Rule 424b3
33-56909
33-56909-01
Prospectus Supplement
(To Prospectus Dated June 6, 1995)
U.S. $1,000,000,000
SBC Communications Capital Corporation
Medium-Term Notes, Series E
Due Nine Months or More From Date of Issue
SBC Communications Capital Corporation (formerly known as Southwestern Bell
Capital Corporation) ("Capital Corporation") may from time to time offer
its Medium-Term Notes, Series E in an aggregate principal amount (or net
proceeds in the case of Notes issued at an original issue discount) of not
more than U.S. $1,000,000,000 (or the equivalent thereof in one or more
currencies or currency units) (the "Notes"). The aggregate principal amount
of the Notes that may be issued and sold may be reduced as a result of the
sale by Capital Corporation of any other series of Debt Securities. Each
Note will mature nine months or more from the date of issue, as selected by
the purchaser and agreed to by Capital Corporation. The Notes may be
subject to redemption prior to maturity as set forth in the applicable
pricing supplement ("Pricing Supplement") to this Prospectus Supplement.
Each Note will be denominated in U.S. dollars or in other applicable
currencies or currency units (the "Specified Currency"), including European
Currency Units ("ECUs"), as set forth in the applicable Pricing Supplement.
The Notes will have the benefit of a Support Agreement between Capital
Corporation and SBC Communications Inc. ("SBC").
Each Note will be issued in fully registered form and will be represented
by either a global certificate (a "Global Note") registered in the name of
The Depository Trust Company (the "Depository"), or a nominee of the
Depository, or a certificate issued in definitive form, as specified in the
applicable Pricing Supplement. A beneficial interest in a Global Note will
be exchanged for Notes in definitive form only under limited circumstances
described herein. Unless otherwise specified in the applicable Pricing
Supplement, Notes will be issued in minimum denominations of U.S. $1,000
and any amount in excess thereof that is an integral multiple thereof or,
in the case of Notes denominated in a Specified Currency other than U.S.
dollars, the authorized denominations set forth in the applicable Pricing
Supplement.
The Specified Currency, any applicable interest rate or formula, the issue
price, the maturity, any interest payment dates, any redemption provisions,
whether such Note is a Fixed Rate Note, a Floating Rate Note or any Indexed
Note, whether such Note will be represented by a Global Note and any other
terms applicable to each Note will be established by Capital Corporation at
the time of offering and will be described in the applicable Pricing
Supplement. Interest rates and interest rate formulas are subject to change
by Capital Corporation but no change will affect any Notes already issued
or as to which an offer to purchase has been accepted by Capital
Corporation. Unless otherwise specified in the applicable Pricing
Supplement, each Note will bear interest at a fixed rate ("Fixed Rate
Note"), which may be zero in the case of certain Notes issued at a price
representing a substantial discount from the principal amount payable at
maturity ("Zero Coupon Note"), or at a floating rate ("Floating Rate Note")
determined by reference to the Commercial Paper Rate, LIBOR, the Treasury
Rate or other rate as adjusted by the Spread and/or Spread Multiplier, if
any, applicable to each such Note.
Unless otherwise specified in the applicable Pricing Supplement, the
Interest Payment Dates, if any, for each Fixed Rate Note will be February 1
and August 1 of each year and at maturity, and for each Floating Rate Note
will be as established on the date of issue of such Note and will be set
forth therein and in the applicable 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 SUPPLEMENT, ANY
SUPPLEMENT HERETO OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Price To Agents' Proceeds to
Public(1) Commission(2) Capital
Corporation(2)(3)
Note 100.00% .125%-.750% 99.875%-99.250%
Total(4) U.S.$1,000,000,000 U.S.$1,250,000- U.S.$998,750,000-
U.S.$7,500,000 U.S.$992,500,000
(1) Unless otherwise specified in the applicable Pricing Supplement, the
price to the public of each Note will be 100% of its principal amount.
(2) Capital Corporation will pay a commission to Salomon Brothers Inc,
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Bear, Stearns & Co. Inc. or one or more agents named in
the applicable Pricing Supplement, each as Agent (individually, an
"Agent," and collectively, the "Agents"), ranging from .125% to .750%
of the principal amount of each Note with a stated maturity of
30 years or less, depending upon its stated maturity, sold through
such Agent. Commissions with respect to Notes with a stated maturity
in excess of 30 years that are sold through an Agent will be
negotiated between Capital Corporation and such Agent at the time of
such sale. Capital Corporation may also sell Notes to an Agent, as
principal, at a discount for resale to one or more purchasers either
at varying prices related to prevailing market prices at the time of
resale, to be determined by such Agent, or at a fixed public offering
price, less a concession, such concession not to be in excess of the
discount received by the Agent from Capital Corporation unless
otherwise specified in the applicable Pricing Supplement. Capital
Corporation has agreed to indemnify the Agents against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting other expenses payable by Capital Corporation
estimated to be approximately U.S.$300,000 including reimbursement of
certain expenses of the Agents.
(4) Or the equivalent thereof in the Specified Currency.
The Notes are being offered on a continuing basis by Capital Corporation
through one or more of the Agents, each of which has agreed to use its
reasonable best efforts to solicit offers to purchase the Notes. The Notes
may also be sold by Capital Corporation to an Agent as principal at a
discount for resale to one or more purchasers at varying prices related to
prevailing market prices at the time of resale, as determined by such Agent
or at a fixed public offering price. Capital Corporation may also sell
Notes directly to investors on its own behalf. No commission will be
payable nor will a discount be allowed on any such sales. In addition, an
Agent may offer Notes purchased by it as principal to other dealers. Unless
otherwise specified in the applicable Pricing Supplement, Notes purchased
by an Agent as principal will be purchased at 100% of the principal amount
thereof less a percentage equal to the commission applicable to an agency
sale of a Note of identical maturity. Capital Corporation does not intend
to list the Notes on any securities exchange, and there can be no assurance
that the maximum principal amount of the Notes offered by this Prospectus
Supplement will be sold or that there will be a secondary market for the
Notes. Capital Corporation reserves the right to withdraw, cancel or modify
the offer made hereby without notice. Capital Corporation or an Agent, if
it solicits the offer, may reject any offer in whole or in part. See "Plan
of Distribution".
Salomon Brothers Inc Merrill Lynch & Co.
Bear, Stearns & Co. Inc.
The date of this Prospectus Supplement is September 30, 1996.
RECENT DEVELOPMENTS
On April 1, 1996, SBC and Pacific Telesis Group ("PAC"), a
Nevada corporation and the parent company of Pacific Bell and
Nevada Bell, entered in an Agreement and Plan of Merger (the
"Agreement"), whereby PAC will merge into a wholly-owned
subsidiary of SBC, thereby becoming a wholly-owned subsidiary of
SBC. On July 31, 1996, the shareholders of each of SBC and PAC
approved and adopted the Agreement and approved the transactions
contemplated by the Agreement, each of which had previously been
approved by the board of directors of each company. The Agreement
is subject to, among other things, the approval of various state
and federal regulatory bodies. If approval is granted, the
transaction is expected to close in the first half of 1997. See
the documents incorporated by reference in the accompanying
Prospectus for information relating to PAC and pro forma
financial information for SBC and PAC.
USE OF PROCEEDS
The net proceeds from the sale of the Notes are to be used
to provide funds in connection with the repayment of long and
short-term debt of Capital Corporation, to provide funds for the
diversification activities of SBC, to provide funds for certain
subsidiaries of SBC other than Southwestern Bell Telephone
Company and to provide funds for the general corporate purposes
of SBC. As of August 31, 1996, Capital Corporation had
approximately $467 million principal amount of commercial paper
outstanding with average maturities of 91 days and an effective
annual interest rate of approximately 5.42%. The net proceeds
from the sale of the Notes may also be used to provide funds for
activities identified in the accompanying Prospectus under "Use
of Proceeds".
DESCRIPTION OF MEDIUM-TERM NOTES
The following description of the particular terms of the
Notes offered hereby supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and
provisions of the Debt Securities set forth in the accompanying
Prospectus, to which description reference is hereby made. The
following description of the Notes will apply to such Notes
unless otherwise specified in the applicable Pricing Supplement.
General
The Notes are to be issued as a series of Debt Securities,
limited to U.S.$1,000,000,000 aggregate principal amount, or the
equivalent thereof in one or more Specified Currencies other than
U.S. dollars, under the Indenture described under "Description of
Debt Securities" in the accompanying Prospectus. The aggregate
offering price of Notes that may be issued and sold may be
reduced as a result of the sale by Capital Corporation of any
other series of Debt Securities. See "Plan of Distribution".
References herein to "U.S. dollars" or "U.S.$" or "$" are to the
currency of the United States of America.
The Notes will be offered on a continuing basis and will
mature on any day nine months or more from the date of issue, as
selected by the purchaser and agreed to by Capital Corporation,
and as set forth in the applicable Pricing Supplement. Each Note
will bear interest at either (a) a fixed rate, which may be zero
in the case of certain Notes issued at a price representing a
substantial discount from the principal amount payable at
maturity, or (b) rates determined by reference to one or more
Base Rates which may be adjusted by a Spread and/or Spread
Multiplier (each as defined below).
Each Note will be issued in fully registered form without
coupons and will be represented by either a Global Note
registered in the name of a nominee of the Depository or a
certificate issued in definitive form, in each case as specified
in the applicable Pricing Supplement. All Notes issued on the
same day and having the same terms, including, but not limited
to, the same currency, Interest Payment Dates, rate of interest,
maturity and redemption provisions may be represented by a single
Global Note. A beneficial interest in a Global Note will be shown
on, and transfers thereof will be effected only through, records
maintained by the Depository and its Participants (as defined
below). Except under the limited circumstances described in the
accompanying Prospectus under "Description of Debt
Securities-Book-Entry Securities," Book-Entry Notes will not be
exchangeable for Notes in definitive form. Payments of principal,
premium, if any, and interest on Notes represented by a Global
Note will be made by Capital Corporation or its paying agent to
the Depository or its nominee. See "Book-Entry System" herein and
"Description of Debt Securities-Book-Entry Securities" in the
accompanying Prospectus.
As used herein, "Business Day" means any day, other than a
Saturday or Sunday, on which banks in The City of New York are
not required or authorized by law to close and, with respect to
LIBOR Notes, is also a London Banking Day. "London Banking Day"
means any day on which dealings in deposits in the Index Currency
(as defined below) are transacted in the London interbank market.
Unless otherwise specified in the applicable Pricing
Supplement, the authorized denominations of Notes denominated in
U.S. dollars will be U.S. $1,000 and any amount in excess thereof
that is an integral multiple thereof. The authorized
denominations of Notes denominated in a Specified Currency other
than U.S. dollars will be as set forth in the applicable Pricing
Supplement.
Interest rates on the Notes offered by Capital Corporation
may differ depending upon, among other things, the aggregate
principal amount of Notes purchased in any single transaction.
Payment of Principal and Interest
Unless otherwise specified in the applicable Pricing
Supplement, principal, premium, if any, and interest will be paid
by Capital Corporation in U.S. dollars in the manner described in
the following paragraphs, even if a Note is denominated in a
Specified Currency other than U.S. dollars, unless such Note is a
Currency Indexed Note (see "Currency Indexed Notes-Payment of
Principal and Interest"); provided, however, that the holder of
such Note may (if such Note is denominated in a Specified
Currency other than U.S dollars and if the applicable Pricing
Supplement and the Note so indicate) elect to receive all such
payments in such Specified Currency (subject to certain
conditions, as described under "Foreign Currency Risks-Payment
Currency") by delivery of a written request to Capital
Corporation's paying agent (the "Paying Agent") in The City of
New York, which must be received by the Paying Agent on or prior
to the applicable Record Date (as defined below) or at least
fifteen calendar days prior to maturity, as the case may be. Such
election shall remain in effect unless and until changed by
written notice to the Paying Agent, but the Paying Agent must
receive written notice of any such change on or prior to the
applicable Record Date or at least fifteen calendar days prior to
maturity, as the case may be. Until the Notes are paid or payment
thereof is provided for, Capital Corporation will, at all times,
maintain a Paying Agent in The City of New York capable of
performing the duties described herein to be performed by the
Paying Agent. Capital Corporation has initially appointed The
Bank of New York, New York, New York as Paying Agent. Capital
Corporation will notify the holders of the Notes in accordance
with the Indenture of any change in the Paying Agent or its
address.
All currency exchange costs will be borne by Capital
Corporation unless any holder of a Note has made the election
referred to in the preceding paragraph. In that case, each
electing holder shall bear its pro rata portion of currency
exchange costs, if any, by deductions from payments otherwise due
to such holder.
Unless otherwise specified in the applicable Pricing
Supplement, in the case of a Note denominated in a Specified
Currency other than U.S. dollars, the amount of U.S. dollar
payments in respect of such Note will be determined by an agent
for Capital Corporation specified in the applicable Pricing
Supplement (the "Exchange Rate Agent"), based on the indicative
quotation in The City of New York selected by such Exchange Rate
Agent at approximately 11:00 A.M., New York City time, on the sec
ond Business Day preceding the applicable payment date (or, if no
such rate is quoted on such date, the last date on which such
rate was quoted) that yields the largest number of U.S. dollars
upon conversion of the Specified Currency. Unless otherwise
specified in the applicable Pricing Supplement, such selection
shall be made from three recognized foreign exchange dealers in
The City of New York selected by the Exchange Rate Agent and
approved by Capital Corporation (one of which may be the Exchange
Rate Agent) (the "Exchange Rate") for the purchase by the quoting
dealer, for settlement on such payment date, of the Specified
Currency for U.S. dollars. If no such bid quotations are avail
able, payments will be made in the Specified Currency unless such
Specified Currency is unavailable due to the imposition of
exchange controls or to other circumstances beyond Capital
Corporation's control, in which case Capital Corporation will be
entitled to make payments in U.S. dollars on the basis of the
noon buying rate in The City of New York for cable transfers in
the Specified Currency as certified for customs purposes by the
Federal Reserve Bank of New York (the "Market Exchange Rate") for
such Specified Currency on the second Business Day prior to such
payment date. In the event such Market Exchange Rate is not then
available, Capital Corporation will be entitled to make payments
in U.S. dollars (i) if such Specified Currency is not a composite
currency, on the basis of the most recently available Market
Exchange Rate for such Specified Currency or (ii) if such
Specified Currency is a composite currency, in an amount
determined by the Exchange Rate Agent to be the sum of the
results obtained by multiplying the number of units of each
component currency of such composite currency, as of the most
recent date on which such composite currency was used, by the
Market Exchange Rate for such component currency on the second
Business Day prior to such payment date (or if such Market
Exchange Rate is not then available, by the most recently
available Market Exchange Rate for such component currency).
Unless otherwise specified in the applicable Pricing
Supplement, interest on Notes in definitive form (other than
interest paid at maturity) will be paid by mailing a check to the
holder at the address of such holder appearing on the security
register of Capital Corporation on the applicable record date
(interest on Global Notes will be paid by wire transfer to the
Depository or its nominee); provided, however, that in the case
of a Note issued between a Regular Record Date and the initial
Interest Payment Date relating to such Regular Record Date,
interest for the period beginning on the date of issue and ending
on such initial Interest Payment Date shall be paid on the
Interest Payment Date following the next succeeding Regular
Record Date to the registered holder on such next succeeding Regu
lar Record Date. Notwithstanding the foregoing, a holder of U.S.
$10,000,000 or more in aggregate principal amount of Notes of
like tenor and term (or a holder of the equivalent thereof in a
Specified Currency other than U.S. dollars) shall be entitled to
receive such interest payments in immediately available funds,
but only if appropriate instructions have been received in
writing by the Paying Agent on or prior to the applicable record
date. Simultaneously with the election by any holder to receive
payments in a Specified Currency other than U.S. dollars (as
provided above), such holder may, if applicable, provide
appropriate instructions to the Paying Agent, and all such
payments will be made in immediately available funds to an
account maintained by the payee with a bank located outside the
United States. Unless otherwise specified in the applicable
Pricing Supplement, payments of principal, premium, if any, and
interest at maturity will be made to the holder on the date of
maturity in immediately available funds (payable to an account
maintained by the payee with a bank located outside the United
States if payable in a Specified Currency other than U.S.
dollars) upon surrender of the Note at the office of the Paying
Agent, provided that the Note is presented to the Paying Agent in
time for the Paying Agent to make such payments in such funds in
accordance with its normal procedures. See "Important Currency
Exchange Information". Capital Corporation will pay any adminis
trative costs imposed by banks in connection with making payments
in immediately available funds, but any tax, assessment or
governmental charge imposed upon payments will be borne by the
holder of the Notes in respect of which such payments are made.
Owners of beneficial interests in a Global Note will be paid in
accordance with the Depository's and the Participant's procedures
in effect from time to time as described under "Book-Entry
System" herein and "Description of Debt Securities-Book-Entry
Securities" in the accompanying Prospectus.
Each date on which interest is payable on a Note (other than
at maturity) is referred to herein as an "Interest Payment Date".
Unless otherwise specified in the applicable Pricing Supplement,
the Interest Payment Dates and the Regular Record Dates for Fixed
Rate Notes shall be as described below under "Fixed Rate Notes".
The Interest Payment Dates for Floating Rate Notes shall be as
indicated in the applicable Pricing Supplement, and unless
otherwise specified in the applicable Pricing Supplement, each
"Regular Record Date" for a Floating Rate Note will be the
fifteenth day (whether or not a Business Day) next preceding each
Interest Payment Date.
Principal and premium, if any, and interest payable at
maturity or upon redemption, as the case may be, on each Note
will be paid upon maturity or upon redemption, as the case may
be. Payment will be made in immediately available funds against
presentation of the Note at The Bank of New York, 101 Barclay
Street, New York, New York 10286, Attention: Corporate Debt
Operations. Interest payable at maturity or upon redemption will
be payable to the person to whom the principal and premium, if
any, of the Note shall be paid.
The Pricing Supplement will indicate either that the Notes
are not redeemable prior to maturity or that the Notes are
redeemable at the option of Capital Corporation on or after a
specified date prior to maturity at par or at prices declining
from a specified premium to par after a later date, together with
accrued interest to the date of redemption. Capital Corporation
shall give, prior to redemption, at least 30 days' but not more
than 60 days' notice to the holders of any Note that may be
redeemed.
The Notes will not be subject to any sinking fund.
All percentages resulting from any calculation of the rate
of interest on a Floating Rate Note will be rounded, if
necessary, to the nearest 1/100,000 of 1% (.0000001), with five
one-millionths of a percentage point rounded upward, and all
dollar amounts used in or resulting from such calculation on
Floating Rate Notes will be rounded to the nearest cent (with
one-half cent being rounded upward).
Fixed Rate Notes
Each Fixed Rate Note will bear interest from the date of
issue at the rate per annum stated on the face thereof until the
principal amount thereof is paid or made available for payment.
Unless otherwise specified in the applicable Pricing Supplement,
interest on each Fixed Rate Note (other than a Zero Coupon Note)
will be payable semi-annually on each February 1 and August 1,
each an Interest Payment Date for Fixed Rate Notes, and at
maturity or upon redemption, and the "Regular Record Dates" will
be January 17 and July 17 (whether or not a Business Day),
respectively. Unless otherwise specified in the applicable
Pricing Supplement, interest payments for Fixed Rate Notes shall
be the amount of interest accrued from, and including, the next
preceding Interest Payment Date to which interest has been paid
or duly provided for (or from, and including, the date of issue
if no interest has been paid or duly provided for with respect to
such Fixed Rate Note) to, but excluding, the relevant Interest
Payment Date or maturity date (or date of redemption), as the
case may be. Interest on the Fixed Rate Notes will be computed on
the basis of a 360-day year of twelve 30-day months. If any Inter
est Payment Date or maturity day (or date of redemption) for any
Fixed Rate Note is not a Business Day, the payment due on such
day shall be made on the next succeeding Business Day and no
interest shall accrue on such payment for the period from and
after such Interest Payment Date or maturity date (or date of
redemption).
Floating Rate Notes
Unless otherwise specified in the applicable Pricing
Supplement, Floating Rate Notes will be issued as described
below. Each Floating Rate Note will bear interest at a rate
determined by reference to one or more "Base Rates" specified in
the applicable Pricing Supplement, which shall be (a) the
Commercial Paper Rate (a "Commercial Paper Rate Note"), (b) LIBOR
(a "LIBOR Note"), (c) the Treasury Rate (a "Treasury Rate Note")
or (d) such other Base Rate or interest rate formula as is set
forth in such Pricing Supplement and in such Floating Rate Note,
based upon the Index Maturity (as defined below) and adjusted by
a Spread and/or Spread Multiplier, if any. The "Index Maturity"
is the period to maturity of the instrument or obligation from
which the Base Rate is calculated. The "Spread" is the number of
basis points above or below the Base Rate applicable to such
Floating Rate Note, and the "Spread Multiplier" is the percentage
of the Base Rate applicable to the interest rate for such
Floating Rate Note.
The applicable Pricing Supplement and the related Note will
specify whether such Floating Rate Note is a "Regular Floating
Rate Note" (as defined below), a "Floating Rate/Fixed Rate Note"
(as defined below) or an "Inverse Floating Rate Note" (as defined
below) and will also specify the Base Rate or Rates and the
Spread and/or Spread Multiplier, if any, and the maximum or
minimum interest rate limitation, if any, applicable to each
Floating Rate Note (other than such maximum limitations as are
required by law). In addition, the applicable Pricing Supplement
and Note will define or specify for each Floating Rate Note the
following terms, if applicable: Initial Interest Rate, Interest
Reset Dates, Interest Reset Period, Regular Record Dates,
Interest Payment Dates, Index Maturity, Calculation Agent, and if
one or more of the specified Base Rates is LIBOR, the Index
Currency and the Designated LIBOR Page (as each of these terms
are defined herein).
The interest rate borne by a Floating Rate Note will be
determined as follows:
(a) Unless such Floating Rate Note is designated as a
"Floating Rate/Fixed Rate Note" or an "Inverse Floating Rate
Note," such Floating Rate Note will be designated a "Regular
Floating Rate Note" and, except as described below or in an
applicable Pricing Supplement, will bear interest at the
rate determined by reference to the applicable Base Rate
(i) plus or minus the applicable Spread, if any, and/or
(ii) multiplied by the applicable Spread Multiplier, if any.
Commencing on the first Interest Reset Date (the "Initial
Interest Reset Date"), the rate at which interest on a
Regular Floating Rate Note will be payable will be reset as
of each Interest Reset Date; provided, however, that the
interest rate in effect for the period from the Original
Issue Date to the Initial Interest Reset Date will be the
rate set forth in the applicable Pricing Supplement (the
"Initial Interest Rate").
(b) If such Floating Rate Note is designated as a
"Floating Rate/Fixed Rate Note," then, except as described
below or in an applicable Pricing Supplement, such Floating
Rate Note will bear interest at the rate determined by
reference to the applicable Base Rate (i) plus or minus the
applicable Spread, if any, and/or (ii) multiplied by the
applicable Spread Multiplier, if any. Commencing on the
Initial Interest Reset Date, the rate at which interest on
such a Floating Rate/Fixed Rate Note will be payable will be
reset as of each Interest Reset Date; provided, however,
that (x) the interest rate in effect for the period from the
Original Issue Date to the Initial Interest Reset Date will
be the Initial Interest Rate and (y) the interest rate in
effect from and including the Fixed Rate Commencement Date
to the maturity date will be the rate specified as the Fixed
Interest Rate in the applicable Pricing Supplement, or if no
such rate is specified, the interest rate in effect thereon
on the day immediately preceding the Fixed Rate Commencement
Date (in either case, the "Fixed Interest Rate").
(c) If such Floating Rate Note is designated as an
"Inverse Floating Rate Note," then, except as described
below or in an applicable Pricing Supplement, such Floating
Rate Note will bear interest at a rate equal to the Fixed
Interest Rate specified in the Pricing Supplement minus the
rate determined by reference to the applicable Base Rate
(i) plus or minus the applicable Spread, if any, and/or
(ii) 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 an
Inverse Floating Rate Note is payable will be reset as of
each Interest Reset Date; provided, however, that the
interest rate in effect for the period from the Original
Issue Date to the Initial Interest Reset Date will be the
Initial Interest Rate.
As specified in the applicable Pricing Supplement, a
Floating Rate Note may also have either or both of the following:
(i) a maximum limit, or ceiling, on the rate of interest
("Maximum Interest Rate") which may apply during any Interest
Period (as defined below); and (ii) a minimum limit, or floor, on
the rate of interest ("Minimum Interest Rate") which may apply
during any Interest Period. In addition to any Maximum Interest
Rate which may be applicable to any Floating Rate Note pursuant
to the above provisions, the interest rate on the Floating Rate
Notes will in no event be higher than the maximum rate permitted
by law, as the same may be modified by United States law of gen
eral application. Under present New York law, the maximum rate of
interest, with certain exceptions, is 25% per annum on a simple
interest basis.
The rate of interest on each Floating Rate Note will be
reset daily, weekly, monthly, quarterly, semi-annually or
annually, as specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
the "Interest Reset Date" will be (with the exception of weekly
reset Treasury Rate Notes which will reset the Tuesday of each
week, except as provided below), in the case of Floating Rate
Notes that reset daily, each Business Day; in the case of
Floating Rate Notes which reset weekly, the Wednesday of each
week; in the case of Floating Rate Notes which reset monthly, the
third Wednesday of each month; in the case of Floating Rate Notes
which reset quarterly, the third Wednesday of March, June,
September and December; in the case of Floating Rate Notes which
reset semi-annually, the third Wednesday of the two months of
each year as specified in the applicable Pricing Supplement; and
in the case of Floating Rate Notes which reset annually, the
third Wednesday of the month specified in the applicable Pricing
Supplement. 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 shall be postponed to the next succeeding day
that is a Business Day, except that in the case of a LIBOR Note,
if such Business Day is in the next succeeding calendar month,
such Interest Reset Date shall be the immediately preceding
Business Day.
The interest rate applicable to each Interest Reset Period
commencing on an Interest Reset Date will be the rate determined
by reference to the applicable Base Rate on the "Interest
Determination Date". Unless otherwise specified in the applicable
Pricing Supplement, the Interest Determination Date with respect
to an Interest Reset Date for Commercial Paper Rate Notes will be
the second Business Day preceding such Interest Reset Date. The
Interest Determination Date with respect to an Interest Reset
Date for LIBOR Notes will be the second London Banking Day
preceding such Interest Reset Date. With respect to Treasury Rate
Notes, the Interest Determination Date with respect to an
Interest Reset Date will be the day of the week in which the
Interest Reset Date falls on which Treasury bills normally would
be auctioned (Treasury bills are normally sold at auction on
Monday of each week, unless that day is a legal holiday, in which
case the auction is normally held the following Tuesday, except
that such auction may be held on the preceding Friday); provided,
however, that if as a result of a legal holiday an auction is
held on the Friday of the week preceding an Interest Reset Date,
the related Interest Determination Date shall be such preceding
Friday; and provided, further, that if an auction falls on any
Interest Reset Date then the Interest Reset Date will instead be
the first Business Day following such auction. Unless otherwise
specified in the applicable Pricing Supplement, the Interest
Determination Date pertaining to a Floating Rate Note, the
interest rate of which is determined with reference to two or
more Base Rates, will be the first Business Day which is at least
two Business Days prior to such Interest Reset Date on which all
specified Base Rates are determinable. Each Base Rate will be
determined and compared on such date, and the applicable interest
rate will take effect on the related Interest Reset Date.
Each Floating Rate Note will bear interest from the date of
issue at the rates determined as described below until the
principal thereof is paid or otherwise made available for
payment. Except as provided below or in the applicable Pricing
Supplement, interest will be payable, in the case of Floating
Rate Notes which reset 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; in the case of Floating Rate Notes
which reset quarterly, on the third Wednesday of March, June,
September and December of each year as specified in the
applicable Pricing Supplement; in the case of Floating Rate Notes
which reset semi-annually, on the third Wednesday of the two
months of each year specified in the applicable Pricing
Supplement; and in the case of Floating Rate Notes which reset
annually, on the Wednesday of the month specified in the
applicable Pricing Supplement (each an "Interest Payment Date"),
and in each case, at maturity or upon redemption. If any Interest
Payment Date for any Floating Rate Note would otherwise be a day
that is not a Business Day, the Interest Payment Date for such
Note shall be postponed to the next day that is a Business Day,
except that in the case of a LIBOR Note, if such Business Day is
in the next succeeding calendar month, such Interest Payment Date
shall be the immediately preceding Business Day. If any maturity
date (or date of redemption) for any Floating Rate Note is not a
Business Day, the payment due on such day shall be made on the
next succeeding Business Day and no interest shall accrue on such
payment for the period from and after such maturity date (or date
of redemption).
Unless otherwise specified in the applicable Pricing
Supplement, interest payments on any Interest Payment Date or
maturity date shall be the amount of interest accrued from, and
including, the next preceding Interest Payment Date in respect of
which interest has been paid (or from, and including, the date of
issue, if no interest has been paid with respect to such Floating
Rate Note) to, but excluding, the Interest Payment Date or
maturity date (an "Interest Period").
With respect to a Floating Rate Note, accrued interest will
be calculated by multiplying the principal amount of such
Floating Rate Note by an accrued interest factor, unless
otherwise specified in the applicable Pricing Supplement. The
accrued interest factor will be computed by adding the interest
factors calculated for each day in the period for which interest
is being calculated. The interest factor for each such day is
computed by dividing the interest rate applicable to such day by
360 in the case of Commercial Paper Rate Notes and LIBOR Notes,
or by the actual number of days in the year in the case of
Treasury Rate Notes. The interest rate applicable to any day that
is an Interest Reset Date is the interest rate for such date. The
interest rate applicable to any other day is the interest rate
for the immediately preceding Interest Reset Date (or, if none,
the Initial Interest Rate, as described below).
The applicable Pricing Supplement will specify a calculation
agent (the "Calculation Agent") with respect to any issue of
Floating Rate Notes. Upon the request of the Holder of any
Floating Rate Note, the Trustee will provide 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
Interest Reset Date with respect to such Floating Rate Note.
Capital Corporation will notify the Trustee of each determination
of the interest rate applicable to any such Floating Rate Note
promptly after such determination is made. The "Calculation Date"
pertaining to an Interest Determination Date will be the earlier
of (i) the tenth day after such Interest Determination Date or,
if any such day is not a Business Day, the next succeeding
Business Day or, (ii) the Business Day preceding the applicable
Interest Payment Date (or date of redemption), as the case may
be.
The Initial Interest Rate will be specified in the
applicable Pricing Supplement. The interest rate for each
subsequent Interest Reset Date will be determined by the Calcula
tion Agent as follows.
Commercial Paper Rate Notes
Commercial Paper Rate Notes will bear interest at the
interest rates (calculated with reference to the Commercial Paper
Rate and the Spread and/or Spread Multiplier, if any) specified
in the Commercial Paper Rate Notes and in the applicable Pricing
Supplement.
The "Commercial Paper Rate" with respect to any Commercial
Paper Interest Determination Date shall be 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 such rate shall be published by the Board of
Governors of the Federal Reserve System in "Statistical Release
H.15(519), selected Interest Rates" ("H.15(519)"), or any
successor publication, under the heading "Commercial Paper". In
the event that such rate is not published prior to 9:00 A.M., New
York City time, on the Calculation Date, then the Commercial
Paper Rate shall be the Money Market Yield on such Commercial
Paper Interest Determination Date of the rate for commercial
paper of the specified Index Maturity 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"
("Composite Quotations") under the heading "Commercial Paper". If
by 3:00 P.M., New York City time, on such Calculation Date such
rate is not published in Composite Quotations, then the
Commercial Paper Rate shall be the Money Market Yield of the
arithmetic mean of the offered rates as of 11:00 A.M., New York
City time, on such Commercial Paper Interest Determination Date
of three leading dealers of commercial paper in The City of New
York selected by the Calculation Agent for commercial paper of
the specified Index Maturity placed for an industrial issuer
whose bond rating is "AA," or the equivalent, from a nationally
recognized rating agency; provided, however, that if the dealers
selected as aforesaid by the Calculation Agent are not quoting
offered rates as mentioned in this sentence, the rate of interest
in effect for the applicable period will be the rate of interest
in effect on such Commercial Paper Interest Determination Date.
"Money Market Yield" shall be a yield calculated in
accordance with the following formula:
Money Market Yield = D x 360
------------ x 100
360 - (D x M)
where "D" refers to the applicable 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 interest
period for which interest is being calculated.
LIBOR Notes
LIBOR Notes will bear interest at the interest rates
(calculated with reference to LIBOR and the Spread and/or Spread
Multiplier, if any) specified in the LIBOR Notes and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing
Supplement, "LIBOR" will be determined by the Calculation Agent
in accordance with the following provisions:
(a) With respect to an Interest Determination Date relating to
a LIBOR Note or any Note whose interest rate is determined with
reference to LIBOR (a "LIBOR Interest Determination Date"), LIBOR
will be either: (i) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the arithmetic mean of the offered
rates (unless the specified Designated LIBOR Page (as defined
below) by its terms provides only for a single rate, in which
case such single rate shall be used) for deposits in the Index
Currency (as defined below) having the Index Maturity designated
in the applicable Pricing Supplement, commencing on the second
London Banking Day immediately following that LIBOR Interest
Determination Date, that appear on the Designated LIBOR Page
specified in the applicable Pricing Supplement as of 11:00 A.M.,
London time, on that LIBOR Interest Determination Date, if at
least two such offered rates appear (unless, as aforesaid, only a
single rate is required) on such Designated, LIBOR Page, or (ii)
if "LIBOR Telerate" is specified in the applicable Pricing
Supplement, the rate for deposits in the Index Currency having
the Index Maturity designated in the applicable Pricing
Supplement commencing on the second London Banking Day
immediately following that LIBOR Interest Determination Date that
appears on the Designated LIBOR Page specified in the applicable
Pricing Supplement as of 11:00 A.M., London time, on that LIBOR
Interest Determination Date. If fewer than two offered rates
appear, or no rate appears, as applicable, LIBOR in respect of
the related LIBOR Interest Determination Date will be determined
as if the parties had specified the rate described in clause (b)
below.
(b) With respect to a LIBOR Interest Determination Date on
which fewer than the minimum number of offered rates appear on
the applicable Designated LIBOR Page as specified in clause (a)
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 (after
consultation with Capital Corporation), to provide the
Calculation Agent with its offered quotation for deposits in the
Index Currency for the period of the Index Maturity designated in
the applicable Pricing Supplement, commencing on the second
London Banking Day immediately following such LIBOR Interest
Determination 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
provided, LIBOR determined on such LIBOR Interest Determination
Date will be the arithmetic mean of such quotations. If fewer
than two quotations are provided, LIBOR determined on such LIBOR
Interest Determination Date will be the arithmetic mean of the
rates quoted at approximately 11:00 A.M. (or such other time
specified in the applicable Pricing Supplement), in the
applicable Principal Financial Center (as defined below), on such
LIBOR Interest Determination Date by three major banks in such
Principal Financial Center selected by the Calculation Agent
(after consultation with the Company) for loans in the Index
Currency to leading European banks, having the Index Maturity
designated 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
on such LIBOR Interest Determination Date will be LIBOR in effect
on such LIBOR Interest Determination Date.
"Index Currency" means the currency (including composite
currencies) specified in the applicable Pricing Supplement as the
currency for which LIBOR shall be calculated. If no such currency
is specified in the applicable Pricing Supplement, the Index
Currency shall be United States dollars.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters"
is designated in the applicable Pricing Supplement, the display
on the Reuters Monitor Money Rates Service for the purpose of
displaying the London interbank rates of major banks for the
applicable Index Currency, or (b) if "LIBOR Telerate" is
designated in the applicable Pricing Supplement, the display on
the Dow Jones Telerate Service for the purpose of displaying the
London interbank rates of major banks for the applicable Index
Currency. If neither LIBOR Reuters nor LIBOR Telerate is
specified in the applicable Pricing Supplement, LIBOR for the
applicable Index Currency will be determined as if LIBOR Telerate
(and, if the United States dollar is the Index Currency, Page
3750, or any comparable page) has been specified.
"Principal Financial Center" will generally be the capital
city of the country of the specified Index Currency, except that
with respect to United States dollars, and ECUs, the Principal
Financial Center shall be The City of New York, and Luxembourg,
respectively.
Treasury Rate Notes
Treasury Rate Notes will bear interest at the interest rates
(calculated with reference to the Treasury Rate and the Spread
and/or Spread Multiplier, if any), specified in the Treasury Rate
Notes and in the applicable Pricing Supplement.
"Treasury Rate" with respect to any Treasury Rate Interest
Determination Date will be the rate for the most recent auction
of direct obligations of the United States ("Treasury bills")
having the Index Maturity designated in the applicable Pricing
Supplement as published in H.15(519) under the heading "U.S.
Government Securities Treasury bills-auction average
(investment)" or, if not so published by 9:00 A.M., New York City
time, on the Calculation Date pertaining to such Interest
Determination Date, the auction average rate (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 designated in the applicable Pricing Supplement
are not published or reported as provided above by 3:00 P.M., New
York City time, on such Calculation Date or if no such auction is
held for a particular week, then the Treasury Rate for such
Interest Reset Date shall be calculated by the Calculation Agent
and shall 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 Interest Determination Date, of three leading
primary United States government securities dealers in The City
of New York selected by the Calculation Agent for the issue of
Treasury bills with a remaining maturity closest to the Index
Maturity designated in the applicable Pricing Supplement;
provided, however, that if the dealers selected as aforesaid by
the Calculation Agent are not quoting as mentioned in this
sentence, the Treasury Rate for such Interest Determination Date
will be the Treasury Rate in effect on such Interest
Determination Date.
Book-Entry System
Upon issuance, all Fixed Rate Book-Entry Notes having the
same original issuance date, interest rate, redemption provisions
and stated maturity will be represented by a single Global Note
and all Floating Rate Book-Entry Notes having the same interest
rate formula, original issuance date, redemption provisions,
Initial Interest Rate, Interest Payment Dates, Index Maturity,
Spread, Spread Multiplier, Minimum Interest Rate (if any),
Maximum Interest Rate (if any) and maturity will be represented
by a single Global Note; provided, however, that if by reason of
the foregoing, a single Global Note would exceed the maximum
aggregate principal amount allowed by the Depository (as defined
below) to be represented by a single Global Note, one Global Note
will be issued to represent each such amount and an additional
Global Note will be issued to represent the remaining principal
amount. Each Global Note representing Book-Entry Notes will be
deposited with, or on behalf of, The Depository Trust Company
("DTC") or other depository, or nominee thereof (DTC or such
other depository as is specified in the applicable Pricing
Supplement is herein referred to as the "Depository"), and
registered in the name of a nominee of the Depository. Except
under the limited circumstances described in the accompanying
Prospectus under "Description of Debt Securities-Book-Entry
Securities," Book-Entry Notes will not be exchangeable for Notes
in definitive form.
DTC has advised Capital Corporation and the Agents as
follows: DTC is a limited-purpose trust company organized under
the New York Banking Law, a "banking organization" within the
meaning of the New York Banking Law, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934. DTC holds securities that its
participants ("Participants") deposit with DTC. DTC also
facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants include
securities brokers and dealers (including the Agents), banks,
trust companies, clearing corporations, and certain other
organizations. DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC system is also
available to others, such as securities brokers and dealers,
banks, and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly
or indirectly. The Rules applicable to the DTC and its
Participants are on file with the Securities and Exchange
Commission.
A further description of the Depository's procedures with
respect to Global Securities representing Book-Entry Notes is set
forth in the accompanying Prospectus under "Description of Debt
Securities-Book-Entry Securities".
Currency Indexed Notes
General
Capital Corporation may from time to time offer Notes
("Currency Indexed Notes") the principal amount of which payable
at the maturity date is determined by reference to the rate of
exchange between the currency or composite currency in which such
Notes are denominated (the "Denominated Currency") and the other
currency or composite currency specified as the Indexed Currency
(the "Indexed Currency") in the applicable Pricing Supplement, or
as determined in such other manner as may be specified in the
applicable Pricing Supplement. Unless otherwise specified in the
applicable Pricing Supplement, holders of Currency Indexed Notes
will be entitled to receive a principal amount of such Currency
Indexed Notes exceeding the amount designated as the face amount
of such Currency Indexed Notes in the applicable Pricing
Supplement (the "Face Amount") if, at maturity, the rate at which
the Denominated Currency can be exchanged for the Indexed
Currency is greater than the rate of such exchange designated as
the Base Exchange Rate, expressed in units of the Indexed
Currency per one unit of the Denominated Currency, in the
applicable Pricing Supplement (the "Base Exchange Rate"), and
will be entitled to receive a principal amount of such Currency
Indexed Notes less than the Face Amount of such Currency Indexed
Notes if, at maturity, the rate at which the Denominated Currency
can be exchanged for the Indexed Currency is less than such Base
Exchange Rate, in each case determined as described below under
"Payment of Principal and Interest". Information as to the
relative historical value of the applicable Denominated Currency
against the applicable Indexed Currency, any exchange controls
applicable to such Denominated Currency or Indexed Currency, and
certain tax consequences to holders will be set forth in the
applicable Pricing Supplement. See "Foreign Currency Risks".
Unless otherwise specified in the applicable Pricing
Supplement, the term "Exchange Rate Day" shall mean any day which
is a Business Day in The City of New York and if the Denominated
Currency or Indexed Currency is any other currency or composite
currencies (other than the U.S. dollar), in the principal
financial center of the country of such Denominated Currency or
Indexed Currency (or, in the case of ECUs, Brussels, Belgium).
Payment Of Principal And Interest
Unless otherwise specified in the applicable Pricing
Supplement, interest will be payable by Capital Corporation in
the Denominated Currency based on the Face Amount of the Currency
Indexed Notes and at the rate and times and in the manner set
forth herein and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing
Supplement, principal of a Currency Indexed Note will be payable
by Capital Corporation in the Denominated Currency at maturity in
an amount equal to the Face Amount of the Currency Indexed Note,
plus or minus an amount of the Denominated Currency determined by
the determination agent specified in the applicable Pricing
Supplement (the "Determination Agent") by reference to the
difference between the Base Exchange Rate and the rate at which
the Denominated Currency can be exchanged for the Indexed
Currency as determined on the second Exchange Rate Day (the
"Determination Date") prior to maturity of such Currency Indexed
Note by the Determination Agent based upon the arithmetic mean of
the open market spot offer quotations for the Indexed Currency
(spot bid quotations for the Denominated Currency) obtained by
the Determination Agent from the Reference Dealers (as defined
below) in The City of New York at 11:00 A.M., New York City time,
on the Determination Date, for an amount of Indexed Currency
equal to the Face Amount of such Currency Indexed Note multiplied
by the Base Exchange Rate, with the Denominated Currency for
settlement at maturity (such rate of exchange, as so determined
and expressed in units of the Indexed Currency per one unit of
the Denominated Currency, is hereafter referred to as the "Spot
Rate"). If such quotations from the Reference Dealers are not
available on the Determination Date due to circumstances beyond
the control of Capital Corporation or the Determination Agent,
the Spot Rate will be determined on the basis of the most
recently available quotations from the Reference Dealers. The
principal amount of the Currency Indexed Notes determined by the
Determination Agent to be payable at maturity will be payable to
the holders thereof in the manner set forth herein and in the
applicable Pricing Supplement. As used herein, the term
"Reference Dealers" shall mean the three banks or firms specified
as such in the applicable Pricing Supplement or, if any of them
shall be unwilling or unable to provide the requested quotations,
such other major money center bank or banks in The City of New
York selected by Capital Corporation, in consultation with the
Determination Agent, to act as Reference Dealer or Dealers in
replacement therefor. In the absence of manifest error, the
determination by the Determination Agent of the Spot Rate and the
principal amount of Currency Indexed Notes payable at maturity
thereof shall be final and binding on Capital Corporation and the
holders of such Currency Indexed Notes.
Unless otherwise specified in the applicable Pricing
Supplement, on the basis of the aforesaid determination by the
Determination Agent and the formulas and limitations set forth
below, (i) if the Base Exchange Rate equals the Spot Rate for any
Currency Indexed Note, then the principal amount of such Currency
Indexed Note payable at maturity would be equal to the Face
Amount of such Currency Indexed Note; (ii) if the Spot Rate
exceeds the Base Exchange Rate (i.e., the Denominated Currency
has appreciated against the Indexed Currency during the term of
the Currency Indexed Note), then the principal amount so payable
would be greater than the Face Amount of such Currency Indexed
Note up to an amount equal to twice the Face Amount of such
Currency Indexed Note; (iii) if the Spot Rate is less than the
Base Exchange Rate (i.e., the Denominated Currency has
depreciated against the Indexed Currency during the term of the
Currency Indexed Note) but is greater than one-half of the Base
Exchange Rate, then the principal amount so payable would be less
than the Face Amount of such Currency Indexed Note; and (iv) if
the Spot Rate is less than or equal to one-half of the Base
Exchange Rate, then the Spot Rate will be deemed to be one-half
of the Base Exchange Rate and no principal amount of the Currency
Indexed Note would be payable at maturity.
Unless otherwise specified in the applicable Pricing
Supplement, the formula to be used by the Determination Agent to
determine the principal amount of a Currency Indexed Note payable
at maturity will be as follows:
If the Spot Rate exceeds or equals the Base Exchange Rate,
the principal amount of a Currency Indexed Note payable at
maturity shall equal:
Spot Rate - Base Exchange Rate
Face Amount + (Face Amount x ------------------------------ )
Spot Rate
If the Base Exchange Rate exceeds the Spot Rate, the
principal amount of a Currency Indexed Note payable at maturity
(which shall, in no event, be less than zero) shall equal:
Base Exchange Rate - Spot Rate
Face Amount - (Face Amount X ------------------------------- )
Spot Rate
Unless otherwise specified in the applicable Pricing
Supplement, if the formulas set forth above are applicable to a
Currency Indexed Note, the maximum principal amount payable at
maturity in respect of such a Currency Indexed Note would be an
amount equal to twice the Face Amount and the minimum principal
amount payable would be zero.
Unless otherwise specified in the applicable Pricing
Supplement, in the event of any redemption of a Currency Indexed
Note prior to its maturity, the term "maturity" used above would
refer to the redemption date of such Currency Indexed Note.
Other Indexed Notes And Certain Terms Applicable to All Indexed
Notes
The Notes may be issued as indexed notes ("Indexed Notes"),
other than Currency Indexed Notes, the principal amount of which
is payable at maturity and/or the interest on which may be
determined by reference to the price of one or more specified
commodities, to one or more equity indices or other indices or by
other similar methods or formulas. The Pricing Supplement
relating to such an Indexed Note will describe, as applicable,
the method by which the amount of interest payable and the amount
of principal payable at maturity in respect of such Indexed Note
will be determined, certain special tax consequences to holders
of such Notes, certain risks associated with an investment in
such Notes and other information relating to such Notes.
Unless otherwise specified in the applicable Pricing
Supplement, (1) for the purpose of determining whether holders of
the requisite principal amount of Debt Securities outstanding
under the Indenture have made a demand or given a notice or
waiver or taken any other action, the outstanding principal
amount of Indexed Notes will be deemed to be the face amount
thereof, and (2) in the event of an acceleration of the maturity
of an Indexed Note, the principal amount payable to the holder of
such Note upon acceleration will be the principal amount
determined by reference to the formula by which the principal
amount of such Note would be determined on the maturity date
thereof, as if the date of acceleration were the maturity date.
An investment in Notes indexed, as to principal or interest
or both, to one or more values of currencies (including exchange
rates between currencies), commodities or interest rate indices
entails significant risks that are not associated with similar
investments in a conventional fixed-rate debt security. The
applicable Pricing Supplement will describe certain investment
considerations that may be relevant to an investment in such
Notes. See also "Foreign Currency Risks".
IMPORTANT CURRENCY EXCHANGE INFORMATION
Purchasers are required to pay for Notes in the Specified
Currency. Currently, there are limited facilities in the United
States for conversion of U.S. dollars into foreign currencies and
vice versa and banks do not generally offer non-U.S. dollar
checking or savings account facilities in the United States.
However, each of the Agents has advised Capital Corporation as
follows: If requested by a prospective purchaser of Notes
denominated in a Specified Currency other than U.S. dollars, the
Agent soliciting the offer to purchase intends to arrange for the
conversion of U.S. dollars into such Specified Currency to enable
the purchaser to pay for such Notes. Such request must be made on
or before the fifth Business Day preceding the date of delivery
of the Notes, or by such other date as is determined by the Agent
that presents such offer to Capital Corporation. Each such
conversion will be made by the relevant 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 practice. All costs of exchange will be borne by
the purchasers of the Notes.
FOREIGN CURRENCY RISKS
Governing Law And Judgments
The Notes will be governed by and construed in accordance
with the laws of the State of New York. Courts in the United
States have not customarily rendered judgments for money damages
denominated in any currency other than the U.S. dollar. The date
used to determine the rate of conversion of the currency or
currency unit in which the Notes are denominated into U.S.
dollars would depend upon various factors, including which court
renders the judgment. The Judiciary Law of the State of New York
provides, however, that a state court in the State of New York
rendering a judgment in an action based upon an obligation
denominated in a currency other than U.S. dollars will be
rendered in the foreign currency of the underlying obligation and
converted into U.S. dollars at a rate of exchange prevailing on
the date of the entry of the judgment.
Exchange Rates And Exchange Controls
An investment in Notes that are denominated in a Specified
Currency other than U.S. dollars ("Foreign Currency Notes")
entails significant risks that are not associated with a similar
investment in a security denominated in U.S. dollars. Similarly,
an investment in a Currency Indexed Note entails significant
risks that are not associated with a similar investment in
non-Indexed Notes. Such risks include, without limitation, the
possibility of significant market changes in rates of exchange
between the U.S. dollar and the various foreign currencies (and,
in the case of Currency Indexed Notes, the rate of exchange
between the Specified Currency and the Indexed Currency for such
Currency Indexed Note), the possibility of significant changes in
rates of exchange between the U.S. dollar and the various foreign
currencies resulting from official redenomination with respect to
a Specified Currency and the possibility of the imposition or
modification of foreign exchange controls by either the U.S. or
foreign government. Such risks generally depend on factors over
which Capital Corporation has no control, such as economic and
political events and on the supply of and demand for the relevant
currencies. In recent years, rates of exchange between the U.S.
dollar and certain foreign currencies have been volatile and such
volatility may be expected in the future. Fluctuations in any
particular exchange rate that have occurred in the past are not
necessarily indicative, however, of fluctuations in the rate that
may occur during the term of any Foreign Currency Note.
Depreciation of the currency specified in a Foreign Currency Note
against the U.S. dollar would result in a decrease in the
effective yield of such Foreign Currency Note below its coupon
rate, and in certain circumstances could result in a loss to the
investor, on a U.S. dollar basis. Similarly, depreciation of the
Denominated Currency with respect to a Currency Indexed Note
against the applicable Indexed Currency would result in the
principal amount payable with respect to such Currency Indexed
Note at maturity being less than the Face Amount of such Currency
Indexed Note which, in turn, would decrease the effective yield
of such Currency Indexed Note below its stated interest rate and
could also result in a loss to the investor. See "Description of
Medium-Term Notes-Currency Indexed Notes".
The Notes provide that, in the event of an official
redenomination of a Specified Currency, the obligations of
Capital Corporation with respect to payments on Notes denominated
in such Specified Currency shall, in all cases, be deemed
immediately following such redenomination to provide for the
payment of that amount of redenominated currency representing the
amount of such obligations immediately before such
redenomination. The Notes do not provide for any adjustment to
any amount payable under the Notes as a result of any change in
the value of a Specified Currency relative to any other currency
due solely to fluctuations in exchange rates.
Governments have imposed from time to time, and may in the
future impose, exchange controls that could affect exchange rates
as well as the availability of a Specified Currency at an
Interest Payment Date or at maturity of a Foreign Currency Note.
There can be no assurances that exchange controls will not
restrict or prohibit payments of principal, premium, if any, or
interest in any Specified Currency other than U.S. dollars. Even
if there are no actual exchange controls, it is possible that at
an Interest Payment Date or at maturity of any particular Foreign
Currency Note, the Specified Currency for such Foreign Currency
Note would not be available to Capital Corporation due to circum
stances beyond the control of Capital Corporation. In any such
event, Capital Corporation will make required payments in U.S.
dollars on the basis described herein. See "Payment Currency".
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
DO NOT DESCRIBE ALL THE RISKS OF AN INVESTMENT IN NOTES
DENOMINATED IN A SPECIFIED CURRENCY OTHER THAN U.S. DOLLARS OR AN
INVESTMENT IN CURRENCY INDEXED NOTES, AND CAPITAL CORPORATION
DISCLAIMS ANY RESPONSIBILITY TO ADVISE PROSPECTIVE INVESTORS OF
SUCH RISKS AS THEY EXIST AT THE DATE OF THIS PROSPECTUS
SUPPLEMENT OR AS SUCH RISKS 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 NOTES
DENOMINATED IN A SPECIFIED CURRENCY OTHER THAN U.S. DOLLARS OR AN
INVESTMENT IN CURRENCY INDEXED NOTES. SUCH NOTES ARE NOT AN
APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE UNSOPHISTICATED WITH
RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
Unless otherwise specified in the applicable Pricing
Supplement, Notes denominated in a Specified Currency other than
U.S. dollars or ECUs 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 Capital
Corporation disclaims any responsibility to advise prospective
purchasers who are residents of countries other than the United
States with respect to any matters that may affect the purchase,
holding or receipt of payments of principal, premium, if any, or
interest on the Notes. Such persons should consult their own
financial and legal advisors with regard to such matters.
Pricing Supplements relating to Foreign Currency Notes or
Currency Indexed Notes will contain information concerning
historical exchange rates for the applicable Specified Currency
against the U.S. dollar or other relevant currency, a description
of the currency or currencies and any exchange controls affecting
such currency or currencies. The information therein concerning
exchange rates is furnished as a matter of information only and
should not be regarded as indicative of the range of or trends in
fluctuations in currency exchange rates that may occur in the
future.
Payment Currency
Except as set forth below, if payment on a Foreign Currency
Note is required to be made in a foreign currency and such
currency is unavailable due to the imposition of exchange
controls or other circumstances beyond Capital Corporation's
control, or is no longer used by the government of the country
issuing such currency or for the settlement of transactions by
public institutions of or within the international banking
community, then all payments due on that due date with respect to
such Foreign Currency Note shall be made in U.S. dollars. The
amount so payable on any date in such foreign currency shall be
converted into U.S. dollars at a rate determined by the Exchange
Rate Agent on the basis of the most recently available Market
Exchange Rate or as otherwise indicated in an applicable Pricing
Supplement.
If payment on a Foreign Currency Note is required to be made
in ECUs and ECUs are unavailable due to the imposition of
exchange controls or other circumstances beyond Capital
Corporation's control, or are no longer used in the European
Monetary System, all payments due on that due date with respect
to such Foreign Currency Note shall be made in U.S. dollars. The
amount so payable on any date in ECUs shall be converted into
U.S. dollars at a rate determined by the Exchange Rate Agent as
of the second Business Day prior to the date on which such
payment is due on the following basis. The component currencies
of the ECUs for this purpose (the "Components") shall be the
currency amounts that were components of the ECUs as of the last
date on which ECUs were used in the European Monetary System. The
equivalent of ECUs in U.S. dollars shall be calculated by
aggregating the U.S. dollar equivalents of the Components. The
U.S. dollar equivalent of each of the Components to be determined
by the Exchange Rate Agent on the basis of the most recently
available Market Exchange Rate, or as otherwise indicated 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 that
currency as a Component 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 components 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 that currency as a Component shall be
replaced by amounts of such two or more currencies having an
aggregate value on the date of division equal to the amount of
the former component currency immediately before such division.
All determinations referred to above made by the Exchange
Rate Agent shall be at its sole discretion (except to the extent
expressly provided herein that any determination is subject to
approval by Capital Corporation) and, in the absence of manifest
error, shall be conclusive for all purposes and binding on
Holders of the Notes and the Exchange Rate Agent shall have no
liability therefor.
UNITED STATES TAXATION
Set forth below is a summary of the principal United States
federal income tax consequences of ownership of Notes. It deals
only with Notes held as capital assets by initial purchasers, and
not with special classes of holders, such as dealers in
securities or currencies, banks, tax-exempt organizations, life
insurance companies, persons that hold Notes that are a hedge or
that are hedged against currency risks or that are part of a
straddle or conversion transaction, or persons whose functional
currency is not the U.S. 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. The summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), its
legislative history, existing and proposed regulations
thereunder, published rulings and court decisions, all as
currently in effect and all subject to change at any time,
perhaps with retroactive effect.
Prospective purchasers of Notes should consult their own tax
advisors concerning the consequences, in their particular
circumstances, under the Code and the laws of any other taxing
jurisdiction, of the ownership of Notes.
United States Holders
Payments of Interest
Interest on a Note, whether payable in U.S. dollars or a
Specified Currency other than U.S. dollars (a "foreign
currency"), other than interest on a "Discount Note" that is not
"qualified stated interest" (each as defined below under
"Original Issue Discount - General"), will be taxable to a United
States Holder as ordinary income at the time it is received or
accrued, depending on the holder's method of accounting for tax
purposes. A United States Holder is a beneficial owner who or
that is (i) a citizen or resident of the United States, (ii) a
domestic corporation or (iii) otherwise subject to United States
federal income taxation on a net income basis in respect of a
Note.
If an interest payment is denominated in, or determined by
reference to, a foreign currency, the amount of income recognized
by a cash basis United States Holder will be the U.S. dollar
value of the interest payment, based on the exchange rate in
effect on the date of receipt, regardless of whether the payment
is in fact converted into U.S. dollars.
An accrual basis United States Holder may determine the
amount of income recognized with respect to an interest payment
denominated in, or determined by reference to, a foreign currency
in accordance with either of two methods. Under the first method,
the amount of income accrued will be based on the average
exchange rate in effect during the interest accrual period (or,
with respect to an accrual period that spans two taxable years,
the part of the period within the taxable year).
Under the second method, the United States Holder may elect
to determine the amount of income accrued on the basis of the
exchange rate in effect on the last day of the accrual period or,
in the case of an accrual period that spans two taxable years,
the exchange rate in effect on the last day of the part of the
period within the taxable year. Additionally, if a payment of
interest is actually received within five business days of the
last day of the accrual period or taxable year, an electing
accrual basis United States Holder may instead translate such
accrued interest into U.S. dollars at the exchange rate in effect
on the day of actual receipt. Any such election will apply to all
debt instruments held by the United States Holder at the
beginning of the first taxable year to which the election applies
or thereafter acquired by the United States Holder, and will be
irrevocable without the consent of the Internal Revenue Service
(the "Service").
Upon receipt of the interest payment (including a payment
attributable to accrued but unpaid interest upon the sale or
retirement of a Note) denominated in, or determined by reference
to, a foreign currency, the United States Holder will recognize
ordinary income or loss measured by the difference between
(x) the average exchange rate used to accrue interest income, or
the exchange rate as determined under the second method described
above if the United States Holder elects that method, and (y) the
exchange rate in effect on the date of receipt, regardless of
whether the payment is in fact converted into U.S. dollars.
Original Issue Discount
General
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 (a "Discount Note") if the excess of the Note's
"stated redemption price at maturity" over its issue price is
more than a "de minimis amount" (as defined below). Generally,
the issue price of a Note will be the first price at which a
substantial amount of Notes included in the issue of which the
Note is a part is sold to other than 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 total of all
payments provided by the Note that are not payments of "qualified
stated interest". A qualified stated interest payment is
generally any one of a series of stated interest payments on a
Note that are unconditionally payable at least annually at a
single fixed rate (with certain exceptions for lower rates paid
during some periods) applied to the outstanding principal amount
of the Note. Special rules for "Variable Rate Notes" (as defined
below under "Original Issue Discount - Variable Rate Notes") are
described below under "Original Issue Discount - Variable Rate
Notes".
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 its maturity (the
"de minimis amount"), then such excess, if any, constitutes "de
minimis original issue discount" and the Note is not a Discount
Note. Unless the election described below under "Election to
Treat All Interest as Original Issue Discount" is made, a United
States Holder of a Note with de minimis original issue discount
must include such de minimis original issue discount in income as
stated principal payments on the Note are made. The includible
amount with respect to each such payment will equal the product
of the total amount of the Note's de minimis original issue
discount and a fraction, the numerator of which is the amount of
the principal payment made and the denominator of which is the
stated principal amount of the Note.
United States Holders of Discount Notes having a maturity of
more than one year from their date of issue must, generally,
include original issue discount ("OID") in income calculated on a
constant-yield method before the receipt of cash attributable to
such income, and generally will have to include in income
increasingly greater amounts of OID over the life of the Note.
The amount of OID includible in income by a United States Holder
of a Discount Note is the sum of the daily portions of OID with
respect to the Discount Note for each day during the taxable year
or portion of the taxable year on which the United States Holder
holds such Discount Note ("accrued OID"). The daily portion is
determined by allocating to each day in any "accrual period" a
pro rata portion of the OID allocable to that accrual period.
Accrual periods with respect to a Note may be of any length
selected by the United States Holder and may vary in length over
the term of the Note as long as (i) no accrual period is longer
than one year and (ii) each scheduled payment of interest or
principal on the Note occurs on either the final or first day of
an accrual period. The amount of OID allocable to an accrual
period equals the excess of (a) the product of the Discount
Note's adjusted issue price at the beginning of the accrual
period and such Note's yield to maturity (determined on the basis
of compounding at the close of each accrual period and properly
adjusted for the length of the accrual period) over (b) the sum
of the payments of qualified stated interest on the Note
allocable to the accrual period. The "adjusted issue price" of a
Discount Note at the beginning of any accrual period is the issue
price of the Note increased by (x) the amount of accrued OID for
each prior accrual period and decreased by (y) the amount of any
payments previously made on the Note that were not qualified
stated interest payments. For purposes of determining the amount
of OID allocable to an accrual period, if an interval between
payments of qualified stated interest on the Note contains more
than one accrual period, the amount of qualified stated interest
payable at the end of the interval (including any qualified
stated interest that is payable on the first day of the accrual
period immediately following the interval) is allocated pro rata
on the basis of relative lengths to each accrual period in the
interval, and the adjusted issue price at the beginning of each
accrual period in the interval must be increased by the amount of
any qualified stated interest that has accrued prior to the first
day of the accrual period but that is not payable until the end
of the interval. The amount of OID allocable to an initial short
accrual period may be computed using any reasonable method if all
other accrual periods other than a final short accrual period are
of equal length. The amount of OID allocable to the final accrual
period is the difference between (x) the amount payable at the
maturity of the Note (other than any payment of qualified stated
interest) and (y) the Note's adjusted issue price as of the
beginning of the final accrual period.
Acquisition Premium
A United States Holder that purchases a Note for an amount
less than or equal to the sum of all amounts payable on the Note
after the purchase date other than payments of qualified stated
interest but in excess of its adjusted issue price (as determined
above under "Original Issue Discount - General") (any such excess
being "acquisition premium") and that does not make the election
described below under "Election to Treat All Interest as Original
Issue Discount" is permitted to reduce the daily portions of OID
by a fraction, the numerator of which is the excess of the United
States Holder's adjusted basis in the Note immediately after its
purchase over the adjusted issue price of the Note, and the
denominator of which is the excess of the sum of all amounts
payable on the Note after the purchase date, other than payments
of qualified stated interest, over the Note's adjusted issue
price.
Market Discount
A Note, other than a short-term Note, will be treated as
purchased at a market discount (a "Market Discount Note") if (i)
the amount for which a United States Holder purchased the Note is
less than the Note's issue price (as determined above under
"Original Issue Discount - General") and (ii) the Note's stated
redemption price at maturity or, in the case of a Discount Note,
the Note's "revised issue price", exceeds the amount for which
the United States Holder purchased the Note by at least 1/4 of 1
percent of such Note's stated redemption price at maturity or
revised issue price, respectively, multiplied by the number of
complete years to the Note's maturity. If such excess is not
sufficient to cause the Note to be a Market Discount Note, then
such excess constitutes "de minimis market discount" and such
Note is not subject to the rules discussed in the following
paragraphs. The Code provides that, for these purposes, the
"revised issue price" of a Note generally equals its issue price,
increased by the amount of any OID that has accrued on the Note.
Any gain recognized on the maturity or disposition of a
Market Discount Note will be treated as ordinary income to the
extent that such gain does not exceed the accrued market discount
on such Note. Alternatively, a United States Holder of a Market
Discount Note may elect to include market discount in income
currently over the life of the Note. Such an election shall apply
to all debt instruments with market discount acquired by the
electing United States Holder on or after the first day of the
first taxable year to which the election applies. This election
may not be revoked without the consent of the Service.
Market discount on a Market Discount Note will accrue on a
straight-line basis unless the United States Holder elects to
accrue such market discount on a constant-yield method. Such an
election shall apply only to the Note with respect to which it is
made and may not be revoked. A United States Holder of a Market
Discount Note that does not elect to include market discount in
income currently generally will be required to defer deductions
for interest on borrowings allocable to such Note in an amount
not exceeding the accrued market discount on such Note until the
maturity or disposition of such Note.
Pre-Issuance Accrued Interest
If (i) a portion of the initial purchase price of a Note is
attributable to pre-issuance accrued interest, (ii) the first
stated interest payment on the Note is to be made within one year
of the Note's issue date and (iii) the payment will equal or
exceed the amount of pre-issuance accrued interest, then the
United States Holder may elect to decrease the issue price of the
Note by the amount of pre-issuance accrued interest. In that
event, a portion of the first stated interest payment will be
treated as a return of the excluded pre-issuance accrued interest
and not as an amount payable on the Note.
Notes Subject to Contingencies Including Optional Redemption
If a Note provides for an alternative payment schedule or
schedules applicable upon the occurrence of a contingency or
contingencies (other than a remote or incidental contingency),
whether such contingency relates to payments of interest or of
principal, if the timing and amounts of the payments that
comprise each payment schedule are known as of the issue date and
if one of such schedules is significantly more likely than not to
occur, the yield and maturity of the Note are determined by
assuming that the payments will be made according to that payment
schedule. If there is no single payment schedule that is
significantly more likely than not to occur (other than because
of a mandatory sinking fund), the Note will be subject to the
general rules that govern contingent payment obligations. These
rules will be discussed in an applicable Pricing Supplement.
Notwithstanding the general rules for determining yield and
maturity in the case of Notes subject to contingencies, if
Capital Corporation or the Holder has an unconditional option or
options that, if exercised, would require payments to be made on
the Note under an alternative payment schedule or schedules, then
(i) in the case of an option or options of Capital Corporation,
Capital Corporation will be deemed to exercise or not exercise an
option or combination of options in the manner that minimizes the
yield on the Note and (ii) in the case of an option or options of
the Holder, the Holder will be deemed to exercise or not exercise
an option or combination of options in the manner that maximizes
the yield on the Note. If both Capital Corporation and the Holder
have options described in the preceding sentence, those rules
apply to such options in the order in which they may be
exercised. For purposes of those calculations, the yield on the
Note is determined by using any date on which the Note may be
redeemed or repurchased as the maturity date and the amount
payable on such date in accordance with the terms of the Note as
the principal amount payable at maturity.
If a contingency (including the exercise of an option)
actually occurs or does not occur contrary to an assumption made
according to the above rules (a "change in circumstances") then,
except to the extent that a portion of the Note is repaid as a
result of the change in circumstances and solely for purposes of
determining the amount and accrual of OID, the yield and maturity
of the Note are redetermined by treating the Note as having been
retired and reissued on the date of the change in circumstances
for an amount equal to the Note's adjusted issue price on that
date.
Election to Treat All Interest as Original Issue Discount
A United States Holder may elect to include in gross income
all interest that accrues on a Note using the constant-yield
method described above under the heading "Original Issue Discount
- - General", with the modifications described below. For purposes
of this election, interest includes stated interest, OID, de
minimis original issue discount, market discount, de minimis
market discount and unstated interest, as adjusted by any
amortizable bond premium (described below under "Notes Purchased
at a Premium") or acquisition premium.
In applying the constant-yield method to a Note with respect
to which this election has been made, the issue price of the Note
will equal its cost to the electing United States Holder, the
issue date of the Note will be the date of its acquisition by the
electing United States Holder, and no payments on the Note will
be treated as payments of qualified stated interest. This
election will generally apply only to the Note with respect to
which it is made and may not be revoked without the consent of
the Service. If this election is made with respect to a Note with
amortizable bond premium, then the electing United States Holder
will be deemed to have elected to apply amortizable bond premium
against interest with respect to all debt instruments with
amortizable bond premium (other than debt instruments the
interest on which is excludible from gross income) held by the
electing United States Holder as of the beginning of the taxable
year in which the Note with respect to which the election is made
is acquired or thereafter acquired. The deemed election with
respect to amortizable bond premium may not be revoked without
the consent of the Service.
If the election to apply the constant-yield method to all
interest on a Note is made with respect to a Market Discount
Note, the electing United States Holder will be treated as having
made the election discussed above under "Original Issue Discount
- - Market Discount" to include market discount in income currently
over the life of all debt instruments held or thereafter acquired
by such United States Holder.
Variable Rate Notes
A "Variable Rate Note" is a Note that: (i) has an issue
price that does not exceed the total noncontingent principal
payments by more than the lesser of (1) the product of (x) the
total noncontingent principal payments, (y) the number of
complete years to maturity from the issue date and (z) .015, or
(2) 15 percent of the total noncontingent principal payments, and
(ii) does not provide for stated interest other than stated
interest compounded or paid at least annually at (1) one or more
"qualified floating rates," (2) a single fixed rate and one or
more qualified floating rates, (3) a single "objective rate" or
(4) a single fixed rate and a single objective rate that is a
"qualified inverse floating rate".
A qualified floating rate or objective rate in effect at any
time during the term of the instrument must be set at a "current
value" of that rate. A "current value" of a rate is the value of
the rate on any day that is no earlier than 3 months prior to the
first day on which that value is in effect and no later than 1
year following that first day.
A variable rate is a "qualified floating rate" if (i)
variations in the value of the rate can reasonably be expected to
measure contemporaneous variations in the cost of newly borrowed
funds in the currency in which the Note is denominated or (ii) it
is equal to the product of such a rate and either (a) a fixed
multiple that is greater than 0.65 but not more than 1.35, or (b)
a fixed multiple greater than 0.65 but not more than 1.35,
increased or decreased by a fixed rate. If a Note provided for
two or more qualified floating rates that (i) are within 0.25
percent of each other on the issue date or (ii) can reasonably be
expected to have approximately the same values throughout the
term of the Note, the qualified floating rates together
constitute a single qualified floating rate. A rate is not a
qualified floating rate, however, if the rate is subject to
certain restrictions (including caps, floors, governors, or other
similar restrictions) unless such restrictions are fixed
throughout the term of the Note or are not reasonably expected to
significantly affect the yield on the Note.
An "objective rate" is a rate, other than a qualified
floating rate, that is determined using a single, fixed formula
and that is based on objective financial or economic information
that is not within the control of or unique to the circumstances
of the issuer or a related party. A variable rate is not an
objective rate, however, if it is reasonably expected that the
average value of the rate during the first half of the 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 Note's term. An objective rate is a "qualified inverse
floating rate" if (i) the rate is equal to a fixed rate minus a
qualified floating rate and (ii) the variations in the rate can
reasonably be expected to inversely reflect contemporaneous
variations in the cost of newly borrowed funds. If interest on a
Note is stated at a fixed rate for an initial period of one year
or less followed by either a qualified floating rate or an
objective rate for a subsequent period and (i) the fixed rate and
the qualified floating rate or objective rate have values on the
issue date of the Note that do not differ by more than 0.25
percent or (ii) the value of the qualified floating rate or
objective rate is intended to approximate the fixed rate, the
fixed rate and the qualified floating rate or the objective rate
constitute a single qualified floating rate or objective rate.
Under these rules, Commercial Paper Rate Notes, LIBOR Notes and
Treasury Rate Notes will generally be treated as Variable Rate
Notes.
In general, if a Variable Rate Note provides for stated
interest at a single qualified floating rate or objective rate,
all stated interest on the Note is qualified stated interest and
the amount of OID, 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.
If a Variable Rate Note does not provide for stated interest
at a single qualified floating rate or single objective rate and
also does not provide for interest payable at a fixed rate (other
than at a single fixed rate for an initial period) the amount of
interest and OID accruals on the Note are generally determined by
(i) determining a fixed rate substitute for each variable rate
provided under the Variable Rate Note (generally, the value of
each variable rate as of the issue date or, in the case of an
objective rate that is not a qualified inverse floating rate, a
rate that reflects the reasonably expected yield on the Note),
(ii) constructing the equivalent fixed rate debt instrument
(using the fixed rate substitutes described above), (iii)
determining the amount of qualified stated interest and OID with
respect to the equivalent fixed rate debt instrument, and (iv)
making the appropriate adjustments for actual variable rates
during the applicable accrual period.
If a Variable Rate Note provides for stated interest either
at one or more qualified floating rates or at a qualified inverse
floating rate, and in addition provides for stated interest at a
single fixed rate (other than at a single fixed rate for an
initial period), the amount of interest and OID accruals are
determined as in the immediately preceding paragraph with the
modification that the Variable Rate Note is treated, for purposes
of the first three steps of the determination, as if it provided
for a qualified floating rate (or a qualified inverse floating
rate, as the case may be) rather than the fixed rate. The
qualified floating rate (or qualified inverse floating rate)
replacing the fixed rate must be such that the fair market value
of the Variable Rate Note as of the issue date would be
approximately the same as the fair market value of an otherwise
identical debt instrument that provides for the qualified
floating rate (or qualified inverse floating rate) rather than
the fixed rate.
Short-Term Notes
In general, an individual or other cash basis United States
Holder of a short-term Note is not required to accrue OID (as
specially defined below for the purposes of this paragraph) for
United States federal income tax purposes unless it elects to do
so (but may be required to include any stated interest in income
as the interest is received). Accrual basis United States Holders
and certain other United States Holders, including banks,
regulated investment companies, dealers in securities, common
trust funds, United States Holders who hold Notes as part of
certain identified hedging transactions, certain pass-through
entities and cash basis United States Holders who so elect, are
required to accrue OID on short-term Notes on either a straight-
line basis or under the constant-yield method (based on daily
compounding), at the election of the United States Holder. In the
case of a United States Holder not required and not electing to
include OID in income currently, any gain realized on the sale or
retirement of the short-term Note will be ordinary income to the
extent of the OID accrued on a straight-line basis (unless an
election is made to accrue the OID under the constant-yield
method) through the date of sale or retirement. United States
Holders who are not required and do not elect to accrue OID on
short-term Notes will be required to defer deductions for
interest on borrowings allocable to short-term Notes in an amount
not exceeding the deferred income until the deferred income is
realized.
For purposes of determining the amount of OID subject to
these rules, all interest payments on a short-term Note,
including stated interest, are included in the short-term Note's
stated redemption price at maturity.
Foreign Currency Discount Notes
OID for any accrual period on a Discount Note that is a
Foreign Currency Note will be determined in the foreign currency
and then translated into U.S. dollars in the same manner as
stated interest accrued by an accrual basis United States Holder,
as described under "Payments of Interest". Upon receipt of an
amount attributable to OID (whether in connection with a payment
of interest or the sale or retirement of a Note), a United States
Holder may recognize ordinary income or loss.
Notes Purchased at a Premium
A United States Holder that purchases a Note for an amount
in excess of its principal amount may elect to treat such excess
as "amortizable bond premium", in which case the amount required
to be included in the United States Holder's income each year
with respect to interest on the Note will be reduced by the
amount of amortizable bond premium allocable (based on the Note's
yield to maturity) to such year. In the case of a Foreign
Currency Note, amortizable bond premium will be computed in units
of foreign currency, and amortizable bond premium will reduce
interest income in units of the foreign currency. At the time
amortized bond premium offsets interest income, exchange gain or
loss (taxable as ordinary income or loss) is realized measured by
the difference between exchange rates at that time and at the
time of the acquisition of the Notes. Any election to amortize
bond premium shall apply to all bonds (other than bonds the
interest on which is excludible from gross income) held by the
United States Holder at the beginning of the first taxable year
to which the election applies or thereafter acquired by the
United States Holder, and is irrevocable without the consent of
the Service. See also "Original Issue Discount - Election to
Treat All Interest as Original Issue Discount".
Purchase, Sale and Retirement of the Notes
A United States Holder's tax basis in a Note will generally
be its U.S. dollar cost (as defined below), increased by the
amount of any OID or market discount included in the United
States Holder's income with respect to the Note and the amount,
if any, of income attributable to de minimis original issue
discount and de minimis market discount included in the United
States Holder's income with respect to the Note, and reduced by
(i) the amount of any payments that are not qualified stated
interest payments, and (ii) the amount of any amortizable bond
premium applied to reduce interest on the Note. The U.S. dollar
cost of a Note purchased with a foreign currency will generally
be the U.S. dollar value of the purchase price on the date of
purchase or, in the case of Notes traded on an established
securities market, as defined in the applicable Treasury
Regulations, that are purchased by a cash basis United States
Holder (or an accrual basis United States Holder that so elects),
on the settlement date for the purchase.
A United States Holder will generally recognize gain or loss
on the sale or retirement of a Note equal to the difference
between the amount realized on the sale or retirement and the tax
basis of the Note. The amount realized on a sale or retirement
for an amount in foreign currency will be the U.S. dollar value
of such amount on (i) the date payment is received in the case of
a cash basis United States Holder, (ii) the date of disposition
in the case of an accrual basis United States Holder or (iii) in
the case of Notes traded on an established securities market, as
defined in the applicable Treasury Regulations, sold by a cash
basis United States Holder (or an accrual basis United States
Holder that so elects), on the settlement date for the sale.
Except to the extent described above under "Original Issue
Discount - Short-Term Notes" or "Original Issue Discount - Market
Discount", described in the next succeeding paragraph,
attributable to accrued but unpaid interest or subject to the
general rules governing contingent payment obligations, gain or
loss recognized on the sale or retirement of a Note will be
capital gain or loss and will be long-term capital gain or loss
if the Note was held for more than one year.
Gain or loss recognized by a United States Holder on the
sale or retirement of a Note that is attributable to changes in
exchange rates will be treated as ordinary income or loss.
However, exchange gain or loss is taken into account only to the
extent of total gain or loss realized on the transaction.
Exchange of Amounts in Other Than U.S. Dollars
Foreign currency received as interest on a Note or on the
sale or retirement of a Note will have a tax basis equal to its
U.S. dollar value at the time such interest is received or at the
time of such sale or retirement. Foreign currency that is
purchased will generally have a tax basis equal to the U.S.
dollar value of the foreign currency on the date of purchase. Any
gain or loss recognized on a sale or other disposition of a
foreign currency (including its use to purchase Notes or upon
exchange for U.S. dollars) will be ordinary income or loss.
Indexed Notes
The applicable Pricing Supplement will contain a discussion
of any special United States federal income tax rules with
respect to Notes that are not subject to the rules governing
Variable Rate Notes payments on which are determined by reference
to any index and other notes that are subject to the general
rules governing contingent payment obligations.
United States Alien Holders
For purposes of this discussion, a "United States Alien
Holder" is any holder of a Note who is (i) a nonresident alien
individual or (ii) a foreign corporation, partnership or estate
or trust, in either case not subject to United States federal
income tax on a net income basis in respect of income or gain
from a Note. This discussion assumes that the Note is not subject
to the rules of Section 871(h)(4)(A) of the Code (relating to
interest payments that are determined by reference to the income,
profits, changes in the value of property or other attributes of
the debtor or a related party).
Under present United States federal income and estate tax
law, and subject to the discussion of backup withholding below:
(i) payments of principal, premium (if any) and interest,
including OID, by Capital Corporation or any of its paying agents
to any holder of a Note that is a United States Alien Holder will
not be subject to United States federal withholding tax if, in
the case of interest or OID, (a) the beneficial owner of the Note
does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of Capital
Corporation entitled to vote, (b) the beneficial owner of the
Note is not a controlled foreign corporation that is related to
Capital Corporation through stock ownership, and (c) either (A)
the beneficial owner of the Note certifies to Capital Corporation
or its agent, under penalties of perjury, that it is not a United
States Holder and provides its name and address or (B) a
securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary
course of its trade or business (a "financial institution") and
holds the Note certifies to Capital Corporation or its agent
under penalties of perjury that such statement has been received
from the beneficial owner by it or by a financial institution
between it and the beneficial owner and furnishes the payor with
a copy thereof;
(ii) a United States Alien Holder of a Note will not be
subject to United States federal withholding tax on any gain
realized on the sale or exchange of a Note; and
(iii) a Note held by an individual who at death is not a
citizen or resident of the United States will not be includible
in the individual's gross estate for purposes of the United
States federal estate tax as a result of the individual's death
if (a) the individual did not actually or constructively own 10%
or more of the total combined voting power of all classes of
stock of Capital Corporation entitled to vote and (b) the income
on the Note would not have been effectively connected with a
United States trade or business of the individual at the
individual's death.
Recently proposed Internal Revenue Service Treasury
regulations (the "Proposed Regulations") would provide
alternative methods for satisfying the certification requirement
described in clause (i) (c) above. The Proposed Regulations also
would require, in the case of Notes held by a foreign
partnership, that (x) the certification described in clause (i)
(c) above be provided by the partners rather than by the foreign
partnership and (y) the partnership provide certain information,
including a United States taxpayer identification number. A look-
through rule would apply in the case of tiered foreign
partnerships. The Proposed Regulations are proposed to be
effective for payments made after December 31, 1997. 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.
Backup Withholding and Information Reporting
United States Holders
In general, information reporting requirements will apply to
payments of principal, any premium and interest on a Note and the
proceeds of the sale of a Note before maturity within the United
States to, and to the accrual of OID on a Discount Note with
respect to, non-corporate United States Holders, and "backup
withholding" at a rate of 31% will apply to such payments and to
payments of OID if the United States Holder fails to provide an
accurate taxpayer identification number or is notified by the
Internal Revenue Service that it has failed to report all
interest and dividends required to be shown on its federal income
tax returns.
United States Alien Holders
Under current law, information reporting on Internal Revenue
Service Form 1099 and backup withholding will not apply to
payments of principal, premium (if any) and interest (including
OID) made by Capital Corporation or a paying agent to a United
States Alien Holder on a Note; provided, the certification
described in clause (i)(c) under "United States Alien Holders"
above is received; and provided further that the payor does not
have actual knowledge that the holder is a United States person.
Capital Corporation or a paying agent, however, may report (on
Internal Revenue Service Form 1042S) payments of interest
(including OID) on Notes. See the discussion above with respect
to the rules under the Proposed Regulations.
Payments of the proceeds from the sale by a United States
Alien Holder of a Note made to or through a foreign office of a
broker will not be subject to information reporting or backup
withholding, except that if the 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 may apply to
such payments. Payments of the proceeds from the sale of a Note
to or through the United States office of a broker is subject to
information reporting and backup withholding unless the holder or
beneficial owner certifies as to its non-United States status or
otherwise establishes an exemption from information reporting and
backup withholding.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis by Capital
Corporation through the Agents, each of which has agreed to use
its reasonable best efforts to solicit offers to purchase the
Notes. Capital Corporation will pay to an Agent a commission of
.125% to .750% of the principal amount of the Notes with a stated
maturity of 30 years or less, depending upon their stated
maturity, sold through such Agent. Commissions with respect to
Notes with stated maturities in excess of 30 years that are sold
through an Agent will be negotiated between Capital Corporation
and such Agent at the time of such sale. Capital Corporation also
reserves the right to sell Notes directly to investors on its own
behalf. No commission will be payable nor will a discount be
allowed on any such sales. Capital Corporation may also sell
Notes at a discount to an Agent, acting as principal, for resale
to one or more purchasers in one or more transactions, including
negotiated transactions, at varying prices related to prevailing
market prices at the time of resale, to be determined by such
Agent, or at a fixed public offering price, or for resale to
certain securities dealers at the offering price set forth on the
cover page of the applicable Pricing Supplement, less a conces
sion, such concession not to be in excess of the discount
received by the Agent from Capital Corporation unless otherwise
specified in the applicable Pricing Supplement. After the initial
public offering of Notes to be resold to one or more purchasers,
the public offering price (in the case of Notes to be resold at a
fixed public offering price), the concession and discount may be
changed. Unless otherwise indicated in the applicable Pricing
Supplement, when acting as principal, each Agent will be
committed to take and pay for its respective principal amount of
the Notes if any are taken by such Agent. Capital Corporation
may, from time to time, sell Notes to or through Agents, other
than those expressly named on the cover of this prospectus supplement,
provided that the same commission rates apply as would apply to
purchases under the Selling Agency Agreement, whether or not
Capital Corporation and such additional Agents have agreed to be
bound by the remainder of the Selling Agency Agreement.
Capital Corporation will have the sole right to accept
offers to purchase Notes and may reject any proposed purchase of
Notes in whole or in part. Each Agent will have the right, in its
discretion reasonably exercised, to reject any offer to purchase
Notes received by it, in whole or in part. Capital Corporation
may replace any of the Agents or appoint additional agents from
time to time.
Each Agent may be deemed to be an "underwriter" within the
meaning of the Securities Act of 1933, as amended ("Securities
Act"). Unless otherwise provided in the applicable Pricing
Supplement, Capital Corporation has agreed to indemnify each
Agent against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments such Agent may
be required to make in respect thereof. Capital Corporation has
agreed to reimburse the Agents for certain of their expenses.
Each Agent may from time to time purchase and sell Notes in
the secondary market, but is not obligated to do so and there can
be no assurance that there will be a secondary market for the
Notes or that there will be liquidity in the secondary market if
one develops. From time to time, each Agent may make a market in
the Notes.
From time to time, each of the Agents has provided
investment banking services to Capital Corporation and/or to SBC,
its subsidiaries and/or affiliates.
In addition to offering Notes as described herein, Debt
Securities which are medium-term notes and which may have terms
substantially similar to the terms of the Notes offered hereby
(but constituting one or more separate series of securities for
purposes of the Indenture) may in the future be offered
concurrently with the offering of the Notes on a continuing basis
outside the United States (as defined under "Description of Debt
Securities-General" in the accompanying Prospectus) by Capital
Corporation pursuant to an agency agreement with one or more
Agents of Capital Corporation. Any Debt Securities so offered and
sold pursuant to such agency agreement may reduce correspondingly
the principal amount of Notes which may be offered by this
Prospectus Supplement and the Prospectus.
EXPERTS
The consolidated financial statements and schedules of SBC
at December 31, 1995 and 1994, and for the years ended December
31, 1995, 1994 and 1993, incorporated by reference in the
accompanying Prospectus have been audited by Ernst & Young LLP,
independent accountants, as set forth in their reports thereon,
which are incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of PAC as of December
31, 1995 and 1994 and for the years ended December 31, 1995, 1994
and 1993, incorporated by reference in the accompanying
Prospectus have been audited by Coopers & Lybrand L.L.P.,
independent accountants. The financial statements audited by
Coopers & Lybrand L.L.P. have been incorporated herein by
reference in reliance upon their report given upon their
authority as experts in accounting and auditing.
No dealer, salesperson or any United States Taxation S-17
other person has been Plan of Distribution S-26
authorized to give any Experts S-27
information or to make any
representations other than Prospectus
those contained in this Available Information
Prospectus Supplement Incorporation of Documents by
(including the accompanying Reference
Pricing Supplement) and the SBC Communications Inc.
accompanying Prospectus in Use of Proceeds
connection with the offer Ratio of Earnings to Fixed
contained in this Prospectus Charges
Supplement (including the Description of Debt Securities
accompanying Pricing Description of Preferred Stock
Supplement) and the Description of Depositary
accompanying Prospectus and, Shares
if given or made, such Description of Common Stock
information or representations Description of Rights
must not be relied upon as Plan of Distribution
having been authorized by Legal Opinions
Capital Corporation, or any Experts
Agent. Neither the delivery of
this Prospectus Supplement
(including the accompanying
Pricing Supplement) and the
accompanying Prospectus nor
any sale made hereunder shall,
under any circumstances,
create an implication that
there has been no change in
the affairs of Capital
Corporation since the dates as
of which information is given
in this Prospectus Supplement
(including the accompanying
Pricing Supplement) and the
accompanying Prospectus. This
Prospectus Supplement
(including the accompanying
Pricing Supplement) and the
accompanying 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 or solicitation is
not qualified to do so or to
any person to whom it is
unlawful to make such offer or
solicitation.
____________________
TABLE OF CONTENTS
Page
Prospectus Supplement
Recent Developments S-2
Use of Proceeds S-2
Description of Medium-Term
Notes S-2
Important Currency
Exchange Information S-14
Foreign Currency Risks S-15
U.S.$1,000,000,000
SBC Communications
Capital Corporation
Medium-Term Notes,
Series E
Due Nine Months or
More From Date of Issue
SBC Communications
Capital Corporation
Salomon Brothers Inc
Merrill Lynch & Co.
Bear, Stearns & Co. Inc.
Prospectus Supplement
Dated September 30, 1996
