An investment in the ETNs is significantly
riskier than an investment in conventional debt securities. The ETNs are subject to all of the risks associated with an investment
in our conventional debt securities (guaranteed by Citigroup Inc.), including the risk that we and Citigroup Inc. may default on
our obligations under the ETNs, and are also subject to risks associated with fluctuations in the level of the applicable Index.
The risk factors below describe certain
significant risks associated with an investment in the ETNs. You should read these risk factors together with the risk factors
included in the accompanying prospectus supplement and in the documents incorporated by reference in the accompanying prospectus,
including Citigroup Inc.’s most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q, which
describe risks relating to the business of Citigroup Inc. more generally.
The risk factors below use certain terms
and concepts that are described in greater detail under “Information About 3-Month U.S. Dollar LIBOR”, “Information
About Eurodollar Futures Contracts”, “Description of the Janus Velocity LIBOR Indices” and “Specific Terms
of the ETNs” in this pricing supplement. Accordingly, the risk factors below should be read together with those sections.
The terms of the ETNs differ from those
of ordinary debt securities in that the ETNs neither pay interest nor guarantee payment of the stated principal amount per ETN
at maturity or upon redemption or acceleration, and you may incur a loss of your initial investment. Because the payment due at
maturity or upon redemption or acceleration may be less than the amount originally invested in the ETNs, the return on the ETNs
may be negative.
The Early Redemption Amount, Optional Acceleration
Redemption Amount, Automatic Acceleration Redemption Amount and Maturity Redemption Amount, as applicable (each, a “
Redemption
Amount
”), will each depend on the change in the level of the applicable Index. You may lose all or a significant amount
of your investment in the ETNs if the level of the applicable Index decreases or does not increase sufficiently. Any payment on
the ETNs is subject to the credit risk of Citigroup Global Markets Holdings Inc. and Citigroup Inc.
Each series of ETNs tracks an Index that
aims to approximate its targeted participation in the daily percentage change (or the inverse thereof, in the case of the Short
LIBOR Index) in the composite forward LIBOR rate (subject to the effects of carry and the contract spread, as described in “Description
of the Janus Velocity LIBOR Indices” below). A relatively small absolute change in the composite forward LIBOR rate from
one day to the next may result in a relatively large percentage change. For example, if the composite forward LIBOR rate declines
from 1.00% to 0.90% from one Index Business Day to the next, that would represent a change of only 0.10% in absolute terms but
a 10% change in percentage change terms (since 0.10% is 10% of 1.00%). In this circumstance, even though the absolute change is
relatively small, the Long LIBOR Index would aim to decline by approximately 10% (subject to the effects of carry and the contract
spread) over that one-day period, and the Indicative Value of the Long LIBOR ETNs would incur a similar loss (subject to the Daily
Accrual and the Daily Investor Fee).
The lower the composite forward LIBOR rate
(leaving aside the effects of the applicable LIBOR floor), the greater the impact of any given absolute change in the composite
forward LIBOR rate. For example, a 0.10% absolute change in the composite forward LIBOR rate represents a larger percentage change
from 1.00% than it does from 2.00%. Therefore, leaving aside the effects of the applicable LIBOR floor, lower composite forward
LIBOR rates are associated with higher volatility.
The hypothetical back-tested performance
of the Indices shows significant historical volatility. See “Hypothetical Back-Tested and Historical Index Information”
below. Accordingly, the ETNs are highly speculative and highly risky and are suitable only for sophisticated investors who understand
and can bear the risks associated with a highly volatile investment.
The ETNs are not intended to be “buy
and hold” investments. The Indices are designed to approximate their stated investment objectives on a daily basis, and their
performance over longer periods of time can differ significantly from their stated daily objectives. Even over a single day, the
Indices only aim to
approximate
the targeted participation in the daily percentage change of the composite forward LIBOR
rate (or its inverse, in the case of the Short LIBOR Index). Over longer periods, there is likely to be a significant deviation
between the targeted participation in the percentage change of the composite forward LIBOR rate (or its inverse, in the case of
the Short LIBOR Index) and the return of each Index.
A significant portion of this deviation
is due to a phenomenon we call “carry”. Carry refers to the return (positive or negative) on a position in Eurodollar
futures contracts that results solely from the passage of time. This return is independent of changes in the composite forward
LIBOR rate.
Carry results because each Index holds a
position in hypothetical portfolios of Eurodollar futures contracts over successive one-day periods. On each Index Business Day,
each Index reflects gains or losses on Eurodollar futures contracts held since the prior Index Business Day that each have a one-day
shorter tenor than they had on the day before. This one-day shortening of tenor may itself have an impact on the prices of those
Eurodollar futures contracts that is independent of changes in the composite forward LIBOR rate.
The impact of carry on either Index may
be positive or negative and will depend on the shape and steepness of the implied forward LIBOR rate curve. In general, if the
implied forward LIBOR rate curve is upward sloping, carry will have a negative effect on the Long LIBOR Index, and if the implied
forward LIBOR rate curve is downward sloping, carry will have a negative effect on the Short LIBOR Index. The steeper the curve,
the greater the impact of carry. We cannot predict the shape or steepness of the implied forward LIBOR rate curve or the impact
of carry on either Index over any future period. The effects of carry are cumulative and are likely to increase as time passes.
See “Description of the Janus Velocity
LIBOR Indices” below for more about the effects of carry and for hypothetical illustrations of the potential effects of carry,
and see “Hypothetical Forward LIBOR Rate Curves and Eurodollar Futures Trading Price Curves” for examples of hypothetical
implied forward LIBOR rate curves.
In addition to carry, the Indices may be
adversely affected by “decay”, as described below under “—The Short LIBOR Index will experience a “decay”
effect, which will worsen over time and will be greater the more volatile the composite forward LIBOR rate” and “—The
Long LIBOR Index will experience a “decay” effect at any time when the composite forward LIBOR rate is less than the
long LIBOR floor”. The effects of decay are likely to worsen the longer the ETNs are held but may have a significant effect
over a period as short as two days.
Investors should carefully consider whether
the ETNs are appropriate for their investment portfolio.
Over time, the effects of carry and decay can be quite significant.
Even if the composite forward LIBOR rate were to increase significantly over time (in the case of the Long LIBOR Index) or decrease
significantly over time (in the case of the Short LIBOR Index), the level of the applicable Index may nevertheless decline significantly
because of the effects of carry and/or decay. For this reason, the ETNs are suitable only as short-term trading instruments.
You should proceed with extreme caution in considering an investment in the ETNs
.
In addition to carry and decay, the contract
spread will contribute to a deviation between the targeted participation in the percentage change of the composite forward LIBOR
rate (or its inverse, in the case of the Short LIBOR Index) and the return of each Index, as described in more detail below.
See “Hypothetical Back-Tested and
Historical Index Information” in this pricing supplement for information regarding the hypothetical back-tested and historical
effects of carry, decay and the contract spread on the Indices. That section includes tables that quantify the effects of carry,
decay and the contract spread on each Index during each calendar month in the historical period shown. The tables show that the
effects of carry, decay and the contract spread have reduced the performance of the Long LIBOR Index by as much as
11.35%
over a single calendar month, and have reduced the performance of the Short LIBOR Index by as much as
6.44%
over
a single calendar month. Those numbers represent the difference between the performance of the applicable Index over the applicable
calendar month and the performance that the applicable Index would have had if it simply reflected the targeted participation in
the percentage change (or inverse thereof, in the case of the Short LIBOR Index) in the composite forward LIBOR rate over that
month. It is impossible to predict the effects of carry, decay and the contract spread on either Index in the future. The effects
of carry, decay and the contract spread over any calendar month in the future may equal or exceed these levels. Over longer periods
of time, the effects of carry, decay and the contract spread will likely significantly exceed these levels.
Although either Index may incur a negative
carry cost, the implied forward LIBOR rate curve has historically been upward sloping more often than it has been downward sloping.
An upward sloping implied forward LIBOR rate curve results in a negative carry cost for the Long LIBOR Index. See “Hypothetical
Back-Tested Index Information” for hypothetical back-tested data regarding the historical effects of carry, decay and the
contract spread on the Long LIBOR Index.
As a result of this negative carry cost, it is nearly certain that the value of
the Long LIBOR ETNs will decline to zero or near zero over their term, regardless of the performance of the composite forward LIBOR
rate.
Although the Long LIBOR ETNs are particularly
likely to incur negative carry costs, the Short LIBOR ETNs may also incur negative carry costs. The Short LIBOR ETNs may incur
these costs if the implied forward LIBOR rate curve is downward sloping. The Short LIBOR ETNs may also incur these costs even if
the implied forward LIBOR rate curve is generally upward sloping, if the direction of the slope is different at different parts
of the curve and the downward sloping portions are more pronounced than the upward sloping portions. The implied forward LIBOR
rate curve may be downward sloping, either generally or in particular sections, because of expectations of falling LIBOR rates,
because of sudden market dislocations, because of idiosyncratic supply and demand factors at particular points in the implied forward
LIBOR rate curve or for other reasons. These factors are impossible to predict and may cause a position in the Short LIBOR ETNs
to incur losses even if the composite forward LIBOR rate is flat or even declines.
The Short LIBOR ETNs track the Short LIBOR
Index, which reflects a hypothetical short position with respect to the composite forward LIBOR rate and will decline if the composite
forward LIBOR rate rises. Even at a time when the Short LIBOR Index experiences positive carry, that positive carry may be more
than offset by a rising composite forward LIBOR rate, resulting in a potentially significant decline in the value of the Short
LIBOR ETNs. Furthermore, the Short LIBOR Index will experience a decay effect, as described below under “—The Short
LIBOR Index will experience a “decay” effect, which will worsen over time and will be greater the more volatile the
composite forward LIBOR rate.” The decay effect may offset any positive carry and may, either independently or together with
rising composite forward LIBOR rates, result in a decline in the value of the Short LIBOR ETNs even at a time when the Short LIBOR
Index experiences positive carry.
The Long LIBOR ETNs track the Long LIBOR
Index, which reflects a hypothetical long investment in the composite forward LIBOR rate and will decline if the composite forward
LIBOR rate declines. Even at a time when the Long LIBOR Index experiences positive carry, that positive carry may be more than
offset by a declining composite forward LIBOR rate, resulting in a potentially significant decline in the value of the Long LIBOR
ETNs.
Furthermore, the Long LIBOR Index may experience
a decay effect, as described below under “—The Long LIBOR Index will experience a “decay” effect at any
time when the composite forward LIBOR rate is less than the long LIBOR floor.” The decay effect may offset any positive carry
and may, either independently or together with declining composite forward LIBOR rates, result in a decline in the value of the
Long LIBOR ETNs even at a time when the Long LIBOR Index experiences positive carry.
The Indices tracked by the ETNs seek to
approximate the daily performance of a hypothetical long or short position in the composite forward LIBOR rate. The composite forward
LIBOR rate is the weighted average of the forward LIBOR rates implied in the daily settlement prices of the next 8 quarterly Eurodollar
futures contracts, where those contracts have a weighted average tenor of approximately one year. An investor could obtain similar
exposure by investing directly in Eurodollar futures contracts and rolling that position periodically. For example, an investor
could invest in a Eurodollar futures contract with a tenor of 12 months and hold that position for 3 months, and then unwind that
position and invest in the next quarterly Eurodollar futures contract (which will then have a tenor of 12 months), and so on. Or
an investor could invest in a Eurodollar futures contract with a tenor of 12 months on one day, and then on the next day unwind
a portion of that position and invest that portion in a Eurodollar futures contract expiring 3 months later, and so on each day
in a manner that maintains a weighted average tenor of approximately one year. There are many other ways in which an investor could
invest in Eurodollar futures contracts and obtain exposure to forward LIBOR rates. The carry costs incurred by the ETNs may be
more or less than the carry costs incurred by any other method of obtaining exposure to forward LIBOR rates, depending on the steepness
of the implied forward LIBOR rate curve at each relevant section of that curve.
At any time when the composite forward LIBOR
rate is less than the applicable LIBOR floor, the Indices will aim to approximate only a portion of the daily percentage change
(or the inverse thereof, in the case of the Short LIBOR Index) in the composite forward LIBOR rate.
In the case of the Long LIBOR Index, the
long LIBOR floor is 1.00%. As a result, at any time when the composite forward LIBOR rate is less than 1.00%, the Long LIBOR Index
will aim to approximate only a portion of the daily percentage change in the composite forward LIBOR rate. The “targeted
participation” of the Long LIBOR Index from one Index Business Day to the next will be equal to the composite forward LIBOR
rate on the first Index Business Day
divided by
the long LIBOR floor. For example, if the composite forward LIBOR rate is
0.50% on a given Index Business Day, that would result in a 50% targeted participation (0.50%
divided by
the long LIBOR
floor of 1.00%), and the Long LIBOR Index would aim to approximate only 50% of the percentage change in the composite forward LIBOR
rate over the next Index Business Day (subject to the effects of carry and the contract spread). This would mean, for example,
that if the composite forward LIBOR rate were to increase by 5% over the next Index Business Day (from 0.50% to 0.55%), the Long
LIBOR Index would aim to increase by only approximately 2.5% (subject to the effects of carry and the contract spread).
In the case of the Short LIBOR Index, the
short LIBOR floor is 2.50%. As a result, at any time when the composite forward LIBOR rate is less than 2.50%, the Short LIBOR
Index will aim to approximate only a portion of the inverse of the daily percentage change in the composite forward LIBOR rate.
The “targeted participation” of the Short LIBOR Index from one Index Business Day to the next will be equal to the
composite forward LIBOR rate on the first Index Business Day
divided by
the short LIBOR floor. For example, if the composite
forward LIBOR rate is 0.50% on a given Index Business Day, that would result in a 20% targeted participation (0.50%
divided
by
the short LIBOR floor of 2.50%), and the Short LIBOR Index would aim to approximate only 20% of the inverse of the percentage
change in the composite forward LIBOR rate over the next Index Business Day (subject to the effects of carry and the contract spread).
This would mean, for example, that if the composite forward LIBOR rate were to decrease by 5% over the next Index Business Day
(from 0.50% to 0.45%), the Short LIBOR Index would aim to increase by only approximately 1% (subject to the effects of carry and
the contract spread).
At any time when the composite forward LIBOR
rate is below the applicable LIBOR floor, an Index may significantly underperform the percentage change in the composite forward
LIBOR rate (or the inverse thereof, in the case of the Short LIBOR Index).
The Short LIBOR Index will be subject to
a “decay” effect, which refers to a likely tendency to lose value over time independent of the directional movement
of the composite forward LIBOR rate over that time period. The decay effect will worsen over time and will be greater the more
volatile the composite forward LIBOR rate. Although the decay effect is more likely to manifest itself the longer the Short LIBOR
ETNs are held, the decay effect can have a significant impact on the performance of the Short LIBOR Index (and, therefore, the
Short LIBOR ETNs) even over a period as short as two days.
The Short LIBOR Index will experience a
decay effect any time the composite forward LIBOR rate moves in one direction on one Index Business Day and then moves in the other
direction on the next Index Business Day. The decay effect results because the return of the Short LIBOR Index from Day 1 to Day
2 aims to approximate the inverse of the change in the composite forward LIBOR rate from Day 1 to Day 2,
expressed as a percentage
of the composite forward LIBOR rate on Day 1
. For any given absolute change in the composite forward LIBOR rate from Day 1
to Day 2, the percentage change that results from that absolute change will be lower for a higher composite forward LIBOR rate
on Day 1, and higher for a lower composite forward LIBOR rate on Day 1. As a result, if the composite forward LIBOR rate increases
by a given amount from Day 1 to Day 2, and then decreases by the same absolute amount from Day 2 to Day 3, the increase from Day
1 to Day 2 will represent a greater percentage change (and therefore result in a greater decline in the level of the Short LIBOR
Index) than the decrease (and corresponding increase in the level of the Short LIBOR Index) from Day 2 to Day 3. This will result
in a lower Short LIBOR Index level on Day 3 than on Day 1, even though the composite forward LIBOR rate is the same on Day 3 as
it was on Day 1.
For example, assume the composite forward
LIBOR rate is 2.50% on Day 1, 2.60% on Day 2 and then returns to 2.50% on Day 3. In this example, the 0.10% absolute increase from
Day 1 to Day 2 would represent a 4% percentage increase from Day 1 to Day 2, since 0.10% is 4% of the composite forward LIBOR rate
of 2.50% on Day 1. As a result, the level of the Short LIBOR Index (which moves inversely with the composite forward LIBOR rate)
would aim to decrease by approximately 4%. From Day 2 to Day 3, the 0.10% absolute decrease would represent an approximately 3.8462%
percentage decrease in the composite forward LIBOR rate from Day 2 to Day 3, since 0.10% is approximately 3.8462% of the composite
forward LIBOR rate of 2.60% on Day 2. As a result, the Short LIBOR Index would aim to increase by only approximately 3.8462% from
Day 2 to Day 3. After decreasing by 4% from Day 1 to Day 2, and then increasing by only 3.8462% (of the Day 2 index level, which
was lower than the Day 1 index level) from Day 2 to Day 3, the closing level of the Short LIBOR Index would be lower on Day 3 than
it was on Day 1, even though the composite forward LIBOR rate is the same on Day 3 as it was on Day 1.
The table below illustrates the potential
decay effect on the Short LIBOR Index over a hypothetical period of 21 Index Business Days. On each Index Business Day in the table
below, the composite forward LIBOR rate has either increased or decreased by 0.10% in absolute terms from the composite forward
LIBOR rate on the previous day. The table shows, for each Index Business Day, the percentage change in the composite forward LIBOR
rate from the prior Index Business Day, the resulting Short LIBOR Index level and the percentage change in that level from the
level of the Short LIBOR Index on Day 0. To isolate the decay effect, the table below assumes no carry and disregards the contract
spread. If carry and the contract spread were taken into account, the Short LIBOR Index levels could be lower than the levels indicated
below. The table assumes a hypothetical Short LIBOR Index level on Day 0 of 100. The figures illustrated below are purely hypothetical
and are not meant to be indicative of what the actual composite forward LIBOR rate or daily percentage change in the composite
forward LIBOR rate will be at any time.
In this example, the composite forward LIBOR
rate is the same at the end of the hypothetical 21 Index Business Day period as it was at the beginning of the period, but the
level of the Short LIBOR Index is more than 3% lower than it was at the beginning of the period due to the decay effect. If the
period of time illustrated by the table were longer, or if the volatility of the composite forward LIBOR rate were greater (i.e.,
if the daily percentage changes in the composite forward LIBOR were greater than the percentage changes illustrated above), the
decay effect would be greater, and possibly significantly greater.
To isolate the decay effect, the table above
assumes that the composite forward LIBOR rate is the same at the end of the 21 Index Business Day period as it was at the beginning
of the period. If the composite forward LIBOR rate had increased over this period, the decay effect would have exacerbated the
resulting decrease in the level of the Short LIBOR Index. If the composite forward LIBOR rate had decreased over this period, the
decay effect would have offset the decrease at least partially. It is possible that, even if the composite forward LIBOR rate had
decreased over this period, the decay effect could have been greater than the effect of the decrease, resulting in a decline in
the level of the Short LIBOR Index even at a time when the composite forward LIBOR rate has decreased.
By illustrating the decay effect over 21
Index Business Days, we are not suggesting that 21 Index Business Days is an appropriate period of time to hold the Short LIBOR
ETNs. Rather, we are illustrating the potential negative effects of decay over 21 Index Business Days to illustrate how these effects
increase over a number of days and to illustrate that the risks of the Short LIBOR ETNs increase the longer they are held. As described
elsewhere in this pricing supplement, the Short LIBOR ETNs are intended to be short-term trading tools for sophisticated investors
to manage short-term trading risks.
At any time when the composite forward LIBOR
rate is less than the long LIBOR floor, the Long LIBOR Index will have a targeted participation of less than 100% in the percentage
change in the composite forward LIBOR rate over the next Index Business Day. The targeted participation will reset on each Index
Business Day on which
the composite forward LIBOR rate is less
than the long LIBOR floor based on that day’s composite forward LIBOR rate. A higher composite forward LIBOR rate results
in a higher targeted participation over the next Index Business Day, and a lower composite forward LIBOR rate results in a lower
targeted participation over the next Index Business Day.
This daily resetting of the targeted participation
at a time when the composite forward LIBOR rate is below the long LIBOR floor is likely to cause the Long LIBOR Index (and, therefore,
the Long LIBOR ETNs) to experience a “decay” effect, which is likely to worsen over time and will be greater the more
volatile the composite forward LIBOR rate. The decay effect refers to a likely tendency of the Long LIBOR Index to lose value over
time when the composite forward LIBOR rate is less than the long LIBOR floor, independent of the directional movement of the composite
forward LIBOR rate over that time period. Although the decay effect is more likely to manifest itself the longer the Long LIBOR
ETNs are held, the decay effect can have a significant impact on the performance of the Long LIBOR Index (and, therefore, the Long
LIBOR ETNs) even over a period as short as two days.
At any time when the composite forward LIBOR
rate is less than the long LIBOR floor, the decay effect results whenever the composite forward LIBOR rate moves in one direction
on one Index Business Day and then moves in the other direction on the next Index Business Day. In other words, if the composite
forward LIBOR rate is below the long LIBOR floor and increases on one Index Business Day and decreases on the next, or decreases
on one Index Business Day and increases on the next, the Long LIBOR Index will experience a decay in its value.
For the Long LIBOR Index, the decay results
because, if the composite forward LIBOR rate decreases on one day and then increases on the next, it will have a higher targeted
participation in the decline than it has in the increase. For example, suppose the composite forward LIBOR rate is 0.50% on Day
1, 0.40% on Day 2 and returns to 0.50% on Day 3. In this example, the Long LIBOR Index would have a 50% targeted participation
in the 20% decline in the composite forward LIBOR rate from Day 1 to Day 2, because the composite forward LIBOR rate on Day 1 of
0.50%
divided by
the long LIBOR floor of 1.00% is 50%. The Long LIBOR Index would then have only a 40% targeted participation
in the 25% increase in the composite forward LIBOR rate from Day 2 to Day 3, because the composite forward LIBOR rate on Day 2
of 0.40%
divided by
the long LIBOR floor of 1.00% is 40%. As a result, even though the composite forward LIBOR rate is the
same on Day 3 as it was on Day 1, the level of the Long LIBOR Index would be lower on Day 3 than it was on Day 1.
The table below illustrates the potential
decay effect on the Long LIBOR Index over a hypothetical period of 21 Index Business Days when the composite forward LIBOR rate
is below the long LIBOR floor. On each Index Business Day in the table below, the composite forward LIBOR rate has either increased
or decreased by 0.10% in absolute terms from the composite forward LIBOR rate on the previous day. The table shows, for each Index
Business Day, the percentage change in the composite forward LIBOR rate from the prior Index Business Day, the targeted participation
in that percentage change, the resulting Long LIBOR Index level and the percentage change in that level from the level of the Long
LIBOR Index on Day 0. To isolate the decay effect, the table below assumes no carry and disregards the contract spread. If carry
and the contract spread were taken into account, the Long LIBOR Index levels could be lower than the levels indicated below. The
table assumes a hypothetical Long LIBOR Index level on Day 0 of 100. The figures illustrated below are purely hypothetical and
are not meant to be indicative of what the actual composite forward LIBOR rate or daily percentage change in the composite forward
LIBOR rate will be at any time.
7
|
0.50%
|
25%
|
40%
|
97.0299
|
-2.9701%
|
8
|
0.40%
|
-20%
|
50%
|
87.3269
|
-12.6731%
|
9
|
0.50%
|
25%
|
40%
|
96.0596
|
-3.9404%
|
10
|
0.40%
|
-20%
|
50%
|
86.4536
|
-13.5464%
|
11
|
0.50%
|
25%
|
40%
|
95.0990
|
-4.9010%
|
12
|
0.40%
|
-20%
|
50%
|
85.5891
|
-14.4109%
|
13
|
0.50%
|
25%
|
40%
|
94.1480
|
-5.8520%
|
14
|
0.40%
|
-20%
|
50%
|
84.7332
|
-15.2668%
|
15
|
0.50%
|
25%
|
40%
|
93.2065
|
-6.7935%
|
16
|
0.40%
|
-20%
|
50%
|
83.8859
|
-16.1141%
|
17
|
0.50%
|
25%
|
40%
|
92.2745
|
-7.7255%
|
18
|
0.40%
|
-20%
|
50%
|
83.0470
|
-16.9530%
|
19
|
0.50%
|
25%
|
40%
|
91.3517
|
-8.6483%
|
20
|
0.40%
|
-20%
|
50%
|
82.2166
|
-17.7834%
|
21
|
0.50%
|
25%
|
40%
|
90.4382
|
-9.5618%
|
In this example, the composite forward LIBOR
rate is the same at the end of the hypothetical 21 Index Business Day period as it was at the beginning of the period, but the
level of the Long LIBOR Index is more than 9.5% lower than it was at the beginning of the period due to the decay effect. If the
period of time illustrated by the table were longer, or if the volatility of the composite forward LIBOR rate were greater (i.e.,
if the daily percentage changes in the composite forward LIBOR were greater than the percentage changes illustrated above), the
decay effect would be greater, and possibly significantly greater.
To isolate the decay effect, the table above
assumes that the composite forward LIBOR rate is the same at the end of the 21 Index Business Day period as it was at the beginning
of the period. If the composite forward LIBOR rate had decreased over this period, the decay effect would have exacerbated the
resulting decrease in the level of the Long LIBOR Index. If the composite forward LIBOR rate had increased over this period, the
decay effect would have offset the increase at least partially. It is possible that, even if the composite forward LIBOR rate had
increased over this period, the decay effect might have been greater than the effect of the increase, resulting in a decline in
the level of the Long LIBOR Index even at a time when the composite forward LIBOR rate has increased.
By illustrating the decay effect over 21
Index Business Days, we are not suggesting that 21 Index Business Days is an appropriate period of time to hold the Long LIBOR
ETNs. Rather, we are illustrating the potential negative effects of decay over 21 Index Business Days to illustrate how these effects
increase over a number of days and to illustrate that the risks of the Long LIBOR ETNs increase the longer they are held. As described
elsewhere in this pricing supplement, the Long LIBOR ETNs are intended to be short-term trading tools for sophisticated investors
to manage short-term trading risks.
The performance of each Index will be reduced by a contract
spread.
The performance of each Index is reduced
by a hypothetical daily transaction cost that we refer to as the contract spread. The contract spread is intended to reflect a
hypothetical transaction cost associated with the daily adjustment to each Index’s exposure to Eurodollar futures contracts.
As discussed in “Description of the Janus Velocity LIBOR Indices” below, the weights of the first and eighth quarterly
Eurodollar futures contracts tracked by each Index are adjusted daily in an attempt to maintain a weighted average tenor of approximately
one year. In addition, each Index’s exposure to all eight Eurodollar futures contracts is adjusted daily as necessary to
approximate the targeted participation in the daily percentage change (or the inverse thereof) in the composite forward LIBOR rate
over the next day. These adjustments to each Index’s exposure to the Eurodollar futures contracts result in increases or
decreases in the size of each Index’s hypothetical position in each of those contracts. The amount of the hypothetical position
in each contract that is either increased or decreased is not implemented at the daily settlement price for the relevant contract
on that day, but at the daily settlement price as adjusted by a notional transaction cost equal to .0025. The daily deduction of
this notional transaction cost will have a negative effect on the level of each Index on a daily basis.
See “Hypothetical Back-Tested and
Historical Index Information” in this pricing supplement for information about the impact of the contract spread on the hypothetical
back-tested and historical performance of
each Index. That section includes tables
that quantify the effects of the contract spread on each Index during each calendar month in the historical period shown. The tables
show that the effects of the contract spread have reduced the performance of the Long LIBOR Index by as much as
3.18%
(annualized) over a single calendar month, and have reduced the performance of the Short LIBOR Index by as much as
1.77%
(annualized) over a single calendar month. It is impossible to predict the effects of the contract spread on either Index in the
future. The effects of the contract spread over any calendar month in the future may equal or exceed these levels.
The daily return of each series of ETNs will be reduced by
the Daily Investor Fee.
The Indicative Value of each series of ETNs
will be reduced on a daily basis by a Daily Investor Fee. The Daily Investor Fee is equal to 1.50% per annum and is applied to
each day’s Closing Indicative Value.
An Early Redemption Charge of 0.20% per ETN will be charged
upon an early redemption.
We will charge a fee of 0.20%
times
the
Closing Indicative Value per ETN upon an early redemption. The imposition of the fee will mean that you will not receive the full
amount of the Closing Indicative Value upon an early redemption at your election.
The cumulative effect of embedded costs may cause your ETNs
to decline in value even if you correctly anticipate the movement of the composite forward LIBOR rate.
The value of each series of ETNs will be
reduced on a daily basis by the Daily Investor Fee, which is deducted from the Indicative Value of the ETNs on each Index Business
Day, and by the contract spread, which reduces the value of each Index (and, in turn, the value of each series of ETNs) on each
Index Business Day. Upon issuance of any ETNs, CGMI may charge a creation fee, and upon early redemption, an Early Redemption Charge
will be deducted from the value of the ETNs. Furthermore, either Index may experience significant carry costs and/or decay over
any given period of time. The cumulative effect of these costs will reduce the return on your investment in the ETNs independently
of movements in the composite forward LIBOR rate, offsetting any favorable movement in the composite forward LIBOR rate and exacerbating
any unfavorable movement. Even if the composite forward LIBOR rate moves in a direction that is favorable to you (
i.e.,
up in the case of the Long LIBOR ETNs, and down in the case of the Short LIBOR ETNs), these embedded costs may cause the value
of your ETNs to decline.
The composite forward LIBOR rate differs from the spot LIBOR
rate and may lead to returns on the ETNs that are materially different than if the ETNs were linked to the spot LIBOR rate.
As a composite of forward LIBOR rates, the
composite forward LIBOR rate is not the same as the current spot LIBOR rate at any given time. The spot LIBOR rate at any time
provides an indication of the current rate at which banks can obtain unsecured funding in the London interbank market at that time
for a 3-month term in U.S. dollars. A forward LIBOR rate, by contrast, is a market indication of the rate at which banks may be
able to borrow U.S. dollars for a 3-month term in the London interbank market in the future. Spot LIBOR rates and forward LIBOR
rates are not necessarily driven by the same factors. Movements in spot LIBOR rates may not be reflected in movements of forward
LIBOR rates, and movements in forward LIBOR rates may not be reflected in movements of spot LIBOR rates. They may even move in
opposite directions. As a result, an investment based on the composite forward LIBOR rate may realize losses even if an otherwise
similar investment based on the spot LIBOR rate would have achieved gains.
The composite forward LIBOR rate differs from the 1-year
forward LIBOR rate and may lead to returns on the ETNs that are materially different than if the ETNs were linked to the 1-year
forward LIBOR rate.
It is important to understand that the composite
forward LIBOR rate is not equivalent to the 1-year forward LIBOR rate, even though it is based on Eurodollar futures contracts
with a weighted average tenor of approximately 1 year. The composite forward LIBOR rate is a weighted average of forward LIBOR
rates covering 8 different forward time periods ranging over a period of up to 2 years, and this weighted average may differ from
the 1-year implied forward LIBOR rate at any given time. See “Hypothetical Forward LIBOR Rate Curves and Eurodollar Futures
Trading Price Curves—Composite Forward LIBOR Rate Vs. 1-Year Implied Forward LIBOR Rate” for hypothetical forward LIBOR
rate curves that illustrate the potential difference between the composite forward
LIBOR rate and the 1-year implied forward
LIBOR rate. An investment based on the composite forward LIBOR rate may realize losses even if an otherwise similar investment
based on the 1-year forward LIBOR rate would have achieved gains.
Favorable movements in some of the Eurodollar futures contracts
tracked by the applicable Index may be offset by unfavorable movements in other contracts.
The composite forward LIBOR rate is a weighted
average of the forward LIBOR rates implied in the prices of 8 Eurodollar futures contracts with tenors ranging over a period of
up to 2 years. The forward LIBOR rates implied in the prices of those contracts need not move in a consistent direction. Even if
certain of those forward LIBOR rates move in a favorable direction, others may move in an unfavorable direction, offsetting or
more than offsetting the movements of the rates that moved in a favorable direction. As a result, an investment in or linked to
only one or a smaller subset of the Eurodollar futures contracts underlying the Indices might achieve better returns than an investment
in the ETNs.
The composite forward LIBOR rate will be influenced by many
unpredictable factors.
The forward LIBOR rates that are used to
calculate the composite forward LIBOR rate will be influenced by many factors, including:
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the monetary policy of the Federal Reserve;
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the perceived creditworthiness of financial institutions in the London interbank market;
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the current spot LIBOR rate;
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current market expectations about future spot LIBOR rates;
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current market expectations about inflation;
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supply and demand in the market for the Eurodollar futures contracts that are used to determine the implied forward LIBOR rates;
and
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general credit and economic conditions.
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We cannot predict how these factors may influence the composite
forward LIBOR rate over any period of time in the future. The ETNs are subject to the risk that the composite forward LIBOR rate
may change in unanticipated ways.
The composite forward LIBOR rate is determined based on the
trading prices of Eurodollar futures contracts and will be affected by factors that affect the trading market for those contracts.
The composite forward LIBOR rate is not
a pure measure of interest rates charged in the market, but rather is a measure implied in the trading prices of specified Eurodollar
futures contracts. As a result, the composite forward LIBOR rate will be affected by factors that affect the trading market for
those contracts, which may be independent of any fundamental change in market expectations of future spot LIBOR rates.
The trading price of a Eurodollar futures
contract is based on market supply and demand. Imbalances in supply or demand or a lack of liquidity may influence trading prices
independently of any fundamental change in market expectations of future spot LIBOR rates. For example, suppose a single market
participant seeks to hedge a large obligation in a Eurodollar futures contract with a 1-year tenor, and suppose that particular
tenor is relatively illiquid. In that circumstance, that large position may move the market for that contract, leading to a large
shift in the price of that contract and resulting in a “kink” in the implied forward LIBOR rate curve. Factors such
as these may cause Eurodollar futures contract trading prices – and thus the composite forward LIBOR rate – to fail
to accurately reflect market expectations of future spot LIBOR rates.
The Long LIBOR ETNs and Short LIBOR ETNs are unlikely to
perform exactly inversely to each other.
Although the Long LIBOR ETNs and Short LIBOR
ETNs take opposite positions with respect to changes in the composite forward LIBOR rate, their performances are unlikely to be
exact mirror images of each other, and the divergence from exact inverse performance is likely to increase over longer periods
of time. Reasons for this divergence include differences in the applicable LIBOR floor (and therefore in the targeted participation
in changes in the composite forward LIBOR rate) and the differing effects of decay on the Short LIBOR Index as compared to the
Long LIBOR Index.
As the composite forward LIBOR rate increases, any favorable
absolute change in the composite forward LIBOR rate will have a less favorable effect on the level of the applicable Index than
it would if the composite forward LIBOR rate were lower.
Each Index aims to approximate its targeted
participation in the daily percentage change (or the inverse thereof, in the case of the Short LIBOR Index) in the composite forward
LIBOR rate (subject to the effects of carry and the contract spread, as described in “Description of the Janus Velocity LIBOR
Indices” below). As the composite forward LIBOR rate increases, any favorable absolute change in the composite forward LIBOR
rate will represent a smaller percentage change than it would if the same absolute change had occurred from a lower starting composite
forward LIBOR rate. As a result, the increase in the level of the applicable Index resulting from that favorable absolute change
will be lower than it would have been if the composite forward LIBOR rate had been lower.
For example, with respect to the Long LIBOR
Index, if the composite forward LIBOR rate were to increase from 1.00% to 1.10% from one day to the next, which is an increase
of 0.10% in absolute terms, that would represent a 10% percentage increase in the composite forward LIBOR rate, and the Long LIBOR
Index would aim to increase by approximately 10%. But if the level of the composite forward LIBOR rate were to increase from 2.00%
to 2.10% from one day to the next, which is also an increase of 0.10% in absolute terms, that would represent only a 5% percentage
increase in the composite forward LIBOR rate, and the Long LIBOR Index would aim to increase by only approximately 5%.
To take a similar example with respect to
the Short LIBOR Index, if the composite forward LIBOR rate were to decrease from 2.50% to 2.25% from one day to the next, which
is a decrease of 0.25% in absolute terms, that would represent a 10% percentage decrease in the composite forward LIBOR rate, and
the Short LIBOR Index would aim to increase by approximately 10%. But if the level of the composite forward LIBOR rate were to
decrease from 5.00% to 4.75% from one day to the next, which is also a decrease of 0.25% in absolute terms, that would represent
only a 5% percentage decrease in the composite forward LIBOR rate, and the Short LIBOR Index would aim to increase by only approximately
5%.
As these examples illustrate, the higher
the composite forward LIBOR rate, the lower the benefit of any favorable absolute change in the composite forward LIBOR rate.
The ETNs are subject to the credit risk of Citigroup Global
Markets Holdings Inc. and Citigroup Inc.
Although the return on the ETNs of each
series will be based on the performance of the applicable Index, the payment of any amount due on the ETNs, including any payment
at maturity or upon early redemption or acceleration, is subject to the credit risk of Citigroup Global Markets Holdings Inc. and
Citigroup Inc. Investors are dependent on Citigroup Global Markets Holdings Inc.’s ability to pay all amounts due on the
ETNs and Citigroup Inc.’s ability to perform its obligations under its guarantee, and therefore investors are subject to
the credit risk of Citigroup Global Markets Holdings Inc. and Citigroup Inc. In addition, any decline in the credit ratings of
Citigroup Global Markets Holdings Inc. or Citigroup Inc., any adverse changes in the market’s view of the creditworthiness
of either entity or any increase in either entity’s credit spreads is likely to adversely affect the market value of the
ETNs.
The ETNs may not be a suitable investment for you.
The ETNs may not be a suitable investment
for you if:
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You are not willing to be exposed to daily fluctuations in the prices of Eurodollar futures contracts in general and in the
level of the applicable Index in particular.
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You seek a certain return of your initial investment.
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You seek an investment with a longer-term investment objective.
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You are not willing to actively and frequently monitor your investment in the ETNs.
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You believe the level of the applicable Index will decrease or will not increase by an amount, and at a time or times, sufficient
to offset the sum of the Daily Investor Fee (and, if applicable, the Early Redemption Charge and the creation fee) over your intended
holding period of the ETNs and to provide you with a satisfactory return on your investment during the time you hold the ETNs.
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You prefer the lower risk and therefore accept the potentially lower returns of fixed income investments with comparable maturities
and credit ratings.
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You seek current income from your investment.
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You are not a sophisticated investor or you seek an investment for purposes other than managing short-term trading risks.
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You do not want to pay the Daily Investor Fee, the Early Redemption Charge or the creation fee, which are charged on the ETNs
and will reduce your return (or increase your loss, as applicable) on your investment.
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If a Trigger Event occurs, the ETNs will be automatically
accelerated and you will likely incur a significant loss on, and may lose up to all of, your investment.
If the Intraday Indicative Value of any
series of ETNs at any time on any scheduled Index Business Day is less than 50% of the Closing Indicative Value of such series
of ETNs on the immediately preceding Index Business Day (meaning that the Intraday Indicative Value has declined by more than 50%
from the prior Index Business Day’s Closing Indicative Value), a Trigger Event will be deemed to have occurred and such series
of ETNs will be automatically accelerated. Upon such Automatic Acceleration, the holders of such ETNs will receive a cash payment
per ETN equal to the Automatic Acceleration Redemption Amount, which will be equal to the Closing Indicative Value of such series
of ETNs on the Automatic Acceleration Valuation Date (which is the Index Business Day immediately following the date on which the
Trigger Event occurs), calculated as though the closing level of the applicable Index on both the date on which the Trigger Event
occurs and on the Automatic Acceleration Valuation Date were equal to the Automatic Acceleration Index Level of the applicable
Index. The Automatic Acceleration Index Level of the applicable Index will be an alternative closing level of the applicable Index
calculated by the ETN Calculation Agents based on the volume-weighted average trading price of the underlying Eurodollar futures
contracts over an Automatic Acceleration Valuation Period.
The fact that a Trigger Event occurs when
the Intraday Indicative Value of the ETNs is less than 50% of the Closing Indicative Value on the prior Index Business Day does
not mean that the Automatic Acceleration Redemption Amount payable following Automatic Redemption will be equal to 50% of the Closing
Indicative Value on the prior Index Business Day. If the underlying Eurodollar futures contracts continue to move sharply in an
adverse direction after the Trigger Event occurs and during the Automatic Acceleration Valuation Period, that adverse movement
will be reflected in the Automatic Acceleration Redemption Amount. It is possible that the amount a holder receives after Automatic
Acceleration of the ETNs would be significantly less than 50% of the Closing Indicative Value on the prior Index Business Day and
may be zero.
If a Trigger Event occurs, the ETNs will
be automatically accelerated, even if the sharp fall in the applicable Index that triggers the Trigger Event is temporary and quickly
reversed. An Automatic Acceleration may cause the return on the ETNs to be worse than it would have been if the ETNs had not been
automatically accelerated. For example, suppose there is a surprise announcement that causes a sharp (greater than 50%) drop in
the level of the applicable Index one Index Business Day, causing a Trigger Event to occur and leading to Automatic
Acceleration of the ETNs based on that sharply
lower level. Suppose then that, after having had time to absorb the news, the market recovers most of its losses. In that case,
a direct investor in Eurodollar futures contracts would have seen its losses pared by the subsequent recovery. The investor in
the ETNs, however, would have had its significant losses crystallized as a result of the Automatic Acceleration provision.
In the event of Automatic Acceleration, there is an increased
risk that our hedging activity in Eurodollar futures contracts will impact the market price of those contracts, and in turn the
Automatic Acceleration Redemption Amount of the applicable ETNs.
If a Trigger Event occurs with respect to
any series of ETNs, those ETNs will be automatically accelerated and we will pay the holder of the ETNs an amount based on an alternative
calculation of the level of the applicable Index using the volume-weighted average trading price of the underlying Eurodollar futures
contracts over the Automatic Acceleration Valuation Period. If a Trigger Event occurs, we expect that the counterparty through
which we hedge our obligations under the ETNs will seek to unwind any hedge it has in place with respect to the ETNs during the
Automatic Acceleration Valuation Period. If the amount of ETNs outstanding at the time of a Trigger Event is substantial, our hedging
counterparty may have a sizeable position with respect to Eurodollar futures contracts. The Automatic Acceleration Valuation Period
may be as short as one Index Business Day. The efforts of our hedging counterparty to unwind a sizeable position in Eurodollar
futures contracts over a relatively short period of time could have a potentially market-moving effect on the price of Eurodollar
futures contracts and could exacerbate any price movements that take place within the Automatic Acceleration Valuation Period,
resulting in a lower payment on the ETNs following the Automatic Acceleration. Our affiliates may also engage in other trading
activity unrelated to the ETNs during the Automatic Acceleration Valuation Period. This trading activity could compound the effects
of our hedging counterparty’s hedging unwind activity during the Automatic Acceleration Valuation Period. Our affiliates
may profit from trading activity during the Automatic Acceleration Valuation Period even at a time when investors in the applicable
series of ETNs suffer a significant loss.
If a Market Disruption Event occurs, the ETN Calculation
Agents may be required to exercise discretion in making certain important determinations, and any determination they make may be
adverse to you.
From time to time, the Eurodollar futures
markets may be subject to trading disruptions, such as trading halts, trading at limit prices and the failure to publish trading
prices, that may result in the occurrence of a Market Disruption Event under the terms of the ETNs. The ETN Calculation Agents
will have discretion to determine whether any event constitutes a Market Disruption Event under the terms of the ETNs. In addition,
at any time when a Market Disruption Event occurs, the ETN Calculation Agents will have discretion to calculate an appropriate
level of the applicable Index to use for purposes of calculating the Closing Indicative Value or Intraday Indicative Value of the
ETNs taking into account the nature and duration of such Market Disruption Event. If a Market Disruption Event occurs during a
Valuation Period or on a Valuation Date (or on the immediately preceding Index Business Day), this discretionary determination
by the ETN Calculation Agents will have a direct impact on the Redemption Amount that we pay to holders of the ETNs.
Although a Market Disruption Event may occur
at any time, there is a heightened risk that a Market Disruption Event will occur at a time when a Trigger Event has occurred and
the ETNs have been automatically accelerated. This is because a Trigger Event will occur when there has been an extraordinary intraday
change in the level of the applicable Index, which is a time when markets are more likely to be disrupted. Accordingly, if an Automatic
Acceleration of any series of ETNs occurs, there is a heightened risk that the ETN Calculation Agents will be required to exercise
discretion in determining the level of the applicable Index, both for purposes of determining whether the Trigger Event has occurred
and for purposes of calculating the amount of the payment to be received by holders of the ETNs following the acceleration.
In making discretionary determinations in
connection with a Market Disruption Event, the ETN Calculation Agents will take into account the impact of that event on any hedging
transaction that we or our affiliates may have in place with respect to the ETNs. In making these determinations, the ETN Calculation
Agents will be obligated to act in good faith and using commercially reasonable judgment, but in so doing they may take actions
to protect our interests and the interests of our affiliates even when so doing may not be in your interests. The ETN Calculation
Agents are not your fiduciaries and have no obligation to take into account your interests in making discretionary determinations
under the ETNs. Because one of the ETN Calculation Agents, CGMI, is our affiliate, CGMI’s interests as our affiliate may
cause its interests to conflict with yours in making any determinations under the ETNs.
In the event of any disagreement between
CGMI and JICS in making determinations that the ETN Calculation Agents are required to make jointly under the terms of the ETNs,
CGMI’s determination (following a dispute resolution procedure) will control.
Any discretionary determinations made by
the ETN Calculation Agents may adversely affect the return on the ETNs.
The NYSE Arca may halt trading in the ETNs or may limit the
extent to which trading prices may change within specified time periods, which in either case would adversely impact investors’
ability to sell the ETNs.
Trading in the ETNs may be halted due to
market conditions or, in the judgment of the exchange, if necessary to protect investors or in the public interest. General exchange
trading is subject to trading halts caused by extraordinary market volatility pursuant to “circuit breaker” rules based
on a specified decline in a market index (e.g., the S&P 500
®
Index). In addition, a particular series of ETNs
may be subject to “limit up” and “limit down” rules or trading pause requirements that are triggered by
a significant change in the trading price of those ETNs within a specified period of time. These “limit up” and “limit
down” and trading pause rules, if triggered, could prevent investors from transacting at the then prevailing Intraday Indicative
Value or at all. If the level of the applicable Index declines during the trading day, triggering a “limit down” mechanism
or trading pause, you may be unable to sell your ETNs for some period of time, either because no trading at all is permitted or
because the price that any purchaser would be willing to pay for them at the time may be significantly below the lowest price that
a purchaser would be permitted to pay for them on the exchange. In that circumstance, by the time you are finally able to sell
your ETNs, you may have incurred significantly greater losses than you would have incurred had you been able to sell them when
you initially wanted to. Additionally, the ability to short sell ETNs may be restricted when there is a 10% or greater change from
the previous day’s official closing price. Exchange rules relating to these matters are subject to change from time to time.
If a Trigger Event occurs, it will be on
account of a large intraday decline in the Intraday Indicative Value of the applicable series of ETNs. Because of the extraordinary
circumstances in which a Trigger Event occurs and the accompanying large decline in value of the ETNs, there is a greater likelihood
that a trading halt or limit price with respect to the ETNs will be in effect for some period of time around the time when the
Trigger Event occurs. As a result, if a Trigger Event occurs, there is an increased risk that you will be unable to sell your ETNs
at that time and, therefore, will be unable to reduce your exposure to the ETNs at that time.
Although Eurodollar futures contracts trade 23 hours a day,
the ETNs will trade only during regular trading hours on the NYSE Arca.
Eurodollar futures contracts trade 23 hours
a day, 6 days a week. By contrast, the ETNs will trade on the NYSE Arca only during the hours that the NYSE Arca is open. Significant
movements in the price of Eurodollar futures contracts, and therefore the level of each Index, may take place at times when the
NYSE Arca is closed, and you will not have the opportunity to trade the ETNs until the NYSE Arca is open. For example, an announcement
or development that has a significant impact on Eurodollar futures contract prices may take place overnight in New York. By the
time the NYSE Arca opens, a significant change in the price of Eurodollar futures contracts may already have taken place, and the
price at which you may be able to trade the ETNs may be significantly worse than the price you might have achieved had you been
able to trade the ETNs sooner. If the overnight movement is sufficiently great, the Intraday Indicative Value may be zero from
the moment the ETNs begin to trade on the NYSE Arca and the ETNs may be automatically accelerated for an Automatic Acceleration
Redemption Amount equal to zero.
We may accelerate the ETNs at our option at any time on or
after the Inception Date.
We have the right to accelerate the ETNs
of any series at any time and pay you an amount equal to the Closing Indicative Value of such series of ETNs on the final Valuation
Date of the Optional Acceleration Valuation Period. If we accelerate any series of ETNs, you will only receive the Optional Acceleration
Redemption Amount for such series of ETNs and you will not receive any other compensation or amount for the loss of the investment
opportunity of holding such series of ETNs. We will determine whether to exercise our right to accelerate any series
of ETNs at our option based on our interests
and may do so at a time when it would be in your interests for the ETNs to remain outstanding.
The payment upon an Optional Acceleration or at maturity
is based upon a declining exposure to the applicable Index over a number of Valuation Dates.
The payment upon an Optional Acceleration
or at maturity is based upon the sum of the Index Exposure and Notional Cash Amount determined over the Final Valuation Period
or Optional Acceleration Valuation Period, as applicable. The calculation of the Index Exposure and Notional Cash Amount during
these periods simulates a proportionate move from Index Exposure to cash. This means that the return on the ETNs will not be based
entirely on fluctuations of the applicable Index during this period and you will not entirely benefit from any favorable movements
in the level of the applicable Index during this period as the Index Exposure declines. You should understand that the Daily Investor
Fee will continue to accrue on both the Index Exposure and the Notional Cash Amount over the Final Valuation Period or Optional
Acceleration Valuation Period, as applicable, even though your potential to benefit from any favorable performance of the applicable
Index during that time will be based only on the Index Exposure. Moreover, even for the simulated cash position represented by
the Notional Cash Amount, you will not be compensated for any interest or time value of money during this period prior to your
receiving the payment upon acceleration or at maturity, as applicable.
There are restrictions on the minimum number of ETNs you
may redeem and on the dates on which you may redeem them.
To exercise your early redemption right,
you must redeem at least 50,000 ETNs of any one series, the Minimum Redemption Amount, at one time and you must cause your broker
to deliver a notice of redemption, substantially in the form of Annex A (the “
Redemption Notice
”), to JHD (the
“
Redemption Agent
”) via email or other electronic delivery as requested by the Redemption Agent. If your Redemption
Notice is delivered prior to 4:00 p.m., New York City time, on any Business Day, the immediately following Index Business Day will
be the applicable “
Early Redemption Valuation Date
” for such series of ETNs. Otherwise, the second following
Index Business Day will be the applicable Early Redemption Valuation Date. If the Redemption Agent receives your Redemption Notice
no later than 4:00 p.m., New York City time, on any Business Day, the Redemption Agent will respond by sending your broker an acknowledgment
of the Redemption Notice accepting your redemption request by 7:30 p.m., New York City time, on the Business Day prior to the applicable
Early Redemption Valuation Date. The Redemption Agent or its affiliate must acknowledge to your broker acceptance of the Redemption
Notice in order for your redemption request to be effective.
The redemption feature is intended to induce
arbitrageurs to counteract any trading of the ETNs at a discount to their Indicative Value. There can be no assurance that arbitrageurs
will employ the redemption feature in this manner.
You will not know the Early Redemption Amount for any ETNs
you elect to redeem prior to maturity at the time you make such election.
In order to exercise your right to redeem
the ETNs prior to maturity, you must cause your broker or other person with whom you hold the ETNs to deliver a Redemption Notice
(as defined herein) to the Redemption Agent (as defined herein) by no later than 4:00 p.m., New York City time, on the Business
Day prior to your desired Early Redemption Valuation Date. The Early Redemption Amount cannot be determined until the Early Redemption
Valuation Date, and as such you will not know the Early Redemption Amount for the ETNs at the time you make an irrevocable election
to redeem the ETNs. The Early Redemption Amount for the ETNs on the applicable Early Redemption Valuation Date may be substantially
less than it would have been on the prior day and may be zero.
Each Index has limited historical information, and past performance
is no guide to future performance.
Each Index was launched on September 30,
2016. Accordingly, each Index has limited historical data. There is no information regarding the actual performance of either Index
during any period prior to September 30, 2016 and, therefore, there is no information regarding the actual performance of either
Index during any market conditions other than those that have prevailed since September 30, 2016. Because each Index is of recent
origin
with limited performance history, an investment
linked to an Index may involve a greater risk than an investment linked to one or more indices with an established record of performance.
A longer history of actual performance may have provided more reliable information on which to assess the validity of each Index’s
investment methodology and how each Index would have performed under a variety of market conditions.
Even though the Index Sponsor has calculated
hypothetical back-tested historical performance data to illustrate how each Index may have performed in the past, those calculations
are subject to significant limitations, in addition to the fact that past performance is never a guarantee of future performance.
Unlike actual historical performance, such calculations do not reflect actual trading, liquidity constraints, fees and other costs.
The hypothetical back-tested and historical performance shown for each Index should not be taken as any indication for future performance.
The actual performance of each Index over the term of the related series of ETNs may bear little relation to the hypothetical back-tested
or historical levels of that Index.
The market price of the ETNs may be influenced by many unpredictable
factors.
The market value of the ETNs will fluctuate
between the date you purchase them and the applicable Valuation Date or Valuation Period. You may also sustain a significant loss
if you sell the ETNs in the secondary market. In addition to others, the following factors, many of which are beyond our control,
will influence the market value of the ETNs, as well as the applicable Redemption Amount:
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the level of the applicable Index at any time;
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the volatility of the Eurodollar futures contracts included in the applicable Index;
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the liquidity of the Eurodollar futures contracts included in the applicable Index;
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economic, financial, regulatory, political, judicial, military and other events that affect interest rates, the Indices or
the relevant Eurodollar futures contracts included in each Index;
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supply and demand for the ETNs in the secondary market, including, but not limited to, inventory positions with any market
maker or other person or entity who is trading the ETNs (supply and demand for the ETNs will be affected by the total issuance
of ETNs, and we are under no obligation to issue additional ETNs to increase the supply);
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the time remaining until the ETNs mature; and
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the actual or perceived creditworthiness of Citigroup Global Markets Holdings Inc. and Citigroup Inc.
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You cannot predict the future performance
of the applicable Index based on its historical performance or that of the Eurodollar futures contracts that it tracks. The factors
interrelate in complex ways, and the effect of one factor on the market value of the ETNs may offset or enhance the effect of another
factor.
The liquidity of the market for the ETNs may vary materially
over time.
We will sell a portion of the ETNs on the
Initial Settlement Date, all of which will initially be held by CGMI or its affiliates. CGMI may sell ETNs to investors or to dealers
from time to time. We cannot predict how much investor demand there will be for the ETNs. The number of ETNs outstanding could
be reduced at any time due to early redemptions of the ETNs as described in this pricing supplement or due to repurchases of the
ETNs by our affiliates in the secondary market. Accordingly, the liquidity of the market for the ETNs could vary materially over
the term of the ETNs. While you may elect to offer your ETNs for early redemption by us prior to maturity, such early redemption
is subject to restrictive conditions and procedures described elsewhere in this pricing supplement, including the condition that
you must offer at least the applicable Minimum Redemption Amount to us at one time.
There may not be an active trading market for your ETNs.
Although the ETNs have been approved for
listing on the NYSE Arca, there is no assurance that a trading market for the offered ETNs will develop or, if one develops, continue.
Even if there is a secondary market for your ETNs, it may not be sufficiently liquid to enable you to sell your ETNs readily and
you may suffer substantial losses and/or sell your ETNs at prices substantially less than their Intraday Indicative Value or Closing
Indicative Value, including being unable to sell them at all or only for a price of zero in the secondary market.
No assurance can be given as to the continuation
of the listing for the life of the offered ETNs, or the liquidity or trading market for the offered ETNs. We are not required to
maintain any listing of your ETNs on the NYSE Arca and the liquidity of the market for any series of ETNs could vary materially
over the term of the ETNs. The ETNs may cease to be listed on the NYSE Arca or any other exchange because they cease to meet the
listing requirements of the exchange or because we elect in our sole discretion to discontinue the listing of the ETNs on any exchange.
We may elect to discontinue the listing of the ETNs at any time and for any reason, including in connection with a decision to
discontinue further issuances and sales of the ETNs. If the ETNs cease to be listed on the NYSE Arca or any other exchange, the
liquidity of the ETNs is likely to be significantly adversely affected and the ETNs may trade at a significant discount to their
Indicative Value.
The Intraday Indicative Value and the Closing Indicative
Value and the applicable Redemption Amount are not the same as the closing price or any other trading price of the ETNs in the
secondary market.
The Intraday Indicative Value and the Closing
Indicative Value of each series of the ETNs are not the same as the closing price or any other trading price of such ETNs in the
secondary market, if one exists. The Closing Indicative Value on each calendar day following the Inception Date for each series
of ETNs will be determined according to a formula that is based on the performance of the applicable Index since its closing level
on the prior Index Business Day. The Intraday Indicative Value of each series the ETNs will be calculated every 15 seconds on each
Index Business Day during the period when a Market Disruption Event has not occurred or is not continuing and disseminated over
the Consolidated Tape, or other major market data vendor. The Intraday Indicative Value at any time is based on the most recent
intraday level of the applicable Index.
The trading price of the ETNs at any time
is the price at which you may be able to sell your ETNs in the secondary market at such time, if one exists. In the absence of
an active secondary market for the ETNs, the last reported trading price may not reflect the actual price at which you may be able
to sell your ETNs at a particular time. The trading price of any series of the ETNs at any time may vary significantly from the
Intraday Indicative Value and the Closing Indicative Value due to, among other things, imbalances of supply and demand, lack of
liquidity, transaction costs, credit considerations and bid-offer spreads, and any corresponding premium in the trading price may
be reduced or eliminated at any time.
Paying a premium purchase price over the
Indicative Value of the ETNs could lead to significant losses in the event the investor sells such ETNs at a time when such premium
is no longer present in the marketplace or such ETNs are accelerated, including at our option, which we have the discretion to
do at any time. If we accelerate the ETNs of any series at our option, investors will receive a cash payment in an amount equal
to the Closing Indicative Value on the final Valuation Date of the Optional Acceleration Valuation Period, which will not include
any premium. Investors should consult their financial advisors before purchasing or selling the ETNs, especially ETNs trading at
a premium over their Indicative Value.
Between 3:00 p.m., New York City time, and the close of trading
in the ETNs on the NYSE Arca on each trading day, the published Intraday Indicative Value will not be based on fully up-to-date
information (which will not be available), and the trading price of the ETNs is likely to diverge from the published Intraday Indicative
Value.
The closing level of each Index on each
Index Business Day is determined based on the daily settlement prices of Eurodollar futures contracts, which are determined as
of 3:00 p.m., New York City time, on each Index Business Day. Although the daily settlement prices are determined as of 3:00 p.m.,
there is typically a time lag in the publication of the daily settlement prices, and the closing level of each Index based on the
daily settlement prices is typically not published until after the close of trading for the ETNs on the NYSE Arca.
Between 3:00 p.m. and the close of trading
on the NYSE Arca, the Index Calculation Agent suspends real-time updates to the calculation of the intraday level of each Index,
because an accurate intraday level during this time period would require a reset of hypothetical Eurodollar futures contract exposure
based on the closing level on that day, which will not yet be available. Throughout this full time period, the Intraday Indicative
Value of each series of ETNs will continue to be calculated and disseminated based on the most recently published intraday level
of the applicable Index. However, because real-time updates to the calculation of the intraday Index level will be suspended as
of 3:00 p.m., the Intraday Indicative Value will not change, and therefore will not reflect trading in Eurodollar futures contracts
that takes place, during this time period. For this reason, between 3:00 p.m. and the close of trading on the NYSE Arca, the Intraday
Indicative Value is likely to differ from the value of the ETNs that would be determined if complete and fully up-to-date information
were available and used in the calculation. As a result, we expect there to be uncertainty about the intrinsic value of the ETNs
during this time period, and the trading price of the ETNs is likely to diverge from the Intraday Indicative Value during this
time period. Investors should exercise caution in connection with any trading in this time period, particularly if there is a significant
move in Eurodollar futures prices during this time period.
Although the daily settlement price of Eurodollar
futures contracts (and, in turn, the closing level of each Index) is determined as of 3:00 p.m. on each Index Business Day, this
value may differ from the most recent published trading price of Eurodollar futures contracts (and, in turn, each intraday Index
level) at 3:00 p.m. because the daily settlement price is determined according to the procedure described in “Information
About Eurodollar Futures Contracts” in this pricing supplement, which is not based simply on the last reported trade at 3:00
p.m. Accordingly, the Closing Indicative Value that is published after the close of trading on the NYSE Arca based on the closing
level of the applicable Index may differ from the Intraday Indicative Value published based on the intraday level of the applicable
Index at 3:00 p.m.
We and CGMI are under no obligation to issue or sell additional
ETNs of any series at any time, and if we and CGMI do sell additional ETNs of any series, we or CGMI may limit or restrict such
sales, and we or CGMI may stop and subsequently resume selling additional ETNs of such series at any time.
In our sole discretion, we may decide to
issue and sell additional ETNs of any series from time to time to CGMI, and in CGMI’s sole discretion, it may decide to sell
additional ETNs of any series to investors or to dealers. However, we and CGMI are under no obligation to issue or sell additional
ETNs of any series at any time, and if we and CGMI do sell additional ETNs of any series, we or CGMI may limit or restrict such
sales, and we or CGMI may stop and subsequently resume selling additional ETNs of such series at any time. If we and CGMI start
selling additional ETNs of any series, we or CGMI may stop selling additional ETNs of such series for any reason, which could materially
and adversely affect the price and liquidity of such ETNs in the secondary market. Furthermore, the stated principal amount of
each series of ETNs stated at the top of the cover page of this pricing supplement is the maximum amount of each series of ETNs
that we have currently authorized for issuance. Although we have the right to increase the authorized amount of either series of
ETNs at any time, it is our current intention not to issue more than the current maximum authorized amount of each series of ETNs,
even if there is substantial market demand for additional ETNs of such series. We may also reduce the maximum authorized amount
of each series of ETNs at any time and have no obligation to issue up to the maximum authorized amount.
Unless we indicate otherwise, if we or CGMI
suspend selling additional ETNs, we and CGMI reserve the right to resume selling additional ETNs at any time, which might result
in the reduction or elimination of any premium in the trading price that may have developed. Before trading in the secondary market,
you should compare the Closing Indicative Value and Intraday Indicative Value with the then-prevailing trading price of the ETNs.
Any premium may be reduced or eliminated at any time.
Suspension of additional issuances of the
ETNs can also result in a significant reduction in the number of outstanding ETNs, if investors subsequently exercise their right
to have the ETNs redeemed by us. If the total number of outstanding ETNs has fallen to a level that is close to or below the Minimum
Redemption Amount, you may not be able to purchase enough ETNs to meet the minimum size requirement in order to exercise your early
redemption right. The unavailability of the redemption right can result in the ETNs trading in the secondary market at discounted
prices below the Intraday Indicative Value. Having to sell your ETNs at a discounted sale price below the Intraday Indicative Value
of the ETNs could lead to significant losses. Prior to making an investment in the ETNs, you should take into account whether or
not the trading price is tracking the Intraday Indicative Value of the ETNs.
Any limitation or suspension on the issuance or sale of the
ETNs may impact the trading price of the ETNs, including by creating a premium over the Indicative Value of the ETNs that may be
reduced or eliminated at any time.
Because our obligations under the ETNs are
hedged through one or more of our affiliates, increases in the number of ETNs outstanding create corresponding increases in our
exposure to the Eurodollar futures contracts included in the Indices. In order to manage the risk of this exposure, we may impose
a limitation or suspension on the number of ETNs of any series to be issued. Any limitation or suspension on the issuance of the
ETNs may materially and adversely affect the price and liquidity of the ETNs in the secondary market. Alternatively, the decrease
in supply may cause an imbalance in the market supply and demand, which may cause the ETNs to trade at a premium over the Indicative
Value of the ETNs. In addition, any decrease in the supply of the ETNs due to any limitation or suspension on issuance may cause
the ETNs to appear on NYSE Arca’s “threshold securities list,” indicating repeated delivery failure (which may
be a sign of supply shortage) and requiring an actual borrowing of or a bona fide arrangement to borrow the ETNs in connection
with a short sale. If arbitrageurs are unable to locate ETNs to sell short, the ETNs may trade at a premium, which may be significant,
in relation to their Indicative Value.
Any premium may be reduced or eliminated
at any time. Paying a premium purchase price over the Indicative Value of the ETNs could lead to significant losses in the event
the investor sells such ETNs at a time when such premium is no longer present in the marketplace or such ETNs are accelerated,
including at our option, which we have the discretion to do at any time. If we accelerate the ETNs of any series at our option,
investors will receive a cash payment in an amount equal to the Closing Indicative Value on the final Valuation Date of the Optional
Acceleration Valuation Period, which will not include any premium. Investors should consult their financial advisors before purchasing
or selling the ETNs, especially ETNs trading at a premium over their Indicative Value.
Trading and other transactions by our affiliates or third
parties with whom we transact in Eurodollar futures contracts or other financial instruments related to the ETNs and the Indices
may impair the value of the ETNs.
Our affiliates expect to hedge our obligations
relating to the ETNs by purchasing or selling short the Eurodollar futures contracts included in the Indices or other derivative
instruments relating to the Indices or Eurodollar futures contracts, including certain exchange traded notes issued by us, and
adjust the hedge by, among other things, purchasing or selling any of the foregoing, at any time and from time to time, including
on or before the applicable Valuation Date or during the applicable Valuation Period. Our affiliates or third parties with whom
we transact may also enter into, adjust and unwind hedging transactions relating to other securities whose returns are linked to
the Indices or Eurodollar futures contracts. Any of these hedging activities may adversely affect the levels of the Indices—by
affecting the prices of the Eurodollar futures contracts included in the Indices—and therefore, the market value of the ETNs
and the amount we will pay on the ETNs on the applicable Early Redemption Date, Optional Acceleration Date, Automatic Acceleration
Date or the Maturity Date. It is possible that we, our affiliates or third parties with whom we transact could receive substantial
returns with respect to these hedging activities while the value of the ETNs declines or becomes zero. Any profit in connection
with such hedging activities will be in addition to any other compensation that our affiliates receive for the sale of the ETNs,
which may create an additional incentive to sell the ETNs to you.
Our affiliates or third parties with whom
we transact may also engage in trading in the Eurodollar futures contracts included in the Indices, or other derivative instruments
relating to the Indices or Eurodollar futures contracts, including certain exchange traded notes issued by us, for proprietary
accounts, for other accounts under management or to facilitate transactions, including block transactions, on behalf of customers.
Any of these activities could adversely affect the levels of the Indices—by affecting the prices of the Eurodollar futures
contracts included in the Indices—and therefore, the market value of the ETNs and the amount we will pay on the ETNs on the
applicable Early Redemption Date, Optional Acceleration Date, Automatic Acceleration Date or the Maturity Date. We may also issue,
and we, our affiliates or third parties with whom we transact may also issue or underwrite, other ETNs or financial or derivative
instruments with returns linked to changes in the level of an Index or the Eurodollar futures contracts included in the Indices.
By introducing competing products into the marketplace in this manner, we, our affiliates or third parties with whom we transact
could adversely affect the market value of the ETNs and the amount we will pay on the ETNs on the applicable Early Redemption Date,
Optional Acceleration Date, Automatic Acceleration Date or the Maturity Date.
Our affiliate is a participant in the process by which the
spot LIBOR rate is determined.
Current spot LIBOR rates are an important
factor affecting forward LIBOR rates. Our affiliate, Citibank, N.A., London Branch, participates in the process by which the spot
LIBOR rate is determined. Its submissions may have an impact on the spot LIBOR rate and, in turn, affect the composite forward
LIBOR rate in a way that is adverse to investors in the ETNs. Our affiliate will have no obligation to take the interests of investors
into account in participating in this process. See “Information About 3-Month U.S. Dollar LIBOR” below.
Uncertainty about the future of LIBOR may adversely affect
the value of the ETNs.
On July 27, 2017, the Chief Executive of
the United Kingdom Financial Conduct Authority (the “
FCA
”), which regulates LIBOR, announced that it intends
to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021. The
announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. It is
impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR
or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. Similarly, it is impossible to predict
what rate or rates may become accepted alternatives to LIBOR and it is impossible to predict the effect of any such alternatives
on the value of LIBOR-based securities such as the ETNs. Uncertainty as to the nature of alternative reference rates and as to
potential changes or other reforms to LIBOR may adversely affect the value and/or the trading market for LIBOR-based securities
such as the ETNs.
If the 3-month U.S. dollar LIBOR rate is discontinued or
its status as an economic benchmark is significantly diminished, the ETNs may become based on an alternative to 3-month U.S. dollar
LIBOR and/or to Eurodollar futures contracts, and in such event the ETNs may perform unpredictably and unfavorably.
In connection with the announcement by the
FCA described in the preceding risk factor or otherwise, it is possible that the 3-month U.S. dollar LIBOR rate could be discontinued
or its status as an economic benchmark could be significantly diminished. It is impossible to predict at this time whether such
event will occur or what its consequences will be.
If the 3-month U.S. dollar LIBOR rate has
been or will be discontinued or its status as an economic benchmark is significantly diminished and an alternative rate exists
that is regarded by market participants as a successor or substitute for 3-month U.S. dollar LIBOR for any relevant purpose, such
an event would constitute an Index Replacement Event, and the ETN Calculation Agents would have the right to substitute an alternative
index tracking futures contracts referencing such alternative rate for the applicable Index under the terms of the ETNs. In such
case, the ETNs would cease to be based on the 3-month U.S. dollar LIBOR rate and would cease to track an index of Eurodollar futures
contracts, and instead would track an index of alternative futures contracts on an alternative rate. That alternative rate and
those alternative futures contracts may differ from 3-month U.S. dollar LIBOR and from Eurodollar futures contracts in important
ways. For example, the alternative rate may or may not have a tenor of 3 months and may or may not reflect bank credit risk, and
the alternative futures contracts may be less liquid than Eurodollar futures contracts or may trade on a different platform or
with different tenors. As a result of these differences, the alternative futures contracts may perform differently from Eurodollar
futures contracts, in ways that are unanticipated and that may result in ETN performance that is unpredictable and ultimately unfavorable
to investors.
The ETN Calculation Agents would have the
right, but not the obligation, to make any such substitution described in the preceding paragraph. If 3-month U.S. dollar LIBOR
is discontinued or its status as an economic benchmark is significantly diminished, it is possible that Eurodollar futures contracts
nevertheless continue to trade with diminished liquidity or with amended terms based on an alternative rate. If the ETN Calculation
Agents elect not to make any substitution of a new index as described in the previous paragraph, and if Eurodollar futures contracts
trade with diminished liquidity or with amended terms based on an alternative rate, the ETNs will be subject to risks similar to
those described in the previous paragraph.
There may be conflicts of interest between you and us, the
Redemption Agent and the ETN Calculation Agents.
Our affiliate, CGMI, will act as one of
the ETN Calculation Agents for the ETNs. As ETN Calculation Agents, CGMI and JICS will make determinations with respect to the
ETNs. Among other things, JICS or its agent is responsible for computing and disseminating the Closing Indicative Value, subject
to CGMI’s right to dispute JICS’ calculation of the Closing Indicative Value, in which case, if the ETN Calculation
Agents are unable to agree, CGMI’s determination of the Closing Indicative Value shall be conclusive and binding. Any determinations
made by the ETN Calculation Agents may be adverse to you.
As noted above, our affiliates or third
parties with whom we transact, including JICS, may engage in trading activities related to the Indices and the Eurodollar futures
contracts included in the Indices or other derivative instruments relating to the Indices or Eurodollar futures contracts, including
certain exchange traded notes issued by us. These trading activities may present a conflict between your interest in the ETNs and
the interests our affiliates or third parties with whom we transact, including JICS, will have in proprietary accounts, in facilitating
transactions, including block trades, for customers and in accounts under management. These trading activities, if they influence
the levels of the Indices, could be adverse to your interests as a beneficial owner of the ETNs.
Our affiliates or third parties with whom
we transact, the Redemption Agent, the ETN Calculation Agents and their affiliates may have published, and in the future may publish,
research reports with respect to the Eurodollar futures contracts included in the Indices and with respect to the Indices. Any
of these activities by our affiliates or third parties with whom we transact, the Redemption Agent, the ETN Calculation Agents
or any of their affiliates may affect the levels of the Indices and, therefore, the market value of the ETNs and the amount we
will pay on the ETNs on the applicable Early Redemption Date, Optional Acceleration Date, Automatic Acceleration Date or the Maturity
Date.
If an Index Replacement Event occurs, the ETN Calculation
Agents may replace either Index with a Substitute Index.
If an Index Replacement Event occurs at
any time with respect to any series of the ETNs and the Index Sponsor or anyone else publishes an index that the ETN Calculation
Agents determine is comparable to the applicable Index (the “
Substitute Index
”), then the ETN Calculation Agents
may elect, in their sole discretion, to permanently replace the applicable original Index with the Substitute Index for all purposes
under such series of ETNs, and all provisions described in this pricing supplement as applying to the applicable Index will thereafter
apply to the Substitute Index instead. If the ETN Calculation Agents elect to replace the applicable original Index with a Substitute
Index, then the ETN Calculation Agents will determine the Early Redemption Amount, Optional Acceleration Redemption Amount, Automatic
Acceleration Redemption Amount or Maturity Redemption Amount, as applicable, for such series of ETNs by reference to the Substitute
Index. In these circumstances, the ETN Calculation Agents may elect to replace the applicable Index with the Substitute Index even
if the Index Sponsor continues to publish the applicable Index without modification, replacement or adjustment. Any such replacement
of the applicable Index with the Substitute Index will affect the amount you will receive at maturity, upon redemption or upon
acceleration and will result in the ETNs having a value different (higher or lower) from the value they would have had if there
had been no such replacement.
The ETN Calculation Agents may perform their own calculation
of the level of an Index if it is discontinued or if the ETN Calculation Agents determine that there has been a change in the applicable
Index or the futures contracts included in the applicable Index.
The ETN Calculation Agents may perform their
own calculation of the level of an Index if they determine that the publication of the applicable Index is discontinued and there
is no Successor Index. In that case, the ETN Calculation Agents will determine the level of the discontinued Index, and thus the
Closing Indicative Value, Intraday Indicative Value and any applicable Redemption Amount, using a computation methodology that
the ETN Calculation Agents determine will as closely as reasonably possible replicate the applicable Index.
Furthermore, if the ETN Calculation Agents
determine that an Index, the Eurodollar futures contracts included in the applicable Index or the method of calculating the applicable
Index is changed at any time in any respect—including whether the change is made by the Index Sponsor under its existing
policies or following a
modification of those policies, is due to
the publication of a Successor Index, is due to events affecting the Eurodollar futures contracts included in the applicable Index,
or is due to any other reason and is not otherwise reflected in the level of the applicable Index by the Index Sponsor pursuant
to the methodology described herein, then the ETN Calculation Agents will be permitted (but not required) to make such adjustments
in the applicable Index level or the method of its calculation as they believe are appropriate to ensure that the applicable closing
level of the applicable Index used to determine the Closing Indicative Value, Intraday Indicative Value or any applicable Redemption
Amount is equitable. The ETN Calculation Agents may make any such modification or adjustment even if the Index Sponsor continues
to publish the applicable Index without a similar modification or adjustment.
Any modification to the applicable Index
level or adjustment to its method of calculation will affect the Closing Indicative Value and any amount you will receive upon
redemption, upon acceleration or at maturity and will result in the ETNs having a value different (higher or lower) from the value
they would have had if there had been no such modification or adjustment.
The policies of the Index Sponsor and changes that affect
the Indices could affect the applicable Redemption Amount of the ETNs and their market value.
The policies of the Index Sponsor concerning
the calculation of the levels of the Indices and the manner in which changes affecting the Eurodollar futures contracts included
in the Indices are reflected in the levels of the Indices could affect the applicable Redemption Amount of the ETNs on the applicable
Early Redemption Date, Optional Acceleration Date, Automatic Acceleration Date or the Maturity Date and the market value of the
ETNs prior to that date. The applicable Redemption Amount of the ETNs and their market value could also be affected if the Index
Sponsor changes these policies, for example by changing the manner in which it calculates the levels of the Indices, by adding,
deleting or substituting the Eurodollar futures contracts comprising the Indices, or if the Index Sponsor discontinues or suspends
calculation or publication of the levels of the Indices, in which case it may become difficult to determine the market value of
the ETNs. If events such as these occur, or if the level of the applicable Index is not available because of a Market Disruption
Event or for any other reason, the ETN Calculation Agents for the ETNs may determine the levels of the Indices on the Valuation
Date or during the Valuation Period, as the case may be.
You will have no rights against the entities with discretion
over the Indices.
As owner of the ETNs, you will have no rights
against the Index Sponsor or the Index Calculation Agent, even though the amount you receive at maturity or upon redemption or
acceleration will depend on the level of the applicable Index.
The payments we owe under the ETNs may be delayed in certain
circumstances.
If any Valuation Date (or, in the case of
any Valuation Period other than an Automatic Acceleration Valuation Period, the last Valuation Date in such Valuation Period) is
postponed, due to a Market Disruption Event or otherwise, the Maturity Date, the corresponding Early Redemption Date or the Optional
Acceleration Date, as the case may be, will be postponed until the date three Business Days following such Valuation Date, as postponed.
No interest or additional payment will accrue or be payable as a result of any postponement of the Maturity Date, any Early Redemption
Date or the Optional Acceleration Date. See “Specific Terms of the ETNs—Market Disruption Events” in this pricing
supplement.
You will not have any rights in any Eurodollar futures
contracts included in the applicable Index.
As an owner of the ETNs, you will not have
rights that holders of the Eurodollar futures contracts included in the applicable Index may have. The ETNs will be paid in cash,
and you will have no right to receive delivery of any component of the applicable Index.
The ETNs are linked to an excess return
index, and not a total return index.
Each Index is an excess return index, and
not a total return index. Because each Index is an excess return index, it is calculated based solely on the changes in the settlement
prices of the relevant Eurodollar futures contracts and, unlike a direct investment in Eurodollar futures contracts or a total
return index based on Eurodollar futures
contracts, does not reflect interest that
could be earned on funds committed to the trading of the underlying Eurodollar futures contracts.
There is concentration risk associated with the ETNs.
The ETNs reflect exposure to the applicable
Index, which tracks a hypothetical position in a portfolio of Eurodollar futures contracts, and thus are much less diversified
than funds, investment portfolios or indices investing in or tracking a broader range of products and, therefore, could experience
greater volatility. You will not benefit, with respect to the ETNs, from any of the advantages of a diversified investment and
will bear the risks of a highly concentrated investment.
The ETNs are not regulated by the Commodity
Futures Trading Commission.
The proceeds to be received by us from the
sale of the ETNs will not be used to purchase or sell any Eurodollar futures contracts for your benefit. An investment in the ETNs
thus does not constitute either an investment in Eurodollar futures contracts or in a collective investment vehicle that trades
in Eurodollar futures contracts (
i.e.
, the ETNs will not constitute a direct or indirect investment by you in Eurodollar
futures contracts), and you will not benefit from the regulatory protections of the Commodity Futures Trading Commission, commonly
referred to as the “CFTC.” We are not registered with the CFTC as a futures commission merchant and you will not benefit
from the CFTC’s or any other non-U.S. regulatory authority’s regulatory protections afforded to persons who trade in
futures contracts on a regulated futures exchange through a registered futures commission merchant. Unlike an investment in the
ETNs, an investment in a collective investment vehicle that invests in futures contracts on behalf of its participants may be subject
to regulation as a commodity pool and its operator may be required to be registered with and regulated by the CFTC as a commodity
pool operator, or qualify for an exemption from the registration requirement. Because the ETNs will not be interests in a commodity
pool, the ETNs will not be regulated by the CFTC as a commodity pool, we will not be registered with the CFTC as a commodity pool
operator, and you will not benefit from the CFTC’s or any non-U.S. regulatory authority’s regulatory protections afforded
to persons who invest in regulated commodity pools.
The effects of any regulatory change on the value of the
ETNs are impossible to predict, but could be substantial and adverse to the interests of holders of the ETNs.
The markets for futures contracts, including
Eurodollar futures contracts, are subject to extensive statutes, regulations and margin requirements. The CFTC and the exchange
on which such futures contracts trade are authorized to take extraordinary actions in the event of a market emergency, including,
for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of
daily limits and the suspension of trading. Furthermore, CME Globex has regulations that limit the amount of fluctuations in futures
contract prices which may occur. These limits could adversely affect the market prices of the relevant Eurodollar futures contracts.
The regulation of derivative transactions in the U.S. and other countries is subject to ongoing modification by government and
judicial action. In addition, various national governments have expressed concern regarding the disruptive effects of speculative
trading in futures markets and the need to regulate the derivative markets in general. The effects of any future regulatory change
on the value of the ETNs are impossible to predict, but could be substantial and adverse to the interests of securityholders.
Regulatory restrictions may have the effect
of making the markets for futures contracts, including Eurodollar future contracts, less liquid and more volatile. Our affiliates
may be unable, as a result of such restrictions, to effect transactions necessary to hedge our obligations under the ETNs, in which
case we may, in our sole and absolute discretion, accelerate the payment on the ETNs. If the payment on the ETNs is accelerated,
your investment may result in a loss and you may not be able to reinvest your money in a comparable investment. Please refer to
“Specific Terms of the ETNs—Acceleration at Our Option” herein for more information.
A decision by the exchange on which Eurodollar futures
contracts are traded to increase margin requirements may affect the levels of the Indices.
If CME Globex increases the amount of collateral
required to be posted to hold positions in Eurodollar futures contracts (
i.e.,
the margin requirement), market participants
who are unwilling or unable to post additional collateral may liquidate their positions, which may cause the level of an Index
to decline significantly.
The Daily Accrual is based on the 3-month
U.S. Treasury rate and therefore the value of the ETNs may be adversely impacted by decreases in this rate.
The Daily Accrual is an amount that accrues
at the 3-month U.S. Treasury rate on each Index Business Day’s Closing Indicative Value. This rate fluctuates and, accordingly,
the lower this rate is, the lower the Daily Accrual on the ETNs will be.
The U.S. federal tax consequences of an investment in the
ETNs are uncertain.
There is no direct legal authority regarding
the proper U.S. federal tax treatment of the ETNs, 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 ETNs are uncertain, and the IRS or a court
might not agree with the treatment of the ETNs as prepaid forward contracts. If the IRS were successful in asserting an alternative
treatment for the ETNs, the tax consequences of ownership and disposition of the ETNs might be materially and adversely affected.
Even if the ETNs are treated as prepaid forward contracts, certain possible taxable events could cause a holder to recognize gain
on an ETN prior to maturity or earlier disposition. In particular, if the ETN Calculation Agents replace an Index with an index
of alternative futures contracts on an alternative rate to the 3-month U.S. dollar LIBOR rate as described under “Specific
Terms of the ETNs—Discontinuation or Modification of an Index; Substitution of an Index”, such an event could be treated
as a taxable event. Moreover, the character of gain or loss recognized on an ETN might be treated as ordinary income or loss rather
than capital gain or loss. 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, which may include the ETNs. 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 ETNs, possibly with retroactive effect. You should review carefully the section of this pricing supplement entitled “United
States Federal Tax Considerations.” You should also consult your tax adviser regarding the U.S. federal tax consequences
of an investment in the ETNs, as well as tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
INFORMATION ABOUT 3-MONTH U.S. DOLLAR
LIBOR
The official 3-month U.S. dollar LIBOR rate
on each London business day (referred to as the “
spot LIBOR rate
” on that London business day) is published
by ICE Benchmark Administration. The spot LIBOR rate at any time provides an indication of the average rate at which a LIBOR contributor
bank can obtain unsecured funding in the London interbank market at that time for a term of 3 months in U.S. dollars. The spot
LIBOR rate is the end-product of a calculation based upon submissions from LIBOR contributor banks. ICE Benchmark Administration
maintains a reference panel of 17 contributor banks, one of which is our affiliate, Citibank, N.A., London Branch.
Each contributor bank is asked to base its
LIBOR submission on the following question: “At what rate could you borrow funds, were you to do so by asking for and then
accepting interbank offers in a reasonable market size just prior to 11 am London time?” Therefore, submissions are based
upon the lowest perceived rate at which a bank could go into the London interbank money market at that time and obtain funding
in reasonable market size, for a term of 3 months in U.S. dollars.
The 3-month U.S. dollar LIBOR rate is calculated
using a trimmed arithmetic mean. Once all submissions are received, they are ranked in descending order and then the highest and
lowest 25% of submissions are excluded. The remaining contributions are then arithmetically averaged and the result is rounded
to five decimal places.
A “
London business day
”
means any day on which dealings in deposits in U.S. dollars are transacted in the London interbank market.
All information contained in this pricing
supplement regarding the 3-month U.S. dollar LIBOR rate is based on publicly available information published by ICE Benchmark Administration
and has not been independently verified.
INFORMATION ABOUT EURODOLLAR FUTURES
CONTRACTS
General
Eurodollar futures contracts are financial
instruments that allow market participants to take investment positions in future spot LIBOR rates. An investor in a Eurodollar
futures contract will incur gains or losses based on changes in the future spot LIBOR rate implied in the trading price of that
contract. Eurodollar futures contracts are traded on the CME Globex electronic trading platform.
Each Eurodollar futures contract provides
for cash settlement upon its expiration based on the spot LIBOR rate published on its last trading day, which is the second London
business day before its expiration date. The trading price of a Eurodollar futures contract at any time prior to expiration is
thought to reflect a market expectation about what the spot LIBOR rate will be on its final trading day. For example, if a Eurodollar
futures contract has a final trading day that is one year in the future, then the trading price of that Eurodollar futures contract
today is thought to reflect current market expectations about what the spot LIBOR rate will be in one year’s time.
Because trading prices of Eurodollar futures
contracts are ultimately determined by supply and demand, which may in turn be affected by any number of unpredictable factors,
the trading price of a Eurodollar futures contract may be driven by factors other than market expectations of future spot LIBOR
rates. For example, a single investor seeking to hedge a debt obligation that is very large relative to the liquidity of a particular
Eurodollar futures contract may skew the demand for, and in turn the price of, that futures contract. Nevertheless, for purposes
of the Indices, the trading prices of Eurodollar futures contracts are taken as indications of market expectations of future spot
LIBOR rates.
We refer to the future spot LIBOR rate that
is implied in the current trading price of a Eurodollar futures contract as an “
implied forward LIBOR rate
”.
Whereas today’s spot LIBOR rate indicates the rate at which banks can borrow U.S. dollars for a 3-month term in the London
interbank market today, a forward LIBOR rate is a market indication of the rate at which banks may be able to borrow U.S. dollars
for a 3-month term in the London interbank market in the future.
All information contained in this pricing
supplement regarding Eurodollar futures contracts is based on publicly available information published by CME Group and has not
been independently verified.
Contract Expirations
Eurodollar futures contracts are traded
on CME Globex with quarterly expirations in March, June, September and December of each year in the next 10 years, and with expirations
in each of the next four months that are not in that quarterly cycle. The expiration date of a Eurodollar futures contract is the
third Wednesday of the applicable contract expiration month.
Trading Price
The trading price of a Eurodollar futures
contract is quoted in terms of 100
minus
the forward LIBOR rate. For example, if the December Eurodollar futures contract
is trading in June at a price of 98.00, that would reflect a market expectation in June that the spot LIBOR rate on the contract’s
last trading day in December will be 2.00%. Put another way, a trading price of 98.00 of the December Eurodollar futures contract
in June
implies
a forward LIBOR rate in December of 2.00%.
Daily Settlement Price
Trading in Eurodollar futures contracts
takes place on CME Globex 23 hours a day, 6 days a week. Once each trading day, CME Globex determines an official daily settlement
price for each Eurodollar futures contract as of 3:00 p.m., New York City time, on that day. The daily settlement price is determined
based on the volume-weighted average price of trading on CME Globex between 2:59 and 3:00 p.m. on that day. In determining the
daily settlement price, that volume-weighted average price is subject to adjustment (except in the case of a quarterly futures
contract expiring within the next month) within the bid/ask range in the outright market (that is, the market for trading in Eurodollar
futures contracts themselves) to take into account bids and asks in the spread market (that
is, the market for trading in calendar spread
and butterfly products referencing the Eurodollar futures contracts). There is typically a time lag in the publication of the daily
settlement price, so that it is typically not available until some period of time after 3:00 p.m., New York City time.
Daily Margining
Gains or losses on Eurodollar futures contracts
are realized daily through a daily margining process. If an investor realizes gains on a given day, an amount of cash is deposited
into the investor’s account, and if an investor realizes losses on a given day, an amount of cash is withdrawn from the investor’s
account (or the investor is required to deposit cash into the account).
Gains or losses on a given trading day are
determined based on the change in the implied forward LIBOR rate reflected in the daily settlement price on that day from the prior
trading day. For each 1 basis point change in the implied forward LIBOR rate, there is a $25 gain or loss, as applicable, on one
Eurodollar futures contract.
Contract Notional
Each Eurodollar futures contract references
a hypothetical $1 million 3-month Eurodollar deposit made on the date of expiration of the contract. For this reason, each Eurodollar
futures contract is said to have a “notional amount” of $1 million. A Eurodollar deposit is a deposit of U.S. dollars
in the London interbank market.
The fact that each Eurodollar futures contract
references a hypothetical $1 million 3-month Eurodollar deposit does not mean that any investor in a Eurodollar futures contract
has a right to enter into, or obligation to deliver, a $1 million 3-month Eurodollar deposit upon expiration of the contract. Instead,
the hypothetical $1 million 3-month Eurodollar deposit is used as a reference point to determine the payment amount upon cash settlement
of a Eurodollar futures contract at expiration, and daily margining requirements before expiration. As discussed above, for each
1 basis point change in the implied forward LIBOR rate, there is a $25 change in the value of one Eurodollar futures contract.
This $25 amount results from the $1 million notional amount, because one basis point (i.e., one hundredth of a percentage point)
multiplied by
$1 million, and
divided by
four (reflecting the fact that a 3-month deposit has a term equal to one-fourth
of a year), is equal to $25.
Inverse Relationship Between Futures Contract Price and Implied
Forward LIBOR Rate
A long position in a Eurodollar futures
contract may be understood as enabling an investor to effectively lock in the interest rate it can earn on a future $1 million
Eurodollar deposit with a 3-month term. The locked-in rate results from combining the interest received on that Eurodollar deposit
at the future spot LIBOR rate with the gains or losses on the Eurodollar futures contract. If the future spot LIBOR rate declines
from the forward LIBOR rate implied in the trading price at which the investor entered into the contract, the investor will realize
gains designed to offset the reduction in the spot LIBOR rate that it will earn on the Eurodollar deposit. Conversely, if the future
spot LIBOR rate increases from that rate, the investor will realize losses designed to be offset by the increase in the spot LIBOR
rate.
Therefore, the value of a
long
position
in a Eurodollar futures contract will vary
inversely
with the implied forward LIBOR rate. In other words, if the implied
forward LIBOR rate increases, the value of a long position in a Eurodollar futures contract will decrease, and if the implied forward
LIBOR rate decreases, the value of a long position in a Eurodollar futures contract will increase.
The opposite is true for a short position.
A short position in a Eurodollar futures contract may be understood as enabling a borrower to effectively lock in the interest
rate it will pay on a future $1 million Eurodollar deposit with a 3-month term. The locked-in rate results from combining the interest
paid on that Eurodollar deposit at the future spot LIBOR rate with the gains or losses on the Eurodollar futures contract. If the
future spot LIBOR rate increases from the forward LIBOR rate implied in the trading price at which the investor entered into the
contract, the investor will realize gains designed to offset the increase in the spot LIBOR rate that it must pay on the Eurodollar
deposit. Conversely, if the future spot LIBOR rate decreases from that rate, the investor will realize losses designed to be offset
by the decrease in the spot LIBOR rate.
Therefore, the value of a
short
position
in a Eurodollar futures contract will vary
directly
with the implied forward LIBOR rate. In other words, if the implied
forward LIBOR rate increases, the value of a short position in a Eurodollar futures contract will increase, and if the implied
forward LIBOR rate decreases, the value of a short position in a Eurodollar futures contract will decrease.
As a result, to obtain a
long
position
with respect to the implied forward LIBOR rate (i.e., to realize gains if the rate increases and losses if it decreases), it is
necessary to have a
short
position in Eurodollar futures contracts. Conversely, to obtain a
short
position with respect
to the implied forward LIBOR rate (i.e., to realize gains if the rate decreases and losses if it increases), it is necessary to
have a
long
position in Eurodollar futures contracts.
The inverse relationship between contract
price and the implied forward LIBOR rate results because the price of a Eurodollar futures contract is quoted in terms of 100
minus
the implied forward LIBOR rate. The lower the implied forward LIBOR rate, the higher the price of the contract.
For example, if the implied forward LIBOR
rate is 2.00% on one day and
increases
to 2.05% on the next day, the contract price will
decrease
from 98.00 to 97.95.
Because the contract price decreased by 5 basis points in this example, the holder of a long position in this contract would have
$125 (5 basis points
times
$25) debited from its margin account, and the holder of a short position in this contract would
have the same amount deposited into its margin account.
Conversely, if the implied forward LIBOR
rate is 2.00% on one day and
decreases
to 1.95% on the next day, the contract price will
increase
from 98.00 to 98.05.
Because the contract price increased by 5 basis points in this example, the holder of a long position in this contract would have
$125 (5 basis points
times
$25) deposited into its margin account, and the holder of a short position in this contract would
have the same amount debited from its margin account.
In each of these examples, $125 is the amount
by which the interest payable on a $1 million 3-month Eurodollar deposit would change for a 5 basis point change in the interest
rate on that Eurodollar deposit. In other words, $1 million
times
5 basis points (
i.e.
, 0.0005)
divided by
4
equals $125.
Cash Settlement Upon Expiration
Eurodollar futures contracts are cash-settled
upon expiration. The cash settlement upon expiration of a Eurodollar futures contract is implemented through a final daily margining
on the last trading day of the contract. Unlike the daily margining that occurs on each earlier trading day, the daily margining
on the last trading day is based on the spot LIBOR rate on the last trading day, rather than on the daily settlement price of the
contract. The final daily margining will be based on the difference between the future spot LIBOR rate implied in the price of
the contract on the trading day immediately preceding the last trading day (at that point, the contract price implies a spot LIBOR
rate only one day in the future) and the actual spot LIBOR rate as observed on that last trading day.
HYPOTHETICAL FORWARD LIBOR RATE CURVES
AND EURODOLLAR FUTURES TRADING PRICE CURVES
The forward LIBOR rates implied by Eurodollar
futures contracts of different tenors typically vary depending on tenor. For example, the forward LIBOR rate implied by a contract
with a 3-month tenor will typically be different from the rate implied by a contract with a 6-month tenor, which will typically
be different from the rate implied by a contract with a 12-month tenor, and so on. In this pricing supplement, when we refer to
the “tenor” of a Eurodollar futures contract, we refer to the remaining period of time (as of the relevant date of
determination) to the last trading day of that contract.
Forward LIBOR rates may tend to increase
with longer tenors, or may decrease with longer tenors. Or they may increase over some ranges of tenors and decrease over others.
The relationship between the forward LIBOR rate and tenor results from supply and demand in the market for Eurodollar futures contracts
and cannot be predicted. Historically, implied forward LIBOR rates have most often tended to increase with longer tenors. However,
there have been times when the opposite relationship has been observed. It is not possible to predict what the relationship between
forward LIBOR rates and tenors will be over any particular time period in the future.
The relationship between implied forward
LIBOR rates and tenors can be shown on a graph, also called the “implied forward LIBOR rate curve”, where the x-axis
represents the tenor of the applicable Eurodollar futures contract and the y-axis represents the forward LIBOR rate implied in
the price of that Eurodollar futures contract. The following graphs show examples of hypothetical forward LIBOR rate curves. For
simplicity, each graph assumes that the current day is the expiration date of a quarterly Eurodollar futures contract.
The implied forward LIBOR rate curves
and the related trading price curves shown in this section are purely hypothetical. They are intended for the sole purpose of illustrating
what implied forward LIBOR rate curves and the related trading price curves might look like. These curves may not be representative
of what the actual implied forward LIBOR rate curve or related trading price curve actually looks like at any given time. The actual
implied forward LIBOR rate curve at any given time may be upward sloping or downward sloping, concave or convex, steep or flat,
and may be consistent in these respects across the curve or differ in these respects at different parts of the curve. It is impossible
to predict what the implied forward LIBOR rate curve will look like at any time in the future.
Hypothetical Upward Sloping Implied Forward
LIBOR Rate Curve
This implied forward LIBOR rate curve is
upward sloping, which means that in this example implied forward LIBOR rates tend to increase with longer tenors.
Using the same implied forward LIBOR rates
as are shown in the graph above, the following graph depicts the relationship between trading prices of Eurodollar futures contracts
and tenors. Because of the inverse relationship between the implied forward LIBOR rate and the trading price of a Eurodollar futures
contract, the graph below shows the opposite relationship to the graph above. The Eurodollar futures contract trading price curve
shown below is downward sloping, which means that in this example trading prices tend to decrease with longer tenors (because in
this example implied forward LIBOR rates tend to increase with longer tenors).
Hypothetical Downward Sloping Trading
Price Curve
It is also possible that implied forward
LIBOR rates may tend to decrease with longer tenors. The following graph illustrates a downward sloping implied forward LIBOR rate
curve.
Hypothetical Downward Sloping Implied
Forward LIBOR Rate Curve
The graph below illustrates the upward sloping
Eurodollar futures trading price curve that would accompany the downward sloping implied forward LIBOR rate curve shown in the
previous graph.
Hypothetical Upward Sloping Trading Price
Curve
Composite Forward LIBOR Rate Vs. 1-Year Implied Forward LIBOR
Rate
The next set of hypothetical implied forward
LIBOR rate curves are intended to illustrate how the composite forward LIBOR rate may differ from the 1-year implied forward LIBOR
rate and how the shape of the implied forward LIBOR rate curve affects that difference. The composite forward LIBOR rate at any
time is equal to the weighted average of the forward LIBOR rates implied in the daily settlement prices of the next 8 quarterly
Eurodollar futures contracts. By contrast, the 1-year implied forward LIBOR rate is the forward LIBOR rate implied by the trading
price of a Eurodollar futures contract with 12 months remaining to expiration.
The following graph illustrates the difference
between the composite forward LIBOR rate and the 1-year implied forward LIBOR rate based on the hypothetical upward sloping implied
forward LIBOR rate curve shown above.
In this graph, the composite forward LIBOR
rate is higher than the 1-year implied forward LIBOR rate.
The next graph illustrates another hypothetical
upward sloping implied forward LIBOR rate curve, but in this case the composite forward LIBOR rate is less than the 1-year implied
forward LIBOR rate.
In the next graph, the implied forward LIBOR
rate curve is more sharply upward sloping in the area after 12 months than it is in the graphs above, and as a result the difference
between the composite forward LIBOR rate and the 1-year implied forward LIBOR rate is greater.
In the next graph, the implied forward LIBOR
rate curve is “kinked”, which means that it does not slope in a consistent direction along the entire curve. In this
example, the difference between the composite forward LIBOR rate and the 1-year implied forward LIBOR rate is particularly significant.
As illustrated above, the composite forward
LIBOR rate is not the same as the 1-year implied forward LIBOR rate. We cannot predict how similar or different the composite forward
LIBOR rate will be from the 1-year implied forward LIBOR rate over any period of time in the future.
DESCRIPTION OF THE JANUS VELOCITY LIBOR
INDICES
Overview
Janus Index & Calculation Services,
LLC (the “
Index Sponsor
” or “
JICS
”) publishes a family of indices called the Janus Velocity
LIBOR Indices. The Janus Velocity LIBOR Indices consist of the following three indices:
|
·
|
Composite Forward LIBOR Index.
We refer to the Janus Velocity LIBOR 1Y Index as the “
Composite Forward LIBOR
Index
”. At any time, the level of the Composite Forward LIBOR Index is equal to the composite forward LIBOR rate (described
below) at that time, expressed as a number of basis points. Neither series of ETNs is linked directly to the Composite Forward
LIBOR Index. However, the Composite Forward LIBOR Index is a fundamental building block used in calculating the Long LIBOR Index
and the Short LIBOR Index.
|
|
·
|
Long LIBOR Index.
The Long LIBOR ETNs are linked to the Janus Velocity Long LIBOR Index (the “
Long LIBOR Index
”).
The Long LIBOR Index aims to approximate the daily performance of a hypothetical long investment in the composite forward LIBOR
rate (as reflected in the level of the Composite Forward LIBOR Index), as if the composite forward LIBOR rate were itself an asset
that could be invested in. It does so by tracking the return on a hypothetical short position in Eurodollar futures contracts,
where that position is recalibrated daily to result in a return over the next Index Business Day that approximates the percentage
change in the composite forward LIBOR rate over that next Index Business Day, subject to the long LIBOR floor. If at any time the
composite forward LIBOR rate is below 1.00%, which we refer to as the long LIBOR floor, the Long LIBOR Index will aim to approximate
less than the full daily percentage change in the composite forward LIBOR rate, resulting in a targeted participation of less than
100% in the daily percentage change. As more fully described below, the daily return of the Long LIBOR Index will not exactly replicate
the targeted participation in the daily percentage change in the composite forward LIBOR rate because of the effects of carry and
the contract spread described below.
|
|
·
|
Short LIBOR Index.
The Short LIBOR ETNs are linked to the Janus Velocity Short LIBOR Index (the “
Short LIBOR
Index
”). The Short LIBOR Index aims to approximate the daily performance of a hypothetical short position in the composite
forward LIBOR rate (as reflected in the level of the Composite Forward LIBOR Index), as if the composite forward LIBOR rate were
itself an asset that could be shorted. It does so by tracking the return on a hypothetical long position in Eurodollar futures
contracts, where that position is recalibrated daily to result in a return over the next Index Business Day that approximates the
inverse of the percentage change in the composite forward LIBOR rate over that next Index Business Day, subject to the short LIBOR
floor. If at any time the composite forward LIBOR rate is below 2.50%, which we refer to as the short LIBOR floor, the Short LIBOR
Index will aim to approximate less than the full amount of the inverse of the daily percentage change in the composite forward
LIBOR rate, resulting in a targeted participation of less than 100% in the inverse of the daily percentage change. As more fully
described below, the daily return of the Short LIBOR Index will not exactly replicate its targeted participation in the inverse
of the daily percentage change in the composite forward LIBOR rate because of the effects of carry and the contract spread described
below.
|
We have obtained all information about the
Janus Velocity LIBOR Indices contained in this pricing supplement from publicly available information provided by the Index Sponsor.
We have not independently verified its accuracy. Each Janus Velocity LIBOR Index will be maintained and published by the Index
Sponsor and the Index Calculation Agent without our involvement.
Composite Forward LIBOR Index
The level of the Composite Forward LIBOR
Index at any time represents the composite forward LIBOR rate at that time, expressed as a number of basis points. A basis point
is one hundredth of a percentage point.
The “
composite forward LIBOR rate
”
at any time is equal to the weighted average of the forward LIBOR rates implied in the daily settlement prices of the next 8 quarterly
Eurodollar futures contracts traded on CME Globex. For information about 3-month U.S. dollar LIBOR, forward LIBOR rates and Eurodollar
futures contracts,
please refer to the sections “Information
About 3-Month U.S. Dollar LIBOR” and “Information About Eurodollar Futures Contracts” in this pricing supplement.
The weight of each Eurodollar futures contract
used to calculate the composite forward LIBOR rate is adjusted daily in an attempt to maintain a constant weighted average tenor
of those contracts of approximately 1 year. This is achieved by reducing the weight of the first contract (i.e., the contract nearest
to expiration) and increasing the weight of the eighth contract (i.e., the contract farthest from expiration) proportionately as
each day passes. The second through seventh contracts are equally weighted. In this pricing supplement, when we refer to the “tenor”
of a Eurodollar futures contract, we refer to the remaining period of time to the last trading day of that contract.
Trading in the nearest-to-expiration Eurodollar
futures contract terminates on the second London business day prior to its expiration date. On that day, which we refer to as the
“
roll date
,” the weight of that contract will have been reduced to zero, and the weight of the eighth contract
will have been increased so that it is equal to that of the second through seventh contracts. On the immediately following trading
day, weights will be allocated to the second through ninth contracts, and on the trading day after that, the contract that previously
was the first contract will have expired and those second through ninth contracts will now be the first through eighth contracts.
We say that the level of the Composite Forward
LIBOR Index reflects a “composite” forward LIBOR rate because it is a weighted average of 8 forward LIBOR rates. Those
8 forward LIBOR rates are implied in the daily settlement prices of Eurodollar futures contracts with tenors ranging over a period
of up to 2 years (depending on how much time remains until the next roll date), weighted in a manner designed to achieve a constant
weighted average tenor of approximately 1 year. It is important to understand that the composite forward LIBOR rate is not equivalent
to the 1-year forward LIBOR rate, even though it is based on Eurodollar futures contracts with a weighted average tenor of approximately
1 year. The composite forward LIBOR rate is a weighted average of forward LIBOR rates covering 8 different forward time periods,
and this weighted average may differ from the 1-year implied forward LIBOR rate at any given time.
See “Hypothetical Forward LIBOR Rate
Curves and Eurodollar Futures Trading Price Curves—Composite Forward LIBOR Rate Vs. 1-Year Implied Forward LIBOR Rate”
for hypothetical forward LIBOR rate curves that illustrate the potential difference between the composite forward LIBOR rate and
the 1-year implied forward LIBOR rate.
Long LIBOR Index
The Long LIBOR Index aims to approximate
the daily performance of a hypothetical long investment in the composite forward LIBOR rate (as reflected in the level of the Composite
Forward LIBOR Index), as if the composite forward LIBOR rate were itself an asset that could be invested in. What this means is
that the percentage change in the level of the Long LIBOR Index from one Index Business Day to the next aims to approximate the
targeted participation in the percentage change in the composite forward LIBOR rate over that same one-day period. The targeted
participation will be 100% unless the composite forward LIBOR rate is below the long LIBOR floor, in which case the targeted participation
will be less than 100%. For example, assuming a targeted participation of 100%, if the composite forward LIBOR rate increases by
5% from one day to the next, the Long LIBOR Index aims to increase by approximately 5% over that same one-day period, and if the
composite forward LIBOR rate decreases by 5% from one day to the next, the Long LIBOR Index aims to decrease by approximately 5%.
It is important to understand, however, that the Long LIBOR Index will not exactly replicate the targeted participation in the
daily percentage change in the composite forward LIBOR rate because of the effects of carry and the contract spread, as described
in more detail below.
The Long LIBOR Index aims to approximate
the targeted participation in the daily
percentage change
in the composite forward LIBOR rate, which is different from the
absolute percentage
by which the composite forward LIBOR rate changes. The percentage change in the composite forward LIBOR
rate from Day 1 to Day 2 is equal to (i) the rate on Day 2
minus
the rate on Day 1
divided by
(ii) the rate on Day
1.
For example, suppose the composite forward
LIBOR rate changes from 2.00% to 2.10% from one day to the next. That change represents a 0.10% increase in
absolute percentage
terms (0.10% being the difference between 2.00% and 2.10%), but a 5% increase in
percentage change
terms. The percentage
change would be
calculated as (i) 2.10%
minus
2.00%
divided by
(ii) 2.00%, which is equal to 5%. In this example, assuming a targeted participation of 100%, the Long LIBOR
Index would aim to increase by approximately 5%, matching the percentage change in the composite forward LIBOR rate.
Now suppose that the composite forward LIBOR
rate changes from 2.00% to 1.90% from one day to the next. That change represents a 0.10% decrease in
absolute percentage
terms (0.10% being the difference between 2.00% and 1.90%), but a 5% decrease in
percentage change
terms. The percentage
change would be calculated as (i) 1.90%
minus
2.00%
divided by
(ii) 2.00%, which is equal to -5%. In this example,
assuming a targeted participation of 100%, the Long LIBOR Index would aim to decrease by approximately 5%, matching the percentage
change in the composite forward LIBOR rate.
Long LIBOR Floor
If the composite forward LIBOR rate on any
Index Business Day is less than the long LIBOR floor, the Long LIBOR Index will aim to approximate less than 100% of the percentage
change in the composite forward LIBOR rate over the next Index Business Day. The “
long LIBOR floor
” for the
Long LIBOR Index is 1.00%.
In other words, if the composite forward
LIBOR rate is less than 1.00%, the “
targeted participation
” in the percentage change in the composite forward
LIBOR rate will be less than 100%. The actual targeted participation from one Index Business Day to the next will be equal to the
composite forward LIBOR rate on the first Index Business Day
divided by
the long LIBOR floor. For example, if the composite
forward LIBOR rate on a given Index Business Day is 0.50%, then the targeted participation would be 50%, calculated by dividing
0.50% by the long LIBOR floor of 1.00%. A targeted participation of 50% would mean that the Long LIBOR Index aims to approximate
only 50% of the percentage change in the composite forward LIBOR rate from one Index Business Day to the next.
The long LIBOR floor reduces the potential
of the Long LIBOR Index to benefit from increases in the composite forward LIBOR rate at any time when the composite forward LIBOR
rate is less than 1.00%.
Carry
We say that the Long LIBOR Index aims to
approximate
the daily performance of a hypothetical long investment in the composite forward LIBOR rate because it does
not
directly
track its targeted participation in the percentage change in the composite forward LIBOR rate. What the Long
LIBOR Index directly tracks is gains or losses on a hypothetical position in Eurodollar futures contracts, where that position
is recalibrated daily to result in a return over the next Index Business Day that approximates the targeted participation in the
percentage change in the composite forward LIBOR rate over that next Index Business Day (subject to the contract spread described
below). The return on this hypothetical position will not exactly replicate the targeted participation in the daily percentage
change in the composite forward LIBOR rate because of a phenomenon we call “
carry
” (and, in addition, because
of the contract spread described below).
To obtain
long
exposure (approximately)
to the composite forward LIBOR rate, the Long LIBOR Index enters into a hypothetical
short
position in a portfolio of Eurodollar
futures contracts on each Index Business Day. (For information about the inverse relationship between the price of a Eurodollar
futures contract and its implied forward LIBOR rate, see the discussion above under “Information About Eurodollar Futures
Contracts”.) That portfolio is made up of Eurodollar futures contracts having the same weights as the contracts that compose
the Composite Forward LIBOR Index on that day. Therefore, that portfolio represents the composite forward LIBOR rate on that day.
The Long LIBOR Index calibrates its short
exposure to that portfolio so that the percentage change in the level of the Long LIBOR Index from the Index Business Day it enters
into that portfolio (
Day 1
) to the next Index Business Day (
Day 2
) will be equal to the targeted participation in
the percentage change in the weighted average forward LIBOR rate implied in the daily settlement prices of the contracts that make
up that portfolio over that same period (subject to the contract spread described below). On Day 1, the weighted average forward
LIBOR rate implied in that portfolio is equal to the composite forward LIBOR rate on Day 1. However, on Day 2, the weighted average
forward LIBOR rate implied in that portfolio is not equal to the composite forward LIBOR rate on Day 2. The portfolio that represents
the composite forward LIBOR rate on Day 2 will have a weighted average tenor on
Day 2 of approximately one year. By contrast,
on Day 2, the portfolio then held by the Long LIBOR Index (which is the same as the portfolio it entered into on Day 1) will have
a weighted average tenor of one day less than that.
Therefore, instead of tracking the targeted
participation in the percentage change from the composite forward LIBOR rate on Day 1 to the composite forward LIBOR rate on Day
2, the Long LIBOR Index tracks the targeted participation in the percentage change from the composite forward LIBOR rate on Day
1 to a weighted average forward LIBOR rate on Day 2 with a tenor of
one Index Business Day less
than the composite forward
LIBOR rate on Day 2. We refer to this weighted average forward LIBOR rate on Day 2 as the “
T – 1
composite
forward LIBOR rate
”. As a result, the daily return on the Long LIBOR Index will differ from the targeted participation
in the daily percentage change in the composite forward LIBOR rate.
The difference between the daily return
on the Long LIBOR Index and the targeted participation in the daily percentage change in the composite forward LIBOR rate is due
to a phenomenon we call carry. Carry refers to the return (positive or negative) on a position in Eurodollar futures contracts
that results solely from the passage of time. This return is independent of changes in the composite forward LIBOR rate. Even if
the composite forward LIBOR rate were to remain constant over time (or even increase), the level of the Long LIBOR Index may nevertheless
decline because of the effects of carry.
Carry results because the Long LIBOR Index
holds a short position in hypothetical portfolios of Eurodollar futures contracts over successive one-day periods. On each Index
Business Day, the Long LIBOR Index reflects gains or losses on Eurodollar futures contracts held since the prior Index Business
Day that each have a one-day shorter tenor than they had on the day before. This one-day shortening of tenor may itself have an
impact on the prices of those Eurodollar futures contracts that is independent of changes in the composite forward LIBOR rate.
If the implied forward LIBOR curve is upward sloping, that would mean that implied forward LIBOR rates increase with longer tenors
and, conversely, decrease with shorter tenors. Therefore, if the implied forward LIBOR curve is upward sloping, the implied forward
LIBOR rate of a Eurodollar futures contract should become lower as each day passes (i.e., as its tenor shortens), even if a measure
of forward LIBOR rates that holds tenor constant (such as the composite forward LIBOR rate) would not change.
To understand why an upward sloping implied
forward LIBOR curve would result in a carry cost on the Long LIBOR Index, recall that if the implied forward LIBOR curve is upward
sloping, the Eurodollar futures contract trading price curve would be downward sloping because of the inverse relationship between
price and implied forward LIBOR rate. This would mean that the prices of the Eurodollar futures contracts would tend to increase
as time passes. Because the Long LIBOR Index maintains a hypothetical short position in Eurodollar futures contracts, the Long
LIBOR Index would incur losses from this tendency of those contracts to increase in price as time passes.
See “Hypothetical Forward LIBOR Rate
Curves and Eurodollar Futures Trading Price Curves” for examples of hypothetical implied forward LIBOR rate curves and their
corresponding Eurodollar futures contract trading price curves. As noted in that section, the implied forward LIBOR rate curve
is typically upward sloping, and a result the Long LIBOR Index is most often expected to incur a carry cost rather than a positive
carry. The impact of carry cost is cumulative and is expected to increase over time.
Hypothetical Illustrations of the Effects of Carry
The tables below illustrate the potential
negative effects of carry on the level of the Long LIBOR Index over a hypothetical period of 21 Index Business Days assuming an
upward sloping implied forward LIBOR rate curve. The tables below assume a starting Long LIBOR Index level of 100 and, in order
to isolate the effects of carry, disregard the effects of the contract spread.
As described above, although the Long LIBOR
Index aims to approximate the targeted participation in the daily percentage change in the composite forward LIBOR rate, what it
actually tracks is the targeted participation in the daily percentage change from the composite forward LIBOR rate on one Index
Business Day to the
T – 1
composite forward LIBOR rate on the next Index Business Day. On any given Index Business
Day, the
T – 1
composite forward LIBOR rate is the weighted average forward LIBOR rate implied in the daily settlement
prices of the portfolio of Eurodollar futures contracts that
was
the portfolio used to calculate the Composite Forward LIBOR
Index (and therefore the composite forward LIBOR rate) on the prior Index Business Day. On the current Index
Business Day, this portfolio will have a
weighted average tenor of
one Index Business Day less
than the portfolio representing the composite forward LIBOR rate on
the current Index Business Day. Because the
T – 1
composite forward LIBOR rate is consistently less than the composite
forward LIBOR rate in the scenarios illustrated below (as a result of the upward sloping implied forward LIBOR rate curve), the
Long LIBOR Index experiences a carry cost in the scenarios illustrated below.
In the tables below, the figures in the
column titled “Cumulative Carry Cost” for each day represent the difference between the level of the Long LIBOR Index
on that day and the level that the Long LIBOR Index would have had if there were no carry cost (
i.e.
, if the level exactly
replicated the targeted participation in the percentage change in the composite forward LIBOR rate).
The tables below illustrate the potential
negative effects of carry on the level of the Long LIBOR Index over a hypothetical period of 21 Index Business Days. By illustrating
these effects over 21 Index Business Days, we are not suggesting that 21 Index Business Days is an appropriate period of time to
hold the ETNs. Rather, we are illustrating the potential negative effects of carry over 21 Index Business Days to illustrate how
these effects increase over a number of days and to illustrate that the risks of the ETNs increase the longer they are held. As
described elsewhere in this pricing supplement, the ETNs are intended to be short-term trading tools for sophisticated investors
to manage short-term trading risks.
Table 1 – Constant Composite Forward
LIBOR Rate
Table 1 below assumes that the composite
forward LIBOR rate remains constant at 3.00% per annum over the entire 21 Index Business Day period, and that the
T –
1
composite forward LIBOR rate also remains constant at 2.98% per annum over the entire period.
As Table 1 below illustrates, if the composite
forward LIBOR rate is constant and there is an upward sloping implied forward LIBOR rate curve, so that the
T – 1
composite forward LIBOR rate is consistently less than the composite forward LIBOR rate, the level of the Long LIBOR Index will
steadily lose value. In Table 1 below, the
T – 1
composite forward LIBOR rate is consistently 0.02% less than the
composite forward LIBOR rate in absolute terms (which is 0.67% less in percentage change terms), and the Long LIBOR Index would
lose more than 13% of its value over a period of only 21 Index Business Days.
Day
|
Composite Forward LIBOR Rate
|
T – 1
Composite Forward LIBOR Rate
|
Long LIBOR Index Level
|
Cumulative Carry Cost
|
0
|
3.00%
|
|
100.0000
|
|
1
|
3.00%
|
2.98%
|
99.3333
|
-0.6667%
|
2
|
3.00%
|
2.98%
|
98.6711
|
-1.3289%
|
3
|
3.00%
|
2.98%
|
98.0133
|
-1.9867%
|
4
|
3.00%
|
2.98%
|
97.3599
|
-2.6401%
|
5
|
3.00%
|
2.98%
|
96.7108
|
-3.2892%
|
6
|
3.00%
|
2.98%
|
96.0661
|
-3.9339%
|
7
|
3.00%
|
2.98%
|
95.4256
|
-4.5744%
|
8
|
3.00%
|
2.98%
|
94.7895
|
-5.2105%
|
9
|
3.00%
|
2.98%
|
94.1575
|
-5.8425%
|
10
|
3.00%
|
2.98%
|
93.5298
|
-6.4702%
|
11
|
3.00%
|
2.98%
|
92.9063
|
-7.0937%
|
12
|
3.00%
|
2.98%
|
92.2869
|
-7.7131%
|
13
|
3.00%
|
2.98%
|
91.6717
|
-8.3283%
|
14
|
3.00%
|
2.98%
|
91.0605
|
-8.9395%
|
15
|
3.00%
|
2.98%
|
90.4535
|
-9.5465%
|
16
|
3.00%
|
2.98%
|
89.8504
|
-10.1496%
|
17
|
3.00%
|
2.98%
|
89.2514
|
-10.7486%
|
18
|
3.00%
|
2.98%
|
88.6564
|
-11.3436%
|
19
|
3.00%
|
2.98%
|
88.0654
|
-11.9346%
|
20
|
3.00%
|
2.98%
|
87.4783
|
-12.5217%
|
21
|
3.00%
|
2.98%
|
86.8951
|
-13.1049%
|
As Table 1 above illustrates, the carry
cost increases with time and can quickly become quite significant. For this reason, the ETNs are intended to be short-term trading
tools. Table 1 above also illustrates, however, that carry can have a negative impact over a period of just one Index Business
Day.
If the implied forward LIBOR rate curve
were steeper than in the scenario illustrated above, the difference between the composite forward LIBOR rate and the
T –
1
composite forward LIBOR rate would be greater, as would the carry cost. The steeper the upward sloping implied forward LIBOR
rate curve, the greater the carry cost.
Table 2 – Increasing Composite
Forward LIBOR Rate
Table 2 illustrates a scenario in which
the composite forward LIBOR rate increases over the 21 Index Business Day period. Although the
T – 1
composite forward
LIBOR rate also increases over this period, it remains consistently 0.02% less than the composite forward LIBOR rate in absolute
terms. In this scenario, the resulting carry cost more than offsets the increase in the composite forward LIBOR rate, and the Long
LIBOR Index loses nearly 7% of its value even though the composite forward LIBOR rate has increased by 6.67% (in percentage change
terms) over this 21 Index Business Day period.
Day
|
Composite Forward LIBOR Rate
|
T – 1
Composite Forward LIBOR Rate
|
Long LIBOR Index Level
|
Cumulative Carry Cost
|
0
|
3.00%
|
|
100.0000
|
|
1
|
3.00%
|
2.98%
|
99.3333
|
-0.6667%
|
2
|
3.00%
|
2.98%
|
98.6711
|
-1.3289%
|
3
|
3.02%
|
3.00%
|
98.6711
|
-1.9956%
|
4
|
3.02%
|
3.00%
|
98.0177
|
-2.6490%
|
5
|
3.04%
|
3.02%
|
98.0177
|
-3.3157%
|
6
|
3.04%
|
3.02%
|
97.3728
|
-3.9605%
|
7
|
3.06%
|
3.04%
|
97.3728
|
-4.6272%
|
8
|
3.06%
|
3.04%
|
96.7364
|
-5.2636%
|
9
|
3.08%
|
3.06%
|
96.7364
|
-5.9303%
|
10
|
3.08%
|
3.06%
|
96.1082
|
-6.5584%
|
11
|
3.10%
|
3.08%
|
96.1082
|
-7.2251%
|
12
|
3.10%
|
3.08%
|
95.4882
|
-7.8452%
|
13
|
3.12%
|
3.10%
|
95.4882
|
-8.5118%
|
14
|
3.12%
|
3.10%
|
94.8761
|
-9.1239%
|
15
|
3.14%
|
3.12%
|
94.8761
|
-9.7906%
|
16
|
3.14%
|
3.12%
|
94.2718
|
-10.3949%
|
17
|
3.16%
|
3.14%
|
94.2718
|
-11.0616%
|
18
|
3.16%
|
3.14%
|
93.6751
|
-11.6582%
|
19
|
3.18%
|
3.16%
|
93.6751
|
-12.3249%
|
20
|
3.18%
|
3.16%
|
93.0860
|
-12.9140%
|
21
|
3.20%
|
3.18%
|
93.0860
|
-13.5807%
|
As this example illustrates, even if the
composite forward LIBOR rate increases over any given time period, the Long LIBOR Index may nevertheless experience a significant
decline as a result of the carry cost on the Long LIBOR Index.
Contract Spread
The performance of the Long LIBOR Index
is also reduced by a hypothetical daily transaction cost that we refer to as the “
contract spread
”. The contract
spread is intended to reflect a hypothetical transaction cost associated with the daily adjustment to the Long LIBOR Index’s
exposure to Eurodollar futures contracts. As discussed above, the weights of the first and eighth quarterly Eurodollar futures
contracts are adjusted daily in an attempt to maintain a weighted average tenor of approximately one year. In addition, the Long
LIBOR Index’s exposure to all eight Eurodollar futures contracts is adjusted daily as necessary to approximate the targeted
participation in the daily percentage change in the composite forward LIBOR rate over the next day. These
adjustments to the Long LIBOR Index’s
exposure to the Eurodollar futures contracts result in increases or decreases in the size of the Long LIBOR Index’s hypothetical
position in each of those contracts. The amount of the hypothetical position in each contract that is either increased or decreased
is not implemented at the daily settlement price for the relevant contract on that day, but at the daily settlement price as adjusted
by a notional transaction cost equal to .0025.
For example, if the daily settlement price
of a contract is 99.25 and the relevant adjustments result in a decrease in the Long LIBOR Index’s hypothetical short position
in that contract, then the Long LIBOR Index will unwind a portion of its hypothetical short position in that contract on that day
at a price of 99.2525, and if the relevant adjustments result in an increase in the Long LIBOR Index’s hypothetical short
position in that contract, then the Long LIBOR Index will increase its hypothetical short position in that contract on that day
at a price of 99.2475. As this example illustrates, the contract spread increases the price at which the Long LIBOR Index will
unwind a portion of its hypothetical short position in a contract and decreases the price at which the Long LIBOR Index will increase
its hypothetical short position in a contract. This daily process – effectively increasing each short sale price and decreasing
each short purchase price – will have a negative effect on the level of the Long LIBOR Index on a daily basis.
See “Hypothetical Back-Tested and
Historical Index Information” below for information about the impact of the contract spread on the hypothetical back-tested
performance of the Long LIBOR Index.
Short LIBOR Index
The Short LIBOR Index aims to approximate
the daily performance of a hypothetical short position in the composite forward LIBOR rate (as reflected in the level of the Composite
Forward LIBOR Index), as if the composite forward LIBOR rate were itself an asset that could be shorted. What this means is that
the percentage change in the level of the Short LIBOR Index from one Index Business Day to the next aims to approximate the targeted
participation in the
inverse
of the percentage change in the composite forward LIBOR rate over that same one-day period.
The targeted participation will be 100% unless the composite forward LIBOR rate is below the short LIBOR floor, in which case the
targeted participation will be less than 100%. For example, assuming a targeted participation of 100%, if the composite forward
LIBOR rate increases by 5% from one day to the next, the Short LIBOR Index aims to decrease by approximately 5% over that same
one-day period, and if the composite forward LIBOR rate decreases by 5% from one day to the next, the Short LIBOR Index aims to
increase by approximately 5%. It is important to understand, however, that the Short LIBOR Index will not exactly replicate the
targeted participation in the inverse of the daily percentage change in the composite forward LIBOR rate because of the effects
of carry and the contract spread, as described in more detail below.
The Short LIBOR Index aims to approximate
the inverse of the daily
percentage change
in the composite forward LIBOR rate, which is different from the
absolute
percentage
by which the composite forward LIBOR rate changes. The percentage change in the composite forward LIBOR rate from
Day 1 to Day 2 is equal to (i) the rate on Day 2
minus
the rate on Day 1
divided by
(ii) the rate on Day 1.
For example, suppose the composite forward
LIBOR rate changes from 2.00% to 2.10% from one day to the next. That change represents a 0.10% increase in
absolute percentage
terms (0.10% being the difference between 2.00% and 2.10%), but a 5% increase in
percentage change
terms. The percentage
change would be calculated as (i) 2.10%
minus
2.00%
divided by
(ii) 2.00%, which is equal to 5%. In this example,
assuming a targeted participation of 100%, the Short LIBOR Index would aim to decrease by approximately 5%, matching the inverse
of the percentage change in the composite forward LIBOR rate.
Now suppose that the composite forward LIBOR
rate changes from 2.00% to 1.90% from one day to the next. That change represents a 0.10% decrease in
absolute percentage
terms (0.10% being the difference between 2.00% and 1.90%), but a 5% decrease in
percentage change
terms. The percentage
change would be calculated as (i) 1.90%
minus
2.00%
divided by
(ii) 2.00%, which is equal to -5%. In this example,
assuming a targeted participation of 100%, the Short LIBOR Index would aim to increase by approximately 5%, matching the inverse
of the percentage change in the composite forward LIBOR rate.
Short LIBOR Floor
If the composite forward LIBOR rate on any
Index Business Day is less than the short LIBOR floor, the Short LIBOR Index will aim to approximate less than 100% of the inverse
of the percentage change in the composite forward LIBOR rate over the next Index Business Day. The “
short LIBOR floor
”
for the Short LIBOR Index is 2.50%.
In other words, if the composite forward
LIBOR rate is less than 2.50%, the “
targeted participation
” in the inverse of the percentage change in the composite
forward LIBOR rate will be less than 100%. The actual targeted participation from one Index Business Day to the next will be equal
to the composite forward LIBOR rate on the first Index Business Day
divided by
the short LIBOR floor. For example, if the
composite forward LIBOR rate on a given Index Business Day is 0.50%, then the targeted participation would be 20%, calculated by
dividing 0.50% by the short LIBOR floor of 2.50%. A targeted participation of 20% would mean that the Short LIBOR Index aims to
approximate only 20% of the inverse of the percentage change in the composite forward LIBOR rate from one Index Business Day to
the next.
The short LIBOR floor reduces the potential
of the Short LIBOR Index to benefit from decreases in the composite forward LIBOR rate at any time when the composite forward LIBOR
rate is less than 2.50%.
Carry
We say that the Short LIBOR Index aims to
approximate
the daily performance of a hypothetical short position in the composite forward LIBOR rate because it does not
directly
track the targeted participation in the inverse of the percentage change in the composite forward LIBOR rate. What
the Short LIBOR Index directly tracks is gains or losses on a hypothetical position in Eurodollar futures contracts, where that
position is recalibrated daily to result in a return over the next Index Business Day that approximates the targeted participation
in the inverse of the percentage change in the composite forward LIBOR rate over that next Index Business Day (subject to the contract
spread described below). The return on this hypothetical position will not exactly replicate the targeted participation in the
inverse of the daily percentage change in the composite forward LIBOR rate because of a phenomenon we call “
carry
”
(and, in addition, because of the contract spread described below).
To obtain
short
exposure (approximately)
to the composite forward LIBOR rate, the Short LIBOR Index enters into a hypothetical
long
position in a portfolio of Eurodollar
futures contracts on each Index Business Day. (For information about the inverse relationship between the price of a Eurodollar
futures contract and its implied forward LIBOR rate, see the discussion above under “Information About Eurodollar Futures
Contracts”.) That portfolio is made up of Eurodollar futures contracts having the same weights as the contracts that compose
the Composite Forward LIBOR Index on that day. Therefore, that portfolio represents the composite forward LIBOR rate on that day.
The Short LIBOR Index calibrates its long
exposure to that portfolio so that the percentage change in the level of the Short LIBOR Index from the Index Business Day it enters
into that portfolio (
Day 1
) to the next Index Business Day (
Day 2
) will be equal to the targeted participation in
the inverse of the percentage change in the weighted average forward LIBOR rate implied in the daily settlement prices of the contracts
that make up that portfolio over that same period (subject to the contract spread described below). On Day 1, the weighted average
forward LIBOR rate implied in that portfolio is equal to the composite forward LIBOR rate on Day 1. However, on Day 2, the weighted
average forward LIBOR rate implied in that portfolio is not equal to the composite forward LIBOR rate on Day 2. The portfolio that
represents the composite forward LIBOR rate on Day 2 will have a weighted average tenor on Day 2 of approximately one year. By
contrast, on Day 2, the portfolio then held by the Short LIBOR Index (which is the same as the portfolio it entered into on Day
1) will have a weighted average tenor of one day less than that.
Therefore, instead of tracking the targeted
participation in the inverse of the percentage change from the composite forward LIBOR rate on Day 1 to the composite forward LIBOR
rate on Day 2, the Short LIBOR Index tracks the targeted participation in the inverse of the percentage change from the composite
forward LIBOR rate on Day 1 to a weighted average forward LIBOR rate on Day 2 with a tenor of
one Index Business Day less
than the composite forward LIBOR rate on Day 2. We refer to this weighted average forward LIBOR rate on Day 2 as the
“
T – 1
composite forward
LIBOR rate
”. As a result, the daily return on the Short LIBOR Index will differ from the targeted participation in the
inverse of the daily percentage change in the composite forward LIBOR rate.
The difference between the daily return
on the Short LIBOR Index and the targeted participation in the inverse of the daily percentage change in the composite forward
LIBOR rate is due to a phenomenon we call carry. Carry refers to the return (positive or negative) on a position in Eurodollar
futures contracts that results solely from the passage of time. This return is independent of changes in the composite forward
LIBOR rate. Even if the composite forward LIBOR rate were to remain constant over time (or even decrease), the level of the Short
LIBOR Index may nevertheless decline because of the effects of carry.
Carry results because the Short LIBOR Index
holds a long position in hypothetical portfolios of Eurodollar futures contracts over successive one-day periods. On each Index
Business Day, the Short LIBOR Index reflects gains or losses on Eurodollar futures contracts held since the prior Index Business
Day that each have a one-day shorter tenor than they had on the day before. This one-day shortening of tenor may itself have an
impact on the prices of those Eurodollar futures contracts that is independent of changes in the composite forward LIBOR rate.
If the implied forward LIBOR curve is downward sloping, that would mean that implied forward LIBOR rates decrease with longer tenors
and, conversely, increase with shorter tenors. Therefore, if the implied forward LIBOR curve is downward sloping, the implied forward
LIBOR rate of a Eurodollar futures contract should increase as each day passes (i.e., as its tenor shortens), even if a measure
of forward LIBOR rates that holds tenor constant (such as the composite forward LIBOR rate) would not change.
To understand why a downward sloping implied
forward LIBOR curve would result in a carry cost on the Short LIBOR Index, recall that if the implied forward LIBOR curve is downward
sloping, the Eurodollar futures contract trading price curve would be upward sloping because of the inverse relationship between
price and implied forward LIBOR rate. This would mean that the prices of the Eurodollar futures contracts would tend to decrease
as time passes. Because the Short LIBOR Index maintains a hypothetical long position in Eurodollar futures contracts, the Short
LIBOR Index would incur losses from this tendency of those contracts to decrease in price as time passes.
See “Hypothetical Forward LIBOR Rate
Curves and Eurodollar Futures Trading Price Curves” for examples of hypothetical implied forward LIBOR rate curves and their
corresponding Eurodollar futures contract trading price curves.
Hypothetical Illustrations of the Effects of Carry
The tables below illustrate the potential
negative effects of carry on the level of the Short LIBOR Index over a hypothetical period of 21 Index Business Days assuming a
downward sloping implied forward LIBOR rate curve. The tables below assume a starting Short LIBOR Index level of 100 and, in order
to isolate the effects of carry, disregard the effects of the contract spread.
As described above, although the Short LIBOR
Index aims to approximate the targeted participation in the inverse of the daily percentage change in the composite forward LIBOR
rate, what it actually tracks is the targeted participation in the inverse of the daily percentage change from the composite forward
LIBOR rate on one Index Business Day to the
T – 1
composite forward LIBOR rate on the next Index Business Day. On
any given Index Business Day, the
T – 1
composite forward LIBOR rate is the weighted average forward LIBOR rate implied
in the daily settlement prices of the portfolio of Eurodollar futures contracts that
was
the portfolio used to calculate
the Composite Forward LIBOR Index (and therefore the composite forward LIBOR rate) on the prior Index Business Day. On the current
Index Business Day, this portfolio will have a weighted average tenor of
one Index Business Day less
than the portfolio
representing the composite forward LIBOR rate on the current Index Business Day. Because the
T – 1
composite forward
LIBOR rate is consistently higher than the composite forward LIBOR rate in the scenarios illustrated below (as a result of the
downward sloping implied forward LIBOR rate curve), the Short LIBOR Index experiences a carry cost in the scenarios illustrated
below.
In the tables below, the figures in the
column titled “Cumulative Carry Cost” for each day represent the difference between the level of the Short LIBOR Index
on that day and the level that the Short LIBOR Index would have had if there were no carry cost (
i.e.
, if the level exactly
replicated the targeted participation in the inverse of the percentage change in the composite forward LIBOR rate).
The tables below illustrate the potential
negative effects of carry on the level of the Short LIBOR Index over a hypothetical period of 21 Index Business Days. By illustrating
these effects over 21 Index Business Days, we are not suggesting that 21 Index Business Days is an appropriate period of time to
hold the ETNs. Rather, we are illustrating the potential negative effects of carry over 21 Index Business Days to illustrate how
these effects increase over a number of days and to illustrate that the risks of the ETNs increase the longer they are held. As
described elsewhere in this pricing supplement, the ETNs are intended to be short-term trading tools for sophisticated investors
to manage short-term trading risks.
Table 3 – Constant Composite Forward
LIBOR Rate
Table 3 below assumes that the composite
forward LIBOR rate remains constant at 3.00% per annum over the entire 21 Index Business Day period, and that the
T –
1
composite forward LIBOR rate also remains constant at 3.02% per annum over the entire period.
As Table 3 below illustrates, if the composite
forward LIBOR rate is constant and there is a downward sloping implied forward LIBOR rate curve, so that the
T – 1
composite forward LIBOR rate is consistently greater than the composite forward LIBOR rate, the level of the Short LIBOR Index
will steadily lose value. In Table 3 below, the
T – 1
composite forward LIBOR rate is consistently 0.02% higher than
the composite forward LIBOR rate in absolute terms (which is 0.67% higher in percentage change terms), and the Short LIBOR Index
would lose more than 13% of its value over a period of only 21 Index Business Days.
Day
|
Composite Forward LIBOR Rate
|
T – 1
Composite Forward LIBOR Rate
|
Short LIBOR Index Level
|
Cumulative Carry Cost
|
0
|
3.00%
|
|
100.0000
|
|
1
|
3.00%
|
3.02%
|
99.3333
|
-0.6667%
|
2
|
3.00%
|
3.02%
|
98.6711
|
-1.3289%
|
3
|
3.00%
|
3.02%
|
98.0133
|
-1.9867%
|
4
|
3.00%
|
3.02%
|
97.3599
|
-2.6401%
|
5
|
3.00%
|
3.02%
|
96.7108
|
-3.2892%
|
6
|
3.00%
|
3.02%
|
96.0661
|
-3.9339%
|
7
|
3.00%
|
3.02%
|
95.4256
|
-4.5744%
|
8
|
3.00%
|
3.02%
|
94.7895
|
-5.2105%
|
9
|
3.00%
|
3.02%
|
94.1575
|
-5.8425%
|
10
|
3.00%
|
3.02%
|
93.5298
|
-6.4702%
|
11
|
3.00%
|
3.02%
|
92.9063
|
-7.0937%
|
12
|
3.00%
|
3.02%
|
92.2869
|
-7.7131%
|
13
|
3.00%
|
3.02%
|
91.6717
|
-8.3283%
|
14
|
3.00%
|
3.02%
|
91.0605
|
-8.9395%
|
15
|
3.00%
|
3.02%
|
90.4535
|
-9.5465%
|
16
|
3.00%
|
3.02%
|
89.8504
|
-10.1496%
|
17
|
3.00%
|
3.02%
|
89.2514
|
-10.7486%
|
18
|
3.00%
|
3.02%
|
88.6564
|
-11.3436%
|
19
|
3.00%
|
3.02%
|
88.0654
|
-11.9346%
|
20
|
3.00%
|
3.02%
|
87.4783
|
-12.5217%
|
21
|
3.00%
|
3.02%
|
86.8951
|
-13.1049%
|
As Table 3 above illustrates, the carry
cost increases with time and can quickly become quite significant. For this reason, the ETNs are intended to be short-term trading
tools. Table 3 above also illustrates, however, that carry can have a negative impact over a period of just one Index Business
Day.
If the implied forward LIBOR rate curve
were steeper than in the scenario illustrated above, the difference between the composite forward LIBOR rate and the
T –
1
composite forward LIBOR rate would be greater, as would the carry cost. The steeper the downward sloping implied forward
LIBOR rate curve, the greater the carry cost on the Short LIBOR Index.
Table 4 – Decreasing Composite
Forward LIBOR Rate
Table 4 illustrates a scenario in which
the composite forward LIBOR rate decreases over the 21 Index Business Day period. Although the
T – 1
composite forward
LIBOR rate also decreases over this period, it remains consistently 0.02% greater than the composite forward LIBOR rate in absolute
terms. In this scenario, the resulting carry cost more than offsets the decrease in the composite forward LIBOR rate, and the Short
LIBOR Index loses more than 7% of its value even though the composite forward LIBOR rate has decreased by 6.67% (in percentage
change terms) over this 21 Index Business Day period.
Day
|
Composite Forward LIBOR Rate
|
T – 1
Composite Forward LIBOR Rate
|
Short LIBOR Index Level
|
Cumulative Carry Cost
|
0
|
3.00%
|
|
100.0000
|
|
1
|
3.00%
|
3.02%
|
99.3333
|
-0.6667%
|
2
|
3.00%
|
3.02%
|
98.6711
|
-1.3289%
|
3
|
2.98%
|
3.00%
|
98.6711
|
-1.9956%
|
4
|
2.98%
|
3.00%
|
98.0089
|
-2.6578%
|
5
|
2.96%
|
2.98%
|
98.0089
|
-3.3334%
|
6
|
2.96%
|
2.98%
|
97.3467
|
-3.9956%
|
7
|
2.94%
|
2.96%
|
97.3467
|
-4.6804%
|
8
|
2.94%
|
2.96%
|
96.6844
|
-5.3426%
|
9
|
2.92%
|
2.94%
|
96.6844
|
-6.0366%
|
10
|
2.92%
|
2.94%
|
96.0222
|
-6.6989%
|
11
|
2.90%
|
2.92%
|
96.0222
|
-7.4024%
|
12
|
2.90%
|
2.92%
|
95.3600
|
-8.0647%
|
13
|
2.88%
|
2.90%
|
95.3600
|
-8.7779%
|
14
|
2.88%
|
2.90%
|
94.6978
|
-9.4402%
|
15
|
2.86%
|
2.88%
|
94.6978
|
-10.1633%
|
16
|
2.86%
|
2.88%
|
94.0356
|
-10.8256%
|
17
|
2.84%
|
2.86%
|
94.0356
|
-11.5589%
|
18
|
2.84%
|
2.86%
|
93.3733
|
-12.2211%
|
19
|
2.82%
|
2.84%
|
93.3733
|
-12.9647%
|
20
|
2.82%
|
2.84%
|
92.7111
|
-13.6269%
|
21
|
2.80%
|
2.82%
|
92.7111
|
-14.3811%
|
As this example illustrates, even if the
composite forward LIBOR rate decreases over any given time period, the Short LIBOR Index may nevertheless experience a significant
decline as a result of the carry cost.
Contract Spread
The performance of the Short LIBOR Index
is also reduced by a hypothetical daily transaction cost that we refer to as the “
contract spread
”. The contract
spread is intended to reflect a hypothetical transaction cost associated with the daily adjustment to the Short LIBOR Index’s
exposure to Eurodollar futures contracts. As discussed above, the weights of the first and eighth quarterly Eurodollar futures
contracts are adjusted daily in an attempt to maintain a weighted average tenor of approximately one year. In addition, the Short
LIBOR Index’s exposure to all eight Eurodollar futures contracts is adjusted daily as necessary to approximate the targeted
participation in the inverse of the daily percentage change in the composite forward LIBOR rate over the next day. These adjustments
to the Short LIBOR Index’s exposure to the Eurodollar futures contracts result in increases or decreases in the size of the
Short LIBOR Index’s hypothetical position in each of those contracts. The amount of the hypothetical position in each contract
that is either increased or decreased is not implemented at the daily settlement price for the relevant contract on that day, but
at the daily settlement price as adjusted by a notional transaction cost equal to .0025.
For example, if the daily settlement price
of a contract is 99.25 and the relevant adjustments result in a decrease in the Short LIBOR Index’s hypothetical long position
in that contract, then the Short LIBOR Index will unwind a portion of its hypothetical long position in that contract on that day
at a price of 99.2475, and if the
relevant adjustments result in an increase
in the Short LIBOR Index’s hypothetical long position in that contract, then the Short LIBOR Index will increase its hypothetical
long position in that contract on that day at a price of 99.2525. As this example illustrates, the contract spread decreases the
price at which the Short LIBOR Index will unwind a portion of its hypothetical long position in a contract and increases the price
at which the Short LIBOR Index will increase its hypothetical long position in a contract. This daily process – effectively
decreasing each sale price and increasing each purchase price – will have a negative effect on the level of the Short LIBOR
Index on a daily basis.
See “Hypothetical Back-Tested and
Historical Index Information” below for information about the impact of the contract spread on the hypothetical back-tested
performance of the Short LIBOR Index.
Index Calculation
The Index Sponsor has retained Solactive
AG to calculate and publish the level of each Janus Velocity LIBOR Index on each Index Business Day (in that role, the “
Index
Calculation Agent
”). The Index Sponsor may replace the Index Calculation Agent at any time, including with the Index
Sponsor or one of its affiliates.
On each Index Business Day, the Index Calculation
Agent will publish an official closing level of each Janus Velocity LIBOR Index based on the official daily settlement prices of
the Eurodollar futures contracts composing that index on that Index Business Day. See “Information About Eurodollar Futures
Contracts” for information about how and when the official daily settlement prices for Eurodollar futures contracts are determined.
The Index Calculation Agent publishes the official closing level of each Janus Velocity LIBOR Index on each Index Business Day
at approximately 6:30 p.m., New York City time.
The Index Calculation Agent will also publish
an intraday level of each Janus Velocity LIBOR Index every 15 seconds during regular trading hours on the NYSE Arca, up to 3:00
p.m., New York City time, based on the most recently published trading prices of the Eurodollar futures contracts then composing
those indices.
The Janus Velocity LIBOR Indices are published
on Bloomberg under the following tickers:
Index
|
Index Ticker
|
Composite Forward LIBOR Index
|
LBRID
|
Long LIBOR Index
|
ULBRID
|
Short LIBOR Index
|
DLBRID
|
An “
Index Business Day
”
is a weekday on which the New York Stock Exchange and Chicago Mercantile Exchange are both open for trading for their regular trading
sessions.
The Index Sponsor launched the Janus Velocity
LIBOR Indices on September 30, 2016. All information regarding the performance of the Janus Velocity LIBOR Indices prior to that
date is hypothetical and back-tested, as the Janus Velocity LIBOR Indices did not exist prior to that date.
The Long LIBOR Index and Short LIBOR Index
are described as aiming to approximate the daily performance of a hypothetical long investment or a hypothetical short position
in Eurodollar futures contracts because there are no actual Eurodollar futures contracts or other assets to which any ETN investor
is entitled or in which any ETN investor has any ownership or other interest. The Long LIBOR Index and Short LIBOR Index are merely
mathematical calculations performed by reference to hypothetical positions in Eurodollar futures contracts, as described in this
section.
The Long LIBOR Index and Short LIBOR Index
are “excess return” indices, which means that they reflect gains or losses on hypothetical positions in Eurodollar
futures contracts without taking into account interest that could be earned on hypothetical cash collateralizing those positions.
Force Majeure
Calculation of the Janus Velocity LIBOR
Indices may not be possible or feasible under certain events or circumstances, including, without limitation, market disruptions,
a systems failure, natural or man-made disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any
similar intervening circumstance, that is beyond the reasonable control of the Index Sponsor and that the Index Sponsor determines
affects the Janus Velocity LIBOR Indices or underlying markets. Upon the occurrence of any such force majeure event, the Index
Sponsor may, in its discretion, elect one (or more) of the following options:
|
·
|
Make such determinations and/or adjustments to the terms of the Janus Velocity LIBOR Indices as it considers appropriate to
determine any closing level on any such appropriate Index Business Day; and/or
|
|
·
|
Defer publication of the information relating to the Janus Velocity LIBOR Indices until the next Index Business Day on which
it determines that no force majeure event exists; and/or
|
|
·
|
Permanently cancel the publication of the information relating to the Janus Velocity LIBOR Indices. The Index Sponsor employs
the methodology described above and its application of the methodology shall be conclusive and binding.
|
Market Disruption
In the event of a Disrupted Day, the roll
(i.e., the adjustment of the weights of the Eurodollar futures contracts composing each Janus Velocity LIBOR Index and each Janus
Velocity LIBOR Index’s exposure thereto) for that day is carried out on the next non-disrupted Index Business Day. The rest
of the scheduled roll proceeds accordingly after the completion of the next non-disrupted Index Business Day.
“Disrupted Day” shall mean any
scheduled Index Business Day on which any of the events set out below occurs:
|
·
|
The Chicago Mercantile Exchange or the New York Stock Exchange fails to open for trading; or
|
|
·
|
A suspension of or limitation imposed (whether by reason of movements in price exceeding permitted limits or otherwise) on
the trading on the Chicago Mercantile Exchange of Eurodollar futures contracts at any time during the one hour period which ends
at 3:00 p.m., New York City time (the “
Valuation Time
”); or
|
|
·
|
An event which disrupts or impairs the ability of market participants in general to effect transactions in or to obtain market
values for Eurodollar futures contracts at any time during the one hour period which ends at the Valuation Time; or
|
|
·
|
The closure of the Chicago Mercantile Exchange in respect of Eurodollar futures contracts prior to its scheduled closing time
(unless such earlier closing time is announced by the Chicago Mercantile Exchange at least one hour prior to the earlier of (i)
the actual closing time for the regular trading session; and (ii) the deadline for the submission of orders to be entered into
the Chicago Mercantile Exchange system for execution at the Valuation Time).
|
Delisting of Eurodollar Futures Contracts
If one or more Eurodollar futures contracts
included in one of the Janus Velocity LIBOR Indices is no longer listed, the Index Sponsor may choose to suspend publication of
any affected index at that time.
Index Committee
The Index Committee is responsible for reviewing
the design, composition, and calculation of the Janus Velocity LIBOR Indices, the development of new indices, and to determine
changes, if any, to the Index
Methodology. The Index Committee is composed
of senior personnel of Janus Index & Calculation Services LLC and includes an external, unaffiliated representative.
Decisions made by the Index Committee include
all matters related to index policy and maintenance. The Index Committee meets periodically to review market conditions and index
performance, or on an as-needed basis to address major market developments.
The Index Committee reserves the right to
exercise its discretion in making decisions with respect to any index policy or action. Index Committee internal procedures and
discussions are considered to be potentially market moving and are therefore kept confidential.
Index Methodology
The description of the Janus Velocity LIBOR
Indices set forth in this section is only a summary of the rules by which the Janus Velocity LIBOR Indices are calculated. The
level of each Janus Velocity LIBOR Index will be calculated in accordance with the rules and mathematical formulas specified in
the Janus Velocity LIBOR Index Methodology (the “
Index Methodology
”), which is attached to this pricing supplement
as Annex B, and not based on the summary contained in this section. In the event of any inconsistency between this section and
the Index Methodology, the Index Methodology controls. We have not independently verified the Index Methodology.
Suspension and Cancellation
The Index Sponsor may suspend the calculation
and/or publication of, or discontinue or cancel, any Index at any time and is under no obligation to continue, or procure the continuation
of, the calculation or publication of any Index.
License Agreement
CGMI and the Index Sponsor have entered
into a license agreement pursuant to which CGMI and its affiliates have been granted the right to use certain intellectual property
of the Index Sponsor in connection with the Indices and the ETNs. In consideration for this license, CGMI has agreed to pay the
Index Sponsor a license fee that will accrue on a daily basis and will depend on the aggregate Closing Indicative Value of the
ETNs of each series that are outstanding and held by investors on each day. “VelocityShares” and the VelocityShares
logo are service marks of the Index Sponsor and are used in this pricing supplement under license.
The Index Sponsor has the right to terminate
the license agreement at any time upon prior notice to CGMI. If the Index Sponsor terminates the license agreement, we may be required
to discontinue issuances and sales of ETNs, which could result in distortions in the market for the ETNs. See “Risk Factors—We
and CGMI are under no obligation to issue or sell additional ETNs of any series at any time, and if we and CGMI do sell additional
ETNs of any series, we or CGMI may limit or restrict such sales, and we or CGMI may stop and subsequently resume selling additional
ETNs of such series at any time.”
The Indices are the exclusive property of
Janus Index & Calculation Services.
The license agreement with the Index Sponsor
requires the following statements to appear in this pricing supplement:
“Neither Janus Index & Calculation
Services (“
Janus
”) nor any other party makes any representation or warranty, express or implied, to the owners
of the ETNs or any member of the public regarding the advisability of investing in the ETNs generally or the similarities or variations
between the performance of the ETNs or the applicable Index and the performance of the underlying securities or financial instruments.
Neither Janus nor any other party guarantees the accuracy and/or the completeness of the Indices or any data included therein or
any calculations made with respect to the ETNs. Janus disclaims all warranties of merchantability or fitness for any particular
purpose with respect to the Indices or any data included therein.
ALTHOUGH JANUS SHALL OBTAIN INFORMATION
FOR INCLUSION IN OR FOR USE IN CALCULATIONS RELATED TO THE INDICES FROM SOURCES WHICH JANUS CONSIDERS RELIABLE,
NEITHER JANUS NOR ANY OTHER PARTY GUARANTEES
THE ACCURACY AND/OR THE COMPLETENESS OF THE INDICES OR ANY DATA INCLUDED THEREIN OR ANY CALCULATIONS MADE WITH RESPECT TO THE ETNS.
NEITHER JANUS NOR ANY OTHER PARTY MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE’S
CUSTOMERS AND COUNTERPARTIES, HOLDERS OF THE ETNS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDICES OR ANY DATA INCLUDED
THEREIN OR ANY CALCULATIONS MADE WITH RESPECT TO THE ETNS IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE.
JANUS MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND JANUS HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDICES OR ANY DATA INCLUDED THEREIN OR ANY CALCULATIONS MADE WITH RESPECT TO THE
ETNS. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL JANUS HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE
OR CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.”
HYPOTHETICAL BACK-TESTED AND HISTORICAL
INDEX INFORMATION
This section contains hypothetical back-tested
performance information for the Indices. All performance information for the Indices prior to September 30, 2016 is hypothetical
and back-tested, as the Indices did not exist prior to that date. There is no actual historical performance information by which
to evaluate either Index prior to September 30, 2016. Hypothetical back-tested performance information is subject to significant
limitations. The hypothetical back-tested performance of the Indices might look different if it covered a different historical
period. The market conditions that existed during the hypothetical back-tested period may not be representative of market conditions
that will exist in the future.
You should note that the hypothetical back-tested
performance information below depicts only the hypothetical performance of the Indices and does not take into account the Daily
Accrual or Daily Investor Fee reflected in the return on the ETNs. Accordingly, the graphs below do not purport to show how any
ETN would have performed during the periods shown.
The hypothetical back-tested and historical
levels of the Indices were calculated by the Index Sponsor, and we have not independently verified their accuracy. The Index Sponsor
has advised us that the hypothetical back-tested information below was calculated in a manner consistent with the methodology described
under “Description of the Janus Velocity LIBOR Indices” in this pricing supplement, using published historical prices
for the Eurodollar futures contracts underlying each Index during the relevant period. However, the hypothetical back-tested performance
information has been calculated without giving effect to any Disrupted Days that may have occurred during the hypothetical back-tested
period.
It is impossible to predict whether either
Index will rise or fall. By providing the hypothetical back-tested and historical performance information for the Indices below,
we are not representing that either Index is likely to achieve gains or losses similar to those shown. In fact, there are frequently
sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular investment.
One of the limitations of hypothetical performance information is that it did not involve financial risk and cannot account for
all factors that would affect actual performance. The actual future performance of each Index may bear no relation to its hypothetical
back-tested or historical performance.
Hypothetical Back-Tested and Historical Levels of the Composite
Forward LIBOR Index
The graph below depicts the hypothetical
back-tested levels of the Composite Forward LIBOR Index for the period from December 30, 2005 to September 29, 2016 and the historical
levels of the Composite Forward LIBOR Index for the period from September 30, 2016 to August 11, 2017. The level of the Composite
Forward LIBOR Index at any time represents the composite forward LIBOR rate at that time, expressed as a number of basis points.
A basis point is one hundredth of a percentage point. For example, a Composite Forward LIBOR Index level of 200 would represent
a composite forward LIBOR rate of 2.00%.
Past performance is not an indication
of future performance. The future levels of the Composite Forward LIBOR Index may bear no relation to the hypothetical back-tested
or historical levels shown in the graph below.
Hypothetical Back-Tested and Historical
Composite Forward LIBOR Index Levels
Neither series of ETNs is linked to the
Composite Forward LIBOR Index. We are providing the hypothetical back-tested and historical levels of the Composite Forward LIBOR
Index above because the Composite Forward LIBOR Index is a key building block in the calculation of the Long LIBOR Index, to which
the Long LIBOR ETNs are linked, and the Short LIBOR Index, to which the Short LIBOR ETNs are linked.
Hypothetical Back-Tested and Historical Performance Information
for the Long LIBOR Index
Index Performance
The first graph below depicts the hypothetical
back-tested performance of the Long LIBOR Index for the period from December 30, 2005 to September 29, 2016 and the historical
performance of the Long LIBOR Index for the period from September 30, 2016 to August 11, 2017. Because the scale used in the first
graph makes it difficult to see the performance of the Long LIBOR Index in the most recent years, we have provided a second graph
below that depicts the hypothetical back-tested and historical performance of the Long LIBOR Index from August 1, 2012 to August
11, 2017 on a different scale than that used in the first graph below.
Past performance is not an indication
of future performance. The future performance of the Long LIBOR Index may bear no relation to the hypothetical back-tested or historical
performance shown in the graphs below.
Hypothetical Back-Tested and Historical
Long LIBOR Index Performance
Comparison with Composite Forward
LIBOR Index
The following graph depicts the hypothetical
back-tested performance of the Long LIBOR Index as compared to the hypothetical back-tested performance of the Composite Forward
LIBOR Index (which represents the composite forward LIBOR rate) for the period from December 30, 2005 to September 29, 2016, and
the same comparison based on historical performance information for the period from September 30, 2016 to August 11, 2017. To facilitate
a comparison, the levels of the Long LIBOR Index and the Composite Forward LIBOR Index depicted below have been normalized to a
level of 100 on December 30, 2005. The difference between the performance of the Long LIBOR Index and the Composite Forward LIBOR
Index reflected in the graph below is attributable to the effects of carry, the long LIBOR floor, the contract spread and decay.
Past performance is not an indication
of future performance. The future relationship between the performance of the Long LIBOR Index and the performance of the Composite
Forward LIBOR Index may bear no relation to the hypothetical back-tested or historical relationship shown in the graph below.
Hypothetical Back-Tested and Historical
Normalized
Long LIBOR Index vs. Composite Forward LIBOR Index
Effects of Carry, Contract Spread
and Decay
The table below quantifies the effects of
carry, the contract spread and decay on the Long LIBOR Index over the course of each calendar month during the period from December
30, 2005 to August 11, 2017 based on the same hypothetical back-tested and historical performance information contained in the
prior graphs above. For each month in the table below, the percentage listed indicates the extent to which the performance of the
Long LIBOR Index over the course of that month was less (in the case of a negative percentage) or greater (in the case of a positive
percentage) than it would have been if it tracked the targeted participation in the percentage change in the Composite Forward
LIBOR Index without any carry, contract spread or decay.
It is important to understand that the table
below does not indicate whether the Long LIBOR Index increased or decreased during the applicable month. In any given month, the
table below may indicate a positive percentage (meaning that the Long LIBOR Index experienced positive carry, after taking into
account the contract spread and decay, in that month) while the Long LIBOR Index nevertheless declined significantly over the same
period.
Past performance is not an indication
of future performance. The effects of carry, the contract spread and decay on the Long LIBOR Index in the future may bear no relation
to the hypothetical back-tested or historical effects shown in the table below.
Hypothetical Back-Tested and Historical
Monthly Effects of Carry, Contract Spread and Decay on the Long LIBOR Index
|
Jan
|
Feb
|
Mar
|
Apr
|
May
|
Jun
|
Jul
|
Aug
|
Sep
|
Oct
|
Nov
|
Dec
|
2006
|
0.09%
|
-0.05%
|
0.01%
|
0.03%
|
-0.04%
|
0.07%
|
0.15%
|
0.36%
|
0.44%
|
0.42%
|
0.58%
|
0.65%
|
2007
|
0.41%
|
0.41%
|
0.71%
|
0.55%
|
0.50%
|
-0.01%
|
0.07%
|
0.41%
|
0.52%
|
0.30%
|
0.73%
|
0.88%
|
2008
|
0.25%
|
-0.50%
|
-0.97%
|
-1.91%
|
-1.92%
|
-2.01%
|
-2.01%
|
-1.68%
|
-1.19%
|
-1.32%
|
-1.07%
|
-1.35%
|
2009
|
-4.36%
|
-2.93%
|
-2.38%
|
-3.79%
|
-4.32%
|
-7.73%
|
-6.97%
|
-6.28%
|
-7.12%
|
-7.23%
|
-5.64%
|
-11.26%
|
2010
|
-5.98%
|
-6.88%
|
-9.79%
|
-7.32%
|
-4.91%
|
-4.23%
|
-4.11%
|
-5.26%
|
-5.33%
|
-3.94%
|
-7.19%
|
-6.97%
|
2011
|
-7.01%
|
-8.17%
|
-9.88%
|
-5.99%
|
-6.32%
|
-7.19%
|
-4.37%
|
-1.95%
|
-2.13%
|
-2.14%
|
-1.53%
|
-1.49%
|
2012
|
-1.09%
|
-2.25%
|
-3.55%
|
-2.11%
|
-2.24%
|
-1.42%
|
-1.15%
|
-1.81%
|
-1.56%
|
-2.91%
|
-2.16%
|
-2.57%
|
2013
|
-4.20%
|
-2.97%
|
-3.69%
|
-2.57%
|
-5.09%
|
-5.80%
|
-5.81%
|
-7.23%
|
-5.55%
|
-5.87%
|
-4.46%
|
-8.58%
|
2014
|
-7.54%
|
-6.44%
|
-10.63%
|
-8.65%
|
-7.55%
|
-9.99%
|
-11.35%
|
-7.29%
|
-9.72%
|
-7.28%
|
-6.50%
|
-9.89%
|
2015
|
-5.47%
|
-7.72%
|
-6.47%
|
-6.34%
|
-6.14%
|
-7.17%
|
-6.67%
|
-5.21%
|
-4.71%
|
-5.96%
|
-5.24%
|
-5.01%
|
2016
|
-2.23%
|
-2.09%
|
-2.67%
|
-2.59%
|
-2.70%
|
-1.49%
|
-1.63%
|
-1.39%
|
-1.13%
|
-1.36%
|
-2.49%
|
-3.24%
|
2017
|
-3.12%
|
-2.93%
|
-2.80%
|
-1.50%
|
-1.66%
|
-1.64%
|
-1.51%
|
|
|
|
|
|
The table above shows that the effects of
carry, the contract spread and decay have reduced the performance of the Long LIBOR Index by as much as
11.35%
over
a single calendar month. The numbers in the table above represent the difference between the performance of the Long LIBOR Index
over the applicable calendar month and the performance that the Long LIBOR Index would have had if it simply reflected the targeted
participation in the percentage change in the composite forward LIBOR rate over that month. The numbers are not annualized. It
is impossible to predict the effects of carry, the contract spread and decay on the Long LIBOR Index in the future. The effects
of carry, the contract spread and decay over any calendar month in the future may equal or exceed these levels. Over longer periods
of time, the effects of carry, the contract spread and decay will likely significantly exceed these levels.
Targeted Participation
The graph below depicts the effects of the
long LIBOR floor on the Long LIBOR Index’s targeted participation in the daily percentage change in the composite forward
LIBOR rate. For each day on which the composite forward LIBOR rate was less than 1.00%, the Long LIBOR Index targeted participation
of less than 100% in the daily percentage change in the composite forward LIBOR rate.
Past performance is not an indication
of future performance. The Long LIBOR Index’s targeted participation at any point in the future may bear no relation to the
hypothetical back-tested or historical targeted participation shown in the graph below.
Hypothetical Back-Tested and Historical
Targeted Participation of the Long LIBOR Index
Contract Spread
The following table quantifies the effect
of the contract spread on the Long LIBOR Index over the course of each calendar month during the period from December 30, 2005
to August 11, 2017 based on the same hypothetical back-tested and historical performance information contained in the prior graphs
above. For each month in the table below, the percentage listed indicates the extent to which the contract spread reduced the performance
of the Long LIBOR Index over that month, expressed on an annualized basis.
Past performance is not an indication
of future performance. The effect of the contract spread on the Long LIBOR Index in the future may be greater than the hypothetical
back-tested or historical effects shown in the table below.
Hypothetical Back-Tested
and Historical Monthly Effects of the Contract Spread on the Long LIBOR Index, Expressed on an Annualized Basis
|
Jan
|
Feb
|
Mar
|
Apr
|
May
|
Jun
|
Jul
|
Aug
|
Sep
|
Oct
|
Nov
|
Dec
|
2006
|
-0.07%
|
-0.07%
|
-0.06%
|
-0.05%
|
-0.05%
|
-0.05%
|
-0.05%
|
-0.06%
|
-0.06%
|
-0.06%
|
-0.06%
|
-0.06%
|
2007
|
-0.06%
|
-0.06%
|
-0.07%
|
-0.06%
|
-0.06%
|
-0.06%
|
-0.06%
|
-0.06%
|
-0.07%
|
-0.07%
|
-0.08%
|
-0.09%
|
2008
|
-0.11%
|
-0.12%
|
-0.14%
|
-0.12%
|
-0.10%
|
-0.09%
|
-0.10%
|
-0.10%
|
-0.10%
|
-0.12%
|
-0.15%
|
-0.21%
|
2009
|
-0.29%
|
-0.23%
|
-0.23%
|
-0.25%
|
-0.30%
|
-0.27%
|
-0.31%
|
-0.28%
|
-0.35%
|
-0.35%
|
-0.39%
|
-0.39%
|
2010
|
-0.41%
|
-0.40%
|
-0.41%
|
-0.38%
|
-0.33%
|
-0.37%
|
-1.51%
|
-1.92%
|
-1.64%
|
-1.51%
|
-2.13%
|
-3.18%
|
2011
|
-1.96%
|
-0.85%
|
-1.43%
|
-1.14%
|
-1.36%
|
-1.49%
|
-1.76%
|
-1.50%
|
-1.12%
|
-1.37%
|
-1.97%
|
-1.25%
|
2012
|
-1.39%
|
-1.14%
|
-1.38%
|
-0.88%
|
-1.00%
|
-1.12%
|
-0.86%
|
-1.02%
|
-0.88%
|
-0.87%
|
-0.79%
|
-0.63%
|
2013
|
-0.84%
|
-0.69%
|
-0.67%
|
-0.61%
|
-0.86%
|
-1.51%
|
-1.15%
|
-1.15%
|
-1.62%
|
-0.76%
|
-0.76%
|
-1.00%
|
2014
|
-1.20%
|
-1.00%
|
-1.10%
|
-0.97%
|
-0.92%
|
-0.96%
|
-1.07%
|
-1.02%
|
-1.17%
|
-1.96%
|
-1.02%
|
-1.85%
|
2015
|
-1.74%
|
-1.60%
|
-1.34%
|
-1.25%
|
-1.70%
|
-0.79%
|
-1.19%
|
-1.37%
|
-1.76%
|
-2.01%
|
-0.56%
|
-0.36%
|
2016
|
-1.16%
|
-1.97%
|
-1.60%
|
-1.33%
|
-0.97%
|
-1.92%
|
-1.58%
|
-0.93%
|
-0.30%
|
-0.30%
|
-0.28%
|
-0.26%
|
2017
|
-0.27%
|
-0.25%
|
-0.21%
|
-0.20%
|
-0.20%
|
-0.20%
|
-0.20%
|
|
|
|
|
|
The table above shows that the effects of
the contract spread have reduced the performance of the Long LIBOR Index by as much as
3.18%
(annualized) over a
single calendar month. It is impossible to predict the effects of the contract spread on the Long LIBOR Index in the future. The
effects of the contract spread over any calendar month in the future may equal or exceed these levels.
Hypothetical Back-Tested and Historical Performance Information
for the Short LIBOR Index
Index Performance
The graph below depicts the hypothetical
back-tested performance of the Short LIBOR Index for the period from December 30, 2005 to September 29, 2016 and the historical
performance of the Short LIBOR Index for the period from September 30, 2016 to August 11, 2017.
Past performance is not an indication
of future performance. The future performance of the Short LIBOR Index may bear no relation to the hypothetical back-tested or
historical performance shown in the graph below.
Hypothetical Back-Tested and Historical
Short LIBOR Index Performance
Comparison with Composite Forward
LIBOR Index
The following graph depicts the hypothetical
back-tested performance of the Short LIBOR Index as compared to the inverse of the hypothetical back-tested performance of the
Composite Forward LIBOR Index (which represents the composite forward LIBOR rate) for the period from December 30, 2005 to September
29, 2016, and the same comparison based on historical performance information for the period from September 30, 2016 to August
11, 2017. To facilitate a comparison, the levels of the Short LIBOR Index and the Composite Forward LIBOR Index depicted below
have been normalized to a level of 100 on December 30, 2005. The difference between the performance of the Short LIBOR Index and
the inverse of the Composite Forward LIBOR Index reflected in the graph below is attributable to the effects of carry, the short
LIBOR floor, the contract spread and decay.
Past performance is not an indication
of future performance. The future relationship between the performance of the Short LIBOR Index and the performance of the Composite
Forward LIBOR Index may bear no relation to the hypothetical back-tested or historical relationship shown in the graph below.
Hypothetical Back-Tested and Historical
Normalized
Short LIBOR Index vs. Composite Forward LIBOR Index
Effects of Carry, Contract Spread
and Decay
The table below quantifies the effects of
carry, the contract spread and decay on the Short LIBOR Index over the course of each calendar month during the period from December
30, 2005 to August 11, 2017 based on the same hypothetical back-tested and historical performance information contained in the
prior graphs above. For each month in the table below, the percentage listed indicates the extent to which the performance of the
Short LIBOR Index over the course of that month was less (in the case of a negative percentage) or greater (in the case of a positive
percentage) than it would have been if it tracked the targeted participation in the inverse of the percentage change in the Composite
Forward LIBOR Index without any carry, contract spread or decay.
It is important to understand that the table
below does not indicate whether the Short LIBOR Index increased or decreased during the applicable month. In any given month, the
table below may indicate a positive percentage (meaning that the Short LIBOR Index experienced positive carry, after taking into
account the contract spread and decay, in that month) while the Short LIBOR Index nevertheless declined significantly over the
same period.
Past performance is not an indication
of future performance. The effects of carry, the contract spread and decay on the Short LIBOR Index in the future may bear no relation
to the hypothetical back-tested or historical effects shown in the table below.
Hypothetical Back-Tested and Historical
Monthly Effects of Carry, the Contract Spread and Decay on the Short LIBOR Index
|
Jan
|
Feb
|
Mar
|
Apr
|
May
|
Jun
|
Jul
|
Aug
|
Sep
|
Oct
|
Nov
|
Dec
|
2006
|
-0.21%
|
0.07%
|
-0.10%
|
-0.19%
|
0.04%
|
-0.21%
|
-0.12%
|
-0.34%
|
-0.57%
|
-0.64%
|
-0.81%
|
-0.59%
|
2007
|
-0.41%
|
-0.34%
|
-0.96%
|
-0.68%
|
-0.02%
|
-0.15%
|
-0.02%
|
-0.77%
|
-0.99%
|
-0.79%
|
1.23%
|
-1.91%
|
2008
|
2.20%
|
-0.58%
|
-4.18%
|
6.05%
|
1.08%
|
-0.79%
|
0.70%
|
1.22%
|
-6.44%
|
0.10%
|
3.10%
|
6.06%
|
2009
|
-0.65%
|
0.09%
|
1.84%
|
1.01%
|
3.52%
|
-4.12%
|
2.94%
|
3.92%
|
6.00%
|
4.09%
|
12.41%
|
15.08%
|
2010
|
13.85%
|
6.12%
|
8.19%
|
5.38%
|
3.31%
|
10.90%
|
12.88%
|
1.47%
|
3.20%
|
4.43%
|
13.37%
|
-3.30%
|
2011
|
2.33%
|
5.25%
|
4.90%
|
10.32%
|
10.34%
|
3.64%
|
4.28%
|
-2.38%
|
1.58%
|
-1.20%
|
-1.72%
|
0.25%
|
2012
|
12.03%
|
0.57%
|
-0.07%
|
1.17%
|
1.69%
|
0.73%
|
7.76%
|
-1.50%
|
-1.47%
|
0.02%
|
-0.34%
|
1.25%
|
2013
|
2.00%
|
3.90%
|
2.56%
|
6.35%
|
10.76%
|
-0.76%
|
3.22%
|
5.39%
|
7.06%
|
6.28%
|
5.53%
|
9.35%
|
2014
|
4.64%
|
4.54%
|
9.52%
|
7.96%
|
7.54%
|
8.82%
|
12.15%
|
6.86%
|
9.14%
|
6.65%
|
6.19%
|
9.32%
|
2015
|
11.50%
|
5.82%
|
4.15%
|
5.20%
|
3.97%
|
4.74%
|
3.39%
|
1.60%
|
5.17%
|
1.27%
|
5.00%
|
4.80%
|
2016
|
13.87%
|
-2.84%
|
-1.27%
|
1.10%
|
1.87%
|
6.80%
|
2.29%
|
1.40%
|
-0.07%
|
1.16%
|
4.86%
|
2.83%
|
2017
|
2.33%
|
2.35%
|
2.19%
|
1.02%
|
1.41%
|
1.47%
|
1.25%
|
|
|
|
|
|
The table above shows that the effects of
carry, the contract spread and decay have reduced the performance of the Short LIBOR Index by as much as
6.44%
over
a single calendar month. The numbers in the table above represent the difference between the performance of the Short LIBOR Index
over the applicable calendar month and the performance that the Short LIBOR Index would have had if it simply reflected the targeted
participation in the inverse of the percentage change in the composite forward LIBOR rate over that month. The numbers are not
annualized. It is impossible to predict the effects of carry, the contract spread and decay on the Short LIBOR Index in the future.
The negative effects of carry, the contract spread and decay over any calendar month in the future may equal or exceed these levels.
Targeted Participation
The graph below depicts the effects of the
short LIBOR floor on the Short LIBOR Index’s targeted participation in the inverse of the daily percentage change in the
composite forward LIBOR rate. For each day on which the composite forward LIBOR rate was less than 2.50%, the Short LIBOR Index
targeted participation of less than 100% in the inverse of the daily percentage change in the composite forward LIBOR rate.
Past performance is not an indication
of future performance. The daily targeted participation of the Short LIBOR Index at any point in the future may bear no relation
to the hypothetical back-tested or historical targeted participation shown in the graph below.
Hypothetical Back-Tested and Historical
Targeted Participation of the Short LIBOR Index
Contract Spread
The following table quantifies the effect
of the contract spread on the Short LIBOR Index over the course of each calendar month during the period from December 30, 2005
to August 11, 2017 based on the same hypothetical back-tested and historical performance information contained in the prior graphs
above. For each month in the table below, the percentage listed indicates the extent to which the contract spread reduced the performance
of the Short LIBOR Index over that month, expressed on an annualized basis.
Past performance is not an indication
of future performance. The effect of the contract spread on the Short LIBOR Index in the future may be greater than the hypothetical
back-tested or historical effects shown in the table below.
Hypothetical Back-Tested
and Historical Monthly Effects of the Contract Spread on the Short LIBOR Index, Expressed on an Annualized Basis
|
Jan
|
Feb
|
Mar
|
Apr
|
May
|
Jun
|
Jul
|
Aug
|
Sep
|
Oct
|
Nov
|
Dec
|
2006
|
-0.21%
|
-0.15%
|
-0.22%
|
-0.21%
|
-0.17%
|
-0.19%
|
-0.18%
|
-0.17%
|
-0.19%
|
-0.23%
|
-0.24%
|
-0.25%
|
2007
|
-0.20%
|
-0.23%
|
-0.24%
|
-0.21%
|
-0.17%
|
-0.19%
|
-0.23%
|
-0.36%
|
-0.40%
|
-0.35%
|
-0.55%
|
-0.68%
|
2008
|
-1.18%
|
-1.25%
|
-1.28%
|
-1.44%
|
-1.04%
|
-0.97%
|
-0.78%
|
-0.58%
|
-1.77%
|
-1.60%
|
-1.14%
|
-0.72%
|
2009
|
-0.74%
|
-0.56%
|
-0.61%
|
-0.53%
|
-0.46%
|
-1.08%
|
-0.64%
|
-0.64%
|
-0.49%
|
-0.57%
|
-0.37%
|
-0.61%
|
2010
|
-0.44%
|
-0.46%
|
-0.34%
|
-0.40%
|
-0.37%
|
-0.33%
|
-0.33%
|
-0.37%
|
-0.30%
|
-0.30%
|
-0.42%
|
-0.57%
|
2011
|
-0.41%
|
-0.41%
|
-0.44%
|
-0.42%
|
-0.29%
|
-0.30%
|
-0.33%
|
-0.28%
|
-0.25%
|
-0.29%
|
-0.37%
|
-0.26%
|
2012
|
-0.27%
|
-0.25%
|
-0.28%
|
-0.21%
|
-0.23%
|
-0.24%
|
-0.20%
|
-0.23%
|
-0.21%
|
-0.21%
|
-0.20%
|
-0.18%
|
2013
|
-0.21%
|
-0.18%
|
-0.18%
|
-0.16%
|
-0.20%
|
-0.30%
|
-0.25%
|
-0.25%
|
-0.30%
|
-0.19%
|
-0.20%
|
-0.23%
|
2014
|
-0.26%
|
-0.23%
|
-0.25%
|
-0.22%
|
-0.22%
|
-0.22%
|
-0.25%
|
-0.23%
|
-0.25%
|
-0.35%
|
-0.24%
|
-0.37%
|
2015
|
-0.33%
|
-0.40%
|
-0.37%
|
-0.27%
|
-0.34%
|
-0.34%
|
-0.39%
|
-0.42%
|
-0.33%
|
-0.38%
|
-0.27%
|
-0.30%
|
2016
|
-0.35%
|
-0.38%
|
-0.41%
|
-0.30%
|
-0.30%
|
-0.40%
|
-0.34%
|
-0.32%
|
-0.28%
|
-0.24%
|
-0.32%
|
-0.30%
|
2017
|
-0.33%
|
-0.33%
|
-0.27%
|
-0.32%
|
-0.27%
|
-0.25%
|
-0.24%
|
|
|
|
|
|
The table above shows that the effects of
the contract spread have reduced the performance of the Short LIBOR Index by as much as
1.77%
(annualized) over a
single calendar month. It is impossible to predict the effects of the contract spread on the Short LIBOR Index in the future. The
effects of the contract spread over any calendar month in the future may equal or exceed these levels.
SPECIFIC TERMS OF THE ETNs
You should read this pricing supplement
together with the accompanying prospectus supplement and prospectus before making your decision to invest in the ETNs. The description
in this pricing supplement of the particular terms of the ETNs supplements, and to the extent inconsistent therewith replaces,
the descriptions of the general terms and provisions of the debt securities set forth in the accompanying prospectus supplement
and prospectus.
You may access the prospectus supplement
and prospectus on the SEC Web site at www.sec.gov as follows (or if such address has changed, by reviewing our filings for April
7, 2017 on the SEC Web site):
General
Each series of ETNs is part of a series
of unsecured senior debt securities issued by Citigroup Global Markets Holdings Inc. and designated as its Medium-Term Senior Notes,
Series N. We refer to each series of ETNs as a separate “series” to distinguish the Long LIBOR ETNs from the Short
LIBOR ETNs, but all of the ETNs are part of Citigroup Global Markets Holdings Inc.’s Medium-Term Senior Notes, Series N.
Any payments due on the ETNs are fully and unconditionally guaranteed by Citigroup Inc. Each series of ETNs will constitute part
of the senior debt of Citigroup Global Markets Holdings Inc. and will rank equally with all other unsecured and unsubordinated
debt of Citigroup Global Markets Holdings Inc. The guarantee of payments due on each series of ETNs will constitute part of the
senior debt of Citigroup Inc. and will rank equally with all other unsecured and unsubordinated debt of Citigroup Inc.
Unlike ordinary debt securities, the ETNs
do not offer interest payments and do not guarantee any return of principal at maturity or upon earlier redemption or acceleration.
Instead, each series of ETNs is designed for investors who seek exposure to the performance of the applicable Index on a daily
basis
plus
the Daily Accrual and
minus
the Daily Investor Fee, as described below. At maturity or upon early redemption
or acceleration, holders of each ETN will receive an amount in cash that will vary depending on the level of the applicable Index
as described below, which can be significantly less than the stated principal amount of the applicable ETNs and could be zero.
You will not have the right to receive physical
certificates evidencing your ownership except under limited circumstances. Instead, we will issue each series of ETNs in the form
of a global certificate, which will be held by or on behalf of The Depository Trust Company (“
DTC
”) or its nominee.
Direct and indirect participants in DTC will record beneficial ownership of the ETNs by individual investors. Accountholders in
the Euroclear or Clearstream Banking clearance systems may hold beneficial interests in the ETNs through the accounts those systems
maintain with DTC. You should refer to the section “Description of Debt Securities—Book-Entry Procedures and Settlement”
in the accompanying prospectus.
Reference is made to the accompanying prospectus
supplement and prospectus for a detailed summary of additional provisions of the ETNs and of the senior debt indenture under which
the ETNs will be issued.
The “
Inception Date
”
for each series of ETNs is August 15, 2017.
Coupon
We will not make any coupon or interest
payment on the ETNs during the term of the ETNs.
Denomination
The denomination and stated principal amount
per ETN is $25.00.
Closing Indicative Value
Any payment on the ETNs, whether upon early
redemption, acceleration or at maturity, will be based on the Closing Indicative Value of the applicable series of ETNs on one
or more Valuation Dates. The Closing
Indicative Value, in turn, will depend on
the performance of the applicable Index,
plus
the Daily Accrual and
minus
the Daily Investor Fee.
The “
Closing Indicative Value
”
for any series of ETNs on any given calendar day will be calculated in the following manner: The Closing Indicative Value on the
Inception Date will be $25.00. The Closing Indicative Value on each calendar day following the Inception Date for each series of
ETNs will equal:
|
·
|
For each calendar day prior to the Final Valuation Period or any Optional Acceleration Valuation Period for such series of
ETNs, (1)(a) the Closing Indicative Value for such series of ETNs on the immediately preceding calendar day
times
(b) the
Daily ETN Performance for such series of ETNs on such calendar day
minus
(2) the Daily Investor Fee for such series of ETNs
on such calendar day.
|
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·
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For each calendar day during the Final Valuation Period or any Optional Acceleration Valuation Period for such series of ETNs,
the sum of (1) the Index Exposure and (2) the Notional Cash Amount on such calendar day.
|
The Closing Indicative Value will never be less than zero. If
any series of ETNs undergoes a split or reverse split, the Closing Indicative Value for such series of ETNs will be adjusted accordingly
(see “—Split or Reverse Split of the ETNs” below). Janus Index & Calculation Services LLC (“
JICS
”)
or its agent is responsible for computing and disseminating the Closing Indicative Value, subject to CGMI’s right to dispute
JICS’ calculation of the Closing Indicative Value, in which case, if the ETN Calculation Agents are unable to agree, CGMI’s
determination of the Closing Indicative Value shall be conclusive and binding. In addition, CGMI has the sole right to determine
the Closing Indicative Value in connection with an Automatic Acceleration. The Closing Indicative Value for each series of ETNs
will be calculated and published each Index Business Day under the following tickers:
ETNs
|
Indicative Value Ticker
|
Long LIBOR ETNs
|
ULBRIV
|
Short LIBOR ETNs
|
DLBRIV
|
The Closing Indicative Value of each series
of ETNs on each Index Business Day is based on the closing level of the applicable Index on that Index Business Day. The closing
level of the applicable Index on each Index Business Day is determined based on the daily settlement prices of Eurodollar futures
contracts, which are determined as of 3:00 p.m., New York City time, on each Index Business Day. Although the daily settlement
prices are determined as of 3:00 p.m., there is typically a time lag in the publication of the daily settlement prices, and the
closing level of each Index based on the daily settlement prices is typically not published until after the close of trading for
the ETNs on the NYSE Arca. Accordingly, the Closing Indicative Value of each series of ETNs will also not be published until after
the close of trading for the ETNs on the NYSE Arca, but will be based on the daily settlement prices of the applicable Eurodollar
futures contracts as of 3:00 p.m.
The “
Daily ETN Performance
”
for any series of ETNs on any Index Business Day will equal (1) one
plus
(2) the Daily Accrual for such series of ETNs on
such Index Business Day
plus
(3) the Daily Index Performance for such series of ETNs on such Index Business Day. The Daily
ETN Performance for any series of ETNs is deemed to equal one on any day that is not an Index Business Day.
An “
Index Business Day
”
is a weekday on which the New York Stock Exchange and Chicago Mercantile Exchange are both open for trading for their regular trading
sessions.
The “
Daily Accrual
” represents
the rate of interest that could be earned on a notional capital reinvestment at the three month U.S. Treasury rate as reported
on Bloomberg under ticker USB3MTA (or any successor ticker on Bloomberg or any successor service). The Daily Accrual for any series
of ETNs on any Index Business Day will equal:
where
Tbills
t
-1
is the three month
U.S. Treasury rate reported on Bloomberg on the prior Index Business Day and
d
is the number of calendar days from and including
the immediately prior Index Business Day to but excluding the date of determination. The Daily Accrual for any series of ETNs is
deemed to equal zero on any day that is not an Index Business Day.
The “
Daily Index Performance
”
for any series of ETNs on any Index Business Day will equal (1)(a) the closing level of the applicable Index on such Index Business
Day
divided by
(b) the closing level of the applicable Index on the immediately preceding Index Business Day
minus
(2) one, subject to the provisions set forth below under “—Payment at Maturity”, “—Acceleration at
Our Option”, “—Automatic Acceleration” and “—Market Disruption Events”. The Daily Index
Performance for any series of ETNs is deemed to equal zero on any day that is not an Index Business Day.
“
Valuation Period
” means
the Final Valuation Period, an Optional Acceleration Valuation Period or an Automatic Acceleration Valuation Period, as applicable.
“
Valuation Date
” means
each Index Business Day in the Final Valuation Period or any Optional Acceleration Valuation Period and any Early Redemption Valuation
Date.
On any Index Business Day, the “
Daily
Investor Fee
” for any series of ETNs will equal the product of (1) the Closing Indicative Value for such series of ETNs
on the immediately preceding Index Business Day
times
(2)(a) the Investor Fee Factor for such series of ETNs
times
(b) 1/365
times
(c)
d
, where
d
is the number of calendar days from and including the immediately prior Index
Business Day to but excluding the date of determination. The Daily Investor Fee for any series of ETNs is deemed to equal zero
on any day that is not an Index Business Day.
The “
Investor Fee Factor
”
for each series of ETNs is as follows:
Long LIBOR ETNs: 1.50%
Short LIBOR ETNs: 1.50%
The Daily Investor Fee reduces the daily
return of each series of ETNs. Over the time you hold the ETNs, if the level of the applicable Index decreases or does not increase
sufficiently, in addition to the Daily Accrual, to offset the effect of the Daily Investor Fee (and, if applicable, the Early Redemption
Charge and the creation fee), you will receive less than the amount you paid for them upon sale, at maturity or upon early redemption
or acceleration.
The “
closing level
” of
the applicable Index on any Index Business Day will be the official closing level reported by the Index Calculation Agent on the
Bloomberg page as set forth in the table below or any successor page on Bloomberg or any successor service, as applicable, as determined
by the ETN Calculation Agents.
Index
|
Bloomberg Page Ticker
|
Long LIBOR Index
|
ULBRID
|
Short LIBOR Index
|
DLBRID
|
“
Index Exposure
” means,
for each Valuation Date during the Final Valuation Period or any Optional Acceleration Valuation Period, as applicable, the product
of (i) (a) the Index Exposure on the immediately preceding Valuation Date (or, in the case of the first day of such Valuation Period,
the Closing Indicative Value on the immediately preceding Index Business Day)
multiplied by
the Daily ETN Performance on
the current Valuation Date
minus
(b) the Daily Investor Fee on the current Valuation Date and (ii) a fraction equal to (a)
the number of scheduled Valuation Dates left in the applicable Valuation Period, excluding the current Valuation Date,
divided
by
(b) the number of scheduled Valuation Dates
left in the applicable Valuation Period, including the current Valuation Date. The Index Exposure on any day that is not a Valuation
Date will be deemed to be the same as on the immediately preceding Valuation Date.
“
Notional Cash Amount
”
means, for each Valuation Date during the Final Valuation Period or any Optional Acceleration Valuation Period, as applicable,
the sum of (i) the Notional Cash Amount on the immediately preceding Valuation Date (or, in the case of the first day of such Valuation
Period, $0.00) and (ii) (a) (1) the Index Exposure on the immediately preceding Valuation Date (or, in the case of the first day
of such Valuation Period, the Closing Indicative Value on the immediately preceding Valuation Date)
multiplied by
the Daily
ETN Performance on the current Valuation Date
minus
(2) the Daily Investor Fee on the current Valuation Date
multiplied
by
(b) 1
divided by
the number of scheduled Valuation Dates left in the applicable Valuation Period, including the current
Valuation Date. The Notional Cash Amount on any day that is not a Valuation Date will be deemed to be the same as on the immediately
preceding Valuation Date.
During the Final Valuation Period or any
Optional Acceleration Valuation Period, the Closing Indicative Value is calculated in a manner that results in a proportional reduction
of exposure to the applicable Index on each Valuation Date in that Valuation Period. In other words, on each Valuation Date over
the course of the applicable Valuation Period, a portion of each ETN’s value will be converted into notional cash exposure
(and thereby crystallized) based on the level of the applicable Index on that day, and on each subsequent Valuation Date a progressively
smaller portion of the ETNs’ value will be exposed to changes in the applicable Index on that day and a progressively greater
amount will be converted into notional cash exposure, until at the end of the Valuation Period the full amount of the ETNs’
exposure has been converted into notional cash exposure. The cumulative amount of that notional cash exposure is the Closing Indicative
Value on the last Valuation Date of the applicable Valuation Period. On each Valuation Date after the first Valuation Date of the
Final Valuation Period or an Optional Acceleration Valuation Period, the Daily Index Performance (and, in turn, the Daily ETN Performance
and the Closing Indicative Value) will be calculated using an alternative closing level of the applicable Index calculated by the
ETN Calculation Agents that does not give effect to any change to the weights of or the applicable Index’s hypothetical exposure
to the underlying Eurodollar futures contracts that may take place under the Index Methodology after the Valuation Period begins.
Any payment you will be entitled to receive
is subject to the credit risk of Citigroup Global Markets Holdings Inc. and Citigroup Inc.
Payment at Maturity
The maturity date of each series of ETNs
is August 16, 2032 (the “
Maturity Date
”). Persons who hold the ETNs of any series on the Maturity Date will
receive a payment on that date equal to the Closing Indicative Value of such series of ETNs on the final Valuation Date of the
Final Valuation Period, as calculated by the ETN Calculation Agents. On each Valuation Date after the first Valuation Date of the
Final Valuation Period, the Daily Index Performance will be calculated using an alternative closing level of the applicable Index
calculated by the ETN Calculation Agents that does not give effect to any change to the weights of or the applicable Index’s
hypothetical exposure to the underlying Eurodollar futures contracts that may take place under the Index Methodology after the
Final Valuation Period begins (and the Intraday Index Performance will be calculated in a similar manner). We refer to the amount
of such payment as the “
Maturity Redemption Amount
.” The ETNs are intended to be short-term trading tools and
are not intended to be held to maturity.
The “
Final Valuation Period
”
shall be the period of five consecutive Index Business Days commencing on August 3, 2032, each such day subject to postponement
as described in the next paragraph.
If the scheduled Maturity Date is not a
Business Day, the Maturity Date will be postponed to the first Business Day following the scheduled Maturity Date. If any scheduled
Valuation Date in the Final Valuation Period for any series of ETNs is not an Index Business Day, such Valuation Date and each
subsequent Valuation Date in the Final Valuation Period for such series of ETNs will be postponed to the next following Index Business
Day, in which case the Maturity Date will be postponed to the third Business Day following the last Valuation Date in the Final
Valuation Period as so postponed. In addition, if a Market Disruption Event with respect to any series of ETNs occurs or is continuing
on any Valuation Date during the Final Valuation Period for such series of ETNs, such Valuation Date and each subsequent Valuation
Date in the Final Valuation Period for such ETNs will be postponed
(up to five Index Business Days, as described
under “—Market Disruption Events” below) and the Maturity Date for such series of ETNs will be postponed until
the date three Business Days following the last Valuation Date of the Final Valuation Period for such series of ETNs, as postponed.
No interest or additional payment will accrue or be payable as a result of any postponement of the Maturity Date. Any payment on
the ETNs is subject to the credit risk of Citigroup Global Markets Holdings Inc. and Citigroup Inc.
Payment Upon Early Redemption
Prior to maturity or earlier acceleration,
you may, subject to certain restrictions described below, offer at least the applicable Minimum Redemption Amount or more of the
ETNs to us for redemption on an Early Redemption Date during the term of the ETNs. If you elect to offer the ETNs for redemption,
and the requirements for acceptance by us are met, you will receive a cash payment per ETN on the Early Redemption Date equal to
the Early Redemption Amount. Any payment on the ETNs is subject to the credit risk of Citigroup Global Markets Holdings Inc. and
Citigroup Inc.
You may exercise your early redemption right
by causing your broker or other person with whom you hold the ETNs to deliver a Redemption Notice to the Redemption Agent. If your
Redemption Notice is delivered prior to 4:00 p.m., New York City time, on any Business Day, the immediately following Index Business
Day will be the applicable “
Early Redemption Valuation Date
”. Otherwise, the second following Index Business
Day will be the applicable Early Redemption Valuation Date. For an exercise of the early redemption right to be effective, the
applicable Early Redemption Valuation Date must be on or before the first day of any Valuation Period. In addition, if a Trigger
Event occurs or an Automatic Acceleration Valuation Period is continuing on any date that would otherwise be an Early Redemption
Valuation Date, you will not be entitled to receive the Early Redemption Amount and instead will receive the Automatic Acceleration
Redemption Amount. See “—Redemption Procedures.”
You must offer for redemption at least 50,000
ETNs of any one series, or an integral multiple of 50,000 ETNs of such series in excess thereof, at one time in order to exercise
your right to cause us to redeem the ETNs on any Early Redemption Date (the “
Minimum Redemption Amount
”), except
that we or CGMI as one of the ETN Calculation Agents may from time to time reduce, in part or in whole, the Minimum Redemption
Amount. Any such reduction will be applied on a consistent basis for all holders of the relevant series of ETNs at the time the
reduction becomes effective. If the ETNs undergo a split or reverse split, the minimum number of ETNs needed to exercise your right
to redeem will remain the same.
The “
Early Redemption Date
”
is the third Business Day following an Early Redemption Valuation Date. An Early Redemption Date will be postponed if a Market
Disruption Event occurs or is continuing on the applicable Early Redemption Valuation Date. No interest or additional payment will
accrue or be payable as a result of any postponement of any Early Redemption Date. See “—Market Disruption Events”
below.
The “
Early Redemption Charge
”
for any series of ETNs is equal to 0.20%
times
the Closing Indicative Value for such series of ETNs on the Early Redemption
Valuation Date.
The “
Early Redemption Amount
”
is a cash payment per ETN equal to the greater of (A) zero and (B)(1) the Closing Indicative Value for such series of ETNs on the
Early Redemption Valuation Date
minus
(2) the Early Redemption Charge and will be calculated by the ETN Calculation Agents.
Redemption Procedures
If you wish to offer the ETNs to us for
redemption, your broker must follow the following procedures:
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·
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Deliver a notice of redemption, in substantially the form of Annex A (the “
Redemption Notice
”), to Janus
Henderson Distributors (“
JHD
”) (the “
Redemption Agent
”) via email or other electronic delivery
as requested by the Redemption Agent. If your Redemption Notice is delivered prior to 4:00 p.m., New York City time, on any Business
Day, the immediately following Index Business Day will be the applicable “
Early Redemption Valuation Date
”.
Otherwise, the second following Index Business Day will be the applicable Early Redemption Valuation Date. If the Redemption Agent
receives your Redemption Notice no later than 4:00 p.m., New York City time, on any Business Day, the Redemption Agent will respond
by sending your broker an
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acknowledgment of the Redemption Notice accepting your
redemption request by 7:30 p.m., New York City time, on the Business Day prior to the applicable Early Redemption Valuation Date.
The Redemption Agent or its affiliate must acknowledge to your broker acceptance of the Redemption Notice (the “
Confirmation
”)
in order for your redemption request to be effective;
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·
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Cause your DTC custodian to book a delivery vs. payment trade with respect to the ETNs on the applicable Early Redemption Valuation
Date, facing Citigroup Global Markets Inc., DTC #0418, or such other DTC account as specified in the Confirmation; and
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·
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Cause your DTC custodian to deliver the trade as booked for settlement via DTC at or prior to 10:00 a.m. New York City time,
on the applicable Early Redemption Date (the third Business Day following the Early Redemption Valuation Date).
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You are responsible for (i) instructing
or otherwise causing your broker to provide the Redemption Notice and (ii) your broker satisfying the additional requirements as
set forth in the second and third bullets above in order for the redemption to be effected. Different brokerage firms may have
different deadlines for accepting instructions from their customers. Accordingly, you should consult the brokerage firm through
which you own your interest in the ETNs in respect of such deadlines. If the Redemption Agent does not (i) receive the Redemption
Notice from your broker by 4:00 p.m. and (ii) deliver an acknowledgment of such Redemption Notice to your broker accepting your
redemption request by 7:30 p.m., on the Business Day prior to the applicable Early Redemption Valuation Date, such notice will
not be effective for such Business Day and the Redemption Agent will treat such Redemption Notice as if it was received on the
next Business Day. Any redemption instructions for which the Redemption Agent receives a valid Redemption Notice in accordance
with the procedures described above will be irrevocable.
If the Redemption Agent ceases to perform
its role described in this pricing supplement, we will either, at our sole discretion, perform such role or appoint another party
to do so.
When you submit your ETNs for redemption
in accordance with the redemption procedures described above, CGMI may repurchase the ETNs from you at the Early Redemption Amount
instead of our redeeming the ETNs, and if CGMI does not repurchase the ETNs, then we will redeem them. Any ETNs repurchased by
CGMI may remain outstanding (and be resold by CGMI) or may be submitted to us for cancellation.
Because the Early Redemption Amount you
will receive for each ETN will not be calculated until the Index Business Day (or the second following Index Business Day) immediately
following the Business Day you offer your ETNs for redemption, you will not know the applicable Early Redemption Amount at the
time you exercise your early redemption right and will bear the risk that your ETNs will decline in value between the time of your
exercise and the time at which the Early Redemption Amount is determined.
Acceleration at Our Option
We will have the right to accelerate the
ETNs of any series in whole but not in part on any Business Day occurring on or after the Inception Date (an “
Optional
Acceleration
”). Upon an Optional Acceleration, the holders of such ETNs will receive a cash payment per ETN in an amount
(the “
Optional Acceleration Redemption Amount
”) equal to the Closing Indicative Value of such series of ETNs
on the final Valuation Date of the Optional Acceleration Valuation Period. On each Valuation Date after the first Valuation Date
of the Optional Acceleration Valuation Period, the Daily Index Performance will be calculated using an alternative closing level
of the applicable Index calculated by the ETN Calculation Agents that does not give effect to any change to the weights of or the
applicable Index’s hypothetical exposure to the underlying Eurodollar futures contracts that may take place under the Index
Methodology after the Optional Acceleration Valuation Period begins (and the Intraday Index Performance will be calculated in a
similar manner).
In the case of an Optional Acceleration
of the ETNs of any series, the “
Optional Acceleration Valuation Period
” shall be a period of five consecutive
Index Business Days specified in our notice of Optional Acceleration, the first Index Business Day of which shall be at least two
Business Days after the date on which we give you notice of such Optional Acceleration
.
The Optional Acceleration Redemption Amount will be payable on the third Business Day following the last such Index Business
Day in the Optional Acceleration Valuation Period (such third Business Day the “
Optional Acceleration Date
”).
The Optional Acceleration Date will be postponed if the last
scheduled Valuation Date in the Optional
Acceleration Valuation Period is postponed. No interest or additional payment will accrue or be payable as a result of any postponement
of the Optional Acceleration Date. See “—Market Disruption Events” below. We will give you notice of any Optional
Acceleration of the ETNs through customary channels used to deliver notices to holders of exchange traded notes.
Any payment you will be entitled to receive
is subject to the credit risk of Citigroup Global Markets Holdings Inc. and Citigroup Inc.
Any ETNs accelerated in an Optional Acceleration
will be cancelled on the Optional Acceleration Date. Consequently, as of such Optional Acceleration Date, the ETNs will no longer
be considered outstanding.
Automatic Acceleration
If the Intraday Indicative Value of any
series of ETNs at any time on any scheduled Index Business Day is less than 50% of the Closing Indicative Value of such series
of ETNs on the immediately preceding Index Business Day (meaning that the Intraday Indicative Value has declined by more than 50%
from the prior Index Business Day’s Closing Indicative Value) (such event, a “
Trigger Event
”), such series
of ETNs will be automatically accelerated (an “
Automatic Acceleration
”) and the holders of such ETNs will receive
a cash payment per ETN on the Automatic Acceleration Date equal to the Automatic Acceleration Redemption Amount. We refer to the
date on which the relevant Trigger Event occurs as the “
Trigger Date
” and to the scheduled Index Business Day
immediately following the Trigger Date as the “
Automatic Acceleration Valuation Date
”.
In the event of Automatic Acceleration of
any series of ETNs, the “
Automatic Acceleration Redemption Amount
” of such series of ETNs will be a value equal
to the Closing Indicative Value of such series of ETNs on the Automatic Acceleration Valuation Date, calculated as though the closing
level of the applicable Index on both the Trigger Date and the Automatic Acceleration Valuation Date were equal to the Automatic
Acceleration Index Level of the applicable Index.
The “
Automatic Acceleration Index
Level
” of the applicable Index will be an alternative closing level of the applicable Index calculated by the ETN Calculation
Agents and will be the closing level that would be calculated on the Trigger Date if the official daily settlement price on the
Trigger Date of each Eurodollar futures contract included in the applicable Index on the Trigger Date were equal to the volume-weighted
average trading price of such contract during the Automatic Acceleration Valuation Period, subject to “—Market Disruption
Events” below.
If a Trigger Event occurs on any scheduled
Index Business Day, the “
Automatic Acceleration Valuation Period
” is the period commencing immediately upon
the occurrence of the Trigger Event and continuing during Eurodollar Trading Hours until the end of Eurodollar Trading Hours on
the Automatic Acceleration Valuation Date.
“
Eurodollar Trading Hours
”
are the period from the open of trading on the NYSE Arca (which is currently 9:30 a.m., New York City time) until the time as of
which CME Group is scheduled to determine the daily settlement price of Eurodollar futures contracts on each scheduled Index Business
Day (which is currently 3:00 p.m., New York City time).
The Automatic Acceleration Redemption Amount
will be payable on the third Business Day following the Automatic Acceleration Valuation Date (such third Business Day, the “
Automatic
Acceleration Date
”).
If a Trigger Event occurs, the holders of
the applicable series of ETNs will receive the Automatic Acceleration Redemption Amount as described in this section and not any
other amount. For example, if a Trigger Event occurs or an Automatic Acceleration Valuation Period is continuing on any date that
would otherwise be an Early Redemption Valuation Date, the applicable holder will not be entitled to receive the Early Redemption
Amount and instead will receive the Automatic Acceleration Redemption Amount. In addition, if an Automatic Acceleration occurs
following the delivery of a notice of Optional Acceleration or during a Valuation Period, holders will not be entitled to receive
the Optional Acceleration Redemption Amount or the Maturity Redemption Amount and instead will receive the Automatic Acceleration
Redemption Amount.
We will not give you notice of any Automatic
Acceleration of the ETNs.
Any payment you will be entitled to receive
is subject to the credit risk of Citigroup Global Markets Holdings Inc. and Citigroup Inc.
Any ETNs accelerated in an Automatic Acceleration
will be cancelled on the Automatic Acceleration Date. Consequently, as of such Automatic Acceleration Date, the ETNs will no longer
be considered outstanding.
Market Disruption Events
A “
Market Disruption Event
”
means, with respect to any series of ETNs, any event that, in the determination of the ETN Calculation Agents, could materially
interfere with our affiliates’, third parties with whom we transact or similarly situated third parties’ ability to
establish, maintain or unwind all or a material portion of a hedge that could be effected with respect to such series of ETNs,
including, but not limited to, the following (to the extent determined material by the ETN Calculation Agents):
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a termination or suspension of, or a material limitation or disruption in trading in, any Eurodollar futures contract included
in the applicable Index (an “
index contract
”);
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·
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the published trading price or settlement price for any index contract being at or about any then effective limit price established
by the exchange on which such index contract is traded;
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·
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failure by the applicable exchange or other price source to publish the trading price of any index contract during normal trading
hours in accordance with normal practice or to announce or publish the settlement price for any index contract in accordance with
normal practice; or
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·
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failure of the Index Sponsor to publish the level of the applicable Index, subject to certain adjustments described below under
“—Discontinuation or Modification of an Index; Substitution of an Index”.
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Because we expect that a significant portion
of this hedging activity will be carried out at or around 3:00 p.m., New York City time, we expect that events that do not occur
or continue at or around that time will likely not be determined to be Market Disruption Events, except in connection with an Automatic
Acceleration, in which case we expect this hedging activity to occur during the Automatic Acceleration Valuation Period.
With respect to each series of ETNs, if
a Market Disruption Event occurs or is continuing on any Index Business Day or occurred or was continuing on the prior Index Business
Day, the ETN Calculation Agents will calculate an appropriate alternative closing level of the applicable Index for each such Index
Business Day (and will use such alternative closing level for purposes of the applicable ETNs, including for purposes of determining
the Daily Index Performance) taking into account the nature and duration of such Market Disruption Event. The ETN Calculation Agents
will calculate such alternative closing level without giving effect to any change to the weights of or the applicable Index’s
hypothetical exposure to the underlying Eurodollar futures contracts that may take place under the Index Methodology during the
continuance of the Market Disruption Event. In addition, (x) if a Market Disruption Event occurred or was continuing on the Index
Business Day immediately preceding the date of determination, the ETN Calculation Agents will determine the Intraday Index Performance
on such date of determination using such alternative closing level and (y) if a Market Disruption Event occurs or is continuing
on the date of determination, the ETN Calculation Agents will determine the Intraday Index Performance during the Market Disruption
Event on such date of determination using an appropriate intraday level of the applicable Index taking into account the nature
and duration of such Market Disruption Event.
If a Market Disruption Event occurs or is
continuing on any Valuation Date, that Valuation Date will be postponed until the first Index Business Day on which no Market Disruption
Event occurs or is continuing, unless a Market Disruption Event occurs or is continuing for each of the five Index Business Days
following the applicable scheduled Valuation Date. In that case, the fifth Index Business Day following the applicable scheduled
Valuation Date shall be deemed to be the applicable Valuation Date, notwithstanding the fact that a Market Disruption Event occurred
or was continuing on such Index Business Day, and the ETN Calculation Agents will determine the applicable Closing Indicative Value
using an appropriate alternative closing level of the applicable Index on that deemed Valuation Date taking into account the nature
and duration of such Market Disruption Event. If any Valuation Date in any Valuation Period is postponed as described above, each
subsequent Valuation Date in such
Valuation Period will be postponed by the
same number of Index Business Days. In addition, if a Valuation Date corresponding to an Early Redemption Date or the last scheduled
Valuation Date in any Valuation Period is postponed, the corresponding Early Redemption Date, the Optional Acceleration Date or
the Maturity Date, as the case may be, will be postponed until the date three Business Days following such Valuation Date, as postponed.
For the avoidance of doubt, the days occurring
during an Automatic Acceleration Valuation Period are not considered Valuation Dates and are not subject to postponement in the
event of a Market Disruption Event.
Intraday Indicative Value
The “
Intraday Indicative Value
”
for each series of the ETNs will be calculated every 15 seconds on each Index Business Day during NYSE Arca trading hours and will
be disseminated over the Consolidated Tape, or other major market data vendor, and will equal:
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For each Index Business Day prior to the Final Valuation Period or any Optional Acceleration Valuation Period for such series
of ETNs, (1)(a) the Closing Indicative Value for such series of ETNs on the immediately preceding calendar day
times
(b)
the Intraday ETN Performance at such time on such Index Business Day
minus
(2) the Daily Investor Fee for such series of
ETNs on such Index Business Day.
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·
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For each Index Business Day during the Final Valuation Period or any Optional Acceleration Valuation Period for such series
of ETNs, (1) the sum of (a) the Intraday Index Exposure and (b) the Intraday Notional Cash Amount
minus
(2) the Daily Investor
Fee for such series of ETNs on such Index Business Day.
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At any time at which a Market Disruption Event with respect
to any series of ETNs has occurred and is continuing, there shall be no Intraday Indicative Value for such series of ETNs, except
for purposes of determining whether a Trigger Event has occurred. For purposes of determining whether a Trigger Event has occurred,
the Intraday Indicative Value will be calculated on each scheduled Index Business Day as if such day were an Index Business Day.
As discussed above under “—Closing
Indicative Value”, the daily settlement prices of Eurodollar futures contracts are determined as of 3:00 p.m., New York City
time, on each Index Business Day. However, because of a time lag in the publication of the daily settlement prices, the closing
level of each Index, which is based on the daily settlement prices, is typically not published until after the close of trading
on the NYSE Arca. Between 3:00 p.m. and the close of trading on the NYSE Arca, the Index Calculation Agent suspends real-time updates
to the calculation of the intraday level of each Index, because an accurate intraday level during this time period would require
a reset of hypothetical Eurodollar futures contract exposure based on the closing level on that day, which will not yet be available.
Throughout this full time period, the Intraday Indicative Value of each series of ETNs will continue to be calculated and disseminated
based on the most recently published intraday level of the applicable Index. However, because real-time updates to the calculation
of the intraday Index level will be suspended as of 3:00 p.m., the Intraday Indicative Value will not change, and therefore will
not reflect trading in Eurodollar futures contracts that takes place, during this time period.
For this reason, between 3:00
p.m. and the close of trading on the NYSE Arca, the Intraday Indicative Value is likely to differ from the value of the ETNs that
would be determined if complete and fully up-to-date information were available and used in the calculation. As a result, we expect
there to be uncertainty about the intrinsic value of the ETNs during this time period, and the trading price of the ETNs is likely
to diverge from the Intraday Indicative Value during this time period. Investors should exercise caution in connection with any
trading in this time period, particularly if there is a significant move in Eurodollar futures prices during this time period.
Although the daily settlement price of Eurodollar
futures contracts (and, in turn, the closing level of each Index) is determined as of 3:00 p.m. on each Index Business Day, this
value may differ from the most recent published trading price of Eurodollar futures contracts (and, in turn, each intraday Index
level) at 3:00 p.m. because the daily settlement price is determined according to the procedure described in “Information
About Eurodollar Futures Contracts” in this pricing supplement, which is not based simply on the last reported trade at 3:00
p.m. Accordingly, the Closing Indicative Value that is published after the close of trading on the NYSE Arca based on
the closing level of the applicable Index
may differ from the Intraday Indicative Value published based on the intraday level of the applicable Index at 3:00 p.m.
The “
Intraday ETN Performance
”
for any series of ETNs at any time on any Index Business Day will equal (1) one
plus
(2) the Daily Accrual for such series
of ETNs on such Index Business Day
plus
(3) the Intraday Index Performance for such series of ETNs at such time on such
Index Business Day.
The “
Intraday Index Performance
”
for any series of ETNs at any time on any Index Business Day will equal (1)(a) the most recent published intraday level of the
applicable Index at such time on such Index Business Day
divided by
(b) the closing level of the applicable Index on the
immediately preceding Index Business Day
minus
(2) one, subject to the provisions set forth above under “—Payment
at Maturity”, “—Acceleration at Our Option” , “—Automatic Acceleration” and “—Market
Disruption Events”.
“
Intraday Index Exposure
”
means, at any time on any Valuation Date during the Final Valuation Period or any Optional Acceleration Valuation Period, as applicable,
the product of the Index Exposure on the immediately preceding Valuation Date (or, in the case of the first day of such Valuation
Period, the Closing Indicative Value on the immediately preceding Index Business Day)
multiplied by
the Intraday ETN Performance
at such time on the current Valuation Date.
“
Intraday Notional Cash Amount
”
means, at any time on any Valuation Date during the Final Valuation Period or any Optional Acceleration Valuation Period, as applicable
(or any day during an Automatic Acceleration Valuation Period), the Notional Cash Amount on the immediately preceding Valuation
Date (or, in the case of the first day of such Valuation Period, $0.00).
The Intraday Indicative Value calculation
is not intended as a price or quotation, or as an offer or solicitation for the purchase, sale, redemption, acceleration or termination
of the ETNs, nor will it reflect hedging or transaction costs, credit considerations, market liquidity or bid-offer spreads. Published
levels of the applicable Index from the Index Calculation Agent may occasionally be subject to delay or postponement. Any such
delays or postponements will affect the current level of the applicable Index for such series of ETNs and therefore the Intraday
Indicative Value for such series of ETNs. The actual trading price of the ETNs of any series may be different from their Intraday
Indicative Value. JICS or its agent is responsible for computing and disseminating the Intraday Indicative Value, except that CGMI
has the sole right to determine the Intraday Indicative Value in connection with an Automatic Acceleration.
The actual trading prices of the ETNs
at any time may vary significantly from their Intraday Indicative Values at such time. The trading price of the ETNs at any time
is the price at which you may be able to sell your ETNs in the secondary market at such time, if one exists.
Split or Reverse Split of the ETNs
The ETN Calculation Agents may initiate
a split or reverse split of the ETNs at any time. If the ETN Calculation Agents decide to initiate a split or reverse split, the
ETN Calculation Agents will issue a notice to holders of the ETNs and a press release announcing the split or reverse split, specifying
the effective date of the split or reverse split. The ETN Calculation Agents will determine the ratio of such split or reverse
split, as the case may be, using relevant market indicia, and will adjust the terms of the ETNs accordingly. Any adjustment of
the Closing Indicative Value will be rounded to 8 decimal places.
In the case of a reverse split, we reserve
the right to address odd numbers of ETNs (commonly referred to as “partials”) in a manner determined by the ETN Calculation
Agents in their sole discretion. For example, if the ETNs undergo a 1-for-4 reverse split, holders who own a number of ETNs on
the record date that is not evenly divisible by 4 will receive the same treatment as all other holders for the maximum number of
ETNs they hold that is evenly divisible by 4, and we will have the right to compensate holders for their remaining or “partial”
ETNs in a manner determined by the ETN Calculation Agents in their sole discretion. Our current intention is to provide holders
with a cash payment for their partials in an amount equal to the appropriate percentage of the Closing Indicative Value for the
ETNs on a specified Index Business Day following the announcement date.
A split or reverse split of the ETNs will
not affect the aggregate stated principal amount of ETNs held by an investor, other than to the extent of any “partial”
ETNs, but it will affect the stated principal amount per unit of ETNs, the number of ETNs an investor holds and the denominations
used for trading purposes on the exchange.
Events of Default
In case an event of default (as defined
in the accompanying prospectus) with respect to any series of ETNs shall have occurred and be continuing, the amount declared due
and payable for each ETN of that series upon acceleration of those ETNs will be equal to the Maturity Redemption Amount for that
series of ETNs, calculated as though the Final Valuation Period began as of the Index Business Day immediately following the date
of acceleration.
If the maturity of the ETNs is accelerated
because of an event of default as described above, we shall, or shall cause the ETN Calculation Agents to, provide written notice
to the trustee at its New York office, on which notice the trustee may conclusively rely, and to DTC of the amount due with respect
to each ETN and the aggregate cash amount due with respect to the ETNs of the applicable series as promptly as possible and in
no event later than two Business Days after the end of the period referred to in the immediately preceding paragraph.
Default interest will not accrue either
before or after maturity or acceleration of any series of ETNs.
Further Issuances
We may, from time to time, without notice
to or the consent of the holders of the ETNs, create and issue additional securities having the same terms and conditions as the
ETNs offered by this
pricing supplement
, and ranking on an equal basis with the ETNs in
all respects. If there is substantial demand for the ETNs, we may issue additional ETNs frequently. We may sell additional ETNs
of any series at different prices but we are under no obligation to issue or sell additional ETNs of any series at any time, and
if we do sell additional ETNs of any series, we may limit or restrict such sales, and we may stop and subsequently resume selling
additional ETNs of such series at any time. Furthermore, the stated principal amount of each series of ETNs stated at the top of
the cover page of this pricing supplement is the maximum amount of each series of ETNs that we have currently authorized for issuance.
Although we have the right to increase the authorized amount of either series of ETNs at any time, it is our current intention
not to issue more than the current maximum authorized amount of each series of ETNs, even if there is substantial market demand
for additional ETNs of such series. We may also reduce the maximum authorized amount of each series of ETNs at any time and have
no obligation to issue up to the maximum authorized amount.
Any limitation or suspension on the issuance
of the ETNs may materially and adversely affect the price and liquidity of the ETNs in the secondary market. Alternatively, the
decrease in supply may cause an imbalance in the market supply and demand, which may cause the ETNs to trade at a premium over
the Intraday Indicative Value of the ETNs. Unless we indicate otherwise, if we suspend selling additional ETNs, we reserve the
right to resume selling additional ETNs at any time, which might result in the reduction or elimination of any premium in the trading
price. Any premium may be reduced or eliminated at any time. We have no obligation to take your interests into account when deciding
to issue or not to issue additional ETNs.
Any further issuances of the ETNs of any
series will have the same CUSIP number and will trade interchangeably with the offered ETNs of such series. Any additional ETNs
will be consolidated and form a single series with the ETNs of the applicable series.
CGMI may condition its acceptance of a market
maker’s, other market participant’s or investor’s offer to purchase the ETNs on its agreeing to purchase certain
exchange traded notes issued by us or enter into certain transactions consistent with our hedging strategy, including but not limited
to swaps. Any limitation or suspension on the issuance of the ETNs may materially and adversely affect the price and liquidity
of the ETNs in the secondary market.
Discontinuation or Modification of an Index; Substitution
of an Index
If the Index Sponsor discontinues publication
of the applicable Index and the Index Sponsor or anyone else publishes a substitute index that the ETN Calculation Agents determine
is comparable to the applicable Index, then the ETN Calculation Agents will permanently replace the applicable original Index with
that substitute index (the “
Successor Index
”) for all purposes under the applicable series of ETNs, and all
provisions described in this pricing supplement as applying to the applicable Index will thereafter apply to the Successor Index
instead. In such event, the ETN Calculation Agents will make such adjustments, if any, to any level of the applicable Index or
Successor Index that is used for purposes of the ETNs as they determine are appropriate in the circumstances. If the ETN Calculation
Agents replace the applicable original Index for any series of ETNs with a Successor Index, then the ETN Calculation Agents will
determine the Early Redemption Amount, Optional Acceleration Redemption Amount, Automatic Acceleration Redemption Amount or Maturity
Redemption Amount (each, a “
Redemption Amount
”), as applicable, for the applicable series of ETNs by reference
to the Successor Index.
If the ETN Calculation Agents determine
that the publication of the applicable Index is discontinued and there is no Successor Index, the ETN Calculation Agents will determine
the applicable level of the applicable Index, and thus the applicable Redemption Amount, by a computation methodology that the
ETN Calculation Agents determine will as closely as reasonably possible replicate the applicable Index.
In addition, if an Index Replacement Event
(as defined below) occurs at any time and the Index Sponsor or anyone else publishes an index that the ETN Calculation Agents determine
is comparable to the applicable Index (the “
Substitute Index
”), then the ETN Calculation Agents may elect, in
their sole discretion, to permanently replace the applicable original Index with the Substitute Index for all purposes under the
applicable series of ETNs, and all provisions described in this pricing supplement as applying to the applicable Index will thereafter
apply to the Substitute Index instead. In such event, the ETN Calculation Agents will make such adjustments, if any, to any level
of the applicable Index or Substitute Index that is used for purposes of the ETNs as they determine are appropriate in the circumstances.
If the ETN Calculation Agents elect to replace the applicable original Index with a Substitute Index, then the ETN Calculation
Agents will determine the applicable Redemption Amount for the applicable series of ETNs by reference to the Substitute Index.
If the ETN Calculation Agents so elect to replace the applicable original Index with a Substitute Index, the ETN Calculation Agents
will, within 10 Index Business Days after the ETN Calculation Agents determine that an Index Replacement Event has occurred, notify
you of the Substitute Index through customary channels used to deliver notices to the holders of exchange traded notes.
For purposes of determining whether an index
is comparable to the applicable Index in accordance with this section, if the ETN Calculation Agents determine that the 3-month
U.S. dollar LIBOR rate has been or will be discontinued or its status as an economic benchmark has significantly diminished and
that an alternative rate exists that is regarded by market participants as a successor or substitute for 3-month U.S. dollar LIBOR
for any relevant purpose, such determination shall be a sufficient basis for the ETN Calculation Agents to determine that such
alternative rate is comparable to 3-month U.S. dollar LIBOR and that any futures contract referencing such alternative rate is
comparable to Eurodollar futures contracts, regardless of whether such alternative rate has a tenor of 3 months or reflects bank
credit risk. Furthermore, the ETN Calculation Agents may deem such index to be comparable to the applicable Index even if the number
or tenors of futures contracts referencing such alternative rate included in such index differ from those of the Eurodollar futures
contracts included in the applicable Index.
If the ETN Calculation Agents determine
that the applicable Index, the Eurodollar futures contracts included in the applicable Index or the method of calculating the applicable
Index is changed at any time in any respect, including whether the change is made by the Index Sponsor under its existing policies
or following a modification of those policies, is due to the publication of a Successor Index, is due to events affecting the Eurodollar
futures contracts included in the applicable Index or is due to any other reason and is not otherwise reflected in the level of
the applicable Index by the Index Sponsor pursuant to the methodology described herein, then the ETN Calculation Agents will be
permitted (but not required) to make such adjustments in the applicable Index or the method of its calculation as they believe
are appropriate to ensure that the applicable closing level of the applicable Index used to determine the applicable Redemption
Amount is equitable.
An “
Index Replacement Event
”
means:
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(a)
|
an amendment to or change (including any officially announced proposed change) in the laws, regulations or rules of the United
States (or any political subdivision thereof), or any jurisdiction in which a Primary Exchange or Related Exchange (each as defined
herein) is located that (i) makes it illegal for CGMI or its affiliates to hold, acquire or dispose of the Eurodollar futures contracts
included in the applicable Index or options, futures, swaps or other derivatives on the applicable Index or the Eurodollar futures
contracts included in the applicable Index (including but not limited to exchange-imposed position limits), (ii) materially increases
the cost to us, our affiliates, third parties with whom we transact or similarly situated third parties in performing our or their
obligations in connection with the ETNs, (iii) has a material adverse effect on any of these parties’ ability to perform
their obligations in connection with the ETNs or (iv) materially affects our ability to issue or transact in exchange traded notes
similar to the ETNs, each as determined the ETN Calculation Agents;
|
|
(b)
|
any official administrative decision, judicial decision, administrative action, regulatory interpretation or other official
pronouncement interpreting or applying those laws, regulations or rules that is announced on or after the Inception Date that (i)
makes it illegal for CGMI or its affiliates to hold, acquire or dispose of the Eurodollar futures contracts included in the applicable
Index or options, futures, swaps or other derivatives on the applicable Index or the Eurodollar futures contracts included in the
applicable Index (including but not limited to exchange-imposed position limits), (ii) materially increases the cost to us, our
affiliates, third parties with whom we transact or similarly situated third parties in performing our or their obligations in connection
with the ETNs, (iii) has a material adverse effect on the ability of us, our affiliates, third parties with whom we transact or
a similarly situated third party to perform our or their obligations in connection with the ETNs or (iv) materially affects our
ability to issue or transact in exchange traded notes similar to the ETNs, each as determined by the ETN Calculation Agents;
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|
(c)
|
any event that occurs on or after the Inception Date that makes it a violation of any law, regulation or rule of the United
States (or any political subdivision thereof), or any jurisdiction in which a Primary Exchange or Related Exchange (each as defined
herein) is located, or of any official administrative decision, judicial decision, administrative action, regulatory interpretation
or other official pronouncement interpreting or applying those laws, regulations or rules, (i) for CGMI to hold, acquire or dispose
of the Eurodollar futures contracts included in the applicable Index or options, futures, swaps or other derivatives on the applicable
Index or the Eurodollar futures contracts included in the applicable Index (including but not limited to exchange-imposed position
limits), (ii) for us, our affiliates, third parties with whom we transact or similarly situated third parties to perform our or
their obligations in connection with the ETNs or (iii) for us to issue or transact in exchange traded notes similar to the ETNs,
each as determined by the ETN Calculation Agents;
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(d)
|
any event, as determined by the ETN Calculation Agents, as a result of which we or any of our affiliates or a similarly situated
party would, after using commercially reasonable efforts, be unable to, or would incur a materially increased amount of tax, duty,
expense or fee (other than brokerage commissions) to, acquire, establish, re-establish, substitute, maintain, unwind or dispose
of any transaction or asset it deems necessary to hedge the risk of the ETNs, or realize, recover or remit the proceeds of any
such transaction or asset;
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(e)
|
any event or series of events, as determined by the ETN Calculation Agents, as a result of which the 3-month U.S. dollar LIBOR
rate has been or will be discontinued or its status as an economic benchmark is significantly diminished; or
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(f)
|
as determined by the ETN Calculation Agents, the primary exchange or market for trading for the ETNs, if any, announces that
pursuant to the rules of such exchange or market, as applicable, the ETNs cease (or will cease) to be listed, traded or publicly
quoted on such exchange or market, as applicable, for any reason and are not immediately re-listed, re-traded or re-quoted on an
exchange or quotation system located in the same country as such exchange or market, as applicable.
|
“
Primary Exchange
” means
the primary exchange on which Eurodollar futures contracts included in the applicable Index are traded, as determined by the ETN
Calculation Agents, which is initially CME Globex.
“
Related Exchange
” means
each exchange or quotation system where trading has a material effect (as determined by the ETN Calculation Agents) for the overall
market for futures or options contracts relating to (i) the applicable Index or (ii) the Eurodollar futures contracts included
in the applicable Index.
Role of ETN Calculation Agents
CGMI, an affiliate of ours, and JICS will
serve as the ETN Calculation Agents. The ETN Calculation Agents will, in their good faith and commercially reasonable judgment,
make all calculations and determinations regarding the value of the ETNs, including at maturity or upon early redemption or acceleration,
Market Disruption Events (see “—Market Disruption Events”), Business Days and Index Business Days, the Daily
Investor Fee amount, the Daily Accrual, the closing level of each Index on any Index Business Day, the Maturity Date, any Early
Redemption Dates, any Optional Acceleration Date, any Automatic Acceleration Date, the amount payable in respect of the ETNs at
maturity, upon redemption or upon acceleration and any other calculations or determinations to be made by the ETN Calculation Agents
as specified herein. CGMI will have the sole ability to make determinations with respect to reduction of the Minimum Redemption
Amount, calculation of default amounts, calculations of the Intraday Indicative Value in connection with determining whether a
Trigger Event occurs, calculating the Automatic Acceleration Index Level and calculating the Closing Indicative Value in the event
of an Automatic Acceleration. JICS will have the sole ability to calculate and disseminate the number of ETNs outstanding, the
Closing Indicative Value and the Intraday Indicative Value (other than as described in the preceding sentence), subject to CGMI’s
right to dispute JICS’ calculation of the Closing Indicative Value, in which case, if the ETN Calculation Agents are unable
to agree, CGMI’s determination of the Closing Indicative Value shall be conclusive and binding. All other determinations
will be made by the ETN Calculation Agents jointly, except that, if the ETN Calculation Agents are unable to agree following a
dispute resolution procedure, CGMI’s calculation shall be conclusive and binding. Absent manifest error, all determinations
of the ETN Calculation Agents will be final and binding on you and us, without any liability on the part of the ETN Calculation
Agents. You will not be entitled to any compensation from us for any loss suffered as a result of any of the above determinations
by the ETN Calculation Agents.
If any of the ETN Calculation Agents cease
to perform their respective roles described in this pricing supplement, we will either, at our sole discretion, perform such roles,
appoint another party to do so or accelerate the relevant series of ETNs.
CGMI’s agreement with JICS requires
the following statement to appear in this pricing supplement:
ALTHOUGH JANUS INDEX & CALCULATION SERVICES
LLC SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN CALCULATIONS RELATED TO THE ETNS AND/OR THE INDICES FROM SOURCES WHICH
JANUS INDEX & CALCULATION SERVICES LLC CONSIDERS RELIABLE, NEITHER JANUS INDEX & CALCULATION SERVICES LLC NOR ANY OTHER
PARTY GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE INDICES OR ANY DATA INCLUDED THEREIN OR ANY CALCULATIONS MADE WITH
RESPECT TO THE ETNS. NEITHER JANUS INDEX & CALCULATION SERVICES LLC NOR ANY OTHER PARTY MAKES ANY WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY CITIGROUP GLOBAL MARKETS HOLDINGS INC., ITS CUSTOMERS AND COUNTERPARTIES, HOLDERS OF THE ETNS,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDICES OR ANY DATA INCLUDED THEREIN OR ANY CALCULATIONS MADE WITH RESPECT TO
THE ETNS. NEITHER JANUS INDEX & CALCULATION SERVICES LLC NOR ANY OTHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND JANUS
INDEX & CALCULATION SERVICES LLC HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
WITH RESPECT TO THE INDICES OR ANY DATA INCLUDED THEREIN OR ANY CALCULATIONS MADE WITH RESPECT TO THE ETNS. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL JANUS INDEX & CALCULATION SERVICES LLC OR ANY OTHER PARTY HAVE ANY LIABILITY FOR ANY DIRECT,
INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF
SUCH DAMAGES.
The ETNs are not sponsored, endorsed or
sold by Janus Index & Calculation Services LLC, nor does Janus Index & Calculation Services LLC make any representation
regarding the advisability of investing in any of the ETNs.