<PAGE> 1
Pursuant to Rule 424(b)(2)
Registration No. 33-50909
PRELIMINARY AND SUBJECT TO COMPLETION AND AMENDMENT
ISSUE DATE: APRIL 15, 1994
PROSPECTUS SUPPLEMENT
- ---------------------
(TO PROSPECTUS DATED APRIL 1, 1994)
$25,000,000
GENERAL ELECTRIC CAPITAL CORPORATION
S&P 500 INDEXED NOTES DUE MAY , 1996
SERIES A (BEARISH NOTES) AND SERIES B (BULLISH NOTES)
------------------------
S&P 500 Indexed Notes Series A (Bearish Notes) due May , 1996 (the
"Bearish Notes") and S&P 500 Indexed Notes Series B (Bullish Notes) due May ,
1996 (the "Bullish Notes" and, together with the Bearish Notes, the "Notes") are
being offered hereby. The Notes will mature and be repayable at 100% of the
principal amount thereof on May , 1996. The Notes are not subject to
redemption or repayment prior to maturity. The amount of each series of Notes to
be issued will be determined by the Underwriters on the date the Notes are
priced for initial offering to the public, provided that in order for any Notes
of a series to be issued, the aggregate principal amount of such series to be
issued will not be less than $10,000,000.
General Electric Capital Corporation (the "Company") will make annual
interest payments on the Bearish Notes based on the decrease, if any, in the S&P
500 Composite Stock Price Index (the "S&P 500 Index") and on the Bullish Notes
based on the increase, if any, in the S&P 500 Index from the date the Notes are
priced for initial offering to the public to a date approximately one year from
the date the Notes are issued, as further described herein; provided, however,
that the total interest paid during the term of the Bearish Notes will not
exceed $ per $1,000 principal amount of Bearish Notes (the "Bearish
Maximum Total Interest") and $ per $1,000 principal amount of Bullish
Notes (the "Bullish Maximum Total Interest" and, together with the Bearish
Maximum Total Interest, the "Maximum Total Interest").
The total interest payable on a Note from the date of issuance of the Notes
through the maturity date (the "Total Interest") will equal the product of (a)
the principal of the applicable Note, and (b) the applicable Participation Rate
(as defined below), and (c) (i) in the case of the Bearish Notes, the percentage
decrease, if any, in the value of the S&P 500 Index from the Initial Index Value
(as defined below) to the 1995 Index Value (as defined below), or (ii) in the
case of the Bullish Notes, the percentage increase, if any, in the value of the
S&P 500 Index from the Initial Index Value to the 1995 Index Value; provided,
however, that the Total Interest on any Note will not exceed the relevant
Maximum Total Interest. The "Initial Index Value" will equal the closing value
of the S&P 500 Index on the date that the Notes are priced for initial offering
to the public (expected to be on or about April 28, 1994, although subject to
change). The "1995 Index Value" will equal the closing value of the S&P 500
Index on the seventh scheduled Trading Day (as defined below) preceding the date
which is one year from the date that the Notes are issued (the "Determination
Date"), subject to adjustment as more fully described herein. The period between
the dates on which the Initial Index Value and the 1995 Index Value are
determined is referred to herein as the "Measurement Period." The "Bearish
Participation Rate" is equal to % and the "Bullish Participation Rate" is
equal to %. The Participation Rates will be set by the Company on the date
the Notes are priced for initial offering to the public. The Company will pay
half of the Total Interest on May , 1995 and will pay the remaining half at
maturity. Total Interest cannot be less than zero.
If the 1995 Index Value is not less than the Initial Index Value (i.e., the
S&P 500 Index does not decline in value during the Measurement Period), the
Total Interest payable on the Bearish Notes will equal zero and beneficial
owners of the Bearish Notes will receive no interest payments with respect to
the Bearish Notes. If the 1995 Index Value is not greater than the Initial Index
Value (i.e., the S&P 500 Index does not increase in value during the Measurement
Period), the Total Interest payable on the Bullish Notes will equal zero and
beneficial owners of the Bullish Notes will receive no interest payments with
respect to the Bullish Notes. For information as to the calculation of the Total
Interest, if any, the calculation and the composition of the S&P 500 Index and
certain tax consequences to beneficial owners of the Notes, see "Description of
the Notes," "The Standard & Poor's 500 Index," and "Certain United States
Federal Income Tax Considerations" in this Prospectus Supplement. FOR OTHER
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "SPECIAL
CONSIDERATIONS WITH RESPECT TO THE NOTES" IN THIS PROSPECTUS SUPPLEMENT.
Ownership of the Notes will be maintained in book-entry form by or through
the Securities Depository. Beneficial owners of the Notes will not have the
right to receive physical certificates evidencing their ownership except under
limited circumstances described in the accompanying Prospectus. The Notes are to
be issued in denominations of $5,000 and integral multiples thereof.
Application will be made to list the Notes on the New York Stock Exchange.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT THE COMPANY(1)
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<S> <C> <C> <C>
Per Bearish Note............................. 100% % %
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Total........................................ $ $ $
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Per Bullish Note............................. 100% % %
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Total........................................ $ $ $
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- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deduction of expenses payable by the Company.
------------------------
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if issued by the Company and accepted by the Underwriters and subject to
certain other conditions. The Underwriters reserve the right to reject orders in
whole or in part. It is expected that delivery of the Notes will be made in New
York, New York on or about May , 1994.
------------------------
MERRILL LYNCH & CO. KIDDER, PEABODY & CO.
INCORPORATED
------------------------
The date of this Prospectus Supplement is April , 1994.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
STANDARD & POOR'S CORPORATION ("S&P") DOES NOT GUARANTEE THE ACCURACY
AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE
COMPANY, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, KIDDER, PEABODY &
CO. INCORPORATED, HOLDERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE
USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE
RIGHTS LICENSED UNDER THE LICENSE AGREEMENT DESCRIBED HEREIN OR FOR ANY OTHER
USE. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information appearing elsewhere in this
Prospectus Supplement and the accompanying Prospectus.
Issuer..................... General Electric Capital Corporation
Securities Offered......... $ aggregate principal amount of S&P 500
Indexed Notes Series A (Bearish Notes) due May ,
1996 and $ aggregate principal amount of
Series B (Bullish Notes) due May , 1996. The
Notes are to be issued as two series of Senior Debt
Securities under the Indenture described herein.
Denominations.............. The Notes are to be issued in denominations of
$5,000 and integral multiples thereof.
Original Issue Price....... 100%.
Maturity................... May , 1996.
Interest Payments on
Bearish Notes.............. The Company will pay interest on the Bearish Notes
from the issuance of the Bearish Notes through the
maturity date equal to the Total Interest for
Bearish Notes, if any. Such Total Interest, if any,
on the Bearish Notes will be paid in two equal
installments on the Interest Payment Dates and will
be equal to the following for each $1,000 principal
amount of Bearish Notes:
$1,000 X S&P 500 PERCENT X BEARISH
DECLINE PARTICIPATION RATE
provided, however, that Total Interest on the
Bearish Notes will not exceed $ per $1,000
principal amount of Bearish Notes (the "Bearish
Maximum Total Interest"). The foregoing formula
produces a fixed dollar amount (which will be paid
in two equal annual installments), not a per annum
percentage amount. Total Interest on the Bearish
Notes cannot be less than zero.
S&P 500 Percent Decline.... The "S&P 500 Percent Decline" will equal the
following (expressed as a percentage):
Initial Index Value - 1995 Index Value
--------------------------------------
Initial Index Value
If the 1995 Index Value is not less than the
Initial Index Value (i.e., the S&P 500 Index does
not decline in value during the Measurement
Period), a beneficial owner of a Bearish Note will
receive only the principal amount thereof at
maturity and will receive no interest payments on
the Interest Payment Dates.
Interest Payments on
Bullish Notes.............. The Company will pay interest on the Bullish Notes
from the issuance of the Bullish Notes through the
maturity date equal to the Total Interest for
Bullish Notes, if any. Such Total Interest, if any,
on the Bullish Notes will be paid in two equal
installments on the Interest Payment Dates and will
be equal to the following for each $1,000 principal
amount of Bullish Notes:
$1,000 X S&P 500 PERCENT X BULLISH
INCREASE PARTICIPATION RATE
provided, however, that Total Interest on the
Bullish Notes will not exceed $ per $1,000
principal amount of Bullish Notes (the "Bullish
Maximum Total Interest"). The foregoing formula
produces a fixed dollar amount (which will be paid
in two equal annual installments), not a per annum
percentage amount. Total Interest on the Bullish
Notes cannot be less than zero.
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S&P 500 Percent Increase... The "S&P 500 Percent Increase" will equal the
following (expressed as a percentage):
1995 Index Value - Initial Index Value
--------------------------------------
Initial Index Value
If the 1995 Index Value is not greater than the
Initial Index Value (i.e., the S&P 500 Index does
not increase in value during the Measurement
Period), a beneficial owner of a Bullish Note will
receive only the principal amount thereof at
maturity and will receive no interest payments on
the Interest Payment Dates.
Initial Index Value........ The "Initial Index Value" will equal the closing
value of the S&P 500 Index on the date that the
Notes are priced for initial offering to the public
(expected to be on or about April 28, 1994,
although subject to change).
1995 Index Value........... The "1995 Index Value" will equal the closing value
of the S&P 500 Index on the seventh scheduled
Trading Day preceding the date which is one year
from the date that the Notes are issued (the
"Determination Date"), subject to adjustment as
more fully described herein.
Participation Rates........ The Bearish Participation Rate is equal to %.
The Bullish Participation Rate is equal to %.
The percent change in the S&P 500 Index during the
Measurement Period will be multiplied by the
relevant Participation Rate to calculate the Total
Interest, if any, for each series of Notes. The
Bearish Participation Rate is anticipated to be
higher than the Bullish Participation Rate. The
Participation Rates will be set by the Company on
the date the Notes are priced for initial offering
to the public.
Interest Payment Dates..... The Company will pay half the Total Interest, if
any, on each series of Notes on May , 1995 and
will pay the remaining half at maturity.
S&P 500 Index.............. The S&P 500 Index is published by Standard & Poor's
Corporation ("S&P") and is intended to provide an
indication of the pattern of common stock price
movement. The calculation of the value of the S&P
500 Index is based on the relative value of the
aggregate market value of the common stocks of 500
companies at a particular time as compared to the
aggregate average market value of the common stocks
of 500 similar companies during the base period
from the years 1941 through 1943. S&P may from time
to time, in its sole discretion, add companies to,
or delete companies from, the S&P 500 Index to
fulfill the above-stated intention of providing an
indication of common stock price movement.
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", and
"Standard & Poor's 500" are service marks of
Standard & Poor's Corporation and have been
licensed for use by Merrill Lynch Capital Services,
Inc. The Company is an authorized sublicensee
thereof. See "The Standard & Poor's 500 Index" in
this Prospectus Supplement.
Special Considerations with
Respect to the Notes..... The Securities are subject to certain special
considerations. If the 1995 Index Value is not less
than the Initial Index Value (i.e., the S&P 500
Index does not decline in value during the
Measurement Period), the Total Interest payable on
the Bearish Notes will equal zero and beneficial
owners of the Bearish Notes will receive no
interest payments with respect to the Bearish
Notes. If the 1995 Index Value is not greater than
the Initial Index Value (i.e. the S&P 500 Index
does not increase in value during the Measurement
Period), the Total Interest payable on the Bullish
Notes will equal zero and beneficial owners of the
Bullish Notes will receive no interest payments
with respect to the Bullish Notes. This will be
true even though the value of the S&P 500 Index as
of some
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interim period or periods prior to the
Determination Date may have been less than or
greater than, respectively, the Initial Index Value
because the Total Interest payable on the Notes is
calculated on the basis of the 1995 Index Value
only.
Beneficial owners of the Notes will receive the
principal amount of such Notes at maturity. The
repayment of the principal of the Notes does not
reflect any opportunity cost implied by inflation
and other factors relating to the time value of
money.
An investment in the Notes is substantially
different than an investment in the stocks
underlying the S&P 500 Index. The return on an
investment in the stocks underlying the S&P 500
Index for a certain period will not necessarily
equal the percentage change in the S&P 500 Index
for such period, because, among other reasons, the
S&P 500 Index does not reflect the payment of
dividends on the stocks underlying it. In addition,
a percentage change in the value of the S&P 500
Index will not produce the same change in the Total
Interest payable on the series of Notes which have
Total Interest payable.
Although the Notes will mature on May , 1996, the
Total Interest payable on the Notes is calculated
from the date the Notes are priced for initial
offering to the public through a date approximately
one year from the date the Notes are issued. The
term of the Notes is thus two years while the
relevant period for measuring the percentage
change, if any, in the S&P 500 Index to determine
the Total Interest payable on each series of the
Notes is only approximately one year from the date
the Notes are issued. Even though the Total
Interest payable, if any, on each series of Notes
will be determined approximately one year from the
date the Notes are issued, half of such interest,
if any, will not be paid to a beneficial owner of
the Notes until the maturity date, and such payment
of interest at maturity will not be adjusted to
reflect any opportunity cost implied by inflation
and other factors relating to the time value of
money.
There can be no assurance as to how the Notes will
trade in the secondary market or whether such
market will be liquid. It is expected that the
secondary market for the Notes will be affected by
a number of factors other than the creditworthiness
of the Company. Some of the factors which may
affect the trading value of the Notes prior to the
Determination Date include the current level of the
S&P 500 Index at the time of the trade, the status
of U.S. interest rates, the volatility of the S&P
500 Index, the amount of time remaining until the
Determination Date, and the dividend rates on the
stocks comprising the S&P 500 Index. The trading
value after the Determination Date is expected to
depend primarily on the value of the Total Interest
payable on the Notes, if any, and the scheduled
repayment of principal at maturity.
It is suggested that prospective investors who
consider purchasing the Notes should reach an
investment decision only after carefully
considering the suitability of the Notes in the
light of their particular circumstances. See
"Special Considerations With Respect to the Notes"
in this Prospectus Supplement.
Investors should also consider the tax consequences
of investing in the Notes. See "Certain United
States Federal Income Tax Considerations" in the
Prospectus Supplement.
Certain United States
Federal Income Tax
Considerations........... There are no regulations (except for the OID
Regulations and the 1991 Proposed Regulations
described below), published rulings or judicial
decisions involving the characterization, for
United States Federal income tax purposes, of
securities with terms substantially the same as the
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Notes. However, tax counsel to the Company has
advised the Company that, although the matter is
not free from doubt, under current law, each Note
should be treated as a debt instrument of the
Company for United States Federal income tax
purposes. Under general principles of current
United States Federal income tax law, payments of
interest on a Note generally would be taxable to a
U.S. Holder (as defined in "Certain United States
Federal Income Tax Considerations" herein) as
ordinary interest income at the time such payments
are accrued or are received (in accordance with the
U.S. Holder's regular method of tax accounting).
Final Treasury regulations issued on January 27,
1994 (the "OID Regulations") would by their terms
apply to the Notes, because the OID Regulations are
effective for debt instruments issued on or after
April 4, 1994. Under the OID Regulations, each Note
should qualify as a "variable rate debt instrument"
and, under such circumstances, a U.S. Holder would
include in income all interest payments, if any, on
a Note as ordinary interest income at the time such
payments are accrued or are received (in accordance
with the U.S. Holder's regular method of tax
accounting).
Alternatively, if the Notes were treated as
contingent payment debt obligations, then proposed
Treasury regulations issued in 1991 (the "1991
Proposed Regulations"), which contain a proposed
retroactive effective date of February 20, 1991,
would apply to the Notes if such regulations are
ultimately adopted in their current form. Such
application of the 1991 Proposed Regulations would
require a U.S. Holder to separate a Note into
several different instruments, one consisting of
the fixed payments on the Note and the others
consisting of the contingent payments on the Note
based upon the S&P 500 Index. Such treatment would
require a U.S. Holder to include in income, as
ordinary interest, original issue discount with
respect to the fixed payments and one of the
contingent payments and to recognize capital gain
or loss with respect to all of the contingent
payments. It should be noted, however, that
proposed Treasury regulations are not binding upon
either the Internal Revenue Service or taxpayers
prior to becoming effective as temporary or final
regulations. An investor should carefully consider
the United States Federal income tax consequences
of investing in the Notes and consult their tax
advisor before making such an investment. See
"Certain United States Federal Income Tax
Considerations" in this Prospectus Supplement.
S-6
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SPECIAL CONSIDERATIONS WITH RESPECT TO THE NOTES
INTEREST PAYMENTS
GENERAL
If the 1995 Index Value is not less than the Initial Index Value (i.e., the
S&P 500 Index does not decline in value during the Measurement Period), the
Total Interest payable on the Bearish Notes will equal zero and beneficial
owners of the Bearish Notes will receive no interest payments with respect to
the Bearish Notes. If the 1995 Index Value is not greater than the Initial Index
Value (i.e., the S&P 500 Index does not increase in value during the Measurement
Period), the Total Interest payable on the Bullish Notes will equal zero and
beneficial owners of the Bullish Notes will receive no interest payments with
respect to the Bullish Notes. The above will be true even though the value of
the S&P 500 Index as of some interim period or periods prior to the
Determination Date (i.e., prior to the end of the Measurement Period) may have
been less than or greater than, respectively, the Initial Index Value because
the Total Interest payable on the Notes is calculated on the basis of the 1995
Index Value only.
Beneficial owners of the Notes will receive the principal amount of such
Notes at maturity. The repayment of the principal of the Notes does not reflect
any opportunity cost implied by inflation and other factors relating to the time
value of money.
THE RELATIONSHIP OF THE S&P 500 INDEX AND THE STOCKS UNDERLYING
THE S&P 500 INDEX TO THE TOTAL INTEREST PAYABLE
An investment in the Notes is substantially different than an investment in
the stocks underlying the S&P 500 Index. The return on an investment in the
stocks underlying the S&P 500 Index for a certain period will not necessarily
equal the percentage change in the S&P 500 Index for such period, because, among
other reasons, the S&P 500 Index does not reflect the payment of dividends on
the stocks underlying it. In addition, a percentage change in the value of the
S&P 500 Index during the Measurement Period will not produce the same change in
the Total Interest payable on the series of Notes which has Total Interest
payable because (i) the percentage change in the S&P 500 Index is multiplied by
the Participation Rate for the relevant series of Notes, and (ii) the Total
Interest payment is subject to the Maximum Total Interest of the relevant
series.
INDEX MEASUREMENT PERIOD
Although the Notes will mature on May , 1996, the Total Interest payable
on the Notes is based on the percentage decrease (in the case of Bearish Notes)
or increase (in the case of Bullish Notes), if any, in the S&P 500 Index from
the date the Notes are priced for initial offering to the public through a date
approximately one year from the date the Notes are issued, i.e. the
"Determination Date". The term of the Notes is thus two years while the relevant
period for measuring the percentage change, if any, in the S&P 500 Index to
determine the Total Interest payable on each series of Notes is only
approximately one year from the date the Notes are issued. Even though the Total
Interest payable, if any, on each series of Notes will be determined
approximately one year from the date the Notes are issued, half of such
interest, if any, will not be paid to a beneficial owner of the Notes until the
maturity date, and such payment of interest at maturity will not be adjusted to
reflect any opportunity cost implied by inflation and other factors relating to
the time value of money. Although the Notes are intended to participate in the
potential depreciation (in the case of Bearish Notes) or appreciation (in the
case of Bullish Notes), if any, in the S&P 500 Index, any decline (in the case
of Bearish Notes) or increase (in the case of Bullish Notes) in the S&P 500
Index after the Determination Date in 1995 until the maturity date will not
affect the Total Interest payable to beneficial owners of the Notes. In
addition, the 1995 Index Value measures only the closing value of the S&P 500
Index on one particular Trading Day, the Determination Date, and will not
reflect the S&P 500 Index on any other day (or the average over any number of
days) during or after the Measurement Period.
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HISTORICAL PERFORMANCE OF THE S&P 500 INDEX
The Notes are intended to benefit from the potential decline or increase in
the value of the S&P 500 Index, depending on whether the Notes are Bearish Notes
or Bullish Notes, from the date the Notes are priced for initial offering to the
public through a date approximately one year from the date the Notes are issued.
Any increase in the value of the S&P 500 Index as of the end of such period
would result in the Total Interest payable with respect to the Bearish Notes
equalling zero. Conversely, any decline in the value of the S&P 500 Index as of
the end of such period would result in the Total Interest payable with respect
to the Bullish Notes equalling zero. Historically, the S&P 500 Index has
increased in 34 of the 46 calendar years from 1948 through 1993. In addition,
the average annual percentage increase (which reflects percentage increases and
decreases in the S&P 500 Index from year to year) in the S&P 500 Index for the
period from 1948 through 1993 was 8.85% and the average annual percentage
increase (which reflects percentage increases and decreases in the S&P 500 Index
from year to year) for the five-year period from 1989 through 1993 was 11.70%.
On December 31, 1993 the closing value of the S&P 500 Index was 466.45 and on
April 13, 1994 the closing value of the S&P 500 Index was 446.26. See "The
Standard & Poor's 500 Index -- Historical Data on the S&P 500 Index" below.
TRADING
GENERAL
Application will be made to list the Notes on the New York Stock Exchange.
However, there can be no assurance as to how the Notes will trade in the
secondary market or whether such market will be liquid. It is expected that the
secondary market for the Notes will be affected by a number of factors other
than the creditworthiness of the Company.
TRADING IN FIRST YEAR
The trading value of the Notes prior to the Determination Date may be
affected by a number of interrelated factors, including those factors described
below. Investors should be aware that factors other than the level of the S&P
500 Index are likely to affect the trading value of the Notes. The expected
theoretical effect on the trading value of the Notes of each of the factors
listed below, assuming in each case that all other factors are held constant, is
as follows:
Relative level of the S&P 500 Index. Bearish Notes. The trading value of
the Bearish Notes prior to the Determination Date is expected to depend
primarily on the extent of the depreciation, if any, of the S&P 500 Index
relative to the Initial Index Value. If the S&P 500 Index increases relative to
the level of the Initial Index Value, the value of the Bearish Notes is expected
to decrease. If the S&P 500 Index decreases relative to the level of the Initial
Index Value, the value of the Bearish Notes is expected to increase; provided,
however, that such increase may be limited by the Bearish Maximum Total Interest
payable. If, however, Bearish Notes are sold prior to the Determination Date at
a time when the S&P 500 Index is less than the Initial Index Value, the sale
price may be lower than that which may be expected to be realized if such
decrease in the S&P 500 Index relative to the Initial Index Value were to
prevail until the Determination Date because of the possible fluctuation of the
S&P 500 Index between the time of such sale and the Determination Date (see "The
Standard & Poor's 500 Index-Historical Data on the S&P 500 Index"). Furthermore,
the price at which a beneficial owner will be able to sell Bearish Notes prior
to the Determination Date may be at a discount, which could be substantial, from
the principal amount thereof, if, at such time, the S&P 500 Index is above,
equal to or not sufficiently below the Initial Index Value.
Bullish Notes. The trading value of the Bullish Notes prior to the
Determination Date is expected to depend primarily on the extent of the
appreciation, if any, of the S&P 500 Index relative to the Initial Index Value.
If the S&P 500 Index decreases relative to the level of the Initial Index Value,
the value of the Bullish Notes is expected to decrease. If the S&P 500 Index
increases relative to the level of the Initial Index Value, the value of the
Bullish Notes is expected to increase; provided, however, that such increase may
be limited by the Bullish Maximum Total Interest. If, however, Bullish Notes are
sold prior to the Determination Date at a time when the S&P 500 Index is greater
than the Initial Index Value, the sale price may be lower than that which may be
expected to be realized if such increase in the S&P 500 Index relative to the
Initial Index Value were to prevail until the Determination Date because of the
possible fluctuation of the S&P 500 Index
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between the time of such sale and the Determination Date. (See "The Standard &
Poor's 500 Index-Historical Data on the S&P 500 Index.") Furthermore, the price
at which a beneficial owner will be able to sell Bullish Notes prior to the
Determination Date may be at a discount, which could be substantial, from the
principal amount thereof, if, at such time, the S&P 500 Index is below, equal to
or not sufficiently above the Initial Index Value.
Interest Rates. In general, if U.S. interest rates increase, the value of
both the Bearish Notes and the Bullish Notes is expected to decrease. If U.S.
interest rates decrease, the value of both the Bearish Notes and the Bullish
Notes is expected to increase. Interest rates may also affect the U.S. economy,
and, in turn, the value of the S&P 500 Index. Falling interest rates may
increase the value of the S&P 500 Index and, thus, may decrease the value of the
Bearish Notes and increase the value of the Bullish Notes. Rising interest rates
may lower the value of the S&P 500 Index and, thus, may decrease the value of
the Bullish Notes and increase the value of the Bearish Notes.
Volatility of the S&P 500 Index. If the volatility of the S&P 500 Index
increases, the trading value of the Notes is expected to increase. If the
volatility of the S&P 500 Index decreases, the trading value of the Notes is
expected to decrease.
Time Remaining to Determination Date. The Notes may trade at a value above
that which may be inferred from the level of interest rates and the S&P 500
Index. This difference will reflect a "time premium" due to expectations
concerning the value of the S&P 500 Index during the period prior to the
Determination Date. As the time remaining to the Determination Date decreases,
however, this time premium is expected to decrease, thus decreasing the trading
value of the Notes.
Dividend Rates in the United States. Bearish Notes. If dividend rates on
the stocks comprising the S&P 500 Index increase, the value of the Bearish Notes
is expected to increase. Conversely, if dividend rates on the stocks comprising
the S&P 500 Index decrease, the value of the Bearish Notes is expected to
decrease. However, in general, rising U.S. corporate dividend rates may increase
the S&P 500 Index and, in turn, decrease the value of the Bearish Notes.
Conversely, falling U.S. dividend rates may decrease the S&P 500 Index and, in
turn, increase the value of the Bearish Notes.
Bullish Notes. If dividend rates on the stocks comprising the S&P 500
Index increase, the value of the Bullish Notes is expected to decrease.
Conversely, if dividend rates on the stocks comprising the S&P 500 Index
decrease, the value of the Bullish Notes is expected to increase. However, in
general, rising U.S. corporate dividend rates may increase the S&P 500 Index
and, in turn, increase the value of the Bullish Notes. Conversely, falling U.S.
dividend rates may decrease the S&P 500 Index and, in turn, decrease the value
of the Bullish Notes.
TRADING IN SECOND YEAR
The trading value of the Notes after the Determination Date is expected to
depend primarily on the value of the Total Interest payable on the Notes, if
any, and the scheduled repayment of principal at maturity. Once the Total
Interest payable on the Notes, if any, is determined, it is expected that the
secondary market for the Notes will be similar to that of other debt securities
of the same or similar credit rating and maturity with a fixed coupon paid on an
annual basis with the value of any unpaid installments of the Total Interest
payable on the Notes, if any, substituting for such fixed coupon. If the Total
Interest payable on the Notes is equal to zero, it is expected that the value of
the Notes in the secondary market will be similar to a zero coupon debt security
which repays its principal amount at the maturity date of the Notes. Zero coupon
debt securities will generally trade at a discount from their principal amounts.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
Notes should reach an investment decision only after carefully considering the
suitability of the Notes in the light of their particular circumstances.
Prospective investors should consult their advisors prior to making any
investment in the Notes.
Investors should also consider the tax consequences of investing in the
Notes. See "Certain United States Federal Income Tax Considerations" in this
Prospectus Supplement.
S-9
<PAGE> 10
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby (which are included in the reference in the Prospectus to the
"Securities") supplements, and to the extent inconsistent therewith replaces,
insofar as such description relates to the Notes, the description of the general
terms and provisions of the Securities set forth in the Prospectus, to which
description reference is hereby made.
GENERAL
The Notes are to be issued as two series of Senior Debt Securities under
the Indenture, dated as of September 1, 1982 between the Company and The Chase
Manhattan Bank (National Association), as trustee (as to which Mercantile Safe
Deposit and Trust Company (the "Trustee") is successor trustee), as supplemented
(as so supplemented, the "Indenture"), which is more fully described in the
accompanying Prospectus. The Notes will mature on May , 1996. The amount of
each series of Notes to be issued will be determined by the Underwriters on the
date the Notes are priced for initial offering to the public, provided that in
order for any series of Notes to be issued, the aggregate principal amount of
each series to be issued will not be less than $10,000,000. At maturity, a
Holder of a Note will be entitled to receive the principal amount thereof plus
interest, if any, as described under "Interest Payments" below.
The Notes are not subject to redemption by the Company or repayment at the
option of any Holder prior to maturity.
The Notes are to be issued in denominations of $5,000 and integral
multiples thereof. The Notes will be issued in book-entry form and beneficial
owners will not be able to receive Notes in definitive form except in certain
limited circumstances (see "Description of Notes -- Securities Depository").
INTEREST PAYMENTS
BEARISH NOTES
The Company will pay interest on the Bearish Notes from the issuance of the
Bearish Notes through the maturity date equal to the Total Interest payable on
the Bearish Notes, if any. The Total Interest on the Bearish Notes will be paid
in two equal annual installments on the Interest Payment Dates (as defined
below) and will be equal to the following for each $1,000 principal amount of
Bearish Notes:
$1,000 X S&P 500 PERCENT DECLINE X BEARISH PARTICIPATION RATE
provided, however, that Total Interest on the Bearish Notes will not exceed
$ per $1,000 principal amount of Bearish Notes (the "Bearish Maximum
Total Interest"). The foregoing formula produces a fixed dollar amount (which
will be paid as interest in two equal annual installments), not a per annum
percentage amount. Total Interest payable on the Bearish Notes cannot be less
than zero. The Bearish Participation Rate is equal to % and will be
determined by the Company on the date the Bearish Notes are priced for initial
offering to the public.
The "S&P 500 Percent Decline" will equal the following (expressed as a
percentage):
Initial Index Value - 1995 Index Value
--------------------------------------
Initial Index Value
If the 1995 Index Value is not less than the Initial Index Value, a beneficial
owner of a Bearish Note will receive only the principal amount thereof at
maturity and no interest payments on the Interest Payment Dates.
BULLISH NOTES
The Company will pay interest on the Bullish Notes from the issuance of the
Bullish Notes through the maturity date equal to the Total Interest payable on
the Bullish Notes, if any. The Total Interest on the
S-10
<PAGE> 11
Bullish Notes will be paid in two equal annual installments on the Interest
Payment Dates and will be equal to the following for each $1,000 principal
amount of Bullish Notes:
$1,000 X S&P 500 PERCENT INCREASE X BULLISH PARTICIPATION RATE
provided, however, that Total Interest will not exceed $ per
$1,000 principal amount of Bullish Notes (the "Bullish Maximum Total Interest").
The foregoing formula produces a fixed dollar amount (which will be paid as
interest in two equal annual installments), not a per annum percentage amount.
Total Interest payable on the Bullish Notes cannot be less than zero. The
Bullish Participation Rate is equal to % and will be determined by the
Company on the date the Bullish Notes are priced for initial offering to the
public.
The "S&P 500 Percent Increase" will equal the following (expressed as a
percentage):
1995 Index Value - Initial Index Value
--------------------------------------
Initial Index Value
If the 1995 Index Value is not greater than the Initial Index Value, a
beneficial owner of a Bullish Note will receive only the principal amount
thereof at maturity and no interest payments on the Interest Payment Dates.
INTEREST PAYMENT DATES
The Company will pay half of the Total Interest, if any, with respect to
each series of Notes on May , 1995, to the persons in whose names the Notes
are registered on May , 1995, and will pay the remaining half at maturity, to
the person to whom the principal is payable (such dates of payment are hereafter
referred to as the "Interest Payment Dates").
DEFINITIONS
The "Initial Index Value" will equal the closing value of the S&P 500 Index
on the date that the Notes are priced for initial offering to the public. The
"1995 Index Value" will be determined by Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Calculation Agent") and will equal the closing value of the
S&P 500 Index on the seventh scheduled Trading Day preceding the Anniversary
Date. The "Anniversary Date" is the date which is one year from the date that
the Notes are issued, whether or not a Trading Day. In the event that a Market
Disruption Event has occurred on such seventh scheduled Trading Day, the "1995
Index Value" will equal the closing value of the S&P 500 Index on the sixth
scheduled Trading Day preceding the Anniversary Date regardless of whether such
day is a Trading Day or a Market Disruption Event occurs on such day. The date
on which the 1995 Index Value is determined is hereinafter referred to as the
"Determination Date". The Calculation Agent will determine the seventh scheduled
Trading Day, and, if necessary, the sixth scheduled Trading Day prior to the
Anniversary Date. For purposes of determining the 1995 Index Value, a "Trading
Day" is a day on which The New York Stock Exchange, the American Stock Exchange,
the National Association of Securities Dealers Automated Quotations System
National Market System, the Chicago Mercantile Exchange, the New York Futures
Exchange and the Chicago Board Options Exchange are open for trading. All
determinations made by the Calculation Agent shall be at the sole discretion of
the Calculation Agent and, in the absence of manifest error, shall be conclusive
for all purposes and binding on the Company and Holders of the Notes. All
percentages resulting from any calculation on the Notes will be rounded to the
nearest one hundred-thousandth of a percentage point, with five one-millionths
of a percentage point rounded upwards (e.g., 9.876545% (or .09876545) would be
rounded to 9.87655% (or .0987655)), and all dollar amounts used in or resulting
from such calculation will be rounded to the nearest cent with one-half cent
being rounded upwards.
"Market Disruption Event" means either of the following events, as
determined by the Calculation Agent:
(i) the suspension or material limitation (limitations pursuant to New
York Stock Exchange Rule 80A or any applicable rule or regulation enacted
or promulgated by The New York Stock Exchange, the
S-11
<PAGE> 12
American Stock Exchange, the National Association of Securities Dealers, or
the Securities and Exchange Commission of similar scope as determined by
the Calculation Agent on trading during significant market fluctuations
shall be considered "material" for purposes of this definition) for more
than two hours of trading or during the period one-half hour prior to the
determination of the closing value of the S&P 500 Index in 100 or more of
the securities included in the S&P 500 Index, or
(ii) the suspension or material limitation (whether by reason of
movements in price otherwise exceeding levels permitted by the relevant
exchange or otherwise) in (A) futures contracts related to the S&P 500
Index which are traded on the Chicago Mercantile Exchange or (B) option
contracts related to the S&P 500 Index which are traded on the Chicago
Board Options Exchange, Inc., in each case for more than two hours of
trading or during the period one-half hour prior to the determination of
the closing value of the S&P 500 Index.
For purposes of this definition, a limitation on the hours in a trading day
and/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.
DISCONTINUANCE OR MODIFICATION OF THE S&P 500 INDEX AND SUCCESSOR 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 the S&P 500 Index (any
such index being referred to hereinafter as a "Successor Index"), then, upon the
Calculation Agent's notification of such determination to the Trustee and the
Company, the Calculation Agent will substitute the Successor Index as calculated
by S&P or such other entity for the S&P 500 Index and calculate the Total
Interest as described above. Upon any selection by the Calculation Agent of a
Successor Index, the Company shall cause notice thereof to be published in the
Wall Street Journal (or another newspaper of general circulation) within three
Business Days of such selection.
If S&P discontinues publication of the S&P 500 Index and a Successor Index
is not selected by the Calculation Agent or is no longer published on the
Determination Date, the value to be substituted for the S&P 500 Index on the
Determination Date used to calculate the Total Interest, if any, will be a value
computed by the Calculation Agent for the Determination Date in accordance with
the procedures last used to calculate the S&P 500 Index prior to any such
discontinuance.
If S&P discontinues publication of the S&P 500 Index prior to the
Determination Date and the Calculation Agent determines that no Successor Index
is available at such time or a Successor Index is not selected, then on each
Business Day until the earlier to occur of (i) the Determination Date and (ii) 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
Total Interest by reference to the method set forth in the preceding paragraph
above. 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 S&P 500 Index
may adversely affect trading in the Notes prior to the Determination Date.
If a Successor Index is selected or the Calculation Agent calculates a
value as a substitute for the S&P 500 Index as described in the second preceding
paragraph, such Successor Index or value shall be substituted for the S&P 500
Index for all purposes, including for purposes of determining whether a Market
Disruption Event exists.
If at any time the method of calculating the S&P 500 Index, or the value
thereof, is changed in a material respect, or if the S&P 500 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 S&P 500 Index had such
changes or modifications not been made, then, from and after such time, the
Calculation Agent shall make such adjustments to the closing value of the S&P
500 Index on the Determination Date 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
S-12
<PAGE> 13
S&P 500 Index as if such changes or modifications had not been made, and
calculate such closing value with reference to the S&P 500 Index, as adjusted.
Accordingly, if the method of calculating the S&P 500 Index is modified so that
the value of such 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 the Index), then the
Calculation Agent shall adjust such Index in order to arrive at a value of the
S&P 500 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 with respect to any of the Notes shall have
occurred and be continuing, the amount payable to a Holder of a Note upon any
acceleration permitted by the Notes, with respect to each $1000 principal amount
thereof, will be equal to: (i) the initial issue price ($1,000), plus (ii) an
additional amount, if any, of contingent interest equal to (a) if the date of
acceleration is prior to the Determination Date, an amount, if any, calculated
in the same manner as the applicable Total Interest assuming the date of
acceleration were the Determination Date, and (b) if the date of acceleration is
on or after the Determination Date, an amount equal to the applicable Total
Interest, if any, less the portion of the applicable Total Interest previously
paid. See "Description of Notes-Interest Payments" in this Prospectus
Supplement. If a bankruptcy proceeding is commenced in respect of the Company,
the claim of the Holder 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, if any, of contingent interest calculated as though the date
of the commencement of the proceeding were the maturity date of the Notes.
SECURITIES DEPOSITORY
Upon issuance, all Notes of each series of Notes will be represented by one
or more fully registered global securities (the "Global Securities"). Each such
Global Security will be deposited with, or on behalf of, The Depository Trust
Company, as Securities Depository, registered in the name of the Securities
Depository or a nominee thereof. Unless and until it is exchanged in whole or in
part for Notes in definitive form, no Global Security may be transferred except
as a whole by the Securities Depository to a nominee of such Securities
Depository or by a nominee of such Securities Depository to such Securities
Depository or another nominee of such Securities Depository or by such
Securities Depository or any such nominee to a successor of such Securities
Depository or a nominee of such successor. The circumstances under which the
Global Securities may be exchanged for Notes in definitive form are limited. See
"Description of Securities Global Notes, Delivery and Form" in the accompanying
Prospectus.
THE STANDARD & POOR'S 500 INDEX
All disclosure contained in this Prospectus Supplement regarding the S&P
500 Index, including, without limitation, its make-up, method of calculation and
changes in its components, is derived from publicly available information
prepared by S&P. Neither the Company nor the Underwriter takes any
responsibility for the accuracy or completeness of such information.
GENERAL
The S&P 500 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 S&P 500 Index (discussed below in further detail) is based on the
relative value of the aggregate product of the market price per share and the
number of then outstanding shares (the "Market Value") of the common stocks of
500 companies as of a particular time as 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 March 31, 1994, the 500 companies
included in the S&P 500 Index represented approximately 74% of the aggregate
Market Value of common stocks traded on The New York Stock Exchange; however,
the 500 companies are not the 500 largest companies listed on The New York Stock
Exchange and not all 500 companies are listed on such exchange. As of March 31,
1994, the aggregate market value of the 500 companies included in the S&P 500
Index represented approximately 68% of the aggregate market value of United
States domestic, public companies.
S-13
<PAGE> 14
S&P chooses companies for inclusion in the S&P 500 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 New York
Stock Exchange, 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 March 31, 1994, the 500 companies included in the
Index were divided into 89 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 (380),
Utilities (47), Transportation (16) and Financial (57). S&P may from time to
time, in its sole discretion, add companies to, or delete companies from, the
S&P 500 Index to achieve the objectives stated above.
COMPUTATION OF THE S&P 500 INDEX
S&P currently computes the S&P 500 Index as of a particular time as
follows:
(1) the Market Value of each component stock is determined as of such
time;
(2) the Market Value of all component stocks as of such time (as
determined under clause (1) above) are aggregated;
(3) 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;
(4) the mean average Market Values of all such common stocks over such
base period (as determined under clause (3) above) are aggregated (such
aggregate amount being referred to as the "Base Value");
(5) the aggregate Market Value of all component stocks as of such time
(as determined under clause (2) above) is divided by the Base Value; and
(6) the resulting quotient (expressed in decimals) is multiplied by
ten.
While S&P currently employs the above methodology to calculate the S&P 500
Index, no assurance can be given that S&P will not modify or change such
methodology in a manner that may affect the Total Interest, if any, payable to
Holders of Notes upon maturity or otherwise.
S&P adjusts the foregoing formula to negate the effect 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 thereof 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 S&P 500 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>
<S> <C> <C> <C> <C>
Old Base Value X New Market Value = New Base Value
----------------
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 causes
upon the S&P 500 Index.
S-14
<PAGE> 15
ILLUSTRATIVE TOTAL INTEREST PAYMENTS
The following tables illustrate, for a range of hypothetical percentage
changes in the S&P 500 Index from the date the Notes are initially priced for
initial offering to the public to the Determination Date, the Total Interest
payable per $1,000 principal amount of each series of Notes, and the pretax
annualized rate of return to beneficial owners of each series of Notes. The
following table assumes a Participation Rate equal to 240% in the case of
Bearish Notes and a Participation Rate equal to 165% in the case of the Bullish
Notes, and Maximum Total Interest equal to $240 per $1,000 principal amount of
the Bearish Notes and $165 per $1,000 principal amount of the Bullish Notes. The
actual Participation Rate with respect to each series of Notes will be
determined on the date the Notes are priced for initial offering to the public.
Half of the Total Interest, if any, on a series of Notes will be payable on the
Interest Payment Date in May 1995, with the remaining half being payable at
maturity.
BEARISH NOTES
<TABLE>
<CAPTION>
S&P 500 INDEX TOTAL INTEREST PAYABLE PRETAX ANNUALIZED
PERCENTAGE DECLINE PER $1,000 PRINCIPAL RATE OF RETURN(1)(2)
- ------------------ ----------------------- --------------------
<S> <C> <C>
-10.00% or less $240.00 11.66%
- 9.00% 216.00 10.52%
- 8.00% 192.00 9.38%
- 7.00% 168.00 8.23%
- 6.00% 144.00 7.07%
- 5.00% 120.00 5.91%
- 4.00% 96.00 4.74%
- 3.00% 72.00 3.57%
- 2.00% 48.00 2.39%
- 1.00% 24.00 1.20%
0.00% or more 0.00 0.00%
</TABLE>
BULLISH NOTES
<TABLE>
<CAPTION>
S&P 500 INDEX TOTAL INTEREST PAYABLE PRETAX ANNUALIZED
PERCENTAGE INCREASE PER $1,000 PRINCIPAL RATE OF RETURN(1)(2)
- ------------------- ----------------------- --------------------
<S> <C> <C>
0.00% or less $ 0.00 0.00%
1.00% 16.50 0.82%
2.00% 33.00 1.64%
3.00% 49.50 2.46%
4.00% 66.00 3.27%
5.00% 82.50 4.08%
6.00% 99.00 4.89%
7.00% 115.50 5.69%
8.00% 132.00 6.49%
9.00% 148.50 7.29%
10.00% or more 165.00 8.09%
</TABLE>
- ---------------
(1) The annualized rates of return specified in the table are calculated on a
semiannual bond equivalent basis.
(2) This rate of return assumes a two year maturity for the Notes and no
transaction fees or expenses.
The above figures are for purposes of illustration only. The actual Total
Interest payable on each series of the Notes and the pretax annualized rate of
return resulting therefrom will depend entirely on the actual Initial Index
Value, and on the actual 1995 Index Value determined by the Calculation Agent as
provided herein, which in turn are dependent on the level of the S&P 500 Index.
S-15
<PAGE> 16
HISTORICAL DATA ON THE S&P 500 INDEX
The following tables set forth the closing values of the S&P 500 Index on
the last business day of each year from 1948 through 1993, as published by S&P.
The table also sets forth (i) the percent change in the S&P 500 Index values
between such values for each year, (ii) the hypothetical Total Interest that
would have been determined for each series of Notes given the percent change in
the S&P 500 Index in a year, and (iii) the hypothetical pretax annualized rate
of return given the percent change in a year. The historical experience of the
S&P 500 Index should not be taken as an indication of future performance and no
assurance can be given that the value of the S&P 500 Index will not increase and
thereby cause the Total Interest payable on the Bearish Notes to equal zero or
that the value of the S&P 500 Index will not decrease and thereby cause the
Total Interest payable on the Bullish Notes to equal zero. In addition, there
can be no assurance that changes in the S&P 500 Index for the period from the
last business day in a year to the last business day in the next succeeding year
is representative of changes which could occur in the S&P 500 Index during the
Measurement Period.
S-16
<PAGE> 17
HYPOTHETICAL HISTORICAL NOTE PAYMENTS
BASED ON ACTUAL S&P 500 INDEX CHANGES
1948 - 1993(1)
<TABLE>
<CAPTION>
BEARISH NOTES BULLISH NOTES
---------------------------------------- ---------------------------------------
S&P 500 HYPOTHETICAL TOTAL HYPOTHETICAL TOTAL
INDEX VALUE PERCENTAGE CHANGE INTEREST PAYABLE HYPOTHETICAL INTEREST PAYABLE HYPOTHETICAL
ON LAST BUSINESS IN INDEX FROM PER $1,000 PRINCIPAL PRETAX ANNUALIZED PER $1,000 PRINCIPAL PRETAX ANNUALIZED
YEAR DAY OF YEAR PRIOR YEAR CLOSE AMOUNT OF NOTES RATE OF RETURN AMOUNT OF NOTES RATE OF RETURN
- ----- ---------------- ----------------- -------------------- ----------------- -------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
1948 15.20 -0.65% $ 15.69 0.78% $ 0.00 0.00%
1949 16.76 10.26% $ 0.00 0.00% $ 165.00 8.09%
1950 20.41 21.78% $ 0.00 0.00% $ 165.00 8.09%
1951 23.77 16.46% $ 0.00 0.00% $ 165.00 8.09%
1952 26.57 11.78% $ 0.00 0.00% $ 165.00 8.09%
1953 24.81 -6.62% $ 158.98 7.80% $ 0.00 0.00%
1954 35.98 45.02% $ 0.00 0.00% $ 165.00 8.09%
1955 45.48 26.40% $ 0.00 0.00% $ 165.00 8.09%
1956 46.67 2.62% $ 0.00 0.00% $ 43.17 2.15%
1957 39.99 -14.31% $ 240.00 11.66% $ 0.00 0.00%
1958 55.21 38.06% $ 0.00 0.00% $ 165.00 8.09%
1959 59.89 8.48% $ 0.00 0.00% $ 139.87 6.88%
1960 58.11 -2.97% $ 71.33 3.54% $ 0.00 0.00%
1961 71.55 23.13% $ 0.00 0.00% $ 165.00 8.09%
1962 63.10 -11.81% $ 240.00 11.66% $ 0.00 0.00%
1963 75.02 18.89% $ 0.00 0.00% $ 165.00 8.09%
1964 84.75 12.97% $ 0.00 0.00% $ 165.00 8.09%
1965 92.43 9.06% $ 0.00 0.00% $ 149.52 7.34%
1966 80.33 -13.09% $ 240.00 11.66% $ 0.00 0.00%
1967 96.47 20.09% $ 0.00 0.00% $ 165.00 8.09%
1968 103.86 7.66% $ 0.00 0.00% $ 126.40 6.22%
1969 92.06 11.36% $ 240.00 11.66% $ 0.00 0.00%
1970 92.15 0.10% $ 0.00 0.00% $ 1.61 0.08%
1971 102.09 10.79% $ 0.00 0.00% $ 165.00 8.09%
1972 118.05 15.63% $ 0.00 0.00% $ 165.00 8.09%
1973 97.55 -17.37% $ 240.00 11.66% $ 0.00 0.00%
1974 68.56 -29.72% $ 240.00 11.66% $ 0.00 0.00%
1975 90.19 31.55% $ 0.00 0.00% $ 165.00 8.09%
1976 107.46 19.15% $ 0.00 0.00% $ 165.00 8.09%
1977 95.10 -11.50% $ 240.00 11.66% $ 0.00 0.00%
1978 96.11 1.06% $ 0.00 0.00% $ 17.52 0.87%
1979 107.94 12.31% $ 0.00 0.00% $ 165.00 8.09%
1980 135.76 25.77% $ 0.00 0.00% $ 165.00 8.09%
1981 122.55 -9.73% $ 233.53 11.35% $ 0.00 0.00%
1982 140.64 14.76% $ 0.00 0.00% $ 165.00 8.09%
1983 164.93 17.27% $ 0.00 0.00% $ 165.00 8.09%
1984 167.24 1.40% $ 0.00 0.00% $ 23.11 1.15%
1985 211.28 26.33% $ 0.00 0.00% $ 165.00 8.09%
1986 242.17 14.62% $ 0.00 0.00% $ 165.00 8.09%
1987 247.08 2.03% $ 0.00 0.00% $ 33.45 1.67%
1988 277.72 12.40% $ 0.00 0.00% $ 165.00 8.09%
1989 353.40 27.25% $ 0.00 0.00% $ 165.00 8.09%
1990 330.22 -6.56% $ 157.42 7.72% $ 0.00 0.00%
1991 417.09 26.31% $ 0.00 0.00% $ 165.00 8.09%
1992 435.71 4.46% $ 0.00 0.00% $ 73.66 3.65%
1993 466.45 7.06% $ 0.00 0.00% $ 116.41 5.74%
</TABLE>
- ---------------
(1) The preceding table is based on the following assumptions: For the Bearish
Notes, the Participation Rate is assumed to be 240% and the Maximum Total
Interest is assumed to be $240 per $1,000 principal amount of the Bearish
Notes. For the Bullish Notes, the Participation Rate is assumed to be 165%
and the Maximum Total Interest is assumed to be $165 per $1,000 principal
amount of the Bullish Notes. The hypothetical pretax annualized rates of
return are calculated on a semi-annual bond equivalent basis and assume the
Notes are held until maturity. The percentage change in the S&P 500 Index
above for each year was calculated from the last business day of the prior
year to the last business day of such year. The S&P 500 Percent Increase and
Decrease will be calculated as described above under "Description of
Notes -- Interest Payment Dates".
S-17
<PAGE> 18
The following graph sets forth the percentage change in the S&P 500 Index
in each year from the closing value in the prior year to the closing value in
each such year from 1948 through 1993. Past movements of the S&P 500 Index and
the percentage change in the S&P 500 Index in each calendar year that have
occurred are not necessarily indicative of future values of the S&P 500 Index or
future percentage changes in the S&P 500 Index in each calendar year.
[GRAPHIC NO.1 APPEARS HERE]
The closing value of the S&P 500 Index on April 13, 1994 was 446.26, as quoted
by S&P.
S-18
<PAGE> 19
LICENSE AGREEMENT
S&P and Merrill Lynch Capital Services, Inc. have entered into a
non-exclusive license agreement providing for the license to Merrill Lynch
Capital Services, Inc., in exchange for a fee, of the right to use indices owned
and published by S&P in connection with certain securities, including the
Securities, and the Company is an authorized sublicensee thereof.
The license agreement between S&P and Merrill Lynch Capital Services, Inc.
provides that the following language must be stated in this Prospectus
Supplement:
The Securities 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 Securities or any member of the public regarding the advisability of
investing in securities generally or in the Securities particularly or the
ability of the S&P 500 Index to track general stock market performance.
S&P's only relationship to Merrill Lynch Capital Services, Inc. and the
Company (other then transactions entered into in the ordinary course of
business) is the licensing of certain servicemarks and trade names of S&P
and of the S&P 500 Index which is determined, composed and calculated by
S&P without regard to the Company or the Securities. S&P has no obligation
to take the needs of the Company or the Holders of the Securities into
consideration in determining, composing or calculating the S&P 500 Index.
S&P is not responsible for and has not participated in the determination of
the timing of the sale of the Securities, prices at which the Securities
are to initially be sold, or quantities of the Securities to be issued or
in the determination or calculation of the equation by which the Securities
are to be converted into cash. S&P has no obligation or liability in
connection with the administration, marketing or trading of the Securities.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of James M. Kalashian, General Tax Counsel of General
Electric Capital Corporation, tax counsel to the Company ("Tax Counsel"), the
following summary describes certain of the principal United States Federal
income tax consequences of the purchase, ownership and disposition of the Notes
and is based upon laws, regulations, rulings and decisions now in effect (or, in
the case of certain regulations, in proposed form) all of which are subject to
change (including changes in effective dates) or possible differing
interpretations. The discussion below deals only with Notes held as capital
assets and does not purport to deal with persons in special tax situations (such
as tax-exempt investors, insurance companies, regulated investment companies,
dealers in securities, foreign persons, and investors holding Notes as part of a
hedging transaction or as a position in a "straddle" for tax purposes). It also
does not deal with holders other than original purchasers who acquire the Notes
for an amount equal to 100% of the principal amount thereof. Persons considering
the purchase of the Notes should consult their own tax advisors concerning the
application of United States Federal, state, local and any other income or
estate tax laws to their particular situations as well as any consequences of
the purchase, ownership and disposition of the Notes arising under the laws of
any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate or trust the income of which is subject to
United States Federal income taxation regardless of its source, or (iv) any
other person whose income or gain in respect of a Note is effectively connected
with the conduct of a United States trade or business. As used herein, the term
"non-U.S. Holder" means a holder of a Note that is not a U.S. Holder.
GENERAL
There are no regulations (except the Treasury Regulations as described
below), published rulings or judicial decisions involving the characterization,
for United States Federal income tax purposes, of securities with terms
substantially the same as the Notes. Although the matter is not free from doubt,
the Company believes, based upon the advice of Tax Counsel, that, under current
law, each Note should be treated as a debt
S-19
<PAGE> 20
instrument of the Company for United States Federal income tax purposes. The
discussion below is based upon the assumption that each Note will be treated as
a debt instrument of the Company for United States Federal income tax purposes.
U.S. HOLDERS
Under general principles of current United States Federal income tax law,
payments of interest on a debt instrument generally will be taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). Under these principles, the amounts payable with respect to a Note
on the Interest Payment Dates based upon the S&P 500 Index (the "Interest
Payments"), if any, would be treated as contingent interest and generally would
be includible in income by a U.S. Holder as ordinary interest on the respective
dates that the Interest Payments are accrued or are received (in accordance with
the U.S. Holder's regular method of tax accounting). Upon the sale, exchange or
retirement of a Note, a U.S. Holder generally would recognize taxable gain or
loss in an amount equal to the difference between the amount realized on the
sale, exchange or retirement (other than amounts representing accrued and unpaid
interest) and such U.S. Holder's tax basis in the Note. A U.S. Holder's tax
basis in a Note generally will equal such U.S. Holder's initial investment in
the Note. Such gain or loss generally would be capital gain or loss and would be
long-term capital gain or loss if the Note were held by the U.S. Holder for more
than one year.
On January 27, 1994, the Internal Revenue Service ("IRS") issued final
Treasury regulations (the "OID Regulations") under the original issue discount
provisions of the Internal Revenue Code of 1986, as amended (the "Code"). The
OID Regulations, which replaced certain proposed original issue discount
regulations that were issued on December 21, 1992, generally apply to debt
instruments issued on or after April 4, 1994 and, therefore, by their terms they
would apply to the Notes.
Under the OID Regulations, if a debt instrument qualifies as a "variable
rate debt instrument", then a special set of rules will apply to the debt
instrument whereby all "qualified stated interest" payments on the debt
instrument generally will be taxable to a U.S. Holder as ordinary interest
income in accordance with the U.S. Holder's regular method of tax accounting. In
general, a debt instrument will qualify as a "variable rate debt instrument"
under the OID Regulations (and would therefore not be treated as a contingent
payment debt obligation) if (a) its issue price does not exceed the total
noncontingent principal payments provided for under the terms of the debt
instrument by more than a specified de minimis amount and (b) it provides for
stated interest, paid or compounded at least annually, at current values of a
single objective rate. In general, an "objective rate" is a rate which is
determined using a single fixed formula and which is based upon either the yield
or changes in the price of one or more items of actively traded personal
property (other than stock or debt of the issuer or a related party). If a debt
instrument qualifies as a "variable rate debt instrument" under the OID
Regulations and if the debt instrument provides for stated interest at a single
objective rate throughout the term thereof, then any stated interest on the debt
instrument which is unconditionally payable in cash or property (other than debt
instruments of the issuer) at least annually will constitute "qualified stated
interest" and will be taxed accordingly.
Although the OID Regulations do not specifically address the proper
treatment of instruments such as the Notes and therefore the matter is not free
from doubt, the Company believes, based upon the advice of Tax Counsel, that the
Notes should qualify as "variable rate debt instruments" under the OID
Regulations. Accordingly, assuming that the Notes qualify as "variable rate debt
instruments" under the OID Regulations, the Interest Payments will constitute
"qualified stated interest" and will be taxable to a U.S. Holder as ordinary
interest income on the respective dates that the Interest Payments are accrued
or are received (in accordance with the U.S. Holder's regular method of tax
accounting).
If the Notes do not qualify as "variable rate debt instruments" under the
OID Regulations, then the Notes would be treated as contingent payment debt
obligations. It is not entirely clear under current law how the Notes would be
taxed if they were treated as contingent payment debt obligations. As discussed
above, under general principles of current United States Federal income tax law,
the Interest Payments would be treated as contingent interest and generally
would be includible in income by a U.S. Holder as ordinary
S-20
<PAGE> 21
interest on the respective dates that the Interest Payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting).
However, in 1991, the Treasury Department issued proposed regulations (the
"1991 Proposed Regulations" and, together with the OID Regulations, the
"Treasury Regulations") under the original issue discount provisions of the Code
concerning contingent payment debt obligations which, if applicable to the
Notes, would separate a Note into a debt instrument and a series of rights based
upon the value of the S&P 500 Index. The 1991 Proposed Regulations contain a
retroactive effective date of February 20, 1991. Thus, if the Notes are treated
as contingent payment debt obligations and if the 1991 Proposed Regulations are
ultimately adopted in their current form, such regulations would apply to the
Notes and such application of the 1991 Proposed Regulations to the Notes would
cause the timing and character of income, gain or loss reported on a Note to
differ from the timing and character of income, gain or loss reported on a Note
had the 1991 Proposed Regulations not applied to the Notes.
The 1991 Proposed Regulations would treat a Note as consisting of two
separate components: (i) the fixed payment (i.e., the debt instrument),
consisting of the right to receive the Note's principal amount (the "Fixed
Payment"), and (ii) the contingent payments, consisting of the right to receive
the Interest Payments (the "Contingent Payments"). A Note's original issue price
would be allocated between the Fixed Payment and the Contingent Payments in
accordance with their relative fair market values as of the Note's issue date.
Under the 1991 Proposed Regulations, the Fixed Payment would be treated,
for United States Federal income tax purposes, as a separate debt obligation
issued at an original issue discount. A U.S. Holder (whether a cash or accrual
method taxpayer) would be required to include the original issue discount on a
Note in gross income (using a constant yield method) over the Note's term in
advance of receipt of the cash payment attributable to such income. The original
issue discount required to be included in income with respect to a Note would be
equal to the difference between the Note's principal amount and the amount of
the Note's original issue price allocated to the Fixed Payment. If the Notes are
treated as contingent payment debt obligations and if the 1991 Proposed
Regulations are ultimately adopted in their current form and, thus, are applied
to the Notes, then the amount of original issue discount with respect to a
Bearish Note would be $ and with respect to a Bullish Note would be
$ per $1,000 principal amount. Under the 1991 Proposed Regulations, a
U.S. Holder that disposes of a Note prior to its maturity would generally be
required to recognize taxable gain or loss, with respect to the Fixed Payment,
in an amount equal to the difference (if any) between the portion of the sales
proceeds allocated to such Fixed Payment (in accordance with the relative fair
market values of the Fixed Payment and the Contingent Payments as determined on
the disposition date) and such U.S. Holder's adjusted tax basis in the Fixed
Payment. A U.S. Holder's adjusted tax basis in the Fixed Payment generally would
equal the portion of such U.S. Holder's initial investment in the Note that is
allocated to the Fixed Payment (in accordance with the relative fair market
values of the Fixed Payment and the Contingent Payments as of the Note's issue
date), increased by the amount of original issue discount previously included in
income by such U.S. Holder with respect to the Fixed Payment.
Under the 1991 Proposed Regulations, the Contingent Payments would be
treated separately from the Fixed Payment and taxed "in accordance with their
economic substance." Although the matter is not free from doubt, if the 1991
Proposed Regulations were applied to the Notes, under an "economic substance"
analysis, the Contingent Payments would most likely be treated as a series of
two separate cash settlement options on the S&P 500 Index (each an "S&P Right")
(as opposed to being treated as a single option), each maturing on the related
Interest Payment Date. The United States Federal income tax treatment of the S&P
Rights under the 1991 Proposed Regulations would depend upon whether they were
treated as "listed" (i.e., options traded on a qualified board or exchange) or
"unlisted" nonequity options under Code section 1256. Although the matter is not
free from doubt, and subject to the discussion below, Tax Counsel has advised
the Company that the better view would be to treat the S&P Rights as "unlisted"
nonequity options and there is a reasonable basis for such position. If the S&P
Rights were treated as "listed" nonequity options under the 1991 Proposed
Regulations, however, the S&P Rights would be subject to the Code's
mark-to-market rules discussed below.
S-21
<PAGE> 22
Assuming that the S&P Rights were treated as "unlisted" nonequity options
in the event that the 1991 Proposed Regulations are applied to the Notes, a U.S.
Holder would generally be required to recognize taxable gain or loss with
respect to the S&P Rights only upon their sale, exchange, expiration or payment
on the relevant Interest Payment Date. The amount of gain or loss recognized
with respect to each S&P Right would generally be measured by the difference
between the amount realized with respect to the S&P Right and the U.S. Holder's
tax basis in the S&P Right. A U.S. Holder's aggregate tax basis in the S&P
Rights generally would equal the portion of the U.S. Holder's initial investment
in the Note that is allocated to the Contingent Payments (in accordance with the
relative fair market values of the Fixed Payment and the Contingent Payments as
of the Note's issue date) and, although the matter is not free from doubt, it is
likely that the U.S. Holder's aggregate tax basis in the S&P Rights would be
allocated among the individual S&P Rights (in accordance with their relative
fair market values as of the Note's issue date) in order to determine the U.S.
Holder's tax basis in each S&P Right. The amount realized with respect to the
S&P Right that matures on the first Interest Payment Date would equal the
Interest Payment due on such Interest Payment Date. However, under the 1991
Proposed Regulations, in the case of the S&P Right that matures on the second
Interest Payment Date, because the Determination Date does not occur within six
months of the second Interest Payment Date, the amount realized with respect to
such S&P Right would be deemed to equal an amount equal to the present value
(determined by using a discount rate equal to the short-term applicable federal
rate in effect as of the Note's issue date) of the Interest Payment due on the
second Interest Payment Date. The excess of the Interest Payment due on the
second Interest Payment Date over the present value of such amount (as
determined in the manner described above) would be treated as original issue
discount for United States Federal income tax purposes. Such original issue
discount would generally be includible in income by a U.S. Holder as ordinary
interest as it accrues over the remaining term of the Note (commencing on the
Determination Date) under a constant yield method, regardless of the U.S.
Holder's regular method of tax accounting. Any gain or loss realized with
respect to an S&P Right pursuant to the foregoing rules would generally be
short-term or long-term capital gain or loss depending upon whether the Note had
been held by the U.S. Holder for more than one year.
Although Tax Counsel has advised the Company that in the event that the
1991 Proposed Regulations are applied to the Notes the better view would be to
treat each S&P Right as an "unlisted" nonequity option and that there is a
reasonable basis for such position, it is possible that the IRS may assert that
each S&P Right should be treated as a "listed" nonequity option. The IRS may
take this position based on the fact that the S&P Rights are part of a Note
which is "listed" or, alternatively, because there are listed options and
futures based on the S&P 500 Index. Although it is possible that each S&P Right
may be treated as a listed nonequity option, it is not clear that Code section
1256 and the 1991 Proposed Regulations contemplate such a result. Moreover,
while the Notes are listed on the NYSE, each S&P Right cannot be separately
traded and is not separately listed. In addition, even though options and
futures on the S&P 500 Index are listed and traded as of the date on which the
Notes are issued, there are no comparable S&P 500 Index options or futures with
similar terms to the S&P Rights which are traded on a qualified board or
exchange and, therefore, there is no accurate market price to separately value
the S&P Rights for purposes of marking the S&P Rights to market.
If the S&P Rights were treated as "listed nonequity options", such S&P
Rights would generally be marked-to-market under Code section 1256, i.e.,
treated as if they were sold for their fair market values on the last day of the
U.S. Holder's taxable year. Any resulting gain or loss would be treated as sixty
percent long-term and forty percent short-term capital gain or loss.
Additionally, gain or loss realized with respect to the S&P Rights upon their
sale, exchange, expiration or payment on the relevant Interest Payment Date
would be sixty percent long-term and forty percent short-term capital gain or
loss. Prospective investors in the Notes should consult their own tax advisors
as to the proper treatment of the S&P Rights under the 1991 Proposed Regulations
in the event that the 1991 Proposed Regulations are applied to the Notes.
There is no assurance that the 1991 Proposed Regulations will be adopted
or, if adopted, adopted in their current form. In addition, on January 19, 1993,
the Treasury Department issued proposed regulations (the "1993 Proposed
Regulations"), concerning contingent payment debt obligations, which would have
replaced the 1991 Proposed Regulations and which would have provided for a set
of rules with respect to the timing and character of income recognition on
contingent payment debt obligations that differs from the rules contained
S-22
<PAGE> 23
in the 1991 Proposed Regulations with respect to the timing and character of
income recognition on contingent payment debt obligations. The 1993 Proposed
Regulations, which would have applied to debt instruments issued 60 days or more
after the date the 1993 Proposed Regulations became final, generally provided
for several alternative timing methods which would have required annual interest
accruals to reflect either a market yield for the debt instrument, determined as
of the issue date, or a reasonable estimate of the performance of contingencies.
The amount of interest deemed to accrue in a taxable year pursuant to such
methods would have been currently includible in income by a U.S. Holder, with
subsequent adjustments to the extent that the estimate of income was incorrect.
In addition, under the 1993 Proposed Regulations, any gain recognized by a U.S.
Holder on the sale, exchange or retirement of a contingent payment debt
obligation would have been treated entirely as ordinary interest income and any
loss recognized on the sale, exchange or retirement of a contingent payment
obligation would have been treated entirely as a capital loss. However, on
January 22, 1993, the United States Government's Office of Management and Budget
announced that certain proposed regulations which had not yet been published in
the Federal Register, including the 1993 Proposed Regulations, had been
withdrawn. It is unclear whether the 1993 Proposed Regulations will be
reproposed or, if reproposed, what effect, if any, such regulations would have
on the Notes. Based upon the foregoing, the continued viability of the 1991
Proposed Regulations is uncertain. It should also be noted that proposed
Treasury regulations are not binding upon either the IRS or taxpayers prior to
becoming effective as temporary or final regulations. Prospective investors in
the Notes are urged to consult their own tax advisors regarding the application
of the Treasury Regulations to their investment in the Notes and the effect of
possible changes to the Treasury Regulations.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income or
withholding taxes on payments of principal, premium (if any) or interest
(including original issue discount, if any) on a Note, unless such non-U.S.
Holder is a direct or indirect 10% or greater shareholder of the Company, a
controlled foreign corporation related to the Company or a bank receiving
interest described in section 881(c)(3)(A) of the Code. To qualify for the
exemption from taxation, the last United States payor in the chain of payment
prior to payment to a non-U.S. Holder (the "Withholding Agent") must have
received in the year in which a payment of interest or principal occurs, or in
either of the two preceding calendar years, a statement that (i) is signed by
the beneficial owner of the Note under penalties of perjury, (ii) certifies that
such owner is not a U.S. Holder and (iii) provides the name and address of the
beneficial owner. The statement may be made on an IRS Form W-8 or a
substantially similar form, and the beneficial owner must inform the Withholding
Agent of any change in the information on the statement within 30 days of such
change. If a Note is held through a securities clearing organization or certain
other financial institutions, the organization or institution may provide a
signed statement to the Withholding Agent. However, in such case, the signed
statement must be accompanied by a copy of the IRS Form W-8 or the substitute
form provided by the beneficial owner to the organization or institution. The
Treasury Department is considering implementation of further certification
requirements aimed at determining whether the issuer of a debt obligation is
related to holders thereof.
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on any amount which constitutes capital gain upon retirement or
disposition of a Note, provided the gain is not effectively connected with the
conduct of a trade or business in the United States by the non-U.S. Holder.
Certain other exceptions may be applicable, and a non-U.S. Holder should consult
its tax advisor in this regard.
Under current law, the Notes will not be subject to United States Federal
estate tax unless an individual non-U.S. Holder is a direct or indirect 10% or
greater shareholder of the Company or, at the time of such individual's death,
payments in respect of the Notes would have been effectively connected with the
conduct by such individual of a trade or business in the United States. Under
the 1991 Proposed Regulations, however, a portion of a Note equal to the fair
market value of the Contingent Payments may be includible in the gross estate of
a nonresident alien individual for United States Federal estate tax purposes if
the 1991 Proposed Regulations were applied to the Notes.
S-23
<PAGE> 24
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") among the Company, Merrill Lynch, Pierce, Fenner
& Smith Incorporated and Kidder, Peabody & Co. Incorporated (the
"Underwriters"), the Company has agreed to sell to the Underwriters, and the
Underwriters have severally agreed to purchase, the respective principal amounts
of the Notes set forth after their names below. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to certain
conditions precedent and that the Underwriters will be obligated to purchase all
of the Notes if any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
----------------------------
BEARISH BULLISH
UNDERWRITER NOTES NOTES
----------- -----------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................... $ $
Kidder, Peabody & Co. Incorporated............................. $ $
----------- -----------
Total........................................... $ $
----------- -----------
----------- -----------
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer all or part of the Notes directly to the public at the offering price set
forth on the cover page of this Prospectus Supplement. The Underwriters may sell
Notes to any dealer at a discount and such discount allowed to any dealer will
not be in excess of 80% of the discount to be received by the Underwriters.
After the initial public offering, the public offering price and discount may be
changed.
On the date the Notes are priced for initial offering to the public, the
Underwriters will designate the aggregate principal amount of Notes of each
series to be issued, provided that in order for any Notes of a series to be
issued, the aggregate principal amount of such series to be issued will not be
less than $10,000,000. All Notes may, therefore, be issued as Bearish Notes or
Bullish Notes.
The Underwriters are not obligated to make a market in the Notes and, if
the Underwriters should do so, the Underwriters may discontinue any market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market, if any.
S-24
<PAGE> 25
LEGAL OPINIONS
The legality of the Notes will be passed upon for the Company by Bruce C.
Bennett, Associate General Counsel, Treasury Operations and Assistant Secretary
of the Company. Certain matters relating to the offering of the Notes will be
passed upon for the Underwriters by Brown & Wood, One World Trade Center, New
York, New York 10048. Brown & Wood acts as counsel for the Company and certain
of its subsidiaries from time to time in various matters. Messrs. Bennett and
Kalashian (who is referred to under "Certain United States Federal Income Tax
Considerations"), together with members of their families, each owns, has
options to purchase and has other interests in shares of common stock of General
Electric Company.
S-25
<PAGE> 26
GLOSSARY
"Anniversary Date" means the date which is one year from the date that the
Notes are issued.
"Base Value" is defined as the mean average Market Values of all common
stocks comprising the S&P 500 over the base period of the years ranging from
1941 through 1943.
"Bearish Maximum Total Interest" shall mean the highest total amount of
interest which is to be paid on the Bearish Notes, set at $ per $1,000
principal amount of Bearish Notes over their entire term.
"Bearish Notes" shall mean S&P 500 Indexed Notes Series A (Bearish Notes)
due May , 1996.
"Bearish Participation Rate" means a rate equal to %.
"Bullish Maximum Total Interest" shall mean the highest total amount of
interest which is to be paid on the Bullish Notes, set at $ per $1,000
principal amount of Bullish Notes over their entire term.
"Bullish Notes" shall mean S&P 500 Indexed Notes Series B (Bullish Notes)
due May , 1996.
"Bullish Participation Rate" means a rate equal to %.
"Calculation Agent" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" shall mean General Electric Capital Corporation.
"Determination Date" means the seventh scheduled Trading Day preceding the
date which is one year from the date that the Notes are issued.
"Global Securities" means one or more fully registered global securities
which is deposited with, or on behalf of, The Depository Trust Company.
"Indenture" means the Indenture dated as of September 1, 1982 between the
Company and The Chase Manhattan Bank (National Association), as trustee (as to
which Mercantile Safe Deposit and Trust Company is successor trustee), as
supplemented.
"Initial Index Value" shall mean the closing value of the S&P 500 Index on
the date that the Notes are priced for initial offering to the public.
"Interest Payment Dates" shall mean May , 1995 and the maturity date, the
dates on which the initial payment of half of the Total Interest with respect to
such series of Notes will be paid and on which the payment of the remaining half
of the Total Interest with respect to each series of Notes will be paid,
respectively.
"Interest Payments" mean the amounts payable with respect to a Note on the
Interest Payment Dates.
"IRS" means the Internal Revenue Service.
"Market Disruption Event" means either of the following events, as
determined by the Calculation Agent:
(i) the suspension or material limitation (limitations pursuant to New
York Stock Exchange Rule 80A or any applicable rule or regulation enacted
or promulgated by The New York Stock Exchange, the American Stock Exchange,
the National Association of Securities Dealers or the Securities and
Exchange Commission of similar scope as determined by the Calculation Agent
on trading during significant market fluctuations shall be considered
"material" for purposes of this definition) for more than two hours of
trading or during the period one-half hour prior to the determination of
the closing value of the S&P 500 Index in 100 or more of the securities
included in the S&P 500 Index, or
(ii) the suspension or material limitation (whether by reason of
movements in price otherwise exceeding levels permitted by the relevant
exchange or otherwise) in (A) futures contracts related to the S&P 500
Index which are traded on the Chicago Mercantile Exchange or (B) option
contracts related to
G-1
<PAGE> 27
the S&P 500 Index which are traded on the Chicago Board Options Exchange,
Inc., in each case for more than two hours of trading or during the period
one-half hour prior to the determination of the closing value of the S&P
500 Index.
A Market Disruption Event on the originally scheduled Determination
Date (the seventh Trading Day prior to the date one year after the issuance
date of the Notes) will cause the Determination Date to become the sixth
Trading Day prior to the date one year after the issuance of the Notes.
"Market Value" means the relative value of the aggregate product of the
market price per share and the number of then outstanding shares for stocks
comprising the S&P 500 Index.
"Maximum Total Interest" refers to either the Bearish Maximum Total
Interest or the Bullish Maximum Total Interest.
"Non-U.S. Holder" means a holder of a Note that is not a U.S. Holder.
"OID Regulations" means the final Treasury regulations issued on January
27, 1994 governing original issue discount notes.
"Notes" shall mean both the Bearish Notes and the Bullish Notes.
"Standard & Poor's 500" means the service mark of The Standard & Poor's
Corporation which has been licensed for use by Merrill Lynch Capital Services,
Inc.
"Standard & Poor's(R)" means the service mark of The Standard & Poor's
Corporation which has been licensed for use by Merrill Lynch Capital Services,
Inc.
"Successor Index" means a successor or substitute index for the S&P 500
Index.
"S&P" means The Standard & Poor's Corporation.
"S&P(R)" means the service mark of The Standard & Poor's Corporation which
has been licensed for use by Merrill Lynch Capital Services, Inc.
"S&P 500(R)" means the service mark of The Standard & Poor's Corporation
which has been licensed for use by Merrill Lynch Capital Services, Inc.
"S&P 500 Index" shall mean S&P 500 Composite Stock Price Index.
"S&P 500 Percent Decline" means the Initial Index Value minus the 1995
Index Value, the result of which is divided by the Initial Index Value.
"S&P 500 Percent Increase" means the 1995 Index Value minus the Initial
Index Value, the result of which is divided by the Initial Index Value.
"Total Interest" shall mean the total interest payable on a Note from the
date of issuance through the maturity date.
"Trading Day" means a day on which The New York Stock Exchange, the
American Stock Exchange, the National Association of Securities Dealers
Automated Quotations System National Market System, the Chicago Mercantile
Exchange, the New York Futures Exchange and the Chicago Board Options Exchange
are open for trading.
"Trustee" shall mean The Mercantile Safe Deposit and Trust Company, the
successor trustee to The Chase Manhattan Bank (National Association).
"Underwriters" means Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Kidder, Peabody & Co. Incorporated.
"U.S. Holder" means a beneficial owner of a Note that is for United States
Federal income tax purposes (i) a citizen or resident of the United States, (ii)
a corporation, partnership or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof, (iii) an
estate or trust the income of which is subject to United States Federal income
taxation regardless of its source, or
G-2
<PAGE> 28
(iv) any other person whose income or gain in respect of a Note is effectively
connected with the conduct of a United States trade or business.
"1991 Proposed Regulations" means the proposed Treasury regulations issued
in 1991 concerning contingent payment debt obligations.
"1993 Proposed Regulations" means the proposed Treasury Regulations issued
in 1993 concerning contingent payment debt obligations.
"1995 Index Value" shall mean the closing value of the S&P 500 Index on the
seventh scheduled Trading Day preceding the date which is one year from the date
that the Notes are issued.
G-3
<PAGE> 29
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL
UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... S-3
Special Considerations With Respect to
the Notes........................... S-7
Description of Notes.................. S-10
The Standard & Poor's 500 Index....... S-13
Certain United States Federal Income
Tax Considerations.................. S-19
Underwriting.......................... S-24
Legal Opinions........................ S-25
Glossary.............................. G-1
PROSPECTUS
Available Information................. 2
Documents Incorporated by Reference... 2
The Company........................... 3
Use of Proceeds....................... 3
Plan of Distribution.................. 3
Description of Notes.................. 4
Description of Warrants............... 9
Legal Opinions........................ 9
Experts............................... 9
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$25,000,000
GENERAL ELECTRIC
CAPITAL CORPORATION
S&P 500 INDEXED NOTES DUE
MAY , 1996
SERIES A (BEARISH NOTES)
AND
SERIES B (BULLISH NOTES)
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
KIDDER, PEABODY & CO.
INCORPORATED
APRIL , 1994
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 30
GRAPHICS APPENDIX LIST
DESCRIPTION OF GRAPHIC
- -------------------------------------------------------------------------------
Graphic No. 1 The Graph is entitled "Historical Annual Percentage
Changes in the S&P 500 Index."
The graph sets forth the percentage change in the
S&P 500 Index in each year from the closing value
in the prior year to the closing value in each such
years from 1948 through 1993.
