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.
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Citigroup Inc.
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SUBJECT TO COMPLETION, DATED JULY 1, 2014
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July , 2014
Medium-Term Senior Notes, Series G
Pricing Supplement No. 2014-CMTNG0176
Filed Pursuant to Rule 424(b)(2)
Registration Statement No. 333-192302
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▪
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The notes offered by this pricing supplement are unsecured senior debt securities issued by Citigroup Inc. Unlike conventional debt securities, the notes do not pay interest. Instead, the notes offer the potential for a positive return at maturity based on the average index return percentage of the S&P 500® Index (the “underlying index”), measured as described below. If the average index return percentage is positive, you will receive a positive return at maturity equal to 30.00% to 32.00% (to be determined on the pricing date) of that average index return percentage. However, if the average index return percentage is negative or zero, you will be repaid the stated principal amount of your notes at maturity but will not receive any return on your investment. Even if the average index return percentage is positive, so that you do receive a positive return at maturity, there is no assurance that your total return at maturity on the notes will compensate you for the effects of inflation or be as great as the yield you could have achieved on a conventional debt security of ours of comparable maturity. The average index return percentage is the average of the percentage changes in the closing level of the underlying index from the pricing date to each of the quarterly valuation dates occurring over the term of the notes.
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▪
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If the underlying index generally appreciates over the term of the notes, your return on the notes is likely to be significantly less than the return on the underlying index. This is because your return will be equal to only 30.00% to 32.00% (to be determined on the pricing date) of the average index return percentage and, moreover, because the average index return percentage may be significantly less than the actual return on the underlying index as measured from the pricing date to the final valuation date. In addition, you will not receive any dividends paid on the stocks that constitute the underlying index over the term of the notes.
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In order to obtain the 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. All payments on the notes are subject to the credit risk of Citigroup Inc.
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KEY TERMS
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Underlying index:
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The S&P 500® Index (ticker symbol: "SPX")
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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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Pricing date:
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July , 2014 (expected to be July 3, 2014)
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Issue date:
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July , 2014 (three business days after the pricing date)
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Valuation dates:
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The day of each March, June, September and December (expected to be the 27th day of each March, June, September and December), each 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 , 2016 (expected to be September 30, 2016)
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Payment at maturity:
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For each note, the $1,000 stated principal amount per note plus the note return amount, which will be either zero or positive
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Note return amount:
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▪ If the average index return percentage is greater than zero:
$1,000 × average index return percentage × upside participation rate
▪ If the average index return percentage is less than or equal to zero:
$0
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Average index return percentage:
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The arithmetic average of the interim index return percentages, as measured on each of the valuation dates
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Interim index return percentage:
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On each valuation date: (ending index level – initial index level) / initial index level
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Initial index level:
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, the closing level of the underlying index on the pricing date
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Ending index level:
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The closing level of the underlying index on the relevant valuation date
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Listing:
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The notes will not be listed on any securities exchange
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Upside participation rate:
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30.00% to 32.00%. The actual upside participation rate will be determined on the pricing date.
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CUSIP / ISIN:
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1730T0U64 / US1730T0U647
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Underwriter:
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Citigroup Global Markets Inc. (“CGMI”), an affiliate of the issuer, 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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$1,000.00
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$2.50
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$997.50
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Total:
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$
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$
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$
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Citigroup Inc.
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Market-Linked Notes Based on the S&P 500® Index Due September , 2016
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July 2014
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PS-2
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Citigroup Inc.
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Market-Linked Notes Based on the S&P 500® Index Due September , 2016
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July 2014
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PS-3
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Citigroup Inc.
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Market-Linked Notes Based on the S&P 500® Index Due September , 2016
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July 2014
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PS-4
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Citigroup Inc.
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Market-Linked Notes Based on the S&P 500® Index Due September , 2016
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▪
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You may not receive any return on your investment in the notes. You will receive a positive return on your investment in the notes only if the average index return percentage is greater than zero. If the average index return percentage is equal to or less than zero, you will receive only the stated principal amount of $1,000 for each note you hold at maturity. As the notes do not pay any interest, even if the average index return percentage is greater than zero, there is no assurance that your total return at maturity on the notes will be as great as could have been achieved on conventional debt securities of ours of comparable maturity.
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Although the notes provide for the repayment of the stated principal amount at maturity, you may nevertheless suffer a loss on your investment in real value terms if the average index return percentage is less than or not sufficiently greater than zero. 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 may provide a return that is lower than the return on alternative investments, is appropriate for you.
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The notes are designed for investors who are willing to forgo full upside exposure to the underlying index in order to avoid downside exposure to the underlying index. Your return at maturity of the notes will be equal to only 30.00% to 32.00% (to be determined on the pricing date) of the average index return percentage. Accordingly, as an investor in the notes, you will participate in only a small fraction of any appreciation of the underlying index as measured by the average index return percentage.
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July 2014
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PS-5
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Citigroup Inc.
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Market-Linked Notes Based on the S&P 500® Index Due September , 2016
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▪
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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. The payment scenarios described in this pricing supplement do not show any effect of lost dividend yield over the term of the notes.
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▪
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The notes are subject to the credit risk of Citigroup Inc. If we default on our obligations under the notes, you may not receive anything owed to you under 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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▪
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Sale of the notes prior to maturity may result in a loss of principal. You will be entitled to receive at least the full stated principal amount of your notes, subject to the credit risk of Citigroup Inc., only if you hold the notes to maturity. The value of the notes may fluctuate during the term of the notes, and if you are able to sell your notes prior to maturity, you may receive less than the full stated principal amount of your notes.
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The estimated value of the notes 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 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 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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▪
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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,
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July 2014
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PS-6
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Citigroup Inc.
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Market-Linked Notes Based on the S&P 500® Index Due September , 2016
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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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▪
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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, 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. You should understand that the value of your notes at any time prior to maturity may be significantly less than the issue price.
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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 steadily decline to zero over the temporary adjustment period. See “Valuation of the Notes” in this pricing supplement.
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Our offering of the notes is not a recommendation of the underlying index. The fact that we are offering the notes does not mean that we believe that investing in an instrument linked to the underlying index 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 stocks that constitute the underlying index or in 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 may affect the level of the underlying index in a way that has a negative impact on your interests as a holder of the notes.
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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 notes 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. Our 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 notes. They could also result in substantial returns for us or our affiliates while the value of the notes declines.
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▪
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We and our affiliates may have economic interests that are adverse to yours as a result of our affiliates’ business activities. Our 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 may acquire non-public information about such issuers, which we will not disclose to you. Moreover, if any of our 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.
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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 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 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 notes.
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▪
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Adjustments to the underlying index may affect the value of your notes. S&P Dow Jones Indices LLC (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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July 2014
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PS-7
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Citigroup Inc.
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Market-Linked Notes Based on the S&P 500® Index Due September , 2016
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S&P 500® Index – Historical Closing Levels
January 2, 2009 to June 26, 2014
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July 2014
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PS-8
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Citigroup Inc.
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Market-Linked Notes Based on the S&P 500® Index Due September , 2016
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July 2014
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PS-9
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Citigroup Inc.
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Market-Linked Notes Based on the S&P 500® Index Due September , 2016
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July 2014
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PS-10
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