PROSPECTUS Pricing Supplement No. 1747
Dated July 12, 1993 Dated January 12, 1994
PROSPECTUS SUPPLEMENT Rule 424(b)(3)-Registration Statement
No. 33-58506
Dated July 12, 1993 Rule 424(b)(3)-Registration Statement
No. 33-58508
GENERAL ELECTRIC CAPITAL CORPORATION
GLOBAL MEDIUM-TERM NOTES
(Principal Indexed Notes)
Series: A X B __ C __ Trade Date: January 12, 1994
Principal Amount (in Specified Currency): US$15,000,000
Settlement Date (Original Issue Date): January 21, 1994
If Specified Currency is other than U.S. dollars,
equivalent amount in U.S. dollars: N/A
Maturity Date: January 21, 1999
Agent's Discount or Commission: 00.02%
Price to Public (Issue Price): 99.75%
Net Proceeds to Issuer (in Specified Currency): US$14,959,500
Interest Rate: The Notes do not provide for any periodic interest
payments. See "Description of Notes" below.
Form of Notes: The Notes will be issued in the form of a fully-
registered global note deposited with, or on behalf, of the
Depository Trust Company. Notes will be available in minimum
denominations of $500,000.
Original Issue Discount:
Amount of OID: N/A Interest Accrual Date: N/A
Yield to Maturity: N/A Initial Accrual Period OID: N/A
CAPITALIZED TERMS USED IN THIS PRICING SUPPLEMENT WHICH ARE DEFINED
IN THE PROSPECTUS SUPPLEMENT SHALL HAVE THE MEANINGS ASSIGNED TO
THEM IN THE PROSPECTUS SUPPLEMENT.
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(Principal Indexed Notes)
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Pricing Supplement No. 1747
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Indexed Notes: The Notes will be indexed as to principal based
upon the S&P 500 Index (as defined herein) as described under
"Description of Notes" and "The S&P 500 Index" below.
Additional Terms: A description of the terms of the Notes is set
forth under "Description of Notes" below. Investors should also
read the sections entitled "The S&P 500 Index", "Certain Investment
Considerations" and "Certain United States Federal Income Tax
Considerations" set forth below.
STANDARD & POOR'S ("S&P") DOES NOT GUARANTEE THE ACCURACY AND/OR
THE COMPLETENESS OF THE S&P 500 COMPOSITE INDEX OR ANY DATA
INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS
OR IMPLIED AS TO RESULTS TO BE OBTAINED BY THE COMPANY, THE
DETERMINATION AGENT, HOLDERS OF THE NOTES, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE S&P 500 COMPOSITE 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 OR USE WITH RESPECT TO THE S&P 500 COMPOSITE 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.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes
offered hereby (the "Notes") supplements, and to the extent
inconsistent therewith replaces the description of the general
terms and provisions of the Notes set forth in the accompanying
Prospectus Supplement and Prospectus dated July 12, 1993.
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(Principal Indexed Notes)
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Pricing Supplement No. 1747
Dated January 12, 1994
Rule 424(b)(3)-Registration Statement
No. 33-58506
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No. 33-58508
General
The Notes will mature on January 21, 1999 and the principal
amount thereof (the "Principal Amount") will be repayable based
upon the formula set forth under "Description of the Notes--Payment
at Maturity". The Notes are not subject to redemption prior to
maturity by the Company or at the option of any holder.
The Principal Amount of the Notes payable at Maturity is indexed
to the S&P 500 Index (as defined below). Bankers Trust Company
will act as the calculation agent (the "Calculation Agent"). All
determination made by the Calculation Agent with respect to the
Notes 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 the holders of the Notes.
Payment at Maturity
The Notes are redeemable at 100% of their Principal Amount at
maturity plus an additional amount of interest equal to the
Principal Amount of the Notes multiplied by the Index Return (as
defined below).
For the purposes of the Notes, the following terms will have the
following meanings:
"Index Return" means the number expressed as a percentage rate
calculated by the Calculation Agent in accordance with the
following formula:
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(Principal Indexed Notes)
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No. 33-58506
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Index Return = [(S&P 500 Index(M) - S&P 500 Index(O)/
S&P 500 Index(O)] x 118.60%
Where,
"S&P 500 Index(O)" = means 474.37.
"S&P 500 Index(M)" = means the arithmetic mean of the
closing levels of the S&P 500 Index (as
defined below) as announced by Standard
& Poors ("S&P") on the Valuation Dates
(as defined below) as determined by the
Calculation Agent.
In no event shall the Index Return be less than zero.
"Index Business Day" means a day other than a Saturday or Sunday
on which the New York Stock Exchange, the American Stock Exchange,
National Association of Securities Dealers Automated Quotation
("NASDAQ"), the Chicago Mercantile Exchange, the New York Futures
Exchange, the Chicago Board of Options, and any other exchange on
which securities comprising a component of the S&P 500 Index are
listed, are open for securities trading.
"Market Disruption Event" means the suspension or material
limitation of trading in (a) a material number of the securities
from time to time comprising the component securities of the S&P
500 Index, (b) securities generally on any of the New York Stock
Exchange, American Stock Exchange or NASDAQ, (c) futures contracts,
if any related to the S&P 500 Index traded on the Chicago
Mercantile Exchange or the New York Futures Exchange, or (d)
options contracts, if any, related to the S&P 500 Index traded on
the Chicago Board of Options Exchange; provided, however, (i) a
limitation on the hours and 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 and (ii) a limitation on trading imposed during the course
of a day by reason of movements in price otherwise exceeding levels
permitted by the relevant exchange will constitute a Market
Disruption Event.
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(Principal Indexed Notes)
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"Indexed Principal Amount" means an amount in U.S. dollars
calculated by the Calculation Agent equal to the sum of (a) the
Principal Amount and (b) an amount equal to the Principal Amount
multiplied by the Index Return. In no event shall the Indexed
Principal Amount be less than the Principal Amount.
"S&P 500 Index" means the S&P 500 Composite Stock Price Index,
calculated by Standard & Poors, as described under "The S&P 500
Index" below.
"U.S. dollar" or "$" mean the lawful currency of the United
States of America.
"Valuation Dates" means January 6, 1999, January 7, 1999, January
8, 1999, January 11, 1999 and January 12, 1999 or, if the
Calculation Agent determines that a Market Disruption Event has
occurred and is continuing on any Valuation Date, then such
Valuation Date shall be postponed to the next Index Business Day on
which there is no Market Disruption Event and each succeeding
Valuation Date shall be postponed to the next Index Business Day;
provided, however, that: (a) if only one of the Valuation Dates has
occurred prior to the fourth Index Business Day immediately prior
to the Stated Maturity, then the other Valuation Dates shall be the
fourth, third, second and first Index Business Days immediately
prior to the Stated Maturity; (b) if only two of the Valuation
Dates have occurred prior to the third Index Business Day
immediately prior to the Stated Maturity, then the other Valuation
Dates shall be the third, second and first Index Business Days
immediately prior to the Stated Maturity; (c) if only three of the
Valuation Dates have occurred prior to the second Index Business
Day immediately prior to the Stated Maturity, then the other
Valuation Dates shall be the second and first Index Business Days
immediately prior to the Stated Maturity; (d) if only four of the
Valuation Dates have occurred prior to the first Index Business Day
immediately prior to the stated Maturity, then the last Valuation
Date shall be the first Index Business Day immediately prior to the
Stated Maturity; and (e) if no such Valuation Dates have occurred
on or prior to the fifth Index Business Day prior to the Settlement
Date, the relevant Indexed Principal Amount shall be calculated as
if the fifth, fourth, third, second and first Index Business Days
prior to the Stated Maturity were such Valuation Dates.
<PAGE>
(Principal Indexed Notes)
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Events of Default and Acceleration
In the case of an acceleration of the maturity of the Notes upon
the occurrence of an Event of Default, the amount payable to a
holder of a Note will equal (i) the Principal Amount thereof, plus
(ii) an additional amount, if any, of interest calculated as though
the date of early repayment were the maturity date of the Notes.
See "Payment at Maturity" above.
THE S&P 500 INDEX
All disclosure contained in this pricing Supplement regarding the
S&P 500 Index, including, without limitation, its make-up, method
of calculation and changes in it components, is derived from
publicly available information prepared by S&P. Neither the
Company nor BT Securities Corporation can assure the accuracy or
completeness of the information prepared by S&P.
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
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 December 31, 1993,
the 500 companies included in the S&P 500 Index represented
approximately 82% 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 December 31, 1993, 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&P chooses companies for inclusion in the S&P 500
<PAGE>
(Principal Indexed Notes)
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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 company. As of
December 31, 1993, the 500 companies included in the Index were
divided into 87 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
parenthesis): Industrials (381), Utilities (47), Transportation
(16) and Financial (56). 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 Values 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");
<PAGE>
(Principal Indexed Notes)
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Pricing Supplement No. 1747
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(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 amounts
payable on any Interest Payment Date to holders of Notes.
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:
New Market Value
Old Base Value X Old Market Value = New Base Value
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.
<PAGE>
(Principal Indexed Notes)
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License Agreement
S&P and BT Securities Corporation have entered into a non-
exclusive license agreement providing for the license to BT
Securities Corporation and its affiliated and subsidiary companies
in exchange for a fee, of the right to use indices owned and
published by S&P in connection with certain securities, including
the Notes, and to use certain trademarks and trade names owned by
S&P in conjunction with the offering of such securities, including
the Notes, and the Company is an authorized sublicensee thereof.
The license agreement between S&P and BT Securities Corporation
provides that the following language must be stated in this Pricing
Supplement:
"Standard & Poor's", "S&P, S&P 500", "Standard & Poor's 500", and
"500" are trademarks of McGraw-Hill, Inc. and have been licensed
for use by BT Securities Corporation and its subsidiaries and
affiliates and sublicensed to the Company. S&P makes no
representation regarding the advisability of investing in the
Notes.
The Notes are not sponsored, endorsed, sold or promoted by S&P.
S&P makes no representation or warranty, express or implied, to the
holders of the Notes or any member of the public regarding the
advisability of investing in securities generally or in the Notes
particularly or the ability of the S&P 500 Index to track general
stock market performance. S&P's only relationship to BT Securities
Corporation and the Company (other than transactions entered into
in the ordinary course of business) is the licensing of certain
trademarks 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 BT
Securities Corporation, the Company or the Notes. S&P has no
obligation to take the needs of BT Securities Corporation, the
Company or the holders of the Notes 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 Notes, the prices at which the Notes
are to initially be sold, or the quantities of the Notes to be
issued or in the determination or calculation of the equation by
which the Notes are to be converted into cash. S&P has no
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(Principal Indexed Notes)
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obligation or liability in connection with the administration,
marketing or trading of the Notes.
Historical Data on the S&P 500 Index
The following tables set forth the closing value of the S&P 500
Index on the last business day of each year from 1941 through 1988
and the high, low and closing value of the S&P 500 Index for each
quarter from 1989 through to present, as published by S&P. The
historical experience of the S&P 500 Index should not be taken as
an indication of future performance.
Year End Value of the S&P 500 Index (1941 to 1986)
Closing Closing
Year Value Year Value
1941 8.69 1965 92.43
1942 9.77 1966 80.33
1943 11.67 1967 96.47
1944 13.28 1968 103.86
1945 17.36 1969 92.06
1946 15.30 1970 92.15
1947 15.30 1971 102.09
1948 15.20 1972 108.05
1949 16.76 1973 97.55
1950 20.41 1974 68.56
1951 23.77 1975 90.19
1952 26.57 1976 107.46
1953 24.81 1977 95.10
1954 35.98 1978 96.11
1955 45.48 1979 107.94
1956 46.67 1980 135.76
1957 39.99 1981 122.55
1958 55.21 1982 107.94
1959 59.89 1983 135.76
1960 58.11 1984 167.24
1961 71.55 1985 211.28
1962 63.10 1986 242.17
1963 75.02 1987 247.08
1964 84.75 1988 277.72
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(Principal Indexed Notes)
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Quarterly Values of the S&P 500 Index (1989 to Present)
Last Dollar Values
Closing
High Low Value
1989:
1st Quarter 299.63 275.31 294.87
2nd Quarter 328.44 295.29 317.98
3rd Quarter 353.73 319.23 349.15
4th Quarter 359.80 332.61 353.40
1990:
1st Quarter 359.69 322.98 339.94
2nd Quarter 367.40 329.11 358.02
3rd Quarter 368.95 300.97 306.05
4th Quarter 331.75 295.46 330.22
1991:
1st Quarter 376.72 311.49 375.22
2nd Quarter 390.45 368.57 371.16
3rd Quarter 396.64 373.33 387.86
4th Quarter 417.09 375.22 417.09
1992:
1st Quarter 420.77 403.00 403.69
2nd Quarter 418.49 394.50 408.14
3rd Quarter 425.27 409.16 417.80
4th Quarter 441.28 402.66 435.71
1993:
1st Quarter 456.33 429.05 451.67
2nd Quarter 453.85 433.54 450.53
3rd Quarter 463.56 441.43 458.93
4th Quarter 470.94 457.49 466.45
The historical experiences of the S&P 500 Index should not be
taken as an indication of future performance, and no assurance can
be given that the S&P 500 Index values, during the years in which
the Notes are outstanding, will increase sufficiently to result in
any payment in excess of the Principal Amount of the Notes at
maturity.
<PAGE>
(Principal Indexed Notes)
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Pricing Supplement No. 1747
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Discontinuance or Modification of S&P 500 Index
Replacement of the S&P 500 Index with a Successor Index. If the
S&P Index is not calculated and published by S&P but is calculated
and reported by another person or party acceptable to the
Calculation Agent (the "Third Party"), the Indexed Principal Amount
relating to this Note may nevertheless by calculated by the
Calculation Agent by reference to the relevant closing level of
such Index.
Material Change in Method of Calculation. If after the Original
Issue Date, S&P or the Third Party makes a material change (in the
opinion of the Calculation Agent) in the formula or the method of
calculating the S&P 500 Index, the Calculation Agent shall, using
the formula and method of calculating the Index in effect
immediately prior to such change, make such calculations as may be
required to determine the Indexed Principal Amount.
Discontinuance of the S&P 500 Index. If at any time S&P or the
Third Party cease calculation and dissemination of the S&P 500
Index, either temporarily or permanently, and should not provide a
successor index, the Calculation Agent shall, using the formula and
method of calculating the Index in effect as of the date the S&P
500 Index was last so calculated (subject to the preceding
paragraph), make such calculations as shall be required to
determine the Indexed Principal Amount.
CERTAIN INVESTMENT CONSIDERATIONS
In addition to the risks described in the Prospectus Supplement
under the caption "Description of Notes -- Indexed Notes -- Risk
Factors", the following special considerations may be relevant to
a prospective investor in the Notes.
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(Principal Indexed Notes)
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Payment at Maturity
Investors should be aware that in the event the S&P 500 Index
does not appreciate over the five year life of the Notes, no amount
in excess of the Principal Amount will be payable at maturity.
There can be no assurance that the S&P 500 Index will appreciate,
or that any appreciation that does occur will be at rates
comparable to recent historical rates.
The S&P 500 Index does not reflect the payment of dividends on
stock underlying it and therefore the yield based on the S&P 500
Index to maturity of the Notes will not produce the same yield as
if such underlying stocks were purchased and held for a similar
period.
A holder may receive an additional amount above the Principal
Amount at maturity which is below what the Company would pay as
interest as of the date hereof if the Company issued non-callable
senior debt securities with a similar maturity as that of the
Notes, including the possibility that no addition amount will be
payable. Although the Principal Amount will be received by Holders
at maturity, this amount does not reflect any opportunity cost
implied by inflation and other factors relating to the time value
of money.
Trading
The Notes will not be listed on any national securities exchange.
There is no precedent to indicate 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 the creditworthiness of the Company and by a number of other
facts.
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(Principal Indexed Notes)
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The trading value of the Notes is expected to depend primarily
on the extent of the appreciation, if any, of the S&P 500 Index
over the initial value of 474.37 (the "Initial Value"). If,
however, Notes are sold prior to the maturity date at a time when
the S&P 500 Index exceeds the Initial Value, the sale price may be
at a discount from the amount expected to be payable to the holder
if such excess of the S&P 500 Index over the Initial Value were to
prevail until maturity of the Notes because of the possible
fluctuation of the S&P 500 Index between the time of such sale and
the maturity date. See "The S&P 500 Index--Historical Data on the
S&P 500 Index." Furthermore, the price at which a Holder will be
able to sell Notes prior to maturity 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 Value. A discount could also result from rising
interest rates.
The trading values of the Notes may be affected by a number of
interrelated factors, including those listed below. The
relationship among these factors is complex, including how these
factors affect the additional amount, if any, payable on the
maturity date. Accordingly, investors should be aware that factors
other than the level of the S&P 500 Index are likely to affect
their trading value. The expected 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:
Interest Rates. In general, if U.S. interest rates increase, the
value of the Notes is expected to decrease. If U.S. interest rates
decrease, the value of the 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. Rising interest rates may lower the value of
the S&P 500 Index and, thus, the 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.
<PAGE>
(Principal Indexed Notes)
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Time Remaining to Maturity. 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 maturity of the Notes. As the time remaining
to maturity of the Notes decreases, however, this time premium is
expected to decrease, thus decreasing the trading value of the
Notes.
Dividend Rates in the United States. If dividend rates on the
stocks comprising the S&P 500 Index increase, the value of the
Notes is expected to decrease. Conversely, if dividend rates on
the stocks comprising the S&P 500 Index decrease, the value of the
Notes is expected to increase. General U.S. corporate dividend
rates may also affect the S&P 500 Index and, in turn, the value of
the Notes.
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. Investors should also consider the
tax consequences of investing in the Notes. See "Certain U.S.
Federal Income Tax Considerations" in this Pricing Supplement.
<PAGE>
(Principal Indexed Notes)
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following United States Federal income tax discussion
replaces the discussion under "United States Tax Considerations",
except where specifically referenced below, in the Prospectus and
Prospectus Supplement dated July 12, 1993.
United States Taxation
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 by initial U.S. Holders and
does not purport to deal with persons in special tax situations
(such as tax-exempt investors, 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
(except where otherwise specifically noted). 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 corporation, partnership or other entity created or organized in
or under the laws of the Untied States or of any political
subdivision thereof, (ii) an estate or trust the income of which is
subject to United States Federal income taxation regardless of its
source, or (iii) 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.
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General
There are no regulations (except the Proposed 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 not entirely free from doubt, the Company
believes, based upon the advice of its Tax Counsel, that under
current law each Note should be treated as a debt 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 principals of current United States Federal income
tax law, payments of interest on a Note 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 this analysis,
a U.S. Holder will not recognize any income, gain or loss prior to
the Stated Maturity Date or earlier disposition of a Note. The
amount payable at maturity with respect to a Note in excess of the
Principal Amount (the "Additional Interest Amount"), if any, will
be treated as contingent interest and generally will be includable
in income by a U.S. Holder as ordinary interest on the date the
amount payable at maturity is accrued (i.e., determined) or when
such amount is 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 will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or
retirement and such U.S. Holder's tax basis in the Note. A U.S.
Holder's tax basis in a Note will generally equal the cost of a
Note to such U.S. Holder. Such gain or loss generally should be
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capital gain or loss and should be long-term capital gain or loss
if the Note were held by the U.S. Holder for more than one year.
It is possible, however, that the Internal Revenue Service ("IRS")
could assert that any amounts realized upon the sale or exchange of
a Note prior to the Stated Maturity Date in excess of the Principal
Amount constitutes ordinary interest income (subject to the bond
premium rules).
However, in 1991, the Treasury Department issued proposed
regulations (the "Existing Proposed Regulations") under the
original issue discount provisions of the Internal Revenue Code
(the "Code") concerning contingent payment debt obligations which,
if applicable to the Notes, would bifurcate a Note into a debt
instrument and a right based upon the value of the S&P 500 Index.
The Existing Proposed Regulations contain a retroactive effective
date of February 20, 1991. Thus, if the Existing Proposed
Regulations are adopted in their current form such regulations
would apply to the Notes and 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 on a Note had the
Existing Proposed Regulations not applied.
The Existing Proposed Regulations would treat a Note as
consisting of two separate instruments: (i) the fixed payment
(i.e., the debt instrument), consisting of the right to receive the
Principal Amount (the "Fixed Payment"), and (ii) the contingent
payment, consisting of the right to receive the Additional Interest
Amount (the "Contingent Payment"). A Note's original issue price
would be allocated between the Fixed Payment and the Contingent
Payment in accordance with their relative fair market values.
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Under the Existing 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 Existing Proposed
Regulations are ultimately adopted in their current form and, thus,
are applied to the Notes, then the amount of original issue
discount on a Note would be $215.30 per $1,000 Principal Amount.
Under the Existing Proposed Regulations, a U.S. Holder that
disposes of a Note prior to the Stated Maturity Date would
generally recognize a 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 Payment 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 Payment), 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 Existing Proposed Regulations, the Contingent Payment
would be treated separately from the Fixed Payment and taxed "in
accordance with [its] economic substance." Under an "economic
substance" analysis, the Contingent Payment is likely to be treated
as a cash settlement option (an "S&P Right") on the S&P 500 Index.
The United States Federal income tax treatment of an S&P Right
would depend upon whether it is a "listed" (i.e., an option traded
on a qualified board or exchange) or an "unlisted" nonequity option
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under Code section 1256. Although not free from doubt, and subject
to the discussion below, Tax Counsel has advised the Company that
the better view is to treat the S&P Right as an unlisted nonequity
option and there is a reasonable basis for such position. If the
S&P Right were treated as a listed nonequity option, however, the
S&P Right would be subject to the Code's mark-to-market rules
discussed below. Assuming the S&P Right is not treated as a listed
nonequity option, a U.S. Holder would recognize taxable gain or
loss with respect to the S&P Right only upon its sale, exchange,
expiration or payment at maturity. The gain or loss with respect
to the S&P Right would generally be measured by the difference
between the amount realized with respect to the S&P Right and its
tax basis. A U.S. Holder's tax basis in the S&P Right generally
would be the portion of the U.S. Holder's initial investment in the
Note that is allocated to the Contingent Payment (in accordance
with the relative fair market values of the Fixed Payment and the
Contingent Payment). Such gain or loss in the S&P Right would
generally be long-term capital gain or loss if the Note were held
by the U.S. Holder for more than one year.
Although Tax Counsel has advised the Company that the better view
is to treat the 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 the S&P Right should be treated as a listed
nonequity option. The IRS may take this position based on the fact
that there are listed nonequity options and futures based on the
S&P 500 Index. Although it is possible that the S&P Right may be
treated as a listed nonequity option, it is not clear that the
Existing Proposed Regulations contemplate such a result. In
addition, even though options on the S&P 500 Index are listed and
traded, on the issue date there are no comparable S&P 500 Index
options with similar durations which are traded on a qualified
board or exchange and, therefore, there is no accurate market price
to separately value the S&P Right. It is also unclear whether
mark-to-market treatment is intended under the Existing Proposed
Regulations when, through the passage of time, the S&P Right's
remaining term to expiration is the same as that of comparable
nonequity options that are separately traded.
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If the S&P Right is treated as a "listed nonequity option", such
S&P Right would generally be marked-to-market under Code section
1256, i.e., treated as if it were sold for its fair market value 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. Prospective investors
should consult their own tax advisors as to the proper treatment of
the S&P Right under the Existing Proposed Regulations.
Capital losses are generally deductible only against capital
gains.
There is no assurance that the Existing 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
Existing 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 in the Existing 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
includable 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
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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 Existing
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
Existing Proposed Regulations to their investment in the Notes, if
any, and the effect of possible changes to the Existing Proposed
Regulations.
Backup Withholding
Certain U.S. Holders may be subject to backup withholding as
described in the Prospectus Supplement dated July 12, 1993 under
"United States Tax Considerations--Backup Withholding."
PLAN OF DISTRIBUTION
BT Securities Corporation is acting as Agent with respect to the
distribution of the Notes. BT Securities Corporation will receive
a commission equal to 00.02% of the par amount of the Notes.
