The information in this preliminary pricing supplement is not complete and may be changed. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. This preliminary pricing supplement and the accompanying 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.
SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 2014
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Citigroup Inc.
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September , 2014
Medium-Term Senior Notes, Series G
Pricing Supplement No. 2014-CMTNG0243
Filed Pursuant to Rule 424(b)(2)
Registration Statement No. 333-192302
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The notes offered by this pricing supplement are unsecured, unsubordinated debt securities issued by Citigroup Inc. Unlike conventional debt securities, the notes do not pay interest and do not guarantee the full repayment of principal at maturity. Instead, the notes offer a payment at maturity that may be greater than or less than the stated principal amount, depending on the performance of the EURO STOXX 50® Index (the “underlying index”) from the initial index level to the final index level.
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The notes provide 1-to-1 exposure to the performance of the underlying index within a limited range of potential appreciation or depreciation. If the underlying index appreciates, investors in the notes will receive a positive return at maturity equal to that appreciation, subject to the maximum return amount specified below. However, if the underlying index depreciates, investors in the notes will incur a loss at maturity equal to that depreciation, subject to a maximum loss of 5% of the stated principal amount. In exchange for the capped loss potential, investors in the notes must be willing to forgo (i) any return on the notes in excess of the maximum return amount and (ii) any dividends that may be paid on the stocks that constitute the underlying index during the five-year term of the notes. If the underlying index does not appreciate from the pricing date to the final valuation date, you will not receive any return on your investment in the notes, and you may lose up to 5% of your investment.
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In order to obtain the modified exposure to the underlying index that the notes 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 notes if we default on our obligations. The stated payout from the issuer, including any repayment of principal, applies only if you hold the notes to maturity. All payments on the notes are subject to the credit risk of Citigroup Inc.
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Underlying index:
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The EURO STOXX 50® Index (ticker symbol: “SX5E”)
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Aggregate stated principal amount:
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$
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Stated principal amount:
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$1,000 per note
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Trade date:
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September , 2014 (expected to be September 24, 2014)
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Issue date:
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September , 2014 (three business days after the trade date)
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Final valuation date:
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September , 2019 (expected to be September 24, 2019), subject to postponement if such date is not a scheduled trading day or if certain market disruption events occur
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Maturity date:
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September , 2019 (expected to be September 30, 2019)
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Payment at maturity:
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For each $1,000 stated principal amount note you hold at maturity:
§ If the final index level is greater than the initial index level:
$1,000 + the additional amount, subject to the maximum return amount
§ If the final index level is less than or equal to the initial index level:
$1,000 × the index performance factor, subject to the minimum return amount
If the final index level declines from the initial index level, you will be exposed to the first 5% of the decline of the underlying index and your payment at maturity will be less than the stated principal amount per note. You should not invest in the notes unless you are willing and able to bear the risk of losing up to $50 per note.
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Initial index level:
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, the closing level of the underlying index on the trade date
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Final index level:
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The closing level of the underlying index on the final valuation date
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Index return:
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The final index level minus the initial index level, divided by the initial index level
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Index performance factor
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The final index level divided by the initial index level
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Additional amount:
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$1,000 × index return
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Maximum return amount:
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$550 to $610 per note (55% to 61% of the stated principal amount), to be determined on the trade date. Because of the maximum return amount, the payment at maturity will not exceed $1,550 to $1,610 per note.
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Minimum return amount:
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$950 per note (95% of the stated principal amount)
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Listing:
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The notes will not be listed on any securities exchange
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CUSIP / ISIN:
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1730T0Y94 / US1730T0Y946
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Agents:
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Citigroup Global Markets Inc. (“CGMI”), an affiliate of the issuer, as lead agent, and UBS Financial Services Inc. (“UBS”), as agent, each acting as principal
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Underwriting fee and issue price:
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Issue price(1)
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Underwriting fee(2)
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Proceeds to issuer
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Per note:
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$1,000
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$35
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$965
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Total:
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$
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$
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$
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Citigroup Inc.
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Market-Linked Notes Based on the EURO STOXX 50® Index Due September , 2019
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Market-Linked Notes Payment at Maturity Diagram
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September 2014
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PS-2
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Citigroup Inc.
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Market-Linked Notes Based on the EURO STOXX 50® Index Due September , 2019
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Payment at maturity per note
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= $1,000 + the additional amount, subject to the hypothetical maximum return amount
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= $1,000 + ($1,000 × index return), subject to the hypothetical maximum return amount
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= $1,000 + ($1,000 × 10%), subject to the hypothetical maximum return amount
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= $1,000 + $100, subject to the hypothetical maximum return amount
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= $1,100
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Payment at maturity per note
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= $1,000 + the additional amount, subject to the hypothetical maximum return amount
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= $1,000 + ($1,000 × index return), subject to the hypothetical maximum return amount
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= $1,000 + ($1,000 × 70%), subject to the hypothetical maximum return amount
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= $1,000 + $700, subject to the hypothetical maximum return amount
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= $1,550
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Payment at maturity per note
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= $1,000 × index performance factor, subject to the minimum return amount
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= $1,000 × 97%, subject to the minimum return amount
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= $970
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Payment at maturity per note
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= $1,000 × index performance factor, subject to the minimum return amount
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= $1,000 × 80%, subject to the minimum return amount
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= $950
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September 2014
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PS-3
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Citigroup Inc.
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Market-Linked Notes Based on the EURO STOXX 50® Index Due September , 2019
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You may not receive any return on your investment in the notes and may lose up to 5% of your investment. You will receive a positive return on your investment in the notes only if the underlying index appreciates from the initial index level to the final index level. If the final index level is less than the initial index level, you will lose 1% of the stated principal amount of the notes for every 1% by which the final index level is less than the initial index level, subject to a maximum loss of 5% of your investment. As the notes do not pay any interest, if the underlying index does not appreciate sufficiently from the initial index level to the final index level over the term of the notes or if the underlying index depreciates from the initial index level to the final index level, the overall return on the notes may be less than the amount that would be paid on our conventional debt securities of comparable maturity.
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Although the notes limit your loss at maturity to 5%, you may nevertheless suffer additional losses on your investment in real value terms if the underlying index declines or does not appreciate sufficiently from the initial index level to the final index level. This is because inflation may cause the real value of the stated principal amount to be less at maturity than it is at the time you invest, and because an investment in the notes represents a forgone opportunity to invest in an alternative asset that does generate a positive real return. You should carefully consider whether an investment that may not provide for any return on your investment or that may result in a loss, or may provide a return that is lower than the return on alternative investments, is appropriate for you.
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The appreciation potential of the notes is limited by the maximum return amount. Your potential total return on the notes at maturity is limited by the maximum return amount. As a result, the return on an investment in the notes may be less than the return on a hypothetical direct investment in the underlying index.
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Investing in the notes 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 September 11, 2014, the average dividend yield of the underlying index was 3.53% 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 notes, you would be forgoing an aggregate yield of approximately 17.65% (assuming no reinvestment of dividends) by investing in the notes 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 notes. If the underlying index appreciates, this lost dividend yield will cause the notes to underperform an alternative investment providing for a pass-through of dividends and 1-to-1 exposure to the performance of the underlying index.
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Your payment at maturity depends on the closing level of the underlying index on a single day. Because your payment at maturity depends on the closing level of the underlying index solely on the final valuation date, 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 notes. 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.
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The notes do not pay interest. Unlike conventional debt securities, the notes do not pay interest or any other amounts prior to maturity. You should not invest in the notes if you seek current income during the term of the notes.
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The notes are subject to the credit risk of Citigroup Inc. Any payment on the notes 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 notes, your investment would be at risk and you could lose some or all of your investment. As a result, the value of the notes 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 notes.
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The notes will not be listed on a securities exchange and you may not be able to sell them prior to maturity. The notes will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the notes. CGMI currently intends to make a secondary market in relation to the notes and to provide an indicative bid price for the notes on a daily basis. Any indicative bid price for the notes 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 notes 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 notes because it is likely that CGMI will be the only broker-dealer that is willing to buy your notes prior to maturity. Accordingly, an investor must be prepared to hold the notes until maturity.
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The estimated value of the notes on the trade 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 notes that are included in the issue price. These costs include (i) the selling concessions paid in connection with the offering of the notes, (ii) hedging and other costs incurred by us and our affiliates in connection with the offering of the notes and (iii) the expected profit (which may be more or less than actual profit) to CGMI or other of our affiliates in connection with hedging our obligations under the notes. These costs adversely affect the economic terms of the notes because, if they were lower, the
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September 2014
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PS-4
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Citigroup Inc.
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Market-Linked Notes Based on the EURO STOXX 50® Index Due September , 2019
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economic terms of the notes would be more favorable to you. The economic terms of the notes are also likely to be adversely affected by the use of our internal funding rate, rather than our secondary market rate, to price the notes. See “The estimated value of the notes would be lower if it were calculated based on our secondary market rate” below.
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The estimated value of the notes 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 notes. Moreover, the estimated value of the notes set forth on the cover page of this pricing supplement may differ from the value that we or our affiliates may determine for the notes for other purposes, including for accounting purposes. You should not invest in the notes because of the estimated value of the notes. Instead, you should be willing to hold the notes to maturity irrespective of the initial estimated value.
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The estimated value of the notes would be lower if it were calculated based on our secondary market rate. The estimated value of the notes 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 notes. 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 notes, 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 notes, which do not bear interest.
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The estimated value of the notes is not an indication of the price, if any, at which CGMI or any other person may be willing to buy the notes from you in the secondary market. Any such secondary market price will fluctuate over the term of the notes 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 notes 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 notes than if our internal funding rate were used. In addition, any secondary market price for the notes will be reduced by a bid-ask spread, which may vary depending on the aggregate stated principal amount of the notes 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 notes will be less than the issue price.
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The value of the notes prior to maturity will fluctuate based on many unpredictable factors. The value of your notes prior to maturity will fluctuate based on the level and volatility of the underlying index and a number of other factors, including the price and volatility of the stocks that constitute the underlying index, 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. You should understand that the value of your notes 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 minimum return amount and the additional amount, only applies if you hold the notes to maturity.
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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 Notes” in this pricing supplement.
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The underlying index is subject to risks associated with the Eurozone. The companies whose stocks constitute the underlying index are leading companies in the Eurozone. A number of countries in the Eurozone are undergoing a financial crisis affecting their economies, their ability to meet their sovereign financial obligations and their financial institutions. Countries in the Eurozone that are not currently experiencing a financial crisis may do so in the future as a result of developments in other Eurozone countries. The economic ramifications of this financial crisis, and its effects on the companies that make up the underlying index, are impossible to predict. This uncertainty may contribute to significant volatility in the underlying index, and adverse developments affecting the Eurozone may affect the underlying index in a way that adversely affects the value of and return on the notes. Furthermore, you should understand that there is generally less publicly available information about non-U.S. companies than about U.S. companies that are subject to the reporting requirements of the SEC, and non-U.S. companies are generally subject to accounting, auditing and financial reporting standards and requirements and securities trading rules that are different from those applicable to U.S. reporting companies.
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The underlying index performance will not be adjusted for changes in the exchange rate between the Euro and the U.S. dollar. The underlying index is composed of stocks traded in Euro, the value of which may be subject to a high degree of fluctuation relative to the U.S. dollar. However, the performance of the underlying index and the value of your notes will not be adjusted for exchange rate fluctuations. If the Euro appreciates relative to the U.S. dollar over the term of the notes, your return on the notes will underperform an alternative investment that offers exposure to that appreciation in addition to the change in the level of the underlying index.
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September 2014
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PS-5
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Citigroup Inc.
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Market-Linked Notes Based on the EURO STOXX 50® Index Due September , 2019
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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 notes. Any such research, opinions or recommendations could affect the level of the underlying index and the value of the notes. 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 notes, or express opinions or provide recommendations that may be inconsistent with purchasing or holding the notes. 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 level of the underlying index and may have a negative impact on your interests as a holder of the notes. Investors should make their own independent investigation of the merits of investing in the notes and the underlying index to which the notes are linked.
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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 notes. We expect to hedge our exposure under the notes through CGMI or other of our affiliates, who will likely enter into equity and/or equity derivative transactions, such as over-the-counter options or exchange-traded instruments, relating to the underlying index or the stocks included in the underlying index. It is possible that our affiliates could receive substantial returns from these hedging activities while the value of the notes declines. Our affiliates and UBS and its affiliates may also engage in trading in instruments linked to the underlying index 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 level of the underlying index and reduce the return on your investment in the notes. Our affiliates or UBS or its affiliates may also issue or underwrite other notes or financial or derivative instruments with returns linked or related to the underlying index. By introducing competing products into the marketplace in this manner, our affiliates or UBS or its affiliates could adversely affect the value of the notes. Any of the foregoing activities described in this paragraph may reflect trading strategies that differ from, or are in direct opposition to, investors’ trading and investment strategies relating to the notes.
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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 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, 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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The calculation agent, which is an affiliate of ours, will make important determinations with respect to the notes. 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 what you receive at maturity. Such judgments could include, among other things, any level required to be determined under the notes. In addition, if certain events occur, CGMI will be required to make certain discretionary judgments that could significantly affect your payment at maturity. Such judgments could include, among other things:
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determining whether a market disruption event has occurred;
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if a market disruption event has occurred on the final valuation date, determining whether to postpone the final valuation date;
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determining the level of the underlying index if the level of the underlying index is not otherwise available or a market disruption event has occurred; and
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selecting a successor underlying index or performing an alternative calculation of the level of the underlying index if the underlying index is discontinued or materially modified (see “Description of the Securities—Certain Additional Terms for Securities Linked to an Underlying Index—Discontinuance or Material Modification of an Underlying Index” in the accompanying product supplement).
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Adjustments to the underlying index may affect the value of your notes. STOXX Limited (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 notes.
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September 2014
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PS-6
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Citigroup Inc.
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Market-Linked Notes Based on the EURO STOXX 50® Index Due September , 2019
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EURO STOXX 50® Index – Historical Closing Levels
January 2, 2008 to September 11, 2014
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September 2014
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PS-7
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Citigroup Inc.
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Market-Linked Notes Based on the EURO STOXX 50® Index Due September , 2019
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September 2014
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PS-8
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Citigroup Inc.
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Market-Linked Notes Based on the EURO STOXX 50® Index Due September , 2019
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September 2014
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PS-9
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