Citigroup European Banks and US Autocall Income Plan May 2024

Important document to be read in conjunction with the enclosed recommendation letter, supporting fact sheet, and key information document (KID). If there is any discrepancy between this document, our advice letter and the KID/fact sheet, the KID/fact sheet will prevail.

A structured product is a fixed-term contract, providing a return based on the performance of an underlying share or stock market index. Inherently, a structured product is designed to limit investment losses while still creating a return to investors. Some structured product investments offer a degree of capital protection, while others do not. The growth or income is usually not guaranteed, and you may not achieve a return on your investment. Even where there is capital protection, the deduction of fees and charges could mean you receive less than you invested.

It is important to mention that a new structured product is not suitable for people who require access to their money invested during the potential term of the product. Early redemption can be part of the whole amount invested but investors may receive less than the original sum invested.

This plan is a structured product with returns linked to the Euro Stoxx Banks and the S&P 500 indices.

This plan is exclusively available to Mattioli Woods’ clients to invest in during April and May 2024. The final date for investment is 31 May 2024, when the index levels are first recorded, also known as the index start levels. This plan aims to provide an income of 8% at each annual observation date, if the Euro Stoxx Banks and the S&P 500 indices are both at or above the income barrier of 59% of their respective index start levels. The observation dates occur annually from 1 June 2025 to 31 May 2029. If one or both indices are below their stated income barrier, the 8% income is not paid for that year.

This plan will autocall if the worst-performing index is at or above 100% of its strike level on either 1 June 2027 or 31 May 2028. If the plan autocalls, the capital invested in this plan will be returned plus the 8% income for that year, and the plan will terminate.

If the plan does not autocall, it will run for the full five-year term with annual returns as outlined above and the final return based on the following:

• If the worst-performing index is at or above 59% of its start level, the plan will fully return the capital invested plus the final 8% return.
• If the worst-performing index is below 59% of its start level, the capital invested will be reduced on a one-for-one basis before it is returned. For example, if the S&P 500 index was 70% below its initial strike level, the initial investment would be reduced by 70%.

This plan has an element of capital security, whereby if the worst performing of the Euro Stoxx Banks and the S&P 500 indices as of 31 May 2029 has not fallen by more than 41% from their strike levels, all investor capital is returned.

The capital protection for this plan is dependent on Citigroup Global Markets Limited fulfilling its obligations, along with the investment being held until maturity, unless there is a prior autocall. The initial capital is used to purchase securities issued by Citigroup Global Markets Funding Luxembourg S.C.A. that have similar characteristics to investing in corporate bonds. In the event of default, investors will be creditors of Citigroup Global Markets Limited as Citigroup Global Markets Limited are guarantors for the debt obligations of Citigroup Global Markets Funding Luxembourg S.C.A.

Citigroup Global Markets Limited has been rated ‘A+‘ by Standard & Poor’s as of 25 March 2024. Standard & Poor’s is an independent credit rating agency that uses a scale to denote creditworthiness, ranging from ‘AAA’ (highest) to ‘D’ (lowest). Issuers within the ‘A’ rating band are described by Standard & Poor’s as having strong capacity to meet their financial commitments but more susceptible to the adverse effects of changes in circumstances and economic conditions than those issuers rated ‘AAA’ or ‘AA’. Further information about ratings can be obtained via this website: www.spglobal.com/ratings/en/about/understanding-credit-ratings.

Initial capital is not 100% secure with this structured product. If on the final index observation date of 31 May 2029, the worst performing of the Euro Stoxx Banks & S&P 500 indices is below 59% of its initial level, the initial capital being returned will be reduced by any negative performance. For example, if the S&P 500 index was 70% below its initial strike level, the initial investment would be reduced by 70%. Therefore, the return of the original capital invested is not guaranteed.

While the tax rules and rates that are used within any current recommendation are up to date, the rules and rates can change at any time. Mattioli Woods can accept no liability for any such changes and their potential effect on your investment. The value to you of any tax benefits will depend on your personal tax position at the relevant time.

The value of investments and the returns from them can go down as well as up and you may not get back the amount you invested. Past performance is not an indication of future returns and investments need to be considered as medium to long-term holdings. Inflation will erode the purchasing power of your money.

You will note the key information document (KID) gives a risk score of 6/7 for this structured product. This calculation is based on a snapshot of the volatility and dividend positions of the underlying indices, at the time the KID was created. Most of the previous structured products we have distributed to clients had a summary risk indicator (SRI) or risk score of 5/7 or lower, and this higher rating is due to the use of a sector index (the Euro Stoxx Banks index) alongside the S&P 500, instead of the one or two benchmark indices we have used for previous structured products. On a historical basis, this index has had a higher level of volatility than the usual benchmark indices (FTSE100, S&P 500, Euro Stoxx 50), but this historic volatility was based on the challenging trading environments experienced by most European banks in the last few years i.e., high inflation, many countries in the EU experiencing recession, and low interest rates. With few exceptions, European banks experienced a significant increase in profitability in 2023, which has continued into 2024.

The Euro Stoxx Banks index is up 17.09%* this year, compared with an 8.81%* increase for the S&P 500. The very low capital at risk level and income barriers for this structured product (both 59%) were made possible by the uncertain environment prior to this recent rally, as volatility tends to be a lagging indicator for any recovery. We are taking advantage of this lagging indicator to provide the attractive terms for this structured product, as the summary risk indicator (SRI) was generated by the historical uncertainty rather than the much more positive current outlook for the European banking sector. If another European banking crisis does occur during the life of this structured product, the low-income barrier should ensure the income is paid in all but the most disastrous of scenarios.

*Index performance from 2 Jan 2024 to 10 April 2024.  Source Bloomberg.

There is no fixed cost for exiting this plan at maturity. Please note, if you needed to sell this plan prior to maturity, the issuing bank will endeavour to provide quotes under normal market conditions for trading purposes on request, subject to a bid-offer spread of 1%. Please ensure you read the accompanying fact sheet. Citigroup has defined the holding period as ‘the recommended holding period for the product, which is until 31 May 2029 corresponding to the product’s final payment date’. Please also read the KID in relation to this statement.

Investing in multiple individual structured products exposed to the same indices increases the risk to an investor should those indices suffer severe losses. However, Mattioli Woods spreads this risk across a wide range of index levels and future dates for the range of ISPs offered and will be mitigated by maturing structured products where autocall occurs.

We closely monitor this risk for existing structured products and whenever a new structured product is being considered, should you have any concerns, please contact your consultant.

If you change your mind and do not wish to invest, please inform your Mattioli Woods contact by 31 May 2024, the start date for the structured product. After this date, you will only receive the value of the structured product when sold back to the product provider, which is likely to be less than your original investment.

A company called IDAD is employed on behalf of Mattioli Woods to conduct an auction with competing structured product providers. IDAD also settles the trade with our custodian and provides all the supporting documentation required by the Financial Conduct Authority (FCA). To complete these tasks, IDAD charges a fee. For the Citigroup European Banks & US Autocall May 2024, IDAD’s fee is not expected to exceed 1%, with Citigroup’s estimated fee of up to 0.84%. The combined total of these fees cannot exceed 1.84% and are built-in to the return of the plan so do not reduce the amount invested. For example, based on a monetary investment figure of £10,000, the fee would equate to £184. This charge has been accounted for in arriving at the stated potential returns and will not be deducted from that figure when the plan matures.

This product offers no FSCS protection.

For over 30 years, Mattioli Woods has been at the forefront of providing advice, pension administration/trusteeship, and investment products and services for clients across the country. Its key aim is to put clients first to help them reach the objectives they set. This is done with integrity and professionalism while maintaining a bespoke approach, and it continues with this ethos as part of its culture.

The Mattioli Woods website (www.mattioliwoods.com) provides a further history of the company and the products offered to achieve clients’ various requirements.

In terms of financial legislation, firms can be ‘independent’, or ‘restricted’, or both.

We offer our own discretionary portfolio management (DPM), self-invested personal pension (SIPP), personal pension (MW PP) and small self-administered scheme (SSAS) services, as our investment managers, consultants and client relationship managers are specialists in these areas of advice and management. For this reason, we are classed as a ‘restricted’ advice business and, only where it is suitable and in line with your objectives, we will recommend these solutions to you. Should your circumstances not be best served by our own propositions, we will look to the wider market to source the most appropriate solution for you.

In addition, as part of our centralised investment proposition, we offer the Custodian Property Income REIT plc, which is a real estate investment trust managed by Custodian Capital Limited, part of the Mattioli Woods Group.

Our solutions are designed to meet your needs and where appropriate we can also offer advice on pensions, investments, and non-investment insurances (protection policies) from the whole market.

Mattioli Woods is committed to ensuring the principles of ‘treating customers fairly’ set by the Financial Conduct Authority are applied with integrity throughout all aspects of our business.

Any tax-based calculations completed by Mattioli Woods are for illustrative purposes only and we recommend you check these with your accountant or tax adviser.

Individual savings accounts (ISAs) are tax-efficient wrappers with the option to save via cash and/or stocks and shares, making them ideal for investors as there is nothing to include on tax returns.

Full details are included in the investment guidance booklet we provided you with and to which we would refer you.

You can draw funds from your ISA and replace the amount within the same tax year without losing the tax benefits or using up any further allowance in that tax year, specifically:

• ‘Flexible’ ISAs enable investors to draw cash from their ISA and subsequently replace this within the same tax year without it counting towards their annual subscription allowance.
• The replacement of cash must happen within the same tax year the cash is drawn.
• Any withdrawn cash not replaced before 5 April cannot later be replaced and will be a new subscription counting towards the investor’s annual allowance.
• Payments to the flexible ISA will be counted first as repayments of any outstanding flexible withdrawals made in the current tax year and second as a subscription against the current year’s annual allowance.
• There is no carry over of either unused annual allowance or withdrawals between tax years.
• Repayments of withdrawn funds may only be made to the account from which the associated withdrawal was originally made.
• The full value of the ISA may be drawn but withdrawals must not exceed the total value of the ISA (overdrafts are prohibited), even when the amount available for withdrawal is less than the total of the current year’s contributions.

From January 2018 legislation requires that non-individuals who transact in the purchase of commodities, financial instruments (including stocks), and derivatives of such products require a legal entity identifier (LEI).

Essentially, what this means is that anyone with a discretionary or advisory portfolio, stockbroker account or directly held listed shares may be captured.  This is not from an individual perspective but rather for a scheme structure.

What is a legal entity identifier?

This is a unique identifier for legal entities or structures, including companies, charities and trusts, including SSAS.  Where an LEI code is allocated it is included in a global data system, thereby enabling every legal entity or structure that is party to a relevant financial transaction to be identified in any jurisdiction.  In order to be able to trade, we will need to apply (on your behalf) for a reference via the London Stock Exchange.  Upon application, we will receive confirmation of your unique LEI reference, which will then be used for any future acquisitions and transactions.

Costs

The LEI application is not a ‘one-off’ situation.  In respect of undertaking this work, there will be a fee of £121 plus VAT for the initial application, with an ongoing annual cost thereafter for each application of £106 plus VAT.  These prices, which are payable to the London Stock Exchange, are current and are subject to change.

Pershing Securities Limited is the administration platform selected to operate the service. For further information, please refer to the enclosed Pershing terms of business document.

The administration platform we have selected to operate the service from is supplied by Pershing Securities Limited (‘Pershing’).

Pershing

Pershing is part of the Bank of New York Mellon (BNY Mellon) group, the worldʼs largest custodian and one of the worldʼs leading investment services groups with an excess of $45 trillion in assets under custody and administration as at Q3 2023. Pershing has circa $2 trillion under custody and administration globally. There were three main considerations in selecting Pershing from its rivals:

1. The security of your assets held on the Pershing platform is exceptional. Not only are your assets held by the largest custodian in the world, but cash held within portfolios is managed across a wide range of banks to ensure diversification and is covered by the Financial Services Compensation Scheme (FSCS) up to the £85,000 limit.

Pershing has specialised in the provision of custody, execution, and settlement services since 1939 and has been present in the UK since 1987. It is highly selective in working exclusively on a business-to-business basis and has chosen to partner with over 180 organisations within the UK.

2. As one of the largest global players in this market, our clients can have every confidence that Pershing systems and software will always be competitive and state-of-the-art.

3. Pershing’s wealth management platform, NexusComplete, offers unrivalled facilities for client firms who would like to benefit from an investment management and administration tool that can embrace their assets through various wrappers.

Pershing will provide quarterly valuations, quarterly custody statements, annual tax documents and contract notes, all accessible electronically via an investor portal or via post.

Cash balances

A cash amount of 1% is retained at outset and will cover ongoing fees.

You will receive a rate of interest on cash balances held with Pershing as decided by the Mattioli Woods treasury committee.

When this balance has been depleted and becomes insufficient to cover ongoing fees, we will either:

• Retain natural income on your investments where available.

• Make a sale from the largest holding on the account for advisory and execution-only accounts.

The amount of credit interest currently paid to clients is 1.25%, with Mattioli Woods receiving 3%. As an example of the amount Mattioli Woods would receive, if your total investment held with Pershing is £100,000, and you have 1% held in cash, namely £1,000, Mattioli Woods would receive interest of £30 per annum, outside of the interest you receive. Due to varying cash balances, the amount of interest retained by Mattioli Woods is not factored into our fee cost disclosure calculations. For current interest rates, please see www.mattioliwoods.com/resources.

Pershing – capital gains tax service (only applicable if invested in taxable multi-holding portfolio)

For taxable portfolios, Pershing can provide a capital gains tax (CGT) service for which the charge is £50 plus VAT per account, per year. We will switch this service on for multi-holding taxable portfolios, unless you opt out via the application form, and deduct £50 plus VAT in May each year for the previous tax year’s report. Pershing will then produce and send you a CGT report (which will be combined with your consolidated tax voucher) every year. The service also allows us to calculate notional CGT on your account on request.

Investment services charge

Charges relating to the provision of investment services are 0.2% per annum of the total value of applicable assets administered by Pershing.

This charge is calculated and deducted from your Pershing portfolio account quarterly in arrears. This charge is for the provision of investment services associated with the processing and servicing of investments and other costs incurred on behalf of clients, including access to the Pershing client portal. Pershing currently retains between 0.10% and 0.11% of this charge for the services it provides, including dealing, clearing, settlement, safe custody, and other associated services. The figure retained by Pershing will be dependent on the aggregate value of assets held by Mattioli Woods’ clients with Pershing. A full breakdown of the services provided by Pershing and its respective costs is available on request.

The balance of this charge is paid to Mattioli Woods. The figure paid to Mattioli Woods currently ranges between 0.09% and 0.10% and is dependent on the aggregate value of assets held by Mattioli Woods’ clients with Pershing. This charge is in addition to any advice or product fees Mattioli Woods may charge you and is explicitly detailed within all our literature as the investment services charge. The investment services charge will be deducted from your investment via Pershing.

Provision for ongoing fees will be made via twice-yearly sales of units if required.

The full terms and conditions of the services Pershing provides to you are set out in your Pershing terms of business document. In the event of any conflict between the terms as described in this section and the Pershing terms of business, the Pershing terms of business takes precedence.