Pricing Supplement No. 669 Dated 1/25/94 Rule 424(b)(3)
(To Prospectus dated December 14, 1993 and File No. 33-51269,
Prospectus Supplement dated December 14, 1993) 33-57922 and 33-49136
SALOMON INC
Medium-Term Notes, Series D
(Registered Notes - Fixed Rate)
Due More Than Nine Months from Date of Issue
Principal Amount or Face Amount: $10,000,000.00
Issue Price: 100.0000000000%
Proceeds to Company on original issuance: $9,992,500.00
Commission or Discount on original issuance: $7,500.00
Salomon Brothers Inc.'s capacity on original issuance: |X| As agent
| | As principal
If as principal:
| | The Registered Notes are being offered at varying prices related
to prevailing market prices at the time of resale.
| | The Registered Notes are being offered at a fixed initial public
offering price of % of Principal Amount or Face Amount.
Original Issue Date: 2/01/94
Stated Maturity: 1/31/95
Specified Currency:
(If other than U.S. Dollars)
Authorized Denominations:
(If other than as set forth in the Prospectus Supplement)
Interest Payment Dates: 4/30/94, 7/31/94, 10/31/94, 1/31/95. 1st cpn 4/30/94.
(If other than as set forth in the Prospectus Supplement)
Indexed Principal Note: |X| Yes (see attached) | | No
Interest Rate: 3.9500000%
Interest Rate Reset: |X| The Interest Rate may not be changed prior to Stated
Maturity.
| | The Interest Rate may be changed prior to Stated
Maturity (see attached).
Optional Reset Dates (if applicable):
Amortizing Note: | | Yes |X| No
Amortization Schedule:
Optional Redemption: | | Yes |X| No
Optional Redemption Dates:
Redemption Prices:
Optional Repayment: | | Yes |X| No
Optional Repayment Dates:
Optional Repayment Prices:
Optional Extension of Stated Maturity: | | Yes |X| No
Final Maturity:
Discount Note: | | Yes |X| No
Total Amount of OID:
Yield to Maturity:
Pricing Supplement dated January __, 1994
(to Prospectus Supplement dated December 14, 1993,
to Prospectus dated December 14, 1993)
DESCRIPTION OF THE NOTE
GENERAL
The description in this Pricing Supplement of the particular terms
of the Registered Note offered hereby (the "Note") supplements, and to the
extent inconsistent therewith replaces, the descriptions of the general terms
and provisions of the Registered Notes set forth in the accompanying
Prospectus and Prospectus Supplement, to which description reference hereby is
made. Capitalized terms used but not otherwise defined herein shall have the
meanings specified in the Prospectus and Prospectus Supplement.
INDEXED PRINCIPAL AMOUNT
The Note is an Indexed Principal Note. The principal amount payable
at Stated Maturity of the Note (the "Indexed Principal Amount") is to be
determined in accordance with the formula and defined terms set out below:
IPA=FA x (1 + (2 (FSP/1250 - 1)));
provided, however, that in no event shall IPA be less than $0.
"IPA" means the Indexed Principal Amount payable at Stated Maturity
of the Note.
"FA" means the Face Amount of the Note.
"FSP" means the price per metric ton of high grade primary aluminum
for delivery on January 18, 1995 (the "Delivery Date") as determined by the
Calculation Agent based on the final settlement price on January 16, 1995 (the
"Determination Date") of the dollar denominated January 1995 High Grade
Primary Aluminum Futures Contract (the "Aluminum Contract") traded on the
London Metal Exchange Limited (the "LME"). As the Aluminum Contract trades in
units of twenty-five metric tons, the Calculation Agent will determine FSP by
dividing the final settlement price of the Aluminum Contract on the
Determination Date by twenty-five. However, in the event the LME fails to
establish a final settlement price for the Aluminum Contract at or prior to
8:15 A.M. New York City time on the Determination
Date, the Calculation Agent shall determine FSP on the Determination Date by
requesting from five leading worldwide aluminum dealers the price per metric
ton such dealers would bid and ask for high grade primary aluminum for
delivery on the Delivery Date under the conditions specified in the Aluminum
Contract. "FSP" shall be the arithmetic average rounded to three decimal
places of such bid and ask quotations after disregarding the highest and
lowest bid quotations and the highest and lowest ask quotations.
The holder of the Note could receive an Indexed Principal Amount
payable at Stated Maturity that is less than the Face Amount of the Note. In
particular, if FSP is less than $1250 per metric ton, the Indexed Principal
Amount payable at Stated Maturity in respect of the Note will be less than its
Face Amount. The Indexed Principal Amount payable at Stated Maturity to the
holder of the Note will vary directly with FSP, but disproportionately. As a
result, any percentage decline in FSP will cause double such percentage
decline in the Indexed Principal Amount payable in respect of the Note. If
FSP falls to $625 at the Determination Date, a Holder of the Note would lose
the entire Face Amount. PURCHASERS OF THE NOTE SHOULD BE PREPARED TO SUSTAIN
A TOTAL LOSS OF PRINCIPAL.
The table below sets forth the Indexed Principal Amount as a
percentage of the Face Amount that will be payable for certain hypothetical
FSPs. The hypothetical FSPs set forth below are for illustrative purposes
only and no representation is made or intended that the FSP as of the
Determination Date will be equal to or within the hypothetical prices set
forth below.
Indexed Principal Amount as
Hypothetical FSP Percentage of Face Amount
$1300 108%
1275 104
1250 100
1225 96
1200 92
1175 88
1150 84
1125 80
1100 76
1050 68
1000 60
950 52
900 44
850 36
800 28
750 20
700 12
650 4
625, and below 0
AS THE TABLE ABOVE SHOWS, THE INDEXED PRINCIPAL AMOUNT PAYABLE IN RESPECT OF
THE NOTE AT STATED MATURITY MAY DECLINE TO $0.
The Calculation Agent for the Note will be [the Company].
INVESTMENT CONSIDERATIONS
In determining whether to purchase the Note,
prospective investors should consider carefully the following factors, in
addition to the other information set forth herein, in the Prospectus
Supplement and in the Prospectus.
ALUMINUM PRICES
The information below is taken from public sources that the Company
believes to be reliable. However, no representation is made as to its
accuracy or completeness.
The Indexed Principal Amount payable at Stated Maturity will be
largely dependent on price of aluminum in the "spot" or "cash" market at the
Determination Date. Historically, the aluminum industry has been cyclical and
market prices of aluminum have been volatile. Since 1990, aluminum prices
generally have declined due to oversupply and slow economic growth in major
aluminum consuming countries. The increase in supply in recent years has been
due to, among other things, an increase in worldwide smelter capacity, high
operating rates of aluminum
smelters and increased exports of aluminum by the countries of the former
Soviet Union. Largely as a result of the decline in aluminum prices, the
price of the Aluminum Contract has declined. See also "Investment
Considerations -- Correlation" below. The table below sets out the monthly
average price per metric ton of high grade primary aluminum as derived from
the monthly average price of the Aluminum Contract since January 1990.
Month Price Per Ton Month Price Per Ton
Jan. 1990 $1,522.71 Jan. 1992 $1,177.00
Feb. 1990 1,460.06 Feb. 1992 1,267.42
Mar. 1990 1,566.82 Mar. 1992 1,281.26
Apr. 1990 1,519.73 Apr. 1992 1,317.88
May. 1990 1,530.53 May. 1992 1,307.08
Jun. 1990 1,564.22 Jun. 1992 1,275.67
Jul. 1990 1,578.13 Jul. 1992 1,312.41
Aug. 1990 1,785.76 Aug. 1992 1,303.53
Sep. 1990 2,059.82 Sep. 1992 1,266.16
Oct. 1990 1,944.47 Oct. 1992 1,172.63
Nov. 1990 1,608.66 Nov. 1992 1,160.77
Dec. 1990 1,525.99 Dec. 1992 1,210.99
Jan. 1991 1,514.15 Jan. 1993 1,206.92
Feb. 1991 1,505.78 Feb. 1993 1,199.86
Mar. 1991 1,488.74 Mar. 1993 1,146.45
Apr. 1991 1,388.08 Apr. 1993 1,107.39
May. 1991 1,294.05 May. 1993 1,124.66
Jun. 1991 1,278.36 Jun. 1993 1,170.02
Jul. 1991 1,294.38 Jul. 1993 1,200.58
Aug. 1991 1,255.96 Aug. 1993 1,168.46
Sep. 1991 1,206.19 Sep. 1993 1,114.24
Oct. 1991 1,150.96 Oct. 1993 1,083.33
Nov. 1991 1,132.77 Nov. 1993 1,041.83
Dec. 1991 1,100.43 Dec. 1993 $1,097.09
There can be no assurance that the downward trend in the prices of aluminum
and the Aluminum Contract will be reversed. IN THE EVENT OF CONTINUING
DECLINES IN THE PRICE OF ALUMINUM AND CORRESPONDING DECLINES IN THE PRICE OF
THE ALUMINUM CONTRACT, THE INDEXED PRINCIPAL AMOUNT PAYABLE IN RESPECT OF THE
NOTE AT STATED MATURITY WILL BE REDUCED BELOW THE FACE AMOUNT OF THE NOTE.
LEVERAGE. The Indexed Principal Amount payable at Stated
Maturity of the Note is linked to the FSP such that any percentage change,
upward or downward, in the FSP will cause double such percentage change,
upward or downward, in the Indexed Principal Amount. This means moderate
declines in the price of the Aluminum Contract may cause significant declines
in the Indexed Principal Amount. Further, a 50% decline in the FSP (based on
an initial FSP of 1250 falling to 625) would result in a total loss of
principal.
CORRELATION. Futures contracts, such as the Aluminum
Contract, are bilateral agreements providing for the purchase and sale of a
specific commodity, such as aluminum, at a stated time
in the future for a price agreed to at the time that the contract is entered.
The price of a futures contract varies based primarily on the market value of
the underlying commodity. In addition, other market forces, including those
market forces that have an effect on financial and securities markets
generally, may have an effect on the price of a futures contract. For
instance, a lack of liquidity in the relevant trading market may result in
downward pressure on the price of a futures contract, notwithstanding that
there has been no change, or even an increase in the price of the underlying
commodity. Because of the variety of market forces that may have an effect on
the price of a futures contract, the price of a futures contract will
correlate imperfectly with the market value of the underlying commodity, and
changes in the market value of the underlying commodity may not be fully
reflected in the price of a futures contract. Accordingly, the price of the
Aluminum Contract and, as a result, the Indexed Principal Amount payable in
respect of the Note at Stated Maturity, may not fully reflect the price of
aluminum on the Determination Date.
THE LME. The Aluminum Contract trades on the LME. The
LME is a futures exchange located in London, England. The LME is not subject
to regulation by the U.S. Securities Exchange Commission, the U.S. Commodity
Futures Trading Commission or any other U.S. regulatory authority.
TAXATION
The following summary supplements, and to the extent inconsistent therewith
replaces, the discussion of United States taxation set forth in the
accompanying Prospectus Supplement under the heading "United States Tax
Considerations," to which discussion reference hereby is made.
The following is a summary of certain anticipated U.S.
Federal income tax consequences to a holder of an investment in the Note. It
does not purport to address every U.S. Federal income tax issue raised by
ownership of the Note. In particular, this summary applies only to a U.S.
holder that holds the Note as a capital asset and does not deal with a U.S.
holder in a special tax situation, a U.S. holder that holds the Note as part
of an integrated investment (including a "straddle") comprised of the Note and
one or more other positions, or the application of the investment interest
limitation rules of section 163(d) of the Internal Revenue Code of 1986, as
amended, to income from the Note. Prospective purchasers of the Note are
urged to consult their own tax advisors regarding the U.S. Federal (as well as
state and local) tax consequences to them of owning the Note in light of their
particular circumstances.
There are no regulations, published rulings or judicial
decisions addressing the characterization for federal income tax
purposes of securities with terms substantially the same as the Note. The
Company intends to treat the Note for U.S federal income tax purposes as a
combination of a fixed loan in an amount equal to the issue price of the Note
and the application of the principal repayment of that loan at maturity to a
cash-settled forward purchase contract on aluminum with a floor at $625 per
metric ton of aluminum. Accordingly, under this approach, upon the sale,
exchange, retirement or other disposition of the Note, a U.S. holder generally
will recognize gain or loss equal to the difference between the amount
realized on the sale, exchange, retirement or other disposition and the U.S.
holder's tax basis in the Note. Such gain or loss generally will be long-term
capital gain or loss if the U.S holder has held the Note for more than one
year at the time of disposition.
Under the approach described above, the Company intends to
treat each payment of interest on the Note as ordinary interest income to the
holder of the Note. Any such interest income would be includable in income in
accordance with the holder's regular method of tax accounting.
The Internal Revenue Service may contend that the Note
should be characterized for federal income tax purposes in a manner different
from the approach described above. For example, the Internal Revenue Service
may contend that the Note should be characterized as a contingent payment debt
instrument of the Company. Under this analysis, the Notes would be subject to
certain proposed Treasury regulations released in 1986 dealing with
"contingent payment" debt instruments (the "1986 Proposed Regulations").
Under the 1986 Proposed Regulations, payment of interest on a Note would be
treated as a non-taxable return of the holder's investment in the Note. The
amount payable at maturity of the Note would be treated first as a non-taxable
return of the holder's investment in the Note until, after taking into account
the amount of any previous payments treated as a return of the holder's
investment, the holder has recovered the full amount of its investment, and
thereafter would be taxable as interest income to the holder. If a holder
receives total payments in respect of a Note in an amount less than the amount
of its investment in the Note, the holder generally would recognize a capital
loss, which would be a long-term capital loss if the holder has held the Note
for more than one year. It is unclear, under the 1986 Proposed Regulations,
whether gain from the sale of the Note would be ordinary income or capital
gain. Any loss recognized by the holder of the Note, however, would generally
be a capital loss, which would be a long-term capital loss if the holder has
held the Note for more than one year.
The 1986 Proposed Regulations have not yet been adopted
and have been the subject of considerable comment. In January 1993, the
Internal Revenue Service submitted proposed regulations to the Federal
Register ("the 1993 Proposed Regulations") that
would have replaced the 1986 Proposed Regulations. The 1993 Proposed
Regulations, which were proposed to be effective for contingent payment debt
instruments issued on or after the date 60 days after the date the regulations
were finalized, would have substantially revised the treatment of such debt
instruments. The 1993 Proposed Regulations were withdrawn from the Federal
Register prior to publication, however, pursuant to an order of the Director
of the Office of Management and Budget. Accordingly, it is impossible to
predict whether, or in what manner, the 1986 Proposed Regulations may be
modified and whether any modifications would apply to the Note.
The distinction between capital gain or loss and ordinary
income or loss is important for purposes of the limitations on a U.S. holder's
ability to offset capital losses against ordinary income. In addition,
certain individuals are subject to taxation at a reduced rate on long-term
capital gains.
