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CITIGROUP INC — Capital/Financing Update 2016
Jan 22, 2016
14792_prs_2016-01-22_3ae12139-bd1a-4145-9191-7e2afde24b4d.zip
Capital/Financing Update
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| The information in this
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 pricing supplement and the accompanying product supplement, underlying supplement,
prospectus supplement and prospectus are not an offer to sell these securities, nor are they soliciting an offer to buy these
securities, in any state where the offer or sale is not permitted. — Citigroup Inc. | SUBJECT
TO COMPLETION, DATED JANUARY 22, 2016 | January ----- ,
2016 Medium-Term
Senior Notes, Series G Pricing
Supplement No. 2016-CMTNG0839 Filed
Pursuant to Rule 424(b)(2) Registration
Statement No. 333-192302 |
| --- | --- | --- |
Capped Contingent Buffered Equity Notes Based on the Russell 2000 ® Index Due February ----- , 2017
Overview
| ▪ | 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 Russell 2000 ® Index (the “underlying index”) over the term of the
securities. |
| --- | --- |
| ▪ | The payment at maturity will depend on whether a downside trigger event occurs on any day during the observation period specified
below. A downside trigger event will occur on any day during the observation period if the closing level of the underlying
index is less than 75.00% of the initial index level on that day. If a downside trigger event does not occur, then
you will receive a positive return at maturity equal to the contingent fixed return specified below. However, if a downside
trigger event does occur, then you will receive a return at maturity (which may be positive or negative) equal to the return
of the underlying index as measured from its initial index level to its final index level, subject to the maximum return at maturity
specified below. If the closing level of the underlying index is less than 75.00% of the initial index level on any day
during the observation period and the final index level is less than the initial index level, you will incur a loss on your securities
at maturity equal to the percentage by which the final index level is less than the initial index level. In exchange
for the contingent fixed return feature, investors in the securities must be willing to forgo (i) participation in any appreciation
of the underlying index beyond the contingent fixed return (which is also the maximum return at maturity), (ii) dividends paid
on the stocks included in the underlying index and (iii) interest on the securities. |
| ▪ | In order to obtain the modified exposure to the underlying index that the securities provide, investors must be willing to
accept (i) an investment that may have limited or no liquidity and (ii) the risk of not receiving any amount due under the securities
if we default on our obligations. All payments on the securities are subject to the credit risk of Citigroup Inc. |
| KEY TERMS | |
|---|---|
| Underlying index: | The Russell 2000 ® Index (ticker symbol: “RTY”) |
| Aggregate stated principal amount: | $ |
| Stated principal amount: | $1,000 per security |
| Pricing date: | January , 2016 (expected to be January 22, 2016) |
| Issue date: | January , 2016 (three business days after the pricing date) |
| Final valuation date: | February , 2017 (expected to be February 3, 2017), subject to postponement if such date is not a scheduled trading day or if certain market disruption events occur |
| Maturity date: | February , 2017 (expected to be February 8, 2017) |
| Payment at maturity: | For each $1,000 stated principal amount security you hold at |
| maturity, you will receive the following amount in U.S. dollars: ▪ If | |
| a downside trigger event does not occur: $1,000 + the contingent fixed return amount ▪ If | |
| a downside trigger event does occur: $1,000 + ($1,000 × index return), subject to the maximum return at maturity If a downside trigger event occurs and the index return is | |
| negative, your payment at maturity will be less, and possibly significantly less, than the stated principal amount per security. | |
| You should not invest in the securities unless you are willing and able to bear the risk of losing up to all of your investment. | |
| Initial index level: | , the closing level of the underlying index on the pricing date |
| Final index level: | The closing level of the underlying index on the final valuation date |
| Contingent fixed return amount: | $103.00 per security (10.30% of the stated principal amount). You will receive the contingent fixed return amount only if a downside trigger event has not occurred. |
| Index return: | The percentage change from the initial index level to the final index level, which may be positive or negative, calculated as follows: (i) final index level minus initial index level, divided by (ii) initial index level |
| Downside trigger event: | A downside trigger event will occur if the closing level of the underlying index is less than the downside threshold level on any scheduled trading day during the observation period. |
| Observation period: | Each scheduled trading day in the period from and including the pricing date to and including the valuation date. |
| Downside threshold level: | , 75.00% of the initial index level |
| Maximum return at maturity: | $103.00 per security (10.30% of the stated principal amount). In no event will the payment at maturity per security exceed $1,000 plus the maximum return at maturity. |
| Listing: | The securities will not be listed on any securities exchange |
| CUSIP / ISIN: | 17298C6L7 / US17298C6L72 |
| 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 | $10.00 | $990.00 |
| Total: | $ | $ | $ |
(1) Citigroup Inc. currently expects that the estimated value of the securities on the pricing date will be at least $960.00 per security, which will be less than the issue price. The estimated value of the securities is based on CGMI’s proprietary pricing models and our internal funding rate. It is not an indication of actual profit to CGMI or other of our affiliates, nor is it an indication of the price, if any, at which CGMI or any other person may be willing to buy the securities from you at any time after issuance. See “Valuation of the Securities” in this pricing supplement.
(2) The issue price for investors purchasing the securities in fiduciary accounts is $990.00 per security.
(3) CGMI will receive an underwriting fee of up to $10.00 for each security sold in this offering. J.P. Morgan Securities LLC and JPMorgan Chase Bank, N.A. will act as placement agents for the securities and, from the underwriting fee to CGMI, will receive a placement fee of $10.00 for each security they sell in this offering to accounts other than fiduciary accounts. CGMI and the placement agents will forgo an underwriting fee and placement fee for sales to fiduciary accounts. The total underwriting fees and proceeds to issuer in the table above give effect to the actual total underwriting fee. For more information on the distribution of the securities, see “Supplemental Plan of Distribution” in this pricing supplement. In addition to the underwriting fee, CGMI and its affiliates may profit from expected hedging activity related to this offering, even if the value of the securities declines. See “Use of Proceeds and Hedging” in the accompanying prospectus.
Investing in the securities involves risks not associated with an investment in conventional debt securities. See “Summary Risk Factors” beginning on page PS-3.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities or determined that this pricing supplement and the accompanying product supplement, underlying supplement, prospectus supplement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
You should read this pricing supplement together with the accompanying product supplement, underlying supplement, prospectus supplement and prospectus, each of which can be accessed via the hyperlinks below:
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
The securities are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency, nor are they obligations of, or guaranteed by, a bank.
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Citigroup Inc.
Capped Contingent Buffered Equity Notes Based on the Russell 2000 ® Index Due February ----- , 2017
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Additional Information
The terms of the securities are set forth in the accompanying product supplement, prospectus supplement and prospectus, as supplemented by this pricing supplement. The accompanying product supplement, prospectus supplement and prospectus contain important disclosures that are not repeated in this pricing supplement. For example, certain events may occur that could affect your payment at maturity. These events and their consequences are described in the accompanying product supplement in the sections “Description of the Securities—Certain Additional Terms for Securities Linked to an Underlying Index—Consequences of a Market Disruption Event; Postponement of a Valuation Date,” “—Discontinuance or Material Modification of an Underlying Index” and “—Index-Linked Securities With an Observation Period” and not in this pricing supplement. The accompanying underlying supplement contains important disclosures regarding the underlying index that are not repeated in this pricing supplement. It is important that you read the accompanying product supplement, underlying supplement, prospectus supplement and prospectus together with this pricing supplement before deciding whether to invest in the securities. Certain terms used but not defined in this pricing supplement are defined in the accompanying product supplement.
The terms set forth under “Description of the Securities—Certain Additional Terms for Securities Linked to an Underlying Index—Index-Linked Securities With an Observation Period” in the accompanying product supplement do not apply to the securities.
Hypothetical Examples
The table and examples below illustrate various hypothetical payments at maturity in scenarios in which a downside trigger event has occurred and in scenarios in which a downside trigger event has not occurred, assuming a hypothetical initial index level of 1,000.00, a hypothetical downside threshold level of 750.00 and various hypothetical final index levels. Your actual payment at maturity per security will depend on the actual initial index level, downside threshold level, final index level, and whether a downside trigger event occurs and may differ substantially from the examples shown. It is impossible to predict whether you will realize a gain or loss on your investment in the securities. Figures in the table and examples below have been rounded for ease of analysis. The table and examples below are intended to illustrate how your payment at maturity will depend on whether a downside trigger event occurs and, if a downside trigger event occurs, on whether the final index level is greater than or less than the initial index level. Investors in the securities will not receive any dividends on the stocks that constitute the underlying index. The table and examples below do not show any effect of lost dividend yield over the term of the securities. See “Summary Risk Factors—Investing in the securities is not equivalent to investing in the underlying index or the stocks that constitute the underlying index” below.
| Hypothetical Final Index Level | Hypothetical Index Return (1) | Downside Trigger Event Has Not Occurred — Hypothetical Payment at Maturity per Security | Hypothetical Total Return on Securities at Maturity (2) | Downside Trigger Event Has Occurred — Hypothetical Payment at Maturity per Security | Hypothetical Total Return on Securities at Maturity (2) |
|---|---|---|---|---|---|
| 2,000.00 | 100.00% | $1,103.00 | 10.30% | $1,103.00 | 10.30% |
| 1,900.00 | 90.00% | $1,103.00 | 10.30% | $1,103.00 | 10.30% |
| 1,800.00 | 80.00% | $1,103.00 | 10.30% | $1,103.00 | 10.30% |
| 1,700.00 | 70.00% | $1,103.00 | 10.30% | $1,103.00 | 10.30% |
| 1,600.00 | 60.00% | $1,103.00 | 10.30% | $1,103.00 | 10.30% |
| 1,500.00 | 50.00% | $1,103.00 | 10.30% | $1,103.00 | 10.30% |
| 1,400.00 | 40.00% | $1,103.00 | 10.30% | $1,103.00 | 10.30% |
| 1,300.00 | 30.00% | $1,103.00 | 10.30% | $1,103.00 | 10.30% |
| 1,200.00 | 20.00% | $1,103.00 | 10.30% | $1,103.00 | 10.30% |
| 1,103.00 | 10.30% | $1,103.00 | 10.30% | $1,103.00 | 10.30% |
| 1,100.00 | 10.00% | $1,103.00 | 10.30% | $1,100.00 | 10.00% |
| 1,050.00 | 5.00% | $1,103.00 | 10.30% | $1,050.00 | 5.00% |
| 1,000.00 | 0.00% | $1,103.00 | 10.30% | $1,000.00 | 0.00% |
| 900.00 | -10.00% | $1,103.00 | 10.30% | $900.00 | -10.00% |
| 750.00 | -25.00% | $1,103.00 | 10.30% | $750.00 | -25.00% |
| 749.90 | -25.01% | N/A | N/A | $749.90 | -25.01% |
| 700.00 | -30.00% | N/A | N/A | $700.00 | -30.00% |
| 600.00 | -40.00% | N/A | N/A | $600.00 | -40.00% |
| 500.00 | -50.00% | N/A | N/A | $500.00 | -50.00% |
| 400.00 | -60.00% | N/A | N/A | $400.00 | -60.00% |
| 300.00 | -70.00% | N/A | N/A | $300.00 | -70.00% |
| 200.00 | -80.00% | N/A | N/A | $200.00 | -80.00% |
| 100.00 | -90.00% | N/A | N/A | $100.00 | -90.00% |
| 0.00 | -100.00% | N/A | N/A | $0.00 | -100.00% |
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Citigroup Inc.
Capped Contingent Buffered Equity Notes Based on the Russell 2000 ® Index Due February ----- , 2017
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(1) Hypothetical index return = hypothetical final index level minus hypothetical initial index level, divided by hypothetical initial index level
(2) Hypothetical total return on securities at maturity = hypothetical payment at maturity per security minus $1,000 stated principal amount per security, divided by $1,000 stated principal amount per security
The following examples illustrate the payment at maturity on the securities if a downside trigger event has not occurred.
Example 1. The hypothetical final index level is 800.00 (a 20.00% decrease from the hypothetical initial index level).
Payment at maturity per security = $1,000 + the contingent fixed return amount
= $1,000 + $103.00
= $1,103.00
Because a downside trigger event has not occurred, you would receive a positive return at maturity equal to the contingent fixed return of 10.3%, even though the underlying index depreciated from its initial index level to its final index level.
Example 2. The hypothetical final index level is 1,400.00 (a 40.00% increase from the hypothetical initial index level).
Payment at maturity per security = $1,000 + the contingent fixed return amount
= $1,000 + $103.00
= $1,103.00
Because a downside trigger event has not occurred, you would receive a positive return at maturity equal to the contingent fixed return of 10.3%. In this scenario, the underlying index has appreciated by significantly more than the contingent fixed return, and an investment in the securities would underperform a hypothetical alternative investment providing 1-to-1 exposure to the appreciation of the underlying index.
The following examples illustrate the payment at maturity on the securities if a downside trigger event has occurred.
Example 3. The hypothetical final index level is 1,150.00 (a 15.00% increase from the hypothetical initial index level), which is greater than the hypothetical initial index level.
Payment at maturity per security = $1,000 + ($1,000 × index return), subject to the maximum return at maturity of $103.00
= $1,000 + ($1,000 × 15.00%), subject to the maximum return at maturity of $103.00
= $1,000 + ($150.00), subject to the maximum return at maturity of $103.00
= $1,103.00
Because a downside trigger event has occurred, you would not receive the contingent fixed return at maturity and instead would receive a return at maturity equal to the return of the underlying index from its initial index level to its final index level, subject to the maximum return at maturity. In this example, the return of the underlying index is positive and is greater than the maximum return at maturity, and so your return on the securities at maturity would be limited to the maximum return at maturity of 10.3%. In this scenario, an investment in the securities would underperform a hypothetical alternative investment providing 1-to-1 exposure to the appreciation of the underlying index without a maximum return.
Example 4. The hypothetical final index level is 300.00 (a 70.00% decrease from the hypothetical initial index level), which is less than the hypothetical initial level.
Payment at maturity per security = $1,000 + ($1,000 × index return)
= $1,000 + ($1,000 × -70.00%)
= $1,000 + (-$700.00)
= $300.00
Because a downside trigger event has occurred, you would not receive the contingent fixed return at maturity and instead would receive a return at maturity equal to the return of the underlying index from its initial index level to its final index level, subject to the maximum return at maturity. In this example, the return of the underlying index is negative, and your payment at maturity would reflect 1-to-1 exposure to the negative performance of the underlying index.
Summary Risk Factors
An investment in the securities is significantly riskier than an investment in conventional debt securities. The securities are subject to all of the risks associated with an investment in our conventional debt securities, including the risk that we may default on our obligations under the securities, and are also subject to risks associated with the underlying index. Accordingly, the securities are suitable only for
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January 2016 PS- 3
Citigroup Inc.
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investors who are capable of understanding the complexities and risks of the securities. You should consult your own financial, tax and legal advisers as to the risks of an investment in the securities and the suitability of the securities in light of your particular circumstances.
The following is a summary of certain key risk factors for investors in the securities. You should read this summary together with the more detailed description of risks relating to an investment in the securities contained in the section “Risk Factors Relating to the Securities” beginning on page EA-6 in the accompanying product supplement. You should also carefully read the risk factors included in the documents incorporated by reference in the accompanying prospectus, including our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q, which describe risks relating to our business more generally.
▪ 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. Instead, your payment at maturity will depend on the performance of the underlying index. If a downside trigger event occurs and the final index level is less than the initial index level, you will lose 1% of the stated principal amount of the securities for every 1% by which the final index level is less than the initial index level. There is no minimum payment at maturity on the securities, and you may lose up to all of your investment.
▪ The downside trigger feature of the securities exposes you to particular risks. If the closing level of the underlying index is less than the downside threshold level on any scheduled trading day during the observation period, the contingent fixed return will not apply and, if the final index level is less than the initial index level, you will be fully exposed to that decline. A downside trigger event may occur even if only as a result of a temporary drop in the level of the underlying index that is quickly reversed.
▪ Your potential return on the securities is limited. Your potential total return on the securities at maturity is limited to the contingent fixed return, which is the same as the maximum return at maturity. If the underlying index appreciates by more than the maximum return at maturity, the securities will underperform an alternative investment providing 1-to-1 exposure to the appreciation of the underlying index.
▪ 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.
▪ Investing in the securities is not equivalent to investing in the underlying index or the stocks that constitute the underlying index. You will not have voting rights, rights to receive dividends or other distributions or any other rights with respect to the stocks that constitute the underlying index. As of January 20, 2016, the average dividend yield of the underlying index was approximately 1.81% per year. While it is impossible to know the future dividend yield of the underlying index, if this average dividend yield were to remain constant for the term of the securities, you would be forgoing an aggregate yield of approximately 1.81% (assuming no reinvestment of dividends) by investing in the securities instead of investing directly in the stocks that constitute the underlying index or in another investment linked to the underlying index that provides for a pass-through 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.
▪ If a downside trigger event occurs, your payment at maturity will depend on the closing level of the underlying index on a single day. If a downside trigger event occurs, your payment at maturity will depend on the closing level of the underlying index solely on the final valuation date. Therefore, you are subject to the risk that the closing level of the underlying index 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 in another instrument linked to the underlying index 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 levels of the underlying index, you might have achieved better returns.
▪ 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.
▪ 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
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with hedging our obligations under the securities. These costs adversely affect the economic terms of the securities because, if they were lower, the economic terms of the securities would be more favorable to you. The economic terms of the securities are also likely to be adversely affected by the use of our internal funding rate, rather than our secondary market rate, to price the securities. See “The estimated value of the securities would be lower if it were calculated based on our secondary market rate” below.
▪ 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 index, dividend yields on the stocks that constitute the underlying index 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.
▪ 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 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 level and volatility of the underlying index, whether a downside trigger event has occurred and a number of other factors, including the price and volatility of the stocks that constitute the underlying index, the dividend yields on the stocks that constitute the underlying index, interest rates generally, the time remaining to maturity and our creditworthiness, as reflected in our secondary market rate. Changes in the level of the underlying index may not result in a comparable change in the value of your securities. You should understand that the value of your securities at any time prior to maturity may be significantly less than the issue price.
▪ 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.
▪ The securities will be subject to risks associated with small capitalization stocks. The stocks that constitute the underlying index are issued by companies with relatively small market capitalization. The stock prices of smaller companies may be more volatile than stock prices of large capitalization companies. These companies tend to be less well-established than large market capitalization companies. Small capitalization companies may be less able to withstand adverse economic, market, trade and competitive conditions relative to larger companies. Small capitalization companies are less likely to pay dividends on their stocks, and the presence of a dividend payment could be a factor that limits downward stock price pressure under adverse market conditions.
▪ Our offering of the securities does not constitute a recommendation of the underlying index by CGMI or its affiliates or by the placement agents or their affiliates. The fact that we are offering the securities does not mean that we believe, or that the placement agents or their affiliates believe, that investing in an instrument linked to the underlying index is likely to achieve favorable returns. In fact, as we and the placement agents are part of global financial institutions, our affiliates and the placement agents and their affiliates may have positions (including short positions) in the stocks that constitute the underlying index or in
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instruments related to the underlying index or such stocks, and may publish research or express opinions, that in each case are inconsistent with an investment linked to the underlying index. These and other activities of our affiliates or the placement agents or their affiliates may affect the level of the underlying index in a way that has a negative impact on your interests as a holder of the securities.
▪ The level of the underlying index may be adversely affected by our or our affiliates’ hedging and other trading activities. We expect to hedge our obligations under the securities through CGMI or other of our affiliates, who may take positions directly in the stocks that constitute the underlying index and other financial instruments related to the underlying index or such stocks and may adjust such positions during the term of the securities. Our affiliates and the placement agents and their affiliates also trade the stocks that constitute the underlying index and other financial instruments related to the underlying index or such stocks on a regular basis (taking long or short positions or both), for their accounts, for other accounts under their management or to facilitate transactions on behalf of customers. These activities could affect the level of the underlying index in a way that negatively affects the value of the securities. They could also result in substantial returns for us or our affiliates or the placement agents or their affiliates while the value of the securities declines.
▪ We and our affiliates or the placement agents or their affiliates may have economic interests that are adverse to yours as a result of our affiliates’ or their business activities. Our affiliates or the placement agents or their affiliates may currently or from time to time engage in business with the issuers of the stocks that constitute the underlying index, including extending loans to, making equity investments in or providing advisory services to such issuers. In the course of this business, we or our affiliates or the placement agents or their affiliates may acquire non-public information about such issuers, which we and they will not disclose to you. Moreover, if any of our affiliates or the placement agents or their affiliates is or becomes a creditor of any such issuer, they may exercise any remedies against such issuer that are available to them without regard to your interests.
▪ 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 or the discontinuance of the underlying index, CGMI, as calculation agent, will be required to make discretionary judgments that could significantly affect your payment at maturity. In making these judgments, the calculation agent’s interests as an affiliate of ours could be adverse to your interests as a holder of the securities.
▪ Adjustments to the underlying index may affect the value of your securities. Russell Investments (the “underlying index publisher”) may add, delete or substitute the stocks that constitute the underlying index or make other methodological changes that could affect the level of the underlying index. The underlying index publisher may discontinue or suspend calculation or publication of the underlying index at any time without regard to your interests as holders of the securities.
▪ 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. 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, 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.
Information About the Underlying Index
The Russell 2000 ® Index is designed to track the performance of the small capitalization segment of the U.S. equity market. All stocks included in the Russell 2000 ® Index are traded on a major U.S. exchange. It is calculated and maintained by Russell Investments, a subsidiary of Russell Investment Group. The Russell 2000 ® Index is reported by Bloomberg L.P. under the ticker symbol “RTY.”
“Russell 2000 ® Index” is a trademark of Russell Investment Group and has been licensed for use by Citigroup Inc. and its affiliates. For more information, see “Equity Index Descriptions—Russell 2000 ® Index—License with Russell” in the accompanying underlying supplement.
Please refer to the sections “Risk Factors” and “Equity Index Descriptions—Russell 2000 ® Index” in the accompanying underlying supplement for important disclosures regarding the Russell 2000 ® Index, including certain risks that are associated with an investment linked to the Russell 2000 ® Index.
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Historical Information
The closing level of the underlying index on January 20, 2016 was 999.315.
The graph below shows the closing levels of the underlying index for each day such level was available from January 3, 2011 to January 20, 2016. We obtained the closing levels from Bloomberg L.P., without independent verification. You should not take the historical levels of the underlying index as an indication of future performance.
Russell 2000 ® Index – Historical Closing levels January 3, 2011 to January 20, 2016
United States Federal Tax Considerations
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 “Summary Risk Factors” in this pricing supplement.
In the opinion of our counsel, Davis Polk & Wardwell LLP, which is based on current market conditions, a security should be treated as a prepaid forward contract for U.S. federal income tax purposes. By purchasing a security, you agree (in the absence of an administrative determination or judicial ruling to the contrary) to this treatment. There is uncertainty regarding this treatment, and the IRS or a court might not agree with it.
Assuming this treatment of the securities is respected and subject to the discussion in “United States Federal Tax Considerations” in the accompanying product supplement, the following U.S. federal income tax consequences should result under current law:
· You should not recognize taxable income over the term of the securities prior to maturity, other than pursuant to a sale or exchange.
· Upon a sale or exchange of a security (including retirement at maturity), you should recognize capital gain or loss equal to the difference between the amount realized and your tax basis in the security. Such gain or loss should be long-term capital gain or loss if you held the security for more than one year.
Subject to the discussion below, if you are a Non-U.S. Holder (as defined in the accompanying product supplement) of the securities, you generally should not be subject to U.S. federal withholding or income tax in respect of any amount paid to you with respect to the securities, provided that (i) income in respect of the securities is not effectively connected with your conduct of a trade or business in the United States, and (ii) you comply with the applicable certification requirements.
The U.S. Treasury Department recently finalized the regulations referred to in “United States Federal Tax Considerations—Tax Consequences to Non-U.S. Holders—Possible Application of Section 871(m) of the Code” in the accompanying product supplement,
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which require withholding on certain “dividend equivalent” payments to non-U.S. persons. Based on the effective date in the final regulations, those regulations generally will not apply to the securities assuming there is no significant modification to the securities’ terms that results in a deemed exchange of the securities for U.S. federal income tax purposes.
As discussed in the section of the accompanying product supplement entitled “United States Federal Tax Considerations,” withholding under legislation commonly referred to as “FATCA” might (if the securities were recharacterized as debt instruments) apply to amounts treated as interest paid with respect to the securities. However, under a recent IRS notice, withholding under “FATCA” will not apply to payments of gross proceeds (other than any amount treated as interest) with respect to dispositions of the securities. You should consult your tax adviser regarding the potential application of “FATCA” to the securities.
In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” regime, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, 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. If withholding tax applies to the securities, we will not be required to pay any additional amounts with respect to amounts so withheld.
You should read the section entitled “United States Federal Tax Considerations” in the accompanying product supplement. The preceding discussion, when read in combination with that section, constitutes the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of owning and disposing of the securities.
You should also consult your tax adviser regarding all aspects of the U.S. federal income and estate tax consequences of an investment in the securities and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Supplemental Plan of Distribution
CGMI, an affiliate of Citigroup Inc. and the underwriter of the sale of the securities, is acting as principal and will receive an underwriting fee of up to $10.00 for each security sold in this offering. J.P. Morgan Securities LLC and JPMorgan Chase Bank, N.A. will act as placement agents for the securities and, from the underwriting fee to CGMI, will receive a placement fee of $10.00 for each security they sell in this offering to accounts other than fiduciary accounts. The amount of the underwriting fee to CGMI will be equal to the placement fee paid to the placement agents. CGMI and the placement agents will forgo an underwriting fee and placement fee for sales to fiduciary accounts. In addition to the underwriting fee, CGMI and its affiliates may profit from expected hedging activity related to this offering, even if the value of the securities declines. See “Use of Proceeds and Hedging” in the accompanying prospectus.
CGMI is an affiliate of ours. Accordingly, this offering will conform with the requirements addressing conflicts of interest when distributing the securities of an affiliate set forth in Rule 5121 of the Financial Industry Regulatory Authority. Client accounts over which Citigroup Inc. or its subsidiaries have investment discretion will not be permitted to purchase the securities, either directly or indirectly, without the prior written consent of the client.
See “Plan of Distribution; Conflicts of Interest” in the accompanying product supplement and “Plan of Distribution” in each of the accompanying prospectus supplement and prospectus for additional information.
A portion of the net proceeds from the sale of the securities will be used to hedge our obligations under the securities. We expect to hedge our obligations under the securities through CGMI or other of our affiliates. CGMI or such other of our affiliates may profit from this expected hedging activity even if the value of the securities declines. This hedging activity could affect the closing level of the underlying index and, therefore, the value of and your return on the securities. For additional information on the ways in which our counterparties may hedge our obligations under the securities, see “Use of Proceeds and Hedging” in the accompanying prospectus.
Valuation of the Securities
CGMI calculated the estimated value of the securities set forth on the cover page of this pricing supplement based on proprietary pricing models. CGMI’s proprietary pricing models generated an estimated value for the securities by estimating the value of a hypothetical package of financial instruments that would replicate the payout on the securities, which consists of a fixed-income bond (the “bond component”) and one or more derivative instruments underlying the economic terms of the securities (the “derivative component”). CGMI calculated the estimated value of the bond component using a discount rate based on our internal funding rate. CGMI calculated the estimated value of the derivative component based on a proprietary derivative-pricing model, which generated a
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theoretical price for the instruments that constitute the derivative component based on various inputs, including the factors described under “Summary Risk Factors—The value of the securities prior to maturity will fluctuate based on many unpredictable factors” in this pricing supplement, but not including our creditworthiness. These inputs may be market-observable or may be based on assumptions made by CGMI in its discretionary judgment.
The estimated value of the securities is a function of the terms of the securities and the inputs to CGMI’s proprietary pricing models. As of the date of this preliminary pricing supplement, it is uncertain what the estimated value of the securities will be on the pricing date because it is uncertain what the values of the inputs to CGMI’s proprietary pricing models will be on the pricing date.
For a period of approximately six months following issuance of the securities, the price, if any, at which CGMI would be willing to buy the securities from investors, and the value that will be indicated for the securities on any brokerage account statements prepared by CGMI or its affiliates (which value CGMI may also publish through one or more financial information vendors), will reflect a temporary upward adjustment from the price or value that would otherwise be determined. This temporary upward adjustment represents a portion of the hedging profit expected to be realized by CGMI or its affiliates over the term of the securities. The amount of this temporary upward adjustment will decline to zero on a straight-line basis over the six-month temporary adjustment period. However, CGMI is not obligated to buy the securities from investors at any time. See “Summary Risk Factors—The securities will not be listed on a securities exchange and you may not be able to sell them prior to maturity.”
Certain Selling Restrictions
Hong Kong Special Administrative Region
The contents of this pricing supplement and the accompanying product supplement, underlying supplement, prospectus supplement and prospectus have not been reviewed by any regulatory authority in the Hong Kong Special Administrative Region of the People’s Republic of China (“Hong Kong”). Investors are advised to exercise caution in relation to the offer. If investors are in any doubt about any of the contents of this pricing supplement and the accompanying product supplement, underlying supplement, prospectus supplement and prospectus, they should obtain independent professional advice.
The securities have not been offered or sold and will not be offered or sold in Hong Kong by means of any document, other than
(i) to persons whose ordinary business is to buy or sell shares or debentures (whether as principal or agent); or
(ii) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the “Securities and Futures Ordinance”) and any rules made under that Ordinance; or
(iii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and
There is no advertisement, invitation or document relating to the securities which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to securities which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Non-insured Product: These securities are not insured by any governmental agency. These securities are not bank deposits and are not covered by the Hong Kong Deposit Protection Scheme.
Singapore
This pricing supplement and the accompanying product supplement, underlying supplement, prospectus supplement and prospectus have not been registered as a prospectus with the Monetary Authority of Singapore, and the securities will be offered pursuant to exemptions under the Securities and Futures Act, Chapter 289 of Singapore (the “Securities and Futures Act”). Accordingly, the securities may not be offered or sold or made the subject of an invitation for subscription or purchase nor may this pricing supplement or any other document or material in connection with the offer or sale or invitation for subscription or purchase of any securities be circulated or distributed, whether directly or indirectly, to any person in Singapore other than (a) to an institutional investor pursuant to Section 274 of the Securities and Futures Act, (b) to a relevant person under Section 275(1) of the Securities and Futures Act or to any person pursuant to Section 275(1A) of the Securities and Futures Act and in accordance with the conditions specified in Section 275 of the Securities and Futures Act, or (c) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the Securities and Futures Act. Where the securities are subscribed or purchased under Section 275 of the Securities and Futures Act by a relevant person which is:
(a) a corporation (which is not an accredited investor (as defined in Section 4A of the Securities and Futures Act)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an individual who is an accredited investor, securities (as defined in Section 239(1) of the Securities and Futures Act) of that corporation or the beneficiaries’ rights and interests (howsoever described) in that trust shall
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not be transferable for 6 months after that corporation or that trust has acquired the relevant securities pursuant to an offer under Section 275 of the Securities and Futures Act except:
(i) to an institutional investor or to a relevant person defined in Section 275(2) of the Securities and Futures Act or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the Securities and Futures Act; or
(ii) where no consideration is or will be given for the transfer; or
(iii) where the transfer is by operation of law; or
(iv) pursuant to Section 276(7) of the Securities and Futures Act; or
(v) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.
Any securities referred to herein may not be registered with any regulator, regulatory body or similar organization or institution in any jurisdiction.
The securities are Specified Investment Products (as defined in the Notice on Recommendations on Investment Products and Notice on the Sale of Investment Product issued by the Monetary Authority of Singapore on 28 July 2011) that is neither listed nor quoted on a securities market or a futures market.
Non-insured Product: These securities are not insured by any governmental agency. These securities are not bank deposits. These securities are not insured products subject to the provisions of the Deposit Insurance and Policy Owners’ Protection Schemes Act 2011 of Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme.
© 2016 Citigroup Global Markets Inc. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world.
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