PROSPECTUS Pricing Supplement No. 1773
Dated July 12, 1993 Dated February 1, 1994
PROSPECTUS SUPPLEMENT Rule 424(b)(3)-Registration Statement
No. 33-58506
Dated July 12, 1993 Rule 424(b)(3)-Registration Statement
No. 33-50508
GENERAL ELECTRIC CAPITAL CORPORATION
GLOBAL MEDIUM-TERM NOTES
(Fixed Rate, Indexed Notes)
Series: A X B __ C __ Trade Date: January 31, 1994
Principal Amount (in Specified Currency): US$25,000,000
Settlement Date (Original Issue Date): February 14, 1994
If Specified Currency is other than U.S. dollars,
equivalent amount in U.S. dollars: N/A
Maturity Date: February 14, 1997
Agent's Discount or Commission: 0.10%
Price to Public (Issue Price): 100.00%
Net Proceeds to Issuer (in Specified Currency): $24,975,000
Interest Rate:
Interest Rate Per Annum: 2.50% per annum (30/360 day basis).
Interest Payment Dates:
__ Annual
X Semi-Annual: Each February 14 and August 14, commencing on
August 14, 1994 and ending on the Maturity Date.
Indexed Notes:
The holders of the Notes will receive 100% of the principal
amount of the Notes on the Maturity Date plus an additional amount
of interest, if any, on the Maturity Date equal to the sum of the
quarterly Incremental Values (as defined below) during each
quarterly Reference Period (as defined below). See "Description of
Notes" and "Certain Historical Information" below.
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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(Fixed Rate, Indexed Notes)
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Pricing Supplement No. 1773
Dated February 1, 1994
Rule 424(b)(3)-Registration Statement
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Form and Denomination:
The Notes will be issued in the form of one or more global notes
which will be deposited with or on behalf of The Depository Trust
Company. Notes will be available in minimum denominations of
$500,000 and integral multiples thereof.
Repayment, Redemption and Acceleration:
Optional Repayment Date: N/A
Annual Redemption Percentage Reduction: N/A
Initial Redemption Date: N/A
Modified Payment Upon Acceleration: N/A
Initial Redemption Percentage: N/A
Additional Terms:
A description of the terms of the Notes is set forth under
"Description of Notes" below. Investors should also read carefully
the sections entitled "Certain Historical Information", "Certain
Investment Considerations" and "Certain United States Federal
Income Tax Considerations" set forth below.
DESCRIPTION OF THE 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.
General
The Notes will mature on February 14, 1997 and the principal
amount thereof will be repayable at par, plus an additional amount
of interest equal to the sum of the quarterly Incremental Values
(as defined below). The Notes are not subject to redemption prior
to maturity by the Company or at the option of any holder.
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(Fixed Rate, Indexed Notes)
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Pricing Supplement No. 1773
Dated February 1, 1994
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No. 33-58506
Rule 424(b)(3)-Registration Statement
No. 33-50508
Morgan Guaranty 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.
Interest Payments
Interest will be payable semiannually in arrears at the rate of
2.50% per annum on February 14 and August 14 of each year,
commencing on August 14, 1994 and ending on the Maturity Date
(each, an "Interest Payment Date"). The amount of interest will be
computed based on a 360 day year of twelve 30 day months. The
holder shall also be entitled to receive an additional amount of
interest, if any, payable on the maturity date as described below.
Payment at Maturity
Each Note is redeemable at 100% of its Principal Amount at
maturity plus an additional amount of interest equal to the face
amount of such Note multiplied by the Conversion Percentage (as
defined below).
For the purposes of the Notes, the following terms will have the
following meanings:
"Conversion Percentage" means, with respect to any Note, the sum
of the Incremental Values for each of the 12 quarterly Reference
Periods (as defined below), expressed as a percentage of the
original face amount of such Note.
"Incremental Value" means, with respect to any Note, a number,
expressed as a percentage of the original face amount of the Note,
computed at the end of each quarterly Reference Period by the
Calculation Agent in accordance with the following formula:
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(Fixed Rate, Indexed Notes)
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Pricing Supplement No. 1773
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No. 33-50508
Incremental Value =
[0.35 X QVCu + 0.35 X QVAl + 0.20 X QVAg + 0.10 X QVNi]/12
Where,
QVCu = means the quarterly incremental value attributable to the
price of copper, which shall mean the greater of 0 or an
amount computed in accordance with the following formula:
[.8333 X (Average Daily Price of Copper per ton -
$2,214.00)]/$1,845.00.
QVAl = means the quarterly incremental value attributable to the
price of aluminum, which shall mean the greater of 0 or
an amount computed in accordance with the following
formula: [.8333 X (Average Daily Price of Aluminum per
ton - $1,472.00)]/$1,226.67.
QVAg = means the quarterly incremental value attributable to the
price of silver, which shall mean the greater of 0 or the
amount computed in accordance with the following formula:
[.8333 X (Average Daily Price of Silver per ounce -
$6.1200)]/$5.1000.
QVNi = means the quarterly incremental value attributable to the
price of nickel, which shall mean the greater of 0 or the
amount computed in accordance with the following formula:
[.8333 X (Average Daily Price of Nickel per ton -
$6,840.00)]/$5,700.00.
"Average Daily Price of Copper per ton" means, with respect to
a Reference Period (as defined below), the arithmetic mean rounded
to the nearest tenth of a dollar (with $0.05 rounded to $0.10) , of
the "Official Cash Settlement Price" established by the London
Metal Exchange on each Exchange Business Day during such Reference
Period for Grade "A" Copper as found on Reuters screen MTLE or, in
the event such screen rate is not available, the offer price
published in the Financial Times - London Metals Exchange/Copper,
Grade A, "a.m. official" price on each Exchange Business Day during
such Reference Period for Grade "A" Copper. In the event (i) there
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(Fixed Rate, Indexed Notes)
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Pricing Supplement No. 1773
Dated February 1, 1994
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No. 33-50508
is no "Official Cash Settlement Price" established by the London
Metal Exchange on any Exchange Business Day or (ii) Copper was not
regularly being traded on the London Metal Exchange during such
Settlement Period, The "Average Copper Price" shall mean such
comparable measure of the cash value of Copper during such
Settlement Period as quoted by three mutually acceptable London
dealers.
"Average Daily Price of Aluminum per ton" means, with respect to
a Reference Period, the arithmetic mean rounded to the nearest
tenth of a dollar (with $0.05 rounded to $0.10), of the "Official
Cash Settlement Price" established by the London Metal Exchange as
found on Reuters screen MTLE or, in the event such screen rate is
not available, the offer price published in the Financial Times -
London Metals Exchange/Aluminum, "a.m. official" price on each
business day on each Exchange Business Day during such Reference
Period for High Grade Aluminum. In the event (i) there is no
"Official Cash Settlement Price" established by the London Metal
Exchange on any Exchange Business Day or (ii) Aluminum was not
regularly being traded on the London Metal Exchange during such
Settlement Period, "Average Aluminum Price" shall mean such
comparable measure of the cash value of Aluminum during such
Settlement Period as quoted by three mutually acceptable London
dealers.
"Average Daily Price of Silver per ounce" means, with respect to
a Reference Period, the arithmetic mean rounded to the nearest
hundredth of a cent (with $0.005 rounded to $0.010), of the London
Bullion Market Association ("LBMA") spot Silver Fixing as found on
Telerate Page 406 or, in the event such screen rate is not
available, as published in the Financial Times - London Bullion
Market - Silver Fix Spot on the next business day on each Exchange
Business Day during such Reference Period for Silver. In the event
(i) there is no London Silver Fixing on any Exchange Business Day
or (ii) Silver was not regularly being traded on the London Bullion
Market during such Settlement Period, "Average Silver Price" shall
mean such comparable measure of the cash value of Silver during
such Settlement Period as quoted by three mutually acceptable
London dealers.
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(Fixed Rate, Indexed Notes)
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Pricing Supplement No. 1773
Dated February 1, 1994
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"Average Daily Price of Nickel per ton" means, with respect to
a Reference Period, the arithmetic mean rounded to the nearest
tenth of a dollar (with $.05 rounded to $0.10), of the "Official
Cash Settlement Price" established by the London Metal Exchange on
each Exchange Business Day during such Reference Period for Nickel
as found on Reuters screen MTLE or, in the event such screen rate
is not available, the offer price published in the Financial Times
- - London Metals Exchange/Nickel, "a.m. official" price on the next
business day on each Exchange Business Day during such Reference
Period for Nickel. In the event (i) there is no "Official Cash
Settlement Price" established by the London Metal Exchange on any
Exchange Business Day or (ii) Nickel was not regularly being traded
on the London Metal Exchange during such Settlement Period,
"Average Nickel Price" shall mean such comparable measure of the
cash value of Nickel during such Settlement Period as quoted by
three mutually acceptable London dealers.
"Reuters Page MTLE" means the screen designated as "Page MTLE"
on the Reuters Monitor Money Rates Service (or such other page as
shall replace Page MTLE on that service for the purpose of
displaying Official Cash Settlement Prices for Aluminum, Copper and
Nickel).
"Telerate Page 406" means the display designated as "Page 406"
on the Dow Jones Telerate Service (or such other page as may
replace Page 406 on that service or such other service for the
purpose of displaying the Official Cash Settlement Price of
Silver).
"Reference Periods" mean each of the twelve quarterly reference
periods over which each Incremental Value will be measured: (i)
commencing on February 1, 1994 and ending on April 30, 1994; (ii)
commencing on May 1, 1994 and ending on July 31, 1994; (iii)
commencing on August 1, 1994 and ending on October 31, 1994; (iv)
commencing on November 1, 1994 and ending on January 31, 1995; (v)
commencing on February 1, 1995 and ending on April 30, 1995;
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(Fixed Rate, Indexed Notes)
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Pricing Supplement No. 1773
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(vi) commencing on May 1, 1995 and ending on July 31, 1995; (vii)
commencing on August 1, 1995 and ending on October 31, 1995; (viii)
commencing on November 1, 1995 and ending on January 31, 1996; (ix)
commencing on February 1, 1996 and ending on April 30, 1996; (x)
commencing on May 1, 1996 and ending on July 31, 1996; (xi)
commencing on August 1, 1996 and ending on October 31, 1996; (xii)
commencing on November 1, 1996 and ending on January 31, 1997.
"Exchange Business Day" means a day other than a Saturday or
Sunday on which the London Metal Exchange is open for trading.
"U.S. dollar" or "$" mean the lawful currency of the United
States of America.
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 equal to (x) the sum
of the quarterly Incremental Values through the end of the last
Reference Period plus (y) the Incremental Value for the current
Reference Period computed as if the date set for acceleration were
the last day of such Reference Period and then multiplying such
amount by a fraction, the numerator of which is the number of
calendar days since the first day of the current Reference Period
and the denominator of which is 90.
CERTAIN HISTORICAL INFORMATION
All disclosure contained in this Pricing Supplement regarding the
prices of Aluminum, Copper, Nickel and Silver was derived from
publicly available sources and prepared by Morgan Guaranty Trust
Company of New York. In addition, the hypothetical Incremental
Values and Conversion Percentages presented in the table below were
calculated by Morgan Guaranty Trust Company of New York.
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(Fixed Rate, Indexed Notes)
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Pricing Supplement No. 1773
Dated February 1, 1994
Rule 424(b)(3)-Registration Statement
No. 33-58506
Rule 424(b)(3)-Registration Statement
No. 33-50508
Historical Data
The table below sets forth the closing prices of Aluminum,
Copper, Nickel and Silver for the quarterly dates indicated,
together with a computation of the hypothetical Incremental Value
and Conversion Percentage. The hypothetical Incremental Value for
each quarter shows the percentage of the face amount of the Notes
that would be payable on the maturity based on the prices of the
component metals for such quarter. The hypothetical Conversion
Percentage demonstrates the additional amount (expressed as a
percentage of the face amount) that would have been payable if the
Notes had been issued three years prior to, and matured on, such
date.
Closing Metal Prices, Hypothetical Incremental Value
and Conversion Percentage
US$ per
US$ Per Metric Ton oz
Date Aluminum Copper Nickel Silver
04/30/89 2,305.00 3,055.40 15,150.00 5.64
07/31/89 1,765.00 2,576.40 13,075.00 5.15
10/31/89 1,780.00 2,722.80 10,087.50 5.23
01/31/90 1,380.00 2,191.60 6,155.00 5.22
04/30/90 1,500.00 2,588.80 9,300.00 4.94
07/31/90 1,720.00 2,862.50 9,975.00 4.86
10/31/90 1,940.00 2,651.60 8,675.00 4.22
01/31/91 1,470.00 2,408.10 8,540.00 3.83
04/30/91 1,340.00 2,499.80 9,137.50 3.93
07/31/91 1,265.80 2,242.70 8,145.00 4.07
10/31/91 1,160.50 2,398.10 7,465.00 3.59
01/31/92 1,221.50 2,190.80 7,665.00 4.13
04/30/92 1,287.00 2,206.90 7,438.00 3.98
07/31/92 1,316.50 2,532.30 7,350.00 3.95
10/31/92 1,147.80 2,270.90 6,070.00 3.76
01/31/93 1,202.50 2,226.00 5,800.00 3.71
04/30/93 1,115.00 1,870.80 5,940.00 4.30
07/31/93 1,198.00 1,970.00 4,975.00 5.30
10/31/93 1,055.00 1,609.00 4,532.50 4.40
01/31/94 1,220.00 1,855.00 5,690.00 5.14
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(Fixed Rate, Indexed Notes)
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[Note to SEC: following is a continuation of above chart due to
line length restrictions in EDGAR filings -- the date column is
repeated; the additional two columns follow the "US$ per oz Silver"
column]
Closing Metal Prices, Hypothetical Incremental Value
and Conversion Percentage
Hypothetical
Incremental Conversion
Date Value Percentage
04/30/89 3.77 NA
07/31/89 1.82 NA
10/31/89 1.68 NA
01/31/90 0.00 NA
04/30/90 0.85 NA
07/31/90 1.73 NA
10/31/90 1.73 NA
01/31/91 0.46 NA
04/30/91 0.66 NA
07/31/91 0.20 NA
10/31/91 0.32 NA
01/31/92 0.10 13.30
04/30/92 0.07 9.61
07/31/92 0.48 8.27
10/31/92 0.07 6.67
01/31/93 0.02 6.68
04/30/93 0.00 5.84
07/31/93 0.00 4.11
10/31/93 0.00 2.38
01/31/94 0.00 1.92
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Pricing Supplement No. 1773
Dated February 1, 1994
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No. 33-50508
The historical experiences of metal prices and the hypothetical
computations of the quarterly Incremental Values and Conversion
Percentages should not be taken as an indication of future
performance, and no assurance can be given that metal prices and
the corresponding Incremental Values, during the years in which the
Notes are outstanding, will result in any payment in excess of the
Principal Amount of the Notes at maturity.
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.
Payment at Maturity
Investors should be aware that in the event the average daily
prices of copper, aluminum, nickel and silver do not exceed
$2,214.00 (per ton), $1,472.00 (per ton), $6,840.00 (per ton) and
$6.1200 (per oz.), respectively, for any of the twelve quarterly
periods over the term of the Notes, no amount in excess of the
Principal Amount will be payable at maturity. There can be no
assurance that the average daily metal prices will appreciate
sufficiently over the life of the Notes to pay any amount in
addition to the Principal Amount at maturity.
A holder may receive an additional amount as interest above the
principal amount at maturity which, taking into account the semi-
annual interest payments at the rate of 2.50% per annum, 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
additional amount as interest will be payable at maturity.
Although the holders are guaranteed to receive 100 percent of the
principal amount of the Notes at maturity, such amount does not
reflect any opportunity cost implied by inflation and other factors
relating to the time value of money.
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(Fixed Rate, Indexed Notes)
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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 a number of factors independent of the creditworthiness of the
Company. 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 prices of Copper, Aluminum, Nickel and
Silver are likely to affect the trading value of the Notes. 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:
Metal Prices. In general, if the prices of aluminum, copper,
silver and nickel increase above their current levels significantly
or collectively the sum of the quarterly Incremental Values exceeds
market interest rates, then the value of the Notes is expected to
increase. If the prices of such metals decrease or remain
relatively constant over the life of the Notes, the value of the
Notes is expected to decrease.
Time Remaining to Maturity. The Notes may trade at a value above
that which may be inferred from the level of metal prices. This
difference will reflect a "time premium" due to expectations
concerning metal prices 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.
Other Considerations
Prospective investors who are considering purchasing the Notes
should reach an investment decision only after carefully evaluating
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.
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(Fixed Rate, Indexed Notes)
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Pricing Supplement No. 1773
Dated February 1, 1994
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No. 33-58506
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No. 33-50508
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 U.S. Holders (as defined
below) 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 of
the Notes. 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 Untied 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.
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(Fixed Rate, Indexed Notes)
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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 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 instrument of the Company
for United States Federal income tax purposes. The Company
currently intends to treat each Note as a debt instrument for
United States Federal income tax purposes and, where required,
intends to file information returns with the Internal Revenue
Service ("IRS") in accordance with such treatment, in the absence
of any change or clarification in the law, by regulation or
otherwise, requiring a different characterization. Prospective
investors in the Notes should be aware, however, that the IRS is
not bound by the Company's characterization of the Notes as
indebtedness and that the IRS could possibly take a different
position as to the proper characterization of the Notes for United
States Federal income tax purposes. The following discussion of
the principal United States Federal income tax consequences of the
purchase, ownership and disposition of the Notes 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. If the
Notes are not in fact treated as debt instruments of the Company
for United States Federal income tax purposes, then the United
States Federal income tax treatment of the purchase, ownership and
disposition of the Notes could differ from the treatment discussed
below. In such case, the timing and character of income (including
gain or loss recognition) in respect of the Notes could differ from
the timing and character of income (including gain or loss
recognition) reported on a Note had the Notes in fact been treated
as debt instruments of the Company for United States Federal income
tax purposes.
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U.S. Holders
Under general principles 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 these
principles, the amounts payable with respect to a Note at the
Interest Rate Per Annum on the Interest Payment Dates (the
"Interest Payments") would 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). The amount payable with respect
to a Note on the Maturity Date based upon the Average Daily Prices
of copper, aluminum, nickel and silver (the "Component Metals") in
excess of the Principal Amount (the "Additional Interest Amount"),
if any, would be treated as contingent interest and generally would
be includible in income by a U.S. Holder as ordinary interest at
the time that the amount payable on the Maturity Date is accrued
(i.e., determined) or when such amount is received (in accordance
with the U.S. Holder's regular method of tax accounting). Since
the Conversion Percentage equals the sum of the quarterly
Incremental Values, whenever the Incremental Value for any
Reference Period exceeds zero there is certain to be an
ascertainable Additional Interest Amount (or an ascertainable
increase in the Additional Interest Amount in the event that the
Incremental Value for any prior Reference Period exceeded zero)
that will result therefrom even if the Incremental Values for all
subsequent Reference Periods were to be zero (any such Additional
Interest Amount or increase in the Additional Interest Amount is
hereinafter referred to as a "Fixed Additional Interest Amount" and
the last day of each quarterly Reference Period relating to a
certain Fixed Additional Interest Amount is hereinafter referred to
as a "Fixing Date"). Accordingly, pursuant to the foregoing
principles, in the event of a Fixing Date, an accrual method U.S.
Holder would be required to include in income on such Fixing Date
as ordinary interest an amount equal to the portion of the Fixed
Additional Interest Amount relating to such Fixing Date that has
accrued as of such Fixing Date. The remaining portion of any such
Fixed Additional Interest Amount would be includible in income by
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an accrual method U.S. Holder as ordinary interest as it accrues
over a period commencing on the Fixing Date and concluding on the
Maturity Date. A cash method U.S. Holder, however, would not be
required to include any portion of a Fixed Additional Interest
Amount in income prior to the Maturity Date. It is possible that
the IRS could assert that the Fixed Additional Interest Amount
should be treated as original issue discount. In such case, a cash
or accrual method taxpayer would include the Fixed Additional
Interest Amount in gross income (using a constant yield method)
over the remaining term of the Note in advance of the receipt of
cash payments attributable to such income. Alternatively, it is
possible that the IRS could assert that a cash or accrual basis
taxpayer should include in gross income the Discounted Fixed
Additional Interest Amount (as defined below) on the Fixing Date
and the remaining amount over the term of the Note similar to the
method described below relating to the 1986 Proposed Regulations.
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 (other than amounts
representing accrued and unpaid interest) 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 generally will equal such U.S.
Holder's initial investment in the Note. Such gain or loss
generally should be long-term capital gain or loss if the Note were
held by the U.S. Holder for more than one year (subject to the
market discount rules, as discussed in the Prospectus Supplement
dated July 12, 1992 under the heading "United States Tax
Considerations"). It is possible, however, that the IRS could
assert that any amounts realized (other than amounts representing
accrued and unpaid interest) upon the sale or exchange of a Note
prior to the Maturity Date in excess of the Principal Amount
constitutes ordinary interest income (subject to the bond premium
rules, as discussed in the Prospectus Supplement dated July 12,
1992 under the heading "United States Tax Considerations").
Nonetheless, although the matter is not free from doubt, Tax
Counsel has advised the Company that, under current law, any gain
realized upon the sale or exchange of a Note prior to the Maturity
Date should be treated entirely as capital gain (subject to the
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market discount rules, as discussed in the Prospectus Supplement
dated July 12, 1992 under the heading "United States Tax
Considerations").
Prospective investors in the Notes should be aware, however, that
in 1991, the Treasury Department issued proposed regulations (the
"1991 Proposed Regulations") under the original issue discount
provisions of the Internal Revenue Code of 1986, as amended (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 Component
Metals. In general, the 1991 Proposed Regulations, which contain
a retroactive effective date of February 20, 1991, would apply to
debt instruments that provide for noncontingent payments equal to
or greater than the debt instrument's issue price and for one or
more contingent payments determined, in whole or in part, by
reference to the value of publicly traded stock, securities,
commodities, or other publicly traded property. Although the 1991
Proposed Regulations do not specifically define the term "publicly
traded" and therefore the matter is not free from doubt, Tax
Counsel has advised the Company that the Component Metals should
constitute "publicly traded" commodities for purposes of applying
the 1991 Proposed Regulations to the Notes. Thus, if the 1991
Proposed Regulations are ultimately adopted in their current form
and assuming that the Component Metals constitute "publicly traded"
commodities within the meaning of the 1991 Proposed Regulations,
the 1991 Proposed 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.
The 1991 Proposed Regulations would treat a Note as consisting
of two separate instruments: (i) the fixed payments (i.e., the debt
instrument), consisting of the right to receive the Interest
Payments and the Principal Amount (the "Fixed Payments"), 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 Payments
and the Contingent Payment in accordance with their relative fair
market values.
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Under the 1991 Proposed Regulations, the Fixed Payments would be
treated, for United States Federal income tax purposes, as a
separate debt obligation issued at an original issue discount. If
the 1991 Proposed Regulations were applied to the Notes, the
Interest Payments would 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). In addition, a U.S. Holder
(whether a cash or an 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 cash payments 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 Payments. If the 1991 Proposed Regulations are
ultimately adopted in their current form and are applied to the
Notes, then the amount of original issue discount on a Note would
be $55.74 per $1,000 Principal Amount. Under the 1991 Proposed
Regulations, a U.S. Holder that disposes of a Note prior to the
Maturity Date would generally be required to recognize taxable gain
or loss, with respect to the Fixed Payments, in an amount equal to
the difference (if any) between the portion of the sales proceeds
allocated to such Fixed Payments (in accordance with the relative
fair market values of the Fixed Payments and the Contingent Payment
as determined on the disposition date) and such U.S. Holder's
adjusted tax basis in the Fixed Payments. A U.S. Holder's adjusted
tax basis in the Fixed Payments generally would equal the portion
of such U.S. Holder's initial investment in the Note that is
allocated to the Fixed Payments (in accordance with the relative
fair market values of the Fixed Payments 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 Payments.
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Under the 1991 Proposed Regulations, the Contingent Payment would
be treated separately from the Fixed Payments and taxed "in
accordance with [its] economic substance." Under an "economic
substance" analysis, the Contingent Payment should be treated as a
single cash settlement option (a "Right") on the prices of the
Component Metals. The United States Federal income tax treatment
of a 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 under Code section 1256. Although the matter is
not free from doubt, Tax Counsel has advised the Company that the
Right should be treated as an unlisted nonequity option. If the
Right were treated as a listed nonequity option, however, the Right
would be subject to the Code's mark-to-market rules discussed
below.
Assuming that the Right was treated as a unlisted nonequity
option in the event that the 1991 Proposed Regulations were applied
to the Notes, a U.S. Holder would be required to recognize taxable
gain or loss with respect to the Right only upon its sale,
exchange, expiration or payment at maturity. The amount of gain or
loss recognized by a U.S. Holder with respect to the Right
generally would be measured by the difference between the amount
realized with respect to the Right and the U.S. Holder's tax basis
in the Right. A U.S. Holder's tax basis in the 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 Payments and the
Contingent Payment). Such gain or loss on the 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.
Despite the foregoing, it would appear that under the 1991
Proposed Regulations, in the event of any Fixing Date that is not
within six months of the Maturity Date, a U.S. Holder would be
required to treat an amount equal to the excess of (i) the Fixed
Additional Interest Amount over (ii) the present value (determined
by using a discount rate equal to the short-term applicable federal
rate in effect on the Original Issue Date) of the Fixed Additional
Interest Amount (the "Discounted Fixed Additional Interest Amount")
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as original issue discount. Such original issue discount would be
includible in income by a U.S. Holder as ordinary interest as it
accrues over the remaining term of the Note under a constant yield
method, regardless of the U.S. Holder's regular method of tax
accounting. In addition, under such circumstances, a U.S. Holder
would be required to reduce its basis in the Right by an amount
equal to the Discounted Additional Interest Amount. Accordingly,
if the sum of the Discounted Additional Interest Amounts as of a
certain Fixing Date exceeds the U.S. Holder's tax basis in the
Right, then such U.S. Holder would be required to recognize taxable
gain with respect to the Right prior to the sale, exchange,
expiration or payment at maturity of the Right.
Prospective investors in the Notes should be aware, however, that
it is possible that, under the 1991 Proposed Regulations, the
Contingent Payment could be treated as a series of twelve separate
sequential "unlisted" cash settlement options on the prices of the
Component Metals with one of each such options maturing on the last
day of each quarterly Reference Period. Under such circumstances,
a U.S. Holder generally would recognize taxable gain or loss with
respect to each such option only upon its sale, exchange,
expiration or maturity on the last day of the relevant Reference
Period. A U.S. Holder's aggregate tax basis in such options
generally would equal the portion of the U.S. Holder's initial
investment in the Note that is allocated to the Contingent Payment
(in the manner described above) and this amount would be allocated
among the individual options in accordance with their relative fair
market values as determined on the Note's issue date.
Alternatively, in the event that the 1991 Proposed Regulations
were applied to the Notes, if the Right was treated as a single
"listed nonequity option", such Right would generally be marked-to-
market pursuant to Code section 1256, i.e., treated as if it were
sold for its fair market value on the last business 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 on the sale, exchange,
expiration or payment at maturity of the Right would be sixty
percent long-term and forty percent short-term capital gain or
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loss. Prospective investors in the Notes should consult their own
tax advisors as to the proper treatment of the Contingent Payment
under the 1991 Proposed Regulations in the event that the 1991
Proposed Regulations are applied to the Notes.
Prospective investors in the Notes should also be aware that in
1986 the Treasury Department issued proposed regulations (the "1986
Proposed Regulations" and, together with the 1991 Proposed
Regulations, the "Proposed Regulations") under the original issue
discount provisions of the Code concerning contingent payment debt
obligations which were not replaced by the 1991 Proposed
Regulations and which contain a retroactive effective date of July
1, 1982. If the 1986 Proposed Regulations were ultimately adopted
in their current form and if the Component Metals do not constitute
"publicly traded" commodities within the meaning of the 1991
Proposed Regulations, then the 1986 Proposed Regulations could
apply to the Notes. Under the 1986 Proposed Regulations, the
Interest Payments would 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). In addition, in the event of a
Fixing Date, a U.S. Holder generally would be required to include
in income as ordinary interest on such Fixing Date an amount equal
to the Fixed Additional Interest Amount relating to such Fixing
Date, regardless of the U.S. Holder's regular method of tax
accounting. However, in the event of any Fixing Date that is not
within six months of the Maturity Date, a U.S. Holder would only be
required to include in income as ordinary interest on such Fixing
Date an amount equal to the Discounted Fixed Additional Interest
Amount. The excess of the Fixed Additional Interest Amount over
the Discounted Fixed Additional Interest Amount would be treated as
original issue discount and would be includible in income by a U.S.
Holder as ordinary interest over the remaining term of the Note
under a constant yield method, regardless of the U.S. Holder's
regular method of tax accounting.
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There is no assurance that the 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
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 differ from
the rules contained in the 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 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 Proposed Regulations to their investment in
the Notes, if any, and the effect of possible changes to the
Proposed Regulations.
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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
J.P. Morgan Securities Inc is acting as Agent in connection with
the sale of the Notes and will receive a commission of 0.10% of the
aggregate principal amount of the Notes.
