<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
File Number 333-38931
[BACKGROUND OF COVER PAGE - PICTURE OF SALOMON SMITH BARNEY TRADING FLOOR]
Prospectus Supplement
(To Prospectus Dated December 1, 1997)
SAFETY
- -------------------------------------------------------------------------------
FIRST(sm)
- -------------------------------------------------------------------------------
INVESTMENTS
- -------------------------------------------------------------------------------
SAFETY OF PRINCIPAL, OPPORTUNITY FOR GROWTH
[SAFETY FIRST LOGO]
2,700,000 UNITS
SALOMON SMITH BARNEY HOLDINGS INC.
PRINCIPAL-PROTECTED EQUITY LINKED NOTES
BASED UPON THE
S&P 500(R) INDEX
DUE DECEMBER 30, 2005
($10 PRINCIPAL AMOUNT PER UNIT)
[SALOMON SMITH BARNEY LOGO]
<PAGE> 2
[SALOMON SMITH BARNEY LOGO]
PROSPECTUS SUPPLEMENT
(To Prospectus Dated December 1, 1997)
SAFETY FIRST(SM) INVESTMENTS
Safety of Principal, Opportunity for Growth
2,700,000 UNITS
SALOMON SMITH BARNEY HOLDINGS INC.
PRINCIPAL-PROTECTED EQUITY LINKED NOTES
BASED UPON THE
S&P 500(R) INDEX
DUE DECEMBER 30, 2005
($10 PRINCIPAL AMOUNT PER UNIT)
------------------------
GENERAL:
- - Senior unsecured debt securities of Salomon Smith Barney Holdings Inc.
- - Issuable and transferable only in minimum denominations of $10 or integral
multiples thereof.
- - No payments prior to maturity.
- - Not redeemable prior to maturity.
- - The Notes have been approved for listing on the Chicago Board Options Exchange
under the symbol "KSB", subject to official notice of issuance.
PAYMENT AT MATURITY:
- - Principal Amount ($10 per Unit) + Supplemental Redemption Amount, if any.
- - The Supplemental Redemption Amount will be based on the percentage increase,
if any, in the S&P 500 Index (calculated based on an average value of the
Index during the 42 months prior to maturity), reduced on a daily basis by an
annual adjustment factor of 1.45% per annum. The annual application of the
Adjustment Factor will result in a total reduction in the adjusted value of
the S&P 500 Index used to determine the Supplemental Redemption Amount at
maturity of 9.9385%.
- - The Supplemental Redemption Amount may be ZERO, but will not be less than
zero.
For information as to the Supplemental Redemption Amount and certain United
States federal income tax consequences to holders of the Notes, you should refer
to "Description of Notes -- Determination of the Supplemental Redemption Amount"
and "Certain United States Federal Income Tax Considerations" in this Prospectus
Supplement.
"Standard & Poor's(R)", "Standard & Poor's 500", "S&P 500(R)", "S&P(R)" and
"500", are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by the Company. The Notes are not sponsored, endorsed, sold or promoted
by Standard & Poor's or The McGraw Hill Companies, Inc. Neither Standard &
Poor's nor The McGraw Hill Companies, Inc. makes any representation regarding
the advisability of investing in the Notes.
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS.
SEE "RISK FACTORS RELATING TO THE NOTES" BEGINNING ON PAGE S-7.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES OR DETERMINED THAT THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT THE COMPANY(1)
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
Per Unit........................... $10.00 $0.35 $9.65
- ---------------------------------------------------------------------------------------------------------------------------------
Total.............................. $27,000,000 $945,000 $26,055,000
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company.
------------------------
The Notes are offered by the Underwriter named herein, subject to prior
sale, when, as and if accepted by it and subject to certain conditions. It is
expected that delivery of the Notes will be made at the offices of Salomon Smith
Barney Inc., 388 Greenwich Street, New York, New York, or through the facilities
of The Depository Trust Company, on or about October 30, 1998.
SALOMON SMITH BARNEY
October 27, 1998
<PAGE> 3
SUMMARY INFORMATION -- Q&A
This summary includes questions and answers that highlight selected
information from the accompanying Prospectus and this Prospectus Supplement to
help you understand the Principal-Protected Equity Linked Notes (the "Notes")*
based upon the Standard & Poor's 500(R) Composite Stock Price Index, as
published by Standard & Poor's ("S&P"), a Division of the McGraw-Hill Companies,
Inc. You should carefully read the entire Prospectus and Prospectus Supplement
to fully understand the terms of the Notes, certain information regarding how
the Standard & Poor's 500(R) Composite Stock Price Index (the "S&P 500 Index" or
the "Index") is calculated and maintained, as well as the principal tax and
other considerations that are important to you in making a decision about
whether to invest in the Notes. You should, in particular, carefully review the
section entitled "Risk Factors Relating to the Notes", which highlights certain
risks, to determine whether an investment in the Notes is appropriate for you.
All of the information set forth below is qualified in its entirety by the more
detailed explanation set forth elsewhere in this Prospectus Supplement and the
accompanying Prospectus.
WHAT ARE THE NOTES?
The Notes are a series of unsecured senior debt securities issued by
Salomon Smith Barney Holdings Inc. (the "Company"). The Notes will rank equally
with all other unsecured and unsubordinated debt of the Company. The Notes
mature on December 30, 2005 and do not provide for earlier redemption by you or
the Company. The Company will make no periodic payments of interest on the
Notes. The Company will make no other payments on the Notes until maturity.
Each "Unit" of Notes represents a principal amount of $10. You may transfer
the Notes only in denominations of $10 and integral multiples thereof. You will
not have the right to receive physical certificates evidencing your ownership
except under limited circumstances. Instead, the Company will issue the Notes in
the form of a global certificate, which will be held by The Depository Trust
Company (the "Depositary") or its nominee. Direct and indirect participants in
the Depositary will record beneficial ownership of the Notes by individual
investors. You should refer to the section "Description of the
Notes -- Book-Entry System" in this Prospectus Supplement.
WHAT WILL I RECEIVE AT MATURITY OF THE NOTES?
We have designed the Notes for investors who want to protect their
investment by receiving at least the principal amount of their investment at
maturity and who also want to participate in a possible increase in the S&P 500
Index during a specified period. At maturity, you will receive a payment on each
Note equal to the sum of two amounts: the principal amount ($10 per Unit) and
the "Supplemental Redemption Amount", which is based on the percentage increase,
if any, in the S&P 500 Index, calculated based on an average of the values of
the Index during the 42 months prior to maturity and reduced by an Adjustment
Factor, as described below. You will not receive less than the principal amount.
Principal Amount
The principal amount per Unit is $10.
Supplemental Redemption Amount
The Supplemental Redemption Amount per Unit will equal:
<TABLE>
<S> <C>
Adjusted Ending Value - Starting
Value
$10 X
------------------------------------
Starting Value
</TABLE>
but will not be less than zero.
- ---------------
* Please refer to the "Index of Terms" attached as Appendix A for a listing of
defined terms (which are capitalized) and the pages on which they are defined
in this Prospectus Supplement.
S-2
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"Adjusted Ending Value" means the average of the values of the S&P 500
Index at the close of the market on the 28th of each month in the 42-month
Calculation Period prior to maturity of the Notes, commencing in July 2002, as
reduced by the Adjustment Factor. If the 28th of any such month is not an Index
Business Day, the Index value for that month will equal the closing value of the
Index on the next Index Business Day, except that if December 28, 2005 is not an
Index Business Day, the Index value for December 2005 will equal the closing
value of the Index on the immediately preceding Index Business Day. If there is
a disruption in the trading of the component stocks comprising the S&P 500 Index
or certain futures or options relating to the S&P 500 Index during a scheduled
calculation date in any such month, the Index value for that month for purposes
of calculating the Adjusted Ending Value will equal the closing value of the
Index on the next Index Business Day on which there is not a market disruption,
except that, in the case of such a disruption on December 28, 2005 the Index
value for December 2005 will equal the closing value of the Index on the
immediately preceding Index Business Day on which there is not a market
disruption. You should refer to the section "Description of the Notes -- Market
Disruption Events" in this Prospectus Supplement.
"Adjustment Factor" equals 1.45% per annum, and will be applied to reduce
the value of the Index during the term of the Notes. As a result of the
application of the Adjustment Factor, the adjusted value of the Index used to
calculate the Supplemental Redemption Amount at the stated maturity of the Notes
will be 9.9385% less than the actual average Index value as calculated on each
of the calculation days during the Calculation Period. For a detailed discussion
of how the Adjustment Factor will affect the value of the Index used to
calculate your Supplemental Redemption Amount (i.e., the Adjusted Ending Value),
see "Description of the Notes -- Determination of the Supplemental Redemption
Amount" and "Risk Factors Relating to the Notes -- Comparison to Other
Securities -- Effect of Adjustment Factor" in this Prospectus Supplement.
"Calculation Period" means the period from and including the date 42 months
prior to the maturity date to but excluding the maturity date.
"Starting Value" equals 1065.34, which was the value of the Index at the
market close on October 27, 1998, the date the Notes were priced for initial
sale to the public.
For more specific information about the Supplemental Redemption Amount,
please see "Description of the Notes -- Determination of the Supplemental
Redemption Amount" in this Prospectus Supplement.
The Company will pay you a Supplemental Redemption Amount only if the
Adjusted Ending Value is greater than the Starting Value. IF THE ADJUSTED ENDING
VALUE IS LESS THAN, OR EQUAL TO, THE STARTING VALUE, THE SUPPLEMENTAL REDEMPTION
AMOUNT WILL BE ZERO. The Company will pay you the principal amount of the Notes
regardless of whether any Supplemental Redemption Amount is payable.
Supplemental Redemption Amount -- Examples
Here are two examples of hypothetical Supplemental Redemption Amount
calculations:
Example 1: The average of the values of the S&P 500 Index over the 42
months prior to maturity, as adjusted, is less than the Starting Value:
Starting Value: 1065.34
Hypothetical Adjusted Ending Value (calculated using the Adjustment
Factor): 799.01
<TABLE>
<C> <C> <C> <S> <C>
799.01-1065.34
Supplemental Redemption Amount (per Unit) = $10 X -------------- = $0
1065.34
(Supplemental Redemption Amount
cannot be less than zero)
</TABLE>
Total payment at maturity (per Unit) = $10 + $0 = $10
S-3
<PAGE> 5
Example 2: The average of the values of the S&P 500 Index over the 42
months prior to maturity, as adjusted, is greater than the Starting Value:
Starting Value: 1065.34
Hypothetical Adjusted Ending Value (calculated using the Adjustment
Factor): 1598.01
<TABLE>
<C> <C> <C> <S> <C>
1598.01-1065.34
Supplemental Redemption Amount (per Unit) = $10 X --------------- = $5
1065.34
</TABLE>
Total payment at maturity (per Unit) = $10 + $5 = $15
WHAT IS THE EFFECT OF CALCULATING THE ADJUSTED ENDING VALUE ON THE BASIS OF AN
AVERAGE?
As a result of the use of an average over the Calculation Period, rather
than one closing Index value at maturity, to calculate the Adjusted Ending
Value, the market value of the Notes and the Supplemental Redemption Amount will
be less sensitive to fluctuations in the value of the Index as the time
remaining to maturity lessens. This could result in a lower or higher payment
than would be the result if one closing Index value at maturity were used to
calculate the Adjusted Ending Value. In particular if the Index generally
increases over the Calculation Period, then the payment on the Notes will be
lower, and could be materially lower, than would be the case if one closing
Index value at maturity were used.
WHO PUBLISHES THE INDEX AND WHAT DOES IT MEASURE?
The S&P 500 Index is published by Standard & Poor's, a division of The
McGraw-Hill Companies, Inc., and is intended to provide an indication of the
pattern of common stock price movement. The calculation of the value of the
Index is based on the relative value of the aggregate Market Value (as defined
below) of the common stocks of 500 companies as of a particular time compared to
the aggregate average Market Value of the common stocks of 500 similar companies
during the base period of the years 1941 through 1943. As of September 30, 1998,
the 500 companies included in the Index represented approximately 82% of the
aggregate Market Value of common stocks traded on the New York Stock Exchange
(the "NYSE"); however, these 500 companies are not the 500 largest companies
listed on the NYSE and not all of these 500 companies are listed on the NYSE. As
of September 30, 1998, the aggregate Market Value of the 500 companies included
in the Index represented approximately 78% of the aggregate market value of
United States domestic, public companies. S&P chooses companies for inclusion in
the Index with the aim of achieving a distribution by broad industry groupings
that approximates the distribution of these groupings in the common stock
population of the NYSE, which S&P uses as an assumed model for the composition
of the total market.
Please note that an investment in the Notes does not entitle you to any
ownership or other interest in the stocks of the companies included in the
Index.
HOW HAS THE S&P 500 INDEX PERFORMED HISTORICALLY?
We have provided a table showing the closing value of the S&P 500 Index on
the last business day of each year from 1947 to 1997 and the closing values of
the Index on the last business day of each month from January 1992 through
September 1998. You can find these tables in the section "The S&P 500 Index --
Historical Data on the S&P 500 Index" in this Prospectus Supplement. You can
observe from this table that while the S&P 500 Index has increased over the
periods shown, it has declined significantly in recent months (approximately
10.23% from July 17, 1998 through October 27, 1998). We have provided this
historical information to help you evaluate the behavior of the S&P 500 Index in
various economic environments; however, past performance is not necessarily
indicative of how the Index will perform in the future. You should refer to the
section "Risk Factors Relating to the Notes -- Relationship of the Notes and the
S&P 500 Index".
WHAT ABOUT TAXES?
If you are a U.S. individual or taxable entity, you generally will be
required to pay taxes on ordinary income from the Notes over their term based
upon an estimated yield for the Notes, even though you will not
S-4
<PAGE> 6
receive any payments from us until maturity. We have determined this estimated
yield, in accordance with regulations issued by the Treasury Department, solely
in order for you to figure out the amount of taxes that you will owe each year
as a result of owning a Note. This estimate is neither a prediction nor a
guarantee of what the actual Supplemental Redemption Amount will be, or that the
actual Supplemental Redemption Amount will even exceed zero. We have determined
that this estimated yield will equal 5.42% per annum (compounded semiannually).
Based upon this estimated yield, if you pay your taxes on a calendar year
basis and if you buy a Unit of Notes at original issue for $10 and hold the Unit
until maturity, you will be required to pay taxes on the following amounts of
ordinary income from the Unit each year: $0.0933 in 1998, $0.5545 in 1999,
$0.5865 in 2000, $0.6171 in 2001, $0.6510 in 2002, $0.6868 in 2003, $0.7265 in
2004, and $0.7624 in 2005. However, in 2005, the amount of ordinary income that
you will be required to pay taxes on from owning a Unit of Notes may be greater
or less than $4.6781, depending upon the amount you receive at maturity. Also,
if the sum of the principal amount and the Supplemental Redemption Amount is
less than $14.6781, you may have an ordinary (rather than capital) loss which
you could deduct against other income you may have in 2005. For further
information, you should refer to "Certain United States Federal Income Tax
Considerations" in this Prospectus Supplement. If you purchase the Notes at a
time other than original issue or at price other than $10, the tax consequences
to you may be different.
WILL THE NOTES BE LISTED ON A STOCK EXCHANGE?
The Notes have been approved for listing on the Chicago Board Options
Exchange (the "CBOE") under the symbol "KSB", subject to official notice of
issuance. You should be aware that the listing of the Notes on the CBOE will not
necessarily ensure that a liquid trading market will be available for the Notes.
You should review the section "Risk Factors Relating to the Notes -- Possible
Illiquidity of the Secondary Market" in this Prospectus Supplement.
WHAT IS THE ROLE OF THE COMPANY'S SUBSIDIARY, SALOMON SMITH BARNEY INC.?
Our subsidiary, Salomon Smith Barney Inc. ("Salomon Smith Barney"), is the
underwriter for the offering and sale of the Notes. After the initial offering,
Salomon Smith Barney and/or other affiliates of the Company intend to buy and
sell Notes to create a secondary market for holders of the Notes, and may engage
in other activities described in "Underwriting". However, neither Salomon Smith
Barney nor any of these affiliates will be obligated to engage in any market
activities, or continue them once it has started.
Salomon Smith Barney will also be our agent (the "Calculation Agent") for
purposes of calculating the Starting Value, the Adjusted Ending Value and the
Supplemental Redemption Amount and in determining whether a Market Disruption
Event (as defined below) has occurred. Potential conflicts of interest may exist
between Salomon Smith Barney and you as a holder of the Notes. Please refer to
"Risk Factors Relating to the Notes -- Affiliation of the Company and the
Calculation Agent" in this Prospectus Supplement.
CAN YOU TELL ME MORE ABOUT THE COMPANY?
Salomon Smith Barney Holdings Inc. is a holding company that provides
investment banking, securities and commodities trading, brokerage, asset
management and other financial services through its subsidiaries. The Company is
a subsidiary of Citigroup Inc. (formerly Travelers Group Inc.) ("Citigroup"), a
diversified financial services holding company. On October 8, 1998, Travelers
Group Inc. and Citicorp completed a merger, pursuant to which Citicorp was
merged into a subsidiary of Travelers Group Inc. and Travelers Group Inc.
changed its name to Citigroup Inc.
For additional information about the Company, you should refer to the
section "The Company" in the accompanying Prospectus. You should also read the
other documents the Company has filed with the Securities and Exchange
Commission (the "SEC"), which you can find by referring to the section "Where
You Can Find More Information" in the Prospectus.
The common stock of Citigroup is among the components of the S&P 500 Index.
S-5
<PAGE> 7
ARE THERE ANY RISKS ASSOCIATED WITH MY INVESTMENT?
Yes, the Notes are subject to a number of risks. Please refer to the
section "Risk Factors Relating to the Notes" in this Prospectus Supplement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the SEC pursuant to
Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (File No. 1-4346), are incorporated herein by reference: (i) the Annual
Report on Form 10-K for the year ended December 31, 1997, (ii) the Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998 and
(iii) the Current Reports on Form 8-K filed on January 9, 1998, January 26,
1998, February 2, 1998, March 3, 1998, April 17, 1998, April 20, 1998, May 13,
1998, June 8, 1998, June 10, 1998, June 17, 1998, July 17, 1998, July 20, 1998,
July 22, 1998, July 30, 1998, September 1, 1998, October 14, 1998 and October
23, 1998. You should refer to "The Company -- Where You Can Find More
Information" and "Incorporation of Certain Documents by Reference" in the
Prospectus. These documents may also be accessed electronically by means of the
SEC's home page on the world wide web on the internet at "http://www.sec.gov."
S-6
<PAGE> 8
RISK FACTORS RELATING TO THE NOTES
An investment in the Notes entails significant risks not associated with
similar investments in a conventional debt security, including the following:
COMPARISON TO OTHER SECURITIES
The Supplemental Redemption Amount May Be Zero. Unless the Adjusted Ending
Value exceeds the closing value of the S&P 500 Index on the date of this
Prospectus Supplement (i.e., the Starting Value), the Supplemental Redemption
Amount will be ZERO. This may be true even if the value of the S&P 500 Index, as
reduced by the Adjustment Factor, exceeds the Starting Value at some time during
the life of the Notes but later falls below that threshold. If the Supplemental
Redemption Amount is zero, we will pay you only the principal amount of your
Notes at maturity.
The Adjusted Ending Value Will Be Determined during the 42 Months Prior to
Maturity. Because the Adjusted Ending Value will be based upon the closing
value of the S&P 500 Index on the 28th of each month during the 42-month
Calculation Period prior to maturity, as adjusted by the Adjustment Factor, a
significant increase in the Index subsequent to issuance may be substantially or
entirely offset by subsequent decreases in the value of the Index during or
prior to the Calculation Period, and a high Index value at the close of one or
more months during the Calculation Period may be substantially offset by a low
Index value at the close of one or more other months during the Calculation
Period.
In addition, the use of an average over the Calculation Period, rather than
one closing Index value at maturity, to calculate the Adjusted Ending Value
could result in a lower or higher payment at maturity than would otherwise be
the result. In particular, if the Index generally increases over the Calculation
Period, then the payment on the Notes will be lower, and could be materially
lower, than would be the case if one closing Index value at maturity were used.
No Periodic Interest. No periodic payments of interest will be made on the
Notes or the principal amount thereof. However, the payment of a Supplemental
Redemption Amount at maturity, if that amount exceeds zero, may be deemed to be
interest.
Yield May Be Lower than the Yield on a Standard Debt Security of Comparable
Maturity. The amount we pay you at maturity may be less than the return you
could earn on other investments. Because the Adjusted Ending Value of the S&P
500 Index may be less than, equal to or only slightly greater than the Starting
Value, the effective yield to maturity on the Notes (which is linked to the
amount by which the Adjusted Ending Value exceeds the Starting Value) may be
less than that which would be payable on a conventional fixed-rate, non-callable
debt security of the Company. In addition, any such return may not fully
compensate you for any opportunity cost to you when you take into account
inflation and other factors relating to the time value of money.
Return Does Not Reflect Dividends. Your return on the Notes will not
reflect the return you would realize if you actually owned the stocks underlying
the Index and received the dividends paid on those stocks because of the
reduction caused by the Adjustment Factor and because S&P calculates the Index
by reference to the prices of the stocks comprising the Index without taking
into consideration the value of dividends paid on those stocks.
Effect of Adjustment Factor. Because the actual index values of the S&P
500 Index during the Calculation Period will be reduced by the Adjustment Factor
in order to determine the Adjusted Ending Value, your return on the Notes will
be less than your return on a similar indexed instrument that was directly
linked to the S&P 500 Index, but was not subject to such adjustment.
RELATIONSHIP OF THE NOTES AND THE S&P 500 INDEX
The historical S&P 500 Index values should not be taken as an indication of
the future performance of the Index during the term of the Notes. Since July 17,
1998, the S&P 500 Index has declined significantly (approximately 10.23% as of
October 27, 1998). A continuation of the decline and volatility of the S&P 500
S-7
<PAGE> 9
Index could adversely affect the value of the Notes. While the trading prices of
the stocks underlying the Index will determine the value of the S&P 500 Index,
it is impossible to predict whether the value of the Index will fall or rise.
Trading prices of the stocks underlying the S&P 500 Index will be influenced by
both the complex and interrelated political, economic, financial and other
factors that can affect the capital markets generally and the equity trading
markets on which the underlying stocks are traded, and by various circumstances
that can influence the values of the underlying stocks in a specific market
segment or a particular underlying stock.
The policies of S&P concerning additions, deletions and substitutions of
the stocks underlying the S&P 500 Index and the manner in which S&P takes
account of certain changes affecting such underlying stock may affect the value
of the Index. The policies of S&P with respect to the calculation of the Index
could also affect the value of the Index. S&P may discontinue or suspend
calculation or dissemination of the S&P 500 Index or materially alter the
methodology by which it calculates the Index. Any such actions could affect the
value of the Notes. See "The S&P 500 Index" below.
POSSIBLE ILLIQUIDITY OF SECONDARY MARKET
The Notes have been approved for listing on the CBOE, subject to official
notice of issuance. However, there can be no assurance as to whether there will
be a secondary market in the Notes or if there were to be such a secondary
market, whether such market would be liquid or illiquid. If the secondary market
for the Notes is limited, there may be few buyers when you decide to sell your
Notes if you do not wish to hold your investment until maturity. This may affect
the price you receive. There is currently no secondary market for the Notes.
FACTORS AFFECTING TRADING VALUE OF THE NOTES
We believe that the value of the Notes in the secondary market will be
affected by the value of the Index and by a number of other factors. Some of
these factors are interrelated in complex ways; as a result, the effect of any
one factor may be offset or magnified by the effect of another factor. The price
at which you will be able to sell the Notes prior to maturity may be at a
discount, which could be substantial, from the principal amount thereof, if, at
such time, the value of the Index is less than, equal to, or not sufficiently
above the Starting Value. The following paragraphs describe what we expect to be
the impact on the market value of the Notes of a change in a specific factor,
assuming all other conditions remain constant.
Index Value. We expect that the market value of the Notes will likely
depend substantially on the amount, if any, by which the current Index value, as
reduced by the Adjustment Factor, exceeds the Starting Value. If you choose to
sell your Notes when the value of the Index exceeds the Starting Value, you may
receive substantially less than the amount that would be payable at maturity
based on that Index value because of expectations that the Index will continue
to fluctuate until the Adjusted Ending Value is determined. If you choose to
sell your Notes when the value of the Index is below the Starting Value, you can
expect to receive less than the $10 principal amount per Unit of Notes. In
general, rising U.S. dividend rates (i.e., dividends per share) may increase the
value of the Index, while falling U.S. dividend rates may decrease the value of
the Index. Political, economic and other developments that affect the stocks
underlying the Index may also affect the value of the Index and the value of the
Notes. The effect of the current Index value on the market value of the Notes
will likely decrease significantly over time during the 42-month Calculation
Period because a portion of the Adjusted Ending Value will be determined on each
of the 42 Calculation Days during such period.
Interest Rates. Because the Notes repay, at a minimum, the principal
amount at maturity, we expect that the trading value of the Notes will be
affected by changes in interest rates. In general, if U.S. interest rates
increase, the trading value of the Notes may be adversely affected. If U.S.
interest rates decrease, the trading value of the Notes may be favorably
affected. Interest rates may also affect the U.S. economy and, in turn, the
value of the Index, which (for the reasons discussed above) would affect the
value of the Notes. Rising U.S. interest rates may lower the value of the Index
and, thus, the Notes. Falling U.S. interest rates may increase the value of the
Index and, thus, the Notes.
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<PAGE> 10
Volatility of the Index. Volatility is the term used to describe the size
and frequency of market fluctuations. If the volatility of the Index increases,
the trading value of the Notes may be favorably affected. If the volatility of
the Index decreases, the trading value of the Notes may be adversely affected.
The effect of the volatility of the Index on the market value of the Notes is
likely to decrease over time during the Calculation Period because a portion of
the Adjusted Ending Value will be determined on the 28th of each month during
such 42-month period.
Time Remaining to Maturity. The Notes may trade at a value above that
which would be expected based on the level of interest rates and the Index. Any
such difference will reflect a "time premium" resulting from expectations
concerning the value of the Index during the 42-month Calculation Period prior
to the maturity of the Notes. However, as the time remaining to the maturity of
the Notes decreases, particularly during the 42-month Calculation Period, this
time premium may decrease, adversely affecting the trading value of the Notes.
Dividend Yields. If dividend yields on the underlying stocks comprising
the Index increase, we expect that the value of the Notes may be adversely
affected, since the Index does not incorporate the value of such payments.
Conversely, if dividend yields on the stocks comprising the Index decrease, the
value of the Notes may be favorably affected.
Company Credit Ratings, Financial Condition and Results. Actual or
anticipated changes in the Company's credit ratings, financial condition or
results may affect the market value of the Notes.
Economic Conditions and Earnings Performance of Underlying
Companies. General economic conditions and the earnings results of the
companies whose common stocks comprise the Index and real or anticipated changes
in such conditions or results may affect the value of the Index and the market
value of the Notes.
We want you to understand that the impact of one of the factors specified
above, such as an increase in interest rates, may offset some or all of any
change in the trading value of the Notes attributable to another factor, such as
an increase in the Index value.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the Notes of a given change in most of the
factors listed above will be less if it occurs later in the term of the Notes
than if it occurs earlier in the term of the Notes.
AFFILIATION OF THE COMPANY AND CALCULATION AGENT
Because the Calculation Agent is an affiliate of the Company, potential
conflicts of interest may exist between the Calculation Agent and the holders of
the Notes, including with respect to certain determinations and judgments that
the Calculation Agent must make in determining the Adjusted Ending Value and the
Supplemental Redemption Amount or whether a Market Disruption Event has
occurred. You should refer to "Description of the Notes -- Market Disruption
Events", "-- Discontinuance of the S&P 500 Index" and "-- Alteration of Method
of Calculation" below. Salomon Smith Barney, as a registered broker-dealer, is
required to maintain policies and procedures regarding the handling and use of
confidential proprietary information, and such policies and procedures will be
in effect throughout the term of the Notes to restrict the use of information
relating to the calculation of the Index values that the Calculation Agent may
be required to make prior to their dissemination. Salomon Smith Barney is
obligated to carry out its duties and functions as Calculation Agent in good
faith and using its reasonable judgment. Salomon Smith Barney may also engage in
certain activities in connection with hedging the Company's obligation under the
Notes. You should refer to "Use of Proceeds and Hedging" in the accompanying
Prospectus.
PURCHASES AND SALES BY AFFILIATES OF THE COMPANY
The Company, Salomon Smith Barney and other affiliates of the Company may
from time to time buy or sell the stocks underlying the Index or derivative
instruments related to the Index for their own accounts in connection with their
normal business practices or in connection with hedging the Company's
obligations under the Notes. These transactions could affect the price of such
stocks or the value of the Index.
S-9
<PAGE> 11
POTENTIAL FEDERAL INCOME TAX CONSEQUENCES
Because the Notes will be treated as contingent payment debt obligations of
the Company, and because by accepting a Note holders thereof agree to this
treatment of the Notes, U.S. holders of a Note will be required to include
original issue discount for U.S. federal income tax purposes ("Tax OID") in
their gross income on a constant yield basis over the term of such Note. Such
Tax OID will be includible in a U.S. holder's gross income for U.S. federal
income tax purposes (as ordinary income) over the life of the Note, even though
no payments are to be made on the Note except at maturity. The amount of Tax OID
is calculated based (in part) on an assumed amount payable at maturity. This
assumed amount is neither a prediction nor guarantee of the actual amount
payable at maturity. Furthermore, if the amount actually paid at maturity is, in
fact, less than the assumed amount payable at maturity, a U.S. holder will have
recognized taxable income in periods prior to maturity that exceed such holder's
economic income from the holding of the Note during such periods (with an
offsetting ordinary loss at the maturity of the Note). A U.S. holder will also
be required to treat any gain recognized upon a sale of a Note as ordinary
income (rather than capital gain). You should refer to "Certain United States
Federal Income Tax Considerations" in this Prospectus Supplement.
OTHER CONSIDERATIONS
If a bankruptcy proceeding is commenced in respect of the Company, the
claim of a holder of Notes may, under Section 502(b)(2) of Title 11 of the
United States Code, be limited to the principal amount of such Notes plus a
Supplemental Redemption Amount, if any, calculated as though the maturity date
of the Notes were the date of the commencement of the proceeding.
------------------------
We suggest that prospective investors who consider purchasing the Notes
reach an investment decision only after carefully considering the suitability of
the Notes in light of their particular circumstances.
S-10
<PAGE> 12
DESCRIPTION OF THE NOTES
The following description of the particular terms of the Notes offered
hereby (referred to in the accompanying Prospectus as the "Offered Securities")
supplements the description of the general terms and provisions of the Debt
Securities set forth in the Prospectus, to which description reference is hereby
made. The following summary of the Notes is qualified in its entirety by
reference to the Senior Debt Indenture referred to in the Prospectus.
GENERAL
The Principal-Protected Equity Linked Notes based upon the S&P 500 Index
(the "Notes") are a series of Debt Securities issued under the Senior Debt
Indenture described in the accompanying Prospectus. The aggregate principal
amount of Notes issued will be limited to $27,000,000 (2,700,000 Units). The
Notes will mature on December 30, 2005, will constitute part of the senior debt
of the Company and will rank pari passu with all other unsecured and
unsubordinated debt of the Company. The Notes will be issued only in fully
registered form and in denominations of $10 (one Unit) and integral multiples
thereof.
The "Trustee" under the Senior Debt Indenture will be The Bank of New York
under an indenture dated as of October 27, 1993, as amended from time to time. A
copy of the Senior Debt Indenture under which The Bank of New York serves as
Trustee has been filed with the SEC as an exhibit to the Registration Statement
of which the accompanying Prospectus forms a part and is hereby incorporated by
reference as part of the Registration Statement. Section numbers in the Bank of
New York Indenture take the form "1.01", "2.01" and so forth, rather than "101",
"201" and so forth. Section references in the accompanying Prospectus should be
read accordingly.
Reference is made to the accompanying Prospectus for a detailed summary of
additional provisions of the Notes and of the Senior Debt Indenture under which
the Notes will be issued.
INTEREST
No interest is payable on the Notes or the principal amount thereof, other
than in connection with a default on payment at maturity or to the extent that
the Supplemental Redemption Amount exceeds zero and is deemed to be an interest
payment.
REDEMPTION; DEFEASANCE
The Notes are not subject to redemption by the Company or at the option of
any holder prior to maturity and are not subject to the defeasance provisions
described in the accompanying Prospectus under "Description of Debt
Securities -- Defeasance".
PAYMENT AT MATURITY
At maturity (including as a result of acceleration or otherwise), a holder
of a Note will be entitled to receive the principal amount thereof plus a
Supplemental Redemption Amount, if any, as provided below. If the Adjusted
Ending Value does not exceed the Starting Value, the holder of a Note will be
entitled to receive only the principal amount thereof. The principal amount will
equal $10 per Unit of Notes.
DETERMINATION OF THE SUPPLEMENTAL REDEMPTION AMOUNT
The Supplemental Redemption Amount for each Unit of Notes ($10 principal
amount) will be determined by the Calculation Agent and will equal:
<TABLE>
<S> <C>
Adjusted Ending Value - Starting Value
$10 X ------------------------------------------------
Starting Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero. As indicated in the formula above, the Supplemental Redemption
Amount for the Notes will be calculated using the principal amount of the Notes.
S-11
<PAGE> 13
The "Adjusted Ending Value" will be determined by the Calculation Agent and
will equal the average (arithmetic mean) of the closing values of the Index on
each of the 42 Calculation Days during the Calculation Period, multiplied by the
Adjustment Factor. If the 28th of any month during the Calculation Period is not
a Calculation Day because it is not an Index Business Day or due to the
occurrence of one or more Market Disruption Events, then the Index value for
that month of the Calculation Period will equal the closing value of the S&P 500
Index determined on the next Index Business Day on which no Market Disruption
Event exists, except that if December 28, 2005 is not a Calculation Day for any
reason, then the Index value for December 2005 will equal the closing value of
the S&P 500 Index determined on the immediately preceding Index Business Day on
which no Market Disruption Event exists.
The "Adjustment Factor" will equal 1.45% per annum, and will be applied pro
rata on a daily basis to reduce the value of the Index during the term of the
Notes. As a result of the application of the Adjustment Factor, the Adjusted
Ending Value used to calculate the Supplemental Redemption Amount at the stated
maturity of the Notes will be 9.9385% less than the actual average of the Index
values on the 42 Calculation Days during the Calculation Period. If the Adjusted
Ending Value is calculated with respect to a date earlier than the stated
maturity of the Notes, the Adjustment Factor will be reduced pro rata to reflect
the number of days elapsed between October 27, 1998 and such date.
The "Calculation Period" means the period from and including the date 42
months prior to the maturity date to but excluding the maturity date. A
"Calculation Day" means the 28th of each month during the Calculation Period,
provided that such day is an Index Business Day and no Market Disruption Event
has occurred on such day.
The "Starting Value" equals 1065.34, which was the closing value of the
Index on October 27, 1998.
For purposes of determining the Adjusted Ending Value, an "Index Business
Day" is a day on which the NYSE and the CBOE are open for trading and the Index
or any Successor Index, as defined below, is calculated and published. The
Calculation Agent may, in its discretion, add to (or delete from) the definition
of Index Business Day any other major U.S. exchange which commences to serve (or
ceases to serve) as the primary exchange upon which a stock underlying the Index
trades or as an exchange upon which a futures contract, an option on a futures
contract or an option contract relating to the Index trades. All determinations
made by the Calculation Agent shall be at the sole discretion of the Calculation
Agent and shall be conclusive for all purposes and binding on the Company and
beneficial owners of the Notes, absent manifest error.
HYPOTHETICAL RETURNS
The following table illustrates, for a range of hypothetical average values
of the Index during the 42-month Calculation Period and based upon the Starting
Value of 1065.34 and a December 30, 2005 maturity of the Notes, (i) the
hypothetical Adjusted Ending Value used to calculate the Supplemental Redemption
Amount; (ii) the percentage change from the Starting Value to the hypothetical
Adjusted Ending Value; (iii) the hypothetical total amount payable per Note;
(iv) the hypothetical total rate of return on the Notes; (v) the hypothetical
pretax annualized rate of return on the Notes; and (vi) the hypothetical pretax
annualized rate of return of the stocks underlying the Index (which includes an
assumed aggregate dividend yield of 1.50% per annum, as more fully described
below). The calculations in this table are based on the Adjustment Factor of
1.45% per annum (or 9.9385% over the term of the Notes).
S-12
<PAGE> 14
<TABLE>
<CAPTION>
HYPOTHETICAL PERCENTAGE CHANGE PRETAX
AVERAGE INDEX HYPOTHETICAL OF ADJUSTED ENDING TOTAL AMOUNT TOTAL RATE OF ANNUALIZED RATE
VALUE DURING THE ADJUSTED VALUE OVER THE PAYABLE AT MATURITY RETURN ON OF RETURN OF
CALCULATION PERIOD(1) ENDING VALUE(2) STARTING VALUE PER $10 UNIT THE NOTES THE NOTES(3)
--------------------- --------------- ------------------ ------------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
745.74 671.62 -36.96% $10.00 0.00% 0.00%
852.27 767.57 -27.95% $10.00 0.00% 0.00%
958.81 863.52 -18.94% $10.00 0.00% 0.00%
1,065.34(5) 959.46 -9.94% $10.00 0.00% 0.00%
1,171.87 1,055.41 -0.93% $10.00 0.00% 0.00%
1,278.41 1,151.35 8.07% $10.81 8.07% 1.09%
1,384.94 1,247.30 17.08% $11.71 17.08% 2.21%
1,491.48 1,343.25 26.09% $12.61 26.09% 3.26%
1,598.01 1,439.19 35.09% $13.51 35.09% 4.24%
1,704.54 1,535.14 44.10% $14.41 44.10% 5.16%
1,811.08 1,631.08 53.10% $15.31 53.10% 6.03%
1,917.61 1,727.03 62.11% $16.21 62.11% 6.85%
2,024.15 1,822.98 71.12% $17.11 71.12% 7.63%
2,130.68 1,918.92 80.12% $18.01 80.12% 8.38%
2,237.21 2,014.87 89.13% $18.91 89.13% 9.08%
2,343.75 2,110.81 98.14% $19.81 98.14% 9.76%
2,450.28 2,206.76 107.14% $20.71 107.14% 10.42%
2,556.82 2,302.71 116.15% $21.61 116.15% 11.04%
2,663.35 2,398.65 125.15% $22.52 125.15% 11.64%
<CAPTION>
PRETAX ANNUALIZED
RATE OF RETURN ON
STOCKS UNDERLYING
THE INDEX(3)(4)
------------------
<S> <C>
-3.53%
-1.66%
0.00%
1.50%
2.87%
4.14%
5.30%
6.40%
7.42%
8.38%
9.29%
10.15%
10.97%
11.75%
12.49%
13.20%
13.89%
14.55%
15.18%
</TABLE>
- ---------------
(1) The actual average Index value, for purposes of calculating the Supplemental
Redemption Amount at stated maturity, will be equal to the average of the
Index values on each of the Calculation Days during the 42-month Calculation
Period.
(2) The actual Adjusted Ending Value, for purposes of calculating the
Supplemental Redemption Amount at stated maturity, will be equal to the
actual average Index value reduced by the Adjustment Factor.
(3) These annualized rates of return are calculated on a semi-annual
bond-equivalent basis.
(4) This rate of return assumes (i) a constant dividend yield of 1.50% per
annum, paid quarterly from the date of initial delivery of Notes, applied to
the value of the Index at the end of each such quarter assuming such value
increases or decreases linearly from the Starting Value to the hypothetical
Index value during the Calculation Period; (ii) no transaction fees or
expenses; (iii) a maturity date of the Notes of December 30, 2005; and (iv)
a final Index value equal to the hypothetical average Index value during the
Calculation Period.
(5) The Starting Value, which equals the closing value of the Index on October
27, 1998.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the total and pretax
rate of return resulting therefrom will depend entirely on the Starting Value,
the Adjustment Factor and the actual Adjusted Ending Value determined by the
Calculation Agent as provided herein. In particular, the actual Adjusted Ending
Value could be lower or higher than those reflected in the table. Historical
data regarding the S&P 500 Index is included in this Prospectus Supplement under
"The S&P 500 Index -- Historical Data on the Index".
MARKET DISRUPTION EVENTS
"Market Disruption Event" means any of the following events, as determined
by the Calculation Agent.
(a) The suspension or material limitation of trading in 20% or more of
the underlying stocks which then comprise the S&P 500 Index or any
Successor Index, in each case, for more than two hours of trading or during
the one-half hour period preceding the close of trading on the NYSE or any
other applicable organized U.S. exchange. For purposes of this definition,
limitations on trading during significant market fluctuations imposed
pursuant to NYSE Rule 80B (or any applicable rule or regulation enacted or
promulgated by the NYSE, any other self regulatory organization or the SEC
of similar scope
S-13
<PAGE> 15
or as a replacement for Rule 80B, as determined by the Calculation Agent)
shall be considered "material".
(b) The suspension or material limitation, in each case, for more than
two hours of trading or during the one-half hour period preceding the close
of trading (whether by reason of movements in price exceeding levels
permitted by the relevant exchange or otherwise) in (A) futures contracts
related to the Index or any Successor Index or options on such futures
contracts which are traded on the CME or any other major U.S. exchange or
(B) options contracts related to the Index or any Successor Index which are
traded on any major U.S. exchange.
(c) The unavailability, through a recognized system of public
dissemination of transaction information, for more than two hours of
trading or during the one-half hour period preceding the close of trading,
of accurate price, volume or related information in respect of 20% or more
of the underlying stocks which then comprise the Index or any Successor
Index or in respect of futures contracts related to the Index or any
Successor Index, options on such futures contracts or options contracts
related to the Index or any Successor Index, in each case traded on any
major U.S. exchange.
For purposes of determining whether a Market Disruption Event has occurred:
(1) a limitation on the hours or number of days of trading will not constitute a
Market Disruption Event if it results from an announced change in the regular
business hours of the relevant exchange or market, (2) a decision to discontinue
permanently trading in the relevant futures or options contract will not
constitute a Market Disruption Event, (3) any suspension in trading in a futures
or options contract on the Index or any Successor Index by a major securities
market by reason of (x) a price change violating limits set by such securities
market, (y) an imbalance of orders relating to such contracts or (z) a disparity
in bid and ask quotes relating to such contracts will constitute a Market
Disruption Event, notwithstanding that such suspension or material limitation is
less than two hours, and (4) a "suspension or material limitation" on an
exchange or in a market will include a suspension or material limitation of
trading by one class of investors provided that such suspension continues for
more than two hours of trading or during the last one-half hour period preceding
the close of trading on the relevant exchange or market (but will not include
limitations imposed on certain types of trading under NYSE Rule 80A or any
applicable rule or regulation enacted or promulgated by the NYSE, any other
self-regulatory organization or the SEC of a similar scope or as a replacement
for Rule 80A, as determined by the Calculation Agent) and will not include any
time when such exchange or market is closed for trading as part of such
exchange's or market's regularly scheduled business hours. Under certain
circumstances, the duties of Salomon Smith Barney as Calculation Agent in
determining the existence of Market Disruption Events could conflict with the
interests of Salomon Smith Barney as an affiliate of the issuer of the Notes.
Based on the information currently available to the Company, on October 27,
1997, the NYSE suspended all trading during the one-half hour period preceding
the close of trading, pursuant to NYSE Rule 80B. On April 3, 1992, no trading
took place on the Chicago Mercantile Exchange (the "CME"), as a flood that
severely affected the operations of many of the CME's member institutions caused
the CME to suspend trading (including trading in futures or options contracts on
the Index) for the entire day; if this suspension of trading had occurred during
the term of the Notes, such event would have constituted a Market Disruption
Event. The existence or non-existence of such circumstances, however, is not
necessarily indicative of the likelihood of such circumstances arising or not
arising in the future.
DISCONTINUANCE OF THE S&P 500 INDEX
If S&P discontinues publication of the S&P 500 Index and S&P or another
entity publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to such Index (any such
index being referred to hereinafter as a "Successor Index"), then the Adjusted
Ending Value shall be determined by reference to the value of such Successor
Index using the methodology described above under "-- Determination of the
Supplemental Redemption Amount".
S-14
<PAGE> 16
Upon any selection by the Calculation Agent of a Successor Index, the
Calculation Agent will cause notice thereof to be furnished to the Company and
the Trustee, who shall provide notice thereof to the holders of the Notes.
If S&P discontinues publication of the Index and a Successor Index is not
selected by the Calculation Agent or is no longer published on any Calculation
Day, the value to be substituted for the Index for any such Calculation Day used
to calculate the Supplemental Redemption Amount at maturity will be a value
computed by the Calculation Agent for such Calculation Day in accordance with
the procedures last used to calculate the Index prior to any such
discontinuance.
If S&P discontinues publication of the Index prior to the period during
which the Supplemental Redemption Amount is to be determined and the Calculation
Agent determines that no Successor Index is available at such time, then on each
Index Business Day until the earlier to occur of (a) the determination of the
Adjusted Ending Value and (b) a determination by the Calculation Agent that a
Successor Index is available, the Calculation Agent shall determine the value
that would be used in computing the Supplemental Redemption Amount as described
in the preceding paragraph as if such day were a Calculation Day. The
Calculation Agent will cause notice of each such value to be published not less
often than once each month in The Wall Street Journal (or another newspaper of
general circulation), and arrange for information with respect to such values to
be made available by telephone. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Index may adversely affect trading in
the Notes.
If a Successor Index is selected or the Calculation Agent calculates a
value as a substitute for the S&P 500 Index as described above, such Successor
Index or value shall be substituted for the S&P 500 Index for all purposes,
including for purposes of determining whether an Index Business Day occurs or a
Market Disruption Event exists. Notwithstanding these alternative arrangements,
discontinuance of the publication of the S&P 500 Index may adversely affect the
value of the Notes.
ALTERATION OF METHOD OF CALCULATION
If at any time the method of calculating the S&P 500 Index or a Successor
Index, or the value thereof, is changed in any material respect, or if the Index
or a Successor Index is in any other way modified so that such Index does not,
in the opinion of the Calculation Agent, fairly represent the value of the Index
or such Successor Index had such changes or modifications not been made, then,
from and after such time, the Calculation Agent shall, at the close of business
in New York, New York, on each date that the closing value with respect to the
Adjusted Ending Value is to be calculated, make such adjustments as, in the good
faith judgment of the Calculation Agent, may be necessary in order to arrive at
a calculation of a value of a stock index comparable to the Index or such
Successor Index as if changes or modifications had not been made, and calculate
such closing value with reference to the Index, as adjusted. Accordingly, if the
method of calculating the Index or such Successor Index is modified so that the
value of such Index or such Successor Index is a fraction or a multiple of what
it would have been if it had not been modified (e.g., due to a split in such
Index), then the Calculation Agent shall adjust such Index in order to arrive at
a value of such Index as if it had not been modified (e.g., as if such split had
not occurred).
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default (as defined in the accompanying Prospectus)
with respect to any Notes shall have occurred and be continuing, the amount
declared due and payable upon any acceleration of the Notes will be determined
by the Calculation Agent and will equal, for each Note, the principal amount
plus the Supplemental Redemption Amount, if any, calculated as though the
maturity date of the Notes were the date of early repayment. See
"-- Determination of the Supplemental Redemption Amount" above. If a bankruptcy
proceeding is commenced in respect of the Company, the claim of the beneficial
owner of a Note may be limited, under Section 502(b)(2) of Title 11 of the
United States Code, to the principal amount of the Note plus an additional
amount of contingent interest calculated as though the maturity date of the
Notes were the date of the commencement of the proceeding.
S-15
<PAGE> 17
In case of default in payment at the maturity date of the Notes (whether at
their stated maturity or upon acceleration), from and after the maturity date
the Notes shall bear interest, payable upon demand of the beneficial owners
thereof, at the rate of 5.42% per annum on the unpaid amount due and payable on
such date in accordance with the terms of the Notes to the date payment of such
amount has been made or duly provided for.
BOOK-ENTRY SYSTEM
Upon issuance, all Notes will be represented by one or more
fully-registered global securities (the "Global Notes"). Each such Global Note
will be deposited with, or on behalf of the Depositary, and registered in the
name of the Depositary or a nominee thereof. Unless and until it is exchanged in
whole or in part for Notes in definitive form, no Global Note may be transferred
except as a whole by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or by the Depositary or any such nominee to a successor of the Depositary or a
nominee of such successor. Accountholders in the Euroclear or Cedel Bank
clearance systems may hold beneficial interests in the Notes through the
accounts each such system maintains as a participant in the Depositary.
The Depositary has advised the Company as follows: the Depositary is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. The Depositary holds
securities that its participants ("Participants") deposit with the Depositary.
The Depositary also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations ("Direct Participants").
The Depositary is owned by a number of its Direct Participants and by the NYSE,
The American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the Depositary system is also available to others, such
as securities brokers and dealers, banks and trust companies that clear
transactions through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly. The rules applicable to the
Depositary and its Participants are on file with the Commission.
A further description of the Depositary's procedures with respect to the
Global Notes is set forth in the Prospectus under "Description of Debt
Securities -- Global Notes". The Depositary has confirmed to the Company, the
Underwriter and the Trustee that it intends to follow such procedures.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriter in same-day funds.
All payments of principal and the Supplemental Redemption Amount, if any, will
be made by the Company in same-day funds so long as the Notes are maintained in
book-entry form.
CALCULATION AGENT
The Calculation Agent for the Notes will be Salomon Smith Barney. All
determinations made by the Calculation Agent shall be at the sole discretion of
the Calculation Agent and shall, in the absence of manifest error, be conclusive
for all purposes and binding on the Company and holders of the Notes. Because
the Calculation Agent is an affiliate of the Company, potential conflicts of
interest may exist between the Calculation Agent and the holders of the Notes,
including with respect to certain determinations and judgments that the
Calculation Agent must make in determining the Adjusted Ending Value and the
Supplemental Redemption Amount or whether a Market Disruption Event has
occurred. See "-- Market Disruption Events", "-- Discontinuance of the S&P 500
Index" and "-- Alteration of Method of Calculation" above. Salomon Smith Barney
is obligated to carry out its duties and functions as Calculation Agent in good
faith and using its reasonable judgment.
S-16
<PAGE> 18
THE S&P 500 INDEX
GENERAL
Unless otherwise stated, all information herein on the Index is derived
from S&P or other publicly available sources. Such information reflects the
policies of S&P as stated in such sources and such policies are subject to
change by S&P. S&P is under no obligation to continue to publish the Index and
may discontinue publication of the Index at any time.
The Index is published by S&P, and is intended to provide an indication of
the pattern of common stock price movement. The calculation of the value of the
Index (discussed below in further detail) is based on the relative value of the
aggregate Market Value (as defined below) of the common stocks of 500 companies
as of a particular time compared to the aggregate average Market Value of the
common stocks of 500 similar companies during the base period of the years 1941
through 1943. As of September 30, 1998 the 500 companies included in the Index
represented approximately 82% of the aggregate Market Value of common stocks
traded on the NYSE; however, these 500 companies are not the 500 largest
companies listed on the NYSE and not all of these 500 companies are listed on
the NYSE. As of September 30, 1998, the aggregate Market Value of the 500
companies included in the Index represented approximately 78% of the aggregate
Market Value of United States domestic, public companies. S&P chooses companies
for inclusion in the Index with the aim of achieving a distribution by broad
industry groupings that approximates the distribution of these groupings in the
common stock population of the NYSE, which S&P uses as an assumed model for the
composition of the total market. Relevant criteria employed by S&P include the
viability of the particular company, the extent to which that company represents
the industry group to which it is assigned, the extent to which the market price
of that company's common stock is generally responsive to changes in the affairs
of the respective industry and the Market Value and trading activity of the
common stock of that company. As of September 30, 1998, the 500 companies
included in the Index were divided into 104 individual groups.
These individual groups comprised the following four main groups of
companies (with the number of companies currently included in each group
indicated in parentheses): Industrials (376), Financial (77), Utilities (37) and
Transportation (10). S&P may from time to time, in its sole discretion, add
companies to, or delete companies from, the Index to achieve the objectives
stated above.
THE INDEX DOES NOT REFLECT THE PAYMENT OF DIVIDENDS ON THE STOCKS
UNDERLYING IT AND THEREFORE THE RETURN BASED ON THE SUPPLEMENTAL REDEMPTION
AMOUNT WILL NOT PRODUCE THE SAME RETURN YOU WOULD RECEIVE IF YOU WERE TO
PURCHASE SUCH UNDERLYING STOCKS AND HOLD THEM FOR A PERIOD EQUAL TO THE MATURITY
OF THE NOTES.
COMPUTATION OF THE INDEX
While S&P currently employs the following methodology to calculate the
Index, no assurance can be given that S&P will not modify or change such
methodology in a manner that may affect the Supplemental Redemption Amount, if
any, payable to beneficial owners of Notes upon maturity or otherwise.
S&P currently computes the Index as of a particular time as follows:
(a) the product of the market price per share and the number of then
outstanding shares of each component stock is determined as of such time
(such product referred to as the "Market Value" of such stock);
(b) the Market Value of all component stock as of such time (as
determined under clause (a) above) are aggregated;
(c) the mean average of the Market Values as of each week in the base
period of the years 1941 through 1943 of the common stock of each company
in a group of 500 substantially similar companies is determined;
S-17
<PAGE> 19
(d) the mean average Market Values of all such common stocks over such
base period (as determined under clause (c) above are aggregated (such
aggregate amount being referred to as the "Base Value");
(e) the aggregate Market Value of all component stocks as of such time
as determined under clause (b) above) is divided by the Base Value; and
(f) the resulting quotient (expressed in decimals) is multiplied by
ten.
S&P adjusts the foregoing formula to negate the effects of changes in the
Market Value of a component stock that are determined by S&P to be arbitrary or
not due to true market fluctuations. Such changes may result from such causes as
the issuance of stock dividends, the granting to shareholders of rights to
purchase additional shares of such stock, the purchase of shares by employees
pursuant to employee benefit plans, certain consolidations and acquisitions, the
granting to shareholders of rights to purchase other securities of the company,
the substitution by S&P of particular component stocks in the Index, and other
reasons. In all such cases, S&P first recalculates the aggregate Market Value of
all component stocks (after taking account of the new market price per share of
the particular component stock or the new number of outstanding shares thereof
or both, as the case may be) and then determines the New Base Value in
accordance with the following formula:
<TABLE>
<C> <C> <S>
New Market Value = New Base Value
Old Base Value X -----------------
Old Market Value
</TABLE>
The result is that the Base Value is adjusted in proportion to any change
in the aggregate Market Value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of such clauses
upon the Index.
HISTORICAL DATA ON THE INDEX
The following table sets forth the value of the Index at the end of each
month in the period from January 1992 through September 1998. These historical
data on the Index are not necessarily indicative of the future performance of
the Index or what the value of the Notes may be. Any historical upward or
downward trend in the value of the Index during any period set forth below is
not any indication that the Index is more or less likely to increase or decrease
at any time during the term of the Notes.
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
January............................. 408.79 438.78 481.61 470.42 636.02 786.16 980.28
February............................ 412.70 443.38 467.14 487.39 640.43 790.82 1049.34
March............................... 403.69 451.67 445.77 500.71 645.50 757.12 1101.75
April............................... 414.95 440.19 450.91 514.71 654.17 801.34 1111.75
May................................. 415.35 450.19 456.50 533.40 669.12 848.28 1090.82
June................................ 408.14 450.53 444.27 544.75 670.63 885.14 1133.84
July................................ 424.21 448.13 458.26 562.06 639.95 954.29 1120.67
August.............................. 414.03 463.56 475.49 561.88 651.99 899.47 957.28
September........................... 417.80 458.93 462.69 584.41 687.33 947.28 1017.01
October............................. 418.68 467.83 472.35 581.50 705.27 914.62
November............................ 431.35 461.79 453.69 605.37 757.02 955.40
December............................ 435.71 466.45 459.27 615.93 740.74 970.43
</TABLE>
The following table sets forth the closing values of the Index on the last
business day of each year from 1947 through 1997, as published by S&P. The
historical experience of the Index should not be taken as an indication of
future performance and no assurance can be given that the value of the Index
will not decline and
S-18
<PAGE> 20
thereby reduce or eliminate the Supplemental Redemption Amount which may be
payable to holders of the Notes at the stated maturity date.
YEAR-END CLOSING VALUE OF THE INDEX
<TABLE>
<CAPTION>
YEAR-END YEAR-END YEAR-END YEAR-END
CLOSING CLOSING CLOSING CLOSING
YEAR VALUE YEAR VALUE YEAR VALUE YEAR VALUE
- ---- -------- ---- -------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1947 15.30 1961 71.55 1975 90.19 1989 353.40
1948 15.20 1962 63.10 1976 107.46 1990 330.22
1949 16.79 1963 75.02 1977 95.10 1991 417.09
1950 20.43 1964 84.75 1978 96.11 1992 435.71
1951 23.77 1965 92.43 1979 107.94 1993 466.45
1952 26.57 1966 80.33 1980 135.76 1994 459.27
1953 24.81 1967 96.47 1981 122.55 1995 615.93
1954 35.98 1968 103.86 1982 140.64 1996 740.74
1955 45.48 1969 92.06 1983 164.93 1997 970.43
1956 46.67 1970 92.15 1984 167.24
1957 39.99 1971 102.09 1985 211.28
1958 55.21 1972 118.05 1986 242.17
1959 59.89 1973 97.55 1987 247.08
1960 58.11 1974 68.56 1988 277.72
</TABLE>
The closing value of the Index on October 27, 1998 was 1065.34.
HISTORICAL YEAR-END CLOSING VALUES
The following graph illustrates the historical performance of the Index
based on the closing value thereof at the end of each year from 1947 through
1997 and as of October 27, 1998. Past movements of the Index are not necessarily
indicative of future Index values.
S&P 500 INDEX HISTORICAL YEAR-END CLOSING VALUES
[PERFORMANCE GRAPH]
S-19
<PAGE> 21
LICENSE AGREEMENT
S&P and the Company have entered into a non-exclusive license agreement
providing for the license to the Company, in exchange for a fee, of the right to
use indices owned and published by S&P in connection with certain securities,
including the Notes.
The license agreement between S&P and the Company provides that the
following language must be stated in this Prospectus Supplement:
"The Notes are not sponsored, endorsed, sold or promoted by S&P. S&P makes
no representation or warranty, express or implied, to the Holders of the Notes
or any member of the public regarding the advisability of investing in
securities generally or in the Notes particularly or the ability of the Index to
track general stock market performance. S&P's only relationship to the Company
(other than transactions entered into in the ordinary course of business) is the
licensing of certain servicemarks and trade names of S&P and of the Index which
is determined, composed and calculated by S&P without regard to the Company or
the Notes. S&P has no obligation to take the needs of the Company or the Holders
of the Notes into consideration in determining, composing or calculating the
Index. S&P is not responsible for and has not participated in the determination
of the timing of the sale of the Notes, prices at which the Notes are to
initially be sold, or quantities of the Notes to be issued or in the
determination or calculation of the equation by which the Notes are to be
converted into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Notes."
All disclosures contained in this Prospectus Supplement regarding the
Index, including its make-up, method of calculation and changes in its
components, are derived from publicly available information prepared by S&P.
None of the Company, Salomon Smith Barney or the Trustee under the Senior Debt
Indenture assumes any responsibility for the accuracy or completeness of such
information.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain United States federal income
tax considerations that may be relevant to a holder of a Note. This summary is
based on laws, regulations, rulings and decisions now in effect, all of which
are subject to change (possibly with retroactive effect) and to differing
interpretations. Furthermore, there can be no assurance that the Internal
Revenue Service would not take a position contrary to those expressed herein.
This summary deals only with holders that will hold Notes as capital assets, and
does not address all aspects of U.S. federal income taxation that may be
applicable to investors in light of their particular circumstances, or to
investors subject to special treatment under U.S. federal income tax law
(including, but not limited to, financial institutions, tax-exempt entities,
insurance companies or dealers in securities or currencies, persons having a
functional currency other than the U.S. dollar, persons holding the Notes as a
position in a "straddle" or conversion transaction, or as part of a "synthetic
security" or other integrated financial transaction). This summary also does not
address the state, local or foreign tax consequences of an investment in the
Notes. The discussion below is based on the advice of Cleary, Gottlieb, Steen &
Hamilton, counsel to Salomon Smith Barney and special tax counsel to the
Company.
Investors should consult their own tax advisors in determining the tax
consequences to them of holding Notes, including the application to their
particular situation of the U.S. federal income tax considerations discussed
below.
As used herein, the term "U.S. holder" means a person who is a citizen or
resident of the United States, or that is a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, an estate the income of which is subject to
United States federal income taxation regardless of its source or a trust if (i)
a U.S. court is able to exercise primary supervision over the trust's
administration and (ii) one or more U.S. persons have the authority to control
all of the trust's substantial decisions.
S-20
<PAGE> 22
TAX CHARACTERIZATION OF THE NOTES
Each Note will be treated by the Company for U.S. federal income tax
purposes as a single debt instrument issued by the Company that is subject to
U.S. Treasury regulations governing contingent debt instruments (the "Contingent
Debt Regulations"). Moreover, each holder, by accepting a Note, agrees to this
treatment of such Note and to report all income (or loss) with respect to the
Notes in accordance with the Contingent Debt Regulations. The remainder of this
summary assumes the treatment of the Note as a single debt instrument subject to
the Contingent Debt Regulations and the holder's agreement thereto.
U.S. HOLDERS
Taxation of Interest. A U.S. holder of a Note will recognize income (or
loss) on a Note in accordance with the Contingent Debt Regulations. The
Contingent Debt Regulations require the application of a "noncontingent bond
method" to determine accruals of income, gain, loss and deduction with respect
to a contingent debt obligation. As described in more detail in the second
succeeding paragraph, under the noncontingent bond method, a U.S. holder of a
Note will be required for tax purposes to include in income each year an accrual
of interest at the rate of 5.42 percent (the "comparable yield"). Solely for
purposes of determining the comparable yield pursuant to the Contingent Debt
Regulations, a holder of a Note will be assumed to be entitled to receive a
payment of $4.6781 on the maturity date (the "Assumed Supplemental Redemption
Amount") in respect of each Unit. The Assumed Supplemental Redemption Amount is
calculated as the amount required to produce the comparable yield of a Note,
taking into account the Note's issue price.
The comparable yield and the Assumed Supplemental Redemption Amount are
used to determine accruals of interest FOR TAX PURPOSES ONLY and are not
assurances or predictions by the Company with respect to the actual yield of, or
payment to be made in respect of, a Note. The comparable yield and the Assumed
Supplemental Redemption Amount do not necessarily represent the Company's
expectations regarding such yield or the amount of such payment.
Each Note will be issued at par. However, there will be Tax OID because Tax
OID must be accrued at the comparable yield. Under the Tax OID rules of the
Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury
regulations promulgated thereunder, a U.S. holder of a Note, whether such holder
uses the cash or the accrual method of tax accounting, will be required to
include as ordinary interest income the sum of the "daily portions" of Tax OID
on the Note for all days during the taxable year that the U.S. holder owns the
Note. As a result, a U.S. holder of a Note that employs the cash method of tax
accounting will be required to include amounts in respect of Tax OID accruing on
a Note in taxable income each year, even though cash payment on the Note is only
at maturity.
The daily portions of Tax OID on a Note are determined by allocating to
each day in any accrual period a ratable portion of the Tax OID allocable to
that accrual period. In the case of an initial holder, the amount of Tax OID on
a Note allocable to each accrual period is determined by multiplying the
"adjusted issue price" (as defined below) of a Note at the beginning of the
accrual period by the comparable yield of a Note (appropriately adjusted to
reflect the length of the accrual period). The "adjusted issue price" of a Note
at the beginning of any accrual period will generally be the sum of its issue
price and the amount of Tax OID allocable to all prior accrual periods.
Disposition of the Notes. When a U.S. holder sells, exchanges or otherwise
disposes of a Note (including the redemption of the Note at maturity) (a
"disposition"), the U.S. holder's gain (or loss) on such disposition will equal
the difference between the amount received by the U.S. holder for the Note and
the U.S. holder's tax basis in the Note. Upon a Note's maturity, if there is a
payment of a Supplemental Redemption Amount and such Supplemental Redemption
Amount exceeds the Assumed Supplemental Redemption Amount, the U.S. holder will
be required to include such excess in income as ordinary interest on the
maturity date. Alternatively, if there is a payment of a Supplemental Redemption
Amount and such Supplemental Redemption Amount is less than the Assumed
Supplemental Redemption Amount, the shortfall will be treated as an offset to
any interest otherwise includible in income by the U.S. holder with respect to
the Note for the taxable year in which the maturity date occurs but only to the
extent of the amount of such includible
S-21
<PAGE> 23
interest. Any remaining portion of such shortfall may be recognized and deducted
by the U.S. holder as an ordinary loss. A U.S. holder's tax basis (i.e.,
adjusted cost) in a Note will be equal to the U.S. holder's original purchase
price for such Note, plus any Tax OID accrued by the U.S. holder. Any gain
realized by a U.S. holder on a disposition will be treated as ordinary interest
income. Any loss realized by a U.S. holder on a disposition will be treated as
ordinary loss, to the extent of the U.S. holder's Tax OID inclusions with
respect to the Note up to the date of disposition. Any loss realized in excess
of such amount generally will be treated as a capital loss. An individual U.S.
holder generally will be allowed a deduction for any such ordinary loss without
regard to the two-percent miscellaneous itemized deduction rule of Section 67 of
the Code. Any capital loss recognized by a U.S. holder will be a long-term
capital loss if such U.S. holder has held such Note for more than one year, and
a short-term capital loss in other cases.
A U.S. holder that purchases a Note in the secondary market for an amount
that differs from the Note's adjusted issue price at the time of purchase will
be required to accrue Tax OID on the Note in accordance with the comparable
yield and Assumed Supplemental Redemption Amount, even if market conditions have
changed since the date of issuance. A U.S. holder must determine whether the
difference between the purchase price for a Note and the adjusted issue price of
the Note is attributable to a change in expectations as to the Supplemental
Redemption Amount, a change in interest rates, or both, and allocate the
difference accordingly. Adjustments allocated to a change in interest rates will
cause, as the case may be, a "positive adjustment" or a "negative adjustment" to
the U.S. holder's Tax OID inclusion. If the adjusted issue price is more than
the purchase price for the Note, a "positive adjustment" will result, and if the
adjusted issue price is less than the purchase price of the Note, a "negative
adjustment" will result. If the difference between a U.S. holder's purchase
price for a Note and the adjusted issue price of the Note is attributable to a
change in expectations as to the Supplemental Redemption Amount (and not to a
change in market interest rates), the U.S. holder will be required to allocate
that difference to the Supplemental Redemption Amount. Adjustments allocated to
the Supplemental Redemption Amount are taken into account at the time the
Supplemental Redemption Amount is paid. If the purchaser's tax basis in a Note
is greater than the adjusted issue price of the Note, the excess is treated as a
"negative adjustment" that reduces the Supplemental Redemption Amount; if the
purchaser's tax basis in a Note is less than the adjusted issue price of the
Note, the difference is treated as a "positive adjustment" that increases the
Supplemental Redemption Amount. Any negative or positive adjustment of the kind
described above made by a U.S. holder of a Note will decrease or increase,
respectively, the U.S. holder's tax basis in the Note.
Certain U.S. holders may receive Forms 1099-OID reporting Tax OID accruals
on a Note. Those forms may not, however, reflect the effects of any positive or
negative adjustments resulting from the U.S. holder's purchase of the Note in
the secondary market at a price that differs from its adjusted issue price on
the date of purchase. U.S. holders are urged to consult their tax advisors as to
whether, and how, such adjustments should be made to the amounts reported on any
Form 1099-OID.
Information Reporting and Backup Withholding. A noncorporate U.S. holder
may be subject to information reporting and to backup withholding at a rate of
31 percent with respect to payments of principal, premium and interest
(including Tax OID) made on a Note, or the proceeds of a disposition of a Note
before maturity, unless such U.S. holder provides proof of an applicable
exemption or a correct taxpayer identification number, and otherwise complies
with applicable requirements of the information reporting and backup withholding
rules.
NON-U.S. HOLDERS
Taxation of Interest and Disposition of the Notes. Under current U.S.
federal income tax law: (a) payment of a Supplemental Redemption Amount to a
holder who is not a U.S. holder (a "non-U.S. holder") will not be subject to
withholding of U.S. federal income tax, provided that (i) the holder does not
actually or constructively own 10 percent or more of the combined voting power
of all classes of stock of the Company and is not a controlled foreign
corporation related to the Company through stock ownership and (ii) the
beneficial owner provides a statement signed under penalties of perjury that
includes its name and address and certifies that it is a non-U.S. holder in
compliance with applicable requirements or, with respect to payments made after
December 31, 1999, satisfies certain documentary evidence requirements for
establishing
S-22
<PAGE> 24
that it is a non-U.S. holder; and (b) a non-U.S. holder will not be subject to
U.S. federal income tax on gain realized on the disposition of a Note.
Notwithstanding the above, a non-U.S. holder that is subject to U.S. federal
income taxation on a net income basis with respect to its income from a Note
generally will be subject to the same rules to which a U.S. holder is subject
with respect to the accrual of interest (including Tax OID) on a Note and with
respect to gain or loss realized or recognized on the disposition of a Note.
Special rules might also apply to a non-U.S. holder that is a qualified resident
of a country with which the U.S. has an income tax treaty.
Information Reporting and Backup Withholding. U.S. information reporting
requirements and backup withholding tax will not apply to payments on, or
proceeds from the disposition of, a Note if the beneficial owner certifies its
non-U.S. status under penalties of perjury (or, with respect to payments made
after December 31, 1999, satisfies certain documentary evidence requirements for
establishing that it is a non-U.S. holder) or otherwise establishes an
exemption.
The U.S. Treasury Department issued final Treasury regulations governing
information reporting and the certification procedures regarding withholding and
backup withholding on certain amounts paid to non-U.S. persons after December
31, 1999. Such regulations, among other things, may change the certification
procedures relating to the receipt by intermediaries of payments on behalf of a
beneficial owner of a Note. Prospective investors should consult their tax
advisors regarding the effect, if any, of such Treasury regulations on an
investment in the Notes.
With respect to payments made after December 31, 1999, for purposes of
applying the rules set forth in the three preceding paragraphs to an entity that
is treated as fiscally transparent (e.g., a partnership or certain trusts) for
U.S. federal income tax purposes, the beneficial owner means each of the
ultimate beneficial owners of the entity.
S-23
<PAGE> 25
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") between the Company and Salomon Smith Barney
Inc., as sole underwriter (the "Underwriter"), the Company has agreed to sell to
the Underwriter, and the Underwriter has agreed to purchase from the Company,
$27,000,000 principal amount of Notes.
The Notes are offered subject to receipt and acceptance by the Underwriter,
to prior sale and to the Underwriter's right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Notes will be made at the office of Salomon Smith Barney
Inc., 388 Greenwich Street, New York, New York, or through the facilities of the
Depositary, on or about October 30, 1998.
The Company has been advised that the Underwriter proposes to offer the
Notes to the public initially at the public offering price set forth on the
cover page of this Prospectus Supplement and to certain dealers at a price that
represents a concession not in excess of $0.30 per Unit, and that the
Underwriter may allow, and each such dealer may reallow, to other dealers a
concession not exceeding $0.10 per Unit. After the initial public offering, the
public offering price, the underwriting discount and such concessions may be
changed from time to time.
The Company has been advised by the Underwriter that the Underwriter may
make a market in the Notes, subject to applicable laws and regulations. However,
the Underwriter is not obligated to do so and may discontinue any such
market-making at any time without notice. No assurance can be given that an
active public market for the Notes will develop.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments the Underwriter
may be required to make in respect thereof.
The Notes may be offered to investors outside the United States. The
Underwriter has further agreed that any offers and sales made outside the United
States will be made in compliance with any selling restrictions applicable in
the jurisdictions where such offers and sales are made.
Salomon Smith Barney is an indirect wholly-owned subsidiary of the Company.
Accordingly, the offering is being made pursuant to the provisions of Rule 2720
of the Conduct Rules of the National Association of Securities Dealers, Inc.
regarding the offering by an affiliate of the securities of its parent.
In connection with this offering, the Underwriter and selling group members
and their respective affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Notes. Such transactions
may include stabilization transactions effected in accordance with Rule 104 of
Regulation M under the Exchange Act, pursuant to which such persons may bid for
or purchase Notes for the purposes of stabilizing their market price. The
Underwriter also may create a short position for its accounts by selling more
Notes in connection with this offering than it is committed to purchase from the
Company, and in such case may purchase Notes in the open market following
completion of this offering to cover all or a portion of such short position.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the Notes at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if any are undertaken, they may be discontinued at
any time.
The Company or one or more its subsidiaries may from time to time purchase
or acquire a position in the Notes and may, at its option, hold, resell or
retire such Notes. This Prospectus Supplement and the Prospectus may be used by
Salomon Smith Barney and/or any affiliate thereof in connection with offers and
sales of the Notes in market-making transactions at negotiated prices related to
prevailing market prices at the time of sale. Any such affiliate may act as
principal or agent in such transactions.
S-24
<PAGE> 26
ERISA MATTERS
No employee benefit plan subject to the fiduciary responsibility provisions
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
any entity with respect to which part or all of its assets constitute assets of
any such Plan, or any government or other plan subject to Federal, state or
local law substantially similar to the fiduciary responsibility provisions of
ERISA ("ERISA Plan") is permitted to purchase, hold or otherwise acquire the
Notes. Any plan that is subject to Section 4975(e)(1) of the Code that is not an
ERISA Plan (for example, individual retirement accounts, individual retirement
annuities or Keogh Plans) may only purchase the Notes if such plan has
determined that the purchase, holding and disposition of such Notes and the
transactions contemplated hereby would not constitute a prohibited transaction
under Section 4975 of the Code for which no exemption is available.
LEGAL MATTERS
Certain legal matters relating to the Notes will be passed upon for the
Company by Joan Guggenheimer, Esq., as counsel for the Company. Ms.
Guggenheimer, Deputy General Counsel of the Company, beneficially owns, or has
rights to acquire under Citigroup employee benefit plans, an aggregate of less
than one percent of the common stock of Citigroup. Certain legal matters
relating to the Notes will be passed upon for the Underwriter by Cleary,
Gottlieb, Steen & Hamilton.
Cleary, Gottlieb, Steen & Hamilton has also acted as special tax counsel to
the Company in connection with the Notes and has, from time to time, acted as
counsel for the Company and certain of its affiliates and may do so in the
future.
S-25
<PAGE> 27
APPENDIX A
INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Adjusted Ending Value....................................... S-3, S-12
adjusted issue price........................................ S-21
Adjustment Factor........................................... S-3, S-12
Assumed Supplemental Redemption Amount...................... S-21
Base Value.................................................. S-18
Calculation Agent........................................... S-5
Calculation Day............................................. S-12
Calculation Period.......................................... S-3, S-12
CBOE........................................................ S-5
Citigroup................................................... S-5
CME......................................................... S-14
Code........................................................ S-21
Company..................................................... S-2
comparable yield............................................ S-21
Contingent Debt Regulations................................. S-21
Depositary.................................................. S-2
Direct Participants......................................... S-16
disposition................................................. S-21
ERISA....................................................... S-25
ERISA Plan.................................................. S-25
Exchange Act................................................ S-6
Global Notes................................................ S-16
Index....................................................... S-2
Index Business Day.......................................... S-12
Market Disruption Event..................................... S-13
Market Value................................................ S-17
non-U.S. holder............................................. S-22
Notes....................................................... S-2, S-11
NYSE........................................................ S-4
Participants................................................ S-16
S&P......................................................... S-2
S&P 500 Index............................................... S-2
Salomon Smith Barney........................................ S-5
SEC......................................................... S-5
Starting Value.............................................. S-3, S-12
Successor Index............................................. S-14
Supplemental Redemption Amount.............................. S-2, S-11
Tax OID..................................................... S-10
Trustee..................................................... S-11
Underwriter................................................. S-24
Underwriting Agreement...................................... S-24
Unit........................................................ S-2
U.S. holder................................................. S-20
</TABLE>
A-1
<PAGE> 28
- ------------------------------------------------------
- ------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED
IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING
AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS ACCURATE
AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THE DOCUMENT.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary Information -- Q&A............ S-2
Incorporation of Certain Documents by
Reference........................... S-6
Risk Factors Relating to the Notes.... S-7
Description of the Notes.............. S-11
The S&P 500 Index..................... S-17
Certain United States Federal Income
Tax Considerations.................. S-20
Underwriting.......................... S-24
ERISA Matters......................... S-25
Legal Matters......................... S-25
Index of Terms........................ A-1
PROSPECTUS
Prospectus Summary.................... 2
The Company........................... 6
Ratio of Earnings to Fixed Charges.... 6
The Offered Securities................ 6
Description of Debt Securities........ 7
Description of Index Warrants......... 15
Limitations on Issuance of Bearer
Securities and Bearer Warrants...... 19
European Monetary Union............... 20
Use of Proceeds and Hedging........... 21
Plan of Distribution.................. 21
ERISA Matters......................... 23
Experts............................... 24
Legal Matters......................... 24
Available Information................. 25
Incorporation of Certain Documents by
Reference........................... 25
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,700,000 UNITS
SALOMON SMITH
BARNEY HOLDINGS INC.
PRINCIPAL-PROTECTED EQUITY LINKED NOTES
BASED UPON THE
S&P 500(R) INDEX
DUE DECEMBER 30, 2005
($10 PRINCIPAL AMOUNT PER UNIT)
------------
PROSPECTUS SUPPLEMENT
OCTOBER 27, 1998
(INCLUDING PROSPECTUS
DATED DECEMBER 1, 1997)
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SALOMON SMITH BARNEY
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[SAFETY FIRST LOGO]
[SALOMON SMITH BARNEY LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
65048 9/98
