Filed Pursuant to Rule 424(b)(2)
Registration Nos. 333-135867, 333-135867-10
and 333-135867-11
THE INFORMATION IN THIS PROSPECTUS AND PRICING SUPPLEMENT IS NOT COMPLETE AND
MAY BE CHANGED. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS PROSPECTUS AND PRICING
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 25, 2006
TRUST CERTIFICATES PROSPECTUS
MEDIUM-TERM NOTES, SERIES D, PRICING SUPPLEMENT NO. 2006-MTNDD049, DATED
, 2006
INDEX WARRANTS, SERIES W-A, PRICING SUPPLEMENT NO. 2006-WADD049, DATED ,
2006
SAFETY FIRST TRUST SERIES 2006-1
PRINCIPAL-PROTECTED TRUST CERTIFICATES
LINKED TO THE DOW JONES INDUSTRIAL AVERAGE(SM)
AND THE NIKKEI 225 STOCK AVERAGE(SM)
DUE ON
$10.00 PER CERTIFICATE
ANY PAYMENTS DUE FROM SAFETY FIRST TRUST SERIES 2006-1
GUARANTEED BY CITIGROUP FUNDING INC.
ANY PAYMENTS DUE FROM CITIGROUP FUNDING INC.
GUARANTEED BY CITIGROUP INC.
- - We will not make any payments on the certificates prior to maturity.
- - The certificates will mature on approximately , 2010. You will
receive at maturity for each certificate you hold an amount in cash equal to
$10 plus a supplemental distribution amount, which may be positive or zero.
- - The supplemental distribution amount will be based on the percentage change of
the value of an underlying basket comprised of the Dow Jones Industrial
Average and the Nikkei 225 Stock Average, each initially equally weighted,
during the term of the certificates. The supplemental distribution amount for
each certificate will equal the product of (a) $10 and (b) the percentage
change in the value of the underlying basket, provided that the supplemental
distribution amount will not be less than zero.
- - The certificates are preferred securities of Safety First Trust Series 2006-1.
The assets of the trust will consist of Citigroup Funding's equity index
participation securities and equity index warrants.
- The equity index participation securities will mature on approximately
, 2010. At maturity, each security will pay an amount equal to $10
plus a security return amount, which could be positive, zero or negative.
The security return amount for each security will equal the product of (a)
$10 and (b) the percentage change in the value of the underlying basket.
- The equity index warrants will be automatically exercised on approximately
, 2010. If the value of the underlying basket increases or does not
change, the warrants will pay zero. If the value of the underlying basket
decreases, the warrants will pay a positive amount equal to the product of
(a) $10 and (b) the percentage decrease in the value of the underlying
basket.
- - Exchange Right: You will have the right to exchange, at any time beginning on
the date on which the certificates are issued and ending on the date that is
one business day prior to the valuation date, each $10 principal amount of
certificates you then hold for one equity index participation security with a
$10 face amount and one equity index warrant with a $10 notional amount. The
securities and warrants will be separately transferable by you after you
exercise your exchange right. In order to exercise your exchange right, your
account must be approved for options trading. You should consult with your
financial advisor to determine whether your account would meet the options
trading requirements. If you choose to exercise your exchange right and hold
only the securities or only the warrants, you will lose the benefit of
principal protection at maturity.
- - We will apply to list the certificates on the American Stock Exchange under
the symbol "AGB." We will not apply to list the securities and the warrants on
any exchange.
INVESTING IN THE CERTIFICATES, SECURITIES OR WARRANTS INVOLVES A NUMBER OF
RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 11.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the certificates, the securities or
the warrants or determined that this prospectus and pricing supplement is
truthful or complete. Any representation to the contrary is a criminal offense.
<Table>
<Caption>
PER
CERTIFICATE TOTAL
----------- ----------
Public Offering Price....................................... $10.00* $
Underwriting Discount (to be paid by Citigroup Funding
Inc.)..................................................... $ $
Proceeds to Safety First Trust Series 2006-1................ $ $
</Table>
- ---------------
* $ represents the purchase price of the equity index participation
securities and $ represents the purchase price of the equity index
warrants.
Citigroup Global Market Inc. expects to deliver the certificates to
purchasers on or about , 2006.
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------
Investment Products Not FDIC Insured May Lose Value No Bank Guarantee
- --------------------------------------------------------------------------------------------------------
</Table>
CITIGROUP
, 2006
SUMMARY INFORMATION -- Q&A
This prospectus and pricing supplement, which we refer to as the offering
document, constitutes a prospectus relating to the Principal-Protected Trust
Certificates of Safety First Trust Series 2006-1, a medium-term note pricing
supplement relating to the equity index participation securities of Citigroup
Funding Inc. and an index warrant pricing supplement relating to the equity
index warrants of Citigroup Funding Inc. Citigroup Funding Inc. and Citigroup
Inc. have previously filed a registration statement (File Nos. 333-132370 & 333-
132370-01) and prospectus supplements relating to the equity index participation
securities and the equity index warrants.
THE CERTIFICATES
WHAT IS SAFETY FIRST TRUST SERIES 2006-1?
Safety First Trust Series 2006-1 is a Delaware statutory trust. Citigroup
Funding will own all of the common securities of the trust.
The trust will not engage in any activities except:
- issuing the certificates and the common securities, which we refer to as,
collectively, the trust securities,
- investing approximately % to % of the proceeds of the offering in
equity index participation securities linked to the Dow Jones Industrial
Average and the Nikkei 225 Stock Average issued by Citigroup Funding,
which we refer to as the securities,
- investing approximately % to % of the proceeds of the offering in
equity index warrants linked to the Dow Jones Industrial Average and the
Nikkei 225 Stock Average issued by Citigroup Funding, which we refer to
as the warrants, and
- activities incidental to the above.
The trust will not issue any securities except the trust securities, which
are limited to certificates and 100 common securities, each in
denominations of $10.
The trust will be managed by trustees elected by Citigroup Funding, as the
holder of the common securities. The holders of the certificates have no right
to elect or remove trustees. Citigroup Funding will pay all costs, expenses,
debts and liabilities of the trust, including fees and expenses related to the
offering of the certificates, but not including payments under the certificates.
The address and telephone number of the trust are:
Safety First Trust Series 2006-1
c/o Citigroup Funding Inc.
399 Park Avenue
New York, NY 10043
(212) 559-1000
WHAT ARE THE CERTIFICATES?
The certificates are preferred undivided interests in the trust. The
certificates mature on approximately , 2010, but will be subject to
acceleration to an earlier maturity date upon the occurrence of one of the
acceleration events described below. If an acceleration event occurs or
Citigroup Funding or Citigroup defaults on its guarantee, holders of the
certificates will have a preference over holders of the common securities for
payments.
The return on the certificates, if any, and the maturity payment are linked
to the value of the underlying basket, which consists of two equity indices: the
Dow Jones Industrial Average and the Nikkei 225 Stock Average. The certificates
pay an amount at maturity that will depend on the amount by which (i) the ending
2
value, the closing value of the underlying basket on the third index business
day before maturity, exceeds (ii) the starting value, set to 100 on the date on
which the certificates are priced for initial sale to the public (which we refer
to as the pricing date), expressed as a percentage. If the ending value is less
than or equal to the starting value, the payment you receive at maturity for
each certificate you hold will equal $10, the amount of your original investment
in the certificate. If the ending value is greater than the starting value, the
payment you receive at maturity will be greater than the amount of your original
investment in the certificates.
You will have the right to exchange, at any time beginning on the date on
which the certificates are issued and ending on the date that is one business
day prior to the valuation date, each certificate for a pro rata portion of the
assets of the trust, which consist of the securities and the warrants. In order
to exercise your exchange right, you will need to follow the procedures
described in "Description of the Certificates -- Exchange Right" in this
offering document. In order to exercise your exchange right, your account must
be approved for options trading. You should consult with your financial advisor
to determine whether your account would meet the options trading requirements.
If you choose to exercise your exchange right and hold only the securities or
only the warrants, you will lose the benefit of principal protection at
maturity.
WILL I RECEIVE ANY PERIODIC PAYMENTS ON THE CERTIFICATES?
You will not receive any periodic payments of interest on the certificates
or any other payments on the certificates until maturity. In addition, you will
not be entitled to receive dividend payments or other distributions, if any,
made on the stocks included in the indices comprising the underlying basket.
WHAT WILL I RECEIVE AT MATURITY OF THE CERTIFICATES?
The certificates will mature on approximately , 2010. At
maturity, you will receive for each certificate you hold an amount in cash equal
to the sum of $10 and a supplemental distribution amount, which may be positive
or zero. The amount payable to you at maturity is dependent upon the closing
value of the underlying basket on the valuation date, provided, however, that
the payment you receive at maturity will not be less than the amount of your
original investment in the certificates. The trust will make the maturity
payment with respect to each certificate out of the payments it receives from
Citigroup Funding on the securities and the warrants. The ability of the trust
to make the maturity payment is entirely dependent on the receipt by the trust
of payments under the securities and the warrants. You should refer to the
section "Description of the Certificates -- Payment at Maturity" in this
offering document.
HOW WILL THE SUPPLEMENTAL DISTRIBUTION AMOUNT BE CALCULATED?
The supplemental distribution amount will be based on the amount by which
the ending value exceeds the starting value, expressed as a percentage. The
supplemental distribution amount will equal the product of (a) $10 and (b) the
basket return (defined below). The supplemental distribution amount will not be
less than zero.
The amount payable to you at maturity is dependent upon the performance of
the underlying basket during the period after the pricing date up to and
including the valuation date. If the value of the underlying basket does not
increase during this period, the supplemental distribution amount will be zero
and the payment at maturity will equal your original investment in the
certificates. If the value of the underlying basket increases during this
period, the supplemental distribution amount will be positive and the payment at
maturity will be greater than your original investment in the certificates.
For more specific information about the "supplemental distribution amount"
and the "basket return," and for information on the effect of a market
disruption event on the determination of the supplemental distribution amount
and the basket return, please see "-- How Is the Basket Return Defined?" in this
section and "Description of the Certificates -- Supplemental Distribution
Amount" in this offering document.
3
HOW IS THE BASKET RETURN DEFINED?
The basket return, which is presented in this offering document as a
percentage, will equal the following fraction:
Ending Value - Starting Value
-----------------------------
Starting Value
The starting value of the underlying basket will be set to 100 on the
pricing date.
The ending value will be the closing value of the underlying basket on the
valuation date.
The pricing date means the date on which the certificates are priced for
initial sale to the public.
The valuation date will be the third index business day before the maturity
date.
ARE PAYMENTS ON THE CERTIFICATES GUARANTEED?
The ability of the trust to make the maturity payment on the certificates
is entirely dependent on the receipt by the trust of payments under the
securities and the warrants, the sole assets of the trust. Citigroup Funding has
fully and unconditionally guaranteed the trust's payment obligations under the
certificates so that, if for any reason the trust does not make payments to you
on the certificates, then Citigroup Funding will make the payments directly to
you to the extent that the trust has funds legally available. In addition,
Citigroup has fully and unconditionally guaranteed all payments by Citigroup
Funding to the same extent and in the same manner as Citigroup Funding has
guaranteed the trust's obligations under the certificates. We refer to Citigroup
Funding's and Citigroup's guarantees under the certificates as the certificate
guarantee. You should refer to the section "Description of the Certificate
Guarantee" in this offering document for more information about the Certificate
Guarantee. Citigroup has also fully and unconditionally guaranteed Citigroup
Funding's payment obligations under each of the securities and the warrants.
WHERE CAN I FIND EXAMPLES OF HYPOTHETICAL MATURITY PAYMENTS?
For a table setting forth hypothetical maturity payments, see "Description
of the Certificates -- Maturity Payment -- Hypothetical Examples" in this
offering document.
WHAT WILL I RECEIVE IF I EXERCISE MY EXCHANGE RIGHT?
If you exercise your exchange right, you will receive a pro rata portion of
the assets of the trust, which consist of the securities and the warrants. As a
result, you will receive for each $10 principal amount of certificates you then
hold one security with a $10 face amount and one warrant with a $10 notional
amount. If you hold the securities and warrants together until maturity, you
will receive the same maturity payment you would have received under the
certificates. However, if you choose to exercise your exchange right and hold
only the securities or only the warrants, you will lose the benefit of principal
protection at maturity. In this case, the payment you receive at maturity may be
different from the maturity payment on the certificates and could be
substantially less than the amount of your original investment in the
certificates. In order to exercise your exchange right, you will need to follow
the procedures described in "Description of the Certificates -- Exchange Right"
in this offering document.
WHAT HAPPENS IF I EXERCISE MY EXCHANGE RIGHT?
If you exercise your exchange right and hold only the securities or only
the warrants, you will lose the benefit of principal protection at maturity and
your investment will be subject to additional risks. For more information on
these additional risks, you should refer to "Risk Factors -- Risks Relating to
the Securities" and "-- Risks Relating to the Warrants." In order to exercise
your exchange right, your account must be approved for options trading. You
should consult with your financial advisor to determine whether your account
would meet the options trading requirements.
4
If you do not exercise your exchange right, any gain that you recognize at
maturity or on other disposition of the certificates will be short-term capital
gain. You cannot recognize long-term capital gain from your investment in the
certificate unless you exercise your exchange right, then dispose of either the
securities or the warrants, and then hold the remaining instrument for more than
one year after that disposition. For example, if the value of the underlying
basket increases, you will recognize long-term capital gain only if you exercise
your exchange right, dispose of the warrants, and hold the securities for more
than one year after disposing of the warrants. As discussed above, however, if
you choose to exercise your exchange right and hold only the securities or only
the warrants, you will lose the benefit of principal protection at maturity.
WHAT HAPPENS IF AN ACCELERATION EVENT OCCURS
If one of the acceleration events described below occurs, the trust will be
liquidated. You will receive for each certificate the accelerated maturity
payment. The accelerated maturity payment per certificate will be calculated in
the same manner as the maturity payment and as though the date on which the
acceleration event occurred were the maturity date.
You will receive payment before holders of the common securities if an
acceleration event occurs or Citigroup Funding or Citigroup defaults on any of
its obligations under its guarantee.
Any of the following will constitute an acceleration event:
- the occurrence of certain adverse tax consequences to the trust,
- the classification of the trust as an "investment company" under the
Investment Company Act, or
- the initiation of bankruptcy proceedings regarding Citigroup Funding or
Citigroup.
WHAT ARE MY VOTING RIGHTS?
You will have limited voting rights with respect to the trust and will not
be entitled to vote to appoint, remove or replace, or increase or decrease the
number of, the trustees. These voting rights will be held exclusively by
Citigroup Funding, as the holder of the common securities. You will, however,
have the right to direct U.S. Bank National Association, as institutional
trustee of the trust and as holder of the securities and the warrants, to
exercise its rights as trustee, including exercising its rights in respect of
the securities and the warrants.
You will have no voting rights and no ownership interest in any stocks
included in the indices comprising the underlying basket.
WHO DETERMINES THE VALUE OF THE UNDERLYING BASKET AND WHAT DOES IT MEASURE?
Citigroup Global Markets Inc., as calculation agent, will determine the
value of the underlying basket as described in the section "Description of the
Underlying Basket" in this offering document. The underlying basket will
represent the values of two equity indices: the Dow Jones Industrial Average and
the Nikkei 225 Stock Average. The starting value of the underlying basket will
be set to 100 on the pricing date and the initial relative weightings will be
50% for each of the two indices comprising the underlying basket. The closing
value of the underlying basket on any index business day will equal the sum of
the products of (i) the closing value on that day of each index comprising the
basket and (ii) a fixed factor (the "multiplier") applicable to each index. The
multiplier for each index will be determined on the pricing date and will equal
50 divided by the closing value of the applicable index on the pricing date.
Please note that an investment in the certificates does not entitle you to
any dividends, voting rights or any other ownership or other interest in respect
of the stocks included in the indices comprising the underlying basket.
5
WHO PUBLISHES THE DOW JONES INDUSTRIAL AVERAGE AND WHAT DOES IT MEASURE?
The Dow Jones Industrial Average is published by Dow Jones & Company, Inc.
("Dow Jones"). The Dow Jones Industrial Average is a price-weighted index, which
means an underlying stock's weight in the Dow Jones Industrial Average is based
on its price per share rather than the total market capitalization of the
issuer. The Dow Jones Industrial Average is designed to provide an indication of
the composite price performance of 30 common stocks of corporations representing
a broad cross-section of U.S. industry. The underlying stocks of the Dow Jones
Industrial Average are selected by the editors of The Wall Street Journal. The
corporations represented in the Dow Jones Industrial Average tend to be market
leaders in their respective industries and their stocks are typically widely
held by individuals and institutional investors. Changes in the composition of
the Dow Jones Industrial Average are made entirely by the editors of The Wall
Street Journal without consultation with the corporations represented in the Dow
Jones Industrial Average, any stock exchange, any official agency, the trust or
Citigroup Funding. Although changes to the common stocks included in the Dow
Jones Industrial Average tend to be made infrequently, the underlying stocks of
the Dow Jones Industrial Average may be changed at any time for any reason. The
corporations currently represented in the Dow Jones Industrial Average are
incorporated in the United States and its territories and their stocks are
traded on the New York Stock Exchange.
The value of the Dow Jones Industrial Average is the sum of the primary
exchange prices of each of the 30 common stocks included in the Dow Jones
Industrial Average, divided by a divisor that is designed to provide a
meaningful continuity in the value of the Dow Jones Industrial Average. Because
the Dow Jones Industrial Average is price-weighted, stock splits or changes in
the underlying stocks could result in distortions in the Dow Jones Industrial
Average value. In order to prevent such distortions related to extrinsic
factors, the divisor may be changed in accordance with a mathematical formula
that reflects adjusted proportions within the Dow Jones Industrial Average. The
current divisor of the Dow Jones Industrial Average is published daily in The
Wall Street Journal and other publications. In addition, other statistics based
on the Dow Jones Industrial Average may be found in a variety of publicly
available sources.
Please note that an investment in the certificates, securities and warrants
does not entitle you to any dividends, voting rights or any other ownership or
other interest in the stocks of the companies included in the Dow Jones
Industrial Average.
HOW HAS THE DOW JONES INDUSTRIAL AVERAGE PERFORMED HISTORICALLY?
We have provided a table showing the closing values of the Dow Jones
Industrial Average on the last index business day of each month from January
1996 to September 2006 and a graph showing the closing values of the Dow Jones
Industrial Average on each index business day from January 1, 1996 through
October 16, 2006. You can find the table and the graph in the section
"Description of the Dow Jones Industrial Average -- Historical Data on the Dow
Jones Industrial Average" in this offering document. We have provided this
historical information to help you evaluate the behavior of the Dow Jones
Industrial Average in recent years. However, past performance is not indicative
of how the Dow Jones Industrial Average will perform in the future.
WHO PUBLISHES THE NIKKEI 225 STOCK AVERAGE AND WHAT DOES IT MEASURE?
Unless otherwise stated, all information on the Nikkei 225 Stock Average
provided in this offering document is derived from Nihon Keizai Shimbun, Inc.
("NKS") or other publicly available sources. The Nikkei 225 Stock Average is a
stock index calculated, published and disseminated by NKS that measures the
composite price performance of selected Japanese stocks. The Nikkei 225 Stock
Average is currently based on 225 highly capitalized underlying stocks trading
on the Tokyo Stock Exchange ("TSE") representing a broad cross-section of
Japanese industries. All 225 underlying stocks are listed in the First Section
of the TSE. Stocks listed in the First Section are among the most actively
traded stocks on the TSE. For further information on the Nikkei 225 Stock
Average, including its makeup, method of calculation and changes in it
components, see "Description of the Nikkei 225 Stock Average" in this offering
document.
6
Please note that an investment in the certificates, securities and warrants
does not entitle you to any dividends, voting rights or any other ownership or
other interest in the stocks of the companies included in the Nikkei 225 Stock
Average.
HOW HAS THE NIKKEI 225 STOCK AVERAGE PERFORMED HISTORICALLY?
We have provided a table showing the closing values of the Nikkei 225 Stock
Average on the last index business day of each month from January 1996 to
September 2006 and a graph showing the closing values of the Nikkei 225 Stock
Average on each index business day from January 1, 1996 through October 16,
2006. You can find the table and the graph in the section "Description of the
Nikkei 225 Stock Average -- Historical Data on the Nikkei 225 Stock Average" in
this offering document. We have provided this historical information to help you
evaluate the behavior of the Nikkei 225 Stock Average in recent years. However,
past performance is not indicative of how the Nikkei 225 Stock Average will
perform in the future.
WHAT ARE THE TAX CONSEQUENCES OF INVESTING IN THE CERTIFICATES?
For U.S. federal income tax purposes, the trust will be treated as a
grantor trust. Accordingly, you will be treated as owning a pro rata portion of
the assets of the trust and receiving income received by the trust in the manner
set forth below.
For U.S. federal income tax purposes, you and the trust agree to treat (i)
the security and the warrant as two separate financial instruments; (ii) each
security as a cash-settled variable prepaid forward contract with respect to the
underlying basket under which at the time of issuance of the certificates, you
pay Citigroup Funding, with respect to the security, the issue price in
consideration for Citigroup Funding's obligation to deliver to you at maturity
of the security a cash amount equal to $10 plus a security return amount (which
may be positive, zero, or negative) based upon the performance of the underlying
basket, in full satisfaction of its obligation under such forward contract; and
(iii) each warrant as a cash-settled put option with respect to the underlying
basket under which at the time of issuance of the certificates, with respect to
the warrant, you pay Citigroup Funding the option premium in consideration for
the right to sell to Citigroup Funding at expiration of the warrant, for a cash
amount equal to $10, a notional position in the underlying basket with an
initial value of $10.
Under this characterization, if you are a U.S. taxable investor, your tax
treatment may differ significantly depending on whether you hold the
certificates or a security and a warrant separately. If you hold the
certificates and the "mixed straddle" election applies, you generally will
recognize short-term capital gain (if any) on maturity or disposition of the
certificates equal to the difference between the amount realized and your
adjusted tax basis in the certificates. If you exchange your certificates for
securities and warrants and dispose of one but not the other, you will have
long-term capital gain or loss at maturity or on disposition of the securities
or the warrants if you have held only the securities or only the warrants, as
the case may be, for more than one year after the disposition of the other
instrument. You should be aware, however, that if you hold only the securities
or only the warrants, you will lose the benefit of principal protection at
maturity. Under the straddle rules, if the "identified straddle" election
applies, losses realized on the disposition of the securities or the warrants,
as the case may be, may be required to be capitalized into the basis of any
warrants or securities, as applicable, that you retain.
No statutory, judicial or administrative authority addresses the
characterization of the certificates or instruments similar to the certificates
for U.S. federal income tax purposes. As a result, significant aspects of the
U.S. federal income tax consequences of an investment in the certificates are
not certain. Due to the absence of authority as to the proper characterization
of the certificates, no assurance can be given that the Internal Revenue Service
will accept, or that a court will uphold, the characterization and tax treatment
described above. Alternative treatment of the certificates could result in less
favorable U.S. federal income tax consequences to you, including a requirement
to accrue income on a current basis and to treat any gain as ordinary income.
You should refer to the section "Certain United States Federal Income Tax
Considerations" in this offering document for more information.
7
WILL THE CERTIFICATES BE LISTED ON A STOCK EXCHANGE?
We will apply to list the certificates on the American Stock Exchange under
the symbol "AGB." You should be aware that the listing of the certificates on
the American Stock Exchange does not guarantee that a liquid trading market will
be available for the certificates.
CAN YOU TELL ME MORE ABOUT CITIGROUP AND CITIGROUP FUNDING?
Citigroup is a diversified global financial services holding company whose
businesses provide a broad range of financial services to consumer and corporate
customers. Citigroup Funding is a wholly-owned subsidiary of Citigroup whose
business activities consist primarily of providing funds to Citigroup and its
subsidiaries for general corporate purposes.
WHAT IS THE ROLE OF CITIGROUP FUNDING'S AND CITIGROUP'S AFFILIATE, CITIGROUP
GLOBAL MARKETS INC.?
Citigroup Funding's and Citigroup's affiliate, Citigroup Global Markets
Inc., is the underwriter for the offering and sale of the certificates and is
expected to receive compensation for activities and services provided in
connection with the offering. After the initial offering, Citigroup Global
Markets and/or other broker-dealer affiliates of Citigroup Funding intend to buy
and sell certificates to create a secondary market for holders of the
certificates, and may engage in other activities described below in the section
"Underwriting." However, neither Citigroup Global Markets nor any of these
affiliates will be obligated to engage in any market-making activities, or
continue them once it has started. Citigroup Global Markets will also act as
calculation agent for the certificates. Potential conflicts of interest may
exist between Citigroup Global Markets and you as a holder of the certificates.
CAN YOU TELL ME MORE ABOUT THE EFFECT OF CITIGROUP FUNDING'S HEDGING ACTIVITY?
Citigroup Funding expects to hedge its obligations under the securities and
warrants held by the trust through it or one or more of its affiliates. This
hedging activity will likely involve trading in one or more of the stocks
included in the indices comprising the underlying basket or in other
instruments, such as options, swaps or futures, based upon the underlying
basket, the indices comprising the underlying basket or the stocks included in
the indices. This hedging activity could affect the value of the underlying
basket, the securities and the warrants and therefore the market value of the
certificates. The costs of maintaining or adjusting this hedging activity could
also affect the price at which Citigroup Funding's affiliate Citigroup Global
Markets may be willing to purchase your certificates in the secondary market.
Moreover, this hedging activity may result in Citigroup Funding or its
affiliates receiving a profit, even if the market value of the certificates
declines. You should refer to "Risk Factors -- Risks Generally Relating to the
Certificates, Securities and Warrants -- Citigroup Funding's Hedging Activity
Could Result in a Conflict of Interest," " -- The Price at Which You Will Be
Able to Sell Your Certificates Prior to Maturity Will Depend on a Number of
Factors and May Be Substantially Less Than the Amount You Originally Invest" and
"Use of Proceeds and Hedging" in this offering document.
DOES ERISA IMPOSE ANY LIMITATIONS ON PURCHASES OF THE CERTIFICATES?
Employee benefit plans and other entities the assets of which are subject
to the fiduciary responsibility provisions of the Employee Retirement Income
Security Act of 1974, as amended, Section 4975 of the Internal Revenue Code of
1986, as amended, or substantially similar federal, state or local laws,
including individual retirement accounts, (which we call "Plans") will be
permitted to purchase and hold the certificates, provided that each such Plan
shall by its purchase be deemed to represent and warrant either that (A) (i)
none of Citigroup Global Markets, its affiliates or any employee thereof is a
Plan fiduciary that has or exercises any discretionary authority or control with
respect to the Plan's assets used to purchase the certificates or renders
investment advice with respect to those assets and (ii) the Plan is paying no
more than adequate consideration for the certificates or (B) its acquisition and
holding of the certificates is not prohibited by any such provisions or laws or
is exempt from any such prohibition. However, individual retirement accounts,
individual retirement annuities and Keogh plans, as well as employee benefit
plans that
8
permit participants to direct the investment of their accounts, will not be
permitted to purchase or hold the certificates if the account, plan or annuity
is for the benefit of an employee of Citigroup Global Markets or a family member
and the employee receives any compensation (such as, for example, an addition to
bonus) based on the purchase of the certificates by the account, plan or
annuity. Please refer to the section "ERISA Matters" in this offering document
for further information.
ARE THERE ANY RISKS ASSOCIATED WITH MY INVESTMENT?
Yes, the certificates are subject to a number of risks. Please refer to the
section "Risk Factors" in this offering document.
THE SECURITIES AND THE WARRANTS
The sole assets of the trust are expected to be equity index participation
securities and equity index warrants, both linked to the Dow Jones Industrial
Average and the Nikkei 225 Stock Average. The trust will purchase all of the
securities and the warrants from Citigroup Funding on the date the certificates
are issued. Payments under the securities and the warrants will fund the
payments under the certificates at maturity. Any payments due on each of the
securities and the warrants are fully and unconditionally guaranteed by
Citigroup, which guarantees will rank equally with all other unsecured and
unsubordinated debt of Citigroup.
WHAT ARE THE EQUITY INDEX PARTICIPATION SECURITIES?
The equity index participation securities linked to the Dow Jones
Industrial Average and the Nikkei 225 Stock Average, or the securities, are a
series of unsecured senior debt securities issued by Citigroup Funding. Any
payments due on the securities are fully and unconditionally guaranteed by
Citigroup. The securities will rank equally with all other unsecured and
unsubordinated debt of Citigroup Funding and, as a result of the guarantee, any
payments due under the securities will rank equally with all other unsecured and
unsubordinated debt of Citigroup. The securities mature on approximately
, 2010, the date on which the certificates would have matured had you
not exercised your exchange right, which we refer to as the maturity of the
certificates. The securities will be issued under an indenture among Citigroup
Funding, Citigroup and The Bank of New York, as successor trustee.
Each security will have a face amount of $10 and initially will be issued
by Citigroup Funding at a price of $ . At maturity, each security will pay a
security payment equal to the sum of $10 and a security return amount. The
security return amount will equal the product of (a) $10 and (b) the basket
return, and could be positive, zero or negative. As a result, if you choose to
exercise your exchange right, dispose of the warrants and hold only the
securities, you will lose the benefit of principal protection at maturity.
The security return amount will be used only for the purpose of determining
the security payment and is different from the supplemental distribution amount
used in determining the maturity payment on the certificates.
For more specific information about the "security return amount" and the
"basket return," and for information on the effect of a market disruption event
on the determination of the security return amount and the basket return, please
see "Description of the Equity Index Participation Securities -- Security Return
Amount" and the definitions of basket return and market disruption event in
"Description of the Certificates -- Supplemental Distribution Amount" in this
offering document.
WHAT ARE THE EQUITY INDEX WARRANTS?
The equity index warrants linked to the Dow Jones Industrial Average and
the Nikkei 225 Stock Average or the warrants, are a series of index warrants
issued by Citigroup Funding. Any payments due on the warrants are fully and
unconditionally guaranteed by Citigroup. The warrants will rank equally with all
other unsecured and unsubordinated debt of Citigroup Funding and, as a result of
the guarantee, any payments due under the warrants will rank equally with all
other unsecured and unsubordinated debt of Citigroup. The warrants will be
9
issued under a warrant agreement among Citigroup Funding, Citigroup and U.S.
Bank National Association, as warrant agent.
Each warrant will have a notional amount of $10 and will be initially
issued by Citigroup Funding at a price of $ . The warrants will be
automatically exercised on approximately , 2010, the maturity of the
certificates, and are not exercisable prior to that time. Upon exercise, each
warrant will pay a warrant payment equal to the product of (a) $10 and (b) the
warrant basket return, provided that the warrant payment will not be less than
zero. As a result, if you choose to exercise your exchange right, dispose of the
securities and hold only the warrants, you will lose the benefit of principal
protection at maturity.
The warrant basket return, which is presented in this offering document as
a percentage, will equal the following fraction:
Starting Value - Ending Value
-----------------------------
Starting Value
The warrant basket return will be used only for the purpose of determining the
warrant payment and is different from the basket return used in determining the
maturity payment on the certificates and the security payment.
For more specific information about the "starting value" and the "ending
value," and for information about the effect of a market disruption event on the
determination of the basket return, please see "Description of the Equity Index
Warrants -- Payment Upon Exercise of the Warrants" and the definition of market
disruption event in "Description of the Certificates -- Supplemental
Distribution Amount" in this offering document.
WILL THE SECURITIES OR THE WARRANTS BE LISTED ON A STOCK EXCHANGE?
Neither the securities nor the warrants will be listed on any exchange.
There is currently no secondary market for the securities or the warrants.
Citigroup Global Markets currently intends, but is not obligated, to make a
market in the securities or the warrants. Even if a secondary market does
develop, it may not be liquid and may not continue for the term of the
securities or the warrants.
IF I EXERCISE MY EXCHANGE RIGHTS, WILL I RECEIVE ANY PERIODIC PAYMENTS ON THE
SECURITIES OR THE WARRANTS?
You will not receive any periodic payments of interest or any other
payments on the securities or the warrants until maturity. In addition, you will
not be entitled to receive dividend payments or other distributions, if any,
made on the stocks included in the indices comprising the underlying basket.
10
RISK FACTORS
Because the terms of the certificates, the securities and the warrants
differ from those of conventional debt securities in that the payment at
maturity of the certificates and the securities, and upon exercise of the
warrants, will be based on the closing value of the underlying basket on the
third index business day before the maturity date, an investment in the
certificates, the securities and the warrants entails significant risks not
associated with similar investments in conventional debt securities, including,
among other things, fluctuations in the value of the underlying basket and other
events that are difficult to predict and beyond our control.
RISKS RELATING TO THE CERTIFICATES
If you choose to exercise your exchange right and hold only the securities
or only the warrants until maturity, you will be subject to separate risks
applicable to the securities or the warrants, as the case may be. You should
refer to "-- Risks Relating to the Securities" and "-- Risks Relating to the
Warrants" for a discussion of risks applicable to each of the securities and the
warrants. You should also refer to "--Risks Generally Relating to the
Certificates, Securities and Warrants" for a discussion of additional risks
generally applicable to the certificates, the securities and the warrants.
THE APPRECIATION OF YOUR INVESTMENT IN THE CERTIFICATES MAY BE ZERO
The amount of the maturity payment will depend on the ending value, which
will be the closing value of the underlying basket on the third index business
day before the maturity date. If the ending value is equal to or less than the
starting value, the payment you receive at maturity will be limited to the
amount of your initial investment in the certificates, even if the closing value
of the underlying basket is greater than the starting value at one or more times
during the term of the certificates or if the closing value of the underlying
basket at maturity exceeds the starting value, but the closing value of the
underlying basket on the valuation date is equal to or less than the starting
value.
THE YIELD ON THE CERTIFICATES MAY BE LOWER THAN THE YIELD ON A STANDARD DEBT
SECURITY OF COMPARABLE MATURITY
The certificates do not pay any interest. As a result, if the basket return
is less than approximately %, the yield on the certificates will be less
than that which would be payable on a conventional fixed-rate, non-callable debt
security of Citigroup Funding of comparable maturity.
YOU WILL NOT RECEIVE ANY PERIODIC PAYMENTS ON THE CERTIFICATES
You will not receive any periodic payments of interest or any other
periodic payments on the certificates. In addition, you will not be entitled to
receive dividend payments or other distributions, if any, made on the stocks
included in the indices comprising the underlying basket.
YOUR RETURN ON THE CERTIFICATES WILL NOT REFLECT THE RETURN YOU WOULD REALIZE IF
YOU ACTUALLY OWNED THE STOCKS INCLUDED IN THE INDICES COMPRISING THE UNDERLYING
BASKET
Your return on the certificates will not reflect the return you would
realize if you actually owned the stocks included in the indices comprising the
underlying basket. Values of the indices comprising the basket are calculated by
reference to the prices of the stocks underlying these indices without taking
into consideration the value of any dividends paid on those stocks. As a result,
the return on the certificates may be less than the return you could have
realized if the dividends paid on those stocks were included in the calculation
of these indices.
YOU WILL HAVE LIMITED VOTING RIGHTS WITH RESPECT TO THE TRUST AND THE TRUSTEES
You will have limited voting rights with respect to the trust and will not
be entitled to vote to appoint, remove or replace, or increase or decrease the
number of, the trustees. These voting rights will be held
11
exclusively by Citigroup Funding, as the holder of the common securities of the
trust. You should refer to the section "Description of the
Certificates -- Voting Rights" in this offering document.
YOU MAY NOT BE ABLE TO SELL YOUR CERTIFICATES IF AN ACTIVE TRADING MARKET DOES
NOT DEVELOP
There is currently no secondary market for the certificates. Citigroup
Global Markets currently intends, but is not obligated, to make a market in the
certificates. Even if a secondary market does develop, it may not be liquid any
may not continue for the term of the certificates. If the secondary market for
the certificates is limited, there may be few buyers should you choose to sell
your certificates prior to maturity.
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE CERTIFICATES ARE
UNCERTAIN
No statutory, judicial or administrative authority addresses the
characterization of the certificates or instruments similar to the certificates
for U.S. federal income tax purposes. As a result, significant aspects of the
U.S. federal income tax consequences of an investment in the certificates are
not certain. No ruling is being requested from the Internal Revenue Service with
respect to the certificates and the Internal Revenue Service may not agree with
the treatment described under "Certain United States Federal Income Tax
Considerations" in this offering document. Alternative treatments of the
certificates could result in less favorable U.S. federal income tax consequences
to you, including a requirement to accrue income on a current basis and to treat
any gain as ordinary income. The tax rules applicable to the certificates are
complex and several aspects of tax treatment of the certificates may be affected
by certain tax elections that may apply. YOU SHOULD CONSULT YOUR OWN TAX
ADVISORS IN DETERMINING THE TAX CONSEQUENCES TO YOU OF PURCHASING, OWNING AND
DISPOSING OF THE CERTIFICATES, SECURITIES AND WARRANTS, INCLUDING THE
APPLICATION IN YOUR PARTICULAR CIRCUMSTANCES OF THE TAX CONSIDERATIONS DISCUSSED
IN THE SECTION "CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS" IN THIS
OFFERING DOCUMENT, AS WELL AS THE APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS,
THE APPLICABILITY OF AND ADVISABILITY OF MAKING CERTAIN TAX ELECTIONS, AND
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
UNLESS A "MIXED STRADDLE" ELECTION APPLIES, YOU MAY BE REQUIRED TO RECOGNIZE
GAIN ON WARRANTS ANNUALLY, EVEN THOUGH YOU WILL NOT RECEIVE ANY CASH
DISTRIBUTIONS BEFORE MATURITY
Under the treatment of the assets of the trust that you and the trust will
agree to, if you are a U.S. taxable investor and you hold the securities and the
warrants together in the form of the certificates, you may be required to treat
the warrants as "section 1256 contracts." In that case, unless a mixed straddle
election applies with respect to the warrants, you would generally recognize
gain, if any, on the warrants annually as if you sold the warrants at the close
of the taxable year at fair market value, even though you will receive no
distributions until maturity. Any gain on the warrants generally will be 60%
long-term capital gain and 40% short-term capital gain. Making a "mixed
straddle" election would permit you to elect out of the annual gain recognition
regime that otherwise may apply to the warrants. The trust will make a mixed
straddle election on behalf of all holders of the certificates. It is unclear,
however, whether the election made by the trust on behalf of a holder will be
effective. You are urged to make a separate mixed straddle election by complying
with the identification requirements described in the section "Certain United
States Federal Income Tax Considerations" and by filing IRS Form 6781 (attached
to this offering document as Exhibit B).
THE TRADING PRICE OF THE CERTIFICATES MAY BE LESS THAN YOU WOULD OTHERWISE
EXPECT BECAUSE THE MATURITY OF THE CERTIFICATES CAN BE ACCELERATED
If an acceleration event occurs, the maturity of the certificates will be
accelerated and you will receive with respect to each certificate the
accelerated maturity payment. Because the amount that would be payable on the
accelerated maturity date is uncertain, since it would depend on when an
acceleration event occurs, the market value of the certificates may be less than
what you would otherwise expect based on the value of the underlying basket and
the level of interest rates at a particular time.
12
THE PAYMENTS YOU RECEIVE ON THE CERTIFICATES LIKELY WILL BE DELAYED OR REDUCED
IN THE EVENT OF A BANKRUPTCY OF CITIGROUP FUNDING OR CITIGROUP
Although the certificates are securities of the trust, the ability of the
trust to make payments under the certificates depends upon its receipt from
Citigroup Funding of the maturity payments or accelerated maturity payments
under the securities and the warrants. The ability of the trust to meet its
obligations under the certificates therefore depends on the ability of Citigroup
Funding to meet its obligations under the securities and the warrants, which, in
turn, depends on the solvency and creditworthiness of Citigroup Funding.
Although Citigroup has provided a full and unconditional guarantee of Citigroup
Funding's payment obligations under each of the securities and the warrants and,
in the event of a bankruptcy of Citigroup Funding, would be required to make any
payments due from Citigroup Funding under the securities or the warrants, there
can be no assurance of Citigroup's continued solvency. As such, in the event of
a bankruptcy of Citigroup Funding or Citigroup, any recovery by the holders of
certificates likely will be substantially delayed and may be less than each
holder's pro rata portion of the securities and the warrants.
RISKS RELATING TO THE SECURITIES
If you choose to exercise your exchange right, dispose of the warrants and
hold only the securities, your investment in the securities may entail the
specific risks discussed below. You should also refer to "-- Risks Generally
Relating to the Certificates, Securities and Warrants" for a discussion of
additional risks that generally may be applicable to the certificates,
securities and warrants. In order to exercise your exchange right, your account
must be approved for options trading. You should consult with your financial
advisor to determine whether your account would meet the options trading
requirements.
YOUR INVESTMENT IN THE SECURITIES MAY RESULT IN A LOSS IF THE VALUE OF THE
UNDERLYING BASKET DECLINES
The amount payable at maturity of the securities will depend on the closing
value of the underlying basket on the third index business day before maturity
of the certificates. As a result, the amount of your security payment may be
less than the initial issue price of the securities. If the ending value of the
underlying basket declines by approximately % (to be determined on the pricing
date) or more from the starting value, the security payment will be less than
$ , the initial issue price of each security, and could be zero, in which
case your investment in the securities will result in a loss. This will be true
even if the value of the underlying basket at any point during the term of the
securities exceeds the starting value of the underlying basket.
THE YIELD ON THE SECURITIES MAY BE LOWER THAN THE YIELD ON A STANDARD DEBT
SECURITY OF COMPARABLE MATURITY
The securities do not pay any interest. As a result, if the basket return
is less than approximately %, the yield on the securities will be less than
that which would be payable on a conventional fixed-rate, noncallable debt
security of Citigroup Funding of comparable maturity.
YOU WILL NOT RECEIVE ANY PERIODIC PAYMENTS ON THE SECURITIES
You will not receive any periodic payments of interest or any other
periodic payments on the securities. In addition, you will not be entitled to
receive dividend payments or other distributions, if any, made on the stocks
included in the indices comprising the underlying basket.
YOUR RETURN ON THE SECURITIES WILL NOT REFLECT THE RETURN YOU WOULD REALIZE IF
YOU ACTUALLY OWNED THE STOCKS INCLUDED IN THE INDICES COMPRISING THE UNDERLYING
BASKET
Your return on the securities will not reflect the return you would realize
if you actually owned the stocks included in the indices comprising the
underlying basket. Values of the indices comprising the basket are calculated by
reference to the prices of the stocks underlying these indices without taking
into consideration the value of any dividends paid on those stocks. As a result,
the return on the securities may be less than the
13
return you could have realized if the dividends paid on those stocks were
included in the calculation of these indices.
THE SECURITIES WILL NOT BE LISTED ON ANY EXCHANGE; YOU MAY NOT BE ABLE TO SELL
YOUR SECURITIES IF AN ACTIVE TRADING MARKET DOES NOT DEVELOP
The securities will not be listed on any exchange. There is currently no
secondary market for the securities. Citigroup Global Markets currently intends,
but is not obligated, to make a market in the securities. Even if a secondary
market does develop, it may not be liquid and may not continue for the term of
the securities. If the secondary market for the securities is limited, there may
be few buyers should you choose to sell your securities prior to maturity and
this may reduce the price you receive.
RISKS RELATING TO THE WARRANTS
If you choose to exercise your exchange right, dispose of the securities
and hold only the warrants, your investment in the warrants may entail the
specific risks discussed below. You should also refer to "-- Risks Generally
Relating to the Certificates, Securities and Warrants" for a discussion of
additional risks that generally may be applicable to the certificates,
securities and warrants. In order to exercise your exchange right, your account
must be approved for options trading. You should consult with your financial
advisor to determine whether your account would meet the options trading
requirements.
THE WARRANTS WILL EXPIRE WORTHLESS UNLESS THE VALUE OF THE UNDERLYING BASKET
DECLINES
The amount payable upon exercise of the warrants will depend on the closing
value of the underlying basket on the third index business day before maturity
of the certificates. If the ending value of the underlying basket is greater
than or equal to the starting value, the warrant payment will be zero. If the
ending value of the underlying basket does not decrease by approximately % (to
be determined on the pricing date) or more from the starting value, the warrant
payment will be less than $ , the initial issue price of each warrant, in
which case your investment in the warrants will result in a loss. This will be
true even if the value of the underlying basket at any point during the term of
the warrants declines by approximately % or more from the starting value of
the underlying basket.
THE WARRANTS ARE A RISKY INVESTMENT AND NOT SUITABLE FOR ALL INVESTORS
If you choose to exercise your exchange right, dispose of the securities
and hold only the warrants, the warrants will be a risky investment and not
suitable for all investors. Equity index warrants may change substantially in
value, or lose all of their value, with relatively small movements in the value
of the underlying index. Accordingly, equity index warrants, such as the
warrants offered by this offering document, involve a high degree of risk and
are not appropriate for every investor. Investors who are considering investing
in the warrants, or exchanging their certificates for warrants, must be able to
understand and bear the risk of a speculative investment in the warrants, be
experienced with respect to options and option transactions and understand the
risks of transactions in equity-indexed instruments. Investors should reach an
investment decision only after careful consideration, with their advisors, of
the suitability of the warrants in light of their particular financial
circumstances and the information set forth in this offering document.
YOU MAY NOT EXERCISE THE WARRANTS UNTIL THEY ARE AUTOMATICALLY EXERCISED
The warrants will be automatically exercised on the maturity of the
certificates and are not exercisable prior to that date. Thus, even though the
value of the underlying basket declines significantly from the starting value at
any point during the term of the warrants, you cannot exercise your warrants at
that point. Accordingly, the return on your investment in the warrants will
depend solely on the closing value of the underlying basket on the third index
business day before maturity of the certificates.
14
YOU WILL NOT RECEIVE ANY PERIODIC PAYMENTS ON THE WARRANTS
You will not receive any periodic payments of interest or any other
periodic payments on the warrants. In addition, you will not be entitled to
receive dividend payments or other distributions, if any, made on the stocks
included in the indices comprising the underlying basket.
THE WARRANTS WILL NOT BE LISTED ON ANY EXCHANGE; YOU MAY NOT BE ABLE TO SELL
YOUR WARRANTS IF AN ACTIVE TRADING MARKET DOES NOT DEVELOP
The warrants will not be listed on any exchange. There is currently no
secondary market for the warrants. Citigroup Global Markets currently intends,
but is not obligated, to make a market in the warrants. Even if a secondary
market does develop, it may not be liquid and may not continue for the term of
the warrants. If the secondary market for the warrants is limited, there may be
few buyers should you choose to sell your warrants prior to maturity and this
may reduce the price you receive.
THE PRICE OF THE WARRANTS MAY EXCEED THAT OF SIMILAR OPTIONS
The initial issue price of the warrants may be in excess of the price that
a commercial user of options on the underlying basket, the indices comprising
the underlying basket or the stocks underlying the indices might pay for a
comparable option in a private transaction.
RISKS GENERALLY RELATING TO THE CERTIFICATES, SECURITIES AND WARRANTS
THE HISTORICAL PERFORMANCE OF THE INDICES COMPRISING THE UNDERLYING BASKET IS
NOT AN INDICATION OF THE FUTURE PERFORMANCE OF THESE INDICES OR THE UNDERLYING
BASKET
The historical performance of each of the indices comprising the underlying
basket, which is included in this offering document, should not be taken as an
indication of the future performance of these indices or the underlying basket
during the term of the certificates, securities and warrants. Changes in the
value of any of these indices and thus the underlying basket will affect the
trading price of the certificates, securities and warrants, but it is impossible
to predict whether the value of these indices will fall or rise.
THE PRICE AT WHICH YOU WILL BE ABLE TO SELL YOUR CERTIFICATES, SECURITIES AND
WARRANTS PRIOR TO MATURITY WILL DEPEND ON A NUMBER OF FACTORS AND MAY BE
SUBSTANTIALLY LESS THAN THE AMOUNT YOU ORIGINALLY INVEST
We believe that the value of your certificates, securities and warrants in
the secondary market will be affected by the supply of and demand for each of
them, the value of the underlying basket and a number of other factors. Some of
these factors are interrelated in complex ways. As a result, the effect of any
one factor may be offset or magnified by the effect of another factor. The
following paragraphs describe what we expect to be the impact on the market
value of the certificates, securities and warrants of a change in a specific
factor, assuming all other conditions remain constant.
Value of the Underlying Basket. We expect that the market value of the
certificates, securities and warrants will depend substantially on the
relationship between the starting value of the underlying basket and the future
value of the underlying basket. However, changes in the value of the underlying
basket may not always be reflected, in full or in part, in the market value of
the certificates, securities and warrants. For example, if you choose to sell
your certificates or securities when the value of the underlying basket exceeds
its starting value, you may receive substantially less than the amount that
would be payable at maturity based on that value because of expectations that
the value of the underlying basket will continue to fluctuate between that time
and the time when the ending value of the underlying basket is determined.
Similarly, if you choose to sell your warrants when the value of the underlying
basket is less than its starting value, you may receive substantially less than
the amount that would be payable at maturity based on that value because of
expectations that the value of the underlying basket will continue to fluctuate
between that time and the time when the ending value of the underlying basket is
determined.
15
In addition, if you choose to sell your certificates or securities when the
value of the underlying basket is below its starting value, you may receive less
than the amount you originally invested in the certificates or securities. On
the other hand, if you choose to sell your warrants when the value of the
underlying basket exceeds its starting value, you may receive less than the
amount you originally invested in the warrants.
Trading prices of the stocks included in the indices comprising the
underlying basket will be influenced by both the complex and interrelated
political, economic, financial and other factors that can affect the capital
markets generally and the equity trading markets on which the underlying stocks
are traded, and by various circumstances that can influence the values of the
underlying stocks in a specific market segment or of a particular underlying
stock. Citigroup Funding's hedging activities in the stocks included in the
indices comprising the underlying basket, the issuance of securities similar to
the certificates, securities and warrants and other trading activities by
Citigroup Funding, its affiliates and other market participants can also affect
the price of the stocks included in the indices comprising the underlying basket
and the value of the underlying basket.
Volatility of the Underlying Basket. Volatility is the term used to
describe the size and frequency of market fluctuations. If the volatility of the
underlying basket changes during the term of the certificates, securities and
warrants, the market value of the certificates, securities and warrants may
decrease.
Events Involving the Companies Included in the Indices Comprising the
Underlying Basket. General economic conditions and earnings results of the
companies whose stocks are included in the indices comprising the underlying
basket and real or anticipated changes in those conditions or results may affect
the market value of the certificates, securities and warrants. In addition, if
the dividend yields on these stocks increase, we expect that the market value of
the certificates and securities may decrease because the indices comprising the
basket does not incorporate the value of dividend payments. Conversely, if
dividend yields on these stocks decrease, we expect that the market value of the
certificates and securities may increase. On the other hand, we expect that the
market value of the warrants may increase if dividend yields on these stocks
increase, and decrease if dividend yields on these stocks decrease.
Interest Rates. We expect that the market value of the certificates,
securities and warrants will be affected by changes in U.S. interest rates. If
U.S. interest rates change during the term of the certificates, securities and
warrants, the market value of the certificates, securities and warrants may
decrease.
Time Premium or Discount. As a result of a "time premium or discount," the
certificates, securities and warrants may trade at a value above or below that
which would be expected based on the level of interest rates and the value of
the underlying basket the longer the time remaining to maturity. A "time premium
or discount" results from expectations concerning the value of the underlying
basket during the period prior to the maturity of the certificates, securities
and warrants. However, as the time remaining to maturity decreases, this time
premium or discount may diminish, increasing or decreasing the market value of
the certificates, securities and warrants.
Hedging Activities. Hedging activities related to the certificates,
securities and warrants by one or more of our affiliates will likely involve
trading in one or more of the stocks included in the indices comprising the
underlying basket or in other instruments, such as options, swaps or futures,
based upon the underlying basket, the indices comprising the underlying basket
or the stocks included in the indices. This hedging activity could affect the
value of the underlying basket and therefore the market value of the
certificates, securities and warrants. It is possible that we or our affiliates
may profit from our hedging activity, even if the market value of the
certificates, securities and warrants declines. Profit or loss from this hedging
activity could affect the price at which Citigroup Funding's affiliate Citigroup
Global Markets may be willing to purchase your certificates, securities and
warrants in the secondary market.
Citigroup Funding and Citigroup's Credit Ratings, Financial Condition and
Results. Actual or anticipated changes in our credit ratings, financial
condition or results or those of Citigroup may affect the market value of the
certificates, securities and warrants.
We want you to understand that the impact of one of the factors specified
above, such as an increase in interest rates, may offset some or all of any
change in the market value of the certificates, securities and
16
warrants attributable to another factor, such as changes in the market value of
the certificates due to an increase in the value of the underlying basket.
In general, assuming all relevant factors are held constant, we expect that
the effect on the market value of the certificates, securities and warrants of a
given change in most of the factors listed above will be less if it occurs later
in the term of the certificates, securities and warrants than if it occurs
earlier in the term of the certificates, securities and warrants.
A GAIN ON THE CERTIFICATES WILL BE TREATED AS SHORT-TERM CAPITAL GAIN AND ANY
LOSSES MAY BE REQUIRED TO BE CAPITALIZED OR DEFERRED UNDER THE STRADDLE RULES
Under the treatment of the assets of the trust that you and the trust will
agree to, if you are a U.S. taxable investor, any gain with respect to the
certificates (such as at maturity or on disposition) will be treated as
short-term capital gain, unless you take the steps described below. You will
have long-term capital gain or loss at maturity or on disposition of the
securities if you have exchanged your certificates for the securities and
warrants, disposed of the warrants, and have held the securities for more than
one year after the disposition of the warrants. Similarly, you will have
long-term capital gain or loss at maturity or on disposition of the warrants if
you have exchanged your certificates for the securities and warrants, disposed
of the securities, and have held the warrants for more than one year after the
disposition of the securities. However, if you exchange your certificates for
the securities and the warrants and dispose of one instrument, but not the
other, any loss on such disposition may not be deductible currently. If the
"identified straddle" election applies with respect to the securities and the
warrants, you will be required to add such loss to your basis in the securities.
If the identified straddle election does not apply, such loss may be deferred
and may not become deductible until you sell or otherwise dispose of all of your
securities. The trust will identify each security and each warrant as positions
comprising a separate identified straddle on behalf of all holders of the
certificates. It is unclear, however, whether the identified straddle election
made by the trust on behalf of a holder will be effective. You are urged to make
a separate identified straddle election by complying with the identification
requirements described in the section "Certain United States Federal Income Tax
Considerations" in this offering document.
THE MARKET VALUE OF THE CERTIFICATES, SECURITIES AND WARRANTS MAY BE AFFECTED BY
PURCHASES AND SALES OF THE STOCKS INCLUDED IN THE INDICES COMPRISING THE
UNDERLYING BASKET OR RELATED DERIVATIVE INSTRUMENTS BY AFFILIATES OF CITIGROUP
FUNDING
Citigroup Funding's and Citigroup's affiliates, including Citigroup Global
Markets, may from time to time buy or sell the stocks included in the indices
comprising the underlying basket or derivative instruments relating to such
stocks or indices for their own accounts in connection with their normal
business practices or in connection with hedging Citigroup Funding's obligations
under the securities and warrants. These transactions could affect the value of
the stocks included in the indices comprising the underlying basket and
therefore the market value of the certificates, securities and warrants.
CITIGROUP GLOBAL MARKETS, AN AFFILIATE OF CITIGROUP FUNDING AND CITIGROUP, IS
THE CALCULATION AGENT, WHICH COULD RESULT IN A CONFLICT OF INTEREST
Citigroup Global Markets, which is acting as the calculation agent for the
certificates, securities and warrants, is an affiliate of the trust, Citigroup
Funding and Citigroup. As a result, Citigroup Global Markets' duties as
calculation agent, including with respect to certain determinations and
judgments that the calculation agent must make in determining amounts due to
you, may conflict with its interest as an affiliate of Citigroup Funding and
Citigroup.
CITIGROUP FUNDING'S HEDGING ACTIVITY COULD RESULT IN A CONFLICT OF INTEREST
Citigroup Funding expects to hedge its obligations under the securities and
warrants through it or one or more of its affiliates. This hedging activity will
likely involve trading in one or more of the stocks included in the indices
comprising the underlying basket or in other instruments, such as options, swaps
or futures, based
17
upon the underlying basket, the indices comprising the underlying basket or the
stocks included in the indices. This hedging activity may present a conflict
between your interest in the certificates, securities and warrants and the
interests Citigroup Funding and its affiliates have in executing, maintaining
and adjusting its hedge transactions because it could affect the value of the
underlying basket and therefore the market value of the certificates, securities
and warrants. It could also be adverse to your interest if it affects the price
at which Citigroup Funding's affiliate Citigroup Global Markets may be willing
to purchase your certificates, securities and warrants in the secondary market.
Since hedging Citigroup Funding's obligation under the securities and warrants
involves risk and may be influenced by a number of factors, it is possible that
Citigroup Funding or its affiliates may profit from its hedging activity, even
if the market value of the certificates, securities and warrants declines.
FOREIGN JURISDICTIONS
You should be aware that investments in securities, such as the
certificates, the securities and the warrants, that are indexed to the value of
foreign equity securities involve certain risks, any of which can affect the
value of these foreign equity securities, the value of the Nikkei 225 Stock
Average and the value of the certificates, the securities and the warrants.
The foreign securities markets may be more volatile than U.S. securities
markets and may be affected by market developments in different ways than U.S.
securities markets; cross-shareholdings in foreign companies on such markets may
affect prices and volume of trading on those markets; there is generally less
publicly available information about foreign companies than about those U.S.
companies that are subject to the reporting requirements of the SEC and foreign
companies are subject to accounting, auditing and financial reporting standards
and requirements that differ from those applicable to U.S. reporting companies.
In addition, certain of the exchanges on which the stocks included in the Nikkei
225 Stock Average are traded may have adopted certain measures intended to
prevent extreme fluctuations. These may include daily price floors and ceilings
intended to prevent extreme fluctuations in individual stock prices. You should
also be aware that certain of the exchanges in the underlying jurisdictions
might suspend the trading of individual stocks in certain limited and
extraordinary circumstances. As a result, variations in the Nikkei 225 Stock
Average may be limited by price limitations on, suspensions of trading of,
individual stocks included in these indices, which may, in turn, adversely
affect the value of the certificates, the securities and the warrants or result
in the occurrence of a market disruption event.
Prices of the underlying foreign stocks are subject to political, economic,
financial, exchange rate and social factors that apply in each issuer's country
as well as in other constituent countries in which such issuer does business (or
in which its principal trading partners do business). These factors (including
the possibility that recent or future changes in a country's government,
economic and fiscal policies, the possible imposition of, or changes in,
currency exchange laws or other laws or restrictions applicable to such foreign
companies or investments in foreign equity securities and the possibility of
fluctuations in the rate of exchange between currencies) could negatively affect
foreign securities markets. Stock and currency market volatility and market
developments in one or more countries may cause volatility or a decline in
another country. Moreover, the relevant economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resources and
self-sufficiency.
18
AVAILABLE INFORMATION
As required by the Securities Act of 1933, Safety First Trust Series 2006-1
("Trust 2006-1"), Citigroup Funding and Citigroup filed a registration statement
(File No. 333-135867) relating to the Principal-Protected Trust Certificates
Linked to the Dow Jones Industrial Average and the Nikkei 225 Stock Average (the
"Certificates") offered by this offering document with the Securities and
Exchange Commission, or SEC. This offering document is a part of that
registration statement, which includes additional information. Citigroup Funding
and Citigroup also have filed a registration statement (File No. 333-132370)
relating to the Equity Index Participation Securities Linked to the Dow Jones
Industrial Average and the Nikkei 225 Stock Average (the "Securities") and the
Equity Index Warrants Linked to the Dow Jones Industrial Average and the Nikkei
225 Stock Average (the "Warrants") offered by this offering document.
Citigroup files annual, quarterly and current reports and other information
with the SEC. Citigroup Funding and Trust 2006-1 currently do not file reports
and other information with the SEC. You may read and copy any document Citigroup
files at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C.
20549. You can also request copies of the documents, upon payment of a
duplicating fee, by writing the Public Reference Section of the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the Public
Reference Room. These SEC filings and reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC
are available to the public from the SEC's website at http://www.sec.gov.
Citigroup's SEC filings are also available on its website at
http://www.citigroup.com.
Separate financial statements of Trust 2006-1 have not been included in
this offering document. Citigroup does not believe that these financial
statements would be material to you because:
- Citigroup, an SEC reporting company, is the sole stockholder of Citigroup
Funding,
- Citigroup, through Citigroup Funding, indirectly owns all the voting
securities of Trust 2006-1,
- Trust 2006-1 has no independent operations,
- Citigroup Funding is the issuer of the Securities and the Warrants,
- Citigroup Funding has fully and unconditionally guaranteed Trust 2006-1's
obligations under the Certificates to the extent that Trust 2006-1 has
funds legally available to meet its obligations,
- Citigroup has fully and unconditionally guaranteed Citigroup Funding's
guarantee obligations to the same extent and in the same manner as
Citigroup Funding has guaranteed Trust 2006-1's obligations under the
Certificates (we refer to this guarantee, together with Citigroup
Funding's guarantee referred to in the immediately preceding bullet, as
the Certificate Guarantee), and
- Citigroup has fully and unconditionally guaranteed Citigroup Funding's
payment obligations under each of the Securities and the Warrants.
In its future filings under the Securities Exchange Act of 1934, a footnote
to Citigroup's annual financial statements will state:
- that the sole assets of Trust 2006-1 are the Securities and the Warrants,
and
- that the Certificate Guarantee, when taken together with Citigroup
Funding's obligations under the Securities and the Warrants, Citigroup's
guarantee of each of the Securities and the Warrants, the related
indenture, the related warrant agreement, the amended and restated
declaration of trust of Trust 2006-1 and Citigroup Funding's and
Citigroup's obligations to pay all fees and expenses of Trust 2006-1,
constitutes a full and unconditional guarantee by each of Citigroup
Funding and Citigroup of Trust 2006-1's obligations under the
Certificates.
The SEC allows Citigroup to "incorporate by reference" the information it
files with the SEC, which means that it can disclose important information to
you by referring you to those documents. The information incorporated by
reference is considered to be part of this offering document. Information that
Citigroup files later with the SEC will automatically update information in this
offering document. In all cases, you should
19
rely on the later information over different information included in this
offering document. Citigroup incorporates by reference the documents listed
below:
(a) Annual Report on Form 10-K for the year ended December 31, 2005;
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31, 2006
and June 30, 2006; and
(c) Current Reports on Form 8-K filed on January 13, 2006, January 27,
2006, January 31, 2006, February 14, 2006, February 27, 2006,
February 28, 2006, March 10, 2006, March 23, 2006, March 29, 2006,
March 30, 2006, March 31, 2006, April 4, 2006, April 13, 2006, April
25, 2006, April 26, 2006, April 27, 2006, April 28, 2006, May 12
2006, May 19, 2006, June 9, 2006, June 15, 2006, June 28, 2006, June
30, 2006, July 6, 2006, July 11, 2006, July 17, 2006, July 24, 2006,
August 1, 2006, August 2, 2006, August 11, 2006, August 25, 2006,
August 31, 2006, September 18, 2006, September 29, 2006, October 4,
2006, October 6, 2006, October 17, 2006, October 18, 2006 and
October 19, 2006.
In addition, all documents Citigroup files pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this offering document
and before the later of (1) the completion of the offering of the securities
described in this offering document and (2) the date the broker-dealer
subsidiaries or affiliates of Citigroup stop offering securities pursuant to
this offering document shall be incorporated by reference in this offering
document from the date of filing of such documents.
You may request a copy of these filings, at no cost, by writing or
telephoning Citigroup at the following address:
Citigroup Document Services
140 58th Street, Suite 8G
Brooklyn, NY 11220
(877) 936-2737 (toll free)
(718) 765-6514 (outside the U.S.)
You should rely only on the information provided in this offering document,
as well as the information incorporated by reference. None of Citigroup,
Citigroup Funding or Trust 2006-1 is making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this offering document or any documents incorporated by reference
is accurate as of any date other than the date on the front of the applicable
document.
FORWARD-LOOKING STATEMENTS
This offering document and the information incorporated by reference in
this offering document include forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. These
forward-looking statements are based on Citigroup Funding and Citigroup's
respective management's beliefs and assumptions and on information currently
available to Citigroup Funding and Citigroup's respective management.
Forward-looking statements include information concerning Citigroup Funding and
Citigroup's possible or assumed future results of operations and statements
preceded by, followed by or that include the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates" or similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these
forward-looking statements. Factors that could cause actual results to differ
from these forward-looking statements include, but are not limited to, those
discussed elsewhere in this offering document and the documents incorporated by
reference in this offering document. You should not put undue reliance on any
forward-looking statements. Neither Citigroup Funding nor Citigroup has any
intention or obligation to update forward-looking statements after it
distributes this offering document.
20
CITIGROUP INC.
Citigroup is a diversified global financial services holding company whose
businesses provide a broad range of financial services to consumer and corporate
customers, with some 200 million customer accounts in over 100 countries.
Citigroup's activities are conducted through the Global Consumer Group,
Corporate and Investment Banking, Global Wealth Management and Alternative
Investments business segments. Citigroup's principal subsidiaries are Citibank,
N.A., Associates First Capital Corporation, Citigroup Global Markets Inc. and
Grupo Financiero Banamex, S.A. de C.V., each of which is a wholly-owned,
indirect subsidiary of Citigroup. Citigroup was incorporated in 1988 under the
laws of the State of Delaware as a corporation with perpetual duration.
Citigroup is a holding company and services its obligations primarily with
dividends and advances that it receives from subsidiaries. Citigroup's
subsidiaries that operate in the banking and securities businesses can only pay
dividends if they are in compliance with the applicable regulatory requirements
imposed on them by federal and state bank regulatory authorities and securities
regulators. Citigroup's subsidiaries may be party to credit agreements that also
may restrict their ability to pay dividends. Citigroup currently believes that
none of these regulatory or contractual restrictions on the ability of its
subsidiaries to pay dividends will affect Citigroup's ability to service its own
debt. Citigroup must also maintain the required capital levels of a bank holding
company before it may pay dividends on its stock. Each of Citigroup's major
operating subsidiaries finances its operations on a stand-alone basis consistent
with its capitalization and ratings.
Under the regulations of the Federal Reserve, a bank holding company is
expected to act as a source of financial strength for its subsidiary banks. As a
result of this regulatory policy, the Federal Reserve might require Citigroup to
commit resources to its subsidiary banks when doing so is not otherwise in the
interests of Citigroup or its shareholders or creditors.
The principal executive offices of Citigroup are located at 399 Park
Avenue, New York, New York 10043, and its telephone number is (212) 559-1000.
CITIGROUP FUNDING INC.
Citigroup Funding is a wholly-owned subsidiary of Citigroup, whose business
activities consist primarily of providing funds to Citigroup and its
subsidiaries for general corporate purposes. Citigroup Funding was incorporated
on January 14, 2005 under the laws of the State of Delaware as a corporation
with perpetual duration. The principal executive offices of Citigroup Funding
are located at 399 Park Avenue, New York, New York 10043, and its telephone
number is (212) 559-1000.
21
USE OF PROCEEDS AND HEDGING ACTIVITIES
Trust 2006-1 will use approximately % of the total proceeds from the
sale of the Certificates and the common securities to buy the Securities and the
Warrants. Citigroup Funding will use a portion of the net proceeds from the sale
of the Securities and the Warrants for general corporate purposes, which may
include:
- funding the business of Citigroup subsidiaries;
- funding investments in, or extensions of credit or capital contributions
to, Citigroup subsidiaries; and
- lengthening the average maturity of liabilities, which means that it
could reduce its short-term liabilities or refund maturing indebtedness.
Citigroup Funding expects to incur additional indebtedness in the future to
fund Citigroup's businesses. Citigroup Funding or one of more of its affiliates
may enter into a swap agreement in connection with the sale of the Certificates
and may earn additional income from that transaction.
Citigroup Funding or one or more of its affiliates may use all or some of
the remainder of the proceeds received from the sale of the Securities and the
Warrants for hedging activities related to Citigroup Funding's obligations under
the Securities and the Warrants. On or prior to the closing date of the
Certificates offering, Citigroup Funding, directly or through one or more of its
affiliates, will hedge its anticipated exposure under the Securities and the
Warrants by the purchase or sale of one or more of the stocks included in the
indices comprising the underlying basket or in other instruments, such as
options, swaps or futures, based upon the underlying basket, the indices
comprising the underlying basket or the stocks included in the indices.
Citigroup Funding expects that it or one or more of its affiliates will
increase or decrease their initial hedging positions over time using techniques
which help evaluate the size of any hedge based upon a variety of factors
affecting the value of the underlying basket. These factors may include the
history of price changes in the underlying basket and the time remaining to
maturity. Citigroup Funding or one or more of its affiliates may take long or
short positions in the underlying basket, the indices comprising the underlying
basket or options, swaps, futures contracts, forward contracts, or other
derivative or similar instruments related to the underlying basket.
In addition, Citigroup Funding or one or more of its affiliates may
purchase or otherwise acquire a long or short position in the Certificates, the
Securities or the Warrants from time to time and may, in their sole discretion,
hold, resell, exercise, cancel or retire such Certificates, the Securities or
the Warrants. Citigroup Funding or one or more of its affiliates may also take
hedging positions in other types of appropriate financial instruments that may
become available in the future.
If Citigroup Funding or one or more affiliates has a long or short hedge
position in the underlying basket, the indices comprising the underlying basket
or options, swaps, futures contracts, forward contracts or other derivative or
synthetic instruments related to the underlying basket, Citigroup Funding or one
or more of its affiliates may liquidate all or a portion of its holdings at or
about the time of the maturity of the Certificates, the Securities and the
Warrants. The aggregate amount and type of such positions are likely to vary
over time depending on future market conditions and other factors. Since the
hedging activities described in this section involve risks and may be influenced
by a number of factors, it is possible that Citigroup Funding or one or more of
its affiliates may receive a profit from the hedging activities, even if the
market value of the Certificates, the Securities or the Warrants declines.
Citigroup Funding is only able to determine profits or losses from any of such
positions when the position is closed out and any offsetting position or
positions are taken into account.
Citigroup Funding has no reason to believe that its hedging activity, as
well as those of its affiliates, will have a material impact on the price of
such options, swaps, futures contracts, forward contracts or other derivative or
similar instruments, or on the value of the underlying basket. However,
Citigroup Funding cannot guarantee you that its hedging activities, as well as
those of its affiliates, will not affect such prices or value.
22
SAFETY FIRST TRUST SERIES 2006-1
Safety First Trust Series 2006-1 ("Trust 2006-1") is a statutory trust
formed under Delaware law pursuant to a declaration of trust executed by
Citigroup Funding, as sponsor, Citigroup and the trustees of Trust 2006-1 (as
described below), and the filing of a certificate of trust with the Secretary of
State of the State of Delaware. The declaration of trust will be amended and
restated in its entirety substantially in the form filed as an exhibit to the
registration statement relating to the Certificates of which this offering
document forms a part. The amended and restated declaration of trust will be
qualified as an indenture under the Trust Indenture Act of 1939. Upon issuance
of the Certificates, the purchasers thereof will own all of the Certificates.
Citigroup Funding will directly or indirectly acquire all of the common
securities of Trust 2006-1. We refer to the Certificates and the common
securities as, collectively, the Trust Securities.
Trust 2006-1 will use all the proceeds derived from the issuance of the
Trust Securities to purchase the Securities and the Warrants and, accordingly,
the assets of Trust 2006-1 will consist solely of the Securities and the
Warrants. Of the total proceeds from the sale of the Trust Securities,
approximately % will be invested by Trust 2006-1 in the Securities and the
Warrants. Trust 2006-1 exists for the exclusive purposes of:
- issuing its Trust Securities representing undivided beneficial interests
in the assets of Trust 2006-1,
- investing the gross proceeds of its Trust Securities in the Securities
and the Warrants, and
- engaging only in activities incidental to the above.
Trust 2006-1's business and affairs are conducted by its trustees, each
appointed by Citigroup Funding as holder of the common securities. Pursuant to
the amended and restated declaration of trust, the initial number of trustees of
Trust 2006-1 will be five:
- U.S. Bank National Association, a national banking association that is
unaffiliated with Citigroup Funding and Citigroup, as the institutional
trustee,
- U.S. Bank Trust National Association, a national banking association with
its principal place of business in the State of Delaware, as the Delaware
trustee, and
- three officers of Citigroup Funding, as the individual trustees.
Citigroup Funding, as direct or indirect holder of all the common securities,
will have the right, subject to certain restrictions contained in the
declaration, to appoint, remove or replace any trustees and to increase or
decrease the number of trustees.
The institutional trustee will act as the sole indenture trustee under the
amended and restated declaration of trust for purposes of compliance with the
Trust Indenture Act until it is removed or replaced by the holder of the common
securities. The institutional trustee will hold title to the Securities and the
Warrants for the benefit of the holders of Trust 2006-1's Trust Securities and,
in its capacity as the holder, the institutional trustee will have the power to
exercise all rights, powers and privileges under the indenture and the warrant
agreement pursuant to which the Securities and the Warrants are issued. In
addition, the institutional trustee will maintain exclusive control of a
segregated non-interest bearing bank account to hold all payments made in
respect of the Securities and the Warrants for the benefit of the holders of
Trust 2006-1's Trust Securities. The institutional trustee will make payments of
distributions and payments on liquidation and otherwise to the holders of the
Trust Securities out of funds from the segregated bank account.
The individual trustees are authorized and directed to operate Trust 2006-1
in such a way so that Trust 2006-1 will not be required to register as an
investment company under the Investment Company Act or be characterized as other
than a grantor trust for United States federal income tax purposes. Citigroup
Funding and the individual trustees are authorized to take any action, not
inconsistent with applicable law, the amended and restated declaration of trust
or the certificate of incorporation of Citigroup Funding, that each of Citigroup
Funding and the individual trustees in their discretion deem to be necessary or
desirable to achieve such end as long as the action does not adversely affect
the interests of the holders of the Certificates or vary the terms thereof.
23
U.S. Bank National Association also will act as guarantee trustee under the
Certificate Guarantee and will hold the Certificate Guarantee for the benefit of
the holders of the Certificates.
The Bank of New York will act as trustee for the Securities under the
indenture for purposes of compliance with the provisions of the Trust Indenture
Act. U.S. Bank National Association will act as warrant agent under the warrant
agreement.
Citigroup, Citigroup Funding and certain of their affiliates have had and
may continue to have banking relationships with the trustees and the warrant
agent in the ordinary course of business.
The rights of the holders of the Certificates, including economic rights,
rights to information and voting rights, are set forth in the amended and
restated declaration of trust, the Delaware Statutory Trust Act and the Trust
Indenture Act. Holders of the Certificates have no preemptive rights.
The location of the principal executive office of Trust 2006-1 is c/o
Citigroup Funding Inc., 399 Park Avenue, New York, New York 10043 and its
telephone number is (212) 559-1000. Citigroup Funding will pay all fees and
expenses related to Trust 2006-1 and the offering of Trust 2006-1's Trust
Securities.
24
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the terms of the amended and
restated declaration of trust. The terms of the Certificates will include those
stated in the amended and restated declaration of trust and those made part of
the amended and restated declaration of trust by the Trust Indenture Act.
Pursuant to the amended and restated declaration of trust, every holder of the
Certificates will be deemed to have expressly assented and agreed to the terms
of, and will be bound by, the amended and restated declaration of trust. The
following is a summary of the terms and provisions of the Certificates. This
summary does not describe all of the terms and provisions of the amended and
restated declaration of trust and the Certificate Guarantee. You should read the
forms of these documents, which are filed as exhibits to the registration
statement of which this offering document forms a part.
GENERAL
The amended and restated declaration of trust authorizes the individual
trustees to issue the Trust Securities on behalf of Trust 2006-1. The Trust
Securities represent undivided beneficial interests in the assets of Trust
2006-1. All of the common securities of Trust 2006-1 will be owned, directly or
indirectly, by Citigroup Funding. The common securities rank pari passu with the
Certificates and payments will be made on the common securities on a pro rata
basis with the Certificates, except that upon the occurrence of an acceleration
event, the rights of the holders of the common securities to receive payments
will be subordinated to the rights of the holders of the Certificates. The
amended and restated declaration does not permit the issuance by Trust 2006-1 of
any securities other than its Trust Securities or the incurrence of any debt by
Trust 2006-1. Pursuant to the amended and restated declaration of trust, the
institutional trustee will hold title to the Securities and the Warrants for the
benefit of the holders of the Trust Securities. The payment upon maturity of the
Certificates out of money legally available to Trust 2006-1 is fully and
unconditionally guaranteed by Citigroup Funding and Citigroup to the extent
described under "Description of the Certificate Guarantee." The Certificate
Guarantee will be held by U.S. Bank National Association, the guarantee trustee,
for the benefit of the holders of the Certificates. The Certificate Guarantee
does not cover payment upon maturity when Trust 2006-1 does not have sufficient
legally available funds to make this payment. In such event, the remedies of a
holder of the Certificates are to:
- vote to direct the institutional trustee to enforce the institutional
trustee's rights under the Securities and/or the Warrants,
- if the institutional trustee fails to enforce its rights against
Citigroup Funding or Citigroup, initiate a proceeding against Citigroup
Funding or Citigroup to enforce the institutional trustee's rights under
the Securities and/or the Warrants, or
- if the failure by Trust 2006-1 to make the distribution payment is
attributable to the failure of Citigroup Funding to pay amounts in
respect of the Securities and/or the Warrants, institute a proceeding
directly against Citigroup Funding or Citigroup for enforcement of
payment to such holder of the amounts owed on such holder's pro rata
interest in the Securities and the Warrants.
The aggregate number of Certificates to be issued will be , as
described in "Underwriting." The Certificates will be issued in fully registered
form. The Certificates will not be issued in bearer form. See "-- Book-Entry
Procedures and Settlement" below.
PAYMENT AT MATURITY
The Certificates will mature on approximately , 2010,
subject to acceleration to the accelerated maturity date upon an acceleration
event. See "-- Acceleration of Maturity Date; Enforcement of Rights" below. On
the maturity date, holders of the Certificates will be entitled to receive for
each Certificate they hold, to the extent Trust 2006-1 has assets available, a
payment equal to the sum of $10 and a Supplemental Distribution Amount, which
may be positive or zero. The amount payable to you at maturity is dependent upon
the Ending Value of a basket comprised of the Dow Jones Industrial Average and
the Nikkei 225 Stock Average (the "Underlying Basket") on the Valuation Date,
provided, however, that the
25
payment you receive at maturity will not be less than the amount of your
original investment in the Certificates.
SUPPLEMENTAL DISTRIBUTION AMOUNT
The Supplemental Distribution Amount will be based on the amount by which
the Ending Value exceeds the Starting Value, expressed as a percentage. The
Supplemental Distribution Amount will equal the product of:
$10* Basket Return
, provided that the Supplemental Distribution Amount will not be less than zero.
The Basket Return, which is presented in this offering document as a
percentage, will equal the following fraction:
Ending Value - Starting Value
---------------------------------
Starting Value
The "Starting Value" will be set to 100 on the Pricing Date.
The "Ending Value" will be the closing value of the Underlying Basket on
the Valuation Date.
The "Pricing Date" means the date on which the Certificates are priced for
initial sale to the public.
The "Valuation Date" will be the third Index Business Day before the
maturity date.
If the closing value of any of the indices comprising the Underlying Basket
is not available on any Index Business Day because of a Market Disruption Event
or otherwise, the value of that index for that Index Business Day, unless
deferred by the calculation agent as described below, will be the arithmetic
mean, as determined by the calculation agent, of the value of that index
obtained from as many dealers in equity securities (which may include Citigroup
Global Markets or any of our other affiliates), but not exceeding three such
dealers, as will make such value available to the calculation agent. The
determination of the value of an index by the calculation agent in the event of
a Market Disruption Event may be deferred by the calculation agent for up to
five consecutive Index Business Days on which a Market Disruption Event is
occurring, but not past the Index Business Day prior to maturity.
An "Index Business Day" means a day, as determined by the calculation
agent, on which each of the indices comprising the Underlying Basket or any
successor index is calculated and published and on which securities comprising
more than 80% of the value of each index on such day are capable of being traded
on their relevant exchanges or markets during the one-half hour before the
determination of the closing value of each index. All determinations made by the
calculation agent will be at the sole discretion of the calculation agent and
will be conclusive for all purposes and binding on Trust 2006-1, Citigroup
Funding, Citigroup and the beneficial owners of the Certificates, absent
manifest error.
A "Market Disruption Event" means, as determined by the calculation agent
in its sole discretion, the occurrence or existence of any suspension of or
limitation imposed on trading (by reason of movements in price exceeding limits
permitted by any relevant exchange or market or otherwise) of, or the
unavailability, through a recognized system of public dissemination of
transaction information, for a period longer than two hours, or during the
one-half hour period preceding the close of trading, on the applicable exchange
or market, of accurate price, volume or related information in respect of (a)
stocks which then comprise 20% or more of the value of any of the indices
comprising the Underlying Basket or any successor index, (b) any options or
futures contracts, or any options on such futures contracts relating to any of
the indices comprising the Underlying Basket or any successor index, or (c) any
options or futures contracts relating to stocks which then comprise 20% or more
of the value of any of the indices comprising the Underlying Basket or any
successor index on any exchange or market if, in each case, in the determination
of the calculation agent, any such suspension, limitation or unavailability is
material. For the purpose of determining whether a Market Disruption Event
exists at any time, if trading in a security included in an index is materially
suspended or
26
materially limited at that time, then the relevant percentage contribution of
that security to the value of that index will be based on a comparison of the
portion of the value of the index attributable to that security relative to the
overall value of the index, in each case immediately before that suspension or
limitation.
MATURITY PAYMENT -- HYPOTHETICAL EXAMPLES
The Basket Return and, therefore, the Supplemental Distribution Amount, is
dependent on the Ending Value of the Underlying Basket. Because the value of the
Underlying Basket may be subject to significant variations over the term of the
Certificates, it is not possible to present a chart or table illustrating a
complete range of possible payments at maturity. The examples of hypothetical
maturity payments set forth below are intended to illustrate the effect of
different Ending Values of the Underlying Basket on the amount payable on the
Certificates at maturity. All of the hypothetical examples assume the following:
- Investment in Certificates: $10,
- Starting Value: 100,
- The Supplemental Distribution Amount cannot equal less than zero,
- Term of the Certificates: 3.65 years, and
- The Certificates are held to maturity and are not exchanged for the
Securities and the Warrants.
As demonstrated by the examples, if the Basket Return is 0% or less, you will
receive an amount at maturity equal to $10.00 per Certificate, the amount of
your initial investment in the Certificates. If the Basket Return is greater
than 0%, you will receive an amount at maturity that is greater than your
initial investment in the Certificates.
<Table>
<Caption>
SUPPLEMENTAL TOTAL ANNUALIZED
DISTRIBUTION MATURITY RETURN ON THE RETURN ON THE
ENDING VALUE BASKET RETURN AMOUNT(1) PAYMENT(2) CERTIFICATES CERTIFICATES(3)
30.0 -70.00% $0.00 $10.00 0.00% 0.00%
40.0 -60.00% $0.00 $10.00 0.00% 0.00%
50.0 -50.00% $0.00 $10.00 0.00% 0.00%
60.0 -40.00% $0.00 $10.00 0.00% 0.00%
70.0 -30.00% $0.00 $10.00 0.00% 0.00%
75.0 -25.00% $0.00 $10.00 0.00% 0.00%
80.0 -20.00% $0.00 $10.00 0.00% 0.00%
85.0 -15.00% $0.00 $10.00 0.00% 0.00%
90.0 -10.00% $0.00 $10.00 0.00% 0.00%
95.0 -5.00% $0.00 $10.00 0.00% 0.00%
97.5 -2.50% $0.00 $10.00 0.00% 0.00%
100.0 0.00% $0.00 $10.00 0.00% 0.00%
102.5 2.50% $0.25 $10.25 2.50% 0.68%
105.0 5.00% $0.50 $10.50 5.00% 1.35%
107.5 7.50% $0.75 $10.75 7.50% 2.00%
110.0 10.00% $1.00 $11.00 10.00% 2.65%
115.0 15.00% $1.50 $11.50 15.00% 3.90%
120.0 20.00% $2.00 $12.00 20.00% 5.12%
125.0 25.00% $2.50 $12.50 25.00% 6.30%
130.0 30.00% $3.00 $13.00 30.00% 7.45%
140.0 40.00% $4.00 $14.00 40.00% 9.66%
150.0 50.00% $5.00 $15.00 50.00% 11.75%
160.0 60.00% $6.00 $16.00 60.00% 13.74%
</Table>
- ---------------
(1) Supplemental Distribution Amount = $10.00 X Basket Return, provided that the
Supplemental Distribution Amount will not be less than zero
(2) Maturity payment = $10.00 + Supplemental Distribution Amount
(3) Compounded Annually
27
The examples are for purposes of illustration only. The actual maturity
payment will depend on the actual Supplemental Distribution Amount which, in
turn, will depend on the actual Ending Value.
DISCONTINUANCE OF AN INDEX COMPRISING THE UNDERLYING BASKET
If Dow Jones discontinues publication of the Dow Jones Industrial Average
or NKS discontinues publication of the Nikkei 225 Stock Average and if any of
them or another entity publishes a successor or substitute index that the
calculation agent determines, in its sole discretion, to be comparable to the
relevant index, then the value of the relevant index will be determined by
reference to the value of that index, which we refer to as a "successor index."
Upon any selection by the calculation agent of a successor index, the
calculation agent will cause notice to be furnished to us and the institutional
trustee, who will provide notice of the selection of the successor index to the
registered holders of the Certificates, the Securities and the Warrants.
If Dow Jones discontinues publication of the Dow Jones Industrial Average
or NKS discontinues publication of the Nikkei 225 Stock Average and a successor
index is not selected by the calculation agent or is no longer published on any
date of determination of the value of the Underlying Basket, the value to be
substituted for the relevant index for that date will be a value computed by the
calculation agent for that date in accordance with the procedures last used to
calculate the relevant index prior to any such discontinuance.
If Dow Jones discontinues publication of the Dow Jones Industrial Average
or NKS discontinues publication of the Nikkei 225 Stock Average prior to the
determination of the Supplemental Distribution Amount and the calculation agent
determines that no successor index is available at that time, then on each Index
Business Day until the earlier to occur of (a) the determination of the
Supplemental Distribution Amount and (b) a determination by the calculation
agent that a successor index is available, the calculation agent will determine
the value that is to be used in computing the value of the relevant index as
described in the preceding paragraph. The calculation agent will cause notice of
daily closing values to be published not less often than once each month in The
Wall Street Journal (or another newspaper of general circulation).
Notwithstanding these alternative arrangements, discontinuance of the
publication of any index comprising the basket may adversely affect trading in
the Certificates, the Securities and the Warrants.
If a successor index is selected or the calculation agent calculates a
value as a substitute for the relevant index as described above, the successor
index or value will be substituted for the relevant index for all purposes,
including for purposes of determining whether an Index Business Day or Market
Disruption Event occurs. Notwithstanding these alternative arrangements,
discontinuance of the publication any index comprising the basket may adversely
affect the market value of the Certificates, the Securities and the Warrants.
All determinations made by the calculation agent will be at the sole
discretion of the calculation agent and will be conclusive for all purposes and
binding on Trust 2006-1, Citigroup Funding, Citigroup and the beneficial owners
of the Certificates, the Securities and the Warrants, absent manifest error.
ALTERATION OF METHOD OF CALCULATION
If at any time the method of calculating either the Dow Jones Industrial
Average or the Nikkei 225 Stock Average or a successor index is changed in any
material respect, or if the relevant index or a successor index is in any other
way modified so that the value of such index or the successor index does not, in
the opinion of the calculation agent, fairly represent the value of that index
had the changes or modifications not been made, then, from and after that time,
the calculation agent will, at the close of business in New York, New York, make
those adjustments as, in the good faith judgment of the calculation agent, may
be necessary in order to arrive at a calculation of a value of a stock index
comparable to the relevant index or the successor index as if the changes or
modifications had not been made, and calculate the value of the index with
reference to the relevant index or the successor index. Accordingly, if the
method of calculating either the Dow Jones Industrial Average or the Nikkei 225
Stock Average or the successor index is modified so that the value of the
relevant index or the successor index is a fraction or a multiple of what it
would have been if it had not been
28
modified, then the calculation agent will adjust that index in order to arrive
at a value of the index as if it had not been modified.
EXCHANGE RIGHT
Beginning on the date the Certificates are issued, you will have the right,
by completing the Official Notice of Exchange attached as Exhibit A to this
offering document and delivering that notice to the institutional trustee for
the Certificates on any Business Day, to exchange the Certificates you then hold
for a pro rata portion of the assets of Trust 2006-1, which consist of the
Securities and the Warrants. If you choose to exercise your exchange right, you
will receive for each $10 principal amount of Certificates you then hold one
Security with a $10 face amount and one Warrant with a $10 notional amount. In
order to exercise your exchange right, your account must be approved for options
trading. You should consult with your financial advisor to determine whether
your account would meet the options trading requirements. You will be able to
exercise your exchange right through and including the Business Day prior to the
earlier of:
- the Valuation Date; and
- if an acceleration event occurs as described under "-- Acceleration of
Maturity Date; Enforcement of Rights," the date of the occurrence of the
acceleration event.
If you do not exercise your exchange right, and you are a U.S. Holder as defined
under "Certain United States Federal Income Tax Considerations" in this offering
document, for U.S. income tax purposes any gain that you recognize at maturity
or on other disposition of the Certificates will be short-term capital gain. You
cannot recognize long-term capital gain from your investment in the Certificates
unless you exercise your exchange right, then dispose of either the Securities
or the Warrants, and then hold the remaining instrument for more than one year
after that disposition. For example, if the value of the Underlying Basket
increases, you will recognize long-term capital gain only if you exercise your
exchange right, dispose of the Warrants, and hold the Securities for more than
one year after disposing of the Warrants. As discussed above, however, if you do
choose to exercise your exchange right and hold only the Securities or only the
Warrants, you will lose the benefit of principal protection at maturity. You
should read the discussion of the treatment of the Certificates under "Certain
United States Federal Income Tax Considerations" in this offering document.
We will deliver the Securities and the Warrants to you within three
Business Days after the date on which the institutional trustee receives a valid
Official Notice of Exchange (such date of receipt of a valid Official Notice of
Exchange, the Actual Exchange Date), as long as the institutional trustee has
received the Official Notice of Exchange and your Certificates by 11:00 a.m.,
New York City time, on the Actual Exchange Date and your account is approved for
options trading.
"Business Day" means any day that is not a Saturday, a Sunday or a day on
which securities exchanges or banking institutions or trust companies in the
City of New York are authorized or obligated by law or executive order to close.
ACCELERATION OF MATURITY DATE; ENFORCEMENT OF RIGHTS
If at any time an acceleration event occurs, the individual trustees will
give written instructions to the institutional trustee to dissolve Trust 2006-1
and, after satisfaction of creditors of Trust 2006-1, cause the accelerated
maturity payment with respect to each Certificate to be distributed to the
holders of the Certificates in liquidation of such holders' interests in Trust
2006-1, as soon as practicable following the occurrence of the acceleration
event.
The accelerated maturity payment with respect to each Certificate will be
paid out of amounts received by Trust 2006-1 from Citigroup Funding in respect
of the Securities and the Warrants and will be equal to the sum of (A) the
initial principal amount of $10.00 per Certificate and (B) the Supplemental
Distribution Amount as of the accelerated maturity date. The amount of the
accelerated maturity payment which may be distributed to holders of the
Certificates upon a dissolution and liquidation of Trust 2006-1 is uncertain.
29
The accelerated maturity date will be the date of the occurrence of the
event or events constituting an acceleration event.
An acceleration event will occur upon the occurrence of (1) a "tax event",
(2) an "investment company event" or (3) a "bankruptcy event," each of which is
described below.
A tax event will occur if Citigroup Funding or Citigroup requests, receives
and delivers to the individual trustees an opinion of nationally recognized
independent tax counsel experienced in such matters indicating that:
(1) on or after the date of this offering document, one or more of the
following has occurred:
- an amendment to, change in or announced proposed change in the laws, or
any regulations thereunder, of the United States or any political
subdivision or taxing authority thereof or therein,
- a judicial decision interpreting, applying, or clarifying such laws or
regulations,
- an administrative pronouncement or action that represents an official
position, including a clarification of an official position, of the
governmental authority or regulatory body making such administrative
pronouncement or taking such action, or
- a threatened challenge asserted in connection with an audit of Citigroup
Funding, Citigroup or any subsidiaries of Citigroup or Trust 2006-1, or a
threatened challenge asserted in writing against any other taxpayer that
has raised capital through the issuance of securities that are
substantially similar to the Securities, the Warrants or the
Certificates; and
(2) there is more than an insubstantial risk that:
- Trust 2006-1 is, or will be, subject to United States federal income tax
with respect to income accrued or received on the Securities or the
Warrants, or
- Trust 2006-1 is, or will be, subject to more than a de minimis amount of
other taxes, duties or other governmental charges.
An investment company event will occur if Citigroup Funding or Citigroup
requests, receives and delivers to the individual trustees an opinion of
nationally recognized independent legal counsel experienced in such matters
indicating that as a result of the occurrence on or after the date of this
offering document of a change in law or regulation or a change in interpretation
or application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, Trust 2006-1 is or will be considered an
investment company which is required to be registered under the Investment
Company Act of 1940.
A bankruptcy event will occur if either of the following takes place:
(1) the entry of a decree or order
- of relief in respect of Citigroup Funding and Citigroup by a court having
jurisdiction in the premises in an involuntary case under the federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law,
- appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of Citigroup Funding and
Citigroup, or of any substantial part of the property of Citigroup
Funding and Citigroup, or
- ordering the winding up or liquidation of affairs of Citigroup Funding
and Citigroup, and, in each case, the continuance of any such decree or
order unstayed and in effect for a period of 90 consecutive days; or
(2) an action by Citigroup Funding and Citigroup to:
- commence a voluntary case under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law,
30
- consent to the entry of an order for relief in an involuntary case under
any such law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or other similar official of Citigroup
Funding and Citigroup, or of any substantial part of the property of
Citigroup Funding and Citigroup,
- make an assignment for the benefit of their respective creditors,
- admit in writing their inability to pay their respective debts generally
as they become due, or
- take corporate action in furtherance of any of the foregoing.
On the date fixed for any payment of the accelerated maturity payment, the
Certificates and the common securities will no longer be deemed to be
outstanding and each Certificate and common security will be deemed to represent
the right to receive the accelerated maturity payment. If the accelerated
maturity payment can be paid only in part because Trust 2006-1 has insufficient
assets available to pay in full such amounts, then the amounts payable directly
by Trust 2006-1 in respect of the Certificates will be paid on a pro rata basis.
In addition, in the case of a default by Citigroup Funding or Citigroup on their
obligations under the Certificate Guarantee, the holders of the Certificates
will have a preference over the holders of the common securities with respect to
amounts owed on the Trust Securities.
The phrase pro rata means, with respect to any payment, distribution, or
treatment, proportionately to each holder of Trust Securities according to the
aggregate beneficial interests in the assets of Trust 2006-1 represented by the
Trust Securities held by the relevant holder in relation to the aggregate
beneficial interests in the assets of Trust 2006-1 represented by all Trust
Securities outstanding. If an acceleration event has occurred and is continuing,
any funds available to make a payment will be paid first to each holder of the
Certificates proportionately according to the aggregate beneficial interests in
the assets of Trust 2006-1 represented by the Certificates held by the relevant
holder relative to the aggregate beneficial interests in the assets of Trust
2006-1 represented by all Certificates outstanding. Only after satisfaction of
all amounts owed to the holders of the Certificates will payment be made to each
holder of common securities proportionately according to the aggregate
beneficial interests in the assets of Trust 2006-1 represented by the common
securities held by the relevant holder relative to the aggregate beneficial
interests in the assets of Trust 2006-1 represented by all common securities
outstanding.
Subject to the institutional trustee obtaining a tax opinion as described
below, the holders of a majority of the outstanding Certificates have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the institutional trustee, or direct the exercise of any trust or
power conferred upon the institutional trustee under the amended and restated
declaration of trust. In the case of any action to be taken by the institutional
trustee as holder of the Securities and the Warrants, the institutional trustee
shall cast its votes as directed by each holder of outstanding Certificates with
respect to the proportionate number of Securities and Warrants represented by
such holder's Certificates. The institutional trustee will notify all holders of
Certificates of any notice of default received from the indenture trustee with
respect to the Securities. Except with respect to directing the time, method and
place of conducting a proceeding for a remedy available to the institutional
trustee, the institutional trustee, as holder of the Securities and the
Warrants, will not take any actions with respect to the Securities or the
Warrants or exercise any right to rescind or annul a declaration that the
accelerated maturity payment shall be due and payable unless it has obtained an
opinion of a nationally recognized independent tax counsel experienced in such
matters to the effect that as a result of such action, Trust 2006-1 will not
fail to be classified as a grantor trust for United States federal income tax
purposes.
If the institutional trustee fails to enforce its rights under the
Securities and the Warrants, any holder of Certificates can directly institute a
legal proceeding against Citigroup Funding to enforce the institutional
trustee's rights under the Securities and the Warrants, without first
instituting a legal proceeding against the institutional trustee or any other
person or entity. If Citigroup Funding fails to pay amounts owed on the
Securities or the Warrants on the date they are otherwise payable, then a holder
of Certificates may also directly institute a direct action in respect of the
amounts owed on the holder's pro rata interest in the Securities or the Warrants
on or after the due date specified in the Securities and the Warrants, without
first
31
directing the institutional trustee to enforce the terms of the Securities and
the Warrants or instituting a legal proceeding directly against Citigroup
Funding to enforce the institutional trustee's rights under the Securities and
the Warrants. The holders of Certificates will not be able to exercise directly
any other remedy available to the holder of the Securities and the Warrants. In
connection with a direct action, Citigroup Funding will be subrogated to the
rights of a holder of Certificates under the declaration to the extent of any
payment made by Citigroup Funding to that holder of Certificates in such direct
action.
A waiver of an acceleration event under the indenture by the institutional
trustee at the direction of the holders of the Certificates will constitute a
waiver of the corresponding acceleration event under the amended and restated
declaration of trust.
Holders of Certificates may give any required approval or direction at a
separate meeting of holders of Certificates convened for this purpose, at a
meeting of holders of Trust Securities or by written consent. The individual
trustees will cause a notice of any meeting at which holders of Certificates are
entitled to vote, or of any matter upon which action by written consent of the
holders is to be taken, to be mailed to each holder of record of Certificates.
Each notice will include a statement setting forth the date of such meeting or
the date by which the action is to be taken, a description of any resolution
proposed for adoption at the meeting on which the holders are entitled to vote
or of such matter upon which written consent is sought and instructions for the
delivery of proxies or consents. No vote or consent of the holders of
Certificates will be required for Trust 2006-1 to cancel the Certificates in
accordance with the amended and restated declaration of trust. It is anticipated
that the only holder of Certificates issued in book-entry form will be Cede &
Co., as nominee of The Depository Trust Company, or DTC, and each beneficial
owner of Certificates will be permitted to exercise the rights of holders of
Certificates only indirectly through DTC and its participants.
Notwithstanding that holders of Certificates are entitled to vote or
consent under any of the circumstances described above, any of the Certificates
that are owned at that time by Citigroup Funding or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, Citigroup Funding, will not be entitled to vote or consent and
will, for purposes of such vote or consent, be treated as if they were not
outstanding.
PERIODIC DISTRIBUTIONS
We will not make any periodic payments of interest or any other payments on
the Certificates until maturity. You will not be entitled to receive dividend
payments or other distributions, if any, made on the stocks included in the
indices comprising the Underlying Basket.
PAYMENT PROCEDURES
Payments on the Certificates will be payable to the holders of the
Certificates as they appear on the books and records of Trust 2006-1 at the
close of business on the relevant record dates. While the Certificates remain in
book-entry only form, the relevant record date for any maturity payment or
accelerated maturity payment with respect to the Certificates will be five
Business Days prior to the date on which Trust 2006-1 receives any security
payment or warrant payment or accelerated security payment or warrant payment,
as the case may be, under the Securities and the Warrants. The relevant record
date for the common securities will be the same record date as for the
Certificates.
If the Certificates will not continue to remain in book-entry only form,
the relevant record date will conform to the rules of any securities exchange on
which they are listed and, if none, will be 15 days before the relevant payment
date, which payment date will correspond to the date on which payments are made
in respect of, and in accordance with the terms of, the Securities and the
Warrants.
Payments on any Certificates that are not punctually made on the relevant
payment date, as a result of Citigroup Funding having failed to make the
security payment or warrant payment or the accelerated security payment or
warrant payment, as the case may be, under the Securities or the Warrants, will
cease to be payable to the persons in whose name the Certificates are registered
on the relevant record date. The defaulted payment on the Certificates will
instead be payable to the persons in whose name those Certificates are
32
registered on a special record date which will be the date on which Trust 2006-1
actually receives the amount of the defaulted payment under the Securities or
the Warrants, as applicable.
If any date on which the maturity payment or accelerated maturity payment,
as the case may be, is payable on the Certificates is not a Business Day, then
the relevant payment will be made on the next succeeding day that is a Business
Day and without any interest or other payment in respect of any such delay, with
the same force and effect as if made on that date. If that Business Day is in
the next succeeding calendar year, the relevant payment will be made on the
immediately preceding Business Day, with the same force and effect as if made on
that date.
Payments in respect of the Certificates represented by global certificates
(as defined below under "-- Book-Entry Procedures and Settlement") will be made
to DTC, which will credit the relevant accounts at DTC on the relevant scheduled
payment date. In the case of Certificates in the form of certificated
securities, if any, payments will be made by check mailed to the holder's
address as it appears on the register.
VOTING RIGHTS
Except as described in this offering document under "-- Acceleration of
Maturity Date; Enforcement of Rights" and "Description of the Certificate
Guarantee -- Modifications of the Guarantee; Assignment," and except as provided
under the Delaware Statutory Trust Act, the Trust Indenture Act and as otherwise
required by law and the amended and restated declaration of trust, the holders
of the Certificates will have no voting rights.
In the event the consent of the institutional trustee, as the holder of the
Securities and the Warrants, is required under the indenture or the warrant
agreement, as applicable, with respect to any amendment, modification or
termination of the indenture or the warrant agreement, as applicable, the
institutional trustee will request the written direction of the holders of the
outstanding Trust Securities with respect to the amendment, modification or
termination and will vote with respect to the amendment, modification or
termination as directed by each Holder of outstanding Trust Securities with
respect to the proportionate number of Securities or Warrants represented by
such holder's Trust Securities. The institutional trustee will be under no
obligation to take any such action in accordance with the directions of the
holders of the Trust Securities unless the institutional trustee has obtained an
opinion of a nationally recognized independent tax counsel experienced in such
matters to the effect that for United States federal income tax purposes Trust
2006-1 will not be classified as other than a grantor trust.
The procedures by which holders of the Certificates may exercise their
voting rights are described below under "-- Book-Entry Procedures and
Settlement."
Holders of the Certificates will have no rights to appoint or remove the
trustees, who may be appointed, removed or replaced solely by Citigroup Funding
as the indirect or direct holder of all of the common securities.
MODIFICATION OF THE AMENDED AND RESTATED DECLARATION OF TRUST
The amended and restated declaration of trust may be modified and amended
if approved by the individual trustees, and, in certain circumstances, the
institutional trustee and the Delaware trustee, provided that, if any proposed
amendment to the amended and restated declaration of trust provides for, or the
individual trustees otherwise propose to effect,
(1) any action that would adversely affect the powers, preferences or
special rights of the Trust Securities, whether by way of amendment to
the amended and restated declaration of trust or otherwise, or
(2) the dissolution, winding-up or termination of Trust 2006-1 other than
pursuant to the terms of the amended and restated declaration of trust,
then the holders of the Trust Securities, voting together as a single class,
will be entitled to vote on the amendment or proposal and the amendment or
proposal will not be effective except with the approval of the holders of at
least a majority of the Trust Securities affected thereby. If any amendment or
proposal referred
33
to in (1) above would adversely affect only the Certificates or only the common
securities, then only holders of the affected class will be entitled to vote on
the amendment or proposal and the amendment or proposal will not be effective
except with the approval of a majority of that class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the amended and restated declaration of trust if the amendment or modification
would:
- cause Trust 2006-1 to fail to be classified as a grantor trust for United
States federal income tax purposes,
- reduce or otherwise adversely affect the powers of the institutional
trustee in contravention of the Trust Indenture Act, or
- cause Trust 2006-1 to be deemed an investment company which is required
to be registered under the Investment Company Act.
MERGER, CONSOLIDATION OR AMALGAMATION OF TRUST 2006-1
Trust 2006-1 may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other entity, except as
described below. Trust 2006-1 may, with the consent of the individual trustees
and without the consent of the holders of the Trust Securities, the Delaware
trustee or the institutional trustee consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of the United
States, any state thereof or the District of Columbia, provided that:
- the successor entity either (A) expressly assumes all of the obligations
of Trust 2006-1 under the Trust Securities or (B) substitutes for the
Trust Securities other successor securities having substantially the same
terms as the Trust Securities, so long as the successor securities rank
the same as the Trust Securities with respect to distributions and
payments upon liquidation, maturity and otherwise,
- Citigroup Funding expressly acknowledges a trustee of such successor
entity possessing the same powers and duties as the institutional trustee
in its capacity as the holder of the Securities and the Warrants,
- successor securities to the Certificates are listed, or any successor
securities to the Certificates will be listed upon notification of
issuance, on any national securities exchange or with any organization on
which the Certificates are then listed or quoted,
- the merger, consolidation, amalgamation or replacement does not cause the
Certificates, including any successor securities, to be downgraded by any
nationally recognized statistical rating organization,
- the merger, consolidation, amalgamation or replacement does not adversely
affect the rights, preferences and privileges of the holders of the Trust
Securities, including any successor securities, in any material respect,
other than with respect to any dilution of the holder's interest in the
new entity,
- the successor entity has a purpose identical to that of Trust 2006-1,
- prior to the merger, consolidation, amalgamation or replacement, Trust
2006-1 has received an opinion of a nationally recognized independent
counsel to Trust 2006-1 experienced in such matters to the effect that:
(A) the merger, consolidation, amalgamation or replacement will not
adversely affect the rights, preferences and privileges of the
holders of the Trust Securities, including any successor securities,
in any material respect, other than with respect to any dilution of
the holders' interest in the new entity,
(B) following the merger, consolidation, amalgamation or replacement,
neither Trust 2006-1 nor such successor entity will be required to
register as an investment company under the Investment Company Act,
and
34
(C) following the merger, consolidation, amalgamation or replacement,
Trust 2006-1 or the successor entity will continue to be classified
as a grantor trust for U.S. federal income tax purposes,
- Citigroup Funding guarantees the obligations of the successor entity
under the successor securities at least to the extent provided by the
Certificate Guarantee, and
- Citigroup guarantees Citigroup Funding's obligations to the same extent
and in the same manner as Citigroup Funding guarantees the obligations of
the successor entity.
Notwithstanding the foregoing, Trust 2006-1 will not, without the consent
of holders of all of the Trust Securities, consolidate, amalgamate, merge with
or into, or be replaced by any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if, in the opinion of
a nationally recognized independent tax counsel experienced in such matters, the
consolidation, amalgamation, merger or replacement would cause Trust 2006-1 or
the successor entity to be classified as other than a grantor trust for United
States federal income tax purposes. In addition, so long as any Certificates are
outstanding and are not held entirely by Citigroup Funding, Trust 2006-1 may not
voluntarily liquidate, dissolve, wind-up or terminate except as described above
under "-- Acceleration of Maturity Date; Enforcement of Rights."
BOOK-ENTRY PROCEDURES AND SETTLEMENT
The Depository Trust Company, or DTC, will act as securities depositary for
the Certificates. The Certificates will be issued only as fully-registered
securities registered in the name of Cede & Co. (DTC's nominee). One or more
fully-registered global securities, representing the total aggregate number of
the Certificates, will be issued and will be deposited with DTC.
Following the issuance of a global security in registered form, DTC will
credit the accounts of its participants with the Certificates upon our
instructions. Only persons who hold directly or indirectly through financial
institutions that are participants in DTC can hold beneficial interests in the
global securities. Because the laws of some jurisdictions require certain types
of purchasers to take physical delivery of such securities in definitive form,
you may encounter difficulties in your ability to own, transfer or pledge
beneficial interests in a global security.
So long as DTC or its nominee is the registered owner of a global security,
we and the institutional trustee will treat DTC as the sole owner or holder of
the Certificates for purposes of the amended and restated declaration of trust.
Therefore, except as set forth below, you will not be entitled to have
Certificates registered in your name or to receive physical delivery of
certificates representing the Certificates. Accordingly, you will have to rely
on the procedures of DTC and the participant in DTC through whom you hold your
beneficial interest in order to exercise any rights of a holder under the
amended and restated declaration of trust. We understand that under existing
practices, DTC would act upon the instructions of a participant or authorize
that participant to take any action that a holder is entitled to take.
You may elect to hold interests in the global securities in the United
States through either DTC or outside the United States through Clearstream
Banking, societe anonyme ("Clearstream"), or Euroclear Bank, S.A./N.V. or its
successor, as operator of the Euroclear System ("Euroclear"), if you are a
participant of such system, or indirectly through organizations that are
participants in such systems. Interests held through Clearstream and Euroclear
will be recorded on DTC's books as being held by the U.S. depositary for each of
Clearstream and Euroclear, which U.S. depositaries will in turn hold interests
on behalf of their participants' customers' securities accounts.
As long as the Certificates are represented by the global securities, we
will pay the maturity payment or accelerated maturity payment, as the case may
be, on the Certificates to or as directed by DTC as the registered holder of the
global securities. Payments to DTC will be in immediately available funds by
wire transfer. DTC, Clearstream or Euroclear, as applicable, will credit the
relevant accounts of their participants on the applicable date. None of Trust
2006-1, Citigroup Funding, Citigroup and the institutional trustee will be
responsible for making any payments to participants or customers of participants
or for maintaining any records relating to the holdings of participants and
their customers, and you will have to rely on the procedures of the depositary
and its participants.
35
We have been advised by DTC, Clearstream and Euroclear, respectively, as
follows:
DTC
DTC has advised us that it is a limited-purpose trust company organized
under the New York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC holds securities deposited with it by its participants and
facilitates the settlement of transactions among its participants in such
securities through electronic computerized book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own DTC. Access to DTC's book-entry system
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly.
According to DTC, the foregoing information with respect to DTC has been
provided to the financial community for informational purposes only and is not
intended to serve as a representation, warranty or contract modification of any
kind.
Clearstream
Clearstream has advised us that it was incorporated as a limited liability
company under Luxembourg law. Clearstream is owned by Cedel International,
societe anonyme, and Deutsche Borse AG. The shareholders of these two entities
are banks, securities dealers and financial institutions. Clearstream holds
securities for its customers and facilitates the clearance and settlement of
securities transactions between Clearstream customers through electronic
book-entry changes in accounts of Clearstream customers, thus eliminating the
need for physical movement of certificates. Transactions may be settled by
Clearstream in many currencies, including United States dollars. Clearstream
provides to its customers, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities,
securities lending and borrowing. Clearstream also deals with domestic
securities markets in over 30 countries through established depository and
custodial relationships. Clearstream interfaces with domestic markets in a
number of countries. Clearstream has established an electronic bridge with
Euroclear Bank S.A./N.V., the operator of Euroclear, or the Euroclear operator,
to facilitate settlement of trades between Clearstream and Euroclear.
As a registered bank in Luxembourg, Clearstream is subject to regulation by
the Luxembourg Commission for the Supervision of the Financial Sector.
Clearstream customers are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies
and clearing corporations. In the United States, Clearstream customers are
limited to securities brokers and dealers and banks, and may include the
underwriters for the Certificates. Other institutions that maintain a custodial
relationship with a Clearstream customer may obtain indirect access to
Clearstream. Clearstream is an indirect participant in DTC.
Distributions with respect to the Certificates held beneficially through
Clearstream will be credited to cash accounts of Clearstream customers in
accordance with its rules and procedures, to the extent received by Clearstream.
Euroclear
Euroclear has advised us that it was created in 1968 to hold securities for
participants of Euroclear and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thus eliminating the need for physical movement of certificates and
risk from lack of simultaneous transfers of securities and cash. Transactions
may now be settled in many currencies, including United States dollars and
Japanese Yen. Euroclear provides various other services, including securities
lending
36
and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described below.
Euroclear is operated by the Euroclear operator, under contract with
Euroclear plc, a U.K. corporation. The Euroclear operator conducts all
operations, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear operator, not Euroclear plc. Euroclear
plc establishes policy for Euroclear on behalf of Euroclear participants.
Euroclear participants include banks (including central banks), securities
brokers and dealers and other professional financial intermediaries and may
include the underwriters for the Certificates. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear participant, either directly or indirectly.
Euroclear is an indirect participant in DTC.
The Euroclear operator is a Belgian bank. The Belgian Banking Commission
and the National Bank of Belgium regulate and examine the Euroclear operator.
The Terms and Conditions Governing Use of Euroclear and the related
Operating Procedures of the Euroclear System, or the Euroclear Terms and
Conditions, and applicable Belgian law govern securities clearance accounts and
cash accounts with the Euroclear operator. Specifically, these terms and
conditions govern:
- transfers of securities and cash within Euroclear;
- withdrawal of securities and cash from Euroclear; and
- receipt of payments with respect to securities in Euroclear.
All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear operator acts under the terms and conditions only on behalf of
Euroclear participants and has no record of or relationship with persons holding
securities through Euroclear participants.
Distributions with respect to the Certificates held beneficially through
Euroclear will be credited to the cash accounts of Euroclear participants in
accordance with the Euroclear Terms and Conditions, to the extent received by
the Euroclear operator.
Settlement
You will be required to make your initial payment for the Certificates in
immediately available funds. Secondary market trading between DTC participants
will occur in the ordinary way in accordance with DTC rules and will be settled
in immediately available funds using DTC's Same-Day Funds Settlement System.
Secondary market trading between Clearstream customers and/or Euroclear
participants will occur in the ordinary way in accordance with the applicable
rules and operating procedures of Clearstream and Euroclear and will be settled
using the procedures applicable to conventional eurobonds in immediately
available funds.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream
customers or Euroclear participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by U.S. depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (based on the applicable
European time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the U.S.
depositary to take action to effect final settlement on its behalf by delivering
or receiving the Certificates in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Clearstream customers and Euroclear participants may not deliver
instructions directly to their respective U.S. depositaries.
Because of time-zone differences, credits of the Certificates received in
Clearstream or Euroclear as a result of a transaction with a DTC participant
will be made during subsequent securities settlement processing
37
and dated the business day following the DTC settlement date. Such credits or
any transactions in such Certificates settled during such processing will be
reported to the relevant Clearstream customers or Euroclear participants on such
business day. Cash received in Clearstream or Euroclear as a result of sales of
the Certificates by or through a Clearstream customer or a Euroclear participant
to a DTC participant will be received with value on the DTC settlement date but
will be available in the relevant Clearstream or Euroclear cash account only as
of the business day following settlement in DTC.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of the Certificates among
participants of DTC, Clearstream and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
Definitive Certificates
A beneficial owner of book-entry Certificates represented by a global
security may exchange the Certificates for definitive (paper) certificates
representing the Certificates only if:
- DTC is unwilling or unable to continue as depositary for such global
security and we are unable to find a qualified successor within 90 days;
- at any time DTC ceases to be a clearing agency registered under the
Securities Exchange Act of 1934, as amended; or
- the individual trustees, with the consent of Citigroup Funding and
Citigroup, decide to discontinue use of the system of book-entry
transfers through DTC or any successor depository.
If any of the events described above occurs, we will issue definitive
Certificates in certificated form in accordance with DTC's instructions.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The institutional trustee, prior to the occurrence of a default with
respect to the Trust Securities, and after the curing of all defaults that may
have occurred, undertakes to perform only the duties that are specifically set
forth in the amended and restated declaration of trust. If such a default occurs
and the institutional trustee has actual knowledge of it, the institutional
trustee will exercise the rights and powers vested in it by the amended and
restated declaration of trust and will use the same degree of care and skill in
the exercise of such rights and powers as a prudent individual would exercise in
the conduct of his or her own affairs. Subject to those provisions, the
institutional trustee is under no obligation to exercise any of the rights or
powers vested in it by the amended and restated declaration of trust at the
request of any holder of the Certificates, unless offered reasonable security
and indemnity by the holder against the costs, expenses and liabilities which
the institutional trustee might incur thereby. Notwithstanding the foregoing,
the holders of the Certificates will not be required to offer the indemnity in
the event the holders, by exercising their voting rights, direct the
institutional trustee to take any action following an acceleration event.
PAYING AGENT AND CUSIP
In the event that the Certificates do not remain in book-entry only form,
the institutional trustee will act as paying agent for the Certificates and may
designate an additional or substitute paying agent at any time. In addition,
registration of transfers of the Certificates will be effected without charge by
or on behalf of Trust 2006-1, but upon payment, with the giving of such
indemnity as Trust 2006-1 or Citigroup Funding may require, in respect of any
tax or other government charges which may be imposed in relation to it.
The CUSIP number for the Certificates is .
CALCULATION AGENT
The calculation agent for the Certificates will be Citigroup Global
Markets. All determinations made by the calculation agent will be at the sole
discretion of the calculation agent and will, in the absence of manifest
38
error, be conclusive for all purposes and binding on Trust 2006-1, Citigroup
Funding, Citigroup and the holders of the Certificates. Because the calculation
agent is an affiliate of Trust 2006-1, Citigroup Funding and Citigroup,
potential conflicts of interest may exist between the calculation agent and the
holders of the Certificates, including with respect to certain determinations
and judgments that the calculation agent must make in determining amounts due to
the holders of the Certificates. Citigroup Global Markets is obligated to carry
out its duties and functions as calculation agent in good faith and using its
reasonable judgment.
GOVERNING LAW
The amended and restated declaration of trust and the Certificates will be
governed by, and construed in accordance with, the internal laws of the State of
Delaware.
39
DESCRIPTION OF THE EQUITY INDEX PARTICIPATION SECURITIES
Citigroup Funding is also by this offering document offering its Equity
Index Participation Securities Linked to the Dow Jones Industrial Average and
the Nikkei 225 Stock Average Due , 2010 (the "Securities"). The
description in this offering document of the particular terms of the Securities
supplements, and to the extent inconsistent therewith replaces, the descriptions
of the general terms and provisions of the registered securities set forth in
the accompanying prospectus supplement and base prospectus relating to the
Securities.
GENERAL
The Equity Index Participation Securities Linked to the Dow Jones
Industrial Average and the Nikkei 225 Stock Average are a series of debt
securities issued by Citigroup Funding under the senior debt indenture described
in the accompanying prospectus supplement and base prospectus relating to the
Securities. Any payments due under the Securities are fully and unconditionally
guaranteed by Citigroup. The aggregate principal amount of Securities issued
will be $ ( Securities). The Securities will mature
on approximately , 2010, the maturity of the Certificates. The
Securities will constitute part of the senior debt of Citigroup Funding and will
rank equally with all other unsecured and unsubordinated debt of Citigroup
Funding. As a result of the Citigroup guarantee, any payments due under the
Securities will rank equally with all other unsecured and unsubordinated debt of
Citigroup. The return of the principal amount of your investment in the
Securities at maturity is not guaranteed. The Securities will be issued only in
fully registered form and in denominations of $10 per Security and integral
multiples thereof. Trust 2006-1 will purchase all of the Securities from
Citigroup Funding on the date on which the Certificates are issued, at a price
of $ per Security.
The Securities pay an amount at maturity that will depend on the percentage
increase or decrease in the Ending Value of the Underlying Basket from its
Starting Value. The Securities are not principal-protected. If the Ending Value
of the Underlying Basket is less than its Starting Value, the payment at
maturity will be directly linked to the percentage decrease in the Ending Value
of the index from its Starting Value, in which event the Securities may pay less
than the initial issue price of $ . Thus, if you choose to exercise your
exchange right, dispose of the Warrants and hold only the Securities, you will
lose the benefit of principal protection at maturity. If the Ending Value of the
Underlying Basket is greater than its Starting Value, the payment at maturity
will be greater than the initial issue price.
You should refer to the accompanying prospectus supplement and base
prospectus relating to the Securities for a detailed summary of additional
provisions of the Securities and of the senior debt indenture under which the
Securities will be issued.
PERIODIC PAYMENTS
Citigroup Funding will not make any periodic payments of interest or any
other payments on the Securities until maturity. You will not be entitled to
receive dividend payments or other distributions, if any, made on the stocks
included in the indices comprising the Underlying Basket.
PAYMENT AT MATURITY OF THE SECURITIES
The Securities will mature on approximately , 2010, the maturity
of the Certificates, subject to acceleration to the accelerated maturity date
upon the occurrence of an acceleration event. See "-- Acceleration of Maturity
Date and Events of Default" below. At maturity, each Security will pay a
Security Payment equal to the sum of $10 and the Security Return Amount, which
may be positive, zero or negative.
40
SECURITY RETURN AMOUNT
The Security Return Amount will be based on the Basket Return of the
Underlying Basket. The Basket Return, which is presented in this offering
document as a percentage, will equal the following fraction:
Ending Value - Starting Value
---------------------------------
Starting Value
The Security Return Amount will equal the product of:
$10 * Basket Return
The "Starting Value" will be set to 100 on the Pricing Date.
The "Ending Value" will be the closing value of the Underlying Basket on
the Valuation Date.
The "Pricing Date" means the date on which the Certificates are priced for
initial sale to the public.
The "Valuation Date" will be the third Index Business Day before the
maturity date of the Certificates.
If the closing value of any of the indices comprising the Underlying Basket
is not available on any Index Business Day because of a Market Disruption Event
or otherwise, the value of that index for that Index Business Day, unless
deferred by the calculation agent as described below, will be the arithmetic
mean, as determined by the calculation agent, of the value of that index
obtained from as many dealers in equity securities (which may include Citigroup
Global Markets or any of our other affiliates), but not exceeding three such
dealers, as will make such value available to the calculation agent. The
determination of the value of that index by the calculation agent in the event
of a Market Disruption Event may be deferred by the calculation agent for up to
five consecutive Index Business Days on which a Market Disruption Event is
occurring, but not past the Index Business Day prior to maturity. You should
refer to "Description of the Certificates -- Supplemental Distribution Amount"
in this offering document for the definition of "Index Business Day" and "Market
Disruption Event." You should also refer to "Description of the Certificates --
Discontinuance of an Index Comprising the Underlying Basket" and "-- Alteration
of Method of Calculation" in this offering document for more information on the
determination of the value of the indices comprising the basket when the indices
are discontinued or the method of calculation is altered.
SECURITY PAYMENT -- HYPOTHETICAL EXAMPLES
The Basket Return and, therefore, the Security Return Amount, is dependent
on the Ending Value of the Underlying Basket. Because the value of the
Underlying Basket may be subject to significant variations over the term of the
Securities, it is not possible to present a chart or table illustrating a
complete range of possible payments at maturity of the Securities. The examples
of hypothetical Security Payments set forth below are intended to illustrate the
effect of different Ending Values of the Underlying Basket on the amount payable
on the Securities at maturity. All of the hypothetical examples assume the
following:
- Investment in Securities: $9.15,
- Starting Value: 100, and
- Term of the Securities: 3.65 years.
41
<Table>
<Caption>
SECURITY TOTAL ANNUALIZED
RETURN SECURITY RETURN ON THE RETURN ON THE
ENDING VALUE BASKET RETURN AMOUNT PAYMENT SECURITIES SECURITIES(1)
30.0 -70.00% -$7.00 $ 3.00 -67.21% -26.33%
40.0 -60.00% -$6.00 $ 4.00 -56.28% -20.28%
50.0 -50.00% -$5.00 $ 5.00 -45.36% -15.26%
60.0 -40.00% -$4.00 $ 6.00 -34.43% -10.92%
70.0 -30.00% -$3.00 $ 7.00 -23.50% -7.08%
75.0 -25.00% -$2.50 $ 7.50 -18.03% -5.30%
80.0 -20.00% -$2.00 $ 8.00 -12.57% -3.61%
85.0 -15.00% -$1.50 $ 8.50 -7.10% -2.00%
90.0 -10.00% -$1.00 $ 9.00 -1.64% -0.45%
95.0 -5.00% -$0.50 $ 9.50 3.83% 1.03%
97.5 -2.50% -$0.25 $ 9.75 6.56% 1.76%
100.0 0.00% $0.00 $10.00 9.29% 2.46%
102.5 2.50% $0.25 $10.25 12.02% 3.16%
105.0 5.00% $0.50 $10.50 14.75% 3.84%
107.5 7.50% $0.75 $10.75 17.49% 4.51%
110.0 10.00% $1.00 $11.00 20.22% 5.17%
115.0 15.00% $1.50 $11.50 25.68% 6.46%
120.0 20.00% $2.00 $12.00 31.15% 7.71%
125.0 25.00% $2.50 $12.50 36.61% 8.92%
130.0 30.00% $3.00 $13.00 42.08% 10.10%
140.0 40.00% $4.00 $14.00 53.01% 12.36%
150.0 50.00% $5.00 $15.00 63.93% 14.50%
160.0 60.00% $6.00 $16.00 74.86% 16.54%
</Table>
- ---------------
(1) Compounded Annually
The examples are for purposes of illustration only. The actual Security
Payment will depend on the actual Security Return Amount which, in turn, will
depend on the actual Ending Value.
REDEMPTION AT THE OPTION OF THE HOLDER; DEFEASANCE
The Securities are not subject to redemption at the option of any holder
prior to maturity and are not subject to the defeasance provisions described in
the accompanying base prospectus under "Description of Debt
Securities -- Defeasance."
ACCELERATION OF MATURITY DATE AND EVENTS OF DEFAULT
If at any time an acceleration event occurs as described under "Description
of the Certificates -- Acceleration of Maturity Date; Enforcement of Right," the
maturity payment with respect to each Security will become immediately due and
payable, and Citigroup Funding will pay the accelerated Security Payment to the
holders of the Securities as soon as practicable following the occurrence of the
acceleration event (whether or not the Securities are declared due and payable).
In case an Event of Default (as defined in the accompanying base prospectus)
other than an acceleration event described under "Description of the
Certificates -- Acceleration of Maturity Date; Enforcement of Right" with
respect to any Security shall have occurred and be continuing, the indenture
trustee and the holders of the Securities may declare the Securities due and
payable as described in the accompanying base prospectus. The amount due and
payable upon any acceleration of the Securities will be determined by the
calculation agent and will equal, for each Security, the payment at maturity of
the Securities, calculated as though the maturity of the Securities were the
date of the occurrence of the acceleration event. See "-- Payment at Maturity of
the Securities" above. If a bankruptcy proceeding is commenced in respect of
Citigroup Funding or Citigroup, the beneficial owner of a Security will not be
permitted to make a claim for unmatured interest and, therefore, the claim of
the beneficial owner of a Security against the entity that becomes subject to a
bankruptcy proceeding will be capped at the payment at
42
maturity of the Securities, calculated as though the maturity date of the
Securities were the date of the commencement of the proceeding.
In case of default in payment at maturity of the Securities, the Securities
will bear interest, payable upon demand of the beneficial owners of the
Securities in accordance with the terms of the Securities, from and after the
maturity date through the date when payment of the unpaid amount has been made
or duly provided for, at the rate of % per annum on the unpaid amount.
PAYING AGENT, TRUSTEE, CALCULATION AGENT AND CUSIP
Citibank, N.A. will serve as paying agent and registrar for the Securities
and will also hold the global security representing the Securities as custodian
for DTC. The Bank of New York, as successor trustee under an indenture dated as
of June 1, 2005, will serve as indenture trustee for the Securities. Citigroup
Global Markets will serve as calculation agent. Please refer to "Description of
the Certificates -- Calculation Agent" for more information on the calculation
agent.
The CUSIP number for the Securities is .
DESCRIPTION OF THE EQUITY INDEX WARRANTS
Citigroup Funding is also by this offering document offering its Equity
Index Warrants Linked to the Dow Jones Industrial Average and the Nikkei 225
Stock Average Due , 2010 (the "Warrants"). The description in this offering
document of the particular terms of the Warrants supplements, and to the extent
inconsistent therewith replaces, the descriptions of the general terms and
provisions of the registered securities set forth in the accompanying prospectus
supplement and base prospectus relating to the Warrants.
GENERAL
The Equity Index Warrants Linked to the Dow Jones Industrial Average and
the Nikkei 225 Stock Average are a series of index warrants issued by Citigroup
Funding under a warrant agreement described in the accompanying prospectus
supplement and base prospectus relating to the Warrants. Any payments due on the
Warrants are fully and unconditionally guaranteed by Citigroup. The aggregate
offering price of the Warrants will be $ ( Warrants). The
Warrants will be automatically exercised on approximately , 2010, the
maturity of the Certificates, and are not exercisable prior to that time. The
Warrants will rank equally with all other unsecured and unsubordinated debt of
Citigroup Funding. As a result of the Citigroup guarantee, any payments due
under the Warrants will rank equally with all other unsecured and unsubordinated
debt of Citigroup. Each Warrant will have a notional amount of $10 and Trust
2006-1 will purchase all of the Warrants from Citigroup Funding on the date on
which the Certificates are issued, at a price of $ per Warrant.
Upon exercise, the Warrants pay an amount that will depend on the
percentage increase or decrease in the Ending Value of the Underlying Basket
from its Starting Value. If the Ending Value of the Underlying Basket is greater
than or equal to its Starting Value, the payments on the Warrants will be zero.
If the Ending Value of the Underlying Basket is less than its Starting Value,
the payment on the Warrants will be inversely linked to the percentage decrease
in the Ending Value of the index from its Starting Value. As a result, if you
choose to exercise your exchange right, dispose of the Securities and hold only
the Warrants, you will lose the benefit of principal protection at maturity.
You should refer to the accompanying prospectus supplement and base
prospectus relating to the Warrants for a detailed summary of additional
provisions of the Warrants and of the warrant agreement under which the Warrants
will be issued.
43
PERIODIC PAYMENTS
Citigroup Funding will not make any periodic payments of interest or any
other payments on the Warrants until the Warrants are automatically exercised at
maturity. You will not be entitled to receive dividend payments or other
distributions, if any, made on the stocks included in the indices comprising the
Underlying Basket.
PAYMENT UPON EXERCISE OF THE WARRANTS
The Warrants will be automatically exercised on approximately ,
2010, the maturity of the Certificates, and are not exercisable prior to that
date, subject to acceleration to an earlier exercise date upon the occurrence of
an acceleration event. See "-- Acceleration of Exercise Date" below. Upon
exercise, each Warrant will pay a Warrant Payment equal to the product of (a)
$10 and (b) the Warrant Basket Return, provided that the Warrant Payment will
not be less than zero.
The Warrant Basket Return, which is presented in this offering document as
a percentage, will equal the following fraction:
Starting Value - Ending Value
---------------------------------
Starting Value
The "Starting Value" will be set to 100 on the Pricing Date.
The "Ending Value" will be the closing value of the Underlying Basket on
the Valuation Date.
The "Pricing Date" means the date on which the Certificates are priced for
initial sale to the public.
The "Valuation Date" will be the third Index Business Day before the
maturity date of the Certificates.
If the closing value of any of the indices comprising the Underlying Basket
is not available on any Index Business Day because of a Market Disruption Event
or otherwise, the value of that index for that Index Business Day, unless
deferred by the calculation agent as described below, will be the arithmetic
mean, as determined by the calculation agent, of the value of that index
obtained from as many dealers in equity securities (which may include Citigroup
Global Markets or any of our other affiliates), but not exceeding three such
dealers, as will make such value available to the calculation agent. The
determination of the value of an index by the calculation agent in the event of
a Market Disruption Event may be deferred by the calculation agent for up to
five consecutive Index Business Days on which a Market Disruption Event is
occurring, but not past the Index Business Day prior to maturity. You should
refer to "Description of the Certificates -- Supplemental Distribution Amount"
in this offering document for the definition of "Index Business Day" and "Market
Disruption Event." You should also refer to "Description of the Certificates --
Discontinuance of an Index Comprising the Underlying Basket" and "-- Alteration
of Method of Calculation" in this offering document for more information on the
determination of the value of the indices comprising the basket when the indices
are discontinued or the method of calculation is altered.
WARRANT PAYMENT -- HYPOTHETICAL EXAMPLES
The Warrant Basket Return and, therefore, the Warrant Payment, is dependent
on the Ending Value of the Underlying Basket. Because the value of the
Underlying Basket may be subject to significant variations over the term of the
Warrants, it is not possible to present a chart or table illustrating a complete
range of possible payments upon exercise of the Warrants. The examples of
hypothetical Warrant Payments set forth below are intended to illustrate the
effect of different Ending Values of the Underlying Basket on the amount payable
on the Warrants upon exercise. All of the hypothetical examples assume the
following:
- Investment in Warrants: $0.85,
- Starting Value: 100,
- Term of the Warrants: 3.65 years, and
- The Warrant Payment cannot equal less than zero.
44
<Table>
<Caption>
TOTAL ANNUALIZED
WARRANT WARRANT RETURN ON THE RETURN ON THE
ENDING VALUE BASKET RETURN BASKET RETURN PAYMENT(1) WARRANTS WARRANTS(2)
30.0 -70.00% 70.00% $7.00 723.53% 78.18%
40.0 -60.00% 60.00% $6.00 605.88% 70.82%
50.0 -50.00% 50.00% $5.00 488.24% 62.49%
60.0 -40.00% 40.00% $4.00 370.59% 52.86%
70.0 -30.00% 30.00% $3.00 252.94% 41.27%
75.0 -25.00% 25.00% $2.50 194.12% 34.39%
80.0 -20.00% 20.00% $2.00 135.29% 26.42%
85.0 -15.00% 15.00% $1.50 76.47% 16.84%
90.0 -10.00% 10.00% $1.00 17.65% 4.55%
95.0 -5.00% 5.00% $0.50 -41.18% -13.53%
97.5 -2.50% 2.50% $0.25 -70.59% -28.49%
100.0 0.00% 0.00% $0.00 -100.00% -100.00%
102.5 2.50% -2.50% $0.00 -100.00% -100.00%
105.0 5.00% -5.00% $0.00 -100.00% -100.00%
107.5 7.50% -7.50% $0.00 -100.00% -100.00%
110.0 10.00% -10.00% $0.00 -100.00% -100.00%
115.0 15.00% -15.00% $0.00 -100.00% -100.00%
120.0 20.00% -20.00% $0.00 -100.00% -100.00%
125.0 25.00% -25.00% $0.00 -100.00% -100.00%
130.0 30.00% -30.00% $0.00 -100.00% -100.00%
140.0 40.00% -40.00% $0.00 -100.00% -100.00%
150.0 50.00% -50.00% $0.00 -100.00% -100.00%
160.0 60.00% -60.00% $0.00 -100.00% -100.00%
</Table>
- ---------------
(1) Warrant Payment = $10.00 X Warrant Basket Return, provided that the Warrant
Payment will not be less than zero.
(2) Compounded Annually
The examples are for purposes of illustration only. The actual Warrant
Payment will depend on the actual Ending Value.
ACCELERATION OF EXERCISE DATE AND EVENTS OF DEFAULT
If at any time an acceleration event occurs as described under "Description
of the Certificates -- Acceleration of Maturity Date; Enforcement of Right," the
Warrants will be automatically exercised, and Citigroup Funding will pay the
accelerated Warrant Payment to the holders of the Warrants as soon as
practicable following the occurrence of the acceleration event. The amount due
and payable upon any acceleration of the Warrants will be determined by the
calculation agent and will equal, for each Warrant, the payment upon exercise of
the Warrants, calculated as though the exercise date of the Warrants were the
date of the occurrence of the acceleration event. See "-- Payment Upon Exercise
of the Warrants" above.
In case of default in payment upon exercise of the Warrants, the Warrants
will bear interest, payable upon demand of the beneficial owners of the Warrants
in accordance with the terms of the Warrants, from and after the exercise date
through the date when payment of the unpaid amount has been made or duly
provided for, at the rate of % per annum on the unpaid amount.
PAYING AGENT, TRUSTEE, CALCULATION AGENT AND CUSIP
U.S. Bank National Association will serve as paying agent and registrar for
the Warrants and will also hold the global security representing the Warrants as
custodian for DTC. U.S. Bank National Association, as warrant agent under a
warrant agreement dated as of , 2006, will serve as warrant agent for
the Warrants. Citigroup Global Markets will serve as calculation agent. Please
refer to "Description of the Certificates -- Calculation Agent" for more
information on the calculation agent.
45
The CUSIP number for the Warrants is .
COVENANTS
Limitations on Liens. The warrant agreement provides that Citigroup will
not, and will not permit any subsidiary to, incur, issue, assume or guarantee
any indebtedness for borrowed money if such indebtedness is secured by a pledge
of, lien on, or security interest in any shares of Voting Stock (as defined
below) of any Significant Subsidiary (as defined below), whether such Voting
Stock is owned or later acquired, without effectively providing that the
Warrants and, at Citigroup's option, any other senior indebtedness ranking
equally and ratably with the Warrants, shall be secured equally and ratably with
such indebtedness. This limitation shall not apply to indebtedness secured by a
pledge of, lien on or security interest in any shares of Voting Stock of any
corporation at the time it becomes a Significant Subsidiary, including any
renewals or extensions of such secured indebtedness (Warrant Agreement, Section
8.04).
"Significant Subsidiary" means any Subsidiary (as defined below), including
its Subsidiaries:
- that has investments of and advances from Citigroup and its other
subsidiaries exceeding 10 percent of the total consolidated assets of
Citigroup and such other subsidiaries as of the end of the most recently
completed fiscal year;
- of which Citigroup's and its other subsidiaries' proportionate share of
total assets (after intercompany elimination) exceeds 10 percent of the
total consolidated assets of Citigroup and such other subsidiaries as of
the end of the most recently completed fiscal year; or
- of which Citigroup's and its other subsidiaries' equity in the income
from continuing operations exceeds 10 percent of such consolidated income
of Citigroup and such other subsidiaries for the most recently completed
fiscal year.
"Subsidiary" means any corporation of which securities entitled to elect at
least a majority of the corporation's directors shall at the time be owned,
directly or indirectly, by Citigroup, and/or one or more Subsidiaries, except
securities entitled to vote for directors only upon the happening of a
contingency.
"Voting Stock" means capital stock, the holders of which have general
voting power under ordinary circumstances to elect at least a majority of the
board of directors of a corporation, except capital stock that carries only the
right to vote conditioned on the happening of an event regardless of whether
such event shall have happened (Warrant Agreement, Sections 1.01 and 8.04).
Limitations on Mergers and Sales of Assets. The warrant agreement provides
that neither Citigroup Funding nor Citigroup will merge or consolidate with
another corporation or sell other than for cash or lease all or substantially
all their assets to another corporation, or purchase all or substantially all
the assets of another corporation unless:
- the successor corporation, if other than Citigroup Funding or Citigroup,
as applicable, expressly assumes by supplemental warrant agreement the
obligations of Citigroup Funding or Citigroup, as applicable, under the
warrant agreement; and
- immediately after the transaction, there would not be any default in the
performance of any covenant or condition of the warrant agreement
(Warrant Agreement, Sections 5.01 and 8.05).
Other than the restrictions described above, the warrant agreement do not
contain any covenants or provisions that would protect holders of the Warrants
in the event of a highly leveraged transaction.
MODIFICATION OF THE WARRANT AGREEMENT
The warrant agreement modifies the modification provisions of the form of
index warrant agreement described in the accompanying base prospectus as
follows: Citigroup, Citigroup Funding and the warrant agent may, with the
consent of the holders of not less than a majority of the then outstanding
Warrants, increase the amount to be paid to the holder upon exercise of a
Warrant.
46
DESCRIPTION OF THE CERTIFICATE GUARANTEE
Set forth below is a summary of information concerning the full and
unconditional guarantee, which we refer to as the Certificate Guarantee, that
will be executed and delivered by each of Citigroup Funding and Citigroup for
the benefit of the holders of the Certificates. The Certificate Guarantee will
be qualified as an indenture under the Trust Indenture Act. U.S. Bank National
Association will act as guarantee trustee under the Certificate Guarantee. The
terms of the Certificate Guarantee will be those set forth in the Certificate
Guarantee and those made part of the Certificate Guarantee by the Trust
Indenture Act. The summary does not purport to be complete and is subject in all
respects to the provisions of, and is qualified in its entirety by reference to,
the form of Certificate Guarantee, which is filed as an exhibit to the
registration statement of which this offering document forms a part, and the
Trust Indenture Act. The Certificate Guarantee will be held by the guarantee
trustee for the benefit of the holders of the Certificates.
You should refer to the accompanying prospectus supplements and base
prospectus for a discussion of the Citigroup guarantee relating to each of the
Securities and the Warrants.
GENERAL
Under the Certificate Guarantee, Citigroup Funding will fully and
unconditionally agree to pay in full to the holders of the Certificates, except
to the extent paid by Trust 2006-1, as and when due, regardless of any defense,
right of set off or counterclaim which Trust 2006-1 may have or assert, the
following payments:
- any maturity payment that is required to be made in respect of the
Certificates, to the extent Trust 2006-1 has funds legally available for
this payment,
- any accelerated maturity payment that is required to be made in respect
of the Certificates, to the extent Trust 2006-1 has funds legally
available for this payment, and
- any other remaining assets of Trust 2006-1 upon liquidation of Trust
2006-1.
Citigroup Funding's obligation to make a guarantee payment may be satisfied
by direct payment of the required amounts by Citigroup Funding to the holders of
the Certificates or by causing Trust 2006-1 to pay such amounts to such holders.
In addition, under the Certificate Guarantee, Citigroup will fully and
unconditionally guarantee Citigroup Funding's guarantee obligations to the same
extent as Citigroup Funding guarantees Trust 2006-1's payment obligations under
the Certificates. If for any reason Citigroup Funding does not make any required
guarantee payment when due, either by direct payment of the required amounts to
the holders of the Certificates or by causing Trust 2006-1 to pay such amounts
to such holders, Citigroup will cause such guarantee payment to be made at the
same address at which Citigroup Funding is obligated to make such guarantee
payment. The holders of the Certificates will be entitled to payment under the
Certificate Guarantee without taking any action whatsoever against Trust 2006-1
or Citigroup Funding, as the case may be. Each of Citigroup Funding's and
Citigroup's obligations under its guarantee are unconditional, irrespective of
any (i) extension, amendment, modification or renewal of any required payment;
(ii) any waiver of any event of default, extension of time or failure to enforce
any required payment; or (iii) any extension, moratorium or other relief granted
to Trust 2006-1 or Citigroup Funding, as the case may be, pursuant to any
applicable law or statute.
The Certificate Guarantee will be a guarantee with respect to the
Certificates from the time of issuance of the Certificates but will not apply to
any maturity payment or accelerated maturity payment, or to payments upon the
dissolution, winding-up or termination of Trust 2006-1, except to the extent
Trust 2006-1 has funds legally available for these payments. If Citigroup
Funding or Citigroup does not pay the aggregate Security Payment or Warrant
Payment or the aggregate accelerated Security Payment or Warrant Payment, as the
case may be, to Trust 2006-1 upon maturity or exercise of the Securities or
Warrants, as applicable, including maturity or exercise as a result of the
occurrence of an acceleration event, Trust 2006-1 will not have funds available
to pay the maturity payment or accelerated maturity payment to holders of the
Certificates. The Certificate Guarantee, when taken together with Citigroup
Funding's obligations under the Securities and the Warrants, Citigroup's
guarantee of each of the Securities and the Warrants, the related indenture, the
related
47
warrant agreement, the amended and restated declaration of trust, and Citigroup
Funding's and Citigroup's obligations to pay all fees, costs, expenses, debts
and liabilities of Trust 2006-1, other than with respect to Trust Securities,
will provide a full and unconditional guarantee by each of Citigroup Funding and
Citigroup of Trust 2006-1's obligations under the Certificates.
MODIFICATIONS OF THE CERTIFICATE GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of the Certificates, in which case no vote will be required, the
Certificate Guarantee may be amended only with the prior approval of the holders
of a majority of the outstanding Certificates. All guarantees and agreements
contained in the Certificate Guarantee will bind the successors, assignees,
receivers, trustees and representatives of Citigroup Funding and Citigroup and
shall inure to the benefit of the holders of the Certificates then outstanding.
CERTIFICATE GUARANTEE ENFORCEMENT EVENTS
An enforcement event under the Certificate Guarantee will occur upon the
failure of Citigroup Funding or Citigroup, as applicable, to perform any of
their respective payment or other obligations thereunder. The holders of a
majority of the Certificates have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the guarantee trustee
in respect of the Certificate Guarantee or to direct the exercise of any trust
or power conferred upon the guarantee trustee under the Certificate Guarantee.
If the guarantee trustee fails to enforce the guarantee trustee's rights under
the Certificate Guarantee, any holder of the Certificates may directly institute
a legal proceeding against Citigroup Funding or Citigroup, as applicable, to
enforce the guarantee trustee's rights under the Certificate Guarantee, without
first instituting a legal proceeding against Trust 2006-1, the guarantee trustee
or any other person or entity. A holder of the Certificates may also directly
institute a legal proceeding against Citigroup Funding or Citigroup, as
applicable, to enforce such holder's right to receive payment under the
Certificate Guarantee without first directing the guarantee trustee to enforce
the terms of the Certificate Guarantee or instituting a legal proceeding against
Trust 2006-1 or any other person or entity.
Citigroup Funding and Citigroup will be required to provide annually to the
guarantee trustee a statement as to the performance by Citigroup Funding and
Citigroup of certain of their obligations under the Certificate Guarantee and as
to any default in such performance.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee, prior to the occurrence of a default with respect to
the Certificate Guarantee and after the curing of all defaults that may have
occurred, undertakes to perform only the duties that are specifically set forth
in the Certificate Guarantee. If any default occurs with respect to the
Certificate Guarantee that has not been cured or waived and the guarantee
trustee has actual knowledge of it, the guarantee trustee will exercise its
rights and powers under the Certificate Guarantee, and use the same degree of
care and skill in the exercise of such rights and powers as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to such
provision, the guarantee trustee is under no obligation to exercise any of the
powers vested in it by the Certificate Guarantee at the request of any holder of
the Certificates unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby.
TERMINATION OF THE CERTIFICATE GUARANTEE
The Certificate Guarantee will terminate as to the Certificates upon full
payment to the holders of the Certificates of
- the maturity payment,
- the accelerated maturity payment, or
- the amounts payable in accordance with the amended and restated
declaration of trust upon liquidation of Trust 2006-1.
48
The Certificate Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the Certificates must restore
payment of any sum paid under the Certificates or the Certificate Guarantee.
STATUS OF THE CERTIFICATE GUARANTEE
The Certificate Guarantee will constitute a guarantee of payment and not of
collection. The guaranteed party may institute a legal proceeding directly
against either Citigroup Funding or Citigroup to enforce its rights under the
Certificate Guarantee without first instituting a legal proceeding against any
other person or entity.
GOVERNING LAW
The Certificate Guarantee will be governed by, and construed in accordance
with, the internal laws of the State of New York.
DESCRIPTION OF THE UNDERLYING BASKET
GENERAL
The Underlying Basket will be established on the Pricing Date and will be
calculated by Citigroup Global Markets, as calculation agent. The Underlying
Basket will represent the values of two equity indices: the Dow Jones Industrial
Average and the Nikkei 225 Stock Average. The Starting Value of the Underlying
Basket will be set to 100 on the Pricing Date and the initial relative weighting
of each index comprising the Underlying Basket will be 50% for each of the two
indices comprising the Underlying Basket. Each index comprising the Underlying
Basket is described in more detail below.
COMPUTATION OF THE UNDERLYING BASKET
The calculation agent will calculate the closing value of the Underlying
Basket on any Index Business Day by summing the products of (i) the closing
value on that day of each index comprising the basket and (ii) a fixed factor
(the "Multiplier") applicable to each index.
The Multiplier for each index will be determined on the Pricing Date as
follows:
<Table>
Weighting for the Applicable Index
Multiplier = --------------------------------------------------------- X 100
Closing Value of the Applicable Index on the Pricing Date
</Table>
The Multipliers will be calculated in this way so that the closing value of the
Underlying Basket will equal 100 on the Pricing Date. The Multipliers will not
be revised subsequent to their determination on the Pricing Date except that the
calculation agent may in its good faith judgment adjust the Multiplier of any
index comprising the basket in the event that index is materially changed or
modified in a manner that does not, in the opinion of the calculation agent,
fairly represent the value of that index had those material changes or
modifications not been made.
The value of the Underlying Basket will vary based on the increase or
decrease in the value of each index comprising the basket. Any increase in the
value of an index (assuming no change in the value of the other index) will
result in an increase in the value of the Underlying Basket. Conversely, any
decrease in the value of an index (assuming no change in the value of the other
index) will result in a decrease in the value of the Underlying Basket.
49
The following table sets forth the weighting, the closing value on the
Pricing Date and the Multiplier for each index comprising the Underlying Basket.
<Table>
<Caption>
WEIGHTING CLOSING VALUE ON
INDEX % THE PRICING DATE MULTIPLIER
- ----- --------- ---------------- ----------
Dow Jones Industrial Average..................... 50%
Nikkei 225 Stock Average......................... 50%
</Table>
HYPOTHETICAL HISTORICAL DATA ON THE UNDERLYING BASKET
The following table sets forth the hypothetical closing values of the
Underlying Basket on the last Index Business Day of each month in the period
from January 1996 through September 2006, each calculated as if the Underlying
Basket had been created on January 1, 1996 with an initial value of 100. The
Underlying Basket actually will be established on the Pricing Date with a value
of 100.
Actual historical closing values of each of the two component indices were
used to calculate the hypothetical closing values of the Underlying Basket.
However, these hypothetical closing values should not be taken as an indication
of the actual composition of the Underlying Basket or the future performance of
the Underlying Basket, or what the market value of the Certificates, the
Securities and the Warrants may be. Any hypothetical historical upward or
downward trend in the value of the Underlying Basket during any period set forth
below is not an indication that the Underlying Basket is more or less likely to
increase or decrease at any time during the term of the Certificates, the
Securities and the Warrants.
<Table>
<Caption>
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
January.............. 105.10 112.70 119.10 127.93 156.07 141.22 122.09 99.68 129.62 131.16 148.06
February............. 104.25 113.90 125.86 127.09 149.19 134.97 125.39 98.15 131.20 134.74 148.20
March................ 108.46 109.64 127.58 135.48 157.90 129.24 129.40 98.16 130.69 132.00 151.48
April................ 109.89 116.68 127.92 147.45 150.11 139.96 126.11 102.57 129.51 127.30 153.62
May.................. 110.39 122.14 126.40 143.73 143.92 140.00 126.59 107.68 127.83 130.66 148.05
June................. 111.95 126.83 127.31 151.31 145.90 135.26 117.05 110.66 131.81 129.55 147.97
July................. 106.10 131.51 128.02 149.06 142.39 132.67 110.23 114.29 127.58 133.92 148.20
August............... 105.63 120.36 109.17 149.69 152.02 124.18 108.86 118.03 127.30 133.66 151.83
September............ 111.72 122.65 110.37 145.31 143.70 111.05 97.80 116.34 125.73 137.43 154.70
October.............. 110.42 114.14 118.09 150.00 143.79 114.76 103.79 122.34 125.09 136.25
November............. 116.62 118.31 126.54 152.99 138.63 123.18 110.12 121.00 129.32 143.01
December............. 111.73 115.67 124.55 159.99 140.09 124.45 103.10 129.02 134.27 145.27
</Table>
50
The following graph sets forth the hypothetical historical closing values
of the Underlying Basket on each Index Business Day from January 1, 1996 through
October 16, 2006, each calculated as if the Underlying Basket had been created
on January 1, 1996 with an initial value of 100. The hypothetical past movements
of the Underlying Basket are not indicative of future Underlying Basket values.
(GRAPH)
DESCRIPTION OF THE DOW JONES INDUSTRIAL AVERAGE
GENERAL
Unless otherwise stated, we have derived all information regarding the Dow
Jones Industrial Average provided in this offering document, including its
composition, method of calculation and changes in components, from Dow Jones,
publicly available sources and other sources we believe to be reliable. Such
information reflects the policies of, and is subject to change by, Dow Jones.
Dow Jones is under no obligation to continue to publish, and may discontinue or
suspend the publication of, the Dow Jones Industrial Average at any time. None
of Trust 2006-1, Citigroup Funding, Citigroup, Citigroup Global Markets, the
trustees or the warrant agent assumes any responsibility for the accuracy or
completeness of any information relating to the Dow Jones Industrial Average.
The Dow Jones Industrial Average is a benchmark of performance for leading
companies in the U.S. stock market. The index consists of 30 "blue-chip" U.S.
stocks, although this has not always been the case. The index initially
consisted of twelve common stocks and was first published in The Wall Street
Journal in 1896. The index was increased to include 20 common stocks in 1916 and
to 30 common stocks in 1928. The number of common stocks in the index has
remained at 30 since 1928, and, in an effort to maintain continuity, the
constituent corporations represented in the index have been changed on a
relatively infrequent basis.
The Dow Jones Industrial Average is a price-weighted index (i.e., the
weight of an underlying stock in the index is based on its price per share
rather than the total market capitalization of the issuer of such component
stock) comprised of 30 common stocks chosen by the editors of The Wall Street
Journal from companies outside of the transportation or utility business that
are representative of the broad market of U.S. industry. The corporations
represented in the Dow Jones Industrial Average tend to be leaders within
51
their respective industries and their stocks are typically widely held by
individuals and institutional investors. Changes in the composition of the index
are made entirely by the editors of The Wall Street Journal without consultation
with the corporations represented in the index, any stock exchange, any official
agency, Trust 2006-1 or Citigroup Funding. Changes to the common stocks included
in the index tend to be made infrequently. Historically, most substitutions have
been the result of mergers, but from time to time, changes may be made to
achieve what the editors of The Wall Street Journal deem to be a more accurate
representation of the broad market of U.S. industry. In choosing a new
corporation for the Dow Jones Industrial Average, the editors of The Wall Street
Journal look for leading industrial companies with a successful history of
growth and wide interest among investors. The component stocks of the index may
be changed at any time for any reason. Dow Jones, publisher of The Wall Street
Journal, is not affiliated with Trust 2006-1 or Citigroup Funding and has not
participated in any way in the issuance of the Certificates, the Securities and
the Warrants.
The value of the Dow Jones Industrial Average is the sum of the primary
exchange prices of each of the 30 common stocks included in the index, divided
by a divisor that is designed to provide meaningful continuity in the value of
the index. Because the index is price-weighted, stock splits or changes in the
component stocks could result in distortions in the index value. In order to
prevent such distortions related to extrinsic factors, the divisor is changed in
accordance with a mathematical formula that reflects adjusted proportions within
the index. The current divisor of the index is published daily in The Wall
Street Journal and other publications. In addition, other statistics based on
the index may be found in a variety of publicly available sources.
THE DOW JONES INDUSTRIAL AVERAGE DOES NOT REFLECT THE PAYMENT OF DIVIDENDS
ON THE STOCKS UNDERLYING IT AND THEREFORE THE PAYMENT ON THE CERTIFICATES WILL
NOT PRODUCE THE SAME RETURN YOU WOULD RECEIVE IF YOU WERE TO PURCHASE SUCH
UNDERLYING STOCKS AND HOLD THEM UNTIL THE MATURITY DATE.
HISTORICAL DATA ON THE DOW JONES INDUSTRIAL AVERAGE
The following table sets forth the value of the Dow Jones Industrial
Average at the end of each month in the period from January 1996 through
September 2006. These historical data on the Dow Jones Industrial Average are
not indicative of the future performance of the Dow Jones Industrial Average or
what the value of the Certificates, the Securities and the Warrants may be. Any
historical upward or downward trend in the value of the Dow Jones Industrial
Average during any period set forth below is not an indication that the Dow
Jones Industrial Average is more or less likely to increase or decrease at any
time during the term of the Certificates, the Securities and the Warrants.
<Table>
<Caption>
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
------- ------- ------- -------- -------- -------- -------- -------- -------- --------
January.............. 5395.30 6813.09 7906.50 9358.83 10940.53 10887.36 9920.00 8053.81 10488.07 10489.94
February............. 5485.62 6877.74 8545.72 9306.58 10128.31 10495.28 10106.13 7891.08 10583.92 10766.23
March................ 5587.14 6583.48 8799.81 9786.16 10921.92 9878.78 10403.94 7992.13 10357.70 10503.76
April................ 5569.08 7008.99 9063.37 10789.04 10733.91 10734.97 9946.22 8480.09 10225.57 10192.51
May.................. 5643.18 7331.04 8899.95 10559.74 10522.33 10911.94 9925.25 8850.26 10188.45 10467.48
June................. 5654.63 7672.79 8952.02 10970.80 10447.89 10502.40 9243.26 8985.44 10435.48 10274.97
July................. 5528.91 8222.61 8883.29 10655.15 10521.98 10522.81 8736.59 9233.80 10139.71 10640.91
August............... 5616.21 7622.42 7539.07 10829.28 11215.10 9949.75 8663.50 9415.82 10173.92 10481.60
September............ 5882.17 7945.26 7842.62 10336.95 10650.92 8847.56 7591.93 9275.06 10080.27 10568.70
October.............. 6029.38 7442.08 8592.10 10729.86 10971.14 9075.14 8397.03 9801.12 10027.47 10440.07
November............. 6521.70 7823.13 9116.55 10877.81 10414.49 9851.56 8896.09 9782.46 10428.02 10805.87
December............. 6448.27 7908.25 9181.43 11497.12 10786.85 10021.50 8341.63 10453.92 10783.01 10717.50
<Caption>
2006
--------
January.............. 10864.86
February............. 10993.41
March................ 11109.32
April................ 11367.14
May.................. 11168.31
June................. 11150.22
July................. 11185.68
August............... 11381.15
September............ 11679.07
October..............
November.............
December.............
</Table>
The closing value of the Dow Jones Industrial Average on October 24, 2006
was 12127.9.
52
The following graph illustrates the historical performance of the Dow Jones
Industrial Average based on the closing value thereof on each Index Business Day
from January 1, 1996 through October 16, 2006. Past movements of the index are
not indicative of future index values.
(GRAPH)
LICENSE AGREEMENT
Dow Jones and Citigroup Global Markets Limited, an affiliate of Citigroup
Funding, have entered into a non-exclusive license agreement providing for the
license to Citigroup Funding, in exchange for a fee, of the right to use indices
owned and published by Dow Jones in connection with certain securities,
including the Certificates, the Securities and the Warrants.
The license agreement between Dow Jones and Citigroup Global Markets
Limited provides that the following language must be stated in this offering
document.
"The Certificates, the Securities and the Warrants are not sponsored,
endorsed, sold or promoted by Dow Jones. Dow Jones makes no representation or
warranty, express or implied, to the holders of the Certificates, the Securities
and the Warrants or any member of the public regarding the advisability of
investing in securities generally or in the Certificates, the Securities and the
Warrants particularly. Dow Jones' only relationship to Trust 2006-1 and
Citigroup Funding is the licensing of certain trademarks, trade names and
service marks of Dow Jones and of the Dow Jones Industrial Average, which is
determined, composed and calculated by Dow Jones without regard to Trust 2006-1,
Citigroup Funding or the Certificates, the Securities and the Warrants. Dow
Jones has no obligation to take the needs of Trust 2006-1, Citigroup Funding or
the holders of the Certificates, the Securities and the Warrants into
consideration in determining, composing or calculating the Dow Jones Industrial
Average. Dow Jones is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of the Certificates,
the Securities and the Warrants to be issued or in the determination or
calculation of the equation by which the Certificates, the Securities and the
Warrants are to be converted into cash. Dow Jones has no obligation or liability
in connection with the administration, marketing or trading of the Certificates,
the Securities and the Warrants.
DOW JONES DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
DOW JONES INDUSTRIAL AVERAGE OR ANY DATA INCLUDED THEREIN AND
53
DOW JONES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS
THEREIN. DOW JONES MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY TRUST 2006-1, CITIGROUP FUNDING, HOLDERS OF THE CERTIFICATES, THE
SECURITIES AND THE WARRANTS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
DOW JONES INDUSTRIAL AVERAGE OR ANY DATA INCLUDED THEREIN. DOW JONES MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
DOW JONES INDUSTRIAL AVERAGE OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL DOW JONES HAVE ANY LIABILITY FOR ANY LOST
PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES, EVEN IF
NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF
ANY AGREEMENTS OR ARRANGEMENTS BETWEEN DOW JONES AND CITIGROUP FUNDING."
DESCRIPTION OF THE NIKKEI 225 STOCK AVERAGE
GENERAL
Unless otherwise stated, all information herein relating to the Nikkei 225
Stock Average has been derived from the Stock Market Indices Data Bank published
by NKS and other publicly available sources. Such information reflects the
policies of NKS as of August 31, 1998, as stated in such sources. Such policies
are subject to change at the discretion of NKS. NKS is under no obligation to
continue to publish, and may discontinue or suspend the publication of, the
Nikkei 225 Stock Average at any time. None of Trust 2006-1, Citigroup Funding,
Citigroup, Citigroup Global Markets, the trustees or the warrant agent assumes
any responsibility for the accuracy or completeness of such information.
The Nikkei 225 Stock Average is a stock index calculated, published and
disseminated by NKS that measures the composite price performance of selected
Japanese stocks. The Nikkei 225 Stock Average is currently based on 225 highly
capitalized component stocks trading on the TSE representing a broad cross-
section of Japanese industries. All 225 component stocks are stocks listed in
the First Section of the TSE. Stocks listed in the First Section are among the
most actively traded stocks on the TSE.
COMPUTATION OF THE NIKKEI 225 STOCK AVERAGE
While NKS currently employs the following methodology to calculate the
Nikkei 225 Stock Average, no assurance can be given that NKS will not modify or
change such methodology in a manner that may affect the amount of the payment on
the Certificates, the Securities and the Warrants.
The Nikkei 225 Stock Average is a modified, price-weighted index (i.e., a
component stock's weight in the index is based on its price per share rather
than the total market capitalization of the issuer) which is calculated by (i)
multiplying the per share price of each component stock by the corresponding
weighting factor for such component stock (a "Weight Factor"), (ii) calculating
the sum of all these products and (iii) dividing such sum by a divisor (the
"divisor"). The divisor, initially set in 1949 at 225, was 24.140 as of October
4, 2005 and is subject to periodic adjustments as set forth below. Each Weight
Factor is computed by dividing Y50 by the par value of the relevant component
stock, so that the share price of each component stock when multiplied by its
Weight Factor corresponds to a share price based on a uniform par value of Y50.
The stock prices used in the calculation of the Nikkei 225 Stock Average are
those reported by a primary market for the component stocks (currently the TSE).
The level of the Nikkei 225 Stock Average is calculated once per minute during
TSE trading hours.
In order to maintain continuity in the level of the Nikkei 225 Stock
Average in the event of certain changes due to non-market factors affecting the
component stocks, such as the addition or deletion of stocks, substitution of
stocks, stock dividends, stock splits or distributions of assets to
stockholders, the divisor used in calculating the Nikkei 225 Stock Average is
adjusted in a manner designed to prevent any instantaneous change or
discontinuity in the level of the Nikkei 225 Stock Average. Thereafter, the
divisor remains at the
54
new value until a further adjustment is necessary as the result of another
change. As a result of such change affecting any component stock, the divisor is
adjusted in such a way that the sum of all share prices immediately after such
change multiplied by the applicable Weight Factor and divided by the new divisor
(i.e., the level of the Nikkei 225 Stock Average immediately after such change)
will equal the level of the Nikkei 225 Stock Average immediately prior to the
change.
Component stocks may be deleted or added by NKS. Any stock becoming
ineligible for listing in the First Section of the TSE due to any of the
following reasons will be deleted from the component stocks: (i) bankruptcy of
the issuer, (ii) merger of the issuer with, or acquisition of the issuer by,
another company, (iii) delisting of such stock, (iv) transfer of such stock to
the "Seiri-Post" because of excess debt of the issuer or because of any other
reason or (v) transfer of such stock to the Second Section. Upon deletion of a
stock from the component stocks, NKS will select a suitable replacement for such
deleted component stock in accordance with certain criteria. In an exceptional
case, a newly listed stock in the First Section of the TSE that is recognized by
NKS to be representative of a market may be added to the component stocks. In
such a case, an existing component stock with low trading volume and not
representative of a market will be deleted by NKS.
NKS is under no obligation to continue the calculation and dissemination of
the Nikkei 225 Stock Average. The Certificates, the Securities and the Warrants
are not sponsored, endorsed, sold or promoted by NKS. No inference should be
drawn from the information contained in this offering document that NKS makes
any representation or warranty, implied or express, to us, the holders of the
Certificates, the Securities and the Warrants or any member of the public
regarding the advisability of investing in securities generally or in the
Certificates, the Securities and the Warrants in particular or the ability of
the Nikkei 225 Stock Average to track general stock market performance. NKS has
no obligation to take our needs or those of the holders of the Certificates, the
Securities and the Warrants into consideration in determining, composing or
calculating the Nikkei 225 Stock Average. NKS is not responsible for, and has
not participated in the determination of, the timing of, prices for, or
quantities of, the Certificates, the Securities and the Warrants to be issued or
in the determination or calculation of the equation by which the Interest
Distribution Amount or any other amount payable with respect to the
Certificates, the Securities and the Warrants is set. NKS has no obligation or
liability in connection with the administration, marketing or trading of the
Certificates, the Securities and the Warrants.
THE NIKKEI 225 STOCK AVERAGE DOES NOT REFLECT THE PAYMENT OF DIVIDENDS ON
THE STOCKS UNDERLYING IT AND THEREFORE THE PAYMENT ON THE CERTIFICATES WILL NOT
PRODUCE THE SAME RETURN YOU WOULD RECEIVE IF YOU WERE TO PURCHASE SUCH
UNDERLYING STOCKS AND HOLD THEM UNTIL THE MATURITY DATE.
THE TOKYO STOCK EXCHANGE
The TSE is one of the world's largest securities exchanges in terms of
market capitalization. The TSE is a two-way, continuous, pure auction market.
Trading hours are currently from 9:00 A.M. to 11:00 A.M. and from 12:30 P.M. to
3:00 P.M., Tokyo time, Monday through Friday.
Due to the time zone difference, on any normal index business day the TSE
will close prior to the opening of business in New York City on the same
calendar day. Therefore, the closing level of the Nikkei 225 Stock Average(SM)
on such index business day will generally be available in the United States by
the opening of business on the same calendar day.
The TSE has adopted certain measures intended to prevent any extreme
short-term price fluctuations resulting from order imbalances. These include
daily price floors and ceilings intended to prevent extreme fluctuations in
individual stock prices. In general, any stocks listed on the TSE cannot be
traded at a price outside of these limits, which are stated in terms of absolute
amounts of Japanese yen, and not percentage, changes from the closing price of
the stock on the previous day. In addition, when there is a major order
imbalance in a listed stock, the TSE posts a "special bid quote" or a "special
asked quote" for that stock at a specified higher or lower price level than the
stock's last sale price in order to solicit counter orders and balance supply
and demand for stock. Investors should also be aware that the TSE may suspend
the trading of
55
individual stocks in certain limited and extraordinary circumstances including,
for example, unusual trading activity in that stock. As a result, variations in
the Nikkei 225 Stock Average may be limited by price limitations, or by
suspension of trading, on individual stocks which comprise the Nikkei 225 Stock
Average which may, in turn, adversely affect the value of the Certificates, the
Securities and the Warrants under certain circumstances.
HISTORICAL DATA ON THE NIKKEI 225 STOCK AVERAGE
The following table sets forth the value of the Nikkei 225 Stock Average at
the end of each month in the period from January 1996 through September 2006.
These historical data on the Nikkei 225 Stock Average are not indicative of the
future performance of the Nikkei 225 Stock Average or what the value of the
Certificates, the Securities and the Warrants may be. Any historical upward or
downward trend in the value of the Nikkei 225 Stock Average during any period
set forth below is not an indication that the Nikkei 225 Stock Average is more
or less likely to increase or decrease at any time during the term of the
Certificates, the Securities and the Warrants.
<Table>
<Caption>
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
January.............. 20812.74 18330.01 16628.47 14499.25 19539.70 13843.55 9997.80 8339.94 10783.61 11387.59
February............. 20125.37 18557.00 16831.67 14367.54 19959.52 12883.54 10587.83 8363.04 11041.92 11740.60
March................ 21406.85 18003.40 16527.17 15836.59 20337.32 12999.70 11024.94 7972.71 11715.39 11668.95
April................ 22041.30 19151.12 15641.26 16701.53 17973.70 13934.32 11492.54 7831.42 11761.79 11008.90
May.................. 21956.19 20068.81 15670.78 16111.65 16332.45 13262.14 11763.70 8424.51 11236.37 11276.59
June................. 22530.75 20604.96 15830.27 17529.74 17411.05 12969.05 10621.84 9083.11 11858.87 11584.01
July................. 20692.83 20331.43 16378.97 17861.86 15727.49 11860.77 9877.94 9563.21 11325.78 11899.60
August............... 20166.90 18229.42 14107.89 17436.56 16861.26 10713.51 9619.30 10343.55 11081.79 12413.60
September............ 21556.40 17887.71 13406.39 17605.46 15747.26 9774.68 9383.29 10219.05 10823.57 13574.30
October.............. 20466.86 16458.94 13564.51 17942.08 14539.60 10366.34 8640.48 10559.59 10771.42 13606.50
November............. 21020.36 16636.26 14883.70 18558.23 14648.51 10697.44 9215.56 10100.57 10899.25 14872.15
December............. 19361.35 15258.74 13842.17 18934.34 13785.69 10542.62 8578.95 10676.64 11488.76 16111.43
<Caption>
2006
--------
January.............. 16649.82
February............. 16205.43
March................ 17059.66
April................ 16906.23
May.................. 15467.33
June................. 15505.18
July................. 15456.81
August............... 16140.76
September............ 16127.58
October..............
November.............
December.............
</Table>
The closing value of the Nikkei 225 Stock Average on October 24, 2006 was
16780.47.
56
The following graph illustrates the historical performance of the Nikkei
225 Stock Average based on the closing value thereof on each Index Business Day
from January 1, 1996 through October 16, 2006. Past movements of the index are
not indicative of future index values.
(GRAPH)
LICENSE AGREEMENT
The Nikkei 225 Stock Average(SM) is the intellectual property of NKS.
"Nikkei," "Nikkei Stock Average," "Nikkei Average" and "Nikkei 225" are the
service marks of NKS. NKS reserves all the rights, including copyright, to the
Nikkei 225 Stock Average.
NKS is under no obligation to continue the calculation and dissemination of
the Nikkei 225 Stock Average. The Certificates, the Securities and the Warrants
are not sponsored, endorsed, sold or promoted by NKS. No inference should be
drawn from the information contained in this offering document that NKS makes
any representation or warranty, implied or express, to us, the holders of the
Certificates, the Securities and the Warrants or any member of the public
regarding the advisability of investing in securities generally or in the
Certificates, the Securities and the Warrants in particular or the ability of
the Nikkei 225 Stock Average to track general stock market performance. NKS has
no obligation to take our needs or those of the holders of the Certificates, the
Securities and the Warrants into consideration in determining, composing or
calculating the Nikkei 225 Stock Average. NKS is not responsible for, and has
not participated in the determination of, the timing of, prices for, or
quantities of, the Certificates, the Securities and the Warrants to be issued or
in the determination or calculation of the equation by which the Interest
Distribution Amount or any other amount payable with respect to the
Certificates, the Securities and the Warrants is set. NKS has no obligation or
liability in connection with the administration, marketing or trading of the
Certificates, the Securities and the Warrants.
NKS has entered into a license agreement providing Citigroup Funding a
license, in exchange for a fee, of certain trade and service marks with respect
to indices owned and published by NKS in connection with the issuance of the
Certificates, the Securities and the Warrants. The use of and reference to the
Nikkei 225 Stock Average in connection with the Certificates, the Securities and
the Warrants have been consented to by NKS, the publisher of the Nikkei 225
Stock Average.
57
NKS gives no assurance regarding any modification or change in any
methodology used in calculating the Nikkei 225 Stock Average and is under no
obligation to continue the calculation and dissemination of the Nikkei 225 Stock
Average. The Certificates, the Securities and the Warrants are not sponsored,
endorsed, sold or promoted by NKS. No inference should be drawn from the
information contained in this offering document that NKS makes any
representation or warranty, implied or express, to Trust 2006-1, Citigroup
Funding, the holders of the Certificates, the Securities and the Warrants or any
member of the public regarding the advisability of investing in securities
generally or in the Certificates, the Securities and the Warrants in particular
or the ability of the Nikkei 225 Stock Average to track general stock market
performance. NKS has no obligation to take the needs of Trust 2006-1, Citigroup
Funding or the holders of the Certificates, the Securities and the Warrants into
consideration in determining, composing or calculating the Nikkei 225 Stock
Average. NKS is not responsible for, and has not participated in the
determination of, the timing of, prices for, or quantities of, the Certificates,
the Securities and the Warrants to be issued or any other amount payable with
respect to the Certificates, the Securities and the Warrants is set. NKS has no
obligation or liability in connection with the administration, marketing or
trading of the Certificates, the Securities and the Warrants.
NKS disclaims all responsibility for any errors or omissions in the
calculation and dissemination of the Nikkei 225 Stock Average or the manner in
which such index is applied in determining the Interest Distribution Amount or
any other amount payable in respect of the Certificates, the Securities and the
Warrants.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the principal U.S. federal income
tax considerations that may be relevant to the purchase, ownership and
disposition of the Certificates. Unless otherwise specifically indicated, this
summary addresses the tax consequences only to a person that is (i) an
individual citizen or resident of the United States, (ii) a corporation
organized in or under the laws of the United States or any state thereof or the
District of Columbia or (iii) otherwise subject to United States federal income
taxation on a net income basis in respect of the Certificates (a "U.S. Holder").
All references to "holders" (including U.S. Holders) in this section are to
beneficial owners of the Certificates. This summary does not purport to be a
comprehensive description of all of the tax considerations that may be relevant
to a decision to purchase the Certificates by any particular investor, including
tax considerations that arise from rules of general application to all taxpayers
or to certain classes of taxpayers or that are generally assumed to be known by
investors. This summary also does not address the tax consequences to (i)
persons that may be subject to special treatment under United States federal
income tax law, such as banks, insurance companies, thrift institutions,
regulated investment companies, real estate investment trusts, tax-exempt
organizations, traders in securities that elect to mark to market and dealers in
securities or currencies, (ii) persons that will hold the Certificates as part
of a position in a "straddle," "hedge," "conversion transaction," "synthetic
security" or other integrated investment, who hold other stocks or securities
reflecting positions in the Underlying Basket or investment portfolios that
include shares of any of the companies included in the indices comprising the
Underlying Basket, or who acquire Certificates within 30 days of selling such
positions or shares, (iii) persons whose functional currency is not the United
States dollar, (iv) persons that do not hold the Certificates as capital assets
or (v) persons that did not purchase the Certificates in the initial offering.
This summary is based on United States federal income tax laws,
regulations, rulings and decisions in effect as of the date of this offering
document, all of which are subject to change at any time (possibly with
retroactive effect). As the law is technical and complex, the discussion below
necessarily represents only a general summary. Moreover, the effect of any
applicable state, local or foreign tax laws is not discussed.
The following discussion assumes that none of the companies included in the
Underlying Basket is or will become at any time during the term of the
Certificates, a passive foreign investment company for U.S. federal income tax
purposes. Prospective investors should note that if that assumption is not
accurate, then it is possible that the U.S. federal income tax consequences of
owning the Certificates would differ significantly from the consequences
described below.
58
The discussion below contains certain statements regarding the advisability
of certain tax elections. These statements are of a general nature and are not
addressed to any taxpayer's particular circumstances. A PROSPECTIVE INVESTOR IN
THE CERTIFICATES SHOULD CONSULT ITS OWN TAX ADVISORS IN DETERMINING THE TAX
CONSEQUENCES OF AN INVESTMENT IN THE CERTIFICATES, INCLUDING THE APPLICATION OF
STATE, LOCAL OR OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR
OTHER TAX LAWS.
TAX STATUS OF TRUST 2006-1
Trust 2006-1 will be treated as a grantor trust owned solely by the present
and future holders of Certificates for U.S. federal income tax purposes, and
accordingly, income received by Trust 2006-1 will be treated as income of the
holders of the Certificates in the manner set forth below.
CHARACTERIZATION OF TRUST ASSETS
There are no regulations, published rulings or judicial decisions
addressing the characterization for U.S. federal income tax purposes of the
Securities and the Warrants. Pursuant to the amended and restated declaration of
trust of Trust 2006-1, every holder of the Certificates, Trust 2006-1 and
Citigroup Funding agrees to characterize and treat for U.S. federal income tax
purposes, in the absence of an administrative determination or judicial ruling
to the contrary, (i) the Security and the Warrant as two separate financial
instruments; (ii) each Security as a cash-settled variable prepaid forward
contract with respect to the Underlying Basket under which at the time of
issuance of the Certificates, you pay Citigroup Funding, with respect to the
Security, the amount set forth on the cover page of this offering document as
the offering price for the Security (the "issue price") in consideration for
Citigroup Funding's obligation to deliver to you at maturity of the Security a
cash amount equal to $10 plus a Security Return Amount (which may be positive,
zero, or negative) based upon the performance of the Underlying Basket, in full
satisfaction of its obligation under such forward contract; and (iii) each
Warrant as a cash-settled put option with respect to the Underlying Basket under
which at the time of issuance of the Certificates, with respect to the Warrant,
you pay Citigroup Funding the amount set forth on the cover page of this
offering document as the offering price for the Warrant (the "option premium")
in consideration for the right to sell to Citigroup Funding at expiration of the
Warrant, for a cash amount equal to $10, a notional position in the Underlying
Basket with an initial value of $10.
Trust 2006-1 and Citigroup Funding will report to you and to the Internal
Revenue Service ("IRS") the payments under the Securities and the Warrants
according to this agreed-to characterization and treatment. Unless explicitly
stated otherwise, based on the agreement above and certain representations made
by Citigroup Funding with respect to the Securities and the Warrants, the
remainder of this section "Certain United States Federal Income Tax
Considerations" assumes that you will be treated as the owner of your pro rata
portion of two separate financial instruments consisting of the Security and the
Warrant, rather than as the owner of a single financial instrument. Prospective
investors in the Certificates should be aware, however, that no ruling is being
requested from the IRS with respect to the Securities and the Warrants and the
IRS might take a different view as to the proper characterization of the
Securities or of the Warrants and of the U.S. federal income tax consequences to
a holder thereof. As discussed below, alternative treatments of the Certificates
could result in less favorable U.S. federal income tax consequences to you,
including a requirement to accrue income on a current basis and to treat any
gain as ordinary income.
TAX BASIS IN THE SECURITIES AND THE WARRANTS
In order to determine your tax basis in the Securities and the Warrants,
you should allocate the purchase price paid for your Certificates between your
pro rata portion of the Securities and the Warrants, in proportion to the fair
market values thereof. Your initial tax basis in a Security generally will equal
the issue price of , and your initial tax basis in a Warrant will
equal the option premium of .
59
OVERVIEW
Your tax treatment may differ significantly depending on whether you hold a
Security and a Warrant together as a Certificate or whether you exchange your
Certificate for your pro rata portion of the assets of Trust 2006-1 and hold a
Security or Warrant separately, without holding the other. In addition, your tax
treatment will depend on the application of the straddle rules described in more
detail under "-- Taxation of Certificates -- Straddle Rules." Unless specified
otherwise, the discussion below assumes that the straddle rules will apply to
the Securities and the Warrants throughout the term of the Certificates.
Furthermore, your tax treatment may depend on certain elections discussed in
more detail below. In particular, it is important that you consider making the
"mixed straddle" election described under "-- Taxation of Certificates -- Mixed
Straddle Election." Otherwise, you may be required to recognize gain on the
Warrants, if any, on an annual basis. Unless otherwise specified, the discussion
below assumes that the mixed straddle election and the identified straddle
election described in more detail under "-- Taxation of Certificates -- Straddle
Rules -- Treatment of Losses; Identified Straddle Election," below, will apply.
As discussed in more detail below, in general the tax treatment of your
investment in the Securities and the Warrants will be as follows:
Any gain you realize with respect to the Certificates (such as at maturity or
upon sale) will be short-term capital gain, unless you take the steps
described in the next italicized paragraph below.
- If you hold Certificates at maturity or if you sell all of your
Certificates prior to maturity, you will recognize net capital gain or
loss at maturity or upon sale, as applicable, equal to the difference
between the amount of cash received and the amount you paid for the
Certificates. Your capital gain or loss will be short-term gain or loss
regardless of how long you have held the Certificates.
You will recognize long-term capital gain, if any, only if you exchange
Certificates for a pro rata portion of the Warrants and Securities and dispose
of either the Warrants or the Securities and continue to hold the other for
more than one year. You should be aware, however, that if you hold only the
Securities or only the Warrants, you will lose the benefit of principal
protection at maturity.
- If you dispose of the Warrants and continue to hold the Securities, you
will recognize short-term capital gain on the disposition of the Warrants
if the amount realized exceeds the option premium. You will have capital
gain or loss on the subsequent sale or other taxable disposition of the
Securities, which will be long-term gain or loss only if you continue to
hold the Securities for more than one year after your disposition of the
Warrants.
- If you dispose of the Securities and continue to hold the Warrants, you
will recognize short-term capital gain on disposition of the Securities
if the amount realized exceeds the issue price. You will have capital
gain or loss on the subsequent sale or other taxable disposition of the
Warrants, which will be long-term gain or loss only if you continue to
hold the Warrants for more than one year after your disposition of the
Securities.
TAXATION OF CERTIFICATES
In General
Except where otherwise stated, the discussion below assumes that the mixed
straddle election described under "-- Taxation of Certificates -- Mixed Straddle
Election" will apply. Under that assumption, you will not be required to accrue
income or to take into account any gain or loss with respect to the Certificates
until maturity or disposition of the Certificates.
Maturity, Sale, Exchange or Other Taxable Disposition of Certificates
The maturity, sale or exchange of the Certificates will be treated as a
taxable disposition of the Securities and of the Warrants. Accordingly, if you
dispose of all of your Certificates, you generally will recognize net capital
gain or loss equal to the difference between the amount realized and the amount
you paid for the
60
Certificates. As described below under "-- Taxation of Certificates -- Straddle
Rules -- Holding Period," your capital gain or loss will be short-term gain or
loss regardless of how long you have held the Certificates at the time of
maturity or disposition. For discussion of the treatment of a partial sale or
other taxable disposition of Certificates, see below under "-- Taxation of
Certificates -- Straddle Rules -- Treatment of Losses; Identified Straddle
Election."
Straddle Rules
In General. As described above, the maturity, sale or exchange of all or
part of your Certificates will be treated as a taxable disposition of the
Securities and Warrants relating to those Certificates. In that event, you may
realize gain on the Securities and a loss on the Warrants, or vice versa. As
described below, special U.S. federal income tax "straddle" rules apply when
taxpayers realize gains and losses from offsetting positions in actively traded
personal property.
A Security and a Warrant will constitute a straddle at the issuance of the
Certificates, because your risk of loss from holding the Security is
substantially diminished at that time by your ownership of the Warrant. The
remainder of this section "Certain United States Federal Income Tax
Considerations" assumes that the Securities and the Warrants will be subject to
the straddle rules throughout the term of the Certificates. As a result, special
loss, holding period rules, and expense capitalization rules will apply to the
Securities and the Warrants, as described immediately below. You should consult
your own tax advisors if you own any other stocks or securities reflecting
positions in the Underlying Basket or investment portfolios that include shares
of any of the companies included in the indices comprising the Underlying
Basket.
Treatment of Losses; Identified Straddle Election. Under the general
straddle rules, you would be permitted to take into account a loss recognized on
a position in the straddle only to the extent the loss exceeds any unrecognized
gain at the end of a taxable year with respect to any offsetting position in the
straddle (which could be the Certificates, Securities or Warrants) retained by
you. As a result, if you sold, exchanged or otherwise disposed of a part, but
not all of your Certificates, you might be required to pay tax on taxable gain
in excess of your economic gain on the Certificates that you sold.
This general loss deferral rule will not apply, however, if each Security
and each Warrant is identified as positions comprising a separate "identified
straddle" (an "identified straddle" election), in the manner described in more
detail below. Under the identified straddle election, if you realize a loss on
the disposition of a Warrant held as part of an identified straddle and a gain
on the Security held as part of the same identified straddle (or vice versa),
the loss on the first instrument will be added to the basis of the second
instrument. As a result, upon a disposition of your Certificates, your net
capital gain or loss from that disposition will be equal to the difference
between the amount realized and the amount you paid for the sold Certificates.
In order to make an "identified straddle" election, the positions in the
straddle must be clearly identified on the taxpayer's records as an identified
straddle before the close of the day on which the straddle is acquired, subject
to regulations. Trust 2006-1 will make an identified straddle election on behalf
of all holders of the Certificates by identifying on its records each Security
and each Warrant as a separate identified straddle before the close of the day
on which the Securities and Warrants are acquired. It is unclear, however,
whether the identified straddle election made by Trust 2006-1 on behalf of a
holder will be effective. Therefore, it is generally advisable that you also
identify each Security and each Warrant as a separate identified straddle in
your records no later than the close of the day on which you acquire the
Certificates.
To make the election, you must identify the Securities and the Warrants as
an "identified straddle" in your records no later than the close of the day on
which you acquire the Certificates. The identified straddle election in its
current form is new and certain aspects of its application are uncertain,
including the manner in which an identified straddle election may be made. An
identification statement is included in this offering document immediately
following this section "Certain United States Federal Income Tax
Considerations." The identification statement may be sufficient to comply with
the requirements for making an identified straddle election, if you keep the
identification statement as part of your books and records. In addition, the
broker through which you purchased your Certificates may provide a trade
confirmation that identifies each Security and each Warrant as a separate
identified straddle for purposes of the straddle rules and that provides
61
that you agree to treat your positions in the Securities and the Warrants
accordingly. In any case, you should keep the trade confirmation together with
the identification statement as part of your books and records. You should
consult your own tax advisors in determining how the identified straddle rules
may apply to you. Except where otherwise stated, the remainder of this section
"Certain United States Federal Income Tax Considerations" assumes that an
identified straddle election will apply.
Holding Period. Your holding period in any position that is part of a
straddle (for example, the Securities) does not begin until after the date on
which you dispose of all positions that offset that position (for example, the
Warrants). Therefore, you will recognize short-term capital gain or loss on
maturity or disposition of the Certificates regardless of how long you have held
the Certificates.
Capitalization of Expenses. You are required to capitalize any otherwise
deductible interest or carrying charges incurred with respect to any position in
a straddle by increasing your tax basis in the position, rather than deducting
such amounts. The remainder of this section "Certain United States Federal
Income Tax Considerations" assumes that you will not have any interest or
carrying charges with respect to your Certificates.
Special Rules Applicable to Warrants
The Warrants may be subject to special rules applicable to "section 1256
contracts" that are described below if the Warrants are treated as "listed
options." If the Warrants are not treated as section 1256 contracts, you will
not be required to take into account any gain or loss with respect to the
Warrants until maturity or disposition of the Certificates or of the Warrants.
For purposes of the section 1256 rules, a "listed option" is defined as any
option "which is traded on (or subject to the rules of) a qualified board or
exchange." The Warrants will not be listed on a qualified board or exchange, but
the Certificates will be listed on the AMEX. No authority addresses the question
of whether the Warrants will be considered subject to the rules of a qualified
board or exchange under these circumstances. Accordingly, it is possible that
the Warrants may be treated as "listed options" and therefore as "section 1256
contracts." In that case, you would be subject to special timing and holding
period rules, absent the "mixed straddle" election described below.
Under the rules applicable to section 1256 contracts, each Warrant that is
part of a Certificate held by you at the close of your taxable year is deemed to
be sold at the Warrant's fair market value (the "mark-to-market rule"). You
would recognize gain, if any, under the mark-to-market rule equal to the
difference between the Warrant's fair market value and your basis in the
Warrant, which is equal to the option premium you paid to purchase the Warrant,
adjusted for any gain or loss that you took into account in prior years under
the mark-to-market rule. Any losses realized under the mark-to-market rule would
be subject to deferral, however, under the straddle rules described above. Any
gain or loss from the deemed mark-to-market sale would be required to be taken
into account as 60% long-term capital gain or loss and 40% short-term capital
gain or loss (the "60/40 rule"), regardless of your holding period for the
Certificate. Similarly, any gain or loss realized on disposition of the
Certificate or possibly on exchange of a Certificate for your pro rata share of
the Securities and the Warrants would be subject to the 60/40 rule to the extent
such gain or loss were allocable to the Warrant.
Mixed Straddle Election
As discussed above under "-- Taxation of Certificates -- Special Rules
Applicable to Warrants," the Warrants may be treated as section 1256 contracts.
The Securities will not be treated as section 1256 contracts. A mixed straddle
is any "straddle" in which at least one, but not all, of the positions, is a
section 1256 contract. Accordingly, holding the Certificates may constitute a
"mixed straddle" under the rules governing section 1256 contracts. If you hold a
Certificate, generally it will be advisable for you to make a "mixed straddle"
election with respect to the Certificate. If you make this election, the
mark-to-market rule would not apply to the Warrants even if they were treated as
listed options and subject to the section 1256 rules. Accordingly, you will not
be required to take into account any gain or loss with respect to the Warrants
until they mature or you dispose of either the Warrants or the Securities.
62
In order to make a "mixed straddle" election, the positions in the straddle
must be clearly identified on the taxpayer's records as a mixed straddle before
the close of the day on which the straddle is acquired. In addition, the
taxpayer must file IRS Form 6781. Trust 2006-1 will make a "mixed straddle"
election on behalf of all holders of the Certificates by identifying on its
records the Securities and the Warrants as a mixed straddle before the close of
the day on which the Securities and Warrants are acquired, and by filing IRS
form 6781. It is unclear, however, whether the election made by Trust 2006-1 on
behalf of a holder will be effective. Therefore, it is generally advisable that
you also make a "mixed straddle" election.
To make the election, you must check Box A on IRS Form 6781 (a copy of
which is attached to this offering document as Exhibit B and also is available
on the IRS website at http://www.irs.gov) and attach the Form to your tax return
for the year in which you acquire the Certificates. You must also identify the
Securities and the Warrants as a straddle in your records no later than the
close of the day on which you acquire the Certificates. The rules do not address
specifically how to satisfy the identification requirements of the mixed
straddle election. An identification statement is included in this offering
document immediately following this section "Certain United States Federal
Income Tax Considerations." The identification statement may be sufficient to
comply with mixed straddle election requirements, if you keep the identification
statement as part of your books and records. In addition, the broker through
which you purchased your Certificates may provide a trade confirmation that
identifies each Security and each Warrant as a mixed straddle for purposes of
the section 1256 rules and that provides that you agree to treat your positions
in the Securities and the Warrants accordingly. In any case, you should keep the
trade confirmation together with the identification statement as part of your
books and records. Except where otherwise stated, the remainder of this section
"Certain United States Federal Income Tax Considerations" assumes that a mixed
straddle election will apply.
You will not be able to make the mixed straddle election with respect to
the Securities and the Warrants after the first year that you hold your
Certificates. The mixed straddle election applies to the taxable year for which
the election is made and all future taxable years, and may not be revoked
without the consent of the IRS. You should consult your own tax advisors in
determining whether to make a mixed straddle election in light of your
particular tax circumstances and how to comply with the identification
requirements of such election.
EXCHANGE OF CERTIFICATES FOR A PRO RATA PORTION OF SECURITIES AND WARRANTS
In General
If you exchange the Certificates for a pro rata portion of the Securities
and Warrants, you generally will not recognize gain or loss on the exchange. In
order to exercise your exchange right, your account must be approved for options
trading. You should consult with your financial advisor to determine whether
your account would meet the options trading requirements.
You will not be required to accrue income or to take into account any gain
or loss with respect to the Securities until maturity or disposition of the
Securities.
The Warrants will not be listed on an exchange and therefore will not be
subject to the section 1256 rules. See discussion above under "-- Taxation of
Certificates -- Special Rules Applicable to Warrants." Accordingly, you also
will not be required to accrue income or to take into account any gain or loss
with respect to the Warrants until maturity or disposition of the Warrants.
Disposition of Securities or Warrants
If you hold the Securities and Warrants to maturity, or dispose of
Securities and Warrants that have been identified as part of an identified
straddle at the same time, you generally will be taxed as described under
"-- Taxation of Certificates -- Maturity, Sale, Exchange or Other Taxable
Disposition of Certificates." As described therein, any gain or loss that you
recognize would be short-term capital gain or loss.
If you dispose of a Warrant and continue to hold the Security identified as
part of the same identified straddle, you will realize capital gain or loss
equal to the difference between the amount realized on disposition
63
of the Warrant and the option premium you paid for the Warrant. Gain, if any,
will be taxable in the year of disposition, and will be treated as short-term
capital gain. Loss, if any, will be capitalized into the basis of the Security
and will not be deductible until you sell or otherwise dispose of the Security.
On later disposition of the Security, including on maturity of the Security, you
will recognize capital gain or loss equal to the difference between the amount
realized on disposition and your adjusted basis for the Security, which will
equal the issue price of the Security plus any loss from the Warrant that was
capitalized as described in the previous sentence. Gain or loss from disposition
of the Security will be long-term gain or loss if you have held the Security for
more than one year after disposing of the Warrant, and otherwise will be
short-term gain or loss. The deductibility of capital losses is subject to
limitations.
If you dispose of a Security and continue to hold the Warrant identified as
part of the same identified straddle, you will realize capital gain or loss
equal to the difference between the amount realized on disposition of the
Security and the issue price for the Security. Gain, if any, will be taxable in
the year of disposition, and will be treated as short-term capital gain. Loss,
if any, will be capitalized into the basis of the Warrant and will not be
deductible until you sell or otherwise dispose of the Warrant. On later
disposition of the Warrant, including on maturity of the Warrant, you will
recognize capital gain or loss equal to the difference between the amount
realized on disposition and your adjusted basis for the Warrant, which will
equal the option premium you paid for the Warrant plus any loss from the
Security that was capitalized as described in the previous sentence. Gain or
loss from disposition of the Warrant will be long-term gain or loss if you have
held the Warrant for more than one year after disposing of the Security, and
otherwise will be short-term gain or loss.
You should be aware that if you dispose of either the Security or the
Warrant and hold only the Security or only the Warrant, you will lose the
benefit of principal protection at maturity.
POSSIBLE ALTERNATIVE CHARACTERIZATION
Due to the absence of authority as to the proper characterization of the
Securities and Warrants, no assurance can be given that the IRS will accept, or
that a court will uphold, the characterization and tax treatment described
above. In particular, however, because you will be entitled to cash in an amount
equal to or greater than the purchase price paid for the Securities and the
Warrants if you hold the Certificates until maturity, the IRS could seek to
analyze the federal income tax treatment of a Security and a Warrant as a single
four-year debt instrument subject to Treasury regulations governing contingent
payment debt instruments (the "Contingent Payment Regulations").
The Contingent Payment Regulations are complex. Very generally, if they
applied to the Securities and the Warrants, you would be required to accrue
original issue discount every year at a "comparable yield" for Citigroup
Funding, determined at the time of issuance of the Certificates. This original
issue discount would be includible as ordinary interest income in your gross
income over the term of the Certificates, although you will receive no payments
on the Certificates before maturity. In addition, any gain realized on the sale,
exchange or redemption of the Certificates would be treated as ordinary income.
Any loss realized on such sale, exchange or redemption would be treated as an
ordinary loss to the extent of your original issue discount inclusions with
respect to the Certificates. Any loss realized in excess of such amount
generally would be treated as a capital loss.
The Contingent Payment Regulations apply only to debt instruments. As of
the date on which the Certificates are issued for initial sale to the public,
Citigroup Funding expects that, in general, investors in Certificates will be
able to exercise their legal right to exchange their Certificates for a pro rata
portion of the Warrants and Securities and to dispose of one separately from the
other, without significant impediment. Moreover, investors who wish to obtain
long-term capital gain treatment on maturity or disposition of the Securities
will have an economic incentive to exchange their Certificates for a pro rata
portion of the Warrants and Securities and dispose of the Warrants more than one
year prior to maturity of Securities. Accordingly, Citigroup Funding believes
that the Securities and the Warrants underlying the Certificates should be
treated not as a single debt instrument, but as two separate financial
instruments, as described above. No assurance can be provided that the IRS will
agree with this position.
64
TAX SHELTER REPORTING RULES
Treasury regulations require that a taxpayer report to the IRS transactions
in which the taxpayer has sustained losses equal to or in excess of certain
thresholds. This requirement is subject to a number of exceptions intended to
eliminate many ordinary course transactions where taxpayers cannot manipulate
the timing of losses. However, because you will hold the Securities and the
Warrants in the form of a certificate in a trust and because the Securities and
the Warrants constitute a straddle, the exceptions will not apply to losses on
your investment in the Certificates or losses from the Securities or the
Warrants. Accordingly, you generally will be required to report to the IRS any
loss arising from your investment in the Certificates that equals or exceeds the
loss threshold amount applicable to you. The loss threshold amounts are, in
general, $2 million in any taxable year for an individual, partnership, S
corporation, estate or trust, and $10 million in any taxable year for a
corporation or a partnership with solely corporate investors. If you realize a
loss from your investment in Certificates in more than one year, you may be
required to combine those losses for reporting purposes, although the loss
threshold amounts generally will be higher. You should consult your own tax
advisors in determining whether the tax shelter reporting requirements apply to
your transactions in the Securities and the Warrants and how to comply with such
requirements.
TRUST INFORMATION REPORTING
The IRS and Treasury recently issued regulations providing information
reporting rules for widely held fixed investment trusts. These rules will apply
to Trust 2006-1 beginning on January 1, 2007 and generally will require more
extensive reporting of trust items to the IRS and investors on IRS Forms 1099s
and in accompanying statements, including separate identification of trust
income and expense items.
NON-UNITED STATES HOLDERS
If you are a holder of the Certificates that is not a U.S. Holder, any gain
realized upon the sale, maturity, exchange or other taxable disposition of the
Certificates, the Securities, or the Warrants generally will not be subject to
U.S. income and withholding tax, provided that:
(i) you do not own, actually or constructively, 10% or more of the
total combined voting power of all classes of the Citigroup Funding's stock
entitled to vote, and are not a controlled foreign corporation related,
directly or indirectly, to Citigroup Funding through stock ownership;
(ii) you, as the beneficial owner of the Certificate certify on IRS
Form W-8BEN (or successor form), under penalties of perjury, that you are
not a U.S. person and provide your name and address or otherwise satisfy
applicable documentation requirements; and
(iii) if you are an individual, you are not present in the United
States for 183 days or more in the taxable year that contains the day of
the disposition or if the gain is not attributable to a fixed place of
business maintained by you in the United States.
Prospective investors that are not U.S. Holders should consult their own
tax advisors in determining the tax consequences to them of an investment in the
Certificates, including the application of U.S. federal, state, local, foreign
or other tax laws, and the possible effects of changes in federal or other tax
laws.
Estate Tax
If you are an individual who will be subject to U.S. federal estate tax
only with respect to U.S. situs property (generally an individual who at death
is neither a citizen nor a domiciliary of the United States) or an entity the
property of which is potentially includible in such an individual's gross estate
for U.S. federal estate tax purposes (for example, a trust funded by such an
individual and with respect to which the individual has retained certain
interests or powers), you should note that, absent an applicable treaty benefit,
the Certificates, the Securities or the Warrants may be treated as U.S. situs
property for U.S. federal estate tax purposes. You are urged to consult your own
tax advisors regarding the U.S. federal estate tax consequences of investing in
the Certificates.
65
INFORMATION REPORTING AND BACKUP WITHHOLDING
If you are a U.S. Holder, you may be subject to information reporting and
to backup withholding on certain amounts paid to you unless you (i) are a
corporation or come within certain other exempt categories and demonstrate this
fact, or (ii) provide a correct taxpayer identification number, certify as to no
loss of exemption from backup withholding and otherwise comply with applicable
requirements of the backup withholding rules. The amount of any backup
withholding will be allowed as a credit against your federal income tax
liability and may entitle you to a refund, provided that the required
information is furnished to the IRS. If you are not a U.S. person, you generally
will not be subject to backup withholding and information reporting with respect
to the Certificates if you have provided Citigroup Funding with a properly
completed IRS Form W-8BEN described above and we do not have actual knowledge or
reason to know that you are a U.S. person.
66
IDENTIFICATION OF POSITIONS FORMING A STRADDLE FOR PURPOSES OF
SECTIONS 1256(D) AND 1092(A)(2) OF THE INTERNAL REVENUE CODE.
(Keep with your trade confirmation)
Pursuant to Internal Revenue Code Sections 1092 and 1256, I hereby identify
each Security and each Warrant purchased as part of Citigroup Funding Inc.
Safety First Principal-Protected Trust Certificates Linked to the Dow Jones
Industrial Average and the Nikkei 225 Stock Average (the "Certificates") as
positions comprising a separate identified straddle within the meaning of
Section 1092(a)(2) and, if a Warrant otherwise would constitute a "Section 1256
contract", as positions comprising a mixed straddle within the meaning of
Section 1256(d). This identification incorporates by reference the description
of the Securities and the Warrants set forth in the prospectus and pricing
supplement dated , 2006 for the Certificates under the headings
"Description of the Equity Index Participation Securities" and "Description of
the Equity Index Warrants." The Securities and the Warrants were acquired on the
date shown on the trade confirmation attached hereto.
67
UNDERWRITING
The terms and conditions stated in the terms agreement dated the date of
this offering document, which incorporates by reference the underwriting
agreement basic provisions dated July 19, 2006, govern the sale and purchase of
the Certificates. The terms agreement and the underwriting agreement basic
provisions are referred to together as the underwriting agreement. Citigroup
Global Markets, as underwriter, has agreed to purchase from Trust 2006-1, and
Trust 2006-1 has agreed to sell to Citigroup Global Markets,
Certificates.
The underwriting agreement provides that the obligation of Citigroup Global
Markets to purchase the Certificates included in this offering is subject to
approval of certain legal matters by counsel and to other conditions. Citigroup
Global Markets is obligated to purchase all of the Certificates if it purchases
any Certificates.
Citigroup Global Markets proposes to offer some of the Certificates
directly to the public at the public offering price set forth on the cover page
of this offering document and some of the Certificates to certain dealers at the
public offering price less a concession not in excess of $ per
Certificate. Citigroup Global Markets may allow, and such dealers may reallow, a
concession not in excess of $ per Certificate on sales to certain other
dealers. Sales may also be made through Citicorp Investment Services and
Citicorp Financial Services Corp., broker-dealers affiliated with Citigroup
Global Markets, acting as agents. Citicorp Investment Services and Citicorp
Financial Services Corp. will receive as remuneration a portion of the
underwriting discount set forth on the cover of this offering document equal to
$ per Certificate for the Certificates they sell. If all of the
Certificates are not sold at the initial offering price, Citigroup Global
Markets may change the public offering price and the other selling terms.
The underwriting agreement provides that Trust 2006-1, Citigroup Funding
and Citigroup will indemnify Citigroup Global Markets against certain
liabilities, including liabilities under the Securities Act of 1933, and will
make certain contributions in respect thereof, or will contribute to payments
that Citigroup Global Markets may be required to make in respect of any of those
liabilities and will reimburse Citigroup Global Markets for certain legal and
other expenses.
Prior to this offering, there has been no public market for the
Certificates. Consequently, the initial public offering price for the
Certificates was determined by negotiations among Trust 2006-1 and Citigroup
Global Markets. There can be no assurance, however, that the prices at which the
Certificates will sell in the public market after this offering will not be
lower than the price at which they are sold by Citigroup Global Markets or that
an active trading market in the Certificates will develop and continue after
this offering.
Citigroup Funding and Trust 2006-1 will apply to list the Certificates on
the American Stock Exchange under the symbol "AGB."
In view of the fact that the proceeds of the sale of the Certificates
ultimately will be used by Trust 2006-1 to purchase the Securities and the
Warrants, the underwriting agreement provides that Citigroup Funding will pay to
Citigroup Global Markets an underwriting discount of $ per Certificate for
the account of Citigroup Global Markets.
In connection with the offering, Citigroup Global Markets, as the
underwriter, may purchase and sell the Certificates, the Securities, the
Warrants and the stocks included in the indices comprising the Underlying Basket
in the open market. These transactions may include covering transactions.
Covering transactions involve purchases of the Certificates, the Securities or
the Warrants in the open market after the distribution has been completed to
cover short positions.
These activities may have the effect of preventing or retarding a decline
in the market price of the Certificates, the Securities or the Warrants. They
may also cause the price of the Certificates, the Securities or the Warrants to
be higher than the price that otherwise would exist in the open market in the
absence of these transactions. Citigroup Global Markets may conduct these
transactions in the over-the-counter market or otherwise. If Citigroup Global
Markets commences any of these transactions, it may discontinue them at any
time.
68
In order to hedge its obligations under the Securities and the Warrants,
Citigroup Funding expects to enter into one or more swaps or other derivatives
transactions with one or more of its affiliates. See "Use of Proceeds and
Hedging Activities," "Risk Factors -- Risks Generally Relating to the
Certificates, Securities and Warrants -- The Market Value of the Certificates,
Securities and Warrants May Be Affected by Purchases and Sales of the Stocks
Included in the Indices Comprising the Underlying Basket or Related Derivative
Instruments by Affiliates of Citigroup Funding" and "-- Citigroup Funding's
Hedging Activity Could Result in a Conflict of Interest" in this offering
document.
We estimate that our total expenses for this offering will be $ .
Citigroup Global Markets is an affiliate of Citigroup Funding. Accordingly,
the offering will conform with the requirements set forth in Rule 2810 of the
Conduct Rules of the National Association of Securities Dealers, Inc. regarding
direct participation programs. Citigroup Global Markets may not confirm sales to
any discretionary account without the prior specific written approval of a
customer.
This offering document may also be used by Citigroup Funding's
broker-dealer affiliates in connection with offers and sales of the Certificates
(subject to obtaining any necessary approval of the American Stock Exchange for
any of these offers and sales), the Securities and the Warrants in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale. Any of these affiliates may act as principal or agent in these
transactions. None of these affiliates is obligated to make a market in the
Certificates, the Securities and the Warrants and any may discontinue any
market-making at any time without notice, at its sole discretion.
69
ERISA MATTERS
Each purchaser of the Certificates, the Securities or the Warrants or any
interest therein will be deemed to have represented and warranted on each day
from and including the date of its purchase or other acquisition of the
Certificates, the Securities or the Warrants through and including the date of
disposition of such Certificates, Securities or Warrants that either:
(a) it is not (i) an employee benefit plan subject to the fiduciary
responsibility provisions of ERISA, (ii) an entity with respect to
which part or all of its assets constitute assets of any such employee
benefit plan by reason of C.F.R. 2510.3-101 or otherwise, (iii) a plan
described in Section 4975(e)(1) of the Internal Revenue Code of 1986,
as amended (the "Code") (for example, individual retirement accounts,
individual retirement annuities or Keogh plans), or (iv) a government
or other plan subject to federal, state or local law substantially
similar to the fiduciary responsibility provisions of ERISA or Section
4975 of the Code (such law, provisions and Section, collectively, a
"Prohibited Transaction Provision" and (i), (ii), (iii) and (iv),
collectively, "Plans"); or
(b) if it is a Plan, either (A)(i) none of Citigroup Global Markets, its
affiliates or any employee thereof is a Plan fiduciary that has or
exercises any discretionary authority or control with respect to the
Plan's assets used to purchase the Certificates, the Securities or the
Warrants or renders investment advice with respect to those assets, and
(ii) the Plan is paying no more than adequate consideration for the
Certificates, the Securities or the Warrants or (B) its acquisition and
holding of the Certificates, Securities or the Warrants is not
prohibited by a Prohibited Transaction Provision or is exempt
therefrom.
The above representations and warranties are in lieu of the representations
and warranties described in the section "ERISA Matters" in the accompanying
prospectus supplement relating to the Securities and the Warrants. Please also
refer to the section "ERISA Matters" in the accompanying prospectus relating to
the Securities and the Warrants.
LEGAL MATTERS
The validity of the Certificates and certain matters relating thereto will
be passed upon for Trust 2006-1 by Dorsey & Whitney LLP, as special Delaware
counsel. Certain legal matters will be passed upon for the underwriter by Cleary
Gottlieb Steen & Hamilton LLP, New York, New York. Cleary Gottlieb Steen &
Hamilton LLP has also acted as special tax counsel to Citigroup Funding and
Citigroup in connection with the Certificates and Citigroup's guarantee. Cleary
Gottlieb Steen & Hamilton LLP has from time to time acted as counsel for
Citigroup and certain of its subsidiaries, including Citigroup Funding, and may
do so in the future.
EXPERTS
The consolidated financial statements of Citigroup as of December 31, 2005
and 2004, and for each of the years in the three-year period ended December 31,
2005, and management's assessment of the effectiveness of internal control over
financial reporting as of December 31, 2005, have been incorporated by reference
herein in reliance upon the reports of KPMG LLP, independent registered public
accounting firm, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing. The report of KPMG LLP refers
to changes, in 2005, in Citigroup's method of accounting for conditional asset
retirement obligations associated with operating leases, and in 2003, in
Citigroup's methods of accounting for variable interest entities and stock-based
compensation.
70
EXHIBIT A
OFFICIAL NOTICE OF EXCHANGE
DATED:
U.S. Bank National Association, as
Institutional Trustee
100 Wall Street, 16th Floor
New York, NY 10005
Attention: Rachel Muehlbauer, Specialized Finance
Phone: (651) 495-3511
Fax: (651) 495-8158
Ladies and Gentlemen:
The undersigned holder of the Principal-Protected Trust Certificates Linked
to the Dow Jones Industrial Average and the Nikkei 225 Stock Average Due 2010
(the "Certificates") hereby irrevocably elects to exercise with respect to the
principal amount of the Certificates indicated below, as of the date hereof (or,
if this notice is received after 11:00 a.m. on any Business Day by the
Institutional Trustee, as of the next Business Day), provided that such day is
prior to the earlier of (i) , 2010 and (ii) in the event of
acceleration of the maturity date, the Accelerated Maturity Date, the holder's
exchange right as described in the Prospectus dated , 2006 relating to
the Certificates (the "Prospectus"). Capitalized terms not defined herein have
the meanings given to such terms in the Prospectus.
Please date and acknowledge receipt of this notice in the place provided
below on the date of receipt, and fax a copy to the fax number indicated,
whereupon Safety First Trust Series 2006-1 (the "Trust") shall cause the
Institutional Trustee, U.S. Bank National Association, to deliver the required
amount of the Securities and the Warrants within three Business Days after the
Actual Exchange Date in accordance with the delivery instructions set forth
below, as long as the Institutional Trustee has received delivery by 11:00 a.m.
on the Actual Exchange Date of the Certificates being exchanged.
Very truly yours,
[Name of Holder]
By:
------------------------------------
[Title]
[Fax No.]
$
--------------------------------------
Principal Amount of Certificates being
Exchanged [must be $10 or integral
multiple thereof]
Ex.A
Delivery Instructions
for the Securities and the Warrants:
- --------------------------------------
- --------------------------------------
- --------------------------------------
Receipt of the above Official Notice
of Exchange is hereby acknowledged:
U.S. Bank National Association, as
Institutional Trustee
By: U.S. Bank National Association, as
Institutional Trustee.
By:
----------------------------------
Name:
Title:
Date and Time of Acknowledgement:
-------
Ex.A-2
EXHIBIT B
Ex.B
<Table>
<Caption>
Form 6781 GAINS AND LOSSES FROM SECTION 1256 OMB No. 1545-0644
CONTRACTS AND STRADDLES ---------------------
Department of the - ATTACH TO YOUR TAX RETURN. 2005
Treasury Attachment
Internal Revenue Sequence No. 82
Service
- ------------------------------------------------------------------------------------------------------------
</Table>
<Table>
Name(s) shown on tax return IDENTIFYING NUMBER
- --------------------------------------------------------------------------------------
</Table>
<Table>
Check all applicable boxes (see instructions). A [ ] Mixed straddle election
B [ ] Straddle-by-straddle identification election
Check all applicable boxes (see instructions). C [ ] Mixed straddle account election
D [ ] Net section 1256 contracts loss election
</Table>
- --------------------------------------------------------------------------------
PART I SECTION 1256 CONTRACTS MARKED TO MARKET
- --------------------------------------------------------------------------------
<Table>
(A) Identification of account (B) (LOSS) (C) GAIN
- -------------------------------------------------------------------------------------------------------------------
1
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2 Add the amounts on line 1 in columns(b) and(c).............. 2 ( )
---------------------------------
3 Net gain or (loss). Combine line 2, columns(b) and(c)............................. 3
------------------
4 Form 1099-B adjustments. See instructions and attach schedule..................... 4
------------------
5 Combine lines 3 and 4............................................................. 5
------------------
NOTE: If line 5 shows a net gain, skip line 6 and enter the gain on line 7.
Partnerships and S corporations, see instructions.
6 If you have a net section 1256 contracts loss and checked box D above, enter the
amount of loss to be carried back. Enter the loss as a positive number............ 6
------------------
7 Combine lines 5 and 6............................................................. 7
------------------
8 SHORT-TERM CAPITAL GAIN OR (LOSS). Multiply line 7 by 40% (.40). Enter here and
include on the appropriate line of Schedule D (see instructions).................. 8
------------------
9 LONG-TERM CAPITAL GAIN OR (LOSS). Multiply line 7 by 60% (.60). Enter here and
include on the appropriate line of Schedule D (see instructions).................. 9
</Table>
- --------------------------------------------------------------------------------
PART II GAINS AND LOSSES FROM STRADDLES. Attach a separate schedule listing
each straddle and its components.
- --------------------------------------------------------------------------------
SECTION A--LOSSES FROM STRADDLES
- --------------------------------------------------------------------------------
<Table>
<Caption>
(F) LOSS.
If column (e)
(E) Cost or is more than (G)
(B) Date other basis (d), enter Unrecognized
ENTERED (C) DATE PLUS DIFFERENCE. GAIN ON
into or closed out (D) Gross expense of Otherwise, offsetting
(A) Description of property acquired or sold sales price sale enter -0- positions
------------------------------------------------------------------------------------------------------------------
10
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
11A Enter the short-term portion of losses from line 10, column(h), here and include on the appropriate line
of Schedule D (see instructions).......................................................................... 11A
----
B Enter the long-term portion of losses from line 10, column(h), here and include on the appropriate line of
Schedule D (see instructions)............................................................................. 11B
<Caption>
(H) RECOGNIZED LOSS.
If column (f) is more
THAN (G), ENTER
difference.
Otherwise, enter -0-
------------------------------------------------------------------------------------------------------------------ -------------
- ---------
10
------------------------------------------------------------------------------------------------------------------ -------------
- ---------
<$in
<$de
------------------------------------------------------------------------------------------------------------------ -------------
- ---------
11A
( )
---- ------------
- -------
B
( )
</Table>
- --------------------------------------------------------------------------------
SECTION B--GAINS FROM STRADDLES
- --------------------------------------------------------------------------------
<Table>
<Caption>
(B) DATE
ENTERED (C) DATE (E) COST OR OTHER
into or closed out (D) Gross basis plus
(A) Description of property acquired or sold sales price expense of sale
- ----------------------------------------------------------------------------------------------------------------
12
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
13A Enter the short-term portion of gains from line 12, column(f), here and include on the appropriate line of
Schedule D (see instructions).............................................................................
B Enter the long-term portion of gains from line 12, column(f), here and include on the appropriate line of
Schedule D (see instructions).............................................................................
<Caption>
(F) GAIN. IF COLUMN
(D) IS MORE THAN (E),
enter difference.
Otherwise, enter -0-
- ---------------------------------------------------------------------------------------------------------------- -----------------
- ---------
12
- ---------------------------------------------------------------------------------------------------------------- -----------------
- ---------
<$in
<$de
- ---------------------------------------------------------------------------------------------------------------- -----------------
- ---------
13A
13A
-------------------
B
13B
</Table>
- --------------------------------------------------------------------------------
PART III UNRECOGNIZED GAINS FROM POSITIONS HELD ON LAST DAY OF TAX YEAR.
Memo Entry Only (see instructions)
- --------------------------------------------------------------------------------
<Table>
<Caption>
(B) DATE (C) FAIR MARKET VALUE ON LAST (D) COST OR OTHER BASIS
(A) Description of property acquired business day of tax year as adjusted
- -----------------------------------------------------------------------------------------------------------------
14
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
<Caption>
(E) UNRECOGNIZED GAIN.
If column (c) is more
THAN (D), ENTER DIFFERENCE.
Otherwise, enter -0-
- ----------------------------------------------------------------------------------------------------------------- ----------------
- ------------
14
- ----------------------------------------------------------------------------------------------------------------- ----------------
- ------------
<$in
<$de
- ----------------------------------------------------------------------------------------------------------------- ----------------
- ------------
<$in
<$de
- ----------------------------------------------------------------------------------------------------------------- ----------------
- ------------
</Table>
<Table>
FOR PAPERWORK REDUCTION ACT NOTICE, SEE PAGE 4. Cat. No. 13715G Form 6781 (2005)
</Table>
Ex.B-2
Form 6781 (2005) Page 2
- --------------------------------------------------------------------------------
GENERAL INSTRUCTIONS
Section references are to the Internal Revenue Code unless otherwise noted.
PURPOSE OF FORM
Use Form 6781 to report:
- - Any gain or loss on section 1256 contracts under the mark-to-market rules, and
- - Gains and losses under section 1092 from straddle positions.
For details on section 1256 contracts and straddles, see Pub. 550, Investment
Income and Expenses.
SECTION 1256 CONTRACT
A section 1256 contract is any:
- - Regulated futures contract,
- - Foreign currency contract,
- - Nonequity option,
- - Dealer equity option, or
- - Dealer securities futures contract.
For definitions of these terms and more details, see section 1256(g) and Pub.
550.
Special rules apply to certain foreign currency contracts. See section 988 and
Regulations sections 1.988-1(a)(7) and 1.988-3. If an election is made under
section 988(a)(1)(B) or 988(c)(1)(D), attach to your return a list of the
contracts covered by the election(s). On the attachment, show the net gain or
loss reported from those contracts and identify where the gain or loss is
reported on the return. If an election is made under section 988(a)(1)(B),
report on Form 6781 the gains and losses from section 1256 contracts that are
also section 988 transactions.
Options and commodities dealers must take any gain or loss from the trading of
section 1256 contracts into account in figuring net earnings subject to
self-employment tax. See section 1402(i).
MARK-TO-MARKET RULES
Under these rules, each section 1256 contract held at year end is treated as if
it were sold at fair market value (FMV) on the last business day of the tax
year. The wash-sale rules do not apply.
Gains or losses on section 1256 contracts open at the end of the year, or
terminated during the year, are treated as 60% long term and 40% short term,
regardless of how long the contracts were held.
STRADDLE
A straddle means offsetting positions with respect to personal property of a
type that is actively traded.
OFFSETTING POSITIONS
If there is a substantial decrease in risk of loss to a taxpayer holding a
position because that taxpayer or a related party also holds one or more other
positions, then those positions are offsetting and may be part of a straddle.
However, if an identified straddle is properly established, other positions held
by the taxpayer will not be treated as offsetting with respect to any position
which is part of the identified straddle.
BOX A. MIXED STRADDLE ELECTION
Under section 1256(d), you can elect to have the mark-to-market rules not apply
to section 1256 contracts that are part of a mixed straddle. A mixed straddle is
any straddle in which at least one but not all of the positions is a section
1256 contract. On the day the first section 1256 contract forming part of the
straddle is acquired, each position forming part of the straddle must be clearly
identified as being part of such straddle. If you make this election, it will
apply for all later years and cannot be revoked without IRS consent. If you are
making or have previously made this election, check box A and report the section
1256 component in Part II instead of Part I.
BOX B. STRADDLE-BY-STRADDLE IDENTIFICATION ELECTION
Make this election for mixed straddles according to Temporary Regulations
section 1.1092(b)-3T(d) by clearly identifying each position by the earlier of
(a) the close of the day the identified mixed straddle is established or (b) the
time the position is disposed of. No straddle-by-straddle identification
election may be made for any straddle for which a mixed straddle election was
made or if one or more positions are includible in a mixed straddle account. If
you are making or have previously made this election, check box B.
If the net gain or loss is attributable to a net non-section 1256 position,
then the net gain or loss is treated as a short-term capital gain or loss. Enter
it directly on Schedule D and identify the election. If the net gain or loss is
attributable to a section 1256 position, enter the gain or loss in Part I of
Form 6781 and identify the election.
BOX C. MIXED STRADDLE ACCOUNT ELECTION
Make this election according to Temporary Regulations section 1.1092(b)-4T(f) to
establish one or more mixed straddle accounts for 2006, by the due date (without
extensions) of your 2005 tax return. To make this election, check box C and
attach to your return (or your request for an extension of time to file) the
statement required by the regulations. Report the annual account net gain or
loss from a mixed straddle account in Part II and identify the election. See
Temporary Regulations section 1.1092(b)-4T(c)(4) for limits on the total annual
account net gain or loss.
NOTE. If you did not make any of the above elections and you have a loss on the
section 1256 component, use Part II to reduce the loss by any unrecognized gain
on the non-section 1256 component before making an entry in Part I. You also
must reduce the loss from any section 1256 component of a straddle that would be
a mixed straddle if the positions had been properly identified as such.
BOX D. NET SECTION 1256 CONTRACTS LOSS ELECTION
If you have a net section 1256 contracts loss for 2005, you can elect to carry
it back 3 years. Corporations, partnerships, estates, and trusts are not
eligible to make this election. Your net section 1256 contracts loss is the
smaller of:
- - The EXCESS of your losses from section 1256 contracts over the total of (a)
your gains from section 1256 contracts plus (b) $3,000 ($1,500 if married
filing separately), or
- - The total you would figure as your short-term and long-term capital loss
carryovers to 2006 if line 6 of Form 6781 were zero. Use a separate Schedule D
(Form 1040) and Capital Loss Carryover Worksheet (in Pub. 550) to figure this
amount.
The amount you can carry back to any prior year is limited to the smaller of:
- - The gain, if any, that you would report on line 17 of Schedule D for that
carryback year (line 17a if the carryback year is 2003, or line 16 if the
carryback year is 2004) if only gains and losses from section 1256
Ex.B-3
Form 6781 (2005) Page 3
- --------------------------------------------------------------------------------
contracts were taken into account, or
- - The gain, if any, reported on line 17 of Schedule D for that carryback year
(line 17a if the carryback year is 2003, or line 16 if the carryback year is
2004).
The amounts just described are figured prior to any carryback from the loss
year. Also, the carryback is allowed only to the extent it does not increase or
produce a net operating loss for the carryback year. The loss is carried to the
earliest year first.
Make the election by checking box D and entering the amount to be carried back
on line 6. To carry your loss back, file Form 1045, Application for Tentative
Refund, or an amended return. Attach an amended Form 6781 and an amended
Schedule D for the applicable years.
On the amended Forms 6781 for the years to which the loss is carried back,
report the carryback on line 1 of that year's amended Form 6781. Enter "Net
section 1256 contracts loss carried back from" and the tax year in column (a),
and enter the amount of the loss carried back in column (b).
SPECIFIC INSTRUCTIONS
PART I
LINE 1
Include on line 1 all gains and losses from section 1256 contracts open at the
end of your tax year or closed out during the year. If you received a Form
1099-B, Proceeds From Broker and Barter Exchange Transactions, or equivalent
statement, include on line 1 the amount from box 11 of each form. In column (a),
write "Form 1099-B" and the broker's name. List separately each transaction for
which you did not receive a Form 1099-B or equivalent statement, or received a
Form 1099-B that is not for your tax year.
If you are completing an amended 2005 Form 6781 to carry back a net section
1256 contracts loss from 2006 or a later year, report the carryback on line 1.
Enter "Net section 1256 contracts loss carried back from" and the tax year in
column (a), and enter the amount of the loss carried back to 2005 in column (b).
See the instructions for Box D for details.
LINE 4
If the Form 1099-B you received includes a straddle or hedging transaction (as
defined in section 1256(e)(2)), you may need to make certain adjustments listed
below. Attach a schedule listing each of these adjustments and enter the
total(s) on line 4.
- - The regulated futures part of a mixed straddle, if you made any of the mixed
straddle elections.
- - The amount of the loss, if you did not make any of the mixed straddle
elections or the straddle was not identified as a mixed straddle and you had a
loss on the regulated futures part that was less than the unrecognized gain on
the nonregulated futures part. If the unrecognized gain is less than the loss,
enter the unrecognized gain. Use Part I for a loss on the disposition of one
or more positions that are part of a mixed straddle and that are non-section
1256 positions if no disposition of a non-section 1256 position in the
straddle would be a long-term capital gain or loss, and the disposition of one
or more section 1256 positions in the straddle would be a capital gain or
loss.
- - The regulated futures part of a hedging transaction. The gain or loss on a
hedging transaction is treated as ordinary income or loss. See Pub. 550 for
details.
LINE 5
Partnerships enter the amount from line 5 on Form 1065, Schedule K, line 11.
Electing large partnerships enter the amount from line 5 on Form 1065-B, Part
II, line 5. S corporations enter the amount from line 5 on Form 1120S, Schedule
K, line 10. Lines 6 through 9 in Part I do not apply to partnerships or S
corporations and are left blank.
LINE 6
See the instructions for Box D.
LINE 8
Include this amount on Schedule D (Form 1040), line 4; or on Schedule D (Form
1041), line 2; or enter it as a short-term capital gain or (loss) on the
Schedule D for your return, and enter "Form 6781, Part I" in column (a) of that
Schedule D.
LINE 9
Include this amount on Schedule D (Form 1040), line 11; or on Schedule D (Form
1041), line 7; or enter it as a long-term capital gain or (loss) on the Schedule
D for your return, and enter "Form 6781, Part I" in column (a) of that Schedule
D.
PART II
Use Section A for losses from positions that are part of a straddle. Generally,
a loss is allowed to the extent it exceeds the unrecognized gain on offsetting
positions. The part of the loss not allowed is treated as if incurred in the
following year and is allowed to the same extent. However, a loss from an
identified position established in an identified straddle after October 21,
2004, is not allowed. Instead, the basis of any offsetting position(s) in the
identified straddle that has unrecognized gain is increased by the amount of the
unallowed loss.
Use Section B for gains from positions that are part of a straddle.
Do not include in Part II a disposition of any of the following.
- - A position that is part of a hedging transaction.
- - A loss position included in an identified straddle established before October
22, 2004, unless you disposed of all of the positions making up the straddle.
- - A loss position included in an identified straddle established after October
21, 2004.
- - A position that is part of a straddle if all of the positions of the straddle
are section 1256 contracts.
COLUMN (A)
Enter the property and delivery date, and indicate whether the property is a
long or short position.
COLUMN (D)
For positions closed out or sold, enter the closing price or sales price.
COLUMN (E)
For positions closed out or sold, enter the cost or other basis plus commissions
paid. Include nondeductible interest and carrying charges allocable to personal
property that is part of a straddle. If any part of an unallowed loss from an
offsetting position established in an identified straddle after October 21,
2004, increased your basis in the position, also include that amount. See Pub.
550 for details.
LINE 10, COLUMN (F)
Include in this column any loss not allowed in the prior year to the extent of
the unrecognized gain.
Ex.B-4
Form 6781 (2005) Page 4
- --------------------------------------------------------------------------------
LINE 10, COLUMN (G)
Enter the unrecognized gain on positions offsetting those in columns (a) through
(f). Figure the amount to enter in this column by subtracting the cost or other
basis of the offsetting position from the settlement price of that position as
of the close of the last business day of your 2005 tax year.
LINES 11 AND 13
Separate recognized gains and losses into short-term and long-term. Attach a
separate schedule. For information about holding periods for straddle positions,
see Pub. 550 and Temporary Regulations section 1.1092(b)-2T. Attach separate
schedules for (a) section 988 contracts that are part of a mixed straddle and
(b) any gain on the disposition or other termination of any position held as
part of a conversion transaction (as defined in section 1258(c)). Identify the
net gain or loss and report it on Form 4797, line 10.
LINE 11A
Include this amount on Schedule D (Form 1040), line 4; or on Schedule D (Form
1041), line 2; or enter it as a short-term capital loss on the Schedule D for
your return, and enter "Form 6781, Part II" in column (a) of that Schedule D.
LINE 11B
Include this amount on Schedule D (Form 1040), line 11; or on Schedule D (Form
1041), line 7; or enter it as a long-term capital loss on the Schedule D for
your return, and enter "Form 6781, Part II" in column (a) of that Schedule D.
LINE 13A
Include this amount on Schedule D (Form 1040), line 4; or on Schedule D (Form
1041), line 2; or enter it as a short-term capital gain on the Schedule D for
your return, and enter "Form 6781, Part II" in column (a) of that Schedule D.
LINE 13B
Include this amount on Schedule D (Form 1040), line 11; or on Schedule D (Form
1041), line 7; or enter it as a long-term capital gain on the Schedule D for
your return and enter "Form 6781, Part II" in column (a) of that Schedule D.
COLLECTIBLES GAIN OR (LOSS). A collectibles gain or (loss) is any long-term gain
or deductible long-term loss from the sale or exchange of a collectible that is
a capital asset. Collectibles include works of art, rugs, antiques, metals (such
as gold, silver, and platinum bullion), gems, stamps, coins, alcoholic
beverages, and certain other tangible property.
If any of the gain or loss you reported in Part II is a collectibles gain or
(loss) and you are filing Form 1040 or Form 1041, follow the instructions below
for the form you file.
FORM 1040. If you checked "Yes" on line 17 of Schedule D (Form 1040), include
the collectibles gain or (loss) from Part II on line 3 of the 28% Rate Gain
Worksheet in the Instructions for Schedule D (Form 1040).
FORM 1041. If you must complete the 28% Rate Gain Worksheet in the
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1, include the
collectibles gain or (loss) from Part II on line 3 of that worksheet.
PART III
Complete Part III by listing each position (whether or not part of a straddle)
that you held at the end of the tax year (including any position you are treated
as holding because it is held by a related party) if the FMV of the position at
such time exceeds your cost or other basis as adjusted.
Do not include positions that are part of an identified straddle or hedging
transaction, property that is stock in trade or inventory, or property subject
to depreciation used in a trade or business.
Do not complete Part III if you do not have a recognized loss on any position
(including regulated futures contracts).
- ------------------------------------
PAPERWORK REDUCTION ACT NOTICE. We ask for the information on this form to carry
out the Internal Revenue laws of the United States. You are required to give us
the information. We need it to ensure that you are complying with these laws and
to allow us to figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is
subject to the Paperwork Reduction Act unless the form displays a valid OMB
control number. Books or records relating to a form or its instructions must be
retained as long as their contents may become material in the administration of
any Internal Revenue law. Generally, tax returns and return information are
confidential, as required by section 6103.
The time needed to complete and file this form will vary depending on
individual circumstances. The estimated burden for individual taxpayers filing
this form is approved under OMB control number 1545-0074 and is included in the
estimates shown in the instructions for their individual income tax return. The
estimated burden for all other taxpayers who file this form is shown below.
<Table>
RECORDKEEPING..........10 hr., 31 min.
LEARNING ABOUT THE
LAW OR THE FORM.........1 hr., 57 min.
PREPARING THE FORM.......3 hr., 9 min.
COPYING, ASSEMBLING,
AND SENDING THE FORM
TO THE IRS.....................16 min.
</Table>
If you have comments concerning the accuracy of these time estimates or
suggestions for making this form simpler, we would be happy to hear from you.
See the instructions for the tax return with which this form is filed.
Ex.B-5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus and pricing supplement and accompanying prospectus
supplements and base prospectus. We have not authorized anyone to provide you
with different information. We are not making an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information contained or incorporated by reference in this prospectus and
pricing supplement is accurate as of any date other than the date on the cover
of this prospectus and pricing supplement.
------------------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
-----
PROSPECTUS AND PRICING SUPPLEMENT
Summary Information -- Q&A........................... 2
Risk Factors......................................... 11
Available Information................................ 19
Forward-Looking Statements........................... 20
Citigroup Inc. ...................................... 21
Citigroup Funding Inc. .............................. 21
Use of Proceeds and Hedging Activities............... 22
Safety First Trust Series 2006-1..................... 23
Description of the Certificates...................... 25
Description of the Equity Index Participation
Securities.......................................... 40
Description of the Equity Index Warrants............. 43
Description of the Certificate Guarantee............. 47
Description of the Underlying Basket................. 49
Description of the Dow Jones Industrial Average...... 51
Description of the Nikkei 255 Stock Average.......... 54
Certain United States Federal Income Tax
Considerations...................................... 58
Underwriting......................................... 68
ERISA Matters........................................ 70
Legal Matters........................................ 70
Experts.............................................. 70
Official Notice of Exchange.......................... Ex. A
Form 6781............................................ Ex. B
MEDIUM-TERM NOTES PROSPECTUS SUPPLEMENT
Risk Factors......................................... S-3
Important Currency Information....................... S-6
Description of the Notes............................. S-7
Certain United States Federal Income Tax
Considerations...................................... S-33
Plan of Distribution................................. S-40
ERISA Matters........................................ S-41
INDEX WARRANT PROSPECTUS SUPPLEMENT
Risk Factors......................................... S-3
Important Currency Information....................... S-6
Description of the Index Warrants.................... S-7
Certain United States Federal Income Tax
Considerations...................................... S-15
Plan of Distribution................................. S-17
ERISA Matters........................................ S-18
PROSPECTUS
Prospectus Summary................................... 1
Forward-Looking Statements........................... 6
Citigroup Inc. ...................................... 6
Citigroup Funding Inc. .............................. 6
Use of Proceeds and Hedging.......................... 7
European Monetary Union.............................. 8
Description of Debt Securities....................... 8
Description of Index Warrants........................ 21
Description of Debt Security and Index Warrant
Units............................................... 24
Limitations on Issuances in Bearer Form.............. 25
Plan of Distribution................................. 26
ERISA Matters........................................ 29
Legal Matters........................................ 29
Experts.............................................. 29
</Table>
SAFETY FIRST TRUST
SERIES 2006-1
PRINCIPAL-PROTECTED TRUST CERTIFICATES
LINKED TO
THE DOW JONES INDUSTRIAL
AVERAGE(SM) AND THE NIKKEI
225 STOCK AVERAGE(SM)
DUE ON
$10.00 PER CERTIFICATE
ANY PAYMENTS DUE FROM
SAFETY FIRST TRUST SERIES 2006-1
GUARANTEED BY CITIGROUP FUNDING INC.
ANY PAYMENTS DUE FROM
CITIGROUP FUNDING INC.
GUARANTEED BY CITIGROUP INC.
------------------------------
PROSPECTUS
, 2006
------------------------------
PRICING SUPPLEMENT
, 2006
(INCLUDING MEDIUM-TERM NOTES,
SERIES D, PROSPECTUS SUPPLEMENT
DATED APRIL 13, 2006,
INDEX WARRANTS,
SERIES W-A, PROSPECTUS SUPPLEMENT
DATED , 2006
AND PROSPECTUS
DATED MARCH 10, 2006)
(CITIGROUP LOGO)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------