Citigroup Inc.

Municipal InvestmentsMunicipal investment transactions are primarily interests in partnershipsthat finance the construction and rehabilitation of low-income housing,facilitate lending in new or underserved markets, or finance the constructionor operation of renewable municipal energy facilities. The Companygenerally invests in these partnerships as a limited partner and earns a returnprimarily through the receipt of tax credits and grants earned from theinvestments made by the partnership. These entities are generally consideredVIEs. The power to direct the activities of these entities is typically held by thegeneral partner. Accordingly, these entities have remained unconsolidated bythe Company upon adoption of SFAS 167.Client IntermediationClient intermediation transactions represent a range of transactionsdesigned to provide investors with specified returns based on the returns ofan underlying security, referenced asset or index. These transactions includecredit-linked notes and equity-linked notes. In these transactions, the VIEtypically obtains exposure to the underlying security, referenced asset orindex through a derivative instrument, such as a total-return swap or acredit-default swap. In turn the VIE issues notes to investors that pay a returnbased on the specified underlying security, referenced asset or index. The VIEinvests the proceeds in a financial asset or a guaranteed insurance contract(GIC) that serves as collateral for the derivative contract over the term ofthe transaction. The Company’s involvement in these transactions includesbeing the counterparty to the VIE’s derivative instruments and investing in aportion of the notes issued by the VIE. In certain transactions, the investor’smaximum risk of loss is limited and the Company absorbs risk of loss abovea specified level. The Company does not have the power to direct the activitiesof the VIEs that most significantly impact their economic performance andthus it does not consolidate them.The Company’s maximum risk of loss in these transactions is definedas the amount invested in notes issued by the VIE and the notional amountof any risk of loss absorbed by the Company through a separate instrumentissued by the VIE. The derivative instrument held by the Company maygenerate a receivable from the VIE (for example, where the Companypurchases credit protection from the VIE in connection with the VIE’sissuance of a credit-linked note), which is collateralized by the assetsowned by the VIE. These derivative instruments are not considered variableinterests and any associated receivables are not included in the calculation ofmaximum exposure to the VIE.Structured Investment VehiclesStructured Investment Vehicles (SIVs) are SPEs that issue junior notes andsenior debt (medium-term notes and short-term commercial paper) to fund thepurchase of high quality assets. The Company acts as manager for the SIVs.In order to complete the wind-down of the SIVs, the Company purchasedthe remaining assets of the SIVs in November 2008. The Company funded thepurchase of the SIV assets by assuming the obligation to pay amounts due underthe medium-term notes issued by the SIVs as the medium-term notes mature.Investment FundsThe Company is the investment manager for certain investment funds thatinvest in various asset classes including private equity, hedge funds, realestate, fixed income and infrastructure. The Company earns a managementfee, which is a percentage of capital under management, and may earnperformance fees. In addition, for some of these funds the Company has anownership interest in the investment funds.The Company has also established a number of investment funds asopportunities for qualified employees to invest in private equity investments.The Company acts as investment manager to these funds and may provideemployees with financing on both recourse and non-recourse bases for aportion of the employees’ investment commitments.The Company has determined that a majority of the investment vehiclesmanaged by Citigroup are provided a deferral from the requirements ofSFAS 167, because they meet the criteria in Accounting Standards UpdateNo. 2010-10, Consolidation (Topic 810), Amendments for CertainInvestment Funds (ASU 2010-10) (see Note 1). These vehicles continueto be evaluated under the requirements of ASC 810-10, prior to theimplementation of SFAS 167 (FIN 46(R)).Where the Company has determined that certain investment vehicles aresubject to the consolidation requirements of SFAS 167, the consolidationconclusions reached upon initial application of SFAS 167 are consistentwith the consolidation conclusions reached under the requirements ofASC 810-10, prior to the implementation of SFAS 167.Trust Preferred SecuritiesThe Company has raised financing through the issuance of trust preferredsecurities. In these transactions, the Company forms a statutory business trustand owns all of the voting equity shares of the trust. The trust issues preferredequity securities to third-party investors and invests the gross proceeds injunior subordinated deferrable interest debentures issued by the Company.These trusts have no assets, operations, revenues or cash flows other thanthose related to the issuance, administration and repayment of the preferredequity securities held by third-party investors. These trusts’ obligations arefully and unconditionally guaranteed by the Company.Because the sole asset of the trust is a receivable from the Company andthe proceeds to the Company from the receivable exceed the Company’sinvestment in the VIE’s equity shares, the Company is not permitted toconsolidate the trusts, even though it owns all of the voting equity sharesof the trust, has fully guaranteed the trusts’ obligations, and has the rightto redeem the preferred securities in certain circumstances. The Companyrecognizes the subordinated debentures on its Consolidated Balance Sheet aslong-term liabilities.249