Citigroup Inc.

The significant changes from December 31, 2008 to December 31, 2009 inLevel 3 assets and liabilities are due to:• A net decrease in trading securities of $10.8 billion that was driven by:–– Net transfers of $6.5 billion, due mainly to the transfer of debtsecurities from Level 3 to Level 2 due to increased liquidity andpricing transparency; and–– Net settlements of $5.8 billion, due primarily to the liquidations ofsubprime securities of $4.1 billion.• The change in net trading derivatives driven by:–– A net loss of $4.9 billion relating to complex derivative contracts,such as those linked to credit, equity and commodity exposures.These losses include both realized and unrealized losses during 2009and are partially offset by gains recognized in instruments that havebeen classified in Levels 1 and 2; and–– Net increase in derivative assets of $4.3 billion, which includes cashsettlements of derivative contracts in an unrealized loss position,notably those linked to subprime exposures.• The decrease in Level 3 Investments of $6.9 billion primarilyresulted from:–– A reduction of $5.0 billion, due mainly to paydowns on debtsecurities and sales of private equity investments;–– The net transfer of investment securities from Level 3 to Level 2of $1.5 billion, due to increased availability of observable pricinginputs; and–– Net losses recognized of $0.4 billion due mainly to losses on nonmarketableequity securities including write-downs on private equityinvestments.• The decrease in securities sold under agreements to repurchase of$9.1 billion is driven by a $8.6 billion net transfers from Level 3 to Level 2as effective maturity dates on structured repos have shortened.• The decrease in long-term debt of $1.5 billion is driven mainly by$1.3 billion of net terminations of structured notes.Transfers between Level 1 and Level 2 of the Fair ValueHierarchyThe Company did not have any significant transfers of assets or liabilitiesbetween Levels 1 and 2 of the fair value hierarchy during 2010.Items Measured at Fair Value on a Nonrecurring BasisCertain assets and liabilities are measured at fair value on a nonrecurringbasis and therefore are not included in the tables above.These include assets measured at cost that have been written down to fairvalue during the periods as a result of an impairment. In addition, theseassets include loans held-for-sale that are measured at LOCOM that wererecognized at fair value below cost at the end of the period.The fair value of loans measured on a LOCOM basis is determined wherepossible using quoted secondary-market prices. Such loans are generallyclassified as Level 2 of the fair value hierarchy given the level of activity inthe market and the frequency of available quotes. If no such quoted priceexists, the fair value of a loan is determined using quoted prices for a similarasset or assets, adjusted for the specific attributes of that loan.The following table presents all loans held-for-sale that are carried atLOCOM as of December 31, 2010 and 2009:In billions of dollarsAggregatecost Fair value Level 2 Level 3December 31, 2010 $3.1 $2.5 $0.7 $1.8December 31, 2009 $2.5 $1.6 $0.3 $1.3270