Citi Global Wealth DiSCLoSUreS | | 109 Investments Bond rating equivalence Additionally, the underlying collateral supporting non-Agency MBS may default on principal and interest payments. In certain cases, this Alpha and/or numeric symbols used to give indications of relative credit quality. In the municipal market, these designations are published by the could cause the income stream of the security to decline and result rating services. Internal ratings are also used by other market participants to indicate credit quality. in loss of principal. Further, an insufficient level of credit support may result in a downgrade of a mortgage bond’s credit rating and Bond credit quality ratings Rating agencies lead to a higher probability of principal loss and increased price volatility. Investments in subordinated MBS involve greater credit 1 2 2 Credit risk Moody's Standard and Poor's Fitch Ratings risk of default than the senior classes of the same issue. Default risk Investment grade may be pronounced in cases where the MBS security is secured by, or evidencing an interest in, a relatively small or less diverse pool of Highest quality Aaa AAA AAA underlying mortgage loans. High quality (very strong) Aa AA AA MBS are also sensitive to interest rate changes which can negatively Upper medium grade (strong) A A A impact the market value of the security. During times of heightened Medium grade Baa BBB BBB volatility, MBS can experience greater levels of illiquidity and larger price movements. Price volatility may also occur from other factors Not Investment grade including, but not limited to, prepayments, future prepayment Lower medium grade (somewhat speculative) Ba BB BB expectations, credit concerns, underlying collateral performance and technical changes in the market. Low grade (speculative) B B B Alternative investments referenced in this report are speculative and Poor quality (may default) Caa CCC CCC entail significant risks that can include losses due to leveraging or Most speculative Ca CC CC other speculative investment practices, lack of liquidity, volatility of returns, restrictions on transferring interests in the fund, potential No interest being paid or bankruptcy petition filled C D C lack of diversification, absence of information regarding valuations In default C D D and pricing, complex tax structures and delays in tax reporting, less regulation and higher fees than mutual funds and advisor risk. 1 The ratings from Aa to Ca by Moody's may be modified by the addition of a 1, 2, or 3 to show relative standing within the category. Asset allocation does not assure a profit or protect against a loss in 2 The ratings from AA to CC by Standard and Poor's and Fitch Ratings may be modified by the addition of a plus or a minus to show relative standing declining financial markets. within the category. The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not Related MLPs may expose the investor to concentration risk due to represent the performance of any specific investment. Index returns (MLP’s) - Energy Related MLPs May Exhibit High Volatility. While not industry, geographical, political, and regulatory concentration. do not include any expenses, fees or sales charges, which would historically very volatile, in certain market environments Energy lower performance. Related MLPS may exhibit high volatility. Mortgage-backed securities (“MBS”), which include collateralized mortgage obligations (“CMOs”), also referred to as real estate Past performance is no guarantee of future results. Changes in Regulatory or Tax Treatment of Energy Related MLPs. mortgage investment conduits (“REMICs”), may not be suitable for all If the IRS changes the current tax treatment of the master limited investors. There is the possibility of early return of principal due to International investing entails greater risk, as well as greater partnerships included in the Basket of Energy Related MLPs thereby mortgage prepayments, which can reduce expected yield and result potential rewards compared to US investing. These risks include subjecting them to higher rates of taxation, or if other regulatory in reinvestment risk. Conversely, return of principal may be slower political and economic uncertainties of foreign countries as well authorities enact regulations which negatively affect the ability of than initial prepayment speed assumptions, extending the average as the risk of currency fluctuations. These risks are magnified in the master limited partnerships to generate income or distribute life of the security up to its listed maturity date (also referred to as countries with emerging markets, since these countries may have dividends to holders of common units, the return on the Notes, if extension risk). relatively unstable governments and less established markets and any, could be dramatically reduced. Investment in a basket of Energy economics.