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Rule No. 424(b)(2)
Registration Nos. 333-31333 and 33-63145
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JULY 28, 1997
$3,000,000,000
GTE CORPORATION [LOGO]
MEDIUM-TERM NOTES, SERIES A
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
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GTE Corporation ("GTE") may offer from time to time its Medium-Term Notes,
Series A (the "Notes") due from nine months or more from the date of issue, as
selected by the purchaser and agreed to by GTE. The aggregate initial public
offering price of the Notes offered hereby will not exceed $3,000,000,000 or
its equivalent in one or more foreign currencies or composite currencies,
subject to reduction as a result of the sale by GTE of other Securities
described in the accompanying Prospectus.
The Notes may be denominated in U.S. dollars or in such foreign currencies
or composite currencies as may be designated by GTE at the time of offering.
The specific currency or composite currency, interest rate (if any), issue
price and maturity date of any Note will be set forth in the related Pricing
Supplement to this Prospectus Supplement. Unless otherwise specified in the
applicable Pricing Supplement, Notes denominated in other than U.S. dollars or
ECUs will not be sold in, or to residents of, the country issuing the
specified currency. See "Description of the Notes".
Unless otherwise specified in the applicable Pricing Supplement, interest on
the Fixed Rate Notes will be payable on each February 1 and August 1 and at
maturity. Interest on the Floating Rate Notes will be payable on the dates
specified therein and in the applicable Pricing Supplement. The applicable
Pricing Supplement will specify whether a Floating Rate Note is a Regular
Floating Rate Note, a Floating Rate/Fixed Rate Note or an Inverse Floating
Rate Note and whether the rate of interest thereon is determined by reference
to one or more of the CD Rate, CMT Rate, Commercial Paper Rate, Federal Funds
Rate, LIBOR, Prime Rate or Treasury Rate, or any other interest rate basis or
formula, as adjusted by any Spread and/or Spread Multiplier, if any. Notes may
also be issued that do not bear any interest currently or that bear interest
at a below market rate. See "Description of the Notes".
Unless a Redemption Commencement Date is specified in the applicable Pricing
Supplement, the Notes will not be redeemable prior to their Stated Maturity.
If a Redemption Commencement Date is so specified, the Notes will be
redeemable at the option of GTE at any time after such date as described
herein. The Notes will be repayable by GTE at the option of the Holders
thereof prior to their Stated Maturity only if one or more Optional Repayment
Dates are specified in the applicable Pricing Supplement.
The Notes offered hereby will be issued only in registered form in
denominations of $1,000 and integral multiples thereof or the approximate
equivalent thereof in the Specified Currency for each Note. See "Description
of the Notes".
SEE "RISK FACTORS" COMMENCING ON PAGE S-2 FOR A DISCUSSION OF CERTAIN
STRUCTURAL, FOREIGN CURRENCY AND OTHER RISKS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE NOTES.
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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,
THE PROSPECTUS OR ANY SUPPLEMENT HERETO. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
PRICE TO AGENT'S DISCOUNTS PROCEEDS TO
PUBLIC (1) AND COMMISSIONS (1)(2) GTE (1)(3)
-------------- ---------------------- ---------------
<S> <C> <C> <C>
Per Note.................. 100% .125%-.750% 99.250%-99.875%
Total (4)................. $3,000,000,000 $3,750,000- $2,977,500,000-
$22,500,000 $2,996,250,000
</TABLE>
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(1) Notes will be issued at 100% of their principal amount, unless otherwise
specified in the applicable Pricing Supplement.
(2) GTE will pay the Agents a commission of from .125% to .750%, depending on
Stated Maturity, of the principal amount of any Notes sold through them as
agents (or sold to such Agents as principal in circumstances in which no
other discount is agreed). For Notes with maturities greater than 30 years
from their dates of issue, commissions will be negotiated at the time of
sale and indicated in the applicable Pricing Supplement. GTE has agreed to
indemnify the Agents against certain liabilities, including liabilities
under the Securities Act of 1933. See "Supplemental Plan of Distribution".
(3) Before deducting estimated expenses of $950,000 payable by GTE.
(4) Or the equivalent thereof in one or more foreign currencies or composite
currencies.
---------------
Offers to purchase the Notes are being solicited, on a reasonable best
efforts basis, from time to time by the Agents on behalf of GTE. Notes may be
sold to the Agents on their own behalf at negotiated discounts. GTE reserves
the right to sell the Notes directly on its own behalf. GTE also reserves the
right to withdraw, cancel or modify the offering contemplated hereby without
notice. GTE or the Agents may reject any offer to purchase the Notes in whole
or in part. See "Supplemental Plan of Distribution".
---------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
The date of this Prospectus Supplement is July 31, 1997.
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CERTAIN PERSONS PARTICIPATING IN THE OFFERING MADE HEREBY MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
NOTES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH NOTES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "SUPPLEMENTAL PLAN OF
DISTRIBUTION".
RISK FACTORS
This Prospectus Supplement does not describe all of the risks of an
investment in the Notes, whether resulting from such Notes being denominated
or payable in or determined by reference to a currency or composite currency
other than United States dollars or to one or more interest rate, currency or
other indices or formulas, or otherwise. GTE and the Agents disclaim any
responsibility to advise prospective investors of such risks as they exist at
the date of this Prospectus Supplement or as they may change from time to
time. Prospective investors should consult their own financial and legal
advisors as to the risks entailed by an investment in such Notes and the
suitability of investing in such Notes in light of their particular
circumstances. Such Notes are not an appropriate investment for investors who
are unsophisticated with respect to foreign currency transactions or
transactions involving the applicable interest rate or currency index or other
indices or formulas. Prospective investors should carefully consider, among
other factors, the matters described below. Terms used and not otherwise
defined in this "Risk Factors" section shall have the meanings ascribed to
them in the subsequent sections of this Prospectus Supplement.
STRUCTURE RISKS
An investment in the Notes indexed, as to principal, premium, if any, and/or
interest, if any, to one or more interest rate, currency (including exchange
rates and swap indices between currencies or composite currencies) or other
indices or formulas, either directly or inversely, entails significant risks
that are not associated with similar investments in a conventional fixed rate
or floating rate debt security. Such risks include, without limitation, the
possibility that such indices or formulas may be subject to significant
changes, that no interest will be payable in respect of such Notes or will be
payable at a rate lower than one applicable to a conventional fixed rate or
floating rate debt security issued by GTE at the same time, that repayment of
the principal and/or premium, if any, in respect of such Notes may occur at
times other than that expected by the holders of such Notes (the "Holders"),
and that the Holders could lose all or a substantial portion of principal
and/or premium, if any, payable with respect to such Notes on the Maturity
Date (as defined under "Description of the Notes--General"). Such risks depend
on a number of interrelated factors, including economic, financial and
political events, over which GTE has no control. Additionally, if the formula
used to determine the amount of principal, premium, if any, and/or interest,
if any, payable with respect to such Notes contains a multiplier or leverage
factor, the effect of any change in the applicable index or indices or formula
or formulas will be magnified. In recent years, values of certain indices and
formulas have been highly volatile and such volatility may be expected to
continue in the future. Fluctuations in the value of any particular index or
formula that have occurred in the past are not necessarily indicative,
however, of fluctuations that may occur in the future.
Any optional redemption feature of the Notes might affect the market value
of such Notes. Since GTE may be expected to redeem such Notes when prevailing
interest rates are relatively low, Holders generally will not be able to
reinvest the redemption proceeds in a comparable security at an effective
interest rate as high as the current interest rate on such Notes.
LIQUIDITY
The Notes will not have an established trading market when issued, and there
can be no assurance of a secondary market for the Notes or the liquidity of
the secondary market if one develops. See "Supplemental Plan of Distribution".
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The secondary market, if any, for the Notes will be affected by a number of
factors independent of the creditworthiness of GTE and the value of the
applicable index or indices or formula or formulas, including the complexity
and volatility of each such index or formula, the method of calculating the
principal, premium, if any, and/or interest, if any, in respect of such Notes,
the time remaining to the maturity of such Notes, the outstanding amount of
such Notes, any redemption features of such Notes, the amount of other debt
securities linked to such index or formula and the level, direction and
volatility of market interest rates generally. Such factors also will affect
the market value of such Notes. In addition, certain Notes may be designed for
specific investment objectives or strategies and, therefore, may have a more
limited secondary market and experience more price volatility than
conventional debt securities. Holders may not be able to sell such Notes
readily or at prices that will enable them to realize their anticipated yield.
No investor should purchase the Notes unless such investor understands and is
able to bear the risk that such Notes may not be readily saleable, that the
value of such Notes will fluctuate over time and that such fluctuation may be
significant.
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Foreign Currency Notes (as defined under "Description of
the Notes--General") entails significant risks that are not associated with a
similar investment in a debt security denominated and payable in United States
dollars. Such risks include, without limitation, the possibility of
significant changes in the rate of exchange between the United States dollar
and the Specified Currency (as defined under "Description of the Notes--
General") and the possibility of the imposition or modification of exchange
controls by the applicable governments or monetary authorities. Such risks
generally depend on factors over which GTE has no control, such as economic,
financial and political events and the supply and demand for the applicable
currencies or composite currencies. In addition, if the formula used to
determine the amount of principal, premium, if any, and/or interest, if any,
payable with respect to Foreign Currency Notes contains a multiplier or
leverage factor, the effect of any change in the applicable currencies or
composite currencies will be magnified. In recent years, rates of exchange
between the United States dollar and foreign or composite currencies have been
highly volatile and such volatility may be expected to continue in the future.
Fluctuations in any particular exchange rate that have occurred in the past
are not necessarily indicative, however, of fluctuations that may occur in the
future. Depreciation of the Specified Currency applicable to a Foreign
Currency Note against the United States dollar would result in a decrease in
the United States dollar-equivalent yield of such Foreign Currency Note, in
the United States dollar-equivalent value of the principal and premium, if
any, payable on the Maturity Date of such Foreign Currency Note, and,
generally, in the United States dollar-equivalent market value of such Foreign
Currency Note.
Governments or monetary authorities have imposed from time to time, and may
in the future impose or revise, exchange controls at or prior to the date on
which any payment of principal of, or premium, if any, or interest, if any,
on, a Foreign Currency Note is due, which could affect exchange rates as well
as the availability of the Specified Currency on such date. Even if there are
no exchange controls, it is possible that the Specified Currency would not be
available on the applicable payment date due to other circumstances beyond the
control of GTE. In such cases, GTE will be entitled to satisfy its obligations
in respect of such Foreign Currency Note in United States dollars. See
"Special Provisions Relating to Foreign Currency Notes--Availability of
Specified Currency".
GOVERNING LAW; JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. If an action based on Foreign Currency Notes were
commenced in a court of the United States, it is likely that such court would
grant judgment relating to such Foreign Currency Notes only in United States
dollars. It is not clear, however, whether, in granting such judgment, the
rate of conversion into United States dollars would be determined with
reference to the date of default, the date of entry of
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the judgment or some other date. If a court rendering such judgment would be
required to render such judgment in the applicable foreign currency or
composite currency, and such judgment would be converted into United States
dollars at the exchange rate prevailing on the date of entry of the judgment,
Holders of Foreign Currency Notes would bear the risk of exchange rate
fluctuations between the time the amount of the judgment is calculated and the
time such amount is converted from United States dollars into the applicable
foreign currency or composite currency.
CREDIT RATINGS
The credit ratings assigned to the Notes may not reflect the potential
impact of all risks related to structure and other factors on the value of the
Notes. Accordingly, prospective investors should consult their own financial
and legal advisers as to the risks entailed by an investment in the Notes and
the suitability of investing in such Notes in light of their particular
circumstances.
DESCRIPTION OF THE NOTES
The Notes will be issued as a series of Securities under the Indenture dated
as of December 1, 1996, as amended or supplemented from time to time (the
"Indenture"), between GTE and The Bank of New York, as trustee (the
"Trustee"). The Indenture is subject to, and governed by, the Trust Indenture
Act of 1939, as amended. The following summary of certain provisions of the
Notes and the Indenture does not purport to be complete and is qualified in
its entirety by reference to the actual provisions of the Notes and the
Indenture. Capitalized terms used but not defined herein shall have the
meanings given to them in the accompanying Prospectus, the Notes or the
Indenture, as the case may be. The following description of certain terms of
the Notes offered hereby supplements and should be read in conjunction with
the description of the general terms and provisions of the Securities set
forth in the accompanying Prospectus under the caption "The Securities" and
with the applicable Pricing Supplement.
GENERAL
All Notes issued and to be issued under the Indenture will be unsecured
obligations of GTE and will rank pari passu with all other unsecured and
unsubordinated indebtedness of GTE from time to time outstanding. The
Indenture does not limit the aggregate principal amount of Securities that may
be issued thereunder and Securities may be issued thereunder from time to time
in one or more series up to the aggregate principal amount from time to time
authorized by GTE for each series. GTE may, from time to time, without the
consent of the Holders, provide for the issuance of Notes or other Securities
under the Indenture in addition to the $3,000,000,000 aggregate initial
offering price of Notes offered hereby.
The Notes are currently limited to up to $3,000,000,000 aggregate initial
offering price, or the equivalent thereof in one or more foreign or composite
currencies; however, such aggregate initial offering price will be reduced
after the date of this Prospectus Supplement by any sale by GTE of other
Securities described in the accompanying Prospectus.
The Notes will be offered on a continuous basis and will mature on any day
nine months or more from their dates of issue (each, a "Stated Maturity"), as
specified in the applicable Pricing Supplement. Unless otherwise specified in
the applicable Pricing Supplement, interest-bearing Notes will either be Fixed
Rate Notes or Floating Rate Notes, as specified in the applicable Pricing
Supplement. Notes may also be issued that do not bear any interest currently
or that bear interest at a below market rate.
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will be denominated in, and payments of principal, premium, if any, and/or
interest, if any, will be made in, United States dollars. The Notes also may
be denominated in, and payments of principal, premium, if any, and/or
interest, if any, may be made in, one or more foreign currencies or composite
currencies ("Foreign
S-4
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Currency Notes"). See "Risk Factors--Exchange Rates and Exchange Controls".
The currency or composite currency in which a Note is denominated, whether
United States dollars or otherwise, is herein referred to as the "Specified
Currency". References herein to "United States dollars", "U.S. dollars" or "$"
are to the lawful currency of the United States of America (the "United
States").
Unless otherwise specified in the applicable Pricing Supplement, purchasers
are required to pay for the Notes in the applicable Specified Currencies. At
the present time, there are limited facilities in the United States for the
conversion of United States dollars into foreign currencies or composite
currencies and vice versa, and commercial banks do not generally offer non-
United States dollar checking or savings account facilities in the United
States. Each Agent is prepared to arrange for the conversion of United States
dollars into the Specified Currency in which the related Foreign Currency Note
is denominated in order to enable the purchaser to pay for such Foreign
Currency Note, provided that a request is made to the applicable Agent on or
prior to the third Business Day (as defined below) preceding the date of
delivery of such Foreign Currency Note, or by such other day as determined by
the applicable Agent. Each such conversion will be made by the applicable
Agent on such terms and subject to such conditions, limitations and charges as
such Agent may from time to time establish in accordance with its regular
foreign exchange practices. All costs of exchange will be borne by the
purchaser of each such Foreign Currency Note. See "Risk Factors--Exchange
Rates and Exchange Controls".
Each Note will be issued in fully registered form as a Global Security
registered in the name of the Depository or a nominee of the Depository (each
such Note represented by a Global Security being herein referred to as a
"Book-Entry Note") or a certificate in definitive registered form (a
"Certificated Note"). The authorized denominations of each Note other than a
Foreign Currency Note will be $1,000 and integral multiples thereof, unless
otherwise specified in the applicable Pricing Supplement, while the authorized
denominations of each Foreign Currency Note will be specified in the
applicable Pricing Supplement.
Payments of principal of, and premium, if any, and interest, if any, on,
Book-Entry Notes will be made by GTE through the Trustee to the Depository.
See "The Securities--Book-Entry, Delivery and Form" in the accompanying
Prospectus. In the case of Certificated Notes, payment of principal and
premium, if any, due on the Stated Maturity or any prior date on which the
principal, or an installment of principal, of each Certificated Note becomes
due and payable, whether by the declaration of acceleration, notice of
redemption at the option of GTE, notice of the Holder's option to elect
repayment or otherwise (the Stated Maturity or such prior date, as the case
may be, is herein referred to as the "Maturity Date" with respect to the
principal repayable on such date) will be made in immediately available funds
upon presentation and surrender thereof at the corporate trust office of the
Trustee located at 101 Barclay Street, New York, N.Y. 10286 (the "Corporate
Trust Office"). Payment of interest, if any, due on the Maturity Date of each
Certificated Note will be made to the person to whom payment of the principal
and premium, if any, shall be made. Payment of interest, if any, due on each
Certificated Note on any Interest Payment Date (as defined below) other than
the Maturity Date will be made at the office or agency referred to above
maintained by GTE for such purpose by check mailed to the address of the
Holder entitled thereto as such address shall appear in the Security Register
of GTE or in such other manner as determined by GTE or specified in such Note.
Notwithstanding the foregoing, a Holder of $10,000,000 (or, if the applicable
Specified Currency is other than United States dollars, the equivalent thereof
in such Specified Currency) or more in aggregate principal amount of the Notes
(whether having identical or different terms and provisions) will be entitled
to receive interest payments, if any, on any Interest Payment Date other than
the Maturity Date by wire transfer of immediately available funds if
appropriate wire transfer instructions have been received in writing by the
Trustee not less than 15 days prior to such Interest Payment Date. Any such
wire transfer instructions received by the Trustee shall remain in effect
until revoked
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by such Holder. For special payment terms applicable to Foreign Currency
Notes, see "Special Provisions Relating to Foreign Currency Notes--Payment of
Principal, Premium and Interest".
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking
institutions are authorized or required by law, regulation or executive order
to close in The City of New York; provided, however, that, with respect to
Foreign Currency Notes, such day is also not a day on which banking
institutions are authorized or required by law, regulation or executive order
to close in the Principal Financial Center (as hereinafter defined) of the
country issuing the Specified Currency (unless the Specified Currency is
European Currency Units ("ECU"), in which case such day is also not a day that
appears as an ECU non-settlement day on the display designated as "ISDE" on
the Reuter Monitor Money Rates Service (or is not a day designated as an ECU
non-settlement day by the ECU Banking Association) or, if ECU non-settlement
days do not appear on that page (and are not so designated), a day that is not
a day on which payments in ECU cannot be settled in the international
interbank market); provided, further, that, with respect to Notes as to which
LIBOR is an applicable Interest Rate Basis, such day is also a London Business
Day (as hereinafter defined). "London Business Day" means (i) if the Index
Currency is other than ECU, any day on which dealings in such Index Currency
are transacted in the London interbank market or (ii) if the Index Currency is
ECU, any day that does not appear as an ECU non-settlement day on the display
designated as "ISDE" on the Reuter Monitor Money Rates Service (or a day so
designated by the ECU Banking Association) or, if ECU non-settlement days do
not appear on that page (and are not so designated), is not a day on which
payments in ECU cannot be settled in the international interbank market.
"Principal Financial Center" means (i) the capital city of the country
issuing the Specified Currency (except as described in the immediately
preceding paragraph with respect to ECU) or (ii) the capital city of the
country to which the Index Currency, if applicable, relates (or, in the case
of ECU, Luxembourg), except, in each case, that with respect to United States
dollars, Australian dollars, Canadian dollars, Deutsche marks, Dutch guilders,
Italian lire and Swiss francs, the "Principal Financial Center" shall be The
City of New York, Sydney, Toronto, Frankfurt, Amsterdam, Milan (solely in the
case of clause (i) above) and Zurich, respectively.
Book-Entry Notes may be transferred or exchanged only through the
Depository. See "The Securities--Book-Entry, Delivery and Form" in the
accompanying Prospectus. Registration of transfer or exchange of Certificated
Notes will be made at the office or agency maintained by GTE for such purpose
in the Borough of Manhattan, The City of New York. No service charge will be
made by GTE or the Trustee for any such registration of transfer or exchange
of Notes, but GTE may require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection therewith (other
than exchanges pursuant to the Indenture not involving any transfer).
GTE may from time to time offer Notes with the principal amount payable at
maturity, and/or the amount of interest payable on an interest payment date,
to be determined by reference to one or more currencies (including baskets of
currencies), one or more commodities (including baskets of commodities), one
or more securities (including baskets of securities) and/or any other index as
set forth in the applicable Pricing Supplement ("Indexed Notes"). Holders of
Indexed Notes may receive a principal amount at maturity that is greater than
or less than the face amount (but not less than zero) of such Notes depending
upon the value at maturity of the applicable index. With respect to any
Indexed Note, information as to the methods for determining the principal
amount payable at maturity and/or the amount of interest payable on an
interest payment date, as the case may be, as to any one or more currencies
(including baskets of currencies), commodities (including baskets of
commodities), securities (including baskets of securities) or other indices to
which principal or interest is indexed, as to certain historical information
with respect to the specified indexed item, as to any additional foreign
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exchange or other risks or as to any additional tax considerations may be set
forth in the applicable Pricing Supplement. See "Risks Factors--Structure
Risks".
The applicable Pricing Supplement will specify any redemption or repayment
terms applicable to the Notes. Unless otherwise specified in the applicable
Pricing Supplement, the Notes will not be subject to any sinking fund. See "--
Redemption and Repayment" below.
PAYMENT OF PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, each
interest-bearing Note will bear interest from its date of issue at the rate
per annum, in the case of a Fixed Rate Note, or pursuant to the interest rate
formula, in the case of a Floating Rate Note, in each case as specified in the
applicable Pricing Supplement, until the principal thereof is paid or duly
made available for payment. Unless otherwise specified in the applicable
Pricing Supplement, interest payments in respect of Fixed Rate Notes and
Floating Rate Notes will equal the amount of interest accrued from and
including the immediately preceding Interest Payment Date in respect of which
interest has been paid or duly made available for payment (or from and
including the date of issue, if no interest has been paid or duly made
available for payment) to but excluding the applicable Interest Payment Date
or the Maturity Date, as the case may be (each, an "Interest Period").
Interest on any overdue principal, premium and/or interest will be paid at the
Default Rate per annum specified in the applicable Pricing Supplement (to the
extent that the payment of such interest shall be legally enforceable).
Interest on Fixed Rate Notes and Floating Rate Notes will be payable in
arrears on each Interest Payment Date and on the Maturity Date. Unless
otherwise specified in the applicable Pricing Supplement, the first payment of
interest on any such Note originally issued between a Record Date (as defined
below) and the related Interest Payment Date will be made on the Interest
Payment Date immediately following the next succeeding Record Date to the
Holder on such next succeeding Record Date.
FIXED RATE NOTES
Unless otherwise specified in the applicable Pricing Supplement, interest on
Fixed Rate Notes will be payable on February 1 and August 1 of each year
(each, an "Interest Payment Date") and on the Maturity Date. Unless otherwise
specified in the applicable Pricing Supplement, interest on Fixed Rate Notes
will be computed on the basis of a 360-day year of twelve 30-day months.
Unless otherwise specified in the applicable Pricing Supplement, a "Record
Date" for Fixed Rate Notes shall be the January 15 and July 15 (whether or not
a Business Day) immediately preceding the February 1 and August 1 Interest
Payment Dates, respectively.
If any Interest Payment Date or the Maturity Date of a Fixed Rate Note falls
on a day that is not a Business Day, the required payment of principal,
premium, if any, and/or interest will be made on the next succeeding Business
Day as if made on the date such payment was due, and no interest will accrue
on such payment for the period from and after such Interest Payment Date or
the Maturity Date, as the case may be, to the date of such payment on the next
succeeding Business Day.
FLOATING RATE NOTES
Unless otherwise specified in the applicable Pricing Supplement, Floating
Rate Notes will be issued as described below. The applicable Pricing
Supplement will specify certain terms with respect
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to which each Floating Rate Note is being delivered, including: whether such
Floating Rate Note is a "Regular Floating Rate Note", a "Floating Rate/Fixed
Rate Note" or an "Inverse Floating Rate Note", the Fixed Rate Commencement
Date, if applicable, Fixed Interest Rate, if applicable, Interest Rate Basis
or Bases, Initial Interest Rate, if any, Initial Interest Reset Date, Interest
Reset Period and Dates, Interest Payment Period and Dates, Index Maturity,
Maximum Interest Rate and/or Minimum Interest Rate, if any, and Spread and/or
Spread Multiplier, if any, as such terms are defined below. If one or more of
the applicable Interest Rate Bases is LIBOR or the CMT Rate, the applicable
Pricing Supplement will also specify the Index Currency and Designated LIBOR
Page or the Designated CMT Maturity Index and Designated CMT Telerate Page,
respectively, as such terms are defined below. Unless otherwise specified in
the applicable Pricing Supplement, a "Record Date" for Floating Rate Notes
shall be the fifteenth day (whether or not a Business Day) immediately
preceding the related Interest Payment Date.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note" or an "Inverse Floating Rate Note" or as having an
Addendum attached or having "Other Provisions" apply, such Floating Rate
Note will be designated as a "Regular Floating Rate Note" and, except as
described below or in the applicable Pricing Supplement, will bear interest
at the rate determined by reference to the applicable Interest Rate Basis
or Bases (a) plus or minus the applicable Spread, if any, and/or (b)
multiplied by the applicable Spread Multiplier, if any. Commencing on the
Initial Interest Reset Date, the rate at which interest on such Regular
Floating Rate Note shall be payable shall be reset as of each Interest
Reset Date; provided, however, that the interest rate in effect for the
period, if any, from the date of issue to the Initial Interest Reset Date
will be the Initial Interest Rate.
(ii) If such Floating Rate Note is designated as a "Floating Rate/Fixed
Rate Note", then, except as described below or in the applicable Pricing
Supplement, such Floating Rate Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Bases (a)
plus or minus the applicable Spread, if any, and/or (b) multiplied by the
applicable Spread Multiplier, if any. Commencing on the Initial Interest
Reset Date, the rate at which interest on such Floating Rate/Fixed Rate
Note shall be payable shall be reset as of each Interest Reset Date;
provided, however, that (y) the interest rate in effect for the period, if
any, from the date of issue to the Initial Interest Reset Date will be the
Initial Interest Rate and (z) the interest rate in effect for the period
commencing on the Fixed Rate Commencement Date to the Maturity Date shall
be the Fixed Interest Rate, if such rate is specified in the applicable
Pricing Supplement or, if no such Fixed Interest Rate is specified, the
interest rate in effect thereon on the day immediately preceding the Fixed
Rate Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note", then, except as described below or in the applicable Pricing
Supplement, such Floating Rate Note will bear interest at the Fixed
Interest Rate specified in the applicable Pricing Supplement minus the rate
determined by reference to the applicable Interest Rate Basis or Bases (a)
plus or minus the applicable Spread, if any, and/or (b) multiplied by the
applicable Spread Multiplier, if any; provided, however, that, unless
otherwise specified in the applicable Pricing Supplement, the interest rate
thereon will not be less than zero. Commencing on the Initial Interest
Reset Date, the rate at which interest on such Inverse Floating Rate Note
shall be payable shall be reset as of each Interest Reset Date; provided,
however, that the interest rate in effect for the period, if any, from the
date of issue to the Initial Interest Reset Date will be the Initial
Interest Rate.
The "Spread" is the number of basis points to be added to or subtracted from
the related Interest Rate Basis or Bases applicable to such Floating Rate
Note. The "Spread Multiplier" is the percentage of the related Interest Rate
Basis or Bases applicable to such Floating Rate Note by which such Interest
Rate Basis or Bases will be multiplied to determine the applicable interest
rate on such
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Floating Rate Note. The "Index Maturity" is the period to maturity of the
instrument or obligation with respect to which the related Interest Rate Basis
or Bases will be calculated.
Notwithstanding the foregoing, if such Floating Rate Note is designated as
having an Addendum attached as specified on the face thereof, such Floating
Rate Note shall bear interest in accordance with the terms described in such
Addendum and the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate with respect to each Interest Rate Basis will be determined in
accordance with the applicable provisions below. Except as set forth above or
in the applicable Pricing Supplement, the interest rate in effect on each day
shall be (i) if such day is an Interest Reset Date, the interest rate
determined as of the Interest Determination Date (as defined below)
immediately preceding such Interest Reset Date or (ii) if such day is not an
Interest Reset Date, the interest rate determined as of the Interest
Determination Date immediately preceding the most recent Interest Reset Date.
Interest on Floating Rate Notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include (i) the CD Rate, (ii) the CMT Rate, (iii) the Commercial Paper
Rate, (iv) the Federal Funds Rate, (v) LIBOR, (vi) the Prime Rate, (vii) the
Treasury Rate, or (viii) such other Interest Rate Basis or interest rate
formula as may be specified in the applicable Pricing Supplement; provided,
however, that the interest rate in effect on a Floating Rate Note for the
period, if any, from the date of issue to the Initial Interest Reset Date will
be the Initial Interest Rate; provided, further, that with respect to a
Floating Rate/Fixed Rate Note the interest rate in effect for the period
commencing on the Fixed Rate Commencement Date to the Maturity Date shall be
the Fixed Interest Rate, if such rate is specified in the applicable Pricing
Supplement or, if no such Fixed Interest Rate is specified, the interest rate
in effect thereon on the day immediately preceding the Fixed Rate Commencement
Date.
The applicable Pricing Supplement will specify whether the rate of interest
on the related Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually or on such other specified basis (each, an
"Interest Reset Period") and the dates on which such rate of interest will be
reset (each, an "Interest Reset Date"). Unless otherwise specified in the
applicable Pricing Supplement, the Interest Reset Dates will be, in the case
of Floating Rate Notes which reset: (i) daily, each Business Day; (ii) weekly,
the Wednesday of each week (with the exception of weekly reset Floating Rate
Notes as to which the Treasury Rate is an applicable Interest Rate Basis,
which will reset the Tuesday of each week, except as described below); (iii)
monthly, the third Wednesday of each month; (iv) quarterly, the third
Wednesday of March, June, September and December of each year, (v)
semiannually, the third Wednesday of the two months specified in the
applicable Pricing Supplement; and (vi) annually, the third Wednesday of the
month specified in the applicable Pricing Supplement; provided however, that,
with respect to Floating Rate/Fixed Rate Notes, the rate of interest thereon
will not reset after the applicable Fixed Rate Commencement Date. If any
Interest Reset Date for any Floating Rate Note would otherwise be a day that
is not a Business Day, such Interest Reset Date will be postponed to the next
succeeding Business Day, except that in the case of a Floating Rate Note as to
which LIBOR is an applicable Interest Rate Basis and such Business Day falls
in the next succeeding calendar month, such Interest Reset Date will be the
immediately preceding Business Day. In addition, in the case of a Floating
Rate Note as to which the Treasury Rate is an applicable Interest Rate Basis
and the Interest Determination Date would otherwise fall on an Interest Reset
Date, then such Interest Reset Date will be postponed to the next succeeding
Business Day.
The interest rate applicable to each Interest Reset Period commencing on the
related Interest Reset Date will be the rate determined as of the applicable
Interest Determination Date on or prior to the Calculation Date (as defined
below). The "Interest Determination Date" with respect to the CD Rate, the CMT
Rate, the Commercial Paper Rate, the Federal Funds Rate and the Prime Rate
will be
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the second Business Day immediately preceding the applicable Interest Reset
Date; and the "Interest Determination Date" with respect to LIBOR will be the
second London Business Day immediately preceding the applicable Interest Reset
Date, unless the Index Currency is British pounds sterling, in which case the
"Interest Determination Date" will be the applicable Interest Reset Date. With
respect to the Treasury Rate, the "Interest Determination Date" will be the
day in the week in which the applicable Interest Reset Date falls on which day
Treasury Bills (as defined below) are normally auctioned (Treasury Bills are
normally sold at an auction held on Monday of each week, unless that day is a
legal holiday, in which case the auction is normally held on the following
Tuesday, except that such auction may be held on the preceding Friday);
provided, however, that if an auction is held on the Friday of the week
preceding the applicable Interest Reset Date, the Interest Determination Date
will be such preceding Friday. The "Interest Determination Date" pertaining to
a Floating Rate Note the interest rate of which is determined by reference to
two or more Interest Rate Bases will be the most recent Business Day which is
at least two Business Days prior to the applicable Interest Reset Date for
such Floating Rate Note on which each Interest Rate Basis is determinable.
Each Interest Rate Basis will be determined as of such date, and the
applicable interest rate will take effect on the applicable Interest Reset
Date.
A Floating Rate Note may also have either or both of the following: (i) a
Maximum Interest Rate, or ceiling on the rate of interest, that may accrue
during any Interest Period and (ii) a Minimum Interest Rate, or floor on the
rate of interest, that may accrue during any Interest Period. In addition to
any Maximum Interest Rate that may apply to any Floating Rate Note, the
interest rate on Floating Rate Notes will in no event be higher than the
maximum rate permitted by New York law, as the same may be modified by United
States law of general application.
Except as provided below or in the applicable Pricing Supplement, interest
will be payable, in the case of Floating Rate Notes which reset: (i) daily,
weekly or monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year, as specified in
the applicable Pricing Supplement; (ii) quarterly, on the third Wednesday of
March, June, September and December of each year, (iii) semiannually, on the
third Wednesday of the two months of each year specified in the applicable
Pricing Supplement; and (iv) annually, on the third Wednesday of the month of
each year specified in the applicable Pricing Supplement (each, an "Interest
Payment Date") and, in each case, on the Maturity Date. If any Interest
Payment Date other than the Maturity Date for any Floating Rate Note would
otherwise be a day that is not a Business Day, such Interest Payment Date will
be postponed to the next succeeding Business Day, except that in the case of a
Floating Rate Note as to which LIBOR is an applicable Interest Rate Basis and
such Business Day falls in the next succeeding calendar month, such Interest
Payment Date will be the immediately preceding Business Day. If the Maturity
Date of a Floating Rate Note falls on a day that is not a Business Day, the
required payment of principal, premium, if any, and interest will be made on
the next succeeding Business Day as if made on the date such payment was due,
and no interest will accrue on such payment for the period from and after the
Maturity Date to the date of such payment on the next succeeding Business Day.
All percentages resulting from any calculation on Floating Rate 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 amounts used
in or resulting from such calculation on Floating Rate Notes will be rounded,
in the case of United States dollars, to the nearest cent or, in the case of a
foreign currency or composite currency, to the nearest unit (with one-half
cent or unit being rounded upwards).
With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its principal amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the applicable Interest Period. Unless otherwise specified in the
applicable Pricing Supplement, the interest factor for each such day will be
computed by dividing the
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interest rate applicable to such day by 360, in the case of Floating Rate
Notes for which an applicable Interest Rate Basis is the CD Rate, the
Commercial Paper Rate, the Federal Funds Rate, LIBOR or the Prime Rate, or by
the actual number of days in the year in the case of Floating Rate Notes for
which an applicable Interest Rate Basis is the CMT Rate or the Treasury Rate.
Unless otherwise specified in the applicable Pricing Supplement, the interest
factor for Floating Rate Notes for which the interest rate is calculated with
reference to two or more Interest Rate Bases will be calculated in each period
in the same manner as if only one of the applicable Interest Rate Bases
applied as specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, The Bank of
New York will be the "Calculation Agent". Upon request of the Holder of any
Floating Rate Note, the Calculation Agent will disclose the interest rate then
in effect and, if determined, the interest rate that will become effective as
a result of a determination made for the next succeeding Interest Reset Date
with respect to such Floating Rate Note. Unless otherwise specified in the
applicable Pricing Supplement, the "Calculation Date", if applicable,
pertaining to any Interest Determination Date will be the earlier of (i) the
tenth calendar day after such Interest Determination Date, or, if such day is
not a Business Day, the next succeeding Business Day or (ii) the Business Day
immediately preceding the applicable Interest Payment Date or the Maturity
Date, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, the
Calculation Agent shall determine each Interest Rate Basis in accordance with
the following provisions.
CD RATE. Unless otherwise specified in the applicable Pricing Supplement,
"CD Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CD Rate (a "CD Rate Interest Determination Date"), the rate on such date
for negotiable United States dollar certificates of deposit having the Index
Maturity specified in the applicable Pricing Supplement as published by the
Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" or any successor publication ("H.15(519)")
under the heading "CDs (Secondary Market)", or, if not published by 3:00 P.M.,
New York City time, on the related Calculation Date, the rate on such CD Rate
Interest Determination Date for negotiable United States dollar certificates
of deposit of the Index Maturity specified in the applicable Pricing
Supplement as published by the Federal Reserve Bank of New York in its daily
statistical release "Composite 3:30 P.M. Quotations for U.S. Government
Securities" or any successor publication ("Composite Quotations") under the
heading "Certificates of Deposit". If such rate is not yet published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, then the CD Rate on such CD Rate Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean of the secondary market offered rates as of 10:00 A.M., New
York City time, on such CD Rate Interest Determination Date, of three leading
nonbank dealers in negotiable United States dollar certificates of deposit in
The City of New York (which may include the Agents or their affiliates)
selected by the Calculation Agent for negotiable United States dollar
certificates of deposit of major United States money market banks with a
remaining maturity closest to the Index Maturity specified in the applicable
Pricing Supplement in an amount that is representative for a single
transaction in that market at that time; provided, however, that if the
dealers so selected by the Calculation Agent are not quoting as mentioned in
this sentence, the CD Rate determined as of such CD Rate Interest
Determination Date will be the CD Rate in effect on such CD Rate Interest
Determination Date.
CMT RATE. Unless otherwise specified in the applicable Pricing Supplement,
"CMT Rate" means, with respect to any Interest Determination Date relating to
a Floating Rate Note for which the interest rate is determined with reference
to the CMT Rate (a "CMT Rate Interest Determination Date"), the rate displayed
on the Designated CMT Telerate Page under the caption "Treasury Constant
Maturities Federal Reserve Board Release H.15 Mondays Approximately 3:45
P.M.", under the column for the Designated CMT Maturity Index for (i) if the
Designated CMT Telerate Page is 7055,
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the rate on such CMT Rate Interest Determination Date and (ii) if the
Designated CMT Telerate Page is 7052, the week, or the month, as applicable,
ended immediately preceding the week in which the related CMT Rate Interest
Determination Date occurs. If such rate is no longer displayed on the relevant
page or is not displayed by 3:00 P.M., New York City time, on the related
Calculation Date, then the CMT Rate for such CMT Rate Interest Determination
Date will be such treasury constant maturity rate for the Designated CMT
Maturity Index (as defined below) as published in the relevant H.15(519). If
such rate is no longer published or is not published by 3:00 P.M., New York
City time, on the related Calculation Date, then the CMT Rate on such CMT Rate
Interest Determination Date will be such treasury constant maturity rate for
the Designated CMT Maturity Index (or other United States Treasury rate for
the Designated CMT Maturity Index) for the CMT Rate Interest Determination
Date with respect to such Interest Reset Date as may then be published by
either the Board of Governors of the Federal Reserve System or the United
States Department of the Treasury that the Calculation Agent determines to be
comparable to the rate formerly displayed on the Designated CMT Telerate Page
and published in the relevant H.15(519). If such information is not provided
by 3:00 P.M., New York City time, on the related Calculation Date, then the
CMT Rate on the CMT Rate Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity, based on the arithmetic
mean of the secondary market closing offer side prices as of approximately
3:30 P.M., New York City time, on such CMT Rate Interest Determination Date
reported, according to their written records, by three leading primary United
States government securities dealers (each, a "Reference Dealer") in The City
of New York (which may include the Agents or their affiliates) selected by the
Calculation Agent (from five such Reference Dealers selected by the
Calculation Agent and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for the most recently issued direct noncallable
fixed rate obligations of the United States ("Treasury Notes") with an
original maturity of approximately the Designated CMT Maturity Index and a
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent is unable to obtain three such
Treasury Note quotations, the CMT Rate on such CMT Rate Interest Determination
Date will be calculated by the Calculation Agent and will be a yield to
maturity based on the arithmetic mean of the secondary market offer side
prices as of approximately 3:30 P.M., New York City time, on such CMT Rate
Interest Determination Date of three Reference Dealers in The City of New York
(from five such Reference Dealers selected by the Calculation Agent and
eliminating the highest quotation (or, in the event of equality, one of the
highest) and the lowest quotation (or, in the event of equality, one of the
lowest)), for Treasury Notes with an original maturity of the number of years
that is the next highest to the Designated CMT Maturity Index and a remaining
term to maturity closest to the Designated CMT Maturity Index and in an amount
of at least $100 million. If three or four (and not five) of such Reference
Dealers are quoting as described above, then the CMT Rate will be based on the
arithmetic mean of the offer prices obtained and neither the highest nor the
lowest of such quotes will be eliminated; provided, however, that if fewer
than three Reference Dealers so selected by the Calculation Agent are quoting
as mentioned herein, the CMT Rate determined as of such CMT Rate Interest
Determination Date will be the CMT Rate in effect on such CMT Rate Interest
Determination Date. If two Treasury Notes with an original maturity as
described in the second preceding sentence have remaining terms to maturity
equally close to the Designated CMT Maturity Index, the Calculation Agent will
obtain from five Reference Dealers quotations for the Treasury Note with the
shorter remaining term to maturity.
"Designated CMT Telerate Page" means the display on the Dow Jones Markets
Service on the page specified in the applicable Pricing Supplement (or any
other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519)). If no such
page is specified in the applicable Pricing Supplement, the Designated CMT
Telerate Page shall be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of the
U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified
in the applicable Pricing Supplement with
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respect to which the CMT Rate will be calculated. If no such maturity is
specified in the applicable Pricing Supplement, the Designated CMT Maturity
Index shall be 2 years.
COMMERCIAL PAPER RATE. Unless otherwise specified in the applicable Pricing
Supplement, "Commercial Paper Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest
rate is determined with reference to the Commercial Paper Rate (a "Commercial
Paper Rate Interest Determination Date"), the Money Market Yield (as defined
below) on such date of the rate for commercial paper having the Index Maturity
specified in the applicable Pricing Supplement as published in H.15(519) under
the heading "Commercial Paper" or such other heading, in each case
representing commercial paper issued by non-financial entities whose bond
rating is "Aa", or the equivalent, from a nationally recognized statistical
rating organization. In the event that such rate is not published by 3:00
P.M., New York City time, on the related Calculation Date, then the Commercial
Paper Rate on such Commercial Paper Rate Interest Determination Date will be
the Money Market Yield of the rate for commercial paper having the Index
Maturity specified in the applicable Pricing Supplement as published in
Composite Quotations under the heading "Commercial Paper" (with an Index
Maturity of one month or three months being deemed to be equivalent to an
Index Maturity of 30 days or 90 days, respectively). If such rate is not yet
published in either H.15(519) or Composite Quotations by 3:00 P.M., New York
City time, on the related Calculation Date, then the Commercial Paper Rate on
such Commercial Paper Rate Interest Determination Date will be calculated by
the Calculation Agent and will be the Money Market Yield of the arithmetic
mean of the offered rates at approximately 11:00 A.M., New York City time, on
such Commercial Paper Rate Interest Determination Date of three leading
dealers of commercial paper in The City of New York (which may include the
Agents or their affiliates) selected by the Calculation Agent for commercial
paper having the Index Maturity specified in the applicable Pricing Supplement
placed for an industrial issuer whose bond rating is "Aa", or the equivalent,
from a nationally recognized statistical rating organization; provided,
however, that if the dealers so selected by the Calculation Agent are not
quoting as mentioned in this sentence, the Commercial Paper Rate determined as
of such Commercial Paper Rate Interest Determination Date will be the
Commercial Paper Rate in effect on such Commercial Paper Rate Interest
Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated in
accordance with the following formula:
360 x D
Money Market Yield = 100 x -----------
360-(D x M)
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M" refers to the actual number
of days in the period for which interest is being calculated.
FEDERAL FUNDS RATE. Unless otherwise specified in the applicable Pricing
Supplement, "Federal Funds Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest
rate is determined with reference to the Federal Funds Rate (a "Federal Funds
Rate Interest Determination Date"), the rate on such date for United States
dollar federal funds as published in H.15(519) under the heading "Federal
Funds (Effective)" or, if not published by 3:00 P.M., New York City time, on
the related Calculation Date, the rate on such Federal Funds Rate Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate". If such rate is not published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, then the Federal Funds Rate on such Federal Funds
Rate Interest Determination Date will be calculated by the Calculation Agent
and will be the arithmetic mean of the rates for the last transaction in
overnight United States dollar federal funds arranged by three leading brokers
of federal funds transactions in The City of New York (which may include the
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Agents or their affiliates) selected by the Calculation Agent prior to 9:00
A.M., New York City time, on such Federal Funds Rate Interest Determination
Date; provided, however, that if the brokers so selected by the Calculation
Agent are not quoting as mentioned in this sentence, the Federal Funds Rate
determined as of such Federal Funds Rate Interest Determination Date will be
the Federal Funds Rate in effect on such Federal Funds Rate Interest
Determination Date.
LIBOR. Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" means the rate determined in accordance with the following provisions:
(i) With respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference
to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will be either: (a)
if "LIBOR Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the Designated LIBOR Page by
its terms provides only for a single rate, in which case such single rate
shall be used) for deposits in the Index Currency having the Index Maturity
specified in such Pricing Supplement, commencing on the applicable Interest
Reset Date, that appear (or, if only a single rate is required as
aforesaid, appears) on the Designated LIBOR Page as of 11:00 A.M., London
time, on such LIBOR Interest Determination Date, or (b) if "LIBOR Telerate"
is specified in the applicable Pricing Supplement or if neither "LIBOR
Reuters" nor "LIBOR Telerate" is specified in the applicable Pricing
Supplement as the method for calculating LIBOR, the rate for deposits in
the Index Currency having the Index Maturity specified in such Pricing
Supplement, commencing on such Interest Reset Date, that appears on the
Designated LIBOR Page as of 11:00 A.M., London time, on such LIBOR Interest
Determination Date. If in (a) fewer than two such offered rates appear, or
if in (b) no such rate appears, as applicable, LIBOR on such LIBOR Interest
Determination Date will be determined in accordance with the provisions
described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear, or no rate appears, as the case may be, on
the Designated LIBOR Page as specified in clause (i) above, the Calculation
Agent will request the principal London offices of each of four major
reference banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered
quotation for deposits in the Index Currency for the period of the Index
Maturity specified in the applicable Pricing Supplement, commencing on the
applicable Interest Reset Date, to prime banks in the London interbank
market at approximately 11:00 A.M., London time, on such LIBOR Interest
Determination Date and in a principal amount that is representative for a
single transaction in such Index Currency in such market at such time. If
at least two such quotations are so provided, then LIBOR on such LIBOR
Interest Determination Date will be the arithmetic mean of such quotations.
If fewer than two such quotations are so provided, then LIBOR on such LIBOR
Interest Determination Date will be the arithmetic mean of the rates quoted
at approximately 11:00 A.M., in the applicable Principal Financial Center,
on such LIBOR Interest Determination Date by three major banks in such
Principal Financial Center selected by the Calculation Agent for loans in
the Index Currency to leading European banks, having the Index Maturity
specified in the applicable Pricing Supplement and in a principal amount
that is representative for a single transaction in such Index Currency in
such market at such time; provided, however, that if the banks so selected
by the Calculation Agent are not quoting as mentioned in this sentence,
LIBOR determined as of such LIBOR Interest Determination Date will be LIBOR
in effect on such LIBOR Interest Determination Date.
"Index Currency" means the currency or composite currency specified in the
applicable Pricing Supplement as to which LIBOR shall be calculated. If no
such currency or composite currency is specified in the applicable Pricing
Supplement, the Index Currency shall be United States dollars.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the display on the Reuter Monitor Money Rates
Service (or any successor service) for the purpose of displaying the London
interbank rates of major banks for the applicable Index Currency,
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or (b) if "LIBOR Telerate" is specified in the applicable Pricing Supplement
or neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the applicable
Pricing Supplement as the method for calculating LIBOR, the display on the Dow
Jones Markets Service (or any successor service) for the purpose of displaying
the London interbank rates of major banks for the applicable Index Currency.
PRIME RATE. Unless otherwise specified in the applicable Pricing Supplement,
"Prime Rate" means, with respect to any Interest Determination Date relating
to a Floating Rate Note for which the interest rate is determined with
reference to the Prime Rate (a "Prime Rate Interest Determination Date"), the
rate on such date as such rate is published in H.15(519) under the heading
"Bank Prime Loan". If such rate is not published prior to 3:00 P.M., New York
City time, on the related Calculation Date, then the Prime Rate shall be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 (as defined below) as such bank's prime
rate or base lending rate as in effect for such Prime Rate Interest
Determination Date. If fewer than four such rates appear on the Reuters Screen
USPRIME1 for such Prime Rate Interest Determination Date, then the Prime Rate
will be determined by the Calculation Agent and shall be the arithmetic mean
of the prime rates quoted on the basis of the actual number of days in the
year divided by a 360-day year as of the close of business on such Prime Rate
Interest Determination Date by four major money center banks in The City of
New York selected by the Calculation Agent. If fewer than four such quotations
are so provided, then the Prime Rate shall be the arithmetic mean of four
prime rates quoted on the basis of the actual number of days in the year
divided by a 360-day year as of the close of business on such Prime Rate
Interest Determination Date as furnished in The City of New York by the major
money center banks, if any, that have provided such quotations and by as many
substitute banks or trust companies as necessary in order to obtain four such
prime rate quotations, provided such substitute banks or trust companies are
organized and doing business under the laws of the United States, or any State
thereof, each having total equity capital of at least $500 million and being
subject to supervision or examination by Federal or State authority, selected
by the Calculation Agent to provide such rate or rates; provided, however,
that if the banks or trust companies so selected by the Calculation Agent are
not quoting as mentioned in this sentence, the Prime Rate determined as of
such Prime Rate Interest Determination Date will be the Prime Rate in effect
on such Prime Rate Interest Determination Date.
"Reuters Screen USPRIME1" means the display designated as page "USPRIME1" on
the Reuter Monitor Money Rates Service (or such other page as may replace the
USPRIME1 page on that service for the purpose of displaying prime rates or
base lending rates of major United States banks).
TREASURY RATE. Unless otherwise specified in the applicable Pricing
Supplement, "Treasury Rate" means, with respect to any Interest Determination
Date relating to a Floating Rate Note for which the interest rate is
determined by reference to the Treasury Rate (a "Treasury Rate Interest
Determination Date"), the rate from the auction held on such Treasury Rate
Interest Determination Date (the "Auction") of direct obligations of the
United States ("Treasury Bills") having the Index Maturity specified in the
applicable Pricing Supplement, as such rate is published in H.15(519) under
the heading "Treasury Bills-auction average (investment)" or, if not published
by 3:00 P.M., New York City time, on the related Calculation Date, the auction
average rate of such Treasury Bills (expressed as a bond equivalent on the
basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) as otherwise announced by the United States Department of the Treasury.
In the event that the results of the Auction of Treasury Bills having the
Index Maturity specified in the applicable Pricing Supplement are not reported
as provided by 3:00 P.M., New York City time, on the related Calculation Date,
or if no such Auction is held, then the Treasury Rate will be calculated by
the Calculation Agent and will be a yield to maturity (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) of the arithmetic mean of the secondary market bid
rates, as of approximately 3:30 P.M., New York City time, on such Treasury
Rate Interest Determination Date, of three leading primary United States
government securities dealers (which may
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include the Agent or its affiliates) selected by the Calculation Agent, for
the issue of Treasury Bills with a remaining maturity closest to the Index
Maturity specified in the applicable Pricing Supplement; provided, however,
that if the dealers so selected by the Calculation Agent are not quoting as
mentioned in this sentence, the Treasury Rate determined as of such Treasury
Rate Interest Determination Date will be the Treasury Rate in effect on such
Treasury Rate Interest Determination Date.
REDEMPTION AND REPAYMENT
REDEMPTION AT THE OPTION OF GTE
The Notes will be redeemable at the option of GTE prior to the Stated
Maturity only if a Redemption Commencement Date is specified in the applicable
Pricing Supplement. If so specified, the Notes will be subject to redemption
at the option of GTE on any date on and after the applicable Redemption
Commencement Date in whole or from time to time in part in increments of
$1,000 or such other increments specified in such Pricing Supplement (provided
that any remaining principal amount thereof shall be at least $1,000 or such
other specified minimum denomination), at the applicable Redemption Price (as
defined below), together with unpaid interest accrued to the date of
redemption, on notice given not more than 60 nor less than 30 calendar days
prior to the date of redemption and in accordance with the provisions of the
Indenture. "Redemption Price", with respect to a Note, means an amount equal
to the Initial Redemption Percentage specified in the applicable Pricing
Supplement (as adjusted by the Annual Redemption Percentage Reduction, if
applicable) multiplied by the unpaid principal amount to be redeemed. The
Initial Redemption Percentage, if any, applicable to a Note shall decline at
each anniversary of the Redemption Commencement Date by an amount equal to the
applicable Annual Redemption Percentage Reduction, if any, until the
Redemption Price is equal to 100% of the unpaid principal amount to be
redeemed. See also "--Original Issue Discount Notes".
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund.
REPAYMENT AT THE OPTION OF THE HOLDER
The Notes will be repayable by GTE at the option of the Holders thereof
prior to the Stated Maturity only if one or more Optional Repayment Dates are
specified in the applicable Pricing Supplement. If so specified, the Notes
will be subject to repayment at the option of the Holders thereof on any
Optional Repayment Date in whole or from time to time in part in increments of
$1,000 or such other increments specified in the applicable Pricing Supplement
(provided that any remaining principal amount thereof shall be at least $1,000
or such other specified minimum denomination), at a repayment price equal to
100% of the unpaid principal amount to be repaid, together with unpaid
interest accrued to the date of repayment. For any Note to be repaid, such
Note must be received, together with the form thereon entitled "Option to
Elect Repayment" duly completed, by the Trustee at its Corporate Trust Office
(or such other address of which GTE shall from time to time notify the
Holders) not more than 60 nor less than 30 calendar days prior to the date of
repayment. Exercise of such repayment option by the Holder will be
irrevocable. See also "--Original Issue Discount Notes".
Only the Depository may exercise the repayment option in respect of Global
Securities representing Book-Entry Notes. Accordingly, owners of beneficial
interests ("Beneficial Owners") in Global Securities that desire to have all
or any portion of the Book-Entry Notes represented by such Global Securities
repaid must instruct the participant through which they own their interest to
direct the Depository to exercise the repayment option on their behalf by
delivering the related Global Security and duly completed election form to the
Trustee as aforesaid. In order to ensure that such Global Security and
election form are received by the Trustee on a particular day, the applicable
Beneficial Owner must so instruct the participant through which it owns its
interest before such participant's
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deadline for accepting instructions for that day. Different firms may have
different deadlines for accepting instructions from their customers.
Accordingly, Beneficial Owners should consult the participants through which
they own their interest for the respective deadlines for such participants.
All instructions given to participants from Beneficial Owners of Global
Securities relating to the option to elect repayment shall be irrevocable. In
addition, at the time such instructions are given, each such Beneficial Owner
shall cause the participant through which it owns its interest to transfer
such Beneficial Owner's interest in the Global Security or Securities
representing the related Book-Entry Notes, on the Depository's records, to the
Trustee. See "--Book-Entry Notes".
If applicable, GTE will comply with the requirements of Rule 14e-1 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any
other securities laws or regulations in connection with any such repayment.
GTE may at any time purchase Notes at any price or prices in the open market
or otherwise. Notes so purchased by GTE may, at the discretion of GTE, be
held, resold or surrendered to the Trustee for cancellation.
ADDENDUM AND/OR OTHER PROVISIONS
Any provisions with respect to the Notes, including the specification and
determination of one or more Interest Rate Bases, the calculation of the
interest rate applicable to a Floating Rate Note, the Interest Payment Dates,
the Maturity Date or any other term relating thereto, may be modified and/or
supplemented as specified under "Other Provisions" on the face thereof or in
an Addendum relating thereto, if so specified on the face thereof. Such
provisions will be described in the applicable Pricing Supplement.
AMORTIZING NOTES
GTE may from time to time offer Notes with the amount of principal thereof
and interest thereon payable in installments over the term of such Notes
("Amortizing Notes"). Unless otherwise specified in the applicable Pricing
Supplement, interest on each Amortizing Note will be computed on the basis of
a 360-day year of twelve 30-day months. Payments with respect to Amortizing
Notes will be applied first to interest due and payable thereon and then to
the reduction of the unpaid principal amount thereof. Further information
concerning additional terms and provisions of Amortizing Notes will be
specified in the applicable Pricing Supplement, including a table setting
forth repayment information for such Amortizing Notes.
ORIGINAL ISSUE DISCOUNT NOTES
GTE may offer Notes from time to time that have an Issue Price (as defined
and specified in the applicable Pricing Supplement) that is less than 100% of
the principal amount thereof (i.e. par) ("Original Issue Discount Notes").
Original Issue Discount Notes may not bear any interest currently or may bear
interest at a rate that is below market rates at the time of issuance. The
difference between the Issue Price of an Original Issue Discount Note and par
is referred to herein as the "Discount". In the event of redemption, repayment
or acceleration of maturity of an Original Issue Discount Note, the amount
payable to the Holder of such Original Issue Discount Note will be equal to
the sum of (i) the Issue Price (increased by any accruals of the Discount and,
in the event of any redemption of such Original Issue Discount Note (if
applicable), multiplied by the Initial Redemption Percentage specified in the
applicable Pricing Supplement (as adjusted by the Annual Redemption Percentage
Reduction, if applicable)) and (ii) any unpaid interest on such Original Issue
Discount Note accrued from the date of issue to the date of such redemption,
repayment or acceleration of maturity, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, for
purposes of determining the amount of the Discount that has accrued as of any
date on which a redemption, repayment or
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acceleration of maturity occurs for an Original Issue Discount Note, such
Discount will be accrued using a constant yield method. The constant yield
will be calculated using a 30-day month, 360-day year convention, a
compounding period that, except for the Initial Period (as defined below),
corresponds to the shortest period between Interest Payment Dates for the
applicable Original Issue Discount Note (with ratable accruals within a
compounding period), a coupon rate equal to the initial coupon rate applicable
to such Original Issue Discount Note and an assumption that the maturity of
such Original Issue Discount Note will not be accelerated. If the period from
the date of issue to the initial Interest Payment Date for an Original Issue
Discount Note (the "Initial Period") is shorter than the compounding period
for such Original Issue Discount Note, a proportionate amount of the yield for
an entire compounding period will be accrued. If the Initial Period is longer
than the compounding period, then such period will be divided into a regular
compounding period and a short period with the short period being treated as
provided in the preceding sentence. The accrual of the applicable Discount may
differ from the accrual of original issue discount for purposes of the
Internal Revenue Code of 1986, as amended (the "Code"), certain Original Issue
Discount Notes may not be treated as having original issue discount within the
meaning of the Code, and Notes other than Original Issue Discount Notes may be
treated as issued with original issue discount for United States Federal
income tax purposes. See "Certain United States Federal Income Tax
Considerations" herein.
BOOK-ENTRY NOTES
GTE has established a depository arrangement with The Depository Trust
Company with respect to the Book-Entry Notes, the terms of which are
summarized below. Any additional or differing terms of the depository
arrangement with respect to the Book-Entry Notes will be described in the
applicable Pricing Supplement.
Upon issuance, all Book-Entry Notes up to $200,000,000 aggregate principal
amount bearing interest, if any, at the same rate or pursuant to the same
formula and having the same date of issue, currency of denomination and
payment, Interest Payment Dates, if any, Stated Maturity, redemption
provisions, if any, repayment provisions, if any, and other terms will be
represented by a single Global Security; all such Book-Entry Notes in excess
of $200,000,000 aggregate principal amount will be represented by two or more
Global Securities. Each Global Security representing Book-Entry Notes will be
deposited with, or on behalf of, the Depository and will be registered in the
name of the Depository or a nominee of the Depository. No Global Security may
be transferred except as a whole by a nominee of the Depository to the
Depository or to another nominee of the Depository, or by the Depository or
such nominee to a successor of the Depository or a nominee of such successor.
See "The Securities--Book-Entry, Delivery and Form" in the accompanying
Prospectus.
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SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless otherwise specified in the applicable Pricing Supplement, Foreign
Currency Notes will not be sold in, or to residents of, the country issuing
the Specified Currency. The information set forth in this Prospectus
Supplement is directed to prospective purchasers who are United States
residents and, with respect to Foreign Currency Notes, is by necessity
incomplete. GTE and the Agents disclaim any responsibility to advise
prospective purchasers who are residents of countries other then the United
States with respect to any matters that may affect the purchase, holding or
receipt of payments of principal of, and premium, if any, and interest, if
any, on, Foreign Currency Notes. Such persons should consult their own
financial and legal advisors with regard to such matters. See "Risk Factors--
Exchange Rates and Exchange Controls".
PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, GTE is
obligated to make payments of principal of, and premium, if any, and interest,
if any, on, Foreign Currency Notes in the applicable Specified Currency (or,
if such Specified Currency is not at the time of such payment legal tender for
the payment of public and private debts, in such other coin or currency of the
country which issued such Specified Currency as at the time of such payment is
legal tender for the payment of such debts). Any such amounts payable by GTE
in a foreign currency or composite currency will, unless otherwise specified
in the applicable Pricing Supplement, be converted by the Exchange Rate Agent
named in the applicable Pricing Supplement into United States dollars for
payment to Holders. However, the Holder of a Foreign Currency Note may elect
to receive amounts payable in a foreign currency or composite currency in such
foreign currency or composite currency as hereinafter described.
Any United States dollar amount to be received by a Holder of a Foreign
Currency Note will be based on the highest bid quotation in The City of New
York received by the Exchange Rate Agent at approximately 11:00 A.M., New York
City time, on the second Business Day preceding the applicable payment date
from three recognized foreign exchange dealers (one of whom may be the
Exchange Rate Agent) selected by the Exchange Rate Agent and approved by GTE
for the purchase by the quoting dealer of the applicable foreign currency or
composite currency for United States dollars for settlement on such payment
date in the aggregate amount of such currency or composite currency payable to
all Holders of Foreign Currency Notes scheduled to receive United States
dollar payments and at which the applicable dealer commits to execute a
contract. All currency exchange costs will be borne by the Holders of such
Foreign Currency Notes by deductions from such payments. If three such bid
quotations are not available, payments will be made in the applicable foreign
currency or composite currency.
If the principal of, and premium, if any, and interest, if any, on, Foreign
Currency Notes are payable in a foreign currency or composite currency,
Holders of such Foreign Currency Notes may elect to receive all or a specified
portion of such payments in such foreign currency or composite currency by
submitting a written request for such payment to the Trustee at its Corporate
Trust Office on or prior to the applicable Record Date or at least fifteen
calendar days prior to the Maturity Date, as the case may be. Such written
request may be mailed or hand delivered or sent by cable, telex or other form
of facsimile transmission. Holders of such Foreign Currency Notes may elect to
receive all or a specified portion of all future payments in the applicable
foreign currency or composite currency in respect of such principal, premium,
if any, and/or interest, if any, and need not file a separate election for
each payment. Such election will remain in effect until revoked by written
notice to the Trustee, but written notice of any such revocation must be
received by the Trustee on or prior to the applicable Record Date or at least
fifteen calendar days prior to the Maturity Date, as the case may be. Holders
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of such Foreign Currency Notes to be held in the name of a broker or nominee
should contact such broker or nominee to determine whether and how an election
to receive payments in the applicable foreign currency or composite currency
may be made.
Payments of the principal of, and premium, if any, and/or interest, if any,
on, Foreign Currency Notes which are to be made in United States dollars will
be made in the manner specified herein with respect to Notes denominated in
United States dollars. See "Description of the Notes--General". Payments of
interest, if any, on Foreign Currency Notes which are to be made in the
applicable foreign currency or composite currency on an Interest Payment Date
other than the Maturity Date will be made by check mailed to the address of
the Holders of such Foreign Currency Notes as they appear in the Security
Register, subject to the right to receive such interest payments by wire
transfer of immediately available funds under the circumstances described
under "Description of the Notes--General". Payments of principal of, and
premium, if any, and/or interest, if any, on, Foreign Currency Notes which are
to be made in the applicable foreign currency or composite currency on the
Maturity Date will be made by wire transfer of immediately available funds to
an account with a bank designated at least fifteen calendar days prior to the
Maturity Date by each Holder thereof, provided that such bank has appropriate
facilities therefor and that the applicable Foreign Currency Note is presented
and surrendered at the Corporate Trust Office of the Trustee in time for the
Trustee to make such payments in such funds in accordance with its normal
procedures.
Unless otherwise specified in the applicable Pricing Supplement, a
Beneficial Owner of a Global Security or Securities representing Book-Entry
Notes payable in a currency or composite currency other than United States
dollars which elects to receive payments of principal, premium, if any, and/or
interest, if any, in such currency or composite currency must notify the
participant through which it owns its interest on or prior to the applicable
Record Date or at least fifteen calendar days prior to the Maturity Date, as
the case may be, of such Beneficial Owner's election. Such participant must
notify the Depository of such election on or prior to the third Business Day
after such Record Date or at least twelve calendar days prior to the Maturity
Date, as the case may be, and the Depository will notify the Trustee of such
election on or prior to the fifth Business Day after such Record Date or at
least ten calendar days prior to the Maturity Date, as the case may be. If
complete instructions are received by the participant from the Beneficial
Owner and forwarded by the participant to the Depository, and by the
Depository to the Trustee, on or prior to such dates, then such Beneficial
Owner will receive payments in the applicable foreign currency or composite
currency.
AVAILABILITY OF SPECIFIED CURRENCY
Except as set forth below, if the principal of, premium, if any, and/or
interest, if any, on, any Note is payable in a Specified Currency other than
U.S. dollars and such Specified Currency is not available to GTE for making
payments thereof due to the imposition of exchange controls or other
circumstances beyond the control of GTE or is no longer used by the government
of the country issuing such currency or for the settlement of transactions by
public institutions within the international banking community, then GTE will
be entitled to satisfy its obligations to holders of the Notes by making such
payments in U.S. dollars on the basis of the Market Exchange Rate (as defined
below) on the second Business Day prior to such payment date or, if such
Market Exchange Rate is not then available, on the basis of the most recently
available Market Exchange Rate; provided, however, that if such Specified
Currency is replaced by a single European currency (expected to be named the
Euro), the payment of principal of, premium, if any, or interest on any Note
denominated in such currency shall be effected in the new single European
currency in conformity with legally applicable measures taken pursuant to, or
by virtue of, the treaty establishing the European Community, as amended by
the treaty on European Union.
Unless otherwise specified in the applicable Pricing Supplement, if payment
in respect of a Foreign Currency Note is required to be made in any composite
currency, and such composite
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currency is unavailable due to the imposition of exchange controls or other
circumstances beyond the control of GTE, GTE will be entitled to satisfy its
obligations to the Holder of such Foreign Currency Note by making such payment
in United States dollars. The amount of each payment in United States dollars
shall be computed by the Exchange Rate Agent on the basis of the equivalent of
the composite currency in United States dollars. The component currencies of
the composite currency for this purpose (collectively, the "Component
Currencies" and each, a "Component Currency") shall be the currency amounts
that were components of the composite currency as of the last day on which the
composite currency was used. The equivalent of the composite currency in
United States dollars shall be calculated by aggregating the United States
dollar equivalents of the Component Currencies. The United States dollar
equivalent of each of the Component Currencies shall be determined by the
Exchange Rate Agent on the basis of the most recently available Market
Exchange Rate for each such Component Currency, or as otherwise specified in
the applicable Pricing Supplement.
If the official unit of any Component Currency is altered by way of
combination or subdivision, the number of units of the currency as a Component
Currency shall be divided or multiplied in the same proportion. If two or more
Component Currencies are consolidated into a single currency, the amounts of
those currencies as Component Currencies shall be replaced by an amount in
such single currency equal to the sum of the amounts of the consolidated
Component Currencies expressed in such single currency. If any Component
Currency is divided into two or more currencies, the amount of the original
Component Currency shall be replaced by the amounts of such two or more
currencies, the sum of which shall be equal to the amount of the original
Component Currency.
The "Market Exchange Rate" for a currency or composite currency other than
United States dollars means the noon dollar buying rate in The City of New
York for cable transfers for such currency or composite currency as certified
for customs purposes by (or if not so certified, as otherwise determined by)
the Federal Reserve Bank of New York. Any payment made in United States
dollars or a new single European currency under the circumstances described
above where the required payment is in a currency or composite currency other
than United States dollars or such single European currency, respectively,
will not constitute an Event of Default under the Indenture with respect to
the Notes.
All determinations referred to above made by the Exchange Rate Agent shall
be at its sole discretion and shall, in the absence of error, be conclusive
for all purposes and binding on the Holders of the Foreign Currency Notes.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, ruling and decisions now in effect, all of which are
subject to change (including changes in effective dates). It deals only with
Notes held as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code"), does not discuss all
of the tax consequences that may be relevant to a Holder in light of its
particular circumstances and does not purport to deal with persons in special
tax situations, such as financial institutions, insurance companies, tax-
exempt organizations, regulated investment companies, dealers in securities or
currencies, persons holding Notes as a hedge against currency risks or as a
position in a "straddle" for tax purposes, or persons whose functional
currency (as defined in Section 985 of the Code) is not the United States
dollar. Moreover, the summary deals only with Notes that are due to mature 30
years or less from the date on which they are issued. The United States
Federal income tax consequences of ownership of Notes that are due to mature
more than 30 years from their date of issue will be discussed in an applicable
Pricing Supplement. It also does not deal with Holders other than original
purchasers (except where otherwise specifically noted).
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Because the exact pricing and other terms of the Notes will vary, no
assurance can be given that the considerations described below will apply to a
particular issuance of Notes. Certain material United States Federal income
tax consequences relating to the ownership of particular Notes (where
applicable) will be summarized in the Pricing Supplement relating to such
Notes. Persons considering the purchase of Notes should consult their own tax
advisors concerning the application of United States Federal income 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 state,
local or foreign 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 under the laws of the United States or of any political
subdivision thereof, or (iii) an estate or trust the income of which is
subject to United States Federal income taxation regardless of its source. The
term also includes certain former citizens of the United States. As used
herein, the term "non-U.S. Holder" means a beneficial owner of a Note that is
not a U.S. Holder.
U.S. HOLDERS
PAYMENTS OF INTEREST
Payments of qualified stated interest (defined below) 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 accounting for United States Federal income tax purposes.
ORIGINAL ISSUE DISCOUNT
The following summary is a general discussion of the United States Federal
income tax consequences to U.S. Holders of the purchase, ownership and
disposition of Notes issued with original issue discount ("Discount Notes").
For United States Federal income tax purposes, a Note, other than a Note
with a term of one year or less (a "Short-Term Note"), will be treated as
issued at an original issue discount if the excess of the stated redemption
price at maturity of the Note over its issue price, is more than a de minimis
amount (as defined below). In general, if the excess of a Note's stated
redemption price at maturity over its issue price is less than 1/4 of 1
percent of the Note's stated redemption price at maturity multiplied by the
number of complete years to maturity or by, in the case of a Note providing
for the payment of any amount other than qualified stated interest (as
hereinafter defined) prior to maturity, the weighted average maturity of such
Note (the "de minimis amount"), then such excess, if any, constitutes "de
minimis original issue discount" and the Note is not a Discount Note. The
issue price of each Note in an issue of Notes equals the first price at which
a substantial amount of such Notes has been sold for money (ignoring sales to
bond houses, brokers, or similar persons or organizations acting in the
capacity of underwriters, placement agents, or wholesalers). The stated
redemption price at maturity of a Note is the sum of all payments provided by
the Note other than "qualified stated interest" payments. The term "qualified
stated interest" generally means stated interest that is unconditionally
payable as a series of payments in cash or property (other than debt
instruments of the issuer) at least annually during the entire term of the
Note and equal to the outstanding principal balance of the Note multiplied by
a single fixed rate of interest. In addition, under final Treasury Regulations
(the "OID Regulations") promulgated by the Internal Revenue Service (the
"IRS") under the original issue discount provisions of the Code, if a Note
bears interest for one or more accrual periods at a rate below the rate
applicable for the remaining term of such Note (e.g., Notes with teaser rates
or interest holidays) the Note's stated redemption price at maturity, for
purposes of determining whether the Note has de minimis original issue
discount, is treated as equal to the Note's issue price
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plus the greater of the amount of foregone interest on such Note or any "true"
discount on such Note (i.e., the excess of the Note's stated principal amount
over its issue price).
Holders of Notes with de minimis original issue discount, as described
above, will generally include such de minimis original issue discount in
income as capital gain on a pro rata basis as principal payments are made on
the Note. A U.S. Holder of a Discount Note that matures more than one year
from the date of issuance must include original issue discount in income as
ordinary income for United States Federal income tax purposes as it accrues
under a constant yield method based on a compounding of interest in advance of
receipt of the cash payments attributable to such income, regardless of such
U.S. Holder's regular method of tax accounting. In general, the amount of
original issue discount included in income by the U.S. Holder of a Discount
Note is the sum of the daily portions of original issue discount with respect
to such Discount Note for each day during the taxable year (or portion of the
taxable year) on which such U.S. Holder held such Discount Note. The "daily
portion" of original issue discount on any Discount Note is determined by
allocating to each day in any accrual period a ratable portion of the original
issue discount allocable to that accrual period. An "accrual period" may be of
any length and the accrual periods may vary in length over the term of the
Discount Note, provided that each accrual period is no longer than one year
and each scheduled payment of principal or interest occurs either on the final
day of an accrual period or on the first day of an accrual period. The amount
of original issue discount allocable to each accrual period is generally equal
to the difference between (i) the product of the Discount Note's adjusted
issue price at the beginning of such accrual period and its yield to maturity
(determined on the basis of compounding at the close of each accrual period
and appropriately adjusted to take into account the length of the particular
accrual period) and (ii) the amount of any qualified stated interest payments
allocable to such accrual period. The "adjusted issue price" of a Discount
Note at the beginning of any accrual period is the sum of the issue price of
the Discount Note plus the amount of original issue discount allocable to all
prior accrual periods minus the amount of any prior payments on the Discount
Note that were not qualified stated interest payments. Under these rules, U.S.
Holders generally will have to include in income increasing amounts of
original issue discount in successive accrual periods.
A U.S. Holder who purchases a Discount Note for an amount that is greater
than its adjusted issue price as of the purchase date and less than or equal
to the sum of all amounts payable on the Discount Note after the purchase date
other than payments of qualified stated interest will be considered to have
purchased the Discount Notes at an "acquisition premium". Under the
acquisition premium rules, the amount of original issue discount which such
U.S. Holder must include in its gross income with respect to such Discount
Note for any taxable year (or portion thereof in which the U.S. Holder holds
the Discount Note) will be reduced (but not below zero) by the portion of the
acquisition premium properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes ("Variable
Notes") are subject to special rules whereby a Variable Note will qualify as a
"variable rate debt instrument" if (a) its issue price does not exceed the
total noncontingent principal payments due under the Variable Note 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 (i) one or more
qualified floating rates, (ii) a single fixed rate and one or more qualified
floating rates, (iii) a single objective rate, or (iv) a single fixed and a
single objective rate that is a qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable
rate is a qualified floating rate if it is equal to either (1) the product of
a qualified floating rate and a fixed multiple rate that is greater than 0.65
but not more than 1.35 or (2) the product of a qualified floating rate and a
fixed multiple that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate. In addition, under
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the OID Regulations, two or more qualified floating rates that can reasonably
be expected to have approximately the same values throughout the term of the
Variable Notes (e.g., two or more qualified floating rates with values within
25 basis points of each other as determined on the Variable Note's issue date)
will be treated as a single qualified floating rate. Notwithstanding the
foregoing, a variable rate that would otherwise constitute a qualified
floating rate but which is subject to one or more restrictions such as a
maximum or minimum numerical limitation (i.e., a cap or floor) may, under
certain circumstances, fail to be treated as a qualified floating rate under
the OID Regulations unless such cap or floor is fixed throughout the term of
the Note. An "objective rate" is a rate (other than a qualified floating rate)
that is obtained using a single fixed formula and that is based on objective
financial or economic information outside of the issuer's control. The OID
Regulations also provide that other variable interest rates may be treated as
objective rates if so designated by the IRS in the future. Despite the
foregoing, a variable rate of interest on a Variable Note will not constitute
an objective rate if it is reasonably expected that the average value of such
rate during the first half of the Variable Note's term will be either
significantly less than or significantly greater than the average value of the
rate during the final half of the Variable Note's term. A "qualified inverse
floating rate" is any objective rate where such rate is equal to a fixed rate
minus a qualified floating rate, as long as variations in the rate can
reasonably be expected to inversely reflect contemporaneous variations in the
qualified floating rate. The OID Regulations also provide that if a Variable
Note provides for stated interest at a fixed rate for an initial period of one
year or less followed by a variable rate that is either a qualified floating
rate or an objective rate for a subsequent period and if the variable rate on
the Variable Note's issue date is intended to approximate the fixed rate
(e.g., the value of the variable rate on the issue date does not differ from
the value of the fixed rate by more than 25 basis points), then the fixed rate
and the variable rate together will constitute either a single qualified
floating rate or objective rate, as the case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations, then
any stated interest on such Note which is unconditionally payable in cash or
property (other than debt instruments of GTE) at least annually during the
term of the Note will constitute qualified stated interest and the amount of
original issue discount, if any, is determined by using, in the case of a
qualified floating rate or qualified inverse floating rate, the value as of
the issue date of the qualified floating rate or qualified inverse floating
rate, or, in the case of any other objective rate, a fixed rate that reflects
the yield reasonably expected for the Note.
In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting for any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed
rate that reflects the yield that is reasonably expected for the Variable
Note. In the case of a Variable Note that qualifies as a "variable rate debt
instrument" and provides for stated interest at a fixed rate in addition to
either one or more qualified floating rates or a qualified inverse floating
rate, the fixed rate is initially converted into a qualified floating rate (or
a qualified inverse floating rate, if the Variable Note provides for a
qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Variable Note as of the
Variable Note's issue date is approximately the same as the fair market value
of an otherwise identical debt instrument that provides for either the
qualified floating rate or qualified inverse floating rate rather than the
fixed rate. Subsequent to converting the fixed rate into either a qualified
floating rate or a qualified inverse floating
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rate, the Variable Note is then converted into an "equivalent" fixed rate debt
instrument in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S.
Holder of the Variable Note will account for such original issue discount and
qualified stated interest as if the U.S. Holder held the "equivalent" fixed
rate debt instrument. In each accrual period, appropriate adjustments will be
made to the amount of qualified stated interest or original issue discount
assumed to have been accrued or paid with respect to the "equivalent" fixed
rate debt instrument in the event that such amounts differ from the actual
amount of interest accrued or paid on the Variable Note during the accrual
period.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. Generally, if a Variable Note is treated
as a contingent payment obligation, interest payments thereon will be treated
as "contingent interest" payments. Under recently issued Treasury Regulations,
any contingent interest payments on a Variable Note would be includible in
income in a taxable year whether or not the amount of any payment is fixed or
determinable in that year. The amount of interest included in income in any
particular accrual period would be determined by constructing a projected
payment schedule (as determined under the OID Regulations) for the Variable
Note and applying daily accrual rules similar to those for accruing original
issue discount on Notes issued with original discount (as discussed above). If
the actual amount of contingent interest payments is not equal to the
projected amount, an adjustment to income at the time of the payment must be
made to reflect the difference. The United States Federal income tax
consequences of a sale, exchange, or, retirement of a contingent payment Note
will be discussed in the applicable Pricing Supplement if such a Note is
issued.
Certain of the Discount Notes (i) may be redeemable at the option of GTE
prior to their stated maturity (a "call option") and/or (ii) may be repayable
at the option of the Holder prior to their stated maturity (a "put option").
Discount Notes containing such features may be subject to rules that differ
from the general rules discussed above. Investors intending to purchase
Discount Notes with such features should consult their own tax advisors, since
the original issue discount consequences will depend, in part, on the
particular terms and features of the purchased Discount Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
SHORT-TERM NOTES
Short-Term Notes will be treated as having been issued with original issue
discount. In general, an individual or other cash method U.S. Holder is not
required to accrue such original issue discount unless the U.S. Holder elects
to do so. If such an election is not made, any gain recognized by the U.S.
Holder on the sale, exchange or maturity of the Short-Term Note will be
ordinary income to the extent of the original issue discount accrued on a
straight-line basis, or upon election under the constant yield method (based
on daily compounding), through the date of sale, exchange or maturity, and a
portion of the deductions otherwise allowable to the U.S. Holder for interest
on borrowings allocable to the Short-Term Note will be deferred until a
corresponding amount of income is realized. U.S. Holders who report income for
United States Federal income tax purposes under the accrual method, and
certain other holders including banks and dealers in securities, are required
to accrue original issue discount on a Short-Term Note on a straight-line
basis unless an election is made to accrue the original issue discount under a
constant yield method (based on daily compounding).
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MARKET DISCOUNT
In the case of a Note other than a Short-Term Note, if a U.S. Holder
purchases a Note that is not a Discount Note, for an amount that is less than
its stated redemption price at maturity or, if the Note is a Discount Note,
for an amount that is less than its adjusted issue price as of the purchase
date, such U.S. Holder will be treated as having purchased such Note at a
"market discount," unless such market discount is less than a specified de
minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment (or, in the case of a Discount Note, any payment
that does not constitute qualified stated interest) on, or any gain realized
on the sale, exchange, retirement or other disposition of, a Note as ordinary
income to the extent of the lesser of (i) the amount of such payment or
realized gain or (ii) the market discount which has not previously been
included in income and is treated as having accrued on such Note at the time
of such payment or disposition. Market discount will be considered to accrue
ratably during the period from the date of acquisition to the Maturity Date of
the Note, unless the U.S. Holder elects to accrue market discount on an
economic accrual basis. If such Note is disposed of in a nontaxable
transaction (other than as provided in Sections 1276(c) and (d) of the Code),
accrued market discount will be includible as ordinary income to the U.S.
Holder as if such U.S. Holder had sold the Note at its then fair market value.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note
or certain earlier dispositions (including a nontaxable transaction other than
as provided by Sections 1276(c) and (d) of the Code), because a current
deduction is only allowed to the extent the interest expense exceeds an
allocable portion of market discount. A U.S. Holder may elect to include
market discount in income currently as it accrues (on either a ratable or
constant yield basis), in which case the rules described above regarding the
treatment as ordinary income of gain upon the disposition of the Note and upon
the receipt of certain cash payments and regarding the deferral of interest
deductions will not apply. Generally, such included market discount is treated
as ordinary interest for United States Federal income tax purposes. Such an
election will apply to all debt instruments acquired by the U.S. Holder on or
after the first day of the taxable year to which such election applies and may
be revoked only with the consent of the IRS.
PREMIUM
If a U.S. Holder purchases a Note for an amount that is greater than its
stated redemption price at maturity, such U.S. Holder will be considered to
have purchased the Note with "amortizable bond premium" equal in amount to
such excess. A U.S. Holder may elect to amortize such premium using a constant
yield method over the remaining term of the Note and may offset interest
otherwise required to be included in respect of the Note during any taxable
year by the amortized amount of such excess for the taxable year. However, if
the Note may be optionally redeemed after the U.S. Holder acquires it at a
price in excess of its stated redemption price at maturity, special rules
would apply which could result in a deferral of the amortization of some bond
premium until later in the term of the Note. Any election to amortize bond
premium applies to all taxable debt obligations then owned and thereafter
acquired by the U.S. Holder and may be revoked only with the consent of the
IRS.
DISPOSITION OF A NOTE
Except for a market discount or contingent payment Note (as discussed above)
or a Foreign Currency Note (as discussed below), 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 (other than amounts representing accrued and unpaid interest
which are treated as ordinary income) and such U.S. Holder's adjusted tax
basis in the Note. A U.S. Holder's adjusted tax basis in a Note generally will
equal such U.S. Holder's initial investment in the Note
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increased by any original issue discount included in income (and accrued
market discount, if any, if the U.S. Holder has included such market discount
in income) and decreased by the amount of any payments, other than qualified
stated interest payments, received and amortizable bond premium taken with
respect to such Note. Such gain or loss generally will be long-term capital
gain or loss if the Note was held for more than one year. The excess of the
net long-term capital gains over the net short term capital losses is taxed at
a lower rate than ordinary income for certain corporate taxpayers. Pending
legislation would reduce the tax rate on long-term capital gains for certain
taxpayers. There can be no assurance that the pending legislation will be
enacted in its current form or any other form. The distinction between capital
gain or loss and ordinary income or loss is also relevant for purposes of,
among other things, limitations on the deductibility of capital losses.
PAYMENTS DENOMINATED IN, OR DETERMINED BY REFERENCE TO, A FOREIGN CURRENCY
As used herein, "Foreign Currency" means a currency or currency unit other
than U.S. dollars.
CASH METHOD. A U.S. Holder who uses the cash method of accounting for United
States Federal income tax purposes and who receives a payment of interest on a
Foreign Currency Note (other than original issue discount or market discount)
will be required to include in income the U.S. dollar value of the Foreign
Currency payment (determined on the date such payment is received) regardless
of whether the payment is in fact converted to U.S. dollars at that time, and
such U.S. dollar value will be the U.S. Holder's tax basis in such Foreign
Currency.
ACCRUAL METHOD. A U.S. Holder who uses the accrual method of accounting for
United States Federal income tax purposes, or who otherwise is required to
accrue interest prior to receipt, will be required to include in income the
U.S. dollar value of the amount of interest income (including original issue
discount or market discount and reduced by amortizable bond premium to the
extent applicable) that has accrued and is otherwise required to be taken into
account with respect to a Foreign Currency Note during an accrual period. The
U.S. dollar value of such accrued income will be determined by translating
such income at the average rate of exchange for the accrual period or, with
respect to an accrual period that spans two taxable years, at the average rate
for the partial period within the taxable year. A U.S. Holder may elect,
however, to translate such accrued interest income using the rate of exchange
on the last day of the accrual period or, with respect to an accrual period
that spans two taxable years, using the rate of exchange on the last day of
the taxable year. A U.S. Holder should consult a tax advisor before making the
above election. A U.S. Holder will recognize exchange rate gain or loss (which
will be treated as ordinary income or loss) with respect to accrued interest
income on the date such income is received. The amount of ordinary income or
loss recognized will equal the difference, if any, between the U.S. dollar
value of the Foreign Currency payment received (determined on the date such
payment is received) in respect of such accrual period and the U.S. dollar
value of interest income that has accrued during the accrual period (as
determined above).
PURCHASE, SALE AND RETIREMENT OF FOREIGN CURRENCY NOTES. A U.S. Holder who
purchases a Foreign Currency Note with previously owned Foreign Currency will
recognize ordinary income or loss in an amount equal to the difference, if
any, between such U.S. Holder's tax basis in the Foreign Currency and the U.S.
dollar fair market value of the Foreign Currency used to purchase the Foreign
Currency Note, determined on the date of purchase.
Upon the sale, exchange or retirement of a Foreign Currency Note, a U.S.
Holder 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
adjusted tax basis in the Foreign Currency Note. Except as discussed above
with respect to Short-Term Notes, market discount Notes, and contingent
payment Notes and as discussed below with respect to exchange or fluctuations,
such gain or loss generally will be capital gain or loss (except to the extent
of any accrued market discount not previously included in the U.S. Holder's
income) and will be long-term capital gain or loss if at the time of sale,
exchange or retirement the Foreign Currency Note has been held by such U.S.
Holder for more than one year.
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To the extent the amount realized represents accrued but unpaid interest,
however, such amount must be taken into account as interest income, with
exchange gain or loss computed as described in "--Accrual Method" above. If a
U.S. Holder receives Foreign Currency on such a sale, exchange or retirement
the amount realized will be based on the U.S. dollar value of the Foreign
Currency on the date the payment is received or the Foreign Currency Note is
disposed of (or deemed disposed of in the case of a taxable exchange of the
Foreign Currency Note for a new Foreign Currency Note). In the case of a
Foreign Currency Note that is denominated in Foreign Currency and is traded on
an established securities market, a cash basis U.S. Holder (or, upon election,
an accrual basis U.S. Holder) will determine the U.S. dollar value of the
amount realized by translating the Foreign Currency payment at the spot rate
of exchange on the settlement date of the sale. A U.S. Holder's adjusted tax
basis in a Foreign Currency Note will equal the cost of the Foreign Currency
Note to such Holder, increased by the amounts of any market discount or
original issue discount previously included in income by the Holder with
respect to such Foreign Currency Note and reduced by any amortized acquisition
or other premium and any principal payments received by the Holder. A U.S.
Holder's tax basis in a Foreign Currency Note, and the amount of any
subsequent adjustments to such Holder's tax basis, will be the U.S. dollar
value of the Foreign Currency amount paid for such Foreign Currency Note, or
of the Foreign Currency amount of the adjustment, determined on the date of
such purchase or adjustment.
Gain or loss realized upon the sale, exchange or retirement of a Foreign
Currency Note that is attributable to fluctuations in currency exchange rates
will be ordinary income or loss which will not be treated as interest income
or expense. Gain or loss attributable to fluctuations in exchange rates will
equal the difference between the U.S. dollar value of the Foreign Currency
principal amount of the Note, determined on the date such payment is received
or the Foreign Currency Note is disposed of, and the U.S. dollar value of the
Foreign Currency principal amount of the Foreign Currency Note, determined on
the date the U.S. Holder acquired the Foreign Currency Note. Such Foreign
Currency gain or loss will be recognized only to the extent of the total gain
or loss realized by the U.S. Holder on the sale, exchange or retirement of the
Foreign Currency Note.
ORIGINAL ISSUE DISCOUNT. In the case of a Discount Note or Short-Term Note,
(i) original issue discount is determined in units of the Foreign Currency,
(ii) accrued original issue discount is translated into U.S. dollars as
described in "--Accrual Method" above and (iii) the amount of Foreign Currency
gain or loss on the accrued original issue discount is determined by comparing
the amount of income received attributable to the discount (either upon
payment, maturity or an earlier disposition), as translated into U.S. dollars
at the rate of exchange on the date of such receipt, with the amount of
original issue discount accrued, as translated above.
PREMIUM AND MARKET DISCOUNT. In the case of a Foreign Currency Note with
market discount, (i) market discount is determined in units of the Foreign
Currency, (ii) accrued market discount taken into account upon the receipt of
any partial principal payment or upon the sale, exchange, retirement or other
disposition of the Foreign Currency Note (other than accrued market discount
required to be taken into account currently) is translated into U.S. dollars
at the exchange rate on such disposition date (and no part of such accrued
market discount is treated as exchange gain or loss) and (iii) accrued market
discount currently includible in income by a U.S. Holder for any accrual
period is translated into U.S. dollars on the basis of the average exchange
rate in effect during such accrual period, and the exchange gain or loss is
determined upon the receipt of any partial principal payment or upon the sale,
exchange, retirement or other disposition of the Foreign Currency Note in the
manner described in "--Accrual Method" above with respect to computation of
exchange gain or loss on accrued interest.
With respect to a Foreign Currency Note with amortizable bond premium, such
premium is determined in the relevant Foreign Currency and reduces interest
income in units of the Foreign Currency. Although not entirely clear, a U.S.
Holder should recognize exchange gain or loss equal to the difference between
the U.S. dollar value of the bond premium amortized with respect to a period,
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determined on the date the interest attributable to such period is received,
and the U.S. dollar value of the bond premium determined on the date of the
acquisition of the Foreign Currency Note.
EXCHANGE OF FOREIGN CURRENCIES. A U.S. Holder will have a tax basis in any
Foreign Currency received as interest or on the sale, exchange or retirement
of a Foreign Currency Note equal to the U.S. dollar value of such Foreign
Currency, determined at the time the interest is received or at the time of
sale, exchange or retirement. Any gain or loss realized by a U.S. Holder on a
sale or other disposition of Foreign Currency (including its exchange for U.S.
dollars or its use to purchase Notes) will be ordinary income or loss.
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 of, premium, if any, or interest,
if any (including original issue discount, if any), on, a Note, unless such
non-U.S. Holder owns actually or constructively 10% or more of the total
combined voting power of all classes of stock of GTE entitled to vote, is a
controlled foreign corporation related directly or indirectly to GTE through
stock ownership, or is 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. In addition, the
Treasury Department has recently issued proposed regulations regarding the
withholding and information reporting rules discussed above. In general, the
proposed regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms,
clarify reliance standards procedures and forms and clarify reliance
standards. However, the proposed regulations would require in the case of
Notes held by a foreign partnership, that (i) the certification requirement
described above be provided by the partners rather than by the foreign
partnership and (ii) the partnership provide certain information, including a
United States taxpayer identification number. A look-through rule would apply
in the case of tiered partnerships. If finalized in their current form, the
proposed regulations would generally be effective for payments made after
December 31, 1997, subject to certain transition rules. There can be no
assurance that the proposed regulations will be adopted or as to the
provisions that they will include if and when adopted in temporary or final
form.
Generally, a non-U.S. Holder will not be subject to United States Federal
income or withholding taxes on any amount which constitutes capital gain upon
retirement or disposition of a Note, unless (i) such non-U.S. Holder is an
individual who is present in the United States for 183 days or more in the
taxable year of disposition, and either (a) such individual has a "tax home"
(as defined in Section 911(d)(3) of the Code) in the United States (unless
such gain is attributable to a fixed place of business in a foreign country
maintained by such individual and has been subject to foreign tax of at least
10%) or (b) the gain is attributable to an office or other fixed place of
business maintained by such individual in the United States or (ii) the gain
is effectively connected with the conduct of a trade or business in the United
States by the non-U.S. Holder.
If a non-U.S. Holder of a Note is engaged in a trade or business in the
United States, and if interest (including original issue discount) on the Note
is effectively connected with the conduct of such trade or business, the non-
U.S. Holder, although exempt from the withholding tax discussed in the
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preceding two paragraphs, will generally be subject to regular United States
Federal income tax on interest (including any original issue discount) and on
any gain realized on the sale, exchange or other disposition of a Note in the
same manner as if it were a U.S. Holder. See the discussion above regarding
U.S. Holders. In lieu of the certificate described above, such non-U.S. Holder
will be required to provide to GTE a properly executed IRS Form 4224 in order
to claim an exemption from withholding tax. In addition, if such non-U.S.
Holder is a foreign corporation, it may be subject to a branch profits tax and
interest (including original issue discount) on and any gain recognized on the
sale, exchange or other disposition of a Note will be included in the
effectively connected earnings and profits of such non-U.S. Holder if such
interest or gain, as the case may be, is effectively connected with the
conduct by the non-U.S. Holder of a trade or business in the United States.
The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual owns, actually or constructively, 10% or more of the total
combined voting power of all classes of stock of GTE entitled to vote 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.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments (including original issue discount) 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.
Under current Treasury Regulations, payment on the sale, exchange or other
disposition of a Note made to or through a foreign office of a broker
generally will not be subject to backup withholding. However, if such broker
is a United States person, a controlled foreign corporation for United States
tax purposes or a foreign person 50% or more of whose gross income is
effectively connected with a United States trade or business for a specified
three-year period, information reporting will be required unless the broker
has in its records documentary evidence that the beneficial owner is not a
United States person and certain other conditions are met or the beneficial
owner otherwise establishes an exemption. Under proposed Treasury Regulations,
backup withholding may apply to any payment which such broker is required to
report if such broker has actual knowledge that the payee is a United States
person. Payments to or through the United States office of a broker will be
subject to backup withholding and information reporting unless the Holder
certifies, under penalties of perjury, that it is not a United States person
or otherwise establishes an exemption.
Holders should consult their tax advisors regarding their qualification for
an exemption from backup withholding and information reporting and the
procedures for obtaining such an exemption, if applicable. 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.
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SUPPLEMENTAL PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Distribution Agreement,
the Notes are being offered on a continuous basis by GTE through Goldman,
Sachs & Co., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Brothers Inc (the "Agents"), who have agreed to use
reasonable best efforts to solicit purchases of the Notes. GTE will have the
sole right to accept offers to purchase Notes and may reject any proposed
purchase of Notes in whole or in part. The Agents shall have the right, in
their discretion reasonably exercised, to reject any offer to purchase Notes,
in whole or in part. GTE will pay the Agents a commission of from 0.125% to
0.750% of the principal amount of Notes, depending upon maturity, for sales
made through them as Agents. For Notes with maturities greater than 30 years
from their dates of issue, commissions will be negotiated at the time of sale
and indicated in the applicable Pricing Supplement.
GTE may also sell Notes to the Agents as principals for their own accounts
at a discount to be agreed upon at the time of sale, or the purchasing Agents
may receive from GTE a commission or discount equivalent to that set forth on
the cover page hereof in the case of any such principal transaction in which
no other discount is agreed. Such Notes may be resold at prevailing market
prices, or at prices related thereto, at the time of such resale, as
determined by the Agents.
In addition, the Agents may offer the Notes they have purchased as principal
to other dealers. The Agents may sell Notes to any dealer at a discount and,
unless otherwise specified in the applicable Pricing Supplement, such discount
allowed to any dealer may include all or part of the discount to be received
from GTE. Unless otherwise indicated in the applicable Pricing Supplement, any
Note sold to an Agent as principal will be purchased by such Agent at a price
equal to 100% of the principal amount thereof less a percentage equal to the
commission applicable to any agency sale of a Note of identical maturity.
After the initial public offering of Notes to be resold to investors and other
purchasers on a fixed public offering price basis, the public offering price,
concession and discount may be changed.
In connection with the offering, the Agents may purchase and sell the Notes
in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover short positions created by the
Agents in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Notes, and short positions created by the Agents
involve the sale by the Agents of a greater aggregate principal amount of
Notes than they are required to purchase from GTE in the offering. The Agents
also may impose a penalty bid, whereby selling concessions allowed to broker-
dealers in respect of the Notes sold in the offering may be reclaimed by the
Agents if such Notes are repurchased by the Agents in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Notes, which may be higher than the price that might
otherwise prevail in the open market; and these activities, if commenced, may
be discontinued at any time. These transactions may be effected in the over-
the-counter market or otherwise.
GTE reserves the right to sell Notes through one or more additional agents
or directly to certain investment banking firms as underwriters for resale to
the public. No commission will be payable to the Agents on any Notes sold
through other agents or directly by GTE to underwriters. GTE has additionally
reserved the right to sell Notes directly to investors on its own behalf in
those jurisdictions where it is authorized to do so.
The Agents, as agents or principals, may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933 (the "Securities Act"). GTE
has agreed to indemnify the Agents against certain liabilities, including
liabilities under the Securities Act. GTE has agreed to reimburse the Agents
for certain expenses.
The Agents may sell to or through dealers who may resell to investors, and
the Agents may pay all or part of their discount or commission to such
dealers. Such dealers may be deemed to be "underwriters" within the meaning of
the Securities Act.
S-31
<PAGE>
Unless otherwise indicated in the applicable Pricing Supplement, payment of
the purchase price of Notes will be required to be made in immediately
available funds in The City of New York.
Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Salomon Brothers Inc may engage in transactions with and perform services for
GTE in the ordinary course of business.
The Notes are a new issue of securities with no established trading market.
No assurance can be given as to the existence or liquidity of the secondary
market for the Notes.
S-32
<PAGE>
GTE CORPORATION LOGO
DEBT SECURITIES
----------------
GTE Corporation ("GTE") intends to offer from time to time up to
$3,000,000,000 aggregate initial offering price, or the equivalent thereof in
one or more foreign or composite currencies, of its debt securities (the
"Securities") in one or more series at prices and on terms to be determined at
the time or times of sale. The aggregate amount, authorized denominations,
rate and time of payment of interest, maturity, initial public offering price,
redemption provisions, if any, the currency or composite currency (if other
than United States dollars) in which principal or premium, if any, and
interest on the Securities will be payable and other specific terms, of each
series of Securities will be set forth in an accompanying prospectus
supplement ("Prospectus Supplement") or a pricing supplement thereto (a
"Pricing Supplement").
----------------
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. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
GTE may sell the Securities through underwriters, dealers or agents, or
directly to one or more institutional purchasers. A Prospectus Supplement or a
Pricing Supplement thereto will set forth the names of underwriters or agents,
if any, any applicable commissions or discounts, the price of the Securities
and the net proceeds to GTE from any such sale or sales.
----------------
The date of this Prospectus is July 28, 1997.
<PAGE>
STATEMENT OF AVAILABLE INFORMATION
GTE is subject to the informational requirements of the Securities Exchange
Act of 1934 (the "Exchange Act") and, in accordance therewith, files reports,
proxy statements and other information with the Securities and Exchange
Commission ("SEC"). These reports, proxy statements and other information can
be inspected and copied at the public reference facilities maintained by the
SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as
at the following Regional Offices: Seven World Trade Center, New York, New
York 10048 and 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can be obtained from the public reference section of the SEC at
its prescribed rates and can also be inspected at the New York, Chicago and
Pacific Stock Exchanges on which securities of GTE are listed. In addition,
the SEC maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the SEC. The address of this site is http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference:
1. The Annual Report on Form 10-K of GTE for the year ended December 31,
1996;
2. The Quarterly Report on Form 10-Q of GTE for the quarter ended March 31,
1997; and
3. The Current Reports on Form 8-K of GTE dated May 6, 1997 and June 10,
1997.
All documents filed by GTE pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Securities hereunder shall be deemed to be
incorporated by reference in this Prospectus and to be part hereof from the
date of filing of such documents.
GTE hereby undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, on the written or oral request of
any such person, including any beneficial owner, a copy of any or all of the
documents referred to above which have been or may be incorporated in this
Prospectus by reference, other than exhibits to such documents unless such
exhibits are specifically incorporated by reference into the information that
the Prospectus incorporates. Requests for such copies should be directed to
Mr. R. J. Tuccillo, Assistant Secretary of GTE, at One Stamford Forum,
Stamford, CT 06904. Mr. Tuccillo's telephone number is (203) 965-2942.
Unless otherwise indicated, currency amounts in this Prospectus and the
Prospectus Supplement and any Pricing Supplement thereto are stated in United
States dollars ("$" or "U.S. $").
GTE CORPORATION
GTE was incorporated under the laws of the State of New York on February 25,
1935 and has its principal executive offices at One Stamford Forum, Stamford,
Connecticut 06904, telephone (203) 965-2000.
GTE is one of the largest publicly-held telecommunications companies in the
world. GTE's domestic and international operations serve 26.6 million access
lines through subsidiaries in the United States, Canada, and the Dominican
Republic and an affiliate in Venezuela. GTE is a leading mobile-cellular
operator in the United States, with the potential of serving 61.3 million
cellular and personal communications service customers. Outside the United
States, GTE operates mobile-cellular networks serving some 16.8 million POPs
through subsidiaries in Canada and the Dominican Republic and affiliates in
Venezuela and Argentina. Beginning in 1996, GTE became the first among its
peers to offer "one-stop shopping" for local, long-distance and Internet
access services. GTE is also a leader in government and defense communications
systems and equipment, aircraft-passenger telecommunications, directories and
telecommunication-based information services and systems.
2
<PAGE>
USE OF PROCEEDS
Except as specified in a Prospectus Supplement, or a Pricing Supplement
thereto, the net proceeds from the sale of the Securities, exclusive of
accrued interest, will be used toward (1) the repayment of short-term debt,
which at June 30, 1997 was $985,000,000 on an unconsolidated basis at an
average annual interest cost of 5.63%, (2) further investment in, or advances
to, subsidiaries in connection with the financing of their operations and (3)
general corporate purposes.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS YEARS ENDED DECEMBER 31,
ENDED ---------------------------
MARCH 31, 1997 1996 1995 1994 1993(B) 1992
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Consolidated Ratios of Earnings
to Fixed Charges (Unaudited)(a)...... 4.00 4.27 4.00 4.18 2.07 2.66
</TABLE>
- --------
(a) For purposes of computing the consolidated ratios, earnings consist of
income from continuing operations before income taxes and fixed charges.
Fixed charges consist of interest expense, preferred stock dividends of
subsidiaries, the additional income requirement to cover preferred
dividends of subsidiaries, and the portion of rent expense representing
interest. Amounts applicable to entities that are at least 50%-owned have
been added to both earnings and fixed charges, and amounts applicable to
minority interests have been deducted from both earnings and fixed
charges.
(b) Excluding from 1993 the effect of a $1.8 billion pre-tax one-time
restructuring charge, the cost of voluntary separation programs and the
gain on the sale of non-strategic telephone properties, the consolidated
ratio of earnings to fixed charges would have been 3.31.
THE SECURITIES
The Securities are to be issued as one or more series under an Indenture
dated as of December 1, 1996, as amended and supplemented (the "Indenture"),
between GTE and The Bank of New York, as trustee (the "Trustee"). By any one
of (a) a supplemental indenture to the Indenture duly executed by authorized
officers of GTE and the Trustee (a "Supplemental Indenture"), (b) a resolution
of the Board of Directors of GTE or a special committee thereof (a "Board
Resolution"), or (c) a certificate of authorized officers of GTE pursuant to
authorization from the Board of Directors of GTE (an "Officers' Certificate"),
GTE will establish, or specify the manner for establishing, the title,
aggregate principal amount, date or dates of maturity, dates for payment and
rate of interest (if any), redemption dates, prices, obligations and
restrictions, and other terms applicable to each new series of Securities. The
following summary does not purport to be complete and is subject in all
respects to the provisions of, and is qualified in its entirety by express
reference to, the cited Articles and Sections of the Indenture and the forms
of the Securities, which are filed as exhibits to the Registration Statement
pertaining to the Securities and the documents incorporated therein by
reference.
FORM AND EXCHANGE
The Securities are issuable in one or more series pursuant to a Supplemental
Indenture, Board Resolution or Officers' Certificate. The Securities will be
issuable in registered form, and, except as otherwise provided for in a
Prospectus Supplement, or a Pricing Supplement thereto, only in denominations
of $1,000 and multiples thereof and will be exchangeable for Securities of the
same series of other denominations of a like aggregate principal amount,
without service charge except for reimbursement of taxes, if any. (ARTICLE
TWO)
3
<PAGE>
MATURITY, INTEREST AND PAYMENT
Information concerning the maturity, interest rate (if any) and payment
dates of the Securities will be contained in a Prospectus Supplement, or a
Pricing Supplement thereto, relating to such Securities.
The Indenture permits the issuance of Securities of any series as "Original
Issue Discount Securities". If any Securities are issued as Original Issue
Discount Securities, they will state on their face that they are Original
Issue Discount Securities and will generally provide for an amount less than
the stated principal amount thereof to be due and payable upon declaration of
acceleration of the maturity thereof pursuant to the terms of the Indenture.
United States Federal income tax considerations and other special
considerations applicable to any such Original Issue Discount Securities will
be described in the applicable Prospectus Supplement, or a Pricing Supplement
thereto.
REDEMPTION PROVISIONS, SINKING FUND AND DEFEASANCE
The Securities will be redeemable upon not less than 30 days notice at the
redemption prices and subject to the conditions that will be set forth in a
Supplemental Indenture, Board Resolution, or Officers' Certificate and in a
Prospectus Supplement, or a Pricing Supplement thereto, relating to such
Securities. (ARTICLE THREE) If a sinking fund is established with respect to
any of the Securities, a description of the terms of such sinking fund will be
set forth in a Supplemental Indenture, Board Resolution, or Officers'
Certificate and in a Prospectus Supplement, or a Pricing Supplement thereto,
relating to such Securities. The Indenture provides that the Securities are
subject to defeasance. (ARTICLE ELEVEN)
RESTRICTIONS
The Securities will not be secured. The Indenture provides, however, that if
GTE shall at any time mortgage or pledge any of its property, GTE will secure
the Securities, equally and ratably with the other indebtedness or obligations
secured by each mortgage or pledge, so long as such other indebtedness or
obligations shall be so secured. There are certain exceptions to the
foregoing, among them that the Securities need not be secured in the case of
purchase money mortgages or conditional sales agreements, or mortgages
existing at time of purchase, on property acquired after the date of the
Indenture, certain deposits or pledges to secure the performance of bids,
tenders, contracts or leases or in connection with workers' compensation and
similar matters, mechanics' and similar liens in the ordinary course of
business, and subordination of GTE's rights with respect to indebtedness owed
to GTE by a subsidiary. (SECTION 4.05)
The Indenture does not limit the amount of debt securities which may be
issued or the amount of debt which may be incurred by GTE. (SECTION 2.01)
Unless otherwise indicated in a Prospectus Supplement, the covenants
described above would not necessarily afford the holders of Securities
protection in the event of a highly leveraged transaction involving GTE.
BOOK-ENTRY, DELIVERY AND FORM
If a Prospectus Supplement, or a Pricing Supplement thereto, specifies that
any Securities are to be issued in the form of one or more registered global
certificates (collectively, a "Global Security"), unless otherwise specified
in such Prospectus Supplement, or a Pricing Supplement thereto, the Global
Security will be deposited with, or on behalf of, The Depository Trust Company
(the "Depository") and registered in the name of the Depository's nominee.
Except as set forth below, the Global Security may be transferred, in whole
and not in part, only to another nominee of the Depository or to a successor
of the Depository or its nominee.
4
<PAGE>
The Depository has advised as follows: It is a limited-purpose trust company
which was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between participants
in such securities through electronic book-entry changes in accounts of its
participants. Participants include securities brokers and dealers (including
the underwriters or dealers named in the Prospectus Supplement, or a Pricing
Supplement thereto, relating to the Securities), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depository's system is also available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants"). Persons who are not participants may beneficially own
securities held by the Depository only through participants or indirect
participants.
The Depository has advised that pursuant to procedures established by it (i)
upon issuance of the Securities by GTE, the Depository will credit the
accounts of the participants designated by the underwriters or dealers with
the principal amounts of the Securities purchased by the underwriters or
dealers, and (ii) ownership of beneficial interests in the Global Security
will be shown on, and the transfer of that ownership will be effected only
through, records maintained by the Depository (with respect to participants'
interests), the participants and indirect participants (with respect to the
owners of beneficial interests in the Global Security). The laws of some
states require that certain persons take physical delivery in definitive form
of securities which they own. Consequently, the ability to transfer beneficial
interests in the Global Security is limited to such extent.
So long as the Depository's nominee is the registered owner of the Global
Security, such nominee for all purposes will be considered the sole owner or
holder of the Securities. Except as provided below, owners of beneficial
interests in the Global Security will not be entitled to have any of the
Securities registered in their names and will not receive or be entitled to
receive physical delivery of the Securities in definitive form.
Neither GTE, the Trustee, any paying agent of GTE nor the Depository will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Global
Security, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Principal and interest payments on the Securities registered in the name of
the Depository's nominee will be made to the Depository's nominee as the
registered owner of the Global Security. GTE and the Trustee will treat the
persons in whose names the Securities are registered as the owners of such
Securities for the purpose of receiving payment of principal and interest on
the Securities and for all other purposes whatsoever. Therefore, neither GTE,
the Trustee nor any paying agent of GTE will have any direct responsibility or
liability for the payment of principal and interest on the Securities to
owners of beneficial interests in the Global Security. The Depository has
advised GTE and the Trustee that its present practice is, upon receipt of any
payment of principal or interest, to immediately credit the accounts of the
participants with such payment in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the Global Security as
shown in the records of the Depository. Payments by participants and indirect
participants to owners of beneficial interests in the Global Security will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of the
participants or indirect participants.
If the Depository is at any time unwilling or unable to continue as
depository with respect to any outstanding Securities or if at any time the
Depository shall no longer be registered or in good standing under the
Exchange Act or other applicable statute and a successor depository is not
appointed by GTE within 90 days, GTE will issue Securities in definitive form
in exchange for the Global Security. In addition, GTE may at any time
determine not to have outstanding Securities represented by a Global Security.
In either instance, an owner of a beneficial interest in the Global Security
will be entitled to have Securities equal in principal amount to such
beneficial interest registered in its name and will be entitled to physical
delivery of such Securities in definitive form. Securities so issued in
definitive form will be issued in denominations of U.S. $1,000 and integral
multiples thereof and will be issued in registered form only, without coupons.
5
<PAGE>
MODIFICATION OF INDENTURE
The Indenture contains provisions permitting GTE and the Trustee, with the
consent of the holders of not less than a majority in aggregate principal
amount of the Securities of any series at the time outstanding and affected by
such modification, to modify the Indenture or any supplemental indenture
affecting that series of Securities or the rights of the holders of that
series of Securities; provided that no such modification shall (i) extend the
fixed maturity of any Security, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, or reduce
any premium payable upon the redemption thereof, without the consent of the
holder of each Security so affected, or (ii) reduce the aforesaid percentage
of Securities, the holders of which are required to consent to any such
supplemental indenture, without the consent of each holder of Securities then
outstanding and affected thereby. (SECTION 9.02)
In addition, GTE and the Trustee may execute, without the consent of any
holder of Securities, any supplemental indenture for certain other usual
purposes including the creation of any new series of the Securities. (SECTIONS
2.01, 9.01 and 10.01)
EVENTS OF DEFAULT AND NOTICE THEREOF
The Indenture provides that the following described events constitute
"Events of Default" with respect to each series of the Securities issued
thereunder: (a) failure for 30 business days to pay interest on the Securities
of that series when due; (b) failure to pay principal or premium, if any, on
the Securities of that series when due, whether at maturity, upon redemption,
by declaration or otherwise, or to make any sinking fund payment with respect
to that series; (c) failure to observe or perform any other covenant (other
than those specifically relating to another series) in the Indenture for 90
days after notice with respect thereto; or (d) certain events in bankruptcy,
insolvency or reorganization. (SECTION 6.01)
The holders of a majority in aggregate outstanding principal amount of any
series of Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee for that
series. (SECTION 6.06) The Trustee or the holders of not less than 25% in
aggregate outstanding principal amount of any particular series of Securities
may declare the principal (or, for any Original Issue Discount Securities of
that series, such portion of the principal amount thereof as may be specified
in the terms of such Original Issue Discount Securities) due and payable
immediately upon an Event of Default with respect to such series, but the
holders of a majority in aggregate outstanding principal amount of such series
may annul such declaration and waive the default if the default has been cured
and a sum sufficient to pay all matured installments of interest and principal
and any premium has been deposited with the Trustee. (SECTION 6.01) Reference
is made to the Prospectus Supplement, or a Pricing Supplement thereto,
relating to any Securities that are Original Issue Discount Securities for the
particular provisions relating to acceleration of a portion of the principal
amount of such Original Issue Discount Securities upon the occurrence of an
Event of Default and the continuation thereof.
The holders of a majority in aggregate outstanding principal amount of any
series of the Securities may, on behalf of the holders of all the Securities
of such series, waive any past default except a default in the payment of
principal, premium, if any, or interest. (SECTION 6.06) GTE is required to
file annually with the Trustee a certificate as to whether or not GTE is in
compliance with all the conditions and covenants under the Indenture. (SECTION
5.03(d))
CONCERNING THE TRUSTEE
The Trustee, prior to an Event of Default, undertakes to perform only such
duties as are specifically set forth in the Indenture and, after the
occurrence of an Event of Default, shall exercise the same degree of care as a
prudent individual would exercise in the conduct of his or her own affairs.
(SECTION 7.01) Subject to such provisions, the Trustee is under no obligation
to exercise any of the powers vested in it by the Indenture at the request of
any holder of Securities, unless offered reasonable indemnity by such security
holder against the costs, expenses and liabilities which might be incurred
thereby. (SECTION 7.02) The Trustee is not required to expend or risk its own
funds or incur personal financial liability in the performance of its duties
if the Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it. (SECTION 7.01)
6
<PAGE>
GTE maintains a deposit account and banking relationship with the Trustee.
The Trustee serves as trustee under other indentures pursuant to which
unsecured debt securities of GTE are outstanding.
EXPERTS
The consolidated financial statements included in GTE's Annual Report on
Form 10-K for the year ended December 31, 1996, which is incorporated by
reference in this Prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated herein in reliance upon the authority of said
firm as experts in giving said report. Reference is made to said report, which
includes an explanatory paragraph with respect to the discontinuance of the
application of the provisions of Statement of Financial Accounting Standards
No. 71 "Accounting for the Effects of Certain Types of Regulation" in 1995, as
discussed in Note 2 to the consolidated financial statements.
CERTAIN LEGAL MATTERS
The validity of the Securities will be passed upon for GTE by William P.
Barr, Esq., its Executive Vice President--Government & Regulatory Advocacy,
General Counsel. Certain legal matters in connection with the Securities will
be passed upon for the purchasers, underwriters, or agents by Milbank, Tweed,
Hadley & McCloy, New York, New York. As of May 16, 1997, Mr. Barr was the
beneficial owner of approximately 3,032 shares of GTE Common Stock and had
options to purchase an aggregate of 58,666 shares of GTE Common Stock.
PLAN OF DISTRIBUTION
GTE may sell Securities in one or more of the following ways: (i) to
underwriters for resale to the public or to institutional investors; (ii)
directly to institutional investors; or (iii) through agents to the public or
to institutional investors. The Prospectus Supplement, or a Pricing Supplement
thereto, with respect to any Securities will set forth the terms of the
offering of such Securities, including the name or names of any underwriters
or agents, the purchase price of such Securities and the proceeds to GTE from
such sale, any underwriting discounts or agency fees and other items
constituting underwriters' or agents' compensation, any initial public
offering price, any discounts or concessions allowed or reallowed or paid to
dealers and any securities exchanges on which such Securities may be listed.
If underwriters are used in the sale, such Securities will be acquired by
the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale.
Unless otherwise set forth in the Prospectus Supplement, or a Pricing
Supplement thereto, the obligations of the underwriters to purchase Securities
will be subject to certain conditions precedent and the underwriters will be
obligated to purchase all of such Securities if any are purchased. In the
event of a default of one or more of the underwriters involving not more than
10% of the aggregate principal amount of the Securities offered for sale, the
non-defaulting underwriters would be required to purchase the Securities
agreed to be purchased by such defaulting underwriter or underwriters. In the
event of a default in excess of 10% of the aggregate principal amount of the
Securities, GTE may, at its option, sell less than all the Securities offered.
If agents are used in the sale, unless otherwise indicated in the Prospectus
Supplement, or a Pricing Supplement thereto, any such agent will be acting on
a reasonable best efforts basis.
Underwriters and agents may be entitled under agreements entered into with
GTE to indemnification by GTE against certain civil liabilities, including
liabilities under the Securities Act of 1933, or to contribution with respect
to payments which the underwriters or agents may be required to make in
respect thereof. Underwriters and agents may be customers of, engage in
transactions with, or perform services for GTE in the ordinary course of
business.
7
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPEC-
TUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR THE PROSPECTUS IN CONNEC-
TION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPEC-
TUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT, THE AP-
PLICABLE PRICING SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER OR
THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE AFFAIRS OF GTE SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
-----------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk Factors............................................................... S-2
Description of the Notes................................................... S-4
Special Provisions Relating to Foreign Currency Notes...................... S-19
Certain United States Federal Income Tax Considerations.................... S-21
Supplemental Plan of Distribution.......................................... S-31
PROSPECTUS
Statement of Available Information......................................... 2
Incorporation of Certain Documents by Reference............................ 2
GTE Corporation............................................................ 2
Use of Proceeds............................................................ 3
Consolidated Ratios of Earnings to Fixed Charges........................... 3
The Securities............................................................. 3
Experts.................................................................... 7
Certain Legal Matters...................................................... 7
Plan of Distribution....................................................... 7
</TABLE>
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$3,000,000,000
GTE CORPORATION [LOGO]
MEDIUM-TERM NOTES, SERIES A
---------------
PROSPECTUS SUPPLEMENT
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GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
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