Investment Products
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Not FDIC Insured
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May Lose Value
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No Bank Guarantee
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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 4, 2012
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Citigroup Funding Inc.
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September , 2012
Medium-Term Notes, Series D
Pricing Supplement No. 2012—MTNDG0290
Filed Pursuant to Rule 424(b)(2)
Registration Statement Nos. 333-172554 and 333-172554-01
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§
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The securities offered by this pricing supplement are unsecured senior debt securities issued by Citigroup Funding Inc. and guaranteed 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 or less than the stated principal amount, depending on the performance of shares of the iShares® Dow Jones U.S. Real Estate Index Fund (the “shares”) from their initial share price to their final share price.
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§
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The securities offer a fixed positive return at maturity if the shares appreciate at all from their initial share price to their final share price, regardless of the extent of that appreciation. In exchange, investors in the securities must be willing to forgo (i) any appreciation of the shares in excess of the fixed positive return at maturity and (ii) any dividends that may be paid on the shares. Investors must also be willing to accept full downside exposure to the shares. If the final share price is less than the initial share price, you will lose 1% of the stated principal amount of your securities for every 1% of that decline. You may lose up to all of your investment in the securities.
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§
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In order to obtain the modified exposure to the shares 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 and Citigroup Inc. default on our obligations.
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Shares:
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Shares of the iShares® Dow Jones U.S. Real Estate Index Fund (the “ETF” or “underlying share issuer”) (NYSE Arca symbol: “IYR”)
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Aggregate principal amount:
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$
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Stated principal amount:
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$1,000 per security
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Pricing date:
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September , 2012 (expected to be September 24, 2012)
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Issue date:
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September , 2012 (three business days after the pricing date)
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Valuation date:
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March , 2014 (expected to be March 24, 2014), 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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March , 2014 (expected to be March 27, 2014)
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Payment at maturity:
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For each $1,000 security you hold at maturity:
§ If the final share price is greater than or equal to the initial share price:
$1,000 + the fixed return amount
§ If the final share price is less than the initial share price:
$1,000 × the share performance factor
If the final share price declines from the initial share price, your payment at maturity will be less, and possibly significantly less, than the $1,000 stated principal amount per security. You should not invest in the securities unless you are willing and able to bear the risk of losing a significant portion of your investment.
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Initial share price:
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, the closing price of the shares on the pricing date
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Final share price:
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The closing price of the shares on the valuation date
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Fixed return amount:
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$180 to $220 per security (18% to 22% of the stated principal amount). The actual fixed return amount will be determined on the pricing date. You will receive the fixed return amount only if the final share price is greater than or equal to the initial share price.
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Share performance factor:
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final share price / initial share price
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Listing:
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The securities will not be listed on any securities exchange.
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CUSIP / ISIN:
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1730T0YR4 / US1730T0YR49
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Underwriter:
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Citigroup Global Markets Inc., an affiliate of the issuer, acting as principal
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Underwriting fee and issue price:
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Price to public
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Underwriting fee(1)
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Proceeds to issuer(1)
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Per security:
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$1,000.00
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$20.00
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$980.00
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Total:
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$
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$
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$
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Citigroup Funding Inc.
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Digital Securities Based on Shares of the iShares® Dow Jones U.S. Real Estate Index Fund
Due March , 2014
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September 2012
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PS-2
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Citigroup Funding Inc.
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Digital Securities Based on Shares of the iShares® Dow Jones U.S. Real Estate Index Fund
Due March , 2014
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Payment at maturity per security
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= $1,000 + the fixed return amount
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= $1,000 + $200
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= $1,200
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Payment at maturity per security
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= $1,000 + the fixed return amount
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= $1,000 + $200
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= $1,200
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Payment at maturity per security
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= $1,000 × the share performance factor |
= $1,000 × 0.50
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= $500
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■
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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 shares. If the final share price is less than the initial share price, you will lose 1% of the stated principal amount of the securities for every 1% the final share price declines from the initial share price. There is no minimum payment at maturity on the securities.
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September 2012
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PS-3
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Citigroup Funding Inc.
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Digital Securities Based on Shares of the iShares® Dow Jones U.S. Real Estate Index Fund
Due March , 2014
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The securities do not pay interest. Unlike conventional debt securities, the securities do not pay interest or any other amounts prior to maturity. You should not invest in the securities if you seek current income during the term of the securities.
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Your potential return on the securities is limited. Your potential total return on the securities at maturity is limited to the fixed return amount of $180 to $220 per security, which is 18% to 22% of the stated principal amount. The actual fixed return amount will be determined on the pricing date. If the shares appreciate by more than 18% to 22%, the securities will underperform a direct investment in the shares. When any dividends paid on the shares are taken into account, the securities may underperform a direct investment in the shares even if the shares appreciate by less than 18% to 22%, because holders of the securities will not receive those dividends.
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The securities are subject to the credit risk of Citigroup Inc. If we default on our obligations and Citigroup Inc. defaults on its guarantee obligations under the securities, you may not receive any payments that become due under the securities.
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The securities will not be listed on a securities exchange and you may not be able to sell them prior to maturity. The securities will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities.
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The inclusion of underwriting fees and projected profit from hedging in the issue price is likely to adversely affect secondary market prices. Assuming no change in market conditions or other relevant factors, the price, if any, at which Citigroup Global Markets Inc. may be willing to purchase the securities in secondary market transactions will likely be lower than the issue price because the issue price includes, and secondary market prices are likely to exclude, underwriting fees and the cost of hedging our obligations under the securities. The cost of hedging includes the projected profit that our affiliates may realize in consideration for assuming the risks inherent in managing the hedging transactions. Any secondary market price is also likely to be reduced by the costs of unwinding the related hedging transactions. Any secondary market prices may differ from values determined by pricing models used by Citigroup Global Markets Inc. as a result of dealer discounts, mark-ups or other transaction costs.
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Your payment at maturity depends on the closing price of the shares on a single day. Because your payment at maturity depends on the closing price of the shares solely on the valuation date, you are subject to the risk that the closing price on that day may be lower, and possibly significantly lower, than on one or more other dates during the term of the securities. If you had invested directly in the shares or in another instrument linked to the shares that you could sell for full value at a time selected by you, or if the securities were based on an average of closing prices of the shares, you might have achieved better returns.
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The value of the securities prior to maturity will fluctuate based on many unpredictable factors. The value of your securities prior to maturity will fluctuate based on the price and volatility of the shares and a number of other factors, including the price and volatility of the stocks held by the ETF, the dividend yields on the shares and the stocks held by the ETF, interest rates generally, the time remaining to maturity and our creditworthiness. You should understand that the value of your securities at any time prior to maturity may be significantly less than the stated principal amount.
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You will not receive any dividends paid on, and will have no voting or other rights with respect to, the shares or the stocks held by the ETF. As of August 31, 2012, the trailing 12-month dividend yield of the shares was 3.36%. While it is impossible to know the future dividend yield of the shares, if this dividend yield were to remain constant for the term of the securities, you would be forgoing an aggregate yield of 5.04% (assuming no reinvestment of dividends) by investing in the securities instead of investing directly in the shares or in another investment linked to the shares 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.
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Risks associated with the real estate industry will affect the price of the shares. The ETF invests in companies that invest in real estate, primarily real estate investment trusts (REITs) or real estate holding companies, which will expose the securities to the risks of owning real estate directly as well as to risks that relate specifically to the way in which real estate companies are organized and operated. The real estate industry is cyclical, highly sensitive to general and local economic conditions and developments, and characterized by intense competition and periodic overbuilding. The United States real estate market has in recent years suffered a period of extraordinary declines, and we can give you no assurance that such declines will not continue or worsen. Any of the risks mentioned above could adversely affect the value of the securities.
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Risks associated with Real Estate Investment Trusts will affect the price of the shares. The ETF invests in REITs, which invest primarily in income-producing real estate or real-estate-related loans or interests. Investments in REITs, though not direct investments in real estate, are still subject to the risks associated with investing in real estate. In addition, some REITs have
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September 2012
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PS-4
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Citigroup Funding Inc.
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Digital Securities Based on Shares of the iShares® Dow Jones U.S. Real Estate Index Fund
Due March , 2014
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relatively small market capitalizations, which can increase the volatility of the market price of securities issued by those REITs. Furthermore, REITs are dependent upon specialized management skills, have limited diversification and are, as a result, subject to risks inherent in operating and financing a limited number of projects. Any of the risks mentioned above could adversely affect the value of the securities.
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The value of the securities and the price of the shares will not directly correlate to residential housing prices. Residential housing prices in specific regions or residential housing prices in general may affect the prices of the stocks held by the ETF, but the price of the shares are not directly linked to movements of residential housing prices and may be affected by factors unrelated to such movements.
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Our offering of the securities is not a recommendation of the shares. The fact that we are offering the securities does not mean that we believe that investing in an instrument linked to the shares is likely to achieve favorable returns. In fact, as we are part of a global financial institution, our affiliates may have positions (including short positions) in the shares or the stocks held by the ETF or in instruments related to the shares or the stocks held by the ETF, and may publish research or express opinions, that in each case are inconsistent with an investment linked to the shares. These and other activities of our affiliates may adversely affect the price of the shares and may have a negative impact on your interests as a holder of the securities.
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The price of the shares may be adversely affected by our or our affiliates’ hedging and other trading activities. We expect to hedge our obligations under the securities through affiliated or unaffiliated counterparties, who may take positions directly in the shares or stocks held by the ETF or in instruments related to the shares or such stocks. Our affiliates also trade the shares, the stocks held by the ETF and other financial instruments related to the shares and 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 negatively affect the price of the shares and the value of the securities. They could also result in substantial returns for us or our affiliates while the value of the securities declines.
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We 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 underlying share issuer or the issuers of the stocks held by the ETF, including extending loans to, making equity investments in or providing advisory services to such issuers. In the course of this business, our affiliates may acquire non-public information about those issuers, which we will not disclose to you. Moreover, if any of our affiliates 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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An adjustment will not be made for all events that may have a dilutive effect on or otherwise adversely affect the price of the shares. For example, we will not make any adjustment for ordinary dividends. Moreover, the adjustments we do make may not fully offset the dilutive or adverse effect of the particular event. Investors in the securities may be adversely affected by such an event in a circumstance in which a direct holder of the shares would not.
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The securities may become linked to shares representing an issuer other than the original underlying share issuer upon the occurrence of a reorganization event or upon the delisting of the shares. For example, if the underlying share issuer enters into a merger agreement that provides for holders of the shares to receive shares of another entity, the shares of such other entity will become the successor shares for all purposes of the securities upon consummation of the merger. Additionally, if the shares are delisted or the ETF is otherwise terminated, the calculation agent may, in its sole discretion, select shares of another ETF to be the successor shares. See "Description of the Securities—Certain Additional Terms for Securities Linked to ETF Shares or Company Shares—Delisting, Liquidation or Termination of an ETF” in the accompanying product supplement.
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The calculation agent, which is an affiliate of ours, will make important determinations with respect to the securities. If certain events occur, such as market disruption events, corporate events with respect to the underlying share issuer that may require a dilution adjustment or the delisting of the shares, Citigroup Global Markets Inc., as calculation agent, will be required to make certain 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.
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The price of the shares may not completely track the performance of the Dow Jones U.S. Real Estate Index. The price of the shares will reflect transaction costs and fees of the ETF that are not included in the calculation of the Dow Jones U.S. Real Estate Index. In addition, the ETF may not hold all of the shares included in, and may hold securities and derivative instruments that are not included in, the Dow Jones U.S. Real Estate Index.
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Changes made by the investment adviser to the underlying share issuer or by the sponsor of the Dow Jones U.S. Real Estate Index could adversely affect the value of the securities. We are not affiliated with the investment adviser to the underlying share issuer or with the sponsor of the Dow Jones U.S. Real Estate Index. Accordingly, we have no control over any changes such investment adviser or sponsor may make to the underlying share issuer or the Dow Jones U.S. Real Estate Index. Such changes could be made at any time and could adversely affect the performance of the shares.
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The U.S. federal tax consequences of an investment in the securities are unclear. There is no direct legal authority regarding the proper U.S. federal tax treatment of the securities, and we do not plan to request a ruling from the Internal Revenue Service (the “IRS”). Consequently, significant aspects of the tax treatment of the securities are uncertain, and the IRS or a court might not agree with the treatment of the securities as prepaid forward contracts. If the IRS were successful in asserting an alternative treatment of
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September 2012
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PS-5
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Citigroup Funding Inc.
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Digital Securities Based on Shares of the iShares® Dow Jones U.S. Real Estate Index Fund
Due March , 2014
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the securities, the tax consequences of the ownership and disposition of the securities might be materially and adversely affected. In addition, in 2007 the U.S. Treasury Department and the IRS released a notice requesting comments on various issues regarding the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. Any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, including the character and timing of income or loss and the degree, if any, to which income realized by non-U.S. persons should be subject to withholding tax, possibly with retroactive effect. You should read carefully the discussion under "United States Federal Tax Considerations" and “Risk Factors Relating to the Securities” in the accompanying product supplement and “United States Federal Tax Considerations” in this pricing supplement. You should consult your tax adviser regarding the U.S. federal tax consequences of an investment in the securities, as well as tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
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September 2012
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PS-6
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Citigroup Funding Inc.
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Digital Securities Based on Shares of the iShares® Dow Jones U.S. Real Estate Index Fund
Due March , 2014
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iShares® Dow Jones U.S. Real Estate Index Fund
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High
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Low
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Dividends
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2007
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First Quarter
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$94.71
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$82.34
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$0.67747
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Second Quarter
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$87.77
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$76.86
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$0.74620
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Third Quarter
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$80.25
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$67.79
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$0.68828
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Fourth Quarter
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$80.85
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$65.00
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$0.78086
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2008
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First Quarter
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$68.22
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$59.02
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$0.74981
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Second Quarter
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$71.65
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$60.95
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$0.63616
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Third Quarter
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$67.20
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$56.34
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$0.78000
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Fourth Quarter
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$61.17
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$25.40
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$0.91000
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2009
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First Quarter
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$37.26
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$22.21
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$0.57262
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Second Quarter
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$35.55
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$25.30
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$0.46744
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Third Quarter
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$45.04
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$29.88
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$0.39074
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Fourth Quarter
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$47.44
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$39.63
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$0.50118
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2010
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First Quarter
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$50.83
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$42.45
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$0.48891
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Second Quarter
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$54.66
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$46.95
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$0.42823
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Third Quarter
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$55.21
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$45.32
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$0.46380
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Fourth Quarter
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$57.62
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$52.71
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$0.59160
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2011
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First Quarter
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$60.58
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$55.59
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$0.50347
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Second Quarter
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$62.80
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$58.17
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$0.53569
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Third Quarter
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$62.92
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$49.14
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$0.54943
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Fourth Quarter
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$58.00
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$48.19
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$0.58691
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2012
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First Quarter
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$62.57
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$56.52
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$0.53317
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Second Quarter
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$64.47
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$59.25
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$0.55051
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Third Quarter (through August 31, 2012)
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$66.01
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$64.07
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n/a
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·
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You should not recognize taxable income over the term of the securities prior to maturity, other than pursuant to a sale or exchange.
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September 2012
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PS-7
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Citigroup Funding Inc.
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Digital Securities Based on Shares of the iShares® Dow Jones U.S. Real Estate Index Fund
Due March , 2014
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·
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Upon a sale or exchange of the securities, or retirement of the securities at maturity, you should recognize capital gain or loss equal to the difference between the amount realized and your tax basis in the securities. Subject to the discussion below concerning the potential application of the “constructive ownership” rules under Section 1260 of the Internal Revenue Code of 1986, as amended (the “Code”), any gain or loss recognized upon sale, exchange or retirement of the securities should be long-term capital gain or loss if you held the securities for more than one year.
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September 2012
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PS-8
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