-U.S. companies and the net asset value of the ETF is based on the U.S. dollar value of the stocks held by the ETF, holders of the Securities will be exposed to currency exchange rate risk with respect to each of the currencies in which such stocks trade. Exchange rate movements for a particular currency are volatile and are the result of numerous factors specific to the relevant country, including the supply of, and the demand for, those currencies, as well as government policy, intervention or actions, but are also influenced significantly from time to time by political or economic developments, and by macroeconomic factors and speculative actions related to each applicable region. An investor's net exposure will depend on the extent to which the currencies of the applicable countries strengthen or weaken against the U.S. dollar and the relative weight of each currency. If, taking into account such weighting, the dollar strengthens against the currencies of the stocks held by the ETF, the price of the Underlying Shares will be adversely affected for that reason alone and the payment at maturity on the Securities may be reduced. Of particular importance to potential currency exchange risk are: existing and expected rates of inflation; existing and expected interest rate levels; the balance of payments; and the extent of governmental surpluses or deficits in the applicable countries and the United States. All of these factors are in turn sensitive to the monetary, fiscal and trade policies pursued by the governments of various component countries and the United States. and other countries important to international trade and finance.
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The U.S. federal tax consequences of an investment in the Securities are unclear — 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 of the Securities, the tax consequences of the ownership and disposition of the Securities might be materially and adversely affected. Even if the treatment of the Securities as prepaid forward contracts is respected, a Security may be treated as a “constructive ownership transaction,” with consequences described below under “United States Federal Tax Considerations.” In addition, 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, including the character and timing of income or loss and the degree, if any, to which income realized by non-U.S. persons should be subject to withholding tax, possibly with retroactive effect. You should read carefully the discussion under “United States Federal Tax Considerations” and “Risk Factors Relating to the Securities” in the accompanying product supplement and “United States Federal Tax Considerations” in this pricing supplement. 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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Hypothetical Examples
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Final Share Price
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Share Return
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Payment at Maturity
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Total Return on Securities at Maturity per $10.00 Issue Price(1)
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$80.26
|
100.00%
|
$11.900
|
19.00%
|
$76.25
|
90.00%
|
$11.900
|
19.00%
|
$72.23
|
80.00%
|
$11.900
|
19.00%
|
$68.22
|
70.00%
|
$11.900
|
19.00%
|
$64.21
|
60.00%
|
$11.900
|
19.00%
|
$60.20
|
50.00%
|
$11.900
|
19.00%
|
$56.18
|
40.00%
|
$11.900
|
19.00%
|
$52.17
|
30.00%
|
$11.900
|
19.00%
|
$48.16
|
20.00%
|
$11.900
|
19.00%
|
$47.75
|
19.00%
|
$11.900
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19.00%
|
$44.14
|
10.00%
|
$11.000
|
10.00%
|
$40.13
|
0.00%
|
$10.000
|
0.00%
|
$36.12
|
-10.00%
|
$11.000
|
10.00%
|
$32.10
|
-20.00%
|
$12.000
|
20.00%
|
$28.09
|
-30.00%
|
$13.000
|
30.00%
|
$28.08
|
-30.01%
|
$6.999
|
-30.01%
|
$24.08
|
-40.00%
|
$6.000
|
-40.00%
|
$20.07
|
-50.00%
|
$5.000
|
-50.00%
|
$16.05
|
-60.00%
|
$4.000
|
-60.00%
|
$12.04
|
-70.00%
|
$3.000
|
-70.00%
|
$8.03
|
-80.00%
|
$2.000
|
-80.00%
|
$4.01
|
-90.00%
|
$1.000
|
-90.00%
|
$0.00
|
-100.00%
|
$0.000
|
-100.00%
|
The iShares® MSCI Emerging Markets ETF
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United States Federal Tax Considerations
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¨
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You should not recognize taxable income over the term of the Securities prior to maturity, other than pursuant to a sale or exchange.
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¨
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Upon a sale or exchange of a Security (including retirement at maturity), you should recognize gain or loss equal to the difference between the amount realized and your tax basis in the Security. Subject to the discussion below concerning the potential application of the “constructive ownership” rules under Section 1260 of the Internal Revenue Code of 1986, as amended (the “Code”), any gain or loss recognized upon a sale or exchange (including retirement at maturity) of a Security should be long-term capital gain or loss if you held the Security for more than one year.
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Supplemental Plan of Distribution
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Valuation of the Securities
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Validity of the Securities
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